Braze, Inc. (BRZE) Earnings Call Transcript & Summary

All right. I think we'll kick it off. Good morning. Thanks, everyone, for joining us at the Braze session at the Goldman Communacopia & Technology Conference. I'm delighted to have Bill on stage with me, CEO and Co-Founder. Thank you for your time. We appreciate it.

Thanks for having me. Great to see everybody.

I'm going to ask you to do this without a whiteboard.

Sounds good.

Which is, we really do appreciate your background at Bridgewater originally. And the analogy that compares Braze to a high-frequency trading system, focus about when you were first building the architecture that comprises the core of Braze. What is it that makes it like a high-frequency trading system? And why was it had to build? What were the 1 or 2 big technical problems that you had to solve to be able to get up and running?

Yes, absolutely. So a quick background. I was actually Braze's co-founding and CTO all the way back in 2011. I studied computer science in school. I worked at Bridgewater briefly before we founded the company. And when we started, we looked at the problem that we were trying to solve around understanding kind of humans and interactions in the moment and responding to those in an intelligent and relevant way. And I know that when you look at high-frequency trading today, a lot of that is pretty damn close to being etched in silicone and we've got FPGAs trying to get picoseconds out of things. And so it's a little bit different ball game now than it was in 2011. But if we kind of pull back to the concepts, what you're trying to do is take new information as it's evolving. You want to apply that to a model of your prior understanding of the world in order to figure out what has changed, then you take a strategy and you overlay that, and it might give you an output, an action that you want to take, right? And so in a high-frequency trading system, it's new economic indicators, it's every tick of a stock price, it's a bit of spread on some sort of strategy. And you're bringing that in, you're applying it to your existing model or a prior understanding of the world, then you're putting your trading strategy over it. You might make a trade. But of course, that doesn't end things either. When you're living in the stream, the action that you take is going to actually modify the context of what's going on. So you need to then observe that and refresh it. And the same concepts we thought applied to communicating and delivering these like great experiences to people in mobile. Very different from sending you an e-mail and waiting for you to fire up your Outlook at work on your desk, which is what was going on in 2000, when Salesforce Marketing Cloud or the exact target progenitor were founded, this was going to be a whole new world that was going to be always on. It was going to be driven by mobile. It was going to be on the schedule and the terms of the customer. And so what we needed to be able to do was respond to contacts in the moment, and that same type of architecture made the most sense to us. We also, I'll admit, had total ignorance of the marketing technology market. Those trading systems were what we were certainly more familiar with. And that ended up meaning that this wasn't something that was like Braze built this right in the leading edge of everyone else doing this. I think we actually have more than a half decade head start on using a streaming architecture in order to solve these like marketing technology problems in the space, which has been really fantastic to see. when you go to like what were some of the technical challenges. So one of the things that we really wanted to do as well, and this is with our engineering hat on, was build a system that you could really throw anything at. And we would maintain the performance in variance that we were providing. So it meant that every bit of data that flowed into Braze was going to be taken into consideration instantaneously across the entirety of the decision-making flow. That's very different from a batch processing architecture, where necessarily, as soon as that query runs, the output of it is immediately out of date, and you're going to act on it, but you've got latency built in there. Similarly, we were looking at audience sizes that were larger than anything you had seen before. When you consider what the e-mail marketing clouds were built to kind of handle their biggest day of the year is Black Friday with American retailers, consider that by comparison to like the Cricket World Cup as one simple example, or all of the kind of examples of these big global audiences that were brought to bear by the app stores. The fact that you could put an app in the App Store and immediately be selling it in 170 countries and currencies around the world was a kind of a scale factor and distribution factor that didn't exist in a lot of the web use cases that a lot of the e-mail marketing world was built upon. And so we were dealing with massive scale. We wanted people to be able to kind of throw anything at the Braze system. Whenever we ran into limitations like, "Oh, hey, we didn't expect that people were going to build 1,000 different segment definitions or that they would have tens of thousands of campaigns running." We actually always just took that as like, "All right, well, somebody already did it today. We think there's going to be a lot more people doing that tomorrow," instead of putting limitations on, let's just figure out how to handle that. And there's a -- to just highlight one specific problem. There's an interesting issue in systems engineering, referred to as the thundering herd problem, which is where you have so much incoming demand load that you can't even like -- you can't even acknowledge that those requests are coming in fast enough to process them because the system is under so much load and you just start dropping things. So now consider the problem of sending out a breaking news notification to 100 million people. You are sending out that notification as fast as you can. And as you do that, every -- some percentage of those people are immediately then opening up the application. And so you actually are causing your own thundering herd problem, where you've got 100 million people, while you're still trying to send the messages to the whole of that audience, the people that got it earlier are already opening up the mobile application to load it and bring it in, at which point we need to then bring them even more messaging inside the application. And so we would see load characteristics where it's like all of a sudden, out of nowhere. Black Friday, you can plan for, you know it's coming. Breaking news, you can't plan for. And when you're actually dealing with global audiences, a lot of times, these things are happening in the middle of the night, they're happening in different cultures, it may be your DevOps team is not familiar with, et cetera. And the load goes, woop, woop, woop. And then you need to be able to handle that in the moment. And so those were just -- that's where we cut our teeth from a scale and a performance standpoint. And then when we start talking to the major U.S. retailers about their Black Friday loads, we can kind of scoff at them, which is pretty cool. So.

