Klaviyo, Inc.

Good afternoon and welcome to Klaviyo's third quarter of fiscal 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw your question, just press star one again. Thank you. With that, I'd like to turn the call over to Jack Grant, Senior Director of Investor Relations and Strategic Finance.

Thanks, operator. I'm excited to welcome you to Klaviyo's third quarter 2023 earnings call. We will be discussing the results announced in a press release issued after the market closed today. Please refer to our investor relations website at investors.klaviyo.com for more information and a supplemental presentation related to today's earnings announcement. With me on the call today are Andrew Bialiecki, co-founder and chief executive officer, and Amanda Whalen, chief financial officer. During today's presentation, we will make statements regarding our business that may be considered forward-looking under applicable securities laws and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 as amended, including statements concerning our outlook for the fourth quarter of fiscal year 2023 and the full fiscal year ending December 31st, 2023. These forward-looking statements reflect management's current beliefs, expectations, and assumptions about future events, which are inherently subject to uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of our control. These risks include, among others, our ability to achieve future growth and sustain our growth rate, our ability to successfully execute our business and growth strategy, our relationships with third parties, our ability to attract new customers, retain revenue from existing customers, and increase sales both from new and existing customers. Success of our marketing and sales strategies and business outlook, including our financial guidance for the fourth quarter and full fiscal year of 2023. For a discussion of the material risks and uncertainties that could affect our actual results, please refer to the risks identified in today's press release and our SEC filings, both available on our investor relations website. In addition, today's call includes a presentation of certain non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release or earnings release supplemental materials distributed after market closed today and posted on our investor relations website and our SEC filings, which are also available on our investor relations website. With that, I'll now turn it over to Andrew.

Thanks, Jack. Thank you for joining us today on our first earnings call as a public company. We are excited to share our third quarter results as well as an overview of our business. We delivered a strong quarter on both the top and bottom line. I'd like to start by thanking all of our customers, partners, as well as both our long-term and new shareholders for supporting our mission. I also want to extend a special thank you to all the Klaviyas out there. that's what we call Klaviyo employees, who work hard to deliver for our customers every day. We believe the best businesses are built by teams who get in the weeds with customers and deliver products and experience their customers raise up. This is our first quarterly earnings announcement as a public company. In case you're new to our story, I'll spend a few minutes introducing Klaviyo, and then I'll provide some of the highlights from the quarter. Later, I'll turn the call over to Amanda Whalen, our Chief Financial Officer, to cover our financial results in greater detail. She'll also be providing you with our fourth quarter and full fiscal year 2023 outlook before we open the call for Q&A. Klaviyo is a platform that powers smarter digital relationships for businesses. Klaviyo gives our customers the tools they need to activate their first-party data and connect with customers through personalized experiences across email, SMS, and mobile apps. We are able to measure the revenue driven by those messages, and we use artificial intelligence and machine learning to guide our customers on how to improve their marketing. We're giving businesses a scalable brain and voice to connect with each of their end consumers personally and treat them like they're the most important person in the world. And because delighted consumers come back more often, we're a revenue engine for businesses. A revenue engine powered by data those businesses own and systems and algorithms we've developed that show them how to put that data to work. Ed, Helen, and I founded Klaviyo in 2012 to empower builders and creators to own their destiny. Whether a business is creating a product or service, we aim to maximize the experience they can offer consumers and their growth. Ed and I came from enterprise software, but we both love design and making really approachable products. Klaviyo was architected and designed for any company, big or small, to drive outside outcomes. We started by building a database to house and explore customer data, and that was the first product we sold. We soon realized a lot of our customers wanted to use our database for marketing, so that became the first application we built. This vertical integration of the data and marketing layers gives our product advanced capabilities and makes them easy to use. The foundation of our product is our underlying customer data store, which is optimized for storing, processing, and analyzing large