# Braze, Inc. (BRZE) FY 2025 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Braze, Inc.'s 10-K for fiscal year 2025.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1676238/000167623825000054/brze-20250131.htm
Accession: 0001676238-25-000054
Filing date: 2025-03-31
Report date: 2025-01-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/BRZE/
All MD&A years: /company/BRZE/mda/
Previous year: /company/BRZE/mda/fy2024/ (FY 2024)
Next year: /company/BRZE/mda/fy2026/ (FY 2026)

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that are included elsewhere in this Annual Report on Form 10-K. 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 I of this Annual Report on Form 10-K. See “Special Note Regarding Forward Looking Statements” in this Annual Report on Form 10-K.

For a discussion regarding our financial condition and results of operations for the fiscal year ended January 31, 2024 compared to the fiscal year ended January 31, 2023, refer to “Management's Discussion and Analysis of Financial Condition

48

Table of Contents

and Results of Operations” in our Annual Report on Form 10-K for our fiscal year ended January 31, 2024, filed with the SEC on April 1, 2024.

Overview

Braze is a leading customer engagement platform that empowers brands to Be Absolutely Engaging. 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, 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 and consumer goods, media and entertainment, telecommunications, restaurants and on-demand services, healthcare and life sciences, technology, manufacturing, education, government and public services, and financial services.

We primarily generate revenue from the sale of subscriptions to customers for the use of our platform. Our subscription fees are principally based on an upfront commitment by our customers for messaging volumes, a specific number of monthly active users, platform access and/or support and certain add-on products. Additionally, we provide professional services, which better enable customers to successfully onboard and use our platform, including certain premium professional services such as email deliverability support and dedicated technical support staff.

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, 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. Accordingly, as our customers increase the use of our platform and increase the number of end users reached via our platform, the value of our contracts with such customers also increases.

We have grown significantly in recent periods. We generated revenue of $593.4 million, $471.8 million, and $355.4 million in the fiscal years ended January 31, 2025, 2024, and 2023, respectively, representing year-over-year growth of 25.8% from the fiscal years ended January 31, 2024 to January 31, 2025 and 32.7% from the fiscal year ended January 31, 2023 to January 31, 2024. We had net losses of $104.0 million, $130.4 million and $140.7 million, in the fiscal years ended January 31, 2025, 2024, and 2023, respectively. We had net cash provided by operating activities of $36.7 million in the fiscal year ended January 31, 2025. We had net cash provided by operating activities of $6.9 million and net cash used in operating activities of $22.3 million in the fiscal years ended January 31, 2024 and 2023, respectively. Our Non-GAAP free cash flow was $19.6 million, $(6.5) million and $(39.0) million in the fiscal years ended January 31, 2025, 2024, and 2023, 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 provided by operating activities, the most directly comparable measure calculated in accordance with accounting principles generally accepted in the United States, or U.S. GAAP.

Factors Affecting Our Performance

Acquiring New Customers

We believe there is substantial opportunity to continue to grow our customer base. We intend to continue to expand our customer base in verticals where we already have a strong presence, such as retail and consumer goods, media and entertainment, telecommunications, restaurants and on-demand services, healthcare and life sciences, technology, manufacturing, education, government and public services, and financial services — and to increase our presence in verticals where we are not yet strongly represented. Through our sales and marketing efforts, we also plan to capitalize on industries subject to ongoing digital transformation and where direct-to-consumer relationships are accelerating, to further propel adoption of our technology. As of January 31, 2025, we had 2,296 customers across a broad range of sizes and industries. Our ability to attract new customers will depend on a number of factors, including the quality and pricing of our products, offerings of our competitors and the effectiveness of our marketing efforts.

We define a customer as the separate and distinct, ultimate parent-level entity that has an active subscription with us to use our products. A single organization could have multiple distinct contracting divisions or subsidiaries, all of which together would be considered a single customer.

Expanding Within Our Existing Customer Base

49

Table of Contents

We believe we can achieve significant growth by expanding sales within our existing customer base. We expand the use of our platform by existing customers by, among others, adding new channels and increasing the messaging volume we sell to our customers as their businesses and needs continue to grow and as they connect directly with additional consumers, which in turn leads to a need for greater messaging capacity. We intend to continue to invest in developing and enhancing our products and functionality. Our ability to increase sales to existing customers will depend on a number of factors, including our customers’ satisfaction with our solutions, the ability of our customers to attract new end users, competition, pricing and overall changes in our customers’ spending levels.

