Klaviyo, Inc.

Good afternoon and welcome to Klaviyo's first quarter fiscal 2025 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again press star one. Thank you. With that, I would like to turn the call over to Andrew Zilli, Vice President of Investor Relations. You may begin.

Thanks.

Good afternoon, and thanks for joining Klaviyo's first quarter 2025 earnings call. Our earnings press release, investor presentation, SEC filings, and a replay of today's call can be found on our IR website at investors.klaviyo.com. With me on the call today are Andrew Bialecki, co-founder and CEO, and Amanda Whalen, CFO.

As a reminder, our commentary today will include non-GAAP measures.

Reconciliation to the most directly comparable gap measures can be found in today's earnings stress release or earnings release supplemental materials, which can be found on our investor relations website. Additionally, some of our comments today contain forward-looking statements that are subject to risks, uncertainties, and assumptions, which could change.

Should any of these risks materialize, or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. The description of these risks, uncertainties, and assumptions, and other factors that could affect our financial results, are included in our SEC filings, including our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q. Except as required by law, we do not undertake any responsibility to update these forward-looking statements.

With that, I'll now turn it over to Andrew. Thanks, Billy, and thank you all for joining us today. Pleasure to deliver a strong start to 2025. with Q1 revenue of $280 million, representing 33% year-over-year growth. We now empower over 169,000 customers worldwide, from individual entrepreneurs to global enterprises, to build smarter digital relationships. We are a must-have on-channel platform for businesses looking to connect with their consumers in a meaningful way to drive revenue. Our performance, once again, proves out three defining themes for Klaviyo. First, we are a growth company, and we are executing well on our strategies to deliver sustainable, efficient, long-term growth with notable momentum growing in the mid-market and above and expanding internationally. Second, our vertically integrated data-first approach is a powerful, embedded Plagio data platform whose vast case of innovation are core differentiators. And third, Plagio is uniquely positioned to redefine the next era of consumer engagement as the only CRM built for B2C businesses. The future of marketing is more personalized, but companies can only deliver on that if they know who their consumers are and where to best reach them. With B2C CRM, we've brought together multi-channel marketing automation, customer service, and marketing analytics onto one AI-powered data platform. This allows companies to take action on their data and build long-term, loyal consumer relationships across every touchpoint. BBC CRM positioned Klaviyo to address a critical gap in the market, providing consumer brands with a system designed for their unique, high-volume, fast-paced needs. This is a natural evolution of our journey, from a leading marketing automation platform to a comprehensive solution that unifies marketing, service, and analytics. The combination of apps and platforms reinforces our vision of empowering consumer brands to own their data, and deliver seamless consumer journey from discovery to post-purchase. Our platform combines advanced AI-driven analytics, expanded marketing tools, and a new customer hub to bring service interactions further up the funnel, fostering stronger relationships and higher ROI. Though still early, we are already seeing strong traction with marketing analytics and customer hubs. Customers are excited to use data to power even more amazing consumer experiences. One customer who recently adopted marketing analytics converted 31% more customers and drove 49% of revenue from repeated purchases in the first six months of using the product. We also have several hundred customers in our customer hub limited data, from small entrepreneurs to large, well-known global brands like K-Swift. We've heard from many of our beta customers that this is a no-brainer for them because it instantly up-levels the consumer experience We're helping drive more signed-in shoppers, which drives more personalization and less costly service interactions, delivering better outcomes for both consumers and brands. Playbill Marketing combines our messaging channels with campaigns, flows, forms, reviews, and more. It remains at the core of our platform, and in Q1, our team delivered several new features that leverage data and AI to make it even easier for brands to engage with their consumers across channels. This includes automated campaign follow-up to improve campaign re-engagement, brand voice consistency for email AI to automatically capture and apply unique brand guidelines to AI-generated content, and several new form features to drive better sign-up rates. We also recently introduced custom objects, which allows brands to define their own data structure with fully customizable properties. For example, a restaurant can create an object to capture reservation occasions, allowing them to store that on the consumer profile and leverage it for future engagement opportunities. Friendly and limited availability, this feature is particularly important for larger brands and customers outside of e-commerce. We also launched automated conversations for SMS, which enabled our customers to drive more sales with a tailored shopping experience by integrating campaigns and flows into SMS conversations. This enables our customers to collect more information from their consumers and use that information to provide product recommendations, making the interactions more engaging and personalized. Our commitment to innovating across our platform remains core to why a diverse set of customers choose Klaviyo. In Q1, we signed new or expansive deals with companies of all sizes, including Quip, Burt's Bees Baby, Mark Fisher, Kendo Beauty, and features. We also power many of the fastest-growing companies in the consumer space. They recently released their 2025 Insurgent Brands List, made up of companies with more than $25 million annual revenue and growing 10 times their category average. Approximately 70% of the companies on the 2025 list are Klaviyo customers. Many companies are faced with a common challenge, the complexity brought by multiple point solutions