Thanks for joining Citi's Tech Conference, day three. Happy Friday to everybody. My name is Tyler Radke, co-head of U.S. Software Equity Research here at Citi. To kick the day off for software, we have New York's local marketing automation company, Braze. We have the Founder, CEO, Bill Magnuson, and CFO, Isabelle Winkles. I know you were busy last night with earnings, so appreciate you coming bright and early.
Yep.
to our conference.
For sure.
Yeah. I think two years in a row. So maybe for folks here in the room and on the webcast who haven't heard of Braze, just give us a quick overview, who the company is and what you do.
Yeah, sure. So we were founded in 2011, right here in New York City, so we just celebrated our 13-year anniversary over the summer, and what we do is customer engagement, primarily for consumer brands, and what that means is that, like, what that means literally is that we ingest a tremendous amount of data, literally trillions of data points on behalf of our, you know, a bit over 2,000 customers every year, and use that in order to drive also trillions of messages to people. We send messages across push notifications, email, SMS, WhatsApp. We deliver messages inside of product experiences, both ephemeral ones, things like surveys and pop-ups and notifications, as well as doing things like running inboxes inside of products.
We ingest, or we include a huge amount of intelligence into all that, obviously, helping with things like who are you talking to, orchestrating and prioritizing different strategies that a brand might have, being able to personalize and optimize relevance within the content, whether that relevance means, showing up at the right time, saying the right thing, connecting with someone, through that context. Over the years, we've continued to expand to new channels, new platforms, being effectively anywhere that the customer is on their journey, and I think that, a really big part of what distinguishes, you know, modern customer engagement from what we would have talked about before is either email marketing or marketing automation or what have you, are a few things.
You know, one is that the modern customer experience is always on, and so the importance of the ability to activate and understand data in real time is of the utmost, especially for brands that are in highly competitive global digital industries, and we'll talk a little bit more about the global nature of this problem, you know, as we continue through this chat. The other side is that I think that the importance of customer engagement really being a companion to the user journey is a really important thing to realize, kind of understanding the context of the customer as they move through your... you know, utilize your product or your service, and being able to be there to provide the right nudges, to be silent when it's appropriate to be silent, right?
This isn't just about kind of broadcasting spammy messages into a cluttered inbox anymore, and that really connects back into another important theme, which is the importance of first-party data right, so so many brands now are investing in building up first-party data sets and investing in evolutions of their own products and services that allow for them to have a first-party connection with the customer, and this isn't just the obvious examples, like Disney launching Disney+ .
You know, it also includes things like looking at the automotive industry, where, you know, you would drive a car from an automobile manufacturer every single day of your life and largely only interact with them by throwing away their warranty cards when they send them to you in your mailbox, right? Now, through a connected car and being able to unlock your vehicle with a mobile app, all of a sudden, they actually have an ability to understand your driving habits and communicate with you every single day, and that fundamentally changes what they can do from a customer engagement standpoint, and it allows them to actually inform their business model in interesting and innovative ways.
And we're seeing examples of that across all different categories as brands are investing in getting closer to the consumer, understanding them better, and then leveraging that understanding as an asset to their business in order to drive additional revenue, higher levels of attachment to those customers, and more efficient ways of communicating with them.
Yeah. No, it's a great overview, and maybe before we get into the details of sort of the business momentum on the results, just sort of a high-level question, as you think about where we are on that journey in terms of brands having that first-party relationship with customers, I guess, how far do you think we are in that journey? And I guess in some ways, the example of driving a car off the dealer's lot, you know, you, that might be the only time you interact with them. But you know, at the same time, consumers are inundated with notifications, you know, from kind of chatty or spammy apps. So-
Yep.
How do you sort of see this moving forward? Where are we in that cycle, and how do you kind of find that balance?
Yeah. I mean, I think we're still very early. When we kind of look at first-party data evolution for a brand, there's kind of three stages. The first one has been that most brands are in now, and you read a lot about the death of the cookie and, you know, the death of the cookie continues to get postponed. But, the simple fact of the matter when you look at GDPR and a lot of the changes in the kind of privacy landscape is that a lot of brands that were previously relying on kind of renting or buying third-party data sets in order to do their targeting are now finding that those strategies are ineffective, incomplete, or illegal in some cases.
