管理層發言
Welcome to the Braze Fiscal First Quarter 2026 Earnings Conference Call. My name is Luke, and I'll be your operator for today's call. I'll now turn the call over to Christopher Ferris, Vice President of Braze Investor Relations.
Thank you, operator. Good afternoon, and thank you for joining us today to review Braze's results for the fiscal first quarter 2026. I'm joined by our Co-Founder and Chief Executive Officer; Bill Magnuson; and our Chief Financial Officer, Isabelle Winkles. We announced our results in our press release issued after the market closed today. Please refer to the Investor Relations section of our website at investors.braze.com for more information and a supplemental presentation related to today's earnings announcement. During this call, we will make statements related to our business that are forward-looking under 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 second quarter ended July 31, 2025, and the fiscal year ended January 31, 2026, our ability to integrate and realize the benefits of the acquisition of OfferFit, our anticipated product development and performance, our expectations concerning new customer verticals, our anticipated customer behaviors, including vendor consolidation and replacement trends and their impact on Braze, our potential market opportunity and our ability to effectively execute on such opportunity; and our long-term financial targets and goals. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations and reflect our views only as of today. We assume no obligation to update any such forward-looking statements. For a discussion of 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 first quarter 2026 performance. In addition to the impact these items have on the financial results, please refer to the reconciliations of our non-GAAP financial measures to the most directly comparable financial measures calculated in accordance with U.S. GAAP included in our earnings release under the Investor Relations section of our website. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with U.S. GAAP. And now I'd like to turn the call over to Bill.
Thank you, Chris, and good afternoon, everyone. We delivered strong first-quarter results, generating $162.1 million of revenue, up nearly 20% year-over-year. That top-line growth continues to be paired with efficiency improvements as we increased our non-GAAP operating margin by over 900 basis points year-over-year and realized our fourth straight quarter of non-GAAP net income profitability, achieving over $7 million of net income and nearly $23 million of free cash flow in the quarter. We are proud of our financial success as we continue our mission to become the leading customer engagement platform on a global scale and look forward to achieving sustained profitable growth in the coming quarters and years, while thoughtfully reinvesting in our business and building our competitive moat. Despite an environment that remains noisy and uneven, we continued our momentum from Q4, achieving strong bookings as we got off to a good start in fiscal 2026. Thus far, global trade concerns have yet to materially affect deal cycles. And in the first quarter, we secured a diverse set of new business wins and upsells, including Beyond Inc., Chamberlain Group, Evite, Freshket, Fubo, LUSH Cosmetics, Njuskalo, ThredUP and many others. Our customer count rose to 2,342, up 46 sequentially and up 240 versus the prior year. Our large customer additions were again strong with $500,000 plus ARR customers, rising 24% year-over-year to 262, demonstrating the need for enterprises to deploy AI-based solutions and leverage first-party data to drive sophisticated cross-channel customer engagement at scale. We also continue to replace legacy marketing clouds across verticals and around the world, including at a North American FinTech, a global luxury retail brand, an EMEA insurance comparison firm, a North American amusement park chain, an EMEA Fashion House and APAC Tourism Board, a North American clothing marketplace, a U.S. health care company, a construction equipment rental firm in APAC, a U.S. gaming company and an EMEA professional sports organization, among many others. We also continued to win against both channel-specific point solutions and homegrown tools across a diverse set of industries, geographies, and use cases. And it's that diversification that supports our results even as the economic and geopolitical environment remains dynamic. As we continue our substantial and focused investment on our journey to become the recognized leader in customer engagement, we are confident that the legacy replacement cycle and vendor consolidation trends will persist, presenting Braze with opportunities to increase market share as brands increasingly seek to improve their customer engagement strategies and leverage new AI-driven advancements to simultaneously achieve better results and higher levels of productivity. Meanwhile, our legacy competitors continue to stand still, failing to innovate or adapt as the modern customer engagement landscape continues to forge ahead in both scope and sophistication. Braze remains focused and forward-looking as we deploy AI in tandem with first-party data activation, applying leading-edge reinforcement learning and generative AI technology to an ever-evolving set of messaging channels and product interfaces to help our customers deliver more relevant customer experiences and grow their businesses. This multifaceted strategy was on display just a few weeks ago as we announced the general availability of RCS messaging, in-product banners, and canvas context. Separately, these are important upgrades to our channel offerings, orchestration environment, and visual programming language, but it's a combination of these capabilities with our increasingly robust Braze AI suite that really makes our product roadmap shine. Whether a brand is orchestrating a dynamic customer journey, initiating an interactive conversational experience, or enhancing core product offerings, the tools and skills of customer engagement are there to help them identify and optimize every one of the moments that matter in the customer journey. As the Braze product races ahead, we also continue to invest heavily in the community of marketers and agencies that are the foundation of the broader Braze ecosystem. And we firmly believe that now is the ideal moment to elevate the craft of customer engagement as marketers leave behind the drudge work of campaign creation and ascend to being a maestro of experience. By combining the accelerated capabilities of reinforcement learning and generative AI, we believe that marketers can ascend to a strategic conductor role responsible for prioritizing and driving business goals as brands unlock new opportunities for growth on the back of their continued investments in first-party data and the building of direct-to-consumer relationships. The enhanced flexibility of data, expansion of communication channels, rapid advance of AI, and rising skill sets of marketers present brands with an unprecedented opportunity to engage with their customers, fostering enduring relationships that are the foundation of efficient brand growth. This goes beyond the conventional