and older legacy systems that don't integrate together and make it extremely difficult to build lasting consumer relationships. This is driving a secular shift as companies are looking to modernize and consolidate their tech stack to enable a faster, more personalized consumer experience. Our modern, vertically integrated platform positions Klaviyo well, as companies of all sizes look to consolidate onto a unified, data-powered platform. The more complex use cases that often come with larger brands play Klaviyo's strength. Our platform can handle the scale, security requirements, and multi-country needs of many larger customers. And our HCI first design offers the flexibility for a wide range of use cases. Our competitive position against the legacy marketing cloud has never been stronger, as evidenced by several notable new mid-market and enterprise customer wins. One great example of this is a deal we signed in Q1 with a Hershey company. The team was seeking a more modern and intuitive marketing platform for email and SMS for their direct-to-consumer commerce platforms. They also wanted marketing analytics for their Hershey's Chocolate Roll destination and their ShockHershey.com e-commerce platform. They chose Klaviyo as their partner to drive this forward. We also welcomed Belkin, a leading consumer electronics brand, to Klaviyo in Q1. The amount of manual development work required by their legacy marketing cloud was slowing down the marketing team's efforts. Sheldon chose Klaviyo's marketing platform to help them improve their user experience, unlock more one-to-one personalization options, and leverage automation while reducing the time spent by the marketing team operating the platform. And we signed a great new deal with Goryana, a Southern California-based jewelry brand that sells digitally and across retail locations in the United States. They were using a point solution vendor for email and were experiencing several pain points, like issues with geo-targeting, having to use separate vendors for forms, and difficulty with reporting and analytics. They were also going to have to use a standalone CDP to properly analyze their data. It came into play over email, SMS, push, and market analytics because of the combination of our built-in data platform, our extensive pre-built integration library, and our ability to simplify even their most complex use cases. Internationally, the investments we made in our product and go-to-market are yielding great results. Over the last several quarters, we added several new languages, expanded our SMS channel to new countries, and added more sales reps with local language capabilities, fueling continued international growth in Q1. We saw notable trends in France, Germany, and Spain, each of which delivered more than 100% year-on-year growth in new business in the quarter. In Q1, we found a new deal with Moose Knuckles, a Canadian luxury outerwear brand. They were seeking a solution to better identify and understand their customers, and agility in setting up personalized communication. Without a centralized CRM, they lacked a unified view of in-store and online shoppers. Playgo stood out for its intuitive segmentation engine, seamless data ingestion from existing systems, and AI-powered features built throughout the platform. They also expanded our relationship with Bauhaus, a leading home improvement chain in Europe. They were using multiple vendors across their Nordic business without a single source of truth. They are consolidating that region onto Klaviyo and leveraging marketing automation and marketing analytics. We're excited to further our relationship with Valhalla in the future. We also started working with new customers like My First Years, a leading UK baby and child brand, and expanded with existing customers like Reebok for their European business. We're also continuing our targeted marketing efforts in specific regions, including our Hey Sydney event, which was held today, and our K-London event in June. Many of these wins were driven by our strong and growing partner ecosystem, which continues to expand our reach and functionality. Our recently announced WooCommerce partnership is already exceeding expectations with new customer adoption across diverse segments in retail, non-retail, and international. In Q1, we also deepened our relationship with major tech platforms like Meta and TikTok through expanded integrations with Playgold. Importantly, they are seeing the value of building on the Flavio data platform to help their customers drive growth and build stronger data-informed relationships. And we continue to expand the network hospitality integration with the availability of Punch, a loyalty vendor for restaurants. Before I wrap it up and hand it over to Amanda, let me quickly touch on the current macro environment. We've been talking with a lot of customers and have heard some consistent themes. In general, many of our customers are feeling tentative but optimistic. Many of them have already diversified their supply chain over the last year. And several brands, with no exposure to China, mentioned they are considering going on the offensive, throwing inventories for the holiday season, and going after more market share. Klaviyo's importance in both favorable and challenging macroeconomic environments stems from the critical role our platform plays. We help companies retain and engage their existing loyal consumers. and those existing consumers are an important component of every business, regardless of economic cycle. Customers have also told us that consolidating a multiple-point solution to Klaviyo is a key consideration, as it enables a single source of truth to build personalized, loyal relationships. Building those loyal relationships is absolutely essential, and Klaviyo enables our customers to do exactly that with exceptional and measurable ROI. We have a massive market opportunity ahead of us, And our data-first B2C CRM platform is a key differentiator that positions Playdio to redefine consumer engagement. As we look ahead, we are focused on continuing to deliver the innovations that our customers and partners are asking for. This includes further integrating AI throughout the Playdio platform, adding more marketing channels, and expanding service use cases. We are well-positioned to be the platform that every consumer-oriented business standardizes on, from marketing to service to analytics, enabling them to build strong, personalized relationships with each of their consumers.

