Prepared remarks
Welcome to Braze's Fiscal Third Quarter 2026 Earnings Conference Call. My name is Leila, and I will be your operator for today's call. I will now hand it over to Christopher Ferris, Vice President of Braze Investor Relations.
Thank you, operator. Good afternoon, and thank you for joining us today to review Braze's results for the fiscal third quarter 2026. I'm joined by our Co-Founder and Chief Executive Officer, Bill Magnuson, and our Chief Financial Officer, Isabelle Winkles. We announced our results in a press release issued after the market closed today. Please refer to the Investor Relations section of our website at investors.brave.com for more information and a supplemental presentation related to today's earnings announcement. During this call, we will make statements related to our business that are forward-looking under 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 fourth quarter and the fiscal year ended January 31, 2026. The anticipated benefits from and product advancements due to the combination of Braze and ongoing developments in Braze AI technology, 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, including our expectations regarding our profitability framework. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from our expectations and reflect our views only as of today. We assume no obligation to update any such forward-looking statements. For a discussion of the material risks and uncertainties that could affect our actual results, please refer to the risks identified in today's press release and our SEC filings, both available on the Investor Relations section of our website. I'd also like to remind you that today's call will include certain non-GAAP financial measures used by management to evaluate our ongoing operations and to aid investors in further understanding the company's fiscal third quarter 2020 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 should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with U.S. GAAP. And now I'd like to turn the call over to Bill.
Thank you, Chris, and good afternoon, everyone. We're pleased to report strong third quarter results, generating $191 million of revenue, up 25.5% year-over-year and 6% from the prior quarter. We also continue to drive efficiency in our business, improving non-GAAP operating margins by over 400 basis points year-over-year and generating $18 million of free cash flow. We have now delivered 4 straight quarters of non-GAAP operating income and 6 straight quarters of non-GAAP net income, demonstrating our commitment to driving higher profitability while thoughtfully reinvesting in our business with the goal to position Braze as the global standard for omnichannel customer engagement. Our momentum was strong in the quarter as we again realized solid bookings across verticals and geographies. Pipeline generation was solid, indicating continued market demand, while customers continue to adopt more channels and AI solutions, driving optimism as we look ahead to fiscal year 2027. We achieved our strongest quarter of customer additions in 3 years, adding 106 sequentially and 317 year-over-year to 2,528, up 14%. Our large customer additions were also very strong, adding over 2,500,000 plus ARR customers sequentially and 69% year-over-year to 303, up 29%. Recent new business wins and existing customer expansions include CJ AlvYoung, Eventbrite, Goat, Grubhub Seamless, Linkt, Mindbody, nuts.com, Rafiq, RSG Group, GMBH and Vivid seats, along with many others. Competitive takeaways from the legacy Marketing Clouds continue to demonstrate the market's preference for Braze's AI-driven omnichannel customer engagement solution, leveraging first-party data and frontier AI to deliver on modern customer engagement use cases. This quarter, brands across diverse industries and geographies migrated to Braze from legacy platforms, including a global appliance manufacturer, North American financial services firm, Latin American retailer, North American consumer insights platform, sports league in APAC, North American restaurant chain and luxury goods retailer in APAC. These wins validate Braze's ability to offer a unified real-time solution that supports ambitious AI-driven customer engagement strategies. Our comprehensiveness and advanced yet intuitive capabilities are also on display when we compete against less sophisticated point solutions, including recent wins with the travel platform in EMEA, a property finance firm in North America, a resale marketplace in Latin America and a financial services firm in APAC, among many others. As we navigate this dynamic technical and competitive environment, Braze remains forward-looking, rapidly introducing new AI-driven capabilities alongside first-party data activation. By applying state-of-the-art reinforcement learning and generative AI across an ever-evolving array of messaging channels and product interfaces, we help our customers leverage their first-party data to deliver more relevant experiences for their consumers and grow their businesses. This power of AI to build personalized cross-channel campaigns was on display during this year's Cyber Week, running from November 25 to December 1 as marketers increasingly leveraged AI to accelerate campaign creation and improve overall performance. Over the Cyber Week period, Braze delivered 102.5 billion messages with global sending throughput peaking at about 28.5 million messages per minute. During the 4-day period running from Black Friday through Cyber Monday, Braze delivered nearly 60 billion messages with 100% uptime, demonstrating the strength, scale and reliability of our platform. Behind the impressive headline numbers is also a story of increasing sophistication as marketers continue to evolve away from single channel campaigns toward more sophisticated programs, leveraging dynamic data to create and strengthen direct relationships with their customers across a variety of channels. In addition, Braze witnessed the growing use of AI to power operational efficiency and personalization at scale, as brands made extensive use of Braze AI functionality