volumes of first-party consumer data. Our data store has a flexible set of APIs for developers to build against, as well as more than 300 native integrations. We process more than 2 billion events per day, all of which are accessible to our marketing applications and third-party applications built on top of Klaviyo. We believe our software shouldn't just make customers more productive. It should improve their ideas and help them generate new ones. As an example, we offer our customers benchmarks that use artificial intelligence to provide comparison to an anonymized set of similar peer businesses that they can use to identify opportunities to enhance their marketing. In addition, we use generative AI to suggest specific text and images for marketing campaigns and other artificial intelligence techniques to generate individual product recommendations marketers can embed in their messages. As our customers use Klaviyo to create compelling content for their consumers, we aim to make sure they always have an AI assistant by their side, both to improve their ideas and help them when they're stuck. Klaviyo ended the third quarter with over 135,000 customers, with a large percentage of our customers being small businesses in e-commerce and retail. While many of our customers started with us when they were small, we're really proud that we have helped power their rapid growth. We've built our infrastructure to scale with them well into the mid-market and enterprise. At the end of the third quarter, we had 1,699 customers generating ARR of over $50,000 per year, which was up 89% year over year. This growth has been fueled by both expanding use of our platform by our customers and landing new, larger accounts. We are seeing customers consolidate more of their marketing software spend onto Klaviyo, with some of our largest customers over half a million dollars in ARR. As of the end of September, over 7.3 billion consumer profiles are stored in our data platform. These profiles represent a complete history of the relationship between a business and a consumer and are updated in real time. And Klaviyo often becomes the single system of record for our customers. While we started with marketing via email, in 2021, we added SMS as a second marketing channel. And this year, we've added mobile app notifications. In addition, we launched a reviews product, building out our suite of marketing products. We believe all of these applications and channels are better on the same platform, that they should work together, and Klaviyo should be the platform where a business can build smarter digital relationships. We allow our customers to meet consumers where they are, with the right content, at the right time, and through the right channel. By combining easy implementation, rapid time to value, and clearly attributable outcomes, which we measure and refer to as Klaviyo attributed value, abbreviated KAV, we're able to show substantial ROI to our customers. We've shifted the mindset from generating opens and clicks to driving revenue. We pride and measure ourselves on the ROI that we help our customers generate. Turning to our ecosystem, our success has been driven by building products that customers rave about. Our products and the ROI we generate for our customers has allowed us to build a very efficient product-led model. One of the core parts of this model is our great ecosystem of partners, marketing agencies, and system integrators. Over time, we've also built deep product integration and mutually beneficial partnerships with most major commerce platforms. These partners love working with us because we complete the product picture and provide the tools to make our mutual customers more successful. in turn driving more revenue for them. In addition, we have an ecosystem of over 5,000 marketing agencies and system integrators who are experts at Klaviyo and help our customers get the most out of our platform. And finally, a large number of developers and software companies have integrated into and built on top of Klaviyo to extend our platform's capabilities. All of these partners expand what's possible with Klaviyo in addition to introducing businesses to us. These product-led and ecosystem-led motions are the foundation of our efficient go-to-market engine. Most of our demand is inbound, largely from word of mouth, partners, and other platforms. Our self-serve and low-touch sales model keeps customer acquisition costs low. As larger businesses have come to us, we've built sales and customer success teams of experts to ensure businesses with more complex requirements are successful, and to educate and attract more of those businesses to our platform. Our customers are buying both our products and the overall ecosystem we are building. We're very proud of the community of customers and partners that's grown around Klaviyo, and we will stay close to that community and continue to grow it. With that background on our business, I'll briefly cover some third quarter highlights. We delivered strong growth during the quarter with revenue of $175.8 million, growing 48% year over year. We are driving strong growth at scale while maintaining operating discipline with a 10% non-GAAP operating margin. We continue to see the power of our product and ecosystem-led model I mentioned and remain focused on driving durable, efficient growth. Our strength in