Historically, we have experienced significant expansion within a customer’s business once our platform is deployed, with customers typically increasing the number of monthly active users, channels and use cases, as well as purchasing additional products. A monthly active user is an end user of a customer who has engaged with the customer’s applications and websites in the previous thirty-day period. We include each distinguishable end user in our calculation of monthly active users, even though some users may access our customers’ applications and websites using more than one device, and multiple users may gain access using the same device. As of January 31, 2025, we had approximately 7.2 billion monthly active users, up from approximately 6.2 billion monthly active users as of January 31, 2024.

Braze supports interactions across a broad range of both in-product and out-of-product messaging channels. The flexibility of our platform also allows us to add new channels quickly and efficiently as they become relevant to our customers. The breadth of channels we offer, and our ability to efficiently expand our offering of channels, allows us to expand our reach within existing customers as they purchase additional channels from us.

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). 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. ARR should be viewed independently of revenue and does not represent our GAAP revenue on an annualized basis or a forecast of revenue, as it is an operating metric that can be impacted by contract start and end dates and renewal rates.

For clarity, we use annualized invoiced amounts per customer subscription contract, including certain premium professional services that are subject to contractual subscription terms, as compared to revenue calculated in accordance with GAAP, to calculate our ARR. Our invoiced amounts are not matched to the performance obligations associated with the underlying subscription contract and premium professional service obligations as they are with respect to our GAAP revenue. This can result in timing differences between our GAAP revenue and ARR calculations. For our revenue calculated in accordance with GAAP, we recognize revenue related to contracts with customers in an amount that reflects the consideration to which we expect to be entitled in exchange for subscription and professional services. See the section titled “— Critical Accounting Policies and Estimates” for additional information regarding how we recognize revenue on a GAAP basis. Investors should not place undue reliance on ARR as an indicator of our future or expected results. Moreover, ARR may differ from similarly titled metrics presented by other companies and may not be comparable to such other metrics.

A further indication of the propensity of our customer relationships to expand over time is our dollar-based net retention rate. We calculate our dollar-based net retention rate as of a period end by starting with the ARR from the cohort of all customers as of 12 months prior to such period-end, or the Prior Period ARR. We then calculate the ARR from these same customers as of the current period-end, or the Current Period ARR. Current Period ARR includes any expansion and is net of contraction or attrition over the last 12 months but excludes ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the point-in-time dollar-based net retention rate. We then calculate the weighted average point-in-time dollar-based net retention rates as of the last day of each month in the current trailing 12-month period to arrive at the dollar-based net retention rate. Our dollar-based net retention rate for the trailing 12 months ended January 31, 2025, 2024, and 2023, was 111%, 117%, and 124% respectively, for all our customers, and 114%, 120%, and 126%, respectively, for our customers with ARR of $500,000 or more. In addition, 247, 202, and 156 of our customers had ARR of $500,000 or more as of January 31, 2025, 2024, and 2023, respectively.

Our dollar-based net retention rate is influenced by macroeconomic factors that impact our customers’ purchasing decisions, which may impact the revenue attributable to such customers. The decline in our trailing 12-month dollar-based net retention rate was primarily due to customer turnover and renewals at lower subscription levels. In particular, we have observed that customer renewals in the current uncertain macroeconomic environment and high interest rate climate have led customers to renew their contracts at levels more closely aligned with their current needs, rather than opting for larger commitments based on anticipated future demand.

50

Table of Contents

Expanding Geographically

We believe there is a significant opportunity to continue to expand our presence in international markets we have already penetrated and by entering markets we have not yet penetrated. For the fiscal years ended January 31, 2025, 2024, and 2023, approximately 45%, 43%, and 42%, of our revenue was generated outside of the United States, respectively. 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. 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.

Sustaining Innovation and Technology Leadership

Our success is dependent on our ability to sustain innovation and technology leadership in order to maintain our competitive advantage. 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, and to expand our channel offerings. We believe our market-driven product development approach maximizes the return on new feature development and channel expansion. Our customers consistently volunteer to participate in the testing of new products, which indicates their appetite for new and innovative functionality. We believe our continued innovation will provide new avenues for growth through which we will continue to deliver differentiated outcomes for our customers. 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.