And that is obviously an impetus for many of them to start to build their own first-party data sets. And that's kind of a, you know, it's a loss avoidance pressure that exists. They were doing something before, that thing's becoming less effective now. They want to be able to keep doing it, to build that first-party data set in order to keep on running their perform- in many cases, their performance marketing strategies in a similar way. Then there's the next phase, which is actually rethinking the way that your product and service is delivered to your customer in order to be able to create more comprehensive first-party data sets, and also get permission to be able to communicate with the customer through some sort of first-party medium. And this includes things like having connected fitness products, you know, other sorts of connected devices.
It's building products and services, subscription programs, loyalty programs, right? There's examples of this across a lot of different categories. You know, the automobile one is interesting because I think it's not the dealer, but actually the interesting thing there is the manufacturer, right? Like, you use their vehicle, their product every single day, but you fill it up from an oil company, you get service from a service station, you buy the insurance from a financial services company, right? There's all these other brands that you interact with and never the actual manufacturer, and so they're getting an opportunity to come back to that. You look at the entire CPG category, right, and for decades, they've thought about their customer as a CPG company as being like a Walmart or a Target or a big box retailer, right? Not the end consumer.
Now, they actually have an opportunity to interact with the end consumer through direct-to-consumer programs. And indeed, like many large enterprises in the CPG space, are being forced to do that because there's a lot of startups that are doing it very effectively, right, within the D2C space. You look out across, you know, places like learning or personal health and personal finance, right? To be able to build companions to people's journeys so that when they want to develop healthy habits, whether it's to help them be healthier, have better financial wellness, have a more, you know, enriching life, like, those are all places where that customer engagement really drives the customer toward better outcomes because they're able to bring these products and services into their lives in a fulsome way.
And so I think when we look at those three stages, there's kind of the loss avoidance around the performance marketing and the loss of those third-party data sets. Most brands are there now because they've kind of been forced to be. In the second phase of how do I rethink my business in order to have an opportunity to build up a first-party relationship, and, you know, I mentioned Disney+ before. It's a really great example where, you know, Disney had this incredible, multifaceted relationship with the customer, but they didn't really have much direct interaction until Disney+ really entered the picture, right? They were... You were seeing their movies in a movie theater chain, you were getting the Disney Channel through a cable bundle, you were buying their merchandise from a big box retailer, right?
There were all these interactions with their characters and their stories, but you didn't actually have a connection to Disney, the company, other than in the theme parks, but that usually ended as soon as you walked out those gates, right? And so they're actually rethinking their products and services in order to create a multifaceted, direct connection, and that gives them better data to understand the customer. They can interconnect those parts of their business empire, in really interesting and valuable ways, both for them and for the customer, and then there's that third phase, then you know, how do you actually rethink your business strategy? Like, what do you get to do once you actually have that connection?
And you go back to the automobile manufacturer, like, now all of a sudden, you have the opportunity to get in front of a customer as their lease is renewing, and you don't need to just hope they drive by your billboard or watch a commercial on a football game, right? You can actually communicate with them directly, and you know how their driving habits have changed over the course of their lease length. And you can also deliver to them, you know, personalized and tailored insurance offers so that you're the one that's aggregating that demand.
We see that in the QSR space as well, which is that as individual quick service restaurant and fast food brands have been able to build out their own mobile ordering and enhanced takeout offering, and their mobile wallets, and et cetera, they've been able to flip the script on many of the delivery companies. So instead of the delivery companies aggregating the demand and charging dearly for it every time someone orders, you know, a McDonald's through a delivery app or what have you, now McDonald's can actually negotiate with the delivery companies as a commodity supplier effectively, right? It totally flips the script. It allows McDonald's to own the first-party data on the customer, to communicate with them afterward, and it improves their margin as a business.
When we kinda see how that transformation then kind of serves the business model to both give them more innovation and give them control over the demand, it leads to a healthy, more robust business. I think we're still very early in terms of that progression through those three stages permeating the entire business ecosystem.