to accelerate campaign creation, improve the relevance of messaging for their customers and elevate their work during a critically busy period. We are pleased to see customers using the full spectrum of Braze AI capabilities including crafting dynamic campaign content using the Braze liquid assistant, accelerating content production using Braze AI-copy and image generation tools, ensuring strong clarity and impact of messaging with Braze AI content quality assurance, and delivering smarter product personalization with AI item recommendations. The increasing sophistication of our customer base and the rapid uptake of AI as a competitive lever affirm the strength of our AI roadmap and the Braze community. Performance during Black Friday and Cyber Monday also reinforced the role of premium messaging channels as key drivers of conversion, retention and high-value engagement. During the Black Friday to Cyber Monday period, Braze orchestrated a 90% increase in SMS and WhatsApp message sends, a 55% increase in content card impressions, and a 32% increase in email messages. The impressive volumes during such a crucial marketing period highlight the growing desire of marketers to diversify their strategies and further personalize their connection with their customers. Overall, the increasing mix of channels used by Braze customers signals that the field of customer engagement is moving up the value curve, supporting the deployment of more complex campaigns and the activation of additional channels and platforms. This pattern is a driver of the vendor consolidation motion that we've highlighted in past earnings. It's a clear signal that Braze is becoming more deeply embedded into our customers' engagement infrastructure, and it highlights the need for further productivity gains and relevance enhancement from Braze AI. Innovation is central to Braze's DNA and its product roadmap. Since we anticipated the massive opportunity presented by the widespread adoption of mobile technology more than a decade ago, we have relentlessly seized this opportunity by developing leading-edge technology to advance the craft of customer engagement. Through AI, we believe these integrations should feel like collaborating with specialists who accelerate and elevate your work, delivering the guidance and output from brand strategies, copywriters, developers, and data analysts to help marketers win the competition for user attention, advocacy, and loyalty. Over time, we aim to help marketers ascend from the mundane task of managing campaigns and instead operate as strategic conductors, building and delivering one-on-one personalized experiences that are impactful for their consumers and that build brand equity through resonance and reciprocal value creation. At our Forge customer conference in late September, we articulated how rapidly these tools and techniques are evolving. Previously, we've used the listen, understand, and act framework to describe the problem space of customer engagement and the flow of our stream processing architecture. Now AI broadens the potential of each of these steps. Listen becomes context as it is enriched with the insights and the comprehensiveness of an AI-enhanced composable data platform. Understand becomes intelligence as products gain the ability to both reason and act with enhanced autonomy. And action expands to interaction as AI systems increase their expressiveness and consumer behaviors evolve, with the real-time feedback loop guiding subsequent interactions delivered as a continuous experience. Let me take a moment to detail this conceptual evolution and explain how Braze is introducing tools to meet this moment. Modern AI is fed by context and enhanced by reasoning. Within Braze, that context is provided by the Braze data platform and enhanced by our native SDKs, partner integrations, robust APIs, reverse ETL capabilities and the recently available Braze MCP server. The intelligence phase brings the design advantages of composability beyond just data, offering a full spectrum of composable intelligence, notably including the agent console, which enhances customer journeys, enriches data, and accelerates workflows. Agent console allows marketers to create custom agents that can be configured within Braze and deployed in both Canvas, our no-code visual development environment, and Braze catalogs to process, enrich, and reason about brand data and customer behavior at scale and speed. We have dozens of customers using the agent console to take unstructured data, including natural language from customer conversationsand respond interactively to maximize the value that they deliver in the most important moments for their consumers. We recently partnered with Aeroflow Health, a leading medical equipment and supplies company to optimize their SMS reordering process for breast pump supplies. After seeing the flurry of Braze AI product announcements at Forge, they rapidly experimented with the Braze AI agent console and Canvas contact steps to enable a sophisticated SMS conversation that understood natural language in real-time and processed orders automatically. The program is moving from testing to production after delivering a large conversion lift that could drive tens of thousands of projected additional annual orders. As marketers continue to experiment and innovate with these new features, the Braze operator also announced at Forge stands ready to speed their education and enhance their productivity. Operator streamlines existing work by accelerating campaign creation, analyzing reports, uncovering data insights, automating quality assurance tasks and getting quick answers from documentation and source code through our intelligent assistant. Hundreds of our customers are enabled on the operator and experiencing early success. We introduced the Aeroflow Health AI Decisioning Studio developed from the Offerfit acquisition, which deploys AI decisioning agents to continuously experiment and personalize any aspect of customer engagement using insights and contacts from first-party data. Recently, we partnered with a large U.S. e-commerce