What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-03-31 · 105 added, 125 removed, 289 unchanged (44% of the section changed)

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In addition to historical financial information, the following discussion contains forward-looking statements that are based upon current plans, expectations and beliefs that involve risks and uncertainties.

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those set forth under the section entitled “Risk Factors” in Item 1A of Part II of this Annual Report on Form 10-K.

See “Special Note Regarding Forward Looking Statements” in this Annual Report on Form 10-K.

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Our platform empowers brands to listen to their customers better, understand them more deeply, and act on that understanding in a way that is human and personal.

Using our platform, brands ingest and process customer data in real time, orchestrate and optimize contextually relevant, cross-channel marketing campaigns, and continuously evolve their customer engagement strategies.

Using our platform, brands ingest and process customer data in real time, orchestrate and optimize contextually relevant, marketing campaigns across multiple channels.

Our platform is designed so that interactions between brands and consumers have the same relevance and cross-channel continuity as human interactions.

Our customers include many established global enterprises and leading technology innovators, and span a wide variety of sizes and industries, including retail, eCommerce, media, entertainment and on-demand services.

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We employ a land-and-expand business model centered around offering products that are easy to adopt and have a rapid time to value.

We expand our reach within existing customers when our customers add new channels, purchase additional

subscription products such as Braze Currents, implement new engagement strategies, or onboard new business units and geographies.

We expand our reach within existing customers when our customers add new channels, purchase additional subscription products such as Braze Currents, implement new engagement strategies, or onboard new business units and geographies.

We also grow as our customers grow because our pricing is based in large part on the number of consumers that our customers reach and the volume of messages our customers send.

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Our Non-GAAP free cash flow was $(39.0) million, $(39.8) million and $(10.4) million in the fiscal years ended January 31, 2023, 2022, and 2021, respectively.

See the section titled “— Non-GAAP Free Cash Flow” for additional information about how we calculate free cash flow, a non-GAAP financial metric, and a reconciliation to net cash us ed in operating activities, the most directly comparable measure calculated in accordance with accounting principles generally accepted in the United States, or GAAP.

Factors Affecting Our Performance

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Our out-of-product channels include, but are not limited to, mobile push notifications, web push notifications, email, SMS and MMS messages, webhooks, Facebook and Google advertisements and multiple over-the-top media services and connected TV channels.

We have also added early access to both WhatsApp and TikTok advertisements to certain customers on our platform.

In addition to monthly active users, we have a history of increasing annual recurring revenue, or ARR, from our customers.

We define ARR as the annualized value of customer subscription contracts, including certain premium professional services that are subject to contractual subscription terms, as of the measurement date, assuming any contract that expires during the next 12 months is renewed on its existing terms (including contracts for which we are negotiating a renewal).

calculation of ARR is not adjusted for the impact of any known or projected future events (such as customer cancellations, expansion or contraction of existing customers relationships or price increases or decreases) that may cause any such contract not to be renewed on its existing terms.

Our calculation of ARR is not adjusted for the impact of any known or projected future events (such as customer cancellations, expansion or contraction of existing customers relationships or price increases or decreases) that may cause any such contract not to be renewed on its existing terms.

Our ARR may decline or fluctuate as a result of a number of factors, including customers’ satisfaction or dissatisfaction with our products and professional services, pricing, competitive offerings, economic conditions or overall changes in our customers’ spending levels.

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We expect to increase market penetration in regions including Europe and Asia-Pacific and to further capitalize on the greenfield opportunity in regions such as Latin America.

For example, in the second half of fiscal year 2021, we entered into a joint venture with our partner Japan Cloud Computing Co., Ltd., to facilitate further expansion into the Japanese market.

Although these investments in geographic regions may negatively affect our operating results in the near term, we believe that they will contribute to our long-term growth.

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We are focused on investing in research and development to continue to enhance our platform.

For example, we continue to develop our artificial intelligence capabilities to enable brands to better analyze and act on customer data.

For example, we continue to enable brands to better analyze and act on customer data, to develop our artificial intelligence capabilities, and to expand on channel offerings.

We believe our market-driven product development approach maximizes the return on new feature development and channel expansion.

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We intend to continue to invest in building additional products that expand our capabilities and facilitate the extension of our platform to new channels and use cases.

Impact of COVID-19 on Our Business

Beginning in January 2020, the COVID-19 pandemic caused general business disruption worldwide.

In response to the spread of COVID-19, including the emergence of new variant strains of COVID-19, a significant portion of our employees

currently work remotely to minimize the risk of the virus to our employees and the communities in which we operate, and we may continue to take actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, and business partners.