notion of delivering the right message to the right channel at the right moment. It involves gaining a deeper understanding of customers, engaging with them more holistically, and reinforcing customer connections by providing seamlessly integrated messages and product experiences. Agentic AI plays a vital role in enhancing relevance and enabling extensive personalization as these decision-making agents independently test, learn, and provide highly tailored experiences to customers. To accelerate our progress in this area, earlier this week, we successfully closed the acquisition of OfferFit, a leading AI decisioning company that leverages proprietary reinforcement learning to enable brands to deliver highly relevant and personalized customer engagement at scale. OfferFit has spent the last 4.5 years building and deploying a leading multi-agent solution that autonomously explores solution spaces across lifecycle marketing campaigns, creating highly customized recommendations for cross-channel campaign content and delivery strategies. By substituting the manual processes of A/B testing with reinforcement learning agents that independently experiment and identify optimal actions, OfferFit's advanced AI decisioning can be utilized across a diverse range of experimentation and optimization scenarios. This approach has been highly successful, enabling OfferFit to quickly land and expand with large enterprises across a diverse set of industry verticals. After years of successful product partnership, we are now working quickly to fully integrate OfferFit's multi-agent decisioning engine into Braze's customer engagement platform. By leveraging the Braze data platform, dashboard infrastructure, and our already scaled event-driven stream processor, we anticipate that OfferFit will be able to simultaneously accelerate their previously independent roadmap, even while we prioritize the many integration tasks that will lay a strong foundation for future innovation and scaling. Together, we believe we can enable brands to leverage cutting-edge technologies in automation and machine learning, transforming customer relationships and creating shared value for both consumers and businesses. In the short term, we anticipate that OfferFit's solution will enable us to increase deal sizes through their distinctive reinforcement learning products and services, while also setting us apart from competitors by offering a broad range of AI-driven optimization capabilities at various price tiers and service levels. In the medium term, similar to our approach with other key components of Braze AI, we plan to integrate OfferFit agents and machine learning models throughout the Braze platform. This integration will empower us to collaboratively address new use cases and improve existing features, ultimately helping brands achieve higher uplift with lower effort. The integration of OfferFit also complements Braze's Project Catalyst, a native AI agent aimed at helping brands personalize and optimize experiences through highly relevant journeys and content at scale, which is now available in private beta. Finally, we are confident that over the long term, their solution and AI expertise will help Braze accelerate progress on several long-running initiatives in Braze AI and Canvas, reinforcing our position as a leader in AI and customer engagement. We are thrilled to welcome OfferFit's team and technology to Braze, enabling our combined experience in machine learning and AI to enhance our product ecosystem and create exceptional experiences for our customers and their end consumers. We are excited to build the future of customer engagement together and look forward to unveiling more about the OfferFit integration, Braze AI, and our broader roadmap at Forge, our annual flagship Customer Conference in September. And before I go, I'm excited to share that when we arrive at Forge in September, I'll be joined by the latest addition to our executive team as Ed McDonnell will be starting at Braze as our new Chief Revenue Officer in early July. Ed brings a wealth of experience and qualifications to this role with a proven track record of building and scaling revenue at leading SaaS organizations. As a former Executive Vice President and CRO at Salesforce Marketing Cloud, he developed a deep understanding of the customer engagement landscape and successfully scaled a multibillion-dollar marketing technology business. Most recently, he served as CRO at Asana, where he led revenue growth in the work management sector. His transition back to marketing technology underscores his strong belief in Braze's market position and growth potential in the customer engagement space. We are very excited to have Ed joining us soon, rounding out what we believe to be a best-in-class SaaS leadership team here at Braze. Thank you for your continued interest and support. 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 first quarter with revenue increasing 20% year-over-year to $162 million, driven by a combination of existing customer contract expansions, renewals, and new business. Subscription revenue remains the primary component of our total top line, contributing 96% of our first-quarter revenue, while the remaining 4% represents a combination of recurring professional services and one-time configuration and onboarding fees. Total customer count increased 11% year-over-year to 2,342 customers as of April 30, 2025, up 240 from the same period last year and up 46 from the prior quarter. Our total number of large customers, which we define as those spending at least $500,000 annually grew 24% year-over-year to 262. As of April 30, 2025, they contributed 62% to our total ARR compared to a 60% contribution as of the same quarter last year. Measured across all customers, dollar-based net retention was 109%, while dollar-based net retention for our large customers was 112%. Expansion was again broadly distributed across industries and geographic regions. Revenue outside the U.S. contributed 46% of our total revenue in the quarter, up from 45% in the fourth quarter of last year and up from 44% in the prior year quarter. In the first quarter, our total remaining performance obligation was $829.3 million, up 26% year-over-year and up 5% sequentially. Current RPO was $522 million, up 24% 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 $112 million, representing a non-GAAP gross margin of 69.3%. This compares to a non-GAAP gross profit of $92 million and a non-GAAP gross margin of 67.9% in the first quarter of last year. The increase in year-over-year margin was driven by continued cost optimization of our technology stack with additional benefits from personnel efficiencies partially offset by higher premium messaging volumes. Non-GAAP sales and marketing expenses were $64 million or 39% of revenue compared to $60 million or 44% of revenue in the prior year quarter. While the dollar increase reflects our year-over-year investments in headcount costs to support our ongoing growth and global expansion, the improved efficiency reflects our disciplined investment approach to resource deployment across our go-to-market organization. Non-GAAP R&D expense was $25 million or 15% of revenue compared to $23 million or 17% 