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. General macroeconomic and socioeconomic conditions such as, among others, instability in the banking and financial services sector, international and domestic supply chain risks, inflationary pressure, interest rate increases, declines in consumer confidence, international conflicts and domestic and foreign political unrest have led to increased economic uncertainty. 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

Revenue

Revenue is derived from two primary sources: (1) subscription services and (2) professional services and other.

Subscription services primarily consist of access to our customer engagement platform and related customer support. Our customers enter into a subscription for committed contractual entitlements. To the extent that our customers’ usage exceeds the committed contractual entitlements under their subscription plans, they are charged for excess usage, or they may exercise an option to purchase an incremental volume tier of committed contractual entitlements. Revenue associated with platform subscriptions is recognized ratably over the contract term, which is consistent with the period over which services are provided to the customer. Fees associated with excess usage and incremental volume are also treated as subscription revenue. To date, fees associated with excess usage have not been material.

Professional services and other revenue consists of fees for distinct services rendered in training and assisting our customers to configure our platform for their use at the onset of their initial contract or when a new product is purchased. Such revenue is generally recognized over a period of up to six months from providing access to the platform. We also provide additional platform and feature enhancement and optimization services which are generally recognized ratably over the contract term.

Deferred revenue consists of customer billings in advance of revenue being recognized. We generally invoice our customers for subscription services arrangements annually in advance and for professional services upfront.

Cost of Revenue

Cost of revenue consists of direct costs related to providing platform access to our customers and to performing onboarding and professional services including consulting services. These costs primarily include payments to third-party cloud infrastructure providers for hosting software solutions, costs associated with application service providers utilized to deliver the platform, personnel-related costs, including salaries, cash-based performance compensation, benefits and stock-based

51

Table of Contents

compensation, and overhead cost allocations, including rent, utilities, depreciation, information technology costs, amortization of internal use software and certain administrative personnel costs.

We intend to continue to invest additional resources in our platform infrastructure and our customer support and success organizations to expand the capabilities of our platform. The level, timing and relative investment in our infrastructure could affect our cost of revenue in the future. We expect our cost of revenue to increase for the foreseeable future as we continue to grow our business.

Gross Profit and Gross Margin

Gross profit represents revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin may fluctuate from period to period as our revenue and cost of revenue fluctuates, including as a result of the timing and amount of resources we dedicate to improving our platform and expanding our products.

Operating Expenses

Our operating expenses consist of sales and marketing, research and development and general and administrative expenses. Personnel costs, including salaries, cash-based performance compensation, benefits and stock-based compensation, are the most significant component of operating expenses. Operating expenses also include allocated overhead costs, which include rent, utilities, depreciation, information technology costs and certain administrative personnel costs. As we continue to expand our operations, we expect an increase in personnel headcount and expansion of our global footprint.

Sales and Marketing

Sales and marketing expenses consist primarily of personnel costs for our sales and marketing organization, sales commissions, costs related to brand awareness, sponsorships, customer marketing events and advertising, agency costs, travel-related expenses and allocated overhead costs.

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

Research and development expenses consist primarily of personnel costs for our engineering, service, design and information technology teams. Additionally, research and development expenses include allocated overhead costs and contractor fees. Research and development costs are expensed as incurred. Capitalized internal-use software development costs are excluded from research and development expenses as they are capitalized as a component of property and equipment, net and amortized to cost of revenue over the software’s expected useful life, which is generally three years.

We expect to continue our investment in research and development to enhance the user experience of our current customers and attract new customers. We expect research and development expenses to increase in absolute dollars as we continue to invest in enhancing our platform.

General and Administrative

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 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 have incurred, and expect to continue 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 insurance, investor relations and professional services.

Other Income, Net

52

Table of Contents

Other income, 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 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 statements of operations data for each of the periods indicated:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2025","","2024","","2023"],["","(in thousands)"],["Revenue","$","593,410","","","$","471,800","","","$","355,426"],["Cost of revenue (1)","183,191","","","147,527","","","115,818"],["Gross profit","410,219","","","324,273","","","239,608"],["Operating expenses:"],["Sales and marketing (1)","282,316","","","247,125","","","201,684"],["Research and development (1)","133,969","","","119,863","","","97,293"],["General and administrative (1)","116,093","","","101,977","","","88,771"],["Total operating expenses","532,378","","","468,965","","","387,748"],["Loss from operations","(122,159)","","","(144,692)","","","(148,140)"],["Other income, net","21,557","","","16,220","","","7,977"],["Loss before provision for income taxes","(100,602)","","","(128,472)","","","(140,163)"],["Provision for income taxes","3,445","","","1,957","","","583"],["Net loss","$","(104,047)","","","$","(130,429)","","","$","(140,746)"]]
[[/GREPCENT_TABLE]]