While we do not believe our results of operations, cash flows and financial condition have been materially impacted due to the COVID-19 pandemic to date, we have experienced, and may continue to experience, a modest adverse impact on certain aspects of our business, including a lengthening of the sales cycle for some prospective customers.

We have also experienced, and may continue to experience, a modest positive impact on other aspects of our business, including an increase in the volume of messaging utilized by our existing customers.

Moreover, we have seen slower growth in certain operating expenses due to reduced business travel, the virtualization or cancellation of customer and employee events and reduced lease obligations.

While a reduction in these operating expenses may have an immediate positive impact on our results of operations, we do not yet have visibility into the full impact this will have on our business and we do not know if or when these expenses will return to pre-pandemic levels, which could negatively impact our results of operations in the future.

Certain of our customers negatively impacted by the spread of COVID-19 decreased or delayed their spending, requested pricing discounts, requested modified payment terms or sought to reduce their commitments when renewing subscriptions, and they may continue to do so, any of which may result in decreased revenue and cash receipts for us.

Our customers that were positively impacted by increased demand during the COVID-19 pandemic may have similar requests or experience similar issues if this increased demand does not continue in the recovery from the COVID-19 pandemic.

Additionally, we cannot predict what, if any, changes to our business and the global economy generally will persist following the COVID-19 pandemic or how our business or the global economy will be impacted as restrictions on in-person activities are relaxed and the world returns to pre-pandemic normalcy.

Given the uncertainty, we cannot reasonably estimate the impact on our future results of operations, cash flows or financial condition.

For additional details, see the section titled “Risk Factors.”

Impact of Global Events and Macroeconomic Conditions on Our Business

Unfavorable conditions in the economy, both in the United States and abroad, may negatively affect the growth of our business and our results of operations.

For example, global, macroeconomic events such as (1) the COVID-19 pandemic or any other similar health pandemic, including the emergence of new variant strains of COVID-19, and any uncertainties related to the recovery therefrom, (2) international conflicts that may impact international trade and global economic performance, such as the ongoing conflict between Russia and Ukraine and the related economic sanctions imposed by the United States and its trading partners against Russia and Belarus and (3) other macroeconomic trends, such as international and domestic supply chain risks, inflationary pressure, interest rate increases and declines in consumer confidence, that impact us and our customers, have led to economic uncertainty.

Additionally, the rapid collapse of Silicon Valley Bank and Signature Bank has raised questions regarding the stability of other U.S.

While, to date, we have not been materially impacted by such events, if our primary banking partners, or the banking partners of our customers, were to experience a similar crisis, it may cause a material impact on our liquidity or the liquidity of our customers.

Further, we cannot predict what effect, if any, the collapse of Silicon Valley Bank and Signature Bank and the current stress on other financial institutions will have on our customers who relied on these institutions as their primary financial institution.

If these customers face liquidity challenges as a result of these recent collapses, it may cause such customers to delay, or fail to, make payments to us or otherwise reduce their demand for our products.

Historically, during periods of economic uncertainty and downturns, businesses slow spending on information technology, which may impact our business.

Additionally, these macroeconomic conditions have also negatively impacted the businesses of some of our customers and potential customers, which in turn may cause them to decrease spending on customer engagement tools, such as our platform.

In recent quarters, we have seen slower growth from new customers, which may be related to the uncertain macroeconomic environment.

We cannot predict if these trends will continue, and, accordingly, we are not able to estimate the ongoing effects on our results of operations, financial condition or liquidity as a result of these macroeconomic factors.

For additional details, see the section titled “Risk Factors” in Item 1A of Part I of this Annual Report on Form 10-K.

Components of Results of Operations

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We intend to continue to invest in sales and marketing to help drive the growth of our business.

During the short term, we expect travel to remain lower than our historical pre-pandemic norms as we focus our marketing and sales activities on virtual platforms.

However, we expect our sales and marketing expenses will increase in absolute dollars as we continue to invest in sales and marketing activities to acquire new customers and increase sales to existing customers.

We expect our sales and marketing expenses will increase in absolute dollars as we continue to invest in sales and marketing activities to acquire new customers and increase sales to existing customers.

Research and Development

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General and administrative expenses consist primarily of personnel costs for finance, legal, human resources and other administrative functions, as well as non-personnel costs such as legal, accounting and other professional service fees, software costs, certain tax, license and insurance-related expenses and allocated overhead costs.

Additionally, from time to time general and administrative expenses may include expenses associated with our donation of shares of our Class A common stock to a charitable donor-advised fund in connection with our Pledge 1% commitment.