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 and disciplined technology investment strategy and are in line with our long-term non-GAAP R&D percent of revenue target of 13% to 15%. Non-GAAP G&A expense was $21 million or 13% of revenue compared to $19 million or 14% of revenue in the prior year quarter. The dollar increase was driven by investments to support overall company growth and global expansion. Non-GAAP operating income was $3 million or 2% of revenue compared to a non-GAAP operating loss of $10 million or negative 7% of revenue in the prior year quarter. Non-GAAP net income attributable to Braze shareholders in the quarter was $7 million or $0.07 per share compared to a loss of $6 million or a loss of $0.05 per share in the prior year quarter. Now turning to the balance sheet and cash flow statement. We ended the quarter with approximately $540 million in cash, cash equivalents, restricted cash, and marketable securities. Cash provided by operations during the quarter was $24 million compared to cash provided by operations of $19 million in the prior year quarter. Including the cash impact of capitalized costs, free cash flow in the quarter was $23 million compared to free cash flow of $11 million in the prior year quarter. Free cash flow during Q1 of FY '26 includes the impact of approximately $6 million in vendor payments related to the OfferFit acquisition during the 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. Please note that we closed the OfferFit acquisition on June 2. As such, guidance for our second quarter incorporates a nearly 2-month impact of owning OfferFit, while guidance for the full year incorporates a nearly 8-month impact of the transaction. For the second quarter of fiscal 2026, we expect revenue to be in the range of $171 million to $172 million, which represents a year-over-year growth rate of approximately 18% at the midpoint. Second quarter non-GAAP operating income is expected to be in the range of $0.5 million to $1.5 million. At the midpoint, this implies a non-GAAP operating income margin of approximately 1%. Second quarter non-GAAP net income is expected to be $2.5 million to $3.5 million, and second quarter non-GAAP net income per share is expected to be in the range of $0.02 to $0.03 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 $702 million to $706 million, which represents a year-over-year growth rate of approximately 19% at the midpoint. Consistent with the commentary we provided during our fourth quarter call, we expect OfferFit to add approximately 2 percentage points to year-over-year revenue growth for the full fiscal year, which equates to approximately $11 million to $12 million. Fiscal year 2026 non-GAAP operating income is expected to be in the range of $5.5 million to $9.5 million. At the midpoint, this implies a non-GAAP operating margin of 1%, roughly a 100 basis point improvement versus fiscal year 2025. As I stated on our last earnings call, the OfferFit acquisition will create a temporary departure from the operating income margin framework outlined during our Analyst Day last September. However, we expect to return to the framework in fiscal 2027. Non-GAAP net income for the full fiscal year is expected to be in the range of $17 million to $21 million, and net income per share is expected to be $0.15 to $0.18 per share based on a full year weighted average diluted share count of approximately 115 million shares. To conclude, I'd like to express our excitement for what lies ahead at Braze. We are committed to offering industry-leading customer engagement solutions and driving product innovation as we work towards achieving our long-term financial goals. And with that, we'll now open the call for questions. Operator, please begin the Q&A.
分析師問答
Our first question will come from Gabriela Borges with Goldman Sachs.
Will and Isabelle, I was hoping to reconcile some of your prepared remarks. On the one hand, the sequential growth in the quarter was lower than what it has been in the last couple of years. You've got the uneven macro. You've got the NRR dynamic. But on the other hand, the CRPO number actually looks pretty good, and it sounds like the competitive environment continues to accrue in your favor. So my question is, when do you think some of these positive company-specific dynamics start to more than offset some of the more uneven macro pieces that you've talked about? And what kind of metrics should we be looking at, whether it's revenue acceleration or maybe the CRPO number? How are you tracking that internally in your business?
Yes. I will discuss the numbers, and then Bill can offer additional insights. Specifically regarding CRPO, keep in mind that its value is influenced by the amount of renewal dollars available in the quarter, which was high in Q1. This will slightly affect the CRPO figure. However, I don't see the CRPO number as a strong leading indicator. Instead, I suggest focusing on revenue as the key metric to indicate whether the macro environment has stabilized for us in the long term.
Yes. I would say competitively, we feel really good about the results we continue to see both against the start-up competition as well as across the enterprise. We also saw continued great momentum out of Q4 into Q1, and the execution from the teams around the world was great. We saw good results in particular across America and across the Americas and across EMEA, and we saw broad-based strength across the different verticals. By that, I just mean we didn't necessarily see pockets of weakness. I know that a lot of people have been really focused on retail and consumer goods, in particular. I'll remind everyone, as we spoke about last quarter, that we started the year with cross-functional verticalization efforts across both retail and consumer goods and financial services. We're committed to continuing to do both of those throughout the year despite some of the tariff uncertainty that's obviously hit retail and consumer goods, and we've been happy to see the momentum that has come out of those investments. And so what we also saw in Q1 is, as we mentioned last quarter, was a continuation of some of those elevated churn levels that we had seen through the back half of last year because of the seasonality of the enterprise business, a lot of our prior year's Q4 enterprise business closes which tend to be multiyear do renew in Q1. And so you see a bit of a hit of that in Q1 that explains some of the DBNR weakness or the slight decline that you saw in DBNR in Q1 as well. But we've been really happy with the both seeing the improved health of those poster cohorts as well as the cumulative effects of the last, call it, 6 quarters of very focused preventative efforts around churn, and we're looking at a forecast through the rest of the year where those churn numbers are going to improve. And so obviously, still need to see that in the revenue and the DBNR, both of which are lagging indicators. And we're executing, I think, at a really great level in a macro that has a lot of noise and uncertainty, but the diversification of the business and a lot of the work that we've been doing over the course of the last year to really manage around noise like that has been coming to fruition.