And so if we think about the main players in the marketing software and marketing automation stack today, what is the technical limiter or the barrier to entry for them to take a team of R&D folks, put them on top of their batch processing architecture and turn it into a real-time stream processing architecture?

Yes. So I think that there's a -- so the fundamental difference in the architecture is that you can't put -- you can't patch or like incrementally move a batch processing architecture to a string processing one. It's -- there's a fundamental difference between living in the flow and all the computation paradigms around that versus being able to always kind of have that backward looking -- those backward-looking aspects. Another -- I brought up the thundering herd problem at the beginning, another interesting aspect of this is just the concept of an audience in general, right? So to be able to have an audience be, hey, I ran this query and this is a thing that was true about these people in the past, and here's the list of all the people that satisfy this. That's a traditional concept of an audience. The interesting thing about that is it's immediately out of date as soon as it's generated. It's not actually like a real-time evolving audience, which is something that was true out a group of people in the past. By contrast, you've got a classifier, right? And the way that we build our audience engine is really is a series of real-time classifiers that live in the stream. And they're processing new data, one at a time in a continuous fashion. It leads to interesting limitations because things that seem easy over here are sometimes actually very hard over here. And so we had to develop proprietary data models. We had to develop clever ways to actually recast certain filtering concepts that might be very easy to express in SQL but are harder to do in a classification engine. And we've seen examples of this across our competitive set. And we see the same thing happen. I don't know if we want to talk about this later when people have a single channel focus. Because there's also a really big difference between messaging where you decide when you are sending it to someone and messaging where a customer comes into your product experience and you need to render something for them interactively like as an app is loading or as a website is loading. Because in the push-based world where you decide when it's sent you care more about throughput usually. How quickly am I getting the message to everyone. Whereas in this world, I need to render it in sub-100 milliseconds or else it appears that my application is lagging or my website is broken or what have you. And so the types of targeting criteria that you can use in those are different. But in Braze, we want them to be the same because we want to be able to manage that complexity for people. We want to use our Braze to be able to come in and really think about all of their strategy in a customer-centric way. We don't want them to have to worry about the technical details of like, is this the targeting, what type of targeting am I doing? And so we really challenge ourselves to make sure that throughout the development of the product, we were always managing that complexity for our customers so that they can kind of rise above it and really be thinking about the creative strategy of the marketing problems they were working on and being able to experiment with it. And so when you start out in this world where you're either siloed by a channel focus, which we see a lot of our start-up competitors, they grow up on one channel. Braze had actually 4 different channels in the very first product we launched all the way back in 2012, we had e-mail push notifications, we had ephemeral in that messaging, and we had persistent net messaging through an inbox. That forced us to make sure that everything we build from there on out was actually managing all of that complexity. You take a legacy marketing cloud or even a lot of our start-up competitors, they grew up with batch, e-mail focused or maybe SMS focused or push notification focus or what have you, there's a lot of things that they have inadvertently painted themselves into a corner on in their product set, and we see a lot of difficulty from all of them in kind of crossing over that chasm.

There is also noise in the market or a misconception in the market where you have competitors who claim they can do real-time use cases when perhaps, when you actually demo to the customer or bake off to the customer, the functionality of the technology is different from yours. Where do you think customers are in the evolution of understanding how Braze is different? And what can you do to help with that evangelization? Or do you think we're kind of past the evangelization stage?