And with that, I'd like to turn it over to Amanda. Thanks, Andrew.

Klaviyo drove a strong first quarter to kick off 2025 as we continue to deliver efficient growth at scale. Revenue grew 33% year-over-year to $280 million, and we delivered a non-GAAP operating margin of 11.6%. We are really pleased with these results. Our first quarter results were continued proof of the value we deliver to customers and reflect the successful execution of our growth strategy. We are adding new customers, growing in the mid-market, expanding with existing customers, and expanding internationally. We ended Q1 with more than 169,000 customers, up 16% year-over-year. This was better than our expectations, as our customer retention was stronger than anticipated following the pricing updates we announced during the quarter and remained consistent with prior quarters. In fact, our customer retention rates coming off the holiday season were consistent with the trends we saw in Q1 last year. Our success in attracting larger customers is evident as we ended the quarter with 3,030 customers with over $50,000 in ARR. up 40% year over year. And we now have more than 1,000 customers paying us more than $100,000 in ARR. We continue to see a strong trend of new lands in this cohort, demonstrating the payoff from our investments in the mid-market and above. We delivered a Q1 NRR of 108% in line with last quarter, driven by consistent growth revenue retention, improvement in email expansion, and, to a lesser extent, benefit from the pricing changes. While we don't forecast or guide to this number, we are pleased with the consistency we're seeing. We are continuing to drive progress in our cross-sell motion, and we're seeing more of our larger customers land on Klaviyo with multiple products. In Q1, our SMS penetration within SMB and mid-market customers increased again. We saw strong adoption of our marketing analytics applications. and we are seeing a lot of interest from customers for our new customer hub service offering. As you heard from Andrew, our investments made towards expanding internationally on both the go-to-market and product front are delivering returns as our strong international growth continued in the first quarter. EMEA revenue grew 47% year-over-year, and total EMEA and APAC revenue grew 42% year-over-year. Our Q1 revenue overperformance was driven by broad-based strength. Consistent with our expectations, the pricing updates that went live in February contributed an immaterial amount to first quarter revenue. We continue to believe that the pricing changes will have a minimal impact on full-year growth rates, and we will only provide further updates if our view changes. Moving on, first quarter non-GAAP growth margin was 77%. down approximately three points year over year, primarily due to increased infrastructure costs and the continued growth of our SMS product. A portion of the incremental infrastructure costs supported the expansion of important feature capabilities for larger customers and new verticals, and our ongoing commitment to provide infrastructure to serve businesses of all sizes. Turning to non-GAAP operating expenses. As a reminder, in Q1, we began accruing for our employee cash bonus program on a quarterly basis, resulting in an increase in each line item year over year. G&A as a percentage of revenues declined year over year as a result of smaller one-time items compared to last year. R&D as a percentage of revenue also declined due to an increase in capitalized software. Sales and marketing as a percentage of revenue increased year over year as a result of timing of marketing program spend and incremental investments for B2C CRM. For the first quarter, our non-GAAP operating income was $32 million, representing a non-GAAP operating margin of 11.6%. This came in better than our guidance, primarily as a result of the revenue upside we saw in the quarter. We generated free cash flow of $6.6 million during the quarter, which was better than expected due to the higher collections and timing of payments. As a reminder, we paid out our employee cash bonus program in Q1, which impacted free cash flow. Before turning to guidance, let me briefly discuss the macro environment. While potential tariffs and consumer sentiment are top of mind for our customers and for Klaviyo, Thus far, we have not seen a material impact on our business. Klaviyo drives revenue for our customers from their existing consumers, which is typically a highly efficient and profitable growth channel. Should they need to scale back, many customers have told us that retention would be one of the last areas where they would reduce spending. Instead, they would be more likely to pull back on new consumer acquisition costs, such as ad spending. Klaviyo's position as a high ROI must-have revenue generator for brands of all sizes gives us greater stability through a range of economic cycles. Our business performs well in Q1 and remains strong. However, we are also paying close attention to the macro environment and the impact it may have on our business. As a result, Our guidance reflects a balance between the strength of our business and the uncertainty of the macro environment. We believe this is a prudent approach as it factors in some potential economic risk. As we look ahead, we remain optimistic about 2025 and beyond. For Q2, we expect revenue of $276 to $280 million, representing year-over-year growth of 24 to 26%. driven by continued strength upmarket and internationally. We expect second quarter non-GAAP operating income of $28.5 to $31.5 million, representing a non-GAAP operating margin of 10% to 11%. For the full year 2025, we are raising revenue guidance to $1.171 billion to $1.179 billion, for year-over-year growth of 25 to 26%. We expect non-GAAP operating income of $133 to $139 million, representing a non-GAAP operating margin of 11 to 12%. In closing, we are off to a strong start this year, and our growth strategy is bearing fruit as we're delivering balanced top and bottom line growth efficiently and at scale. Our position in the market continues to strengthen. We are the only CRM for consumer brands that can power personalized engagement with our marketing automation, customer service, and marketing analytics applications built on top of the Klaviyo data platform. This vertically integrated offering is establishing a foundation of sustainable growth for both Klaviyo and our customers. And with that, I'll open the call up for Q&A. Operator?

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. We ask that you please limit yourself to one question before returning to the queue. Your first question comes from the line of Ramo Lenshal from Barclays. Your line is open.

Perfect, thank you, and congrats for me. A simple question, you addressed it on the call already a little bit, like, if you think about uncertain times, AD, like, and Amanda, what have you seen before? Like, you know, we just had, like, 2022, 2023, where it was a little bit more uncertain. Can you compare kind of what you saw there and customer behavior at the moment that you're seeing there? Thank you, and congrats from me again.

Yeah, thanks for that, Parker. So,

You know, the first thing we'll say is we're very happy about the quarter. Thanks to our customers, to Klaviyo for making it all possible. It's because Klaviyo is mission critical, the businesses that we work with. You know, we're a revenue engine to these businesses, and we help connect them to their most important asset, which is their customers, their existing customers. So I think when the economic environment is a little more uncertain and As I've talked to customers in the last few weeks, the last few months, you know, they're doubling down on existing consumer relationships. They know there's very high ROI from our products. They're leaning into that. And, you know, as the economic cycle kind of, you know, waxes and wanes, we've built Playgo to really be an all-weather company, an all-weather set of products. So when, you know, when businesses are growing, a number of customers, new customers, we can help with acquisitions. And on the flip side, what's more challenging, you know, I think a lot of businesses turn back to focusing on their existing customers and those relationships that they have. And, you know, Cojo is the source of truth for all that. So I think we're very, you know, we're happy with where we are. Also, as we've talked to our customers, you know, we mentioned in the opening remarks, our customers are cautious, but they're optimistic, you know, because of those relationships they have with their customers and their ability to grow off of that. And we've also talked to a lot of businesses, and they're very resilient. You know, our customer base is very diverse. You know, there's a variety of folks that, you know, with different business models, different supply chains, and, you know, I think collectively, I think we've been there to support them, and we think that they're going to, you know, they've been working through this, you know, cautiously, but I think they're optimistic about, you know, what they have.