brand to push their prior personalization strategy to new heights, using Braze AI Decisioning Studio with reinforcement learning agents that independently experiment and identify optimal actions, they delivered deeper one-on-one personalization at incredible scale, managing approximately 5.1 Quintillion permutations to select the optimal action for millions of their customers. The results generated a rapid and meaningful uplift in customer engagement, including a 12% uplift in app downloads and a 15% increase in conversion to premium memberships when compared to their prior strategy. The collaboration has driven such tremendous value in consumer insights that the customer is rethinking their entire lifecycle marketing approach, transitioning the job of relevance optimization from manual A/B testing to AI-driven one-on-one decisioning, moving beyond merely deploying the best averages and instead relying on modern reinforcement learning to maximize resonance with every individual. Finally, I'd like to highlight our first-of-its-kind SDK support for native apps and ChatGPT that we announced in mid-October. Building on our deep experience from growing up in the mobile app ecosystem, this integration for ChatGPT apps will allow marketers to ensure that sophisticated customer engagement strategies are enabled in their new ChatGPT apps from the earliest phases of development. Brands will be able to continue the conversation with users of their ChatGPT native apps on other channels while also using Braze's in-product channels and personalization features to enhance their consumer-facing chat-type app interfaces. What's even more remarkable is the speed at which the Braze engineering team was able to release this integration, launching a fully featured SDK just 2 weeks after the announcement of the ChatGPT app programs. This was enabled by our deep experience building SDKs for native app development and our proprietary architecture, which allows for rapid support of new platforms and channels as technology and consumer behaviors evolve in tandem. Combined with our composable data and intelligence capabilities, we are seeing the best of Braze's foundations combined with the leading edge of AI. I'll conclude by reiterating our commitment to driving long-term growth, efficiency, and profitability in our business. Thank you for your interest and support of Braze. And now I'll turn the call over to Isabelle.
Thank you, Bill, and thank you, everyone, for joining us today. As Bill stated, we reported a strong third quarter with revenue increasing 25.5% year-over-year to $191 million, driven by a combination of existing customer contract expansions, renewals, and new business. Braze AI Decisioning Studio, formerly known as Offerfit, contributed $4.8 million of revenue in the quarter. This implies an organic revenue growth rate of 22.3% year-over-year, which represents the second sequential quarter of organic revenue growth acceleration. Subscription revenue remains the primary component of our total top line, contributing 95% of our third-quarter revenue, while the remaining 5% represents a combination of recurring professional services and one-time configuration and onboarding fees. Total customer count increased 14% year-over-year to 2,528 customers as of October 31, 2025, up 317 from the same period last year and up 106 from the prior quarter. This sequential growth reflects the largest quarter-over-quarter increase in customer count since the third quarter of fiscal year 2023. Our total number of large customers, which we define as those spending at least $500,000 annually grew 29% year-over-year to 303, and as of October 31, 2025, these customers contributed 63% to our total ARR compared to a 61% contribution as of the same quarter last year. Measured across all customers, dollar-based net retention was 108%, and while dollar-based net retention for our large customers was 110%. Expansion was again broadly distributed across industries and geographic regions. Revenue outside the U.S. contributed 45% of our total revenue in the third quarter, in line with the second quarter of this year and the prior year's quarter. In quarter, organic dollar-based net retention increased for the second straight quarter to over 107% and slightly above our in-quarter organic dollar-based net retention in Q2 of this year. We continue to observe stabilization in this metric as we realize the benefits of our investments to moderate downsell activity. In the third quarter, our total remaining performance obligation was $891 million, up 24% year-over-year and up 3% sequentially. Current RPO was $573 million, up 25% year-over-year and up 3% 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 $132 million, representing a non-GAAP gross margin of 69.1% compared to a non-GAAP gross profit of $107 million and non-GAAP gross margin of 70.5% in the third quarter of last year. The decrease in year-over-year gross margin was driven primarily by higher premium messaging volume and hosting costs, partially offset by improved efficiencies in personnel costs. Non-GAAP sales and marketing expenses were $77 million or 40% of revenue compared to $65 million or 43% of revenue in the prior year quarter. The dollar increase reflects our year-over-year investments in headcount costs to support our ongoing growth in global expansion, while the improved efficiency reflects our disciplined approach to investment as we continue to scale and expand the business. Non-GAAP R&D expense was $28 million or 15% of revenue compared to $22 million or 15% of revenue in the prior year quarter. The dollar increase was primarily driven by increased headcount costs to support the expansion of our existing offerings as well as to develop new products and features to drive growth. Our R&D expenditures reflect our intentional yet disciplined technology investment strategy and remain in line with our long-term non-GAAP R&D percent of revenue target of 13% to 15%. Non-GAAP G&A expense was $22 million or 12% of revenue compared to $22 million or 15% of revenue in the prior year quarter. The improved efficiency reflects