Yes. No, I don't think we're past it. And I think there's a lot of definitions of real time out there in the world. I try to not use real time, and I actually use phrases like interactive or evolving context because I think that it evokes the feeling, where like we all understand what it means for something to be interactive. A lot of our competitors will call something real time as long as it's happening more than once a day, which doesn't really move the needle for the customer. And I think I'll maybe use 2 examples. One, going back to a fintech example, and let's look at like fraud detection as an interesting problem. So within fraud detection, if you need to go and actually do an audit because there was some form of attack or what have you, you've got time to go and do all the best queries you want in order to really go and find those needles in the haystack that are going to lead you through your investigation. But if you just need to decide whether you're going to approve a credit card swipe or not, you need to do that right away. If you're going to force your customer to wait even 30 seconds, much less several minutes in order for their card to be approved or not, they're just going to switch to a different credit card the next time they're trying to buy something, right? And so that's a great example where you need to prioritize that immediacy of processing in order to deliver a great customer experience. And a lot of our competitors would call 30 seconds and subsecond both -- they would call both of those real time. But we, of course, know that, that customer experience is very different. Take a very human example for you to -- for your friends to think you're funny, you got to have a really good handle on timing, right? And that timing needs to be able to be there in real time and evolve with the context of the conversation. And I think that brands have actually, due to technical limitations of a lot of the tools they've been using for now a decade, have lost sight of even having a goal of being able to be funny, or have the equivalent of that and be able to respond in the moment. And now certainly, if you're at a party and you don't figure out what you were going to say to someone until you've already left, you're not going to offend anyone, but you're probably not going to make a great connection with them either. And so I think we are very much still in the early days of being able to evangelize this, challenge marketers to really think through what does it mean to be relevant. We also run into this interesting mental trap where people go down this path of personalization. And they think about personalization as like the equivalent of like the Spotify playlist that they get, and its deep content personalization, and it's hard AI/ML problems. And they lose sight of the fact that like merely doing the equivalent of like making eye contact and saying hello and talking about topics as [indiscernible] as the weather can be engaging when you meet someone, right? But they've lost that tool from their toolkit because so many of the systems that they've used over time are not properly real time. And so we're trying to -- we're actually trying to evangelize that, teach that, inspire that more in the market. And the same thing is true of cross channel as well, right? So many companies have been so used to using siloed data, siloed communication channels, their teams are separate from each other. And so from their perspective, every -- if you've got an SMS hammer, everything looks like a nail, right? But when you actually take a customer-centric approach to your strategy and you can use the channels as an implementation detail and not as a starting constraint, it really changes the way that you think about the problem. And so that's another journey that we're really bringing the rest of the ecosystem on, and I think we're still early on both of those.

I'll pick up on the comments on being early, which is a little bit of a product road map question. If you think about your most sophisticated customers and how you're thinking about your road map over the next 5 years, what are the 1 or 2 next biggest technical problems that need to be solved as you think about the next phase of this?