And just to add a couple of points to what AD had to say there, you know, first, as we shared, we're really pleased with the ongoing strength and resilience that we've seen not only in our business but in our customers as well. We are closely monitoring the key metrics in our business, like customer sales cycle, which remains stable, and KAV, which is continuing to grow. And as we think about Klaviyo over multiple economic cycles, it's important to remember that that we index to digital relationships, those profiles and relationships that a brand has with their consumers and not to GMV. So our business tends to experience less volatility both in good times and in bad. That's illustrated recently by the trends that we're seeing of KAV growth outpacing GMV growth as our customers focus down, as AB said, on GMV. those loyal existing customer relationships. And then from our business perspective, we are focused on controlling the things that we can control and leaning into the strengths that have long defined Klaviyo. And this includes, just like A.B. was talking about, staying close to our customers, investing in strategic growth priorities, and operating the business prudently, just as we always have.

Very good. That's very helpful. Thank you. So our next question comes from the line of Jackson Ader from Sanford.

KeyBank Capital Markets. Your line is open.

Great. Thanks for taking our questions, guys. First one is, can you just give us a sense for maybe your overall exposure or end customer's exposure to either China or other tariff countries in terms of the goods that they sell on their platform that run through Sladeo?

Sure. Thanks for the question, Jackson.

There are many different ways to be exposed to China, especially with a customer base that's as large and diverse as ours. So it's a bit of a complex situation. But as Andy mentioned, we've been having many conversations with our customers over the last month. As you might imagine, our customer base sells many diverse products. And because of that, their supply chains are very diverse as well. We've heard from many of them that they've been already diversifying their supply chain away from China over the last several quarters as tariff potential started to emerge. And then we've also heard from some brands who have no exposure to China, and they're viewing this point in time as an opportunity where they're thinking about doubling down, acquiring increased inventory, and even potentially going on the offensive to win market share. Overall, what they're telling us, as we said earlier, is that they're tentative, but they're really optimistic in this dynamic environment. And from our business perspective, we're very confident that we drive high ROI for our customers, and we're essential for both their growth and their retention, which makes us an incredibly important partner to them in both good and challenging macro times.

Okay, great. That's helpful. And then a quick follow-up.

if we think about all the new, um, all the new products that have been launched, whether it's CRM or customer hub or service, uh, what kind of growth or expectation for contribution from those new products are baked into 2025 at this point? Thank you. Yeah, I can take that. So, uh, the first is we haven't baked in a lot of, uh, revenue, um, uh, into our, you know, into our guidance, um, and our projections for this year to give ourselves time to secure those products and make sure we've really got them right for customers before we scale them out. But I'll tell you, since the launch in February, you know, we've broadened out Clio's vision from just, you know, marketing, emailing apps and that, to well beyond that, to say, hey, you know, what are all the aspects of the customer experience that Clio can help with? And we believe the core three apps for the consumer, the B2C firm stack, are marketing, service, and analytics. I can tell you that, like, we launched, you know, the first product, you know, within our service portfolio, Customer Hub. And that's been in the beta for the last few months. We've got hundreds of businesses using it. It's, you know, it's a way to extend, you know, on your website the customer experience, allow people to log in, get help with app orders, get recommendations, get service, right, get services answered. And the feedback there has been really strong. And I think most importantly, just like our marketing products, we're able to tie back actual, you know, attributed revenue, additional sales that customers are seeing from those, you know, consumers, those website visitors that are taking advantage of this new functionality. And that's just, you know, I've talked to a couple of brands. We're generating, you know, these are small, medium-sized businesses that are generating incremental tens of thousands of dollars in sales. So they can see the ROI from these new products. And, you know, what we're excited about is marketing and service. We think about those as the, you know, proactive and reactive sides of the customer experience. We're excited to bring those together and show that service can be more than just, you know, answering questions, but can actually drive a better engagement and so much that leads to additional sales. So we're off to a good start there. There'll be, you know, we're working on pricing and packaging for the ads, but critically the feedback is really strong. And then on the analytics side, you know, we launched a marketing analytics product, SKU, in February, and that was based on talking to customers and realizing that, you know, the analytics that Clio was providing as part of our former CDP product, that's applicable to a lot more businesses that we're excited to use from our RFM analysis, from our funnel analysis, to help them, you know, figure out, you know, which customers were in what stage of the lifecycle and, you know, connect that directly back into marketing. And again, to drive incremental revenue, right? And to make, you know, the overall ROI of the, you know, play deal, the investment play deal higher. We realized that wasn't just something for a larger enterprise brand, but actually our entrepreneurs, our smaller SMDs, our SMDs also ventured to that. So we're very happy with the, you know, the progress we've made and the sales we've seen for that product in Q1. And we expect that that's going to be, you know, a revenue driver as well. So, We didn't bake a lot of revenue expectation into the year from those new products, but we're excited about the potential we're going to have in 2026 and future years.

And one thing we're particularly excited about with marketing analytics is just, as AB said, the power of the results that it provides for our customers. One of my favorite stories from the quarter, was Caracara, a growing D2C brand, longtime Klaviyo email customer. They recently consolidated their tech stack onto Klaviyo, adding SMS and marketing analytics because they wanted to get new insight into which messaging was resonating with which customers. And by using this really data-driven, multi-channel approach, they were able to achieve 170x ROI in just three months. And over 48% of their Klaviyo revenue came from repeat purchaser segments who they identified using that RFM modeling in marketing analytics.

That's great. Really thorough. Thank you very much.

So our next question comes from the line of Gabriella Borges from Goldman Sachs. Your line is open.

