8-K: Braze Q2 FY2026 Revenue Up 24%, Non-GAAP Profit Expands

Braze announced strong second fiscal quarter 2026 results, with revenue increasing 23.8% year-over-year and expanded non-GAAP operating and net income profitability.

Summary

• Revenue for Q2 FY2026 reached $180.1 million, a 23.8% increase from $145.5 million in Q2 FY2025.
• Non-GAAP operating income grew to $6.0 million, up from $4.2 million in the prior year's second quarter.
• Non-GAAP net income per share diluted was $0.15, an increase from $0.09 in Q2 FY2025.
• Total customers increased to 2,422 as of July 31, 2025, from 2,163 a year prior.
• Customers with Annual Recurring Revenue (ARR) of $500,000 or more grew to 282 from 222.
• Introduced the Braze Model Context Protocol (MCP) Server to integrate Large Language Models (LLMs) with Braze data.
• Issued guidance for Q3 FY2026, projecting revenue between $183.5 million and $184.5 million, and non-GAAP operating income between $3.5 million and $4.5 million.
• Updated full fiscal year 2026 guidance, expecting revenue between $717.0 million and $720.0 million, and non-GAAP operating income between $24.5 million and $25.5 million.

Sentiment

Score: 6

Explanation: While Braze demonstrated strong revenue growth and expanded non-GAAP profitability, key metrics like dollar-based net retention and free cash flow showed declines. The widening GAAP operating loss due to stock-based compensation also presents a mixed financial picture. The company's strategic focus on AI is positive, and guidance for the next quarter and full fiscal year indicates continued growth, but the underlying trends in customer retention and cash generation warrant careful observation.

Positives

• Strong revenue growth of 23.8% year-over-year, reaching $180.1 million.
• Expanded non-GAAP operating income to $6.0 million from $4.2 million.
• Increased non-GAAP net income per share diluted to $0.15 from $0.09.
• Growth in total customers to 2,422 from 2,163.
• Significant increase in customers with ARR of $500,000 or more, from 222 to 282.
• Strategic focus on AI solutions with the announcement of the Braze Model Context Protocol (MCP) Server.
• Strong remaining performance obligations of $862.2 million, with $558.2 million current.

Negatives

• GAAP gross margin decreased to 67.7% from 70.2%.
• Non-GAAP gross margin decreased to 69.3% from 70.9%.
• Dollar-based net retention for all customers declined to 108% from 114%.
• Dollar-based net retention for customers with ARR of $500,000 or more declined to 111% from 117%.
• GAAP operating loss widened to $38.8 million from $28.0 million, primarily due to $39.5 million in stock-based compensation expense.
• GAAP net loss per share increased to $0.26 from $0.23.
• Net cash provided by operating activities decreased to $7.0 million from $11.6 million.
• Free cash flow decreased to $3.5 million from $7.2 million.
• Total cash and cash equivalents, restricted cash, and marketable securities decreased significantly to $368.3 million from $514.0 million as of January 31, 2025.

Risks

• Uncertainty in achieving anticipated financial targets and broader strategic objectives.
• Potential adverse consequences from unstable market and economic conditions on business, financial condition, and share price.
• Rapid revenue growth in the past may not be indicative of future revenue growth.
• History of operating losses and limited operating history at current scale.
• Challenges in successfully managing growth.
• Reliance on the accuracy of market opportunity estimates and forecasts, and the impact of global/domestic socioeconomic events.
• Need to continuously adapt the platform to changing customer or consumer needs, requirements, or preferences.
• Ability to attract new customers and retain existing ones.
• Intense competition in the competitive markets where Braze operates.
• Need to adapt and respond effectively to rapidly changing technology, evolving cybersecurity and data privacy risks, industry standards, or regulations.
• Reliance on third-party providers for cloud-based infrastructure.

Future Outlook

Braze is initiating guidance for the fiscal third quarter ending October 31, 2025, with expected revenue between $183.5 million and $184.5 million, non-GAAP operating income between $3.5 million and $4.5 million, and non-GAAP net income per share diluted between $0.06 and $0.07. The company is also updating its full fiscal year 2026 guidance, projecting revenue between $717.0 million and $720.0 million, non-GAAP operating income between $24.5 million and $25.5 million, and non-GAAP net income per share diluted between $0.41 and $0.42.

Management Comments

• "We reported a strong second quarter, delivering 24% year-over-year revenue growth while driving continued efficiency in our business, expanding our non-GAAP operating income and net income profitability, and generating strong free cash flow."
• "Our results also demonstrate our solid execution and continued demand for our AI-powered customer engagement platform."
• "Looking ahead, Braze is focused on AI solutions that will empower brands to transform the customer engagement experience for marketers and end users alike, driving high ROI for our customers and Braze."

Industry Context

Braze operates in the highly competitive customer engagement platform market, which is increasingly influenced by advancements in artificial intelligence. The company's focus on AI solutions, such as the new Model Context Protocol (MCP) Server, aligns with the broader industry trend of leveraging AI to enhance personalization, automation, and efficiency in marketing and customer interactions. The continued demand for its AI-powered platform suggests a strong position within this evolving landscape, despite some softening in net retention rates which could indicate increased competition or market saturation in certain segments.

Stakeholder Impact

• Shareholders: Mixed impact. Revenue growth and non-GAAP profitability are positive, but declining net retention, reduced free cash flow, and widening GAAP losses could raise concerns. The significant decrease in cash and marketable securities might also be a point of scrutiny.
• Customers: Positive impact from new business wins and expansions, along with the introduction of AI-powered tools like the MCP Server, which aims to enhance customer engagement capabilities and ROI.
• Employees: The company was recognized as a "2024 U.S. News & World Report Best Companies to Work For" and "2024 Best Small & Medium Workplaces in Europe," indicating a positive environment. Stock-based compensation is a significant expense, suggesting employee incentives are in place.

Next Steps

• Continue to focus on AI solutions to transform customer engagement.
• Monitor the impact of the Braze Model Context Protocol (MCP) Server on customer ROI.
• Hold a conference call on September 4th at 4:30 pm EDT / 1:30 pm PDT to discuss fiscal Q2 2026 financial results.
• File the Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2025, with the SEC.

Key Dates

Recommendation

Braze's Q2 FY2026 results present a mixed bag. While revenue growth remains robust at 23.8% and non-GAAP profitability is expanding, the decline in dollar-based net retention rates for both overall and large customers is a notable concern, suggesting potential challenges in upselling or retaining existing clients. Furthermore, the significant reduction in free cash flow and net cash from operating activities, alongside a widening GAAP operating loss, indicates underlying operational pressures despite the non-GAAP improvements. The strategic focus on AI is a positive long-term driver, and the guidance for the upcoming periods is generally positive. However, the conflicting signals from key metrics warrant a 'hold' recommendation. Investors should monitor future reports closely for stabilization or improvement in net retention and cash flow, as well as the successful execution of AI initiatives, before considering further investment.

Keywords

customer engagement platform, marketing automation, AI solutions, SaaS, cloud software, CRM, digital marketing, mobile marketing, customer retention, Braze, BRZE, financial results, earnings, Q2 2026, revenue growth, non-GAAP profit, net retention, customer acquisition