Yes. So I think that there's -- so there's a bunch of surface area of our product that's constantly expanding. And so we're always adding new platforms, new channels, new ways to communicate with people, new places that we're going interact with them. We're also layering in more sophistication and better ways to get more data as we kind of think about the underlying integrated data flow that the stream processor sits on top of. How do we make it easier to get data from your data warehouse? How do we make it easier to attach ML or AI models to the decision-making criteria and being able to do those in real time as part of the stream? So there's a lot of work that's always happening there. And then, of course, underneath that, we need to constantly be managing the complexity that enters into the picture as we expand that surface area. Because if we don't do that, our customers get bogged down by the complexity of the programs that they're developing, and it halts their progress. And I think you see that in a tool like Salesforce Marketing Cloud, you can go and look at the actual usage of that product. And what you're going to see is that the vast majority of their customers only send e-mail through it, even though the iPhone has been out for more than a decade and like they obviously should be doing more than that. But they get to the point where they finally get their programs up and running and it's such a rat's nest of complexity that people are afraid to even touch it, much less expand on it. And so we think it's really important to constantly be working on usability and complexity management, so that as we add surface area to the products, people can use it and they can continue to expand their uses. So the most sophisticated customers, it's a constant like -- it's a constant cycle of working on those things. And then on the other side, what we want to do is continue to allow us to expand to more customer archetypes and do it earlier, do it when they're not as far along in the journey. I refer to this as smoothing out the low sophistication on-ramp, right? So we want people to kind of graduate into Braze. The more work that we can do to meet them where they are today and guide them along their journey, the more addressable market that we can access. There's another interesting aspect to that, which is -- which we have been on a journey with, with things like e-mail and, to a lesser extent, SMS over the years where when we first started selling e-mail, we couldn't sell it to a kind of primitive e-mail buyer. We could go and we could win e-mail business if the customer was interested in cross-channel use cases, if they understood the value of real time, et cetera. But if they were just a less sophisticated e-mail buyer, they would come into the product and they would notice some things that we didn't have that Salesforce did have and it was going to change their workflow and they didn't quite understand these more advanced concepts, and so we didn't win that business. We can win that business now, right? But what we learned along the way is that really meeting that customer where they are so we can get them into the Braze ecosystem is super important. So when we look into the future and we think about all the channels that we're going to add over the next few years, we launched surveys last summer, we plan on greatly deepening our survey support over time. That means we're going to start to sell to, eventually in the future, the buyer that actually just wants to buy a survey product. And that's a great way for them to get into the Braze ecosystem. Today, we, by and large, can only sell surveys to people who want to buy a cross-channel product that include surveys. But in the near future, we want to be able to sell Braze to people that want to buy surveys, right? And so that means smoothing out that low sophistication on-ramp for them, figuring out how they get into the Braze ecosystem and then controlling the complexity for them all along through their journey so that we can cross-sell and upsell, and the gravity that we see of Braze customers over time, taking all the different channels that they're communicating with their customers with, whether those are preexisting use cases or they're new ones that they're aspiring to. Bringing more data into the equation so that they can run more use cases, they could use more sophisticated targeting tactics, they can evolve their strategies more over time. These are all things that we layer in. And so we're kind of constantly thinking about that whole customer journey and making sure that we're supporting it along the way.

I'll pick up on this idea of meeting a customer where they are. As we think about the last couple of years, COVID, I think, has been a catalyst for folks to think about digital engagement. IDFA has happened, which has catalyzed the conversation around first-party data versus third-party data. What do you see as the trigger for customers to begin an initial engagement with Braze? And is there a risk that we're in a period of slower triggers because we've had so many triggers over the last years?

Yes. So I'll grab that IDFA thread and kind of pull it back out to a higher-level idea, which is that one of the things that we've definitely seen over time that leads to people starting to prioritize tools like Braze more is when acquisition gets harder. So if you, as an organization, are scaling really quickly, you're flush with new funding, you're acquiring, some new customers at the top of the funnel just has users gushing in. And...

It's very dramatic.

And then over time, the lights dim on your acquisition potential. What you start to -- what you have to do is really start to value every single one of those customers that's coming into the funnel more, right? You want your user funnel to look less like a funnel and more like a pipe, right? And so things like IDFA -- the IDFA changes made acquisition less efficient. Things like macroeconomic headwinds also lower the total amount of funding that you even have to do that. There's also plenty of examples that happen in the natural order of a scaling business where maybe as like SoundCloud, as an example, went through this, where at some point, they exhausted their really great product market fit with those early music enthusiasts and they needed to expand and do a more kind of mass market product in order to keep growing. And that meant that their acquisition started to get harder. And of course, that leads to 2 really big things. One of them is that activation becomes vitally more important. Making sure that, that 1-day, 3-day, 7-day, 14-day, 13-day retention curve is flatter, right? That you're not losing all of those people over time. That is Braze's bread and butter use case, like when you get people up and running. These are onboarding, showing them value, teaching them those early habits, making a good first impression and really responding to what, in many cases, are nonlinear customer journeys and making sure that you're there along the way to guide them into the right places. The other thing is that you want to be able to continue to engage your existing customer base. You want to be able to nurture them and activate them and get greater investment out of them. And so when we look at that overall, it's like, yes, IDFA was one of those things, macro can be another one. Another thing that happens is that normal scaling and these questions around product market fit. There's also -- if you look at -- I think the delivery space is another interesting one where you could kind of take a naive view and you could say, "Okay, people are using on-demand delivery services less because they're going out to eat more." But of course, also the other thing that's happening is that a lot of the quick service restaurant groups and other sorts of restaurant groups are being forced to activate their -- and build their own first-party audiences, just like Disney, as an example, was forced to do a few years ago and all the media streaming companies were like, "Oh, d***, Netflix is actually disaggregating us from all of our customers." The restaurants are doing the same thing. DoorDash and Grubhub are disaggregating us from all of our customers. We need to invest in building first-party assets. We need mobile wallets. We need loyalty programs. We need evolve takeout programs. We need delivery, et cetera. And so when you look at that from a business prospect aspect for Braze, instead of we work with a whole bunch, most of those on-demand delivery companies, we also now work with the classic enterprise as they've been entering into that space. And our QSR business has continued to grow immensely. And so that's a really great opportunity where they found that competitive pressure because they were being disintermediated from their customers and, therefore, build net new initiatives that became great customers for Braze. And those continue to grow. Even while you go from ordering DoorDash 30 times a month down to like 2, you're probably also using a handful of other applications, and that results in you being more monthly active users for us. It results in there being more engagement with you over time across more brands, and that ultimately helps us.