Hey, good afternoon. Thank you. Amanda, just on Jackson's earlier question, Is there a way to think about the relative sizing of those two cohorts that you mentioned, the cautiously optimistic diversifying cohort versus the offensive cohort? And as you looked at the second half of the year, you mentioned taking into account macroeconomic risk. Maybe just a little bit on your forecasting approach there. When we calculate the math, it feels like the second half, why many guidance is not the same as it was before. So just a little bit on how you thought about that. Thank you.

Yeah, great question. So as we said, there's an incredible amount of diversity across our customer base, and so therefore not sizing the specifics. But if you think about the revenue guidance and the outlook that we've built in, we raised the revenue guidance on the back of strong Q1 performance as well as robust customer demand signals that we're seeing. And these conversations that we're having with our customers indicate that they are very clearly focused on retention and growth with their loyal consumers as well as focus on efficiency, which is exactly where our platform helps them to deliver value. As we looked at the back half of the year, we undertook extensive scenario planning and a deep analysis of our business, just given the macro backdrop. And that includes looking closely at trends in operational metrics, like customer KAD trends, looking at sales cycle length, all of which have remained consistent through the end of April. Overall, we've got a lot of confidence in the trajectory of the business. And while it remains healthy, we're mindful of the current macro environment. And so we built a healthy dose of prudence into the guidance for the back half of the year that gives us flexibility to adjust for unforeseen risks throughout the year. So if we look forward, we will continue to monitor the macro environment, and we will remain agile in responding to any changes that we see out there. We are going to plan to continue to invest behind our growth strategy because we've seen great returns from those investments thus far. And we're confident that our platform's value proposition combined with disciplined approach to execution positions us really well for continued success.

Thank you very much. Our next question comes from the line of Parker Lane from Steeple.

Your line is open.

Hi, guys. Thanks for taking the question. Amanda, maybe we should stay on the same theme of the pertinent guidance in light of the uncertainty out there. When you look at things like SMS attacks, international traction, messaging volume, are there any particular areas you feel like would be most sensitive or have been accounted for greater sensitivity in light of what we're seeing out there?

Yeah, it's a great question. You know, in this type of environment where you're seeing lots of uncertainty, we looked at multiple different scenarios. What might happen under multiple different views of the economy, how customers might respond. If anyone has a crystal ball out there, it's fairly challenging to see, but we wanted to make sure that we are prepared for a variety of different scenarios. And so, as we've mentioned before, what we've seen in the past in our business is that because we index to digital relationships as opposed to GMV, we tend to have less volatility both on the upside and the downside. And that gives us some confidence in what we expect to see in the back half of the year.

And, you know, one of the things, you know, as Amanda talked about the ROI of our product, you know, even with S&S where there's a slightly higher cost basis to our customers, we're able to show the ROI of SMS campaigns, odds as well as email campaigns, all the marketing directly to the video. And as long as that ROI continues to be very positive, you know, even if there's a little bit of variance to that, it's so good that we find, you know, as I talk to businesses, they're not, you know, constrained by it so long as they're seeing that performance. That's one of the things that gives us confidence about, you know, what you're going for. And as I said, because it's not you know, marketing covers you don't know and have to acquire. There are covers you already know and are getting to come back, and that helps you help with your ROI. It also means that, you know, sort of the, you know, the budget and marketing that you can deploy is already somewhat known. It's already in your Calabria account, and I think that also gives us some confidence.

Got it. Appreciate the feedback. Your next question comes from a line of Brent Braceland from Hyper Sandler. Your line is open.

Thank you. Good afternoon. I wanted to go back to the new service and analytics products. A.B., what's the sweet spot relative to size of customer that is responding most favorably to the new products? And then, Amanda, could you maybe frame the potential ARPU uplift as you see some early customers consolidate the tech stacks? Is it the 10%, maybe 20%, more than 20% uplift to ARPU? Just love to... hear those two things. Any closing there would be helpful. Thanks.

Yeah. So I'll talk about each of the two, you know, new product categories. So with, let's take analytics first. You know, as you mentioned, we actually think that is wide applicability. I mean, there's maybe some subset of our smallest, you know, the entrepreneurs are just starting out. They don't have enough data maps to use our marketing elements. But for the vast majority of affiliate customers, we actually think it's a great It's an easy add-on. It's an easy attached product. So we think that that will apply to the vast majority of our customers. And then for service, you know, it's the same thing. Customer Hub, we actually think, is applicable to all businesses. It's a way to extend the personalization and use the data that's already in your, you know, Klaviyo, you know, platform. A way to use that now, extend it onto your website. That also applies to all market segments. We started the service really focused on, okay, let's work with SMBs and make sure the product market is really good there. I think based on some of the opportunities that we're seeing in the mid-market enterprise, that's making us think harder about how we can make sure that our service products scale to the enterprise more quickly. We think there's a moment right now with service where, you know, obviously the big focus on automation and how to do more with that, you know, using AI and obviously using the data that backs that and, you know, combining that with AI is very powerful. So we're really thinking about how we can bring that to a larger squad of our customers faster than just our SMVs. And the last real thing is, like, the story of, hey, all of the entire consumer experience, you want one brain, one Klaviyo data platform, one data platform that undergirds all that. You want all of the applications that interface with your end consumers, you know, our customers' customers. You want all that driven, you know, from one comprehensive platform. That resonates a ton with SMBs and actually more than we expected. It resonates a lot with enterprise. So we're very much leaning into that opportunity. And, yeah, I'm going to talk a little bit about some of the ARPU uplifts that we're thinking about.