We expect that general and administrative expenses will increase in absolute dollars and vary from period to period as a percentage of revenue for the foreseeable future but decrease as a percentage of revenue over the long term, as we focus on processes, systems, and controls to enable our internal support functions to scale with the growth of our business.

We expect to incur additional expenses as a result of operating as a public company, including expenses to comply with the rules and regulations applicable to companies listed on The Nasdaq Stock Market LLC, expenses related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, and higher expenses for directors’ and officers’ insurance, investor relations and professional services.

Investment Income

Investment income consists primarily of income earned on our investments, cash and cash equivalents and restricted cash.

Other Income (Expense), Net

Other income (expense), net, primarily consists of net exchange gains or losses on foreign currency transactions.

Other income (expense), net, primarily consists of net exchange gains or losses on foreign currency transactions and investment income consists primarily of income earned on our investments, cash and cash equivalents, and restricted cash.

Provision for Income Taxes

Provision for income taxes consists of state income taxes and income taxes in certain foreign jurisdictions in which we conduct business.

We maintain a full valuation allowance on our net deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized.

We maintain a full valuation allowance in jurisdictions where we had net deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized.

Results of Operations

The following table sets forth our consolidated statement of operations data for each of the periods indicated:

The following table sets forth our consolidated statements of operations data for each of the periods indicated:

Fiscal Year Ended January 31,

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Loss from operations (148,140) (78,211) (32,152)

Other income (expense):

Investment income 137 840 2,127

Other (expense) income, net (258) (120) 48

Other income (expense), net 7,977 (121) 720

Loss before provision for income taxes (140,163) (78,332) (31,432)

(Benefit from) provision for income taxes (165) 537 452

Provision for (benefit from) income taxes 583 (165) 537

Net loss $ (140,746) $ (78,167) $ (31,969)

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Total $ 72,217 $ 47,180 $ 7,540

The following table sets forth our consolidated statement of operations data expressed as a percentage of revenue for each of the periods indicated:

The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue for each of the periods indicated:

Fiscal Year Ended January 31,

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Loss from operations (42) % (33) % (21) %

Other income (expense):

Investment income — % 1 % 2 %

Other (expense) income, net — % — % — %

Loss before (benefit of) provision for income taxes (33) % (20) % (33) %

(Benefit of) provision for income taxes — % — % — %

Other income (expense), net 2 % — % 1 %

Loss before provision for income taxes (40) % (33) % (20) %

Provision for (benefit from) income taxes — % — % — %

Net loss (40) % (33) % (20) %

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The increase in revenue of $117.4 million, or 49.3%, for the fiscal year ended January 31, 2023 compared to the fiscal year ended January 31, 2022 was primarily driven by an $116.7 million or 53% increase in subscription revenue.

Approximately 62.0% of the increase in subscription revenue was attributable to the growth from existing customers due to customer expansion of committed entitlements and features, and the remaining 38.0% was attributable to new customers.

Total customers grew to 1,375 as o f January 31, 2022 from 890 as of January 31, 2021.

The increase in total customers was the primary driver of a $7.2 million or 79.4% increase in professional services revenue from configuration services provided to those new customers.

Approximately 72.5% of the increase in subscription revenue was attributable to the growth from existing customers due to customer expansion of committed contractual entitlements and features, and the remaining 27.5% was attributable to new customers.

Total customers grew to 1,770 as of January 31, 2023 from 1,375 as of January 31, 2022.

Professional services revenue increased $0.7 million, or 4%.

The slower acceleration rate in professional services revenue was expected as new customers increasingly engaged with third-party partner-led onboarding services.

The overall professional services revenue growth was driven by an increase in premium deliverability service fees, such as email deliverability support and dedicated technical support staff.

Additionally, in the fiscal year ended January 31, 2023, our international revenue increased by $55.1 million as we continue to expand market penetration in regions such as Europe and Asia-Pacific.

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T he increase in cost of revenue of $37.3 million, or 47.5%, for the fiscal year ended January 31, 2023 compared to the fiscal year ended January 31, 2022 was primarily driven by an increase of $15.4 million in hosting, infrastructure, and other third-party fees associated with delivering our platform and an $11.2 million increase in third-party messaging fees associated with growth in our email and SMS channels.

In addition, we had an increase in personnel costs and overhead costs of $4.2 million .

In addition, we had an increase in personnel and overhead costs of $10.3 million.

The increased infrastructure, messaging, and personnel costs were incurred to support overall revenue growth.

Our gross profit increased $63.8 million, or 66.7% , in t he fiscal year ended January 31, 2022 compared to the fiscal year ended January 31, 2021, and our gross margin increased by 3.3% to 67.0% in the fiscal year ended January 31, 2022 from 63.7% in the fiscal year ended January 31, 2021.