increasing scaling across public company expenses and the benefit of leveraging strategic locations for headcount expansion. Non-GAAP operating income was $5 million or 2.7% of revenue compared to a non-GAAP operating loss of $2 million or negative 1.4% of revenue in the prior year quarter. Non-GAAP net income attributable to Braze shareholders in the quarter was $7 million or $0.06 per share compared to $2 million or $0.02 per share in the prior year quarter. Now turning to the balance sheet and cash flow statement. We ended the quarter with approximately $387 million in cash, cash equivalents, restricted cash and marketable securities. Cash provided by operations during the quarter was $21 million compared to cash used in operations of $11 million in the prior year quarter, including the cash impact of capitalized costs. Free cash flow in the quarter was $18 million compared to a negative free cash flow of $14 million in the prior year quarter. 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. For the fourth quarter of fiscal 2026, we expect revenue to be in the range of $197.5 million to $198.5 million, which represents a year-over-year growth rate of approximately 23% at the midpoint. While we are not providing specific gross margin guidance, as a reminder, we expect higher seasonal activity during Q4 will impact gross margins consistent with historical patterns. Fourth quarter non-GAAP operating income is expected to be in the range of $12 million to $13 million. At the midpoint, this implies a non-GAAP operating margin of approximately 6%. Fourth quarter non-GAAP net income is expected to be $15 million to $16 million and fourth quarter non-GAAP net income per share in the range of $0.13 to $0.14 per share based on approximately 113 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 $730.5 million to $731.5 million, which represents a year-over-year growth rate of approximately 23% at the midpoint. Consistent with the commentary we provided on prior earnings calls, we expect Braze AI Decisioning Studio to contribute approximately 2 percentage points to year-over-year revenue growth for the full fiscal year. Fiscal year 2026 non-GAAP operating income is expected to be in the range of $26 million to $27 million. At the midpoint, this implies a non-GAAP operating margin of 3.5%, roughly a 350 basis point improvement versus fiscal year 2025. Non-GAAP net income for the same period is expected to be in the range of $46 million to $47 million and net income per share is expected to be $0.42 to $0.43 per share based on a full year weighted average diluted share count of approximately 110 million shares. While we will provide more formal guidance for fiscal year 2027 in March of next year, we expect to return to the profitability framework outlined at our last Investor Day, targeting a non-GAAP operating income margin of 8% for fiscal year 2027. It's an exciting time at Braze as our AI-driven solutions fundamentally rewrite the rules of customer engagement. We remain committed to offering industry-leading customer engagement solutions and driving product innovation as we execute on our long-term financial goals. And now we'll open the call for questions. Operator, please begin the Q&A.
Questions and answers
Your first question will come from Ryan MacWilliams with Wells Fargo.
Bill, glad to hear about the Braze healthcare customer who used Braze agent console to build an AI agent to chat with our customers. It's almost a customer service use case from Braze interesting we'll love to hear your view on what are some of the reasons Braze might be an easier starting point for organizations when building new AI use cases.
I think it's a great question and a great example to ask it about because that use case was integrated directly into Canvas. And what I didn't share in the prepared remarks is actually that the first prototype version of it was made by that customer while they were at the gate, waiting for their flight to leave from Forge. The agility that you get out of being able to deploy an already purpose-built agent framework into an engine like Canvas that allows you to leverage all of the interaction support that's already there, the massive amount of first-party data that's at your fingertips, already in that environment. I mentioned Canvas context, which is a feature that we launched earlier this year in anticipation of continuing to have these units of intelligence get integrated into more parts of Canvas in order to provide the right logic or more enhanced personalization, things where conditional logic is able to become reasoning and therefore, able to respond to the unstructured data or all of the unpredictability of humans as they're interacting in these complex flows. This is a use case where I think a lot like we've spoken about in the past, this would have become a customer support interaction, but actually because the product is able to intuit what the customer wants through or interpret what the customer wants, through the agent that has been configured to understand that business problem and fed with the right context and first-party data, which, of course, we make extremely easy because of how the agent console plug into both Braze catalogs and Braze Canvas, you're able to deploy these and test them against business as usual. This was a great example where they already had a solution up and running. They incorporated new intelligence into an alternative solution, you run that in a head-to-head, Canvas, of course, already has the automation for the as well as all the built-in reporting to track those conversions to be able to know exactly what uplift you're getting and then that, of course, drives the conviction to be able to promote these firm experiments into production. And it's great to see all of that already happening from on a rapid timeline since the launch of agent console at Forge.
And then for Isabelle, it seems like a number of your key metrics improved in the quarter, and your Q4 guide seems stronger than historical. I'd love if you could break down some of the components of the drivers of these improving trends.