(1) Includes stock-based compensation expense, net of amounts capitalized as follows:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2025","","2024","","2023"],["","(in thousands)"],["Cost of revenue","$","4,022","","","$","3,585","","","$","3,616"],["Sales and marketing","38,168","","","31,198","","","23,871"],["Research and development","43,004","","","38,962","","","28,897"],["General and administrative","29,067","","","23,432","","","15,833"],["Total","$","114,261","","","$","97,177","","","$","72,217"]]
[[/GREPCENT_TABLE]]

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

53

Table of Contents

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2025","","2024","","2023"],["","(as a percentage of revenue)"],["Revenue","100","%","","100","%","","100","%"],["Cost of revenue","31","%","","31","%","","33","%"],["Gross profit","69","%","","69","%","","67","%"],["Operating expenses:"],["Sales and marketing","48","%","","52","%","","57","%"],["Research and development","23","%","","25","%","","27","%"],["General and administrative","19","%","","22","%","","25","%"],["Total operating expenses","90","%","","99","%","","109","%"],["Loss from operations","(21)","%","","(30)","%","","(42)","%"],["Other income, net","4","%","","3","%","","2","%"],["Loss before provision for income taxes","(17)","%","","(27)","%","","(40)","%"],["Provision for income taxes","1","%","","\u2014","%","","\u2014","%"],["Net loss","(18)","%","","(27)","%","","(40)","%"]]
[[/GREPCENT_TABLE]]

Comparison of the Fiscal Years Ended January 31, 2025 and January 31, 2024

Revenue

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2025","","2024","","Change","","% Change"],["","($ in thousands)"],["Revenue","$","593,410","","","$","471,800","","","$","121,610","","","25.8","%"]]
[[/GREPCENT_TABLE]]

The increase in revenue of $121.6 million, or 25.8%, for the fiscal year ended January 31, 2025 compared to the fiscal year ended January 31, 2024 was primarily driven by an $119.2 million, or 26.4%, increase in subscription revenue. Approximately 73.8% of the increase in subscription revenue was attributable to the growth from existing customers increase in monthly active users, expansion across channels and committed entitlements and features, and the remaining 26.2% was attributable to new customers. Total customers grew to 2,296 as of January 31, 2025 from 2,044 as of January 31, 2024. Professional services revenue increased $2.4 million, or 11.6%, due to an increase in deliverability services, technical account management, and support engagement services. These increases were partially offset by the decline in onboarding revenue as a result of the continued engagement of new customers with third-party partner-led onboarding. Additionally, in the fiscal year ended January 31, 2025, our international revenue increased by $62.4 million as we continued to expand market penetration in regions such as Europe and the Asia-Pacific region.

Cost of Revenue, Gross Profit and Gross Margin

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2025","","2024","","Change","","% Change"],["","($ in thousands)"],["Cost of revenue","$","183,191","","$","147,527","","$","35,664","","","24.2","%"],["Gross profit","$","410,219","","$","324,273","","$","85,946","","","26.5","%"],["Gross margin","69.1","%","","68.7","%"]]
[[/GREPCENT_TABLE]]

The increase in cost of revenue of $35.7 million, or 24.2%, for the fiscal year ended January 31, 2025 compared to the fiscal year ended January 31, 2024 was primarily driven by an increase of $7.5 million in hosting, infrastructure, and other third-party fees associated with delivering our platform and a $24.0 million increase in third-party messaging fees associated with growth in premium messaging channels. In addition, we had an increase in personnel and overhead costs of $3.2 million. The increased infrastructure, messaging, and personnel costs were incurred to support overall revenue growth.

Our gross profit increased $85.9 million, or 26.5%, in the fiscal year ended January 31, 2025 compared to the fiscal year ended January 31, 2024, and our gross margin increased by 0.4% to 69.1% in the fiscal year ended January 31, 2025 from 68.7% in the fiscal year ended January 31, 2024. These increases were due primarily to improved personnel efficiencies,

54

Table of Contents

economies of scale, and the optimization of costs of our tech stack as our infrastructure costs to support our revenue growth did not increase at the same pace as our revenue.