These increases were due to economies of scale as our infrastructure costs to support our revenue growth did not increase at the same pace as our revenue.

Our gross profit increased $80.1 million, or 50.2%, in the fiscal year ended January 31, 2023 compared to the fiscal year ended January 31, 2022, and our gross margin increased by 0.4% to 67.4% in the fiscal year ended January 31, 2023 from 67.0% in the fiscal year ended January 31, 2022.

These increases were due primarily to economies of scale as our infrastructure costs to support our revenue growth did not increase at the same pace as our revenue, the increases were partially offset by a

one-time vendor charge.

In addition, we have undertaken initiatives to optimize the costs of our tech stack and drive personnel efficiencies related to customer support functions.

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Sales and marketing $ 201,684 $ 127,137 $ 74,547 58.6 %

The increase in sales and marketing expense of $56.5 million, or 79.9% , for the fiscal year ended January 31, 2022 compared to the fiscal year ended January 31, 2021 was primarily driven by an increase in personnel costs and overhead costs of $42.4 million, which included $13.4 million of stock-based compensation costs, as a result of a year-over-year increase in headcount, and an increase in software and recruiting fees of $2.1 million as we continue to expand our sales and marketing presences globally.

Additionally, the increase was driven in part by an increase in amortization of deferred contract costs of $6.4 million as a result of sales growth, an increase of $0.7 million in travel and entertainment costs due to the loosening of COVID-19 travel and event restrictions, and an increase in advertising and marketing costs of $4.1 million.

The increase in sales and marketing expense of $74.5 million, or 58.6%, for the fiscal year ended January 31, 2023 compared to the fiscal year ended January 31, 2022 was primarily driven by an increase in personnel and overhead costs of $47.2 million, which included $7.6 million of stock-based compensation costs, as a result of a year-over-year increase in headcount, coupled with an overall increase in grant date fair value of the equity awards.

Software costs to support our sales function and recruiting fees increased $2.6 million as we continue to expand our sales and marketing presences globally.

Additionally, the increase was driven in part by an increase in amortization of deferred contract costs of $8.4 million as a result of sales growth and an increase of $15.6 million in promotional, marketing, and travel and entertainment costs were primarily due to the loosening of COVID-19 travel and event restrictions which allowed for in-person, internal company trainings, in-person marketing events and in-person customer meetings.

Research and Development Expense

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Research and development $ 97,293 $ 59,034 $ 38,259 64.8 %

Th e increase in research and development expense of $29.8 million, or 102.1% , for the fiscal year ended January 31, 2022 compared to the fiscal year ended January 31, 2021 was primarily driven by an increase of personnel and overhead costs of $27.2 million, which included $13.5 million of stock-based compensation costs .

Th e increase in research and development expense of $38.3 million , or 64.8%, for the fiscal year ended January 31, 2023 compared to the fiscal year ended January 31, 2022 was primarily driven by an increase of personnel and overhead costs of $35.8 million , which included $13.3 million of stock-based compensation costs , to support our continued investment in the features and functionality of our platform, coupled with an overall increase in grant date fair value of the equity awards.

The increase in personnel costs was primarily due to a year-over-year increase in headcount.

In addition, professional service fees increased $1.0 million and infrastructure and software costs increased $0.8 million as part of our strategy to continue investing in our technology and to develop new and improve existing functionalities for our platform.

In addition, software costs increased $1.5 million as we continue investing in our platform.

General and Administrative Expense

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General and administrative $ 88,771 $ 51,564 $ 37,207 72.2 %

The increase in general and administrative expenses of $23.6 million, or 84.4% , for the fiscal year ended January 31, 2022 compared to the fiscal year ended January 31, 2021 was primarily driven by an increase in personnel and overhead costs of $20.9 million, which included $11.2 million of stock-based compensation costs .

The increase in personnel costs was primarily due to a year-over-year increase in headcount as we continue to invest in our finance and administrative functions to build processes, systems, and controls to enable our internal support functions to scale with the growth of our business.

addition, there was an increase in software costs of $1.6 million incurred in connection with our public company readiness initiatives, including investments in our infrastructure to support our operations.

The increase in general and administrative expenses of $37.2 million, or 72.2%, for the fiscal year ended January 31, 2023 compared to the fiscal year ended January 31, 2022 was primarily driven by an increase in personnel and overhead costs of $21.8 million , which included $2.7 million of stock-based compensation costs, a nd an increase in legal, regulatory, and professional services costs of $5.9 million.