Yes. A lot of these things have been in progress for some time as we think about ongoing productivity enhancements that have occurred within the sales organization, and we've been seeing that over the last several quarters. And then the efforts that we've had to mitigate downsell and churn have been exciting to see come to fruition. These have combined together to enable us to retain more dollars and then go out and continue to sell more effectively and efficiently. We're really excited about the momentum that we're seeing in the business, and that's playing into our ability to overachieve the numbers that we guided for Q3 and then provide the guide that we did for Q4.
Your next question will come from Raimo Lenschow with Barclays.
Bill, you talked earlier about the growing momentum, especially on the legacy side. Is there anything in the market specifically that you would attribute that to? So is it like AI adoption and the need for a more modern platform? Is it getting to the end of life from a technical perspective and hence, more stuff is happening? Or what's driving that momentum there?
Yes. I would say as we look forward, one of the things that you latched on to is that I do think this is a moment in history in our category where in the startup landscape, we're seeing consolidation and capitulation happening with more subscale or point solutions or regional players. The enterprise competitive set is distracted and stagnating in many ways and I think we see that the broader ecosystem sees it. And that means that just the awareness of Braze, the differentiation, the desire and optimism around investing in a Braze practice, investing in Braze's technology, I think increasingly stands alone amongst that competitive landscape because we combine both the scale of being a public company operating at the level of R&D investment that we are, along with the agility that we're demonstrating through being on the leading edge of new AI innovation. Our recently launched ChatGPT native app SDK is another great testament to that, which not only was the first SDK out of the gate on that, just 2 weeks after they announced it. But here we are many weeks later, and it's still the only one. I think when you broadly look across the customer engagement landscape, Braze continues to stand out for our committed investment, our leadership in the space. And we've spoken about a lot of the things in the demand environment that have caused that enterprise replacement cycle to be slow over the last couple of years. That switching costs are still costs, and it's been hard for a lot of brands to extend their planning horizon out while they've been focused so much on profitability over growth and a lot of the other things that a lot of people are seeing in the broader demand environment, but we're really optimistic about where we're at from a competitive positioning standpoint. I think our customers are seeing that as well. More and more of the conversations that we have that are driving that enterprise replacement cycle are a question of when they're no longer if. It's still a transition for enterprise brands to make, but it's one that I think we're very prepared to continue to invest to accelerate that share gain, and we're excited about what that means for our long-term positioning in the market.
Okay. Perfect. And then one for Isabelle regarding the NRR, which we know is lagging and came in at the same level as we saw in Q2. Can you speak to how you view this? I remember last quarter you mentioned that things were improving intra-quarter. What were the factors influencing this quarter?
Yes, absolutely. So in my prepared remarks, I actually continued at the same disclosure that we provided last quarter. We are providing the in-quarter organic dollar-based net retention and indicated that continues to go up. We talked about in Q1, it was a little bit below 107%. Q2 was a little bit above 107%. It continues on that trajectory in the 107% range, but a little bit above the Q2 number. We're really excited to see the stabilization in that metric over the last 3 quarters.
Your next question will come from Gabriela Borges with Goldman Sachs.
For Bill and Isabelle. So you gave us the 2 points of contribution from the Decisioning Studio. I'd like to get your thoughts broadly on how you think AI can impact the growth algorithm of your business.
So when we think about the monetization of AI, and we've talked about this a little bit over the last couple of quarters as AI has just been introduced more generally from a monetization standpoint. We think about it in 2 buckets. So leaving aside Decisioning Studio, which obviously we're directly monetizing on a use-case basis today. There are sort of 2 other flavors of AI that live in the tool. One is AI that is generally helping our users, our customers with the overall workflow and things that you invoke kind of once and then allow for kind of a broad-scale deployment of a particular canvas or campaign or content that doesn't really weigh on our own cost structure in the same way as things that invoke AI sort of on a repeated basis that are on a one-at-a-time in real time, always on function. So the things that are just kind of invoked occasionally for kind of large-scale deployment occasionally, that we would sort of include in the platform and largely not charge for those on an indication basis. The things that are kind of operating one at a time in real time, we anticipate putting those into the credit framework, and thus charging customers as they invoke the LLM usage, which will therefore have some impact on our cost structure over time. That's how we plan to incorporate that. We're not there yet, and so that is potential upside as we include that in the credit portfolio.
That makes sense. The follow-up is for Bill. So with respect to competition, I'm curious if you see your customers building bespoke agent tech stacks. I'm not talking about live coding, but something more sophisticated that sits next to you or adjacent to Braze such that you think, well, really that functionality should be built in Braze over time. I'm curious if you're seeing that as a dynamic in your customer base.