Operating Expenses

Sales and Marketing Expense

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2025","","2024","","Change","","% Change"],["","($ in thousands)"],["Sales and marketing","$","282,316","","","$","247,125","","","$","35,191","","","14.2","%"]]
[[/GREPCENT_TABLE]]

The increase in sales and marketing expense of $35.2 million, or 14.2%, for the fiscal year ended January 31, 2025 compared to the fiscal year ended January 31, 2024, was primarily driven by an increase in personnel and overhead costs of $22.9 million, which included $7.0 million of stock-based compensation costs. Additionally, the increase was driven in part by an increase of $6.4 million in promotional and product marketing, primarily related to the hosting of regional customer events, our annual customer conference, and other sales related events, an increase of $3.7 million in software costs, and an increase of $2.5 million in deferred contract costs as a result of sales growth.

Research and Development Expense

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2025","","2024","","Change","","% Change"],["","($ in thousands)"],["Research and development","$","133,969","","","$","119,863","","","$","14,106","","","11.8","%"]]
[[/GREPCENT_TABLE]]

The increase in research and development expense of $14.1 million, or 11.8%, for the fiscal year ended January 31, 2025 compared to the fiscal year ended January 31, 2024, was primarily driven by an increase in personnel and overhead costs of $11.7 million, which included $4.0 million of stock-based compensation costs, an increase of $1.6 million in software costs, and an increase in professional services of $0.7 million. These increases were primarily due to a period-over-period increase in headcount to support our continued investment in the features and functionality of our platform.

General and Administrative Expense

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2025","","2024","","Change","","% Change"],["","($ in thousands)"],["General and administrative","$","116,093","","","$","101,977","","","$","14,116","","","13.8","%"]]
[[/GREPCENT_TABLE]]

The increase in general and administrative expenses of $14.1 million, or 13.8%, for the fiscal year ended January 31, 2025 compared to the fiscal year ended January 31, 2024 was primarily driven by an increase in personnel and overhead costs of $13.2 million, which included $5.6 million of stock-based compensation costs and $2.3 million of depreciation expense, primarily related to the winding down of our old office as we moved to our new headquarters in the fiscal year. The increases were primarily due to investments in our finance and administrative functions to continue to scale our processes, systems, and controls, to enable our ongoing compliance with public company legal and regulatory requirements. The increases in expenses were partially offset by a decrease in professional services costs of $0.5 million related to the acquisition of North Star in the fiscal year ended January 31, 2024.

Other Income, Net

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2025","","2024","","Change","","% Change"],["","($ in thousands)"],["Other income, net","$","21,557","","","$","16,220","","","$","5,337","","","32.9","%"]]
[[/GREPCENT_TABLE]]

The increase in other income, net of $5.3 million, or 32.9%, for the fiscal year ended January 31, 2025, compared to the fiscal year ended January 31, 2024, was attributable to a $5.2 million increase in investment income from marketable securities.

55

Table of Contents

The investment income increase was driven primarily by the graded maturation of the portfolio positions at higher interest rates and the reinvestment of proceeds in a high interest rate environment.

Liquidity and Capital Resources

Sources of Funds

As of January 31, 2025, our principal source of liquidity was cash, cash equivalents, and marketable securities of $514.0 million. Our cash and cash equivalents consist of deposit accounts, interest-bearing money market accounts, U.S. government, and corporate 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.

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. We have generated losses from our operations as reflected in our accumulated deficit of $586.8 million as of January 31, 2025. We had cash flows provided by operating activities for the fiscal year ended January 31, 2025 of $36.7 million.

A substantial source of our cash provided by operating activities is our deferred revenue, which is included on our consolidated balance sheets as a liability. Deferred revenue consists of the unearned portion of billed fees for our subscriptions, which is recorded as revenue over the term of the subscription agreement. As of January 31, 2025, we had total deferred revenue of $240.3 million, of which $240.0 million was recorded as a current liability. Deferred revenue will be recognized as revenue when all of the revenue recognition criteria are met.