Yeah. That's a really fascinating vision. I did wanna sort of ask how you think about GenAI tying into all that, 'cause on one hand, obviously, we're talking about lots of data. You know, first-party data is gonna be used perhaps to be training some of these models. Like, do you view GenAI as sort of an accelerant or tailwind to kinda this vision that you laid out? Help us understand what you're seeing just from a demand perspective.
Yeah, I think it absolutely is, and there's a few stages to it. You know, first, upfront, obviously, you know, it's as you may have surmised, a lot of the work that's done with Braze is fairly sophisticated when it comes to customer engagement, right? There's a lot of data activation. There's a lot of aspects of the kind of marketing that require technical expertise, you know, whether that's like working through things like scripting or building, you know, building messaging. It's not just a little bit of text, right? If you wanna build engaging, dynamic, multimedia messaging, a lot of times that has development and content production requirements associated with it. You know, being able to test and understand, like, either new insights coming out of data or be able to do advanced analysis of that data.
There's a lot of places where, you know, our most productive customers are bringing together skill sets inclusive of marketing, product and engineering, and data science. But it's also the case that not all marketing teams have access to those resources. And so one of the great things that GenAI has been doing upfront is that it's allowing an individual person to be able to use software like Braze as if they are working with a whole team, right? So you've got a developer to help you with your lightweight scripting and generate your SQL and help you, you know, dig through reports and surface insights better.
You've got a copywriter to be able to help you, and maybe the problem is even harder because you're trying to communicate with people in ten different cultures and socioeconomic backgrounds and different languages as you're communicating across a vast global customer base, being able to do things like check for cultural appropriateness and make sure that you don't get canceled when you send out, you know, a kind of misinformed message, or what have you. Those are all things that hold back individual marketers from being able to be more productive, be more agile, test and experiment more, where GenAI is already coming in to be an assistant and to really be part of a team for them. And so that's all kind of in the composition side, right?
Where the marketer is using the dashboard, building out their campaigns, building out what we call Canvases, which are, you know, they being a companion to the user journey and just letting them be more productive and operate with more confidence and really, you know, in that way, then run more strategies. On the other side, you know, I mentioned it at the front, the volumes we're talking about here are in the trillions, right, so obviously, automated decision-making has been an important part of what Braze has done the whole time and we kind of make those decisions automatically in terms of who we're talking to, what strategies we're prioritizing, what we're saying, how we optimize relevance, et cetera, using a variety of different techniques like, you know, basic conditionals.
Obviously, you start with the if-then-else case statement, right? Then you move to more statistical methods to be able to do prediction and other forms of, you know, deep learning and machine learning within that. From there, being able to use things like transformers. So we've actually seen an interesting progression from a content recommendation standpoint, where, you know, you first, you kind of start out with being able to just respond to relevance. You know, what's new, what's hot, what's trending? These are basic statistical approaches. Then moving to more of a deep learning approach, where, you're able to do, you know, kind of driving in the same way that recommendations come out of that you see in like a Spotify Discover playlist, or the way that you see, like, item recommendations when you're shopping.
More recently, we actually re-implemented our item recommendation capability using transformers, which of course are the T in GPT. And those approaches actually not only are outperforming prior approaches using deep learning, but they're doing so more generically. And so it's sitting on top of not just, you know, what item am I gonna recommend to someone, but actually, you know, maybe I'm a fitness application and like, what are the exercises that I should recommend to someone in the morning? What are the different trails that are in your area that I would recommend you go hiking or biking on this weekend?
You know, being able to kind of dig through different activities that are like restaurant recommendations or travel itineraries, you know, as well as obviously all the other use cases around retail and food, and being able to recommend things from catalogs, music, movies, et cetera. The transformer approach has actually proven to both be more effective and be more generic, which has obviously been really good for us. And so, when we kind of look across that problem space of both: How do you make the marketer more productive? And how do you make more decisions automatically, more quickly, with higher levels of effectiveness? The introduction of GenAI, kind of at the frontier of that space, has helped on both of those fronts pretty tremendously.
Yeah. So it almost seems like you're an enabler of sort of GenAI, but also sort of a downstream beneficiary if, you know, you see more volumes and more, you know.