Our next question will come from DJ Hynes with Canaccord.
Bill I want to ask you one on Project Catalyst and realizing it's still in private beta. But when you see customers that are using Project Catalyst and maybe testing it against more hardwired Canvas flows, what is the performance or ROI delta look like, right? And how is that informing your view of what Catalyst adoption may look like over time?
Yes, Project Catalyst has recently entered private beta, so I don’t have extensive case studies to share at this moment. However, I can provide some insights into the technology it employs. For example, the personalized path feature utilizes advanced reinforcement learning techniques to analyze the context around individual users for customized decision-making. We observed an impressive outcome last quarter with a customer who shifted their strategy to enhance delivery frequencies, specifically for selling new apartments or promoting new homes. Initially, they manually performed segmentation and then applied machine learning to enhance decision-making based on that segmentation. They revised their approach to allow reinforcement learning to make higher-level decisions on whether a user’s journey would be better suited for renting or buying, based on various indicators. This new strategy achieved five times the uplift compared to previous methods that only focused on delivery cadences. This exemplifies the potential benefits of reinforcement learning, even amidst established marketing strategies like segmentation. We are excited about Project Catalyst, which combines generative AI with reinforcement learning to further automate the exploration of decision-making. The example I mentioned can leverage existing Canvas features quickly, but it requires creating different variants for experimentation. Our goal with Project Catalyst is to automate the experiment creation process, advancing from individual content decisions to multi-message sequencing and eventually to high-level optimization of overall customer engagement strategies. We foresee that as Project Catalyst matures, it will enable marketers to take on more strategic roles, allowing AI to prioritize and implement various business strategies. The collaboration with the OfferFit team and their reinforcement learning engine will be crucial in pushing this roadmap forward.
And our next question will come from Brent Bracelin with Piper Sandler.
Isabelle, I wanted to just start with you. Obviously, pretty strong backlog build in the quarter. It sounds like maybe there's some renewal activity that helped. But maybe if you could just talk about linearity that you saw, particularly as you think about exiting April? And then one quick follow-up for Bill.
Yes. So there's nothing special about the linearity that we achieved in the quarter. I think we're very pleased with the pacing that we achieved in terms of like when the ACV came in. But broad brushstroke, and I think I've disclosed these numbers before. We tend to close about 15% to 20% of our business in the first month of the quarter, and then we'll get up to about 50% or so by the second month of the quarter, and the balance of that happens in the last month with most of that in the last couple of weeks. There's nothing abnormal about Q1, and we were just generally pleased with the overall performance of that in the quarter.
Great. That's good to hear with all the uncertainty out there, particularly during April. Bill, for you, OfferFit, you've had now 3 months to kind of understand a little bit more about the product, what's been the early payback from customers so far? Anything jump out to you? And then what else did you learn in the last 3 months about OfferFit worth flagging here?
Yes. So a couple of things. First, before we even got deeper into conversations about acquiring OfferFit, we already had the advantage of working alongside them with a large number of mutual customers. As we mentioned, when we first signed and announced at the end of last quarter, roughly 1/3 of their existing customers are also customers of Braze. And so we've been getting great feedback both from those customers that are really excited to hear that we're coming together so that we'll be able to provide a better integrated experience for them as well as help put more fuel on the fire of the R&D roadmap of OfferFit overall. We've had a ton of incredible interest coming in from customers. We've had OfferFit presenting at a couple of our events over the course of the last couple of months, including most recently, at City x City London, which was last week. That conference had a higher attendance than Forge did last year because we continue to see incredible year-over-year growth in the size of our customer community. Me and George, the OfferFit CEO, were on stage together. They got a huge number of leads out of that. People are really excited to hear about the potential. So definitely great momentum there. I think one of the big learnings, especially as we head into integration is that we're going to be moving into an environment where OfferFit is actually going to be in a very lead-rich environment now. So we shift from the go-to-market priority being more around being in a lead-scarce environment where they had to leverage a lot of the flexibility of their engine to kind of find the right use case for a really huge diverse array of customers. Now, I think the goal for the rest of the year is going to be to continue to qualify the opportunities that are going to be all over the place in the rest of the Braze customer base in order to cross-sell across our enterprise footprint and our GSA footprint to make sure that we're efficiently able to actually move through those opportunities quickly and predictably and help OfferFit scale faster than they were before, hopefully, with the added benefit of the Braze community and the Braze customer base.
Our next question will come from Arjun Bhatia with William Blair.
Isabelle, could you explain the renewal schedule for some of the post-ZIRP cohorts this year? It seems that Q1 was a significant renewal quarter. Are there any other quarters we should anticipate being large, or was Q1 the biggest? And Bill, you briefly mentioned the pricing strategy for OfferFit as it relates to the cross-sell. Can you clarify whether OfferFit will have a separate pricing structure compared to Braze's current AI capabilities, and if there are plans to transition to a unified pricing model in the future? Your insights would be greatly appreciated.