Yes. So high level, the composability in the design of Braze has led our customers to build and develop systems that enrich either data inputs to Braze, provide maybe more bespoke orchestration signals, do deeper content personalization, et cetera, and building those alongside and then integrating them with Braze. We specifically designed all of our API layers to be able to have flexibility with respect to different layers of abstraction, different separation responsibilities designs, which are great for engineering teams that are trying to maintain control or where they have ownership or responsibility for certain signals that are important in the flow of timing, orchestration, personalization, or what have you. But we want to give marketers the experimentation and agility that only the Braze platform can really provide through the dashboard. By bringing those things together, we actually see that some of our most sophisticated customers deploy side by side. Now the other thing that's happened alongside that is that the Braze platform continues to build more powerful and generalized solutions to a lot of these problems. I think item recommendations is a great example of this, where if you go back to Braze 7 years ago, we had robust integrations with either personalization platforms like AWS personalized, or we would do direct calls to web services that our customers would set up in order to provide recommendations. As the state-of-the-art and recommendation systems kept getting better, we were able to provide an offering that was both generally powerful so that we could sell it across our diverse customer base but also would consistently win head-to-head with the bespoke in-house systems that were built by those engineering teams and, of course, have the added benefit of not needing to manage those systems and keep those services up and be able to have them withstand the incredible load that happens when you run a high-speed Braze campaign. Over time, and we've spoken about this on earnings calls in the past as well, we were able to upgrade the underlying technology under those item recommendations. Today, there are different flavors of item recommendations available in Braze. Some of them use transformer architectures, as well. So when we look at decisioning and when we look at the integration of agentic decision-making, we see a similar dynamic playing out. We already have examples in the customer base where customers that we're working on various forms of decisioning systems, and they are now deploying Decisioning Studio Pro in place of that because the total cost of ownership and the flexibility and the power of Decisioning Studio Pro is a purpose-built system with customizability and the forward deployed engineering model is able to provide and beat those in-house offerings. Head-to-head both for performance and for total cost of ownership. There is a lot of interplay with the use of agents and being able to integrate them into different parts of either the data enrichment and data insight generation flow as well as within canvases, and of course, the way that we are designing the agent console allows you to bring your own underlying LM into the equation. We view that as a very positive setup because it allows for Braze to be able to charge for the high margin, higher sophistication and orchestration side, and customers are able to govern and manage the cost of their LM indications within their own infrastructure. We've done a lot over the years and especially in the intelligence space, which is an area where you tend to see bespoke development racing out in front, as engineering teams jump on new technologies and try to build for the bespoke nature of their problem. As we continue to build more generalized, powerful, flexible solutions for our customers and deploy those in other use cases, we see transitions of those workloads to be inside of Braze. When you look out across our customer base, we have examples from across that spectrum today.
Your next question will come from Derrick Wood with TD Cowen.
Great. I guess first question for Bill. Could you drill a bit more on this new integration with ChatGPT and kind of pushing the first-party data into more personalization within Chat apps? I guess how much customer interest is there in driving more engagement there versus traditional channels? And what does this mean for your monetization and value delivery positioning?
Yes. I'll actually start with the end of that question because the implications and what it means do depend a lot on how these app ecosystems evolve from here. We are really just in the earliest days of it. When you look at the in-chat native app or agent experiences and how they continue to push forward, I think the future role that Braze plays and the strategies that brands will deploy, depends a lot on how close or open these platforms end up being. We are even already seeing some of the implications of these decisions. In the ChatGPT ecosystem as an example, Amazon has largely opted out. Walmart has opted in, but Walmart is also focused on use cases outside of basic staples because they're looking at that as a discovery channel allowing for them to get net new customers, a significant strategic lever for them when they look at the chat user base and different use cases that are being deployed there. When you look at the evolution of that over time, the important questions are basically going to be how much of a fortress is the walled garden that the likes of ChatGPT or Gemini or others are going to make? How are they going to monetize and how are they going to take the user attention they have and turn that into revenue for their business? If they stay open, which is more similar to the web and the early signs on ChatGPT native apps are pointing to, then the in-chat app experience will become an extension of the first-party ecosystem. That means that those native app experiences can become a rich source of data on customer interest and intent, allowing another surface to deliver messaging or customize product experiences to consumers. You're already seeing that in the way that the ChatGPT apps are being built. For instance, if you invoke the Canvas app, you're able to log into your account and render custom interfaces, getting access to information about the session. If you compare that to how a brand interacts with someone on Instagram, that's a much tighter closed walled garden, and you get almost no data around those interactions. The same dynamic applies to a consumer who only engages with your brand through an agent. In all those cases, the right answer for brands to build a sustainable path to durable business growth is ramping up investment in first-party data, enhancing and evolving their direct-to-consumer products, and deploying sophisticated customer engagement strategies to maximize that customer relationship. We're still in the early days. I think we've seen some promising early signs of ChatGPT embarking on an open ecosystem, which is good news for brands that want to build into those experiences. We'll continue to see the evolution of Agentic Commerce and similar App Store ecosystems in Gemini and potentially in other AI chatbots as they rise. Braze is going to rely heavily on our experience in the mobile app ecosystem to move fast and guide our customers through this transition. Some brands may not survive AI disruption, becoming commodities downstream from faceless agents' desires, but the companies that thrive through disruption will maintain strong connections with their customers. Braze will help them do that, and I think we're well prepared. If this goes down the open path, that means these are great channels to gather more first-party data and communicate with those customers. If it goes down a closed path, it's another reason for brands to invest in building first-party connections, and Braze will help them do that as well.