Yeah, absolutely. You know, an enabler in the automated decision-making world, and those are places where we're just delivering those new capabilities to our customers that are using our automation, and that automation is getting better, and it's getting more comprehensive. It's able to make decisions at a higher level, as we continue to advance it. And then, yeah, on the other side, you know, making the marketer more productive obviously leads to more usage, right? And it leads to better campaign deployment. They can move more quickly. And, you know, we've also seen that the more agility that we can deliver to our customers, the more creativity that they're able to work with as well, the better outcomes that they get.
Great. Great. Maybe translating all the, you know, great momentum and great trends into what you're seeing in the most recent quarter, and maybe we bring in Isabelle here too. Give us sort of the, you know, quick synopsis on how this recent quarter played out. Obviously, the context of a lot of SaaS software companies, it's choppy. We have seen several companies talk about worsening trends in Q2 and elevated churn and everything. I think Braze seems to be outperforming some of the smaller companies that have called those challenges. So give us a sense on sort of what you're seeing out there in the market.
Yeah. So I think, look, the market, the macro continues to remain challenging. I don't think it's gotten any worse, but it certainly hasn't gotten any better. We've talked about this over the last couple of quarters. We've seen different parts of our business start to kind of perform better than expected or better than in prior quarters. Issue is, we're not really seeing anything sustained for more than sort of one or two quarters sequentially, and so that, that continues. What I will say is we are executing at plan, so there's no negative surprises out there. You heard us say earlier in the year that from a guidance philosophy perspective, we were gonna be a little bit closer to the pin this year, and you're seeing that continue to play out.
We are seeing over the last several quarters, we've done a lot to invest in the productivity of our sales force. That hasn't quite totally gotten to the other side, but we are seeing enhancements and improvements there, and so we're encouraged by that. And we're starting to put boots on the ground in an increasing number of parts of the world, which is really exciting to see that from two perspectives. One is continuing to sow the seeds of growth opportunities and continuing to expand our global footprint, and also capitalizing on some of these new strategic locations that are helping us on our path to profitability. So I think both from a, you know, revenue trajectory perspective, cost optimization perspective, we're very pleased with our results for Q2.
Great. Great. And on some of those sales initiatives, you talked about productivity enhancements. Maybe just walk us through what you're doing and kind of what you need to see to be able to say we're on the other side?
Yeah, yeah. So I think, you know, a few things. Obviously, training has been an important part of it. I think a lot of companies went through a lot of rapid growth of their sales teams through the kind of zero interest rate period, and just kind of going back, taking stock of that, making sure that we operate as a global team, and that we get strength out of our, you know, global footprint. We definitely see a lot that, competitors will kind of grow up in a certain part of the world, and then they'll show up in other places, or we'll see, on the other side, you know, buyer sentiment and kind of buyer behaviors.
You know, we tend to see those travel around the world as you go from geos or industries that tend to be more forward leaning into places that tend to be more risk-averse. And just making sure that as a global organization, we're sharing the learnings that we're achieving in different parts of the world, and we're using those to strengthen other global teams. And that comes out of better alignment, you know, more transparency, more coordination, more knowledge sharing, et cetera. And so I think that's been really good, and we've seen great progress in terms of our competitive win rates over the last few quarters, in particular in the different parts of the world that we've been focused on and the competitors that we've been focused on within those.
Similarly, we've gone through and done some meaningful changes to the way that we sell our product, so we've spoken a little bit over the last couple quarters on the shift to a credits model. This has been really important from a sales productivity standpoint. We previously, and just kind of to quickly bring people up to speed on that, if you had bought SMS from Braze a year ago, or, you know, SMS, MMS, WhatsApp, you literally had to contract an annual volume on a per country basis, for each country and each channel, and so you might have 30 different line items in order to just buy what we would think of as SMS.
You know, we were kind of pushed in that direction due to a variety of accounting and other sorts of considerations that it certainly didn't feel ideal right out of the gate, but that's something where we've gone back. We've developed what we needed to in order to now build a more flexible credits model. Customers are able to buy more, a fungible kind of basket of credits to be able to send those premium messages now. It's easier for them to buy, it's easier for our sales team to sell, and we think also it will lead to lower amounts of unused entitlements and therefore partial churn sources over time. It also better prepares us as we launch new channels.