Yes. So I'll answer the first question on the numbers. So the available renewal dollars were on balance sort of high in Q1, it's going to drop back down in Q2 and Q3. There'll be another pop in Q4 from an available renewal dollar perspective. What we've not broken out in that commentary has nothing to do with the ZIRP cohort specifically. So that ZIRP cohort is going to have a mix of renewal periods. And remember, the ZIRP cohort is 3 years' worth of contracts. And so that is going to have a broad-based distribution of renewal dates. So I wouldn't look to the volume to be any kind of indication of the specific risk associated with any of the ZIRP cohorts.
Yes. Regarding pricing, I want to remind everyone that the OfferFit solution is implemented as a high-end, flexible, and customizable reinforcement learning engine, complemented by expert services. We plan to continue selling this year along the same lines as we have over the past couple of years, pricing and packaging based on each use case, which incurs an additional cost of around $250,000 to $300,000 annually, including the expert services for implementation and ongoing maintenance. We expect this to be an added value on top of the customer contracts purchased from Braze. While there may be some concerns about budget overlaps, we believe there is a sufficient budget available for this decision-making layer and other AI investments. We aim to take advantage of that in terms of overall spending. We consider this to be an important aspect of our competitive strategy moving forward, as it will help differentiate us, particularly in scenarios where customers have large user bases, where even minor improvements can lead to significant financial gains. This applies to industries like financial services and many companies with multiple products, where identifying high-value actions in the customer journey—such as transitioning from a single product to multiple products or upgrading to higher service tiers—represents valuable opportunities. We will focus on targeting and deploying in these situations with our current pricing and packaging. We also have various options for how this can evolve in the future. While I won't speculate too much on that, we believe there is significant potential for the underlying technology, especially when integrated with the strengths of Braze's customer engagement platform.
Our next question comes from Pinjalim Bora with JPMorgan.
Congrats on the quarter. Bill, one for you, one for Isabelle. We heard from the channel that there are some consternations around pricing of data points within Braze. Do you see an opportunity to change pricing and packaging around how you price data points below kind of the MAU-based pricing? And then Isabelle, is it possible to kind of split out the impact on EBIT from OfferFit to your full year guidance?
Thank you for the question. Recently, we introduced new pricing and packaging for this fiscal year, which significantly relaxes data point limits. Data points have been a major friction point in our pricing model for a long time, mainly due to their correlation with our costs. Our event-driven stream processor is costly to operate and deliver the high performance and service levels that our customers expect, particularly for the diverse high-performance use cases they utilize. Over the past few years, we have made substantial investments to move away from data point limitations, recognizing that data is essential for driving AI and machine learning advancements and enables customers to transition more easily between various use cases. With the ongoing enhancements of the Braze data platform, we continue to see growth in the volume of data processed and the range of use cases our customers wish to address. Imposing limits on data points not only slowed down sales cycles but also restricted increased usage. Our R&D teams have been working for several years to transition from data point caps to an API rate limit system that ensures we can maintain our desired performance levels while managing our costs and margins effectively. We are enthusiastic about further promoting this new pricing and packaging as it becomes available widely. Last year, we conducted a private pilot, and the results were impressive, effectively countering the concerns some competitors raised about data points. Based on your reference checks, you've likely heard that the main negative feedback often revolves around these data point issues. We are pleased to have addressed those concerns. Remarkably, we closed our first deal under the new pricing and packaging just eight days after its launch, and early indications show that customers appreciate the added flexibility. Along with this change, we also expanded the flexible credit model to encompass more channels, which we believe will enhance our go-to-market strategy throughout the year in terms of competitiveness and sales team productivity.
And just to answer your question on the impact on EBIT. So if you go back to when we announced Q4 and gave guidance for the year, I did indicate that on an organic basis, we expected to add about 400 basis points to non-GAAP operating income. That obviously has come down in the context of the guidance by about 300 basis points. So a good portion of that is the impact of OfferFit specifically on its own, and then a little bit of that is also from additional investments that we will make to help with the integration. Those 2 components together kind of get you there. Recognize that, that is on a somewhat risk-adjusted basis, so take that into consideration. A part of that mix is in on a gross margin basis, and their gross margin is a little bit lower than ours for the time being, and the bulk of it sits in the operating expenses.
Isabelle, just to put a finer point, is that 2/3, 1/3, is it any way to quantify that?
Yes, the majority of it is more like 80-ish percent. It's more than 3/4 is going to be specifically from them with a little bit from us.
Our next question comes from Scott Berg with Needham.
I wanted to touch on pricing and packaging. Again, last year, you transitioned to the flexible credit model. Now that this has been in place for some time. Any sort of commentary or insight you can provide on customer reception and feedback. This is driving the sort of uplift in trials you anticipated and any impact on overall spend levels?
Yes. We have discussed this before, and the trends have continued from last year. Around this time last year, we launched the flexible credits model on a limited number of channels, and this year we have expanded that. Customer adoption has been strong, and it has indeed reduced negotiation times because the complexity of the order forms has decreased. It has also enabled us to devise new strategies to help customers grow their usage in innovative ways, allowing them to experiment with new channels and ideas without being restricted by their past purchases, depending on their contract status. We are providing flexibility for customers to explore the Braze feature set and identify new strategies that create value for their business. Customer sentiment has been very positive, and this has expedited negotiation cycles. It allows us to introduce new features and channels to customers more quickly and with less friction. While it hasn't been in the market long enough to assess its overall impact on DBNR, we expect it to have a supportive role as we can mitigate some of the partial churn caused by customers misestimating and overpurchasing certain messaging channel entitlements, which often led to satisfaction issues. Although we could sometimes reallocate spending at renewal time, the damage to customer satisfaction might have already occurred. Overall, it aligns customer value creation with the right foundations for expansion and speeds up our deal cycles through the broader implementation of the flexible credits model across more channels and parts of the Braze product, which we introduced in this year’s pricing and packaging refresh. We certainly anticipate continuing this positive trend.