The increases were primarily due to a period-over-period increase in headcount, coupled with an overall increase in grant date fair value of the equity awards, as well as continued investments in our finance and administrative functions to build processes, systems, and controls to enable our ongoing compliance with public company legal and regulatory requirements.

Software costs increased $2.6 million due to an increase in software subscriptions and the need for additional licenses related to existing subscriptions to support the continued optimization of our administrative support functions.

In addition, costs increased $1.2 million in travel and entertainment, marketing, and promotion costs due to the loosening of COVID-19 travel and event restrictions which allowed for in-person, internal company meetings and trainings.

Additionally, we donated shares of our Class A common stock to a charitable donor-advised fund in connection with our Pledge 1% commitment valued at $4.3 million.

Other Income (Expense)

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($ in thousands)

Investment income $ 137 $ 840 $ (703) (83.7) %

Other (expense) income, net $ (258) $ (120) $ (138) 115.0 %

Other income (expense), which primarily consists of gains and losses from foreign exchange and investment income from marketable securities, decreased primarily due to a reduction in marketable securities and investments with a shorter time to maturity.

Other income (expense), net $ 7,977 $ (121) $ 8,098 n/m

n/m - not meaningful

The increase in other income, net was primarily driven by investment income in marketable securities.

The increase in investment income was substantially related to the higher cash and investments balances maintained related to the proceeds received upon completion of our initial public offering in November 2021.

Liquidity and Capital Resources

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As of January 31, 2023, our principal source of liquidity was cash, cash equivalents and marketable securities of $482.7 million .

Our cas h and cash equivalents consist of deposit accounts, interest-bearing money market accounts and overnight short-term repurchase agreements that are stated at fair value.

Our cas h and cash equivalents consist of deposit accounts, interest-bearing money market accounts, and U.S.

government securities that are stated at fair value.

Our marketable securities positions consists mostly of highly liquid short-term investments.

The investment income that we generate on these investments is not material to our overall cash balance, but may be adversely affected due to volatility in interest rates.

In November 2021 , we closed our initial public offering through which we issued and sold 7,500,000 share s of our Class A common stock at an offering price of $65.00 per share, including 800,000 shares pursuant to the underwriters’ overallotment option to purchase additional shares of our Class A common stock, resulting in aggregate net proceeds to us of $456.8 million after deducting underwriting discounts and commissions and related offering expenses.

Since our inception, we have financed our operations primarily through the net proceeds received from the sales of equity securities and cash generated from the sale of subscriptions to our platform.

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Net cash used in operating activities $ (22,308) $ (35,398) $ (6,080)

Net cash provided by/(used in) investing activities $ 18,040 $ 22,472 $ (87,234)

Net cash (used in)/provided by investing activities $ (398,519) $ 18,040 $ 22,472

Net cash provided by financing activities $ 11,332 $ 467,910 $ 4,866

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For the fiscal year ended January 31, 2023, net cash used in operating activities was $22.3 million, primarily due to a net loss of $140.7 million adjusted for non-cash charges of $109.0 million and net changes in our operating assets and liabilities of $9.4 million.

The non-cash adjustments primarily relate to stock-based compensation of $72.2 million, amortization of deferred contract costs of $23.6 million, depreciation and amortization expense of $4.6 million, and expense associated with the donation of our Class A common stock to a charitable donor-advised fund of $4.3 million.

The cash inflows from changes in our operating assets and liabilities were primarily due to an increase in deferred revenue of $39.9 million as a result of increased billings driven by timing of subscriptions and renewals.

The cash inflows were offset by cash outflows primarily from an increase in deferred contract costs of $30.5 million as a result of commissions on new bookings and renewals.

For the fiscal year ended January 31, 2022, net cash used in operating activities was $35.4 million, primarily due to a net loss of $78.2 million adjusted for non-cash charges of $68.4 million and net changes in our operating assets and liabilities of

$25.7 million.

The non-cash adjustments primarily relate to stock-based compensation of $47.2 million, amortization of deferred contract costs of $17.7 million and depreciation and amortization expense of $2.8 million.

The cash outflow from

changes in our operating assets and liabilities were primarily due to an increase in deferred contract costs and accounts receivable of $32.0 million and $29.8 million, respectively, as a result of commissions and billings for new bookings and renewals and prepaid expense and other current assets of $17.5 million due to prepayments for third-party software fees, primarily consisting of hosting arrangements.

The cash outflow from changes in our operating assets and liabilities were primarily due to an increase in deferred contract costs and accounts receivable of $32.0 million and $29.8 million, respectively, as a result of commissions and billings for new bookings and renewals and prepaid expense and other current assets of $17.5 million due to prepayments for third-party software fees, primarily consisting of hosting arrangements.