And so, when we look ahead to, you know, the general availability of LINE, which will be happening a little bit later this fall, as well as expansion into new channels like landing pages and some of the other things that are on the horizon that we're excited to share, at Forge in just a few weeks, this is really setting the stage for our go-to-market, machine to be able to deploy new channels faster, and customers to be able to utilize them more flexibly and efficiently. And so, you know, that's been an important part of it. I think also optimizing the onboarding and usability side. And so, you saw the announcement of our free trial motion from just a couple days ago.
Mm-hmm.
That has actually been the culmination of over a year of focused efforts around product-led growth motions, and so we started out, originally within the install base of looking at some of the expansion, so expanding into things like our product catalogs or our predictive churn capabilities, or things like the AI item recommendations that I mentioned earlier. These are all upsells that an existing customer would want to be able to use, in many cases, beforehand in order to kick the tires on them, and we didn't really have a motion to be able to do that before. It was a more classic enterprise software sale where you know you had to sign on the dotted line before you got access to anything.
What we've been doing is really making sure that more of our product can really come to life for customers, and they're able to trial it before actually signing the contract. That's something that I think has been really important as there's been more stakeholders involved in each of these deal cycles. You know, we talk about the things that make the macro hard. One of those major things is that there's a lot more kind of multi-team scrutiny on every buying decision that's happening in software, and that includes technical buyers, and technical buyers want to be able to use products, and so I think people's initial reaction to the free trial announcement was that it was a lot about the low end, and kind of smaller deal sizes.
But actually, what we've been seeing over the last year is that in the enterprise in particular, the need for something like a sandbox experience has, like, really increased in importance. And so we've been providing those on a one-off basis, and a lot of times that requires kind of careful attention from the sales team or the solutions consultants as they're going through that buying cycle. But what we've done over the last year through that product-led growth motion is that we've built these automatic, you know, onboarding campaigns. We've templatized things like campaigns and canvases. We've really worked through that early education journey and been able to automate all of that.
And so we've done that in service to being able to kind of have these lower effort opportunities for, in particular, technical teams to be able to go in and try out Braze as they're in their purchasing journey. And so certainly we think that will be a source of increased kind of demand gen in the commercial side of the business over the long- term, but the immediate impact is really helping us out more in these enterprise deal cycles.
Yeah. So one of the points you made earlier just around the credits model, I thought seemed very logical in terms of reducing friction.
Absolutely.
In some of these deals.
Yeah.
Where are we at in terms of the rollout, and is that something you expect, you know, the majority of your customers to move to over time?
Yep. So we made it available right at the end of Q1. In Q2, it was the vast majority of purchases of any of those channels that I mentioned, went through the flexible credits model, and we're effectively establishing it as the default moving forward.
Yeah.
Yep.
Have you noticed any changes in customer behavior that, "Hey, now that it's more fungible, I have no problem buying more, because I can, you know, I can use the SMS credit for WhatsApp or-
Yeah. Yeah, I think there's kind of less consternation around-
Mm
The commitments because people know that there's a lot of flexibility in how they're gonna be able to use it. The other thing that we're more excited about is that it opens the door to automatic experimentation with new channels as they come out. You know, before, you may have, like, bought Braze, and you bought SMS, and all these channels, and then WhatsApp comes out, and you conceptually think of those as similar channels, right? They're both like kind of premium phone number-based messaging, and it just depends on which country or market you're in, or what permission you have with a given customer.
But before we would've required that you sign a whole new order form and make a whole new commitment, and maybe you already used all of your budget allocation for the SMS before, and you would shift that over to WhatsApp. But the way our contract structure worked, you know, we wouldn't have allowed you to do that. And so that's obviously customer unfriendly in those cases, and we're out of the woods on those things now. And so I think that it's gonna benefit in a lot of different ways, and that's why we've moved so fast to establish those as the default since we launched it.
Great.
Yep.