In terms of the ARPU uplifts, service, as AD mentioned, is early days. We are still in beta, so more to come on service and service pricing, both as we approach GA later this year and also as we continue to build out the suite of offerings related to service. Marketing Analytics has a nice ARPU uplift associated with it. It's a portion of email, so it's not necessarily the same ARPU uplift that you would see from a product like SMS. But also one of the wonderful things about both Marketing Analytics and service is that they are leveraging the same underlying data, the same consumer relationships, in other words, largely the same cost structure associated with our email and data platform. They don't necessarily come with the same per-message sending cost that a card like SMS does. And therefore, they also come with a nice gross margin profile that's more akin to what we see in our email plus data product.

Helpful cover. Thank you. Our next question comes from the line of Arjun Bhatia from William Blair. Your line is open.

Thank you. And maybe I'll stick to the same theme in terms of the new solutions. That would be a pretty exciting kind of add-on to the core platform here. But when you're thinking about the service solution, AD, I'm curious, for customers, does it necessitate the replacement of some sort of an incumbent solution? You know, maybe I'm thinking of like a Vendesk that might be in there or given where your position is, Can it sit alongside for now? How are you thinking about those dynamics? And then similarly on the go-to-market side, should we expect this to be a little bit more of a higher-touch go-to-market motion, or can you sell these solutions through the low-touch and self-serve type of approach as well?

Thank you. Yeah, great. Happy to comment on both. So we're talking about – Let's break it into, you know, a couple of different, you know, products, pieces of, you know, functionality that we're building into our case service. So, the customer hub that we've released, we actually just think is novel and new. It's a new experience, you know, embedded on a business's website. It makes it easy for, you know, consumers to log in, to see, you know, past purchases, past orders. And then, you know, get recommendations. There's a marketing element to it, as well as then get, you know, ask questions, right, get help. And interestingly, that help could be more assertive. Hey, I have questions about the thing I bought. It's also to see more of a marketing, you know, sales case of, hey, you know, I'm curious, you know, what size could I buy of this thing that I'm interested in. That would be a totally novel, and that can sit alongside, you know, existing service products. The second thing that we're really focused on is this idea of, hey, you know, automating more of those conversations, we'll say, right? I think that, if you look at it as a product category, you know, it's obviously been around for a few years, but it's really leveled up because of, you know, AI, you know, native solutions. And this is where I think, you know, with Klaviyo, we're happy. If you want to plug into our customer hub, if you want to use something you already have, adopt our customer hub first, that's great. But we think we have the ability, you know, because of our ability to build, you know, really usable products, really scalable products, as well as the fact that we have the source of truth about your customer. And giving that context to our service, you know, kind of AI chat engine, that that's going to make our price really compelling. So in that case, I think there may be a little bit of, like, running side by side, taking things off. But I think a lot of customers I've talked to said, hey, look, If you can consolidate all this together so that there's one consumer experience that stands marketing, service, helps you know who my customers are with your LA product, that sounds great. And so I think our customers are looking for this unified set of applications. The second thing around like, hey, is this going to be a higher customer? For sure, I think for our SMB customers, Again, we take a lot of pride in the quality of the products we build and how, you know, adoptable they are without needing to necessarily talk to somebody on the Klaviyo end. So I expect a lot of SMBs who are designing, you know, workflows and patterns such that they can adopt these all on their own. One of the great parts of our customer hub product is it's literally to, you know, after you kind of review the design of it since it's embedded on your website, it's one click to turn off. It's so fast. It doesn't require any, you know, engineering, any coding, anything. It's just easy to turn on right away, and I think our service agent will be similar. Now, the effect, similar with marketing, there will be customers that have more questions, you know, that have more complex, you know, implementations, JOTs they want to plan, and we're excited to do that. We're positive we know how to do that with, you know, with marketing and all the marketing channels we support, and we'll provide the exact same great experience, you know, for those more, you know, mid-market enterprise customers or for folks that need it.

That was very helpful. Thank you. Congrats on a nice start here. Our next question comes from a line of Terry Tillman from Truist.

Your line is open.

Yeah, thanks. Hi, A.B., Amanda, and Zoe. So congrats on the international traction. It's a single question but multi-parter. What do you think in terms of the international traction in terms of when you're signing new customers, are they kind of similar personas as how your business has been in the U.S.? ? and or are they buying kind of multiple products at one time? And the second part of this is, where are you in actually kind of field sales reps or kind of outbound investments versus harvesting those investments? Thank you.

Yeah. Yeah, I'm happy to take your point. Yeah, Terry, I think you hit that spot on. Like, I think what we found as we've expanded to internationally, especially in Europe, very proud of, you know, over 40% growth year on year. In Europe, Europe's now over 34%. We're internationally at 34% of our total business. Yeah, what we're finding is that we've expanded, added language capabilities. We've added SMS. We've added, you know, support in Klaviyo that are, you know, speak people's native tongues, you know, native languages. That's made it a lot easier to enter some of those large European markets. France, Germany, Spain, all of which we talked about having, you know, growing over 100% year on year. Um, the persona is pretty similar. Uh, it started out largely as, um, you know, SMBs. Um, and so we're very excited about that progress. And actually, we think that, you know, if you look at, if you kind of compare it to our growth, say, in the U.S., where we also started with SMBs and then, you know, you know, then grown into mid-market and now enterprise, I think we have the opportunity to do the exact same thing in Europe, um, but just on a faster timeline. Um, so we started, uh, this year we made some decisions to make some investments in, um, local, you know, sales teams and starting to test out. We also launched, you know, just last week, you know, the full website experience in German, in Spanish, in Italian, in addition to France, which we launched last year, French. So we think that that is going to lay the groundwork for more growth there. And I think we'll continue to see that in F&B. I actually think we'll see that even, you know, a faster acceleration into the mid-market And maybe if you look at, like, this overall growth, you know, where we were as a game country, you're here in the U.S.