Awesome. Very helpful perspective. Maybe one Isabelle for you. Just the inflection in new customer generation is very impressive that followed a strong Q2. Can you just drill into what's helping drive that velocity of new deals? Is it Offerfit, giving in the Decisioning product, new front doors into different accounts? Or are there other factors in play? Anything to highlight here?
Yes. No, not specifically related to Offerfit. Remember, the cycles there are going to be a little longer. Generally, around Braze core, the legacy replacement cycle continues to be in our favor. Our competitive position continues to grow alongside the regional investments we have made and the efforts around verticalization which continue to deliver results. We're very excited to see this, and I talked about the mitigation strategies we've put in place to avoid both downsell and customer churn of which combining these enables us to retain customers and see net new customer additions. We're really excited about the overall momentum of the business.
Our next question will come from Taylor McGinnis with UBS.
Okay. Perfect. Bill, the forecast was so much better. Just trying to understand in terms of what's driving that. Is that just a function of some of the past headwinds starting to ease or Q3 being stronger at the end? Or are you actually seeing a further improvement of demand trends into the first half of Q4? Any reads you have on 2026 as you've been talking to your customers about their spending plans?
On the revenue guide, we do continue to approach this with a risk-adjusted position. What you're seeing is some of the strength I talked about in the last question, where we're seeing continued strength across the legacy replacement cycle, and just to strengthen our overall competitive position. Efforts around our regional focus and footprint and our efforts around verticalization are all driving net benefits in the business as well. You're seeing strength in metrics such as RPO and CRPO. The stability in dollar-based net retention and strength in net customer adds all feed together, enabling us to overachieve the guidance we had for Q3 and raise expectations for Q4.
Our next question will come from Arjun Bhatia with William Blair.
Perfect. One question on AI Decision Studio. Bill, I'm just curious, just in the kind of early reception that you've had from customers? How are they finding the product? What are the types of use cases you're seeing early traction on? And I assume as we go into fiscal '27, this is going to become a bigger part of the story. What does the pipeline look like now that you've had some time to integrate it and get it into the hands of customers? How should we think about growth here and what can unlock next year?
Yes. First of all, the integration both on the R&D and organizational side continues apace. A huge thank you to all the incoming OfferFit employees who have already made Braze their new professional home over the last few months. We're seeing tremendous impact from the teams coming together, and the integration process, we're looking forward to formally being on the other side of that and do a combined business as usual next year. Commercially, pipeline generation has remained strong, and we've seen a growing number of exciting customer wins, including the case study I mentioned in my prepared remarks. We're seeing those wins across verticals and in geos around the world, which has been fantastic to see. The cross-sell thesis continues to bear fruit as even Braze's most sophisticated customers are searching for ways to achieve more. I think decisioning has rapidly become a critical part of the overall AI roadmap, which is present in every single customer conversation. While the full deployment of Decisioning Studio Pro involves enterprise deal cycles and requires customer education, it's fantastic for customers to see a progression they can move through as they adopt the greater aspects of existing Braze customer engagement platform. They know that they can circle back to those most important points in the customer journey for maximum performance. For those customers already on the leading edge of adoption, they have sophisticated strategies. They've been conducting testing for years and want more, the answer for that is deploying Decisioning Studio right now and targeting it at their most important use cases. The example from my prepared remarks is one where they pointed that at an important part of customer journey, utilizing advanced reinforcement learning to drive significant uplift that even surprised their CEO. It's an incredible thing to see, and it really helps us with deal velocity and builds internal proof points. We are optimistic about our growth, but it's still an enterprise deal cycle, requiring time for pipelines to mature. We focus on ensuring our go-to-market efficiency, qualifying deals so that we are not educating everywhere in the market. To some extent, we'll follow a similar pattern as the sophisticated customer engagement comparisons to more traditional marketing automation, where skill sets permeated companies over time. We'll likely see the same with decisioning education and knowledge, but we now have a lot more scale, which will accelerate the pace.
Our next question will come from Brian Peterson with Raymond James.
So Bill, you had mentioned some verticals that you had strong wins with. I'm curious, has your pipeline of opportunities changed at all relative to your current mix? Are there any end markets where you're particularly excited as we head into calendar year '26?