As you think about the second half of the year, you know, last night, you raised the full- year guidance, I think, by $500,000 more than you beat in the quarter. So effectively, kind of passing through the beat, maybe slightly more. Talk to us how you're seeing the pipeline shape up. Obviously, you've got elections this year, maybe a little bit more macro uncertainty versus this time a year ago. What assumptions, what type of conservatism are you applying to that pipeline?
Yeah, so no material change in the level of conservatism. So I just wanna be clear that this sort of being closer to the pin-
Mm-hmm
Consider that to be persistent through the back half of this year. We're comfortable with sort of where the pipeline is shaping up, but the sales cycles are continuing to be elongated and challenging, and lots of stakeholders, and you're seeing CFOs get involved in the conversations, so it's not as frictionless, and we're still, like I said, there are pockets where, you know, we're seeing some kind of goodness and strength, and then other places where there's ongoing weakness, and the places of strength are not persistent.
Mm.
And so I would say, you know, the back half of the year, I wouldn't look for any kind of acceleration on anything. I know that, you know, what's in the guide implies some ongoing deceleration. You can see ongoing weakness in things like dollar-based net retention. The churn continues to remain at elevated levels, not levels that are surprising or outside of the realm of what we budgeted for, even if I rewind the clock back to, like, our January, February timeframe when we were setting the budget up for the year. But it's higher than we would like it to be on a consistent go-forward basis. And so-
Yeah
We are very comfortable that we can kind of live within the confines of the current environment. But, you know, we expect, or we would hope for a better environment in future periods.
Right. And as you think about the contributions from new logos, we talked a minute ago about the new free trials and the Braze for Startups plan that-
Yep
You talked about on the earnings call. Where do you sort of aspire to get that new logo contribution back to in terms of growth? And is this, you know, Braze for Startups, is that sort of helping drive that?
Yeah. So I think in order to kinda get the full picture here, you need to go back to a little bit more than a year ago, when we actually did a reduction in our sales capacity.
Mm-hmm.
And it was primarily focused on the commercial side of the business, and a big part of that was due to just the actual relative acquisition efficiency across these different categories. We were feeling good about where the acquisition efficiency was, you know, from a kinda customer lifetime value, retention, and acquisition cost standpoint within the enterprise category. But we knew that SMB was gonna be a much tougher place, you know, moving into the future. We had seen that the venture dollars had dried up, and there was obviously a lot of business failure that was impending. And actually, if you've seen numbers from places like Carta that have been published, that small business failure has only accelerated this year, right? There are actually highest number of kind of shut down startups happened in Q1 and then Q2 of this year.
And so, that kind of allocation of sales capacity has certainly led to, you know, pressure on the net new customers because we count customers at the ultimate parent level. So a lot of the expansion into the enterprise, you know, we mentioned these three eight-figure deals that we've achieved over the last two quarters. Those don't add anything to the customer count, right? Even though obviously, those are great wins as we continue to expand, and on the same side, we've seen that pressure on the SMB side.
And then what we've done in the meantime is that we've really gone back and said, "Okay, before we re-accelerate investment into the commercial side, the SMB and the scale sectors, we wanna make sure that we can really kind of structurally improve the efficiency of, you know, onboarding and bringing on those customers." And so that's where a lot of the work from a product-led growth motion. You've heard me talk about the important investments we've made from a usability standpoint in each of the last four quarters as we continued to work on the on-ramp into Braze, the education side of it. Making sure that as a customer is ready to adopt Braze, that they can step into this more sophisticated approach around customer engagement with less friction, right, and less work, like manual work on our side.
And so I think what you see in the launch of the free trial and the Braze for Startups program is also just a testament to the confidence that we have, that we've really structurally improved that kind of onboarding and the usability journey. We've got, you know, we've got a really robust partner ecosystem now, where we can bring people into partner-led onboarding so that Braze doesn't need to, you know, have integration and onboarding teams kind of in a stand-ready fashion as the, you know, as new customers kind of ebb and flow in high volume as they would have before. We now have a really robust partner motion with a lot of digital agencies around the world that are ready to.
You know, ready and on standby to be able to help, you know, onboard and integrate all of those customers as they come in. And so I think that the, you know, it's really a culmination of a long-term investment strategy to be able to say, you know, "How do we fundamentally improve the acquisition efficiency and the commercial side of the business before we go and pour any fuel onto that fire?" And so, you know, we're excited to see what this does over the next couple of quarters, and we think that it could usher in a new kind of a new generation of how we approach the commercial side of the market, and we're really excited about it.