I want to marry the idea that you put out there on customer acquisition costs becoming harder and that being a catalyst use Braze. With the comments that you made on Monday night, which specifically related to customers being more risk averse about making changes in their marketing stack. So help us reconcile those 2 comments and talk a little bit about what you're seeing real time, which led to ultimately the implied 4Q guidance coming down a little bit?

Yes. So I think that what we saw in terms of the risk avoidance was more broad-based, like I wouldn't have isolated it in the marketing set, but rather that businesses overall were just afraid to make changes, make new investments. And you see that in the kind of system checks with the GSIs as well, talking about digital transformation agendas being slowed down or paused and things like that. And so I think what we saw, just broad-based, was a fear of making changes in the moment. But the underlying thesis and the underlying market forces that are there, I think hold up in a very intact way. We set a new record for pipeline generation in Q2. We see tremendous opportunity out there. And so we don't know in this macro exactly how that pipeline is going to act, and so we're taking an appropriate level of risk adjustment when we kind of look into the future. But when we look at the overall opportunity ahead of us and the kind of the more long-standing tailwinds that are there, we think they're still very much intact. That's why you see us still in a growth posture. We're still hiring, still growing. We've seen extremely robust customer renewals and upsell and growth. We actually just had a large upsell that closed yesterday with one of these delivery companies who was only pacing at 60% of their monthly active user allocation for the year. They signed a 2-year contract extension that was actually an upsell to become a multimillion dollar contract because they added new channels. They've added higher data point allocations per monthly active user because they're actually running more use cases with us, and committed to multiple years. So that's a great example where even though their monthly active user count wasn't pacing, we actually, because of our expanding products and because of their expanding usage of it, were able to renew for 2 more years and upsell them, even as their monthly active user count maybe disappointed them.

It's interesting that you clarified that broad-based means not necessarily tied to the marketing budget. One of the observations we have is marketing companies, marketing software companies and front-office software companies tend to trade at a discount on gross-adjusted revenue multiples because of investor correlation, or investments correlating the health of their businesses to marketing budgets. And so the question for you specifically is, do you think Braze is tied directionally to the strength of marketing budgets in any given year based on your customer conversations?