The cash outflow was offset by cash inflows primarily from an increase in deferred revenue of $51.5 million, as a result of increased billings driven by timing of subscriptions and renewals and an increase in total bookings, and an overall increase in accrued expenses and other current liabilities of $6.0 million related to employee compensation costs.

For the fiscal year ended January 31, 2021, net cash used in operating activities was $6.1 million, primarily due to a net loss of $32.0 million adjusted for non-cash charges of $21.2 million and net changes in our operating assets and liabilities of $4.7 million.

The non-cash adjustments primarily relate to stock-based compensation of $7.5 million, amortization of deferred contract costs of $10.6 million and depreciation and amortization expense of $1.6 million.

The cash inflow from changes in our operating assets and liabilities was primarily the result of an increase of deferred revenue of $23.4 million due to timing of subscriptions and renewals and an overall increase in revenue and an increase in accrued expenses and other current liabilities of $13.8 million incurred to support the growth of the business.

The increases were partially offset by an increase in accounts receivable and deferred contract costs of $12.4 million and of $20.0 million, respectively, due to increases in revenue.

Investing Activities

Net cash used in investing activities was $398.5 million for the fiscal year ended January 31, 2023, primarily consisting of purchases of marketable securities of $638.2 million, partially offset by maturities of marketable securities of $256.4 million.

Net cash provided by investing activities was $18.0 million for the fiscal year ended January 31, 2022, primarily consisting of maturities of marketable securities of $59.3 million, partially offset by purchases of marketable securities of $36.9 million, purchases of property and equipment of $2.3 million and capitalized internal-use software costs of $2.1 million.

Net cash provided by investing activities was $22.5 million for the fiscal year ended January 31, 2021, primarily consisting of maturities of marketable securities of $86.2 million, partially offset by purchases of marketable securities of $59.4 million and purchases of property and equipment and capitalized internal-use software costs of $2.5 million and $1.9 million, respectively.

Financing Activities

Net cash provided by financing activities was $467.9 million for the fiscal year ended January 31, 2022, primarily consisting of the proceeds from the issuance of common stock upon our initial public offering, net of underwriting discounts and offering costs of $457.1 million, proceeds from the exercise of common stock options of $8.4 million and an investment from our redeemable non-controlling interest in connection with our joint venture Braze KK of $2.5 million.

Net cash provided by financing activities was $4.9 million for the fiscal year ended January 31, 2021, primarily consisting of the proceeds from the exercise of common stock options of $2.8 million and an investment in our redeemable non-controlling interest in connection with our joint venture Braze KK of $2.5 million.

Net cash provided by financing activities was $11.3 million for the fiscal year ended January 31, 2023, consisting solely of proceeds from the exercise of common stock options.

Net cash provided by financing activities was $467.9 million for the fiscal year ended January 31, 2022, primarily consisting of the proceeds from the issuance of Class A common stock upon our initial public offering, net of underwriting discounts and offering costs, of $457.1 million, proceeds from the exercise of common stock options of $8.4 million and an investment from our redeemable non-controlling interest in connection with our joint venture Braze KK of $2.5 million.

Non-GAAP Free Cash Flow

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Some of these limitations are (1) it is not a substitute for net cash used in operating activities, (2) other companies may calculate free cash flow or similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of free cash flow as a tool for comparison, and (3) the utility of free cash flow is further limited as it does not reflect our future contractual commitments and does not represent the total increase or decrease in our cash balance for any given period.

The following table presents a reconciliation of free cash flow to net cash used in operating activities, the most directly comparable measure calculated in accordance with GAAP, for the periods presented:

The following table presents a reconciliation of free cash flow to net cash provided by/(used in) operating activities, the most directly comparable measure calculated in accordance with GAAP, for the periods presented:

Fiscal Year Ended January 31,

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Non-GAAP Free cash flow $ (39,013) $ (39,773) $ (10,432)

Net cash provided by (used in) investing activities $ 18,040 $ 22,472 $ (87,234)

Net cash (used in)/provided by investing activities $ (398,519) $ 18,040 $ 22,472

Net cash provided by financing activities $ 11,332 $ 467,910 $ 4,866

Our free cash flow decreased for the fiscal year ended January 31, 2022 from the fiscal year ended January 31, 2021, primarily as a result of continued investment in our sales and marketing function and in our infrastructure to support the growth of our business and our operations as a public company.

Our free cash flow increased slightly for the fiscal year ended January 31, 2023 from the fiscal year ended January 31, 2022, primarily as a result of continued investment in our sales and marketing function and in our infrastructure to support the growth of our business and our operations as a public company.

We expect our free cash flow to fluctuate in future periods with changes in our operating expenses and as we continue to invest in our growth.