Okay, great. Earlier, you talked about some improvements in win rates, and I wanted to double-click on that for a moment. I think you... We've been hearing more and more displacements of, you know, legacy marketing clouds, including Salesforce. You know, at the same time, one of the big themes we've heard at this conference, you know, we had some big companies like Microsoft, ServiceNow yesterday, just this topic of vendor consolidation. So, on one hand, you know, you are larger than many of your smaller competitors, you know, in the marketing space, but there are certainly companies bigger than you. So how do you sort of see that vendor consolidation theme, and where, you know, where specifically are you seeing those uptick in win rates?
Yeah, it's a good insight because when we talk about consolidation, there's obviously a lot of different places you can kind of draw the abstraction layer, right? And, you know, while we are certainly not a point solution within the messaging space, we also don't, you know, we don't have twelve clouds that we're, you know, that we're trying to kind of bundle together and sell to people either. And so a few things there. One is that, you know, definitely when we look at the problem of customer engagement and being able to communicate across all the different touch points that are relevant to a consumer, be able to collect data from all the relevant data sources and action on it in real time, and be able to do that around the world, right?
Because the relevant set of channels for a given consumer changes from country to country or region to region, you know, generally due to just local preferences or various, kind of components of history in terms of how technology developed within those areas. And so in order to really comprehensively deliver on those, you need both the breadth and the depth of Braze's kind of channel set, as well as the sophistication, the orchestration above it, and the vertical integration that we can deliver there.
And then, of course, more recently, we announced the launch of the Braze Data Platform, which is really helping bridge some of the gaps that would have been there before between the data as it's generated or the insights as they're being produced by your data science or your machine learning teams, and then getting them into a place where you take action on them, right? Which is, you know, obviously, what Braze's bread and butter is. And so that consolidation trend, you know, what it looks like most often is that we'll go into an organization who has, you know, different vendors for email and SMS, and being able to deliver surveys, and sending push notifications and what have you. And they might even have, like, different ones depending on what country or what brand they're in.
We actually work with a telco in the U.K., where we've replaced over 25 different point solutions across their different brands and geos and channels that they were working with. And so, you know, there's a tremendous amount of great examples of that, and when you look at all three of those eight-figure contract expansions that we've spoken about over the last couple of quarters, you know, in one case, that was the continued expansion across additional franchises, brands, and geos. In another case, it was expansion across additional channels, you know, expanding into email in a place where we'd previously primarily been in product and mobile or through push notifications. And the third one, expanding into new titles within you know within a bigger family of brands.
And so, those are all great examples where that consolidation play is at work across several different dimensions. We do still see occasionally, and especially, in places like the United States, where, you know, companies like Salesforce or Adobe have really strong, entrenched relationships with, you know, with the GSIs in particular, that a company might go through a massive digital transformation effort. And they're just gonna kind of go wall to wall, right? And those are areas where we've got a lot of experience kind of breaking into wall-to-wall deployments, you know, and displacing the likes of, you know, the Salesforce Marketing Cloud or Adobe Campaign, you know, within that. I think that when we look at those examples, actually, you know, Salesforce, obviously super focused on the Data Cloud right now.
The Marketing Cloud, not getting a lot of innovation, a lot of love. It gets bundled in, but I think when we look at that long-term picture, it's like, yeah, there certainly are situations where that, you know, that bundling or that kind of wall-to-wall deployment, can block us out. But, I don't. You know, while that's annoying, I don't worry about that in the long- term because it's not driving additional innovation, and I think this problem space is getting harder and harder every year.
Right.
I think that the gap between what they're able to deliver for customer engagement and what the market is demanding is only widening over time.
Mm-hmm.