Yes. I mean I think the short answer is no. And I'll break that down a little bit. I think there's 2 different things to look at here. One of them is when times are really tough and you need to go prioritize activities and you need to prioritize the budget attached to those, there's -- you put everything in a stack and you chop the top off, right? And one of the things that gets chopped off is brand advertising, like very simple example, right? That's one of the first things that get halted. And that makes a lot of sense for a variety of reasons. But what you don't do is -- and you may even stop caring that people are complaining to you on Twitter as an example, right? Like there's a bunch of things that are in that kind of that marketing world that could get deprioritized. But you don't shut down your website. You don't stop using your app. You don't stop serving your app. You don't stop processing customer orders. You don't stop talking to your customers, et cetera. I think when you really look at customer engagement use cases, they are a bedrock of the operations of a business. They are not discretionary activity. And we saw that -- we got a trial run of that thesis during 2020, where we saw all of the existing customers, as long as their businesses didn't literally go bankrupt, they were still utilizing Braze, even in like a travel and hospitality or a restaurant sector and other places where we had a total slowdown in activity. They're still talking to their customers, right? They are still trying to keep their brand presence visible. They're still trying to communicate with them through global supply chain issues, where maybe you didn't have marginal supply, so you weren't trying to stimulate marginal demand, exactly the people you need to communicate with or your existing customer base so that you don't lose brand equity with them while you're trying to work your way through some of these supply chain stumbles. So there's just a lot of examples where the logic being built into Canvas and the use cases for Braze, certainly, some of them are like discretionary marketing and they're promotional and what have you. But there is a bedrock to customer engagement that is an always-on responsibility for all businesses in any environment. And that acts more like mission-critical software than it does anything like marketing, right, much less like brand marketing spend. So that's part of it. Now then the second would be -- that's like, does this get cut in tough times? And I think the answer is emphatically no. Now, do people grow these -- do people grow their spend in these things during tough times? And how does that act? And I think that has to go back to some of these -- some of the analysis we just talked about, about what happens when it gets harder to acquire new customers? And how do you then prioritize things like activation and retention and think through that? There's also just looking at the overall spend environment. And then I think another interesting thing that happens, and we're seeing this right now, I mentioned this briefly on the call, but we've actually had these audience [ ink ] products for a while where you can actually take Braze audiences or people that are in journeys in a Braze Canvas, and you can utilize that to kind of update and modify like Google and Facebook ad audiences. I think there's some really great use cases there, but they actually were underutilized over the last few years because the customer engagement teams and the acquisition teams were siloed from each other. The engagement teams didn't have ad budgets, and the customer acquisition teams weren't really talking to their colleagues over on the engagement side. And it looks a lot like the e-mail and the mobile teams being separated 5 years ago. We still have that separation in a lot of businesses between the acquisition teams and the engagement teams. But when the scrutiny shows up, and you start to kind of think about strategy, you start to reprioritize, that's causing these teams to talk to each other more. And they're realizing, oh, hey, if we actually go and use Braze in order to have our suppression audiences not just be a nightly job, but actually have suppression be a real-time thing that happens for individual customers as soon as they show up back in my product, I can save a tremendous amount of money on my ad spend trying to reactivate lost users, right? Similarly, if I can actually take my acquisition spend that was previously just trying to pour people in the funnel, and I use it to optimize activation, where I run brand advertising alongside the first 3 days of a user after they first visited my website or they first downloaded my apps, so I can really amplify my brand presence and make a good first impression and have a better chance of training that early habit, we know that's a use case that works really well. It wasn't really being done in our customer base because of these silos. But now the scrutiny that's being placed on these marketing teams is actually shoving focus over to that. And the great thing about these types of use cases as soon as they're learned, and as soon as they enter those organizations, it's a one-way door, right? You don't stop doing that. It's really positive to do it. But it takes a catalyst to really learn that, prioritize it, focus on it. And so we see when there are -- when there's kind of turbulence ahead, a lot of times, it forces businesses to kind of take stock of things. And when you consider how much of our business has really been built because of companies realizing that they need to make a strategy change, they need to do a better job of this than they were before, they need to take an interdisciplinary approach. They need to be more sophisticated about how they use data. They need to be customer-centric in their thinking that all of those things together lead to them kind of seeing the lights of Braze. And once they get there, they never graduate from it. We've really built ourselves to be the platform that they can build and grow with for a long time. And then that effect that I discussed before of us really having that gravity toward all of the use cases and channels coming together, that starts to come into play and leads to great growth.

I will ask a clarifying question on the broad-based risk of business comment that you made earlier, which is, can you share with us anything about the rate of change? Meaning, have conversations stabilized in terms of being more risk averse but stable, or is there a trajectory where the risk averseness gets more severe as we go through the year?

Yes. So my read on it, and I'll just deliver this with the caveat that it's still early and a lot can change, is that I think that risk aversion tends to come about due to like shocks, right? It's not necessarily the level of health but rather the concern that things are -- that we don't know where things are going to land that it's leading to that stasis. And so from our perspective, as things stabilized, and we saw this in August and in early September, a lot of those deals that we were expecting to close right at the end of July, that slipped out, much of them did close in August and September. And so that's obviously a great stabilizing force that we saw. But then we also woke up yesterday to an even worse inflation print than was expected, and everyone kind of freaks out again. So like we're putting an appropriate level of risk adjustment into our forecast because we don't know exactly how our pipeline is going to act. But I don't think that we -- we don't certainly don't need to like -- we certainly don't need to like have completely turned the corner and our back in like an amazing bull market before these things start to turn back on again. I think it's merely stability that they need to be able to make those decisions.