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Comparison of the Fiscal Years Ended January 31, 2022 and January 31, 2021

For a discussion regarding our financial condition and results of operations for the fiscal year ended January 31, 2021 compared to the fiscal year ended January 31, 2020, refer to “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Final Prospectus filed with the SEC pursuant to Rule 424(b)(4) on November 18, 2021.

We may experience seasonality in our cost of revenue as a result of our customers’ increase usage of our platform based on their business demands.

For a discussion regarding our financial condition and results of operations for the fiscal year ended January 31, 2022 compared to the fiscal year ended January 31, 2021, refer to “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for our fiscal year ended January 31, 2022, filed with the SEC on March 31, 2022.

We have experienced seasonality in our cost of revenue as a result of our customers’ increased usage of our platform based on their business demands.

We typically experience the highest sequential increase in overall messaging volume and compute and storage requirements during the fourth quarter due to the increased activity related to the holiday season and general customer engagement efforts around the end of the calendar year.

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The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures.

evaluate our estimates and assumptions on an ongoing basis.

We evaluate our estimates and assumptions on an ongoing basis.

Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances.

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Revenue Recognition

We recognize revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, which we adopted as of February 1, 2019 on a modified retrospective basis.

We generate revenue from fees related to subscription services and professional services and other.

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Stock-Based Compensation

Accounting for stock-based compensation requires us to make a number of judgments, estimates and assumptions.

We estimate the fair value of stock options granted to employees and directors using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including (1) fair value of common stock, (2) expected volatility, (3) expected term of the award, (4) the risk-free interest rate and (5) expected dividends.

We estimate forfeitures at the date of grant and revised, if necessary, in subsequent periods.

These assumptions are estimated as follows:

• Fair value of common stock .

Prior to the Company’s initial public offering, the estimated fair value of the Company’s shares were determined based on the “— Common Stock Valuations” discussion below.

We measure and record the expense related to stock-based payment awards based on the fair value of those awards as determined on the date of grant.

We recognize stock-based compensation expense over the requisite service period of the individual grant, generally equal to the vesting period, and use the straight-line method to recognize stock-based compensation.

We use the Black-Scholes-Merton, or Black-Scholes, option pricing model to determine the fair value of stock based awards.

We estimate expected forfeitures of stock-based awards at the grant date and recognize compensation cost only for those awards expected to vest.

We estimate our forfeitures rate based on an analysis of our actual historical forfeitures materializing in the previous fiscal years, and revise the estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

We routinely evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and expectations of future option exercise behavior.

We calculate the fair value of options granted by using the Black-Scholes option-pricing model with the following assumptions:

Expected Volatility

Due to the lack of historical and implied volatility data of our common stock, the expected stock price volatility has been estimated based on the historical volatilities of a specified group of companies in our industry for a period equal to the expected life of the option.

We selected companies with comparable characteristics to us, including enterprise value, risk profiles and position within the industry, and with historical share price information sufficient to meet the expected term of the stock options.

We compute the historical volatility data using the daily closing prices for the selected companies.

We estimate volatility for option grants by evaluating the average historical volatility of a peer group of companies for the period immediately preceding the option grant for a term that is approximately equal to the options’ expected term since we do not have sufficient trading history of our common stock.

Expected Term

We determine the expected term based on the average period the stock options are expected to remain outstanding using the simplified method, generally calculated as the midpoint of the stock options’ vesting term and contractual expiration period, as we do not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior.

The expected term of our stock options represents the period that the stock-based awards are expected to be outstanding.

We have elected to use the simplified method to compute the expected term, which we believe is representative of future behavior.

Our stock plans provide a contractual term of 10 years before the option is forfeited.

Risk-Free Interest Rate

We use the U.S.

Treasury yield that corresponds with the expected term for our risk-free interest rate.

• Expected dividends .

We utilize a dividend yield of zero, as we do not currently issue dividends and do not expect to do so in the foreseeable future.

• Forfeiture rate .

We are required to estimate a forfeiture rate to calculate the stock-based compensation expense for our awards.

Our forfeiture rate is based on an analysis of our actual forfeitures since the adoption of our equity award plan.

We routinely evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and expectations of future option exercise behavior.

We will continue to use judgment in evaluating the assumptions related to our stock-based compensation on a prospective basis.

As we continue to accumulate additional data related to our common stock, we may have refinements to our estimates, which could materially impact our future stock-based compensation expense.

Refer to Note 12.

Employee Stock Plans for details around the assumptions used for valuing stock options.