Our next question comes from Brett Huff with Stephens.
Can you hear me now?
Yes.
Okay. Sorry about that. Two quick ones. Congrats on a nice quarter. First, for Bill, investors that we talk with still have a hard time understanding the uncertain macro environment yet marketing dollars continue to seem to be spent. I wondered if you had an anecdote or two that could help clarify that. I think being a little more concrete would help, certainly help me and maybe others. And then Isabelle, any commentary on how FX assumptions changed on the full year revenue guidance, so we can understand what the organic underlying guidance was?
Yes. I think broadly across the macro, a lot of the things that we've spoken about in the past, in particular around enterprise deal cycles and the unwillingness for a lot of companies to invest in new growth initiatives, a lot of the spending is still focused on consolidation and optimization. We certainly have a role to play in that, especially when we are consolidating multiple point solutions together when we're driving increased levels of efficiency and productivity by marketing teams. But switching costs are still costs, and we do still see deals that take longer because people are trying to time their move to a new vendor exactly with their renewals or their prior legacy contracts running out so that they're not double paying. Those are the kinds of things that are causing a lot of these enterprise cycles to sometimes take longer, sometimes push or get dragged out. We're getting better at navigating those, and you are certainly seeing that in our sales team's productivity and efficiency improvements over the course of the last few quarters. Our competitive win rates also continue to improve. We're also seeing important advances in the broader partner ecosystem as well. I spoke about this in the prepared remarks, but it's very clear that the legacy players in the space, the likes of Salesforce and Adobe have taken their eye off the ball broadly in customer engagement and are not investing nearly as much, if anything, in their existing products in the space. It's not just their customers that are noticing that, it's also the broader partner ecosystem. Those are leading to benefits for us as well. I think that we're liking what we're seeing from a competitive win rate standpoint from a team execution perspective. There's still difficulty out there. We do see regional comparative weakness across places like Southeast Asia, as an example, where growth has not been as vigorous and where we haven't seen as much of the kind of venture activity starting to flow again, etc. We are seeing great results in core markets across the U.S. and EMEA, in particular, and continue to see broad-based strength across verticals when we look out across the landscape. I know that there's, as I mentioned at the very top of the Q&A, a lot of handwringing around retail and consumer goods, but I think we're seeing good momentum there as well. It continues to be a noisy and difficult to navigate environment, but we like where we're positioned in terms of the efficiency and productivity of the sales team and our ability to execute within a pretty diverse customer base.
And just to answer your question on FX, the only currency in which we book customer contracts that is not USD is Japanese yen, and that accounts for low single-digit percent of our total revenue. So the short answer is the FX impact embedded in any forward guide has a de minimis impact.
Our next question comes from Brian Peterson with Raymond James.
This is Johnathan McCary on for Brian. You kind of just touched on it there, but I wanted to double-click on the SI channel. I know it's earlier days there, but here that it's a difficult environment from a marketing budget perspective and your commentary on the competitive environment sounds encouraging. I'm curious what impact a more fluid macro has on that channel? Does that influence the momentum for Braze engagements to those integration partners? And then just a quick follow-up for Isabelle, housekeeping-wise, in terms of the impact from OfferFit, I know you mentioned some gross margin impact. Is there anywhere else you can break out within the OpEx lines, line by line, where we should see the biggest impact there?
Yes. In the broader agency community, there are several aspects to consider. Recently, at City x City London, we achieved our largest event attendance to date. We expect to surpass that figure again at Forge later this year. This growth is driven not only by our customer base but also by our extensive partnership network, which includes numerous agencies and systems integrators who sponsor our events. We are pleased with the progress we've made, particularly in specific regions and industries. While we don’t see a widespread surge from major firms like Accenture and Deloitte, we are building on our existing strengths to foster additional momentum. We have many agency partnerships globally that originated in the midmarket and are now expanding into the enterprise sector. One example is Stitch, based in North America, which is also extending its reach into Europe as it rapidly grows. We’re observing increased competition among our partners, who are eager to showcase their numerous Braze certifications and vie for opportunities in ongoing deal cycles. Regarding the macro environment and its effects, factors like switching costs and one-time expenses related to transitions, often handled by systems integrators or agency partners, are significant. We continue to see investments in creative services and data intelligence. Our collaborations with VML and other segments of the WPP Group, particularly in Europe, are producing strong results. There are positive indicators across various industries from key players, and we are excited to maintain our momentum with major partners as we cultivate a robust community around customer engagement.
And then on your question regarding the distribution of the OfferFit costs. So recognize they're only 2% of our revenue, right? I said that in terms of revenue growth versus last year. This will mix in to that effect. But in terms of the distribution of the cost, broadly speaking, you can think of it about being about 75% sales and marketing, about 1/4 R&D and a de minimis amount of G&A. So that's going to be the broad brush distribution.
Our next question comes from Brian Schwartz with Oppenheimer.