Yes. With a broad brush, I don't think we've seen any large rotations in the vertical split of opportunities. However, there is an important dynamic that happens as we penetrate deeper into certain verticals, especially those that are more capital-intensive or highly regulated, which are correlated with more risk aversion or slower decision-making. In those cases, we often work with first disruptors and then those under threat of disruption, and it takes those proof points with early startups like, for instance, with HealthTech or fintech before you can move more meaningfully into traditional systems and health insurers, as well as larger banks, insurance companies, and credit unions around the world. When looking at the categories we've invested in, we have a great track record with startups, and we're now increasingly penetrating the more traditional enterprise in those spaces. That's probably where I would identify the biggest vertical movement, but it’s not an exogenous property of those verticals themselves but more about Braze's journey to penetrate them over time.
Your next question will come from Scott Berg with Needham.
Great quarter. I want to focus on your 500,000-plus customers. It's the second consecutive quarter where your additions have significantly increased, especially compared to historical data. Are you noticing a shift in how you're engaging with some of these customers? Is this primarily due to improvements in optimization or perhaps increased expansion activities? Can you provide more details about what's happening with your larger customers?
Yes. Nothing changing certainly the incentive structure for the business. Our sales team is incentivized to land and then go and expand from there. We are excited to see strong momentum in the upsell from those previously at under $500,000 to those upselling to be north of $500,000. That's obviously outpacing those down selling or churning. The decisioning studio is now in the mix. Customers buying closer to the pin on their original entitlements has opened opportunity for them to expand over time as cross-channel becomes more and more important. You're hearing Bill's remarks about what we are seeing around Black Friday and Cyber Monday, just the volume of messages being sent across diverse set of channels continues to increase. That will result in upsells from our customer base, and we’re excited to see that momentum across the whole customer base and in our 500-plus customers.
Your next question will come from Brent Huff with Stephens.
I want to drill in a little bit on the momentum that we've seen in the past couple of quarters, both in the metrics and tone. Bill, I can't remember a few quarters ago you mentioned that folks in the more progressive marketing organizations were tapping the brakes. They were a little hesitant to buy more aggressively, perhaps thinking about growth and a bit of retrenchment. I'm wondering, it's a little anecdotal, but do you get the sense that that's changed? Have we started selling to folks willing to buy alongside the legacy platforms in anticipation of switching? I don't know if that's the right flag to look at.
Yes. The dynamic of switching costs being costs remains. As we've talked about in the past, a lot of it is about ensuring that we do a great job qualifying and timing opportunities. Many customers last switched their platform 6, 7 years ago, and the initial impression of switching costs may seem high, but a careful plan can address that. There’s a dynamic whereby we’re also seeing resumption of credits upsells, as customers begin running low on those credits and churn upwards to their true consumption. A sign of normal buying patterns emerging, and we’re seeing a normalization that’s a positive indicator. Furthermore, the growth of SMS and WhatsApp is also a telling sign, reflecting a willingness to invest in premium channels where companies are leveraging higher engagement strategies.
Your next question will come from Matthew VanVliet with Cantor Fitzgerald.
I guess looking at the AI Decisioning Studio, Bill, you mentioned that it's still sort of an enterprise sale, and we saw that from the OfferFit average deal size. As you look at the product roadmap ahead, are you thinking of using some of the other products you've built to move into the mid-market and lower enterprise? Or will there be strategy for the decisioning engine to have a lighter weight, lower-cost version to attack that market over the next several quarters?
Yes. I'd take a step back to examine the broader problem space as AI-driven relevance optimization. Decisioning is a specific part, yet Braze already holds essential roles related to acquisition. Customers are deploying strategies within Braze while leveraging identity resolution partnerships out in the data space. Examples include customer conversations and managing out flows—all well-attended. Braze serves customers through various acquisition strategies. Conceptually, the agent disintermediating brands entirely leads to requiring strong direct connections with customers. Third-party ecosystems become essential; becoming utility providers in this regard. If agent models push toward commoditization, brands still need to develop compelling relationships with their customers. This balance is essential.
Our final question will come from Patrick Walravens with Citizens.
Let me add my congratulations. So Bill, it seems like Offerfit is probably going to work out quite well. How are you feeling about additional M&A? When might you be ready? What might you be interested in looking at?
We are happy with how the integration is going, as I mentioned earlier, and have an active CorpDev function looking at both organic and inorganic expansion opportunities. We are very selective in terms of opportunities that we examine, ensuring they drive forward a leading product roadmap in our space. We still have incredible TAM to access lots of great adjacencies and will continue to look at opportunities.
There are no more questions at this time. I'd now like to turn the call over to Bill for closing remarks.
Thank you, everyone, for joining us today. We're very excited about the momentum in the business. I'm thankful for all of your support, and we will chat next quarter.