the third quarter was due to growing our customer base healthy net expansion with our customers, and continuing to grow market share in the mid-market. We were also very excited to release our first infrastructure product with the launch of our CDP. We executed well this quarter, and we are set up to deliver for our customers during the holiday season, the most important time of year for many of them. I'd like to highlight a few customer wins that illustrate these themes. In the third quarter, we drove further momentum upmarket. A publicly traded enterprise with multiple brands in its portfolio decided to standardize the email and SMS marketing of its home and outdoor segment with Klaviyo. These brands collectively generated nearly a billion dollars in revenue last year. They were looking for a platform that combined best-in-class functionality with an easy-to-use platform that would allow their marketing team to move faster, create more personalized experiences, and deliver high-quality revenue attribution. our tight integration with their commerce platform, and our ability to deliver multi-region support were two of the reasons we were able to win. We're continuing to see customers of all sizes interested in consolidating their tech stacks onto Klaviyo due to the combination of our advanced features and ease of use we provide to our customers. Existing customers are also coming to us to consolidate their tech stacks. During the quarter, Wei, a brand within Procter & Gamble and a long-tenured customer, expanded their relationship with Klaviyo significantly by adding the SMS channel to their existing email footprint. This opportunity came to us because of our great relationship with the partner who manages Wei's email marketing. Wei was looking to consolidate their channels with one provider as they had a different provider for SMS. Wei wanted to better enable their team with a single source of truth on their customers and to minimize the amount of time they spend solving technical challenges. We're excited about the opportunity to keep partnering with Way as they grow their business. As we look beyond our core retail and e-commerce market, we've begun to see more businesses take advantage of their first-party data to build smarter digital relationships. One of these wins during the quarter was the San Francisco Marathon. They're looking to better segment potential participants to ensure they're reaching relevant This is one of the many examples of businesses across verticals wanting to better personalize experiences for their customers. Moving on to products, our team continued our rapid pace of delivery during the third quarter. We have a few recent product announcements I'm excited to talk about. First, we continue to add more artificial intelligence features to our platform. During the quarter, we started to roll out a new natural language interface for our segmentation builder. This allows customers to define queries into their data without specific knowledge of the underlying data structure. For example, a customer could ask, show me consumers who were previously frequent and loyal customers but haven't bought anything in the past few months. We believe these kinds of features increase the accessibility of our software and the number of experiments a business can run. Another recent feature launch allows our customers to better take advantage of our data infrastructure and attribution is our launch of global holdout groups. This feature allows our customers to create control groups for measuring the incremental uplift their marketing activities are generating to more effectively understand their efficacy. In October, we expanded SMS coverage to Ireland. This marks the sixth country we've entered with our SMS offering, and we're excited to roll out this channel across more countries. Finally, on the product front, during the quarter, we also announced the launch of our CDP product. It's early days, and we're rapidly expanding the feature set we offer. Our customers are particularly excited about three areas, governing their data, publishing normalized data to other systems, and running customer analyses directly inside of Klaviyo. For example, one business used our CDP to natively build an RFM model, which is a Recency Frequency Monetary Values model. and used that model to identify an opportunity to target lapsed and inactive customers. They used segments generated by our model to run new campaigns that drove an incremental 9% of KAV during the month of September. With our CDP, we're going to break down the barriers between data analysis and actioning those insights. Turning to our team, during the quarter, Jamie Domenici joined as our new Chief Marketing Officer. Jamie comes to us from GoTo, formerly LogMeIn, and has a decade of experience at Salesforce in marketing leadership roles. Jamie is focused on expanding our ecosystem and community to drive more awareness and customers to Klaviyo. I'm very excited about the team we have and the talent we've been able to attract. While we're excited about these recent developments, as we like to say internally, we're only 1% done. We're focused on delivering for our customers this holiday season and beyond. building a great business, and driving returns for our shareholders. With that, I'd like to turn it over to Amanda to cover the financials in more detail. Amanda?