And it's really Braze's vision that's leading that market. And so I think that's those are the broad themes that we see at play, and, you know, make no mistake, there's absolutely still incumbent advantage that comes from, you know, some of these really big, like, you know, cloud deployments and what have you. But within the customer engagement space, I feel really good about the comprehensiveness of Braze's solution, our ability to really deliver a optimal, you know, total cost of ownership and a time-to-value story within that, and then, of course, differentiating capabilities as well. And we only benefit from just how intensely competitive, especially a lot of these global digital markets continue to be, because, you know, your strategies from five years ago are just, like, they're not good enough anymore, right?
Right.
And what that means is that, you know, more and more companies, it might take them time to kind of understand the competitive pressure, especially if you're in a highly regulated industry, like you're in financial services, or you're in, you know, big airlines or what have you. You see that in our customer base, where we work with a lot of fintech, challenger banks, you know, we worked with a lot of, like, payments companies, et cetera, as well as, like, credit unions and regional banks, like, all over the world. But we don't yet have a meaningful footprint in the too-big-to-fail banks, right? And they tend to be able to operate more conservatively. Similarly, we work with private jet charter companies, and we work with travel booking, you know, vacation booking, and we work with a bunch of budget airlines.
They tend to be more nimble and more agile, and they move more quickly because they're in more competitive spaces. Flag carrier airlines have got, you know, more regulation, stronger incumbent advantage, and so it's taken us longer to be able to kinda land those as customers but when we look at that, you know, kind of the longitudinal picture there, obviously, we're building up the right proof points with the companies that are really pushing the edge of innovation, that are highly competitive in those spaces and that gives us a lot of confidence that we not only have a lot of room to run in some of these really gigantic categories, right? Where we still have a lot of the enterprise to penetrate, but we've got all the right proof points that we're-
Yeah
Gonna be ready to do that, so.
Yeah. I'd be remiss if we didn't talk about margins a little bit, Isabelle. I think this quarter was... There were a couple of positive surprises on the margins. Both gross margins picked up nicely sequentially and year- over- year, and you know, operating margins were a lot better. All the exciting stuff that Bill's been talking about, I think we sometimes get the complexity of managing the costs also may sometimes get overlooked when you're talking about tokens and you know, just this really complex orchestration layer. Give us a sense for some of the efficiencies that are underway. How are we able to deliver kind of the upside performance we saw this last quarter?
Yeah. So, on the gross margin front, if we rewind the clock to Q1, you'll remember we sort of announced that we had hit a bit of a low. And what we had indicated is, look, you know, there was a concentrated volume messaging situation that sort of occurred in Q1 that we knew we were going to work ourselves out of. Plus, we were working across our engineering organization to continue to find performance efficiencies for the platform. The messaging component worked itself out. And what I had said is we were going to sort of monotonically increase from there.
What I would say is we've been wildly successful in the efficiencies that we found through the engineering organization, both on our hosting and kind of other components of the technology stack, both from kind of a contract renegotiation standpoint, as well as just our own adherence to internal policies around data retention and the performance of the platform. So that's been great to see. I would not, from here, assume there is further material monotonic improvement over the course of the coming quarters. Plus, I remind everybody that Q4 experiences the seasonal low because of the activity.
Mm-hmm.
I think as we look down the P&L, the operating efficiencies that we continue to get on operating income. Q1 naturally has a seasonal, a bit of a bump, same as Q3. For Q1, it's related to our kickoff meetings and some sales-related enablement that happens right at the beginning of the year. Q2 obviously doesn't have that, so that's part of the reason why the cost steps down. Back half of the year, we have the impact of comp increases that go into effect in August, so you'll see that impact, as well as our Forge, our annual global customer conference, and some other global events that are happening throughout the year or throughout the quarter. So that's the reason why we'll kind of step back.
But, and as Bill and I have both mentioned, some of the investments that we've been making as we've continued to increase headcount have been in strategic locations with a differentiated cost structure. So both on kind of technology investment side as well as the human side, we are finding ways to scale more efficiently across the organization. And we're going to continue to do that while continuing to invest in places like R&D, so that we can kind of keep the engine and the flywheel going from a product differentiation perspective.
Great. Great. Well, I feel like I only got through about a third of the questions 'cause this was such an insightful discussion. But we are out of time. Bill and Isabelle, thank you very much for being here the day after you reported earnings, and thanks, everyone, for coming to the presentation.
Yeah, thanks for having us.
Thank you.