Bill, first for you, just wanted to ask you a little more color on OfferFit on the pace of the integration plans. Specifically, how quickly can you achieve the growth and cost synergies with this acquisition? How should we think about timelines for success with the acquisition? And then I have one follow-up for Isabelle.
Yes. The main priorities for this year are to integrate the go-to-market strategies and the products along with their underlying technology. This will help us enhance the OfferFit offering and accelerate its growth as we connect OfferFit to more of Braze's customer base, while also developing their independent offering. Although OfferFit will be integrated into Braze, we plan to expand its capabilities with our partnership ecosystem, functioning as a decision engine for customer engagement solutions outside of Braze, which currently serves about two-thirds of their customers from the time of acquisition. We aim to maintain that as a standalone offering in the future. With all these priorities in mind, OfferFit enters Braze with significant momentum. They have been an excellent partner over the last few years, and we are familiar with their operations. A crucial aspect of our success this year will be to progress through the integration phases quickly to avoid any friction that may impede our progress and to prevent organizational complexity that could hinder us now or in the future. As we unite the teams and opportunities and start cross-selling OfferFit to the Braze customer base, we need to effectively qualify these opportunities to ensure we can deliver OfferFit to customers reliably and quickly, allowing them to experience the high-performance benefits from the customized reinforcement learning engines that OfferFit provides. We aim to accomplish this comprehensively.
And for Isabelle, in terms of the assumption underlying the annual revenue guidance or at least the net new revenue that's going to come in for the business this year, is your expectation the assumption that the majority will come from net new or from expansions?
Yes, there is no real expectation of a change in how that evolves or is distributed. Historically, we've seen a consistent 50-50 mix over the quarters. During tougher times, we typically see more revenue coming from expansions rather than new business due to factors like inertia and switching costs, which can make it challenging to capture net new customers. However, we do strive to increase the amount of net new revenue, and that could be slightly more than half. Overall, I believe considering it as a 50-50 split is a reasonable long-term perspective.
Our next question comes from Matt VanVliet with Cantor Fitzgerald.
I guess when you look at maybe the integration of the sales team for OfferFit, curious on sort of the size and scale of the number of core carrying reps they have there? And at what point do you anticipate sort of synthesizing those so that your sellers are selling both products even before the integrations of the products are fully complete? So how much capacity are you sort of adding? And when would you expect the cross-sell that really kind of take hold?
Yes. Starting next fiscal year on February 1, we expect our combined sales teams to sell across the full range of Braze's customer engagement platform and the existing OfferFit solution. We anticipate these products will increasingly integrate over time. Following the deal we closed on Monday, we now have 15 new representatives, with 14 expected to be fully ramped up by the end of the year from OfferFit. Our strategy for selling together for the rest of the year acknowledges the unique skills needed to sell OfferFit as it stands now. We are facilitating close collaboration between the Braze team and OfferFit sales reps to help identify opportunities within their current customer base as well as in new business pipelines. We are eager to leverage the insights gained in the next 2.5 quarters to kick off next year with a unified global sales team promoting integrated solutions. We aim to act quickly on this. The existing cross-sell and upsell potential is noteworthy, as our teams have been working with OfferFit to serve our shared customers. While OfferFit has a limited customer base, we have already explored aspects of this cross-selling approach and expect to see significant momentum throughout the year.
Yes. So I think everyone is sort of figuring out when we kind of trough on net retention here. With smaller renewal cohorts in the next 2 quarters, are we approaching that if execution remains as strong as it has maybe this quarter and last? How should we think about the trend of dollar-based net retention from here? I believe we will experience some stabilization in revenue growth before we see that reflected in dollar-based net retention. The available renewal dollars in the coming quarters, especially in Q2 and Q3, will be somewhat lower, but there will still be some churn. However, I wouldn't interpret this as a significant decrease in the rate of change for dollar-based net retention just yet. We aren't making any specific predictions about this trend right now. I would emphasize again that revenue stability will come first.
Our next question comes from Derrick Wood with TD Cowen.
Bill, I wanted to ask about APAC. I know you guys have put some investment there with some sales heads and new data center infrastructure and LINE as a new channel, but it also sounds like maybe there are some pockets of softness from the macro. Just can you talk about how you're feeling about demand and building new growth levers on those investments? And then a quick one for Isabelle. You had strong growth in professional services revenue in the quarter. I was wondering what drove that. Since we've got that spiking and we've got the acquisition folding in, do you care to comment on how to think about growth in subscription revenue versus professional services revenue in the context of your guidance for the full year?
Yes. So when we look on the globe, as I mentioned, we had strength in Q1 across both America and EMEA. We've also, as you've noticed, built on our preexisting data center options that we already had in both the U.S. and in the EU with recently launched data centers in Australia and Indonesia. We also anticipate that as data residency considerations continue to grow in importance, both legally and commercially. By that, I mean that there are certainly markets where data residency and other related concerns are not the law yet, but they are becoming kind of de facto commercial requirements, especially in more regulated industries. We expect to continue expanding that data center footprint over time. Coordinating both Braze's go-to-market and partnership investments alongside them to efficiently support the continued globalization of the customer base across those markets. I mentioned that broadly, we saw less strength in APAC than we did in America and in EMEA, and that certainly was true in Q1, especially as we've seen a little bit of an uneven recovery as the economy in China, which obviously impacts a lot of Southeast Asia, has had an uneven recovery over the last couple of years. But seeing strength in markets like Australia and New Zealand, where we, of course, did open up that data center, we're seeing great growth in different industries and pockets across APAC. It's definitely an area where we are going to continue to invest to make sure that it's part of our long-term global portfolio of business and an important part of our long-term global customer community. We're seeing what we're seeing with respect to America and EMEA strength right now, but it's definitely a place where we want to be investing for the future.