I'm going to ask on go-to-market and margins, and then we will open it up to the audience. So I'll combine the questions into one, which is, I think the #1 driver for you to get to free cash flow positive, EBIT breakeven is leverage in your go-to-market line. So 1 or 2 things that we should be aware of as you think about driving efficiency in your go-to-market, especially given you have competitors who have below average LTV to CAC, but spend a lot of money in the space.

Yes. So that assumption is correct, right? When we look at our long term path to our operating margin target, we're going to get a few points out of G&A. We'll see a few points out of R&D, although we think that there's tremendous opportunity to continue to really build a lead in R&D. And so you shouldn't expect to see us make any big moves for efficiency there for a while. We also have -- you saw the gross margin range increase that we announced in our earnings earlier this week. We've got good confidence that the initiatives that we're taking, both from a tech stack standpoint as well as the kind of post-sales customer motion are getting more efficient over time. We also haven't -- we haven't deployed any sort of cost-efficient location strategy yet, our lowest-cost global location is Chicago. So there's obviously still a lot of room for us to improve from there. And so we expect there to be contributions kind of across all of those things as well. Even when you get there though, we still need to find a dozen or more points and additional improvement out of the sales and marketing. And so there's a lot going on there. We're investing in more of our indirect motions, right? Working through resellers and working through other sets of partners. A lot of what we're talking about with the GSIs and the global holding companies are really going to help us there because they both help on the inbound side, which is that they can bring us well-qualified lucrative pipeline that is generally a very high-margin business. They also help us on the backside, which is that if they're there, maintaining the business, we don't need to put as much customer success in. And it also helps with the efficiency of the business because we can actually hire our -- we can hire more around steady state and we can have the agency community kind of absorb the ebbs and flows of, for instance, like needing to staff up an integration and onboarding team to be able to handle the fact that a lot of people try to start at the beginning of every quarter. In a world where we were doing 100% of the onboardings, we would need to have a lot of staff on hand to handle that. Instead, we can have the agency community absorb that. That's something that they're used to in their own business models. And so there's a lot of benefits that we're going to get out of that as well. And then normal returns of scale out of marketing spend as we continue to build out functions, we start to see the contributions from things like marketing come more out of scaling, marginal cost investments rather than needing to scale the people. And we're also continuing to invest in things like product-led growth operations. So we actually have -- we've got a couple of teams right now that are dedicated to helping automate cross-sell and upsell motions, delivering those opportunities and educating customers on how they can expand their Braze footprint, automatically kind of putting those on a silver platter to our salespeople. Today, they're still processing order forms for those, but the ability to actually kind of fully self-contain within the Braze product, process certain types of upsells and cross-sells is certainly in our future, and we're looking forward to that being a big efficiency boon as well. So it's a multifaceted problem. We're going to hit it on a lot of different fronts.

Excellent. Questions from the audience? Bill, will you share with us your view on consolidation in the space? Do you think, 5 years from now, the number of players with critical mass in marketing software, customer experience, customer engagement will be more or less similar to today?

I think it's going to be less. I think that the thing that has actually held back consolidation over the last 5 years has just been how easy the fundraising environment has been. There's been -- I could even just look at our own sort of competitors where there are a bunch of them that we completely flatlined their growth years ago that are still -- were still around and kicking as independent companies because it's just been relatively easy to raise money that in a normal environment, they would have been forced to kind of consolidate out and such. And so there's -- I think that with the scrutiny on the environment and the difficult fundraising, I think there's a lot of the cacophony of the start-up competitive landscape will certainly consolidate together. And yes, I think that's more about kind of the macro and the fundraising environment because there's tremendous opportunity here. So we're certainly going to continue to see -- we're going to continue to see new companies get started in the space forever. It's an important space. It's a bedrock of any business. When you look at how diversified we are across geographies, verticals, company sizes, et cetera, it's clear that there's tremendous opportunity, and I certainly don't expect the entrepreneurial spirit of the world to suddenly disappear. But when we talk about at scale competitors, I think we're definitely going to see consolidation over the next 5 years.

We'll leave it there. Thank you for your thoughts. Thank you for your time. We appreciate it.

Absolutely. Thanks, everybody.