Cash Flow Overview

The following table summarizes our cash flows for the periods presented:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2025","","2024","","2023"],["","(in thousands)"],["Net cash provided by/(used in) operating activities","$","36,680","","","$","6,850","","","$","(22,308)"],["Net cash used in investing activities","$","(36,470)","","","$","(19,976)","","","$","(398,519)"],["Net cash provided by financing activities","$","11,695","","","$","13,109","","","$","11,332"]]
[[/GREPCENT_TABLE]]

Operating Activities

For the fiscal year ended January 31, 2025, net cash provided by operating activities was $36.7 million, primarily due to a net loss of $104.0 million adjusted for non-cash charges of $163.4 million and net changes in our operating assets and liabilities of $22.7 million. The non-cash adjustments primarily relate to stock-based compensation of $115.1 million, amortization of deferred contract costs of $35.0 million, depreciation and amortization expense of $10.1 million, and expense associated with the donation of our Class A common stock to a charitable donor-advised fund of $3.8 million. The cash inflows from changes in our operating assets and liabilities were primarily due to an increase in deferred revenue of $35.9 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 accounts receivable of $5.4 million and an increase in deferred contract costs of $48.2 million as a result of commissions on new bookings and renewals.

For the fiscal year ended January 31, 2024, net cash provided by operating activities was $6.9 million, primarily due to a net loss of $130.4 million adjusted for non-cash charges of $136.2 million and net changes in our operating assets and liabilities of $1.1 million. The non-cash adjustments primarily relate to stock-based compensation of $97.2 million, amortization of deferred contract costs of $29.8 million, depreciation and amortization expense of $7.0 million, and expense associated with the donation of our Class A common stock to a charitable donor-advised fund of $3.8 million. The cash inflows from changes in our operating assets and liabilities were primarily due to an increase in deferred revenue of $34.1 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 $45.1 million as a result of commissions on new bookings and renewals.

Investing Activities

Net cash used in investing activities was $36.5 million for the fiscal year ended January 31, 2025, primarily consisting of purchases of marketable securities of $218.0 million,, purchases of property and equipment of $13.2 million, and capitalization of internal-use software costs of $3.8 million, partially offset by maturities of marketable securities of $195.4 million.

56

Table of Contents

Net cash used in investing activities was $20.0 million for the fiscal year ended January 31, 2024, primarily consisting of purchases of marketable securities of $248.1 million, cash paid for the acquisition of North Star of $16.3 million, purchases of property and equipment of $9.8 million, and capitalization of internal-use software costs of $3.6 million, partially offset by maturities of marketable securities of 257.7 million.

Financing Activities

Net cash provided by financing activities was $11.7 million for the fiscal year ended January 31, 2025, primarily consisting of proceeds from the exercise of common stock options of $6.9 million and proceeds from stock purchases associated with our employee stock purchase plan of $7.7 million, offset by payments of deferred purchase considerations related to the acquisition of North Star of $2.9 million.

Net cash provided by financing activities was $13.1 million for the fiscal year ended January 31, 2024, primarily consisting of proceeds from the exercise of common stock options of $7.3 million and proceeds from stock purchases associated with our employee stock purchase plan of $6.0 million, offset by payments of deferred purchase considerations related to the acquisition of North Star of $0.2 million.

Non-GAAP Free Cash Flow

We report our financial results in accordance with GAAP. To supplement our consolidated financial statements, we provide investors with the amount of free cash flow, which is a non-GAAP financial measure. Our management uses free cash flow to assess our operating performance and our progress towards our goal of positive free cash flow. We define free cash flow as net cash used in operating activities less cash used for purchases of property and equipment and amounts capitalized for internal-use software development costs. We believe that free cash flow is a useful indicator of liquidity as it measures our ability to generate cash, or our need to access additional sources of cash, to fund operations and investments.

Free cash flow has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are (1) it is not a substitute for net cash provided by/(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 provided by/(used in) operating activities, the most directly comparable measure calculated in accordance with GAAP, for the periods presented:

[[GREPCENT_TABLE]]
[["","Fiscal Year Ended January 31,"],["","2025","","2024","","2023"],["","(in thousands)"],["Net cash provided by/(used in) operating activities","$","36,680","","","$","6,850","","","$","(22,308)"],["Less:"],["Purchases of property and equipment","(13,234)","","","(9,761)","","","(15,447)"],["Capitalized internal-use software costs","(3,814)","","","(3,574)","","","(1,258)"],["Non-GAAP free cash flow","$","19,632","","","$","(6,485)","","","$","(39,013)"],["Net cash used in investing activities","$","(36,470)","","","$","(19,976)","","","$","(398,519)"],["Net cash provided by financing activities","$","11,695","","","$","13,109","","","$","11,332"]]
[[/GREPCENT_TABLE]]

Our free cash flow increased for the fiscal year ended January 31, 2025 from the fiscal year ended January 31, 2024, primarily due to higher collections as a result of an increase in billings that are aligned with new contracts and contract renewals. 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. Additionally, our free cash flow may be influenced by macroeconomic factors that impact our collection efforts for customer payments. If we experience collection pressure it may lengthen the time to collect on accounts receivable and increase our bad debt expense, either of which could negatively impact our free cash flow.