Thank you. Your next question comes from a line-up, Rob Oliver from Baird.

Your line is open.

Great. Thanks, guys. I appreciate it. I have two. Amy, for you, I was wondering if you could give us or frame for us a little bit about where we are with the Meta and TikTok integrations on the platform. They both seem like, you know, potentially meaningful opportunities, particularly as you continue to fill out the product portfolio at the low to mid-range. And then, Amanda, just a follow-up for you. You know, you had mentioned how you saw better than expected retention. Also, if the price increases, you know, in the wake of the price increases, that's clearly very encouraging. I was wondering if you could just comment, you know, relative to kind of why you thought that was and what sort of confidence that gives you guys relative to appetite, not just for additional price increases down the road, but receptivity of additional products from Klaviyo, additional value from Klaviyo. Thanks.

Yep. Okay, great. So, on that in tip-off, If you think about Klaviyo marketing, you know, obviously our primary focus has been on the direct channel between a business and its end customers, consumers. So email, SMS, things where the business has, you know, kind of complete control and direct connection. We're putting a lot of product and engineering investment towards the team to build out other channels there. You know, we've launched work for mobile applications, also, you know, owned and operated by a business. But now, you know, in the last 12 months, we've taken a look at, hey, what are other, you know, places, you know, digital places on the Internet that businesses and consumers are needing? And obviously a big part of that is social platforms and TikTok. So a couple of things that we're doing there. You know, what we've launched the last few months is better, tighter integration into the ad network space. and some of the shopping capabilities of those platforms. So, for example, with Meta, you know, on Instagram Shops, you can now take some of the reviews and the content that you're collecting from customers, and you can use that not just as, you know, social proof in email, in SMS, on your website. You can actually also use that inside Instagram. So it's deepening this, you know, the connection between Klaviyo and these platforms. And so that's a way to look at our reviews, products, functionality, as, you know, leveraging those assets beyond just email, SMS, mobile. And for TikTok, that's one where, you know, we're excited for every, you know, for every social network, you know, they often have a variety of different ad units. And one of the things we're excited about is a lot of those, you know, advertising networks have a way to not just drive click-through traffic, but actually collect some information about who that, you know, end consumer is. So, for TikTok, you know, they have lead ad units that allow somebody to Rather than just requiring clicks or traffic, you can actually also, you know, require them to see a name, phone number, email address. And obviously, that entire display is very powerful. It basically gives them a way to collect more subscribers directly from those other platforms. So, we're going to continue to invest in these, you know, social networks, you know, other, you know, major internet applications. We're doing some work with WhatsApp, building a private integration there. So, I think I think our primary focus is still on these, you know, kind of owned and operated channels like email, SMS, mobile, but I think we're going to kind of round out our entire marketing portfolio with some of these other channels that we know are important for our brands and consumers.

And to your question on pricing, thank you so much. We were very pleased by the higher than expected retention rates that we saw following the February pricing changes because it validates The important role that we play as a must-have revenue driving platform for brands who are serious about their growth and serious about their retention. And the key difference that we saw from pilot into GA was that our team took and applied the learnings from the pilot to get out ahead of and mitigate the turn risk as we moved into GA. We went out and very proactively communicated with customers about the tools and the resources that we put in place to help them clean up their active profiles. which allows them to more effectively target the right customers and drive high ROI from those highly engaged profiles who remain. And the consistent retention in Q1 shows the stickiness of the platform and the value that customers get from having all of their data on Klaviyo's vertically integrated platform where they can easily take action and build lasting customer relationships. And in fact, in some cases, we have already seen customers who left Klaviyo earlier in the year because of profile enforcement coming back to us because of the value and the ease of use of our platform. And to your question on new products and how this fits in as we think about pricing going forward, as we mentioned last quarter, these changes that we made in February are very important because they anchor the pricing in the value of the consumer profile and the power of the data that it contains. There also, if you recall, were some parts of it that reduced pricing friction for our customers so that Klaviyo can be as easy to buy as we are easy to use. But it's that anchoring on consumer profiles that's really important, as we think going forward, because consumer profiles are also the driver of pricing for, for instance, our new marketing analytics. So having this change, while it provides very little, you know, minimal, as we said, uplift to revenue, it's very important strategically because it provides that foundation for growth in the future.

I appreciate all the color. Thank you, guys. Our next question comes from the line of Elizabeth Porter from Morgan Stanley.

Your line is open.

Great. Thank you so much for the question. Is a commentary on existing customers and Klaviyo being the last thing that they're willing to cut is really encouraging. And I was hoping you'd just provide additional color on what you're seeing on more of the new customer top-of-funnel demand side. So could you just talk to what you saw from the growth ads? Is WooCommerce starting to become a bigger contributor to customer acquisition? And just lastly, how top-of-funnel has trended kind of thus far into Q2? Thank you.