Regarding your question about professional services, this is related to events that occurred in the fourth quarter, during which we observed a strong balance of nearly 50-50 between net new business and our bookings for that quarter. The greater the share of net new business, the more revenue we will generate in the following quarter from implementation and onboarding. That explains some of the dynamics you are observing.
Our next question comes from Tyler Radke with Citi.
First question for Bill. Just go-to-market update. It was great to see the hiring of Myles' replacement. Can you talk about any changes that you intend to make throughout the rest of the year? And then you talked about some of these verticalization strategies around things like financial services. Just curious what type of traction you're seeing there and in regulated industries.
Yes. We're super excited to bring Ed in and bring together his decade of experience scaling at Salesforce and competing in our space, along with his more recent experience as CRO at Asana, where he got hands-on experience with a lot of adjacent buyers and product areas and a different sales motion. I'm really excited to have him come in. There's already a lot going on. The Braze go-to-market priorities for the rest of the year are going to rank consistently as we continue to capitalize on the legacy replacement cycle in the enterprise, especially that strength we're seeing in America and Europe, as I mentioned, across those, investing in those verticalization efforts globally as we continue to bring together those cross-functional teams for both retail and consumer goods and financial services. We're pushing that into coordinated event strategy and market development strategy around the world, including in LatAm and across all of APAC and in GCC. The momentum on those has been really good. We've definitely seen increased momentum. Just I think the awareness of those investments is helping those deal cycles move a lot more efficiently for everyone that's working on those. We're also obviously working to encourage greater customer expansion. We mentioned the pricing and packaging evolution that is helping support that and lowering churn. It's been a culmination of the last 1.5 years of really focused preventative efforts looking at a lot of the upfront around consumption and completeness. A lot of these things that I've been talking about the last few quarters, but obviously, by their nature, you don't really see the benefits of preventative early customer lifecycle churn prevention efforts until you start to renew those customers, and we're going to have that happening later this year, and I think that’s an important driver of some of the improvements in the churn forecast that I mentioned at the top of the call. Those and just making sure that those trend lines continue, those preventive efforts continue to be effective, all are really important goals through the end of the year. Of course, working to rapidly integrate OfferFit, Ed is going to join almost exactly a month after the OfferFit acquisition, which just closed on Monday. We'll have been off to the races from an integration standpoint, and we'll have about a month left in Q2. It's going to be an exciting July as we work through closing out Q2 alongside that OfferFit integration. We're excited to have Ed onboard to help us through that and look ahead then to the rest of the year.
Our next question is from Nick Altmann of Scotiabank.
Awesome. I wanted to circle back to Brian's question, but just going off of strong CRPO and RPO growth in Q1, is Isabelle, I know you said that the strength was broad-based. It was a strong renewal quarter. But just any mix shift in terms of the new ACV in the quarter from net new customers versus cross-sell and upsell. And that's all I got.
Yes, there isn't anything specific to note. As I mentioned, we generally see a mix of around 40% from net new and 60% from upselling, which can vary somewhat. There was nothing unusual about how Q1 performed. These patterns align with our historical trends and what we expect to see moving forward.
Our final question comes from the line of Michael Berg with Wells Fargo.
I wanted to ask one more on OfferFit given that they have large professional services. Is there anything to assess in terms of the mix between subscription revenue and professional services as it relates to the OfferFit revenue you're taking on, Isabelle?
Yes. I mean they're going to behave financially very close to our proportions. In addition, they're small today as a proportion of the total. So I wouldn't expect their financials to significantly change the split between the two for us.
Yes. And longer term as well, and this is already something that's been playing out for them year-over-year. Their overall gross margin inclusive of those professional services has been increasing year-over-year as they've continued to automate more of the prior more manual roles that those professional services were playing. It's been an important part of their product development strategy. As I mentioned, when we announced the acquisition, it's not dissimilar to the forward-deployed engineering model that Palantir has effectively used over the years where they take advantage of the fact that their expert services are out in the field seeing exactly how the product needs to evolve to make those deployed people more efficient and allow them to be more productive over time. OfferFit has been following a very similar model where their expert machine learning services are closely tied to the product roadmap, making them more efficient over time. Similarly, a lot of the actual literal hours, much like with the deployment of Braze where they're going through and they're searching through the data sources, getting data pipeline set up, that, by the way, is something we expect to speed up by utilizing the Braze data platform for OfferFit deployments into the future. It's one of those great R&D and services and delivery synergies that we're looking forward to. Similarly, the overall technology costs of running the reinforcement learning engine of OfferFit is also less infrastructure-intensive than running the Braze event-driven stream processor. While there is a bit of a headwind to their overall gross margin percent in these early years of their product development, we anticipate that in the long run, it will be gross margin accretive for us on a percentage basis.
Just for the record for the call, since this is transcribed, I'm just going to update everybody or just to remind everybody, my name is Isabelle and not Elizabeth.
Thank you, Isabelle. All right, thanks, everybody, for joining us today. We look forward to seeing many of you on the road over the next few months. We have our Annual Shareholder Meeting at the end of June, and we'll be back with you for post Q2 earnings thereafter.