Liquidity Outlook

We assess our liquidity primarily through our cash on hand as well as the projected timing of billings under contracts with our paying customers and related collection cycles. While our future capital requirements will depend on many factors, including revenue growth and costs incurred to support customer usage and growth in our customer base, increased research

57

Table of Contents

and development expenses to support the growth of our business and related infrastructure, and increased general and administrative expenses to support being a publicly-traded company, we believe our current cash, cash equivalents and marketable securities will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months.

Our most significant funding requirements are principally comprised of employee compensation and related taxes and benefits, non-cancelable purchase commitments, and operating lease obligations. Non-cancelable purchase commitments for business operations and operating lease obligations total $224.4 million and $114.8 million, respectively, as of January 31, 2025. Purchase commitments for business operations are predominately related to cloud hosting, infrastructure, and other software-based services and due primarily over the next three years. Our future funding requirements to settle our obligations in foreign jurisdictions are subject to fluctuations due to changes in foreign exchange rates.

While we anticipate being able to satisfy our commitments through a combination of our available current cash, cash equivalents and marketable securities, and cash generated from the sale of subscriptions to our platform, if our estimates prove to be inaccurate we may seek to sell additional equity or other securities that may result in dilution to our stockholders, issue debt or seek other third-party funding, in order to satisfy our future funding requirements.

Seasonality

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.

Critical Accounting Policies and Estimates

Our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K are prepared in accordance with U.S. GAAP. 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. 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. Our actual results could differ from these estimates.

We believe that the following critical accounting policies involve a greater degree of judgement or complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

Revenue Recognition

We generate revenue from fees related to subscription services and professional services and other. We recognize revenue related to contracts with customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those services. This is determined by following a five-step process, which includes (1) identifying the contract with a customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price and (5) recognizing revenue when we satisfy a performance obligation.

We identify performance obligations in a contract based on the goods and services that will be transferred to the customer that are identifiable from other promises in the contract, or that are distinct. If not considered distinct, the promised goods or services are combined with other goods or services and accounted for as a combined performance obligation. Determining the distinct performance obligations in a contract requires judgment. Our performance obligations primarily include access to our platform, which includes subscription contracts, technical support and platform updates and professional services, which include onboarding services.

We allocate the transaction price of the contract to each distinct performance obligation on a relative standalone selling price basis. Estimating standalone selling prices for our performance obligations requires judgment and is based on multiple factors, including, but not limited to, observable cost data, industry margin studies, historical selling prices, internal cost structure, internal pricing policies, and pricing practices in different regions and sales channels. We review the estimated standalone selling price for our performance obligations periodically and update, if needed, to ensure that the methodology utilized reflects our current pricing practices. The transaction price allocated to each performance obligation is recognized as revenue when or as the products or services are transferred to the customer.

Cost to Obtain a Contract with a Customer

58

Table of Contents

We capitalize incremental costs of obtaining revenue contracts, which primarily consist of internal sales commissions and agent commissions. We amortize these commissions on a systematic basis, consistent with the pattern of transfer of the expected benefit period or services to which the contract relates, generally up to four years. Four years represents the estimated benefit period of the customer relationship taking into account factors such as peer estimates of technology lives and customer lives as well as our own historical data. Commissions paid for contract renewals are amortized over the renewal period.

Contract costs are amortized on a straight-line basis over up to four years, which reflects the expected period of benefit of the performance obligation, and may be longer than the initial contract period. We determine the estimated benefit period by considering both qualitative and quantitative factors, including the length of the subscription terms in our customer contracts and the anticipated life of our technology, among other factors.

Income Taxes

We account for income taxes using the asset and liability method. We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

In evaluating our ability to recover our deferred income tax assets, we consider all available positive and negative evidence, including our operating results, ongoing tax planning, and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance that would reduce the provision for income taxes. 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, 2025, 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

Refer to Note 2. Summary of Significant Accounting Policies, to the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a discussion of recent accounting pronouncements.