Yep. Okay, so I'll talk through some of the working on the demand side of the top-of-funnel side. Cool. As Amanda mentioned, you know, the fact that we have such great retention, which I think then translates into word and out from customers, I mean, that's a key part of how we thought about driving demand. So I'll give you a quick rundown of what we're seeing, a little bit by a different type of customer. You know, for our smallest customers, you know, for the just starting out entrepreneurs, we call them, we're actually seeing quite a bit of strength in that cohort. You know, I think we think that's happening to, you know, again, the businesses loving Klaviyo when they spin up a new venture. They're either using Klaviyo because they've used it in their past life or referring it to friends. And that's been something we've really been investing in, and we're very excited to see that continued growth in that smaller SMB segment. In our core SMB segment, we continue to see those customers growing with us. Initially there, I think we're seeing increasing demand both internationally. We knew about that. Also, a little bit more outside of pure retail, you know, other use cases, travel, hospitality, restaurants, et cetera. So that's in that core kind of SMB segment, still seeing very good growth there. And then we mentioned, you know, in the mid-market and enterprise, you may have already talked about, you know, measuring deal cycles, not seeing any real lengthening there. We're very excited about some of the milestones we've hit. You know, having over 1,000 customers now at 100K in ARR. we think there's a lot of opportunity there. And I mentioned how, you know, sharing our product vision of this B2C CRM and building it all, you know, AI first from the ground up, attached to our player data platform, so all of these applications work together, that is really, that has gotten a lot of folks' attention in that mid-market enterprise segment. And so I think a lot of folks are excited for us to deliver on that, and we do see, you know, some good leading indicators in terms of pipeline growth, and then, obviously, customer interest.

And, you know, we're clearly early in Q2, so we're not going to specifically disclose metrics related to April, but I will say that we look at all of our key operational metrics and indicators on a daily basis, and through the end of April, those remained consistent. And we've put those trends that we're seeing in the business into account when we were building our outlook, and we have really strong confidence in the Q2 guide.

Great. Thank you very much. Your next question comes from a line of DJ Hines from Canaccord.

Your line is open.

Hey, thank you, guys, and congrats on the next quarter. AJ, I was hoping you could talk a little bit about how you're thinking about sequencing or prioritizing investment dollars these days. I feel like, you know, the time of the IPO, you've been very explicit. It's kind of new customer acquisition or new logo ads first, you know, then upmarket, then international. Now the surface area has greatly expanded with all the new product introductions. just talk about kind of prioritization of investments these days and where you're focused. Sure.

Um, well, in general, you know, we're, we're going to be a very, uh, you know, ambitious, uh, company. And for us, that means aiming at the biggest opportunities. We're supposed to, we're supposed to drive the most value for customers and not, you know, not, not restrict ourselves to just the, you know, the market of the product we have today. Um, so let me talk about a couple of things there that I think we're very excited about. Um, The first is what we're doing around machine learning and artificial intelligence. I've talked in the past about the fact that we can help businesses use their data to do better personalization and do that automatically. We actually, increasingly over the last few months, think that opportunity is even larger than we previously thought. I think there's the opportunity to use some of the technology that's come out, the improvements in some of the large language models, to actually help businesses automate more of the content creation, you know, even without personalization and the amount of leveling up that that does. We think that, you know, a lot of businesses that work with plagiarism, we give them very powerful tools, but they're actually great when it is by how fast they can dream up and create content. A lot of those, you know, barriers are going away. So that technological leap plus the fact that we have all of this data to provide as context into that content creation process and that we can measure the results and iterate and help businesses improve, we think there's a massive opportunity there. We think that's both an opportunity, you know, to, you know, strengthen our, you know, product market fit with existing customers, but we also think there's, you know, a large, you know, monetization opportunity because there's incremental value we can provide to businesses. So we're putting a lot of focus on that. You know, we already talked about, you know, the mid-market and now moving into the enterprise. We think that there's a lot of businesses there, some of which still aren't aware of Klaviyo, that when they find out that Klaviyo exists and that we've built for marketing and other applications with this data-first, AI-first point of view, they're going to level up. The marketing technology from 10 years, 15 years ago, it's not state-of-the-art anymore. They're looking for best-in-breed. And we think that we can fill that and do a great job there. We're putting a lot of effort there. And then finally, obviously, the B2C CRM, this expansion of new marketing channels, as well as these other applications of service and analytics. I think service is a very interesting use case. We think about marketing as kind of how do you help customers and consumers you know, remind them what's top of mind in a very personal way. We think the other side of that is like when people need help, how are we doing that in a way that, you know, answers the question more quickly. We think that's a huge market and very important. So all three of those, we think, you know, match our criteria of, hey, the market is very large. When we talk to customers, there's a lot of willingness to try. They want to level up what they're doing. They know AI is, you know, new age. And I think we have teams that are very committed, you know, working really hard to build great products and great experiences for all those opportunities.

Yeah, very helpful. Thank you. And we are trying for one more question.

Your final question comes from the line of Brett Huff from Stevens. Your line is open.

Thanks so much for putting me in. I appreciate it. Congrats on a nice quarter. Digging in a little bit on international, which we've been excited about, How does international perform relative to your expectations vis-à-vis what's built into guidance? And the thrust of the question is trying to understand, as we look at the RAISE guidance, which is great, you know, how much of that is being void by international? Because it seems like it's a net new market you all are going after, right? It's new stuff that maybe has less to do with macro. Thanks for the time.

Yeah, great question. Thanks so much, Brett. So the international trends that we're seeing are, as you said, incredibly strong. We made investments last year in launching new languages and expanding SMS to multiple markets, and we're seeing those paid off this year. The fact that I think we're particularly proud of is France, Germany, and Spain each growing their new business in the quarter over 100% year over year, which was four to ten times faster than those markets were growing last year. So it certainly is an important accelerator, and it's an accelerator that we continue to invest behind, making investments like Daisy spoke about earlier. Last year we launched the product in new languages. This year we're launching an important part of the customer journey by making local websites available. in German, Spanish, and Italian. So still staying to the guidance is an assumption that we're going to continue to see results from those strong investments that we've made, and then also that we will start to see some benefit that comes through later in the year from some of the investments that we're making now in go-to-market and localization of that customer journey that really helps to build upon the investments that we started last year.

Great. Thanks so much. And this concludes today's conference call. Thank you for your participation. You may now disconnect.