Common Stock Valuations

Prior to our initial public offering, the fair value of the shares of our common stock underlying the stock options has historically been determined by our board of directors, with input from management and contemporaneous third-party valuations, as there was no public market for our common stock.

We believe that our board of directors has the relevant experience and expertise to determine the fair value of our common stock.

In accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately Held Company Equity Securities Issued as Compensation, our board of directors has exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each grant date.

These factors include:

• the prices of our common or preferred stock sold to third-party investors by us and in secondary transactions;

• lack of marketability of our common stock;

• our actual operating and financial performance;

• current business conditions and projections;

• hiring of key personnel and the experience of our management;

• our history and the introduction of new services;

• our stage of development;

• likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition given prevailing market conditions;

• the market performance of comparable publicly traded companies;

• United States and global capital markets conditions.

Our board of directors historically determined the value of our common stock by probability-weighting different valuation approaches and methodologies, including both the income approach and select methodologies from the market approach.

The income approach estimates value based on the expectation of future cash flows that a company will generate.

These future cash flows are discounted to their present values using our weighted average cost of capital, or WACC.

To derive our WACC, we calculate a cost of equity using the Capital Asset Pricing Model and comparable company betas while benchmarking to relevant equity return studies, and we calculate a cost of debt using our estimated cost of borrowing.

The costs of equity and debt are then weighted based on our actual capital structure.

The comparable company method is a market approach that estimates value based on a comparison of our company to comparable public companies in a similar line of

business and based on acquisitions in the market.

From the comparable companies, a representative market multiple is determined and subsequently applied to our historical and forecasted financial results to estimate our enterprise value.

The recent security transaction method is a market approach that considers the recent price paid by market participants for a security issued by our company to estimate our enterprise value.

While we have historically considered an income approach, we have never included or relied upon a discounted cash flow analysis due to the lack of historical and projected profitability.

Application of these approaches involves the use of estimates, judgment and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and future cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of possible future events.

The risk-free interest rate is based on the implied yield currently available on U.S.

Treasury zero-coupon issues with an equivalent term of the expected life of the option on the grant date.

Dividend Yield

We have not declared or paid dividends to date and do not anticipate declaring dividends in the foreseeable future.

As such, the dividend yield has been estimated to be zero.

Fair Value of Common Stock

Prior to our initial public offering, the fair value of the common stock underlying the stock option awards was determined by our board of directors.

Given the absence of a public trading market, our board of directors considered numerous objective and subjective factors to determine the fair value of our common stock at each meeting at which awards were approved.

These factors included, but were not limited to, (i) contemporaneous third party valuations of our common stock;

(ii) the rights, preferences, and privileges of our convertible preferred stock relative to our common stock;

(iii) the lack of marketability of our common stock;

(iv) stage and development of our business;

(v) general economic conditions;

and (vi) the likelihood of achieving a liquidity event, such as an initial public offering or sale of our company, given prevailing market conditions.

To evaluate the fair value of the underlying shares for grants between two independent valuations and after the last independent valuation, a linear interpolation framework was used.

Subsequent to our initial public offering, the fair value of each share of underlying common stock is based on the closing price of our Class A common stock as reported on the Nasdaq Stock Market on the date of grant.

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Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, we would charge an adjustment to the valuation allowance to earnings in the period when such determination is made.

As of January 31, 2022, we recorded a full valuation allowance on our net deferred tax assets, which consist of net operating loss carryforwards and other basis differences, as we have concluded that it is more likely than not that our deferred tax assets will not be realized.

As of January 31, 2023, we recorded a full valuation allowance in jurisdictions where we had net deferred tax assets, which consist of net operating loss carryforwards and other basis differences, as we have concluded that it is more likely than not that our deferred tax assets will not be realized.

Recently Adopted Accounting Pronouncements

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JOBS Act Accounting Election

Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards.

Section 107(b) of the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards.

Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt some of the reduced disclosure requirements available to emerging growth companies.

As a result of the accounting standards election, we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies.

We previously elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt some of the reduced disclosure requirements available to emerging growth companies.

As a result of the accounting standards election, we have not historically been subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies.

This may make comparison of our consolidated financial statements to those of other public companies more difficult.

Based on the market value of our common equity held by non-affiliates as of July 29, 2022 (the last business day of our most recently completed second fiscal quarter), we ceased to qualify as an emerging growth company as of the end of the fiscal year ended January 31, 2023.

As a result, we will no longer be able to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

In addition, we will no longer be able to use the extended transition period for complying with new or revised accounting standards available to emerging growth companies and will be required to adopt new or revised accounting standards as of the effective dates for public companies.

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What changed 10-K

Item 7. Management’s Discussion and Analysis