Klaviyo, Inc.

Hello and welcome to the Klaviyo Q2 2026 earnings call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded. If you have any objections, please disconnect at this time. With that, I would like to turn the call over to Brad Sills, Vice President, Investor Relations. Brad, you may begin.

Welcome, everybody. We appreciate you joining us. Joining me today are Klaviyo co-founder and co-CEO Andrew Bialecki, co-CEO Chano Fernandez, and CFO Amanda Whalen. Andrew, Chano, and Amanda will first share their views in the quarter, and then we'll open up the line for your questions. 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. As a reminder, our commentary today will include non-gap measures. Reconciliations to the most directly comparable gap measures can be found in today's earnings press 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. A description of these risk factors, uncertainties, and assumptions, and other factors that could affect our financial results are included in our filings with the SEC. We do not undertake any responsibility to update these forward-looking statements except as required by law. Andrew, that concludes my introductions. We're ready to begin.

Thanks, Brad, and welcome, everyone. Let's start with the headlines. Klaviyo has scaled to nearly $1.5 billion in annualized revenue run rate, growing quarterly revenue 26% year-on-year. We signed our largest deal ever last quarter, an eight-figure multi-product contract with one of the fastest-growing brands in e-commerce. More than 205,000 brands now rely on Klaviyo. We offer our customers an autonomous B2C CRM. We've vertically integrated the data infrastructure, experience infrastructure, and the AI and agents to decide which experiences to deliver each consumer to drive better engagement, revenue, and growth. Our customers are proving that the right infrastructure with all of your customer context and the right agents can deliver stunning consumer experiences that stand out and turn visitors into customers and keep them coming back. We're continuing to bet on being the source of truth for a business's consumer context and embedding that real-time into agents and end consumer experiences. Using the scale and volume of our consumer data points, we have to tune and guide AI models and agents, and building all of this faster and with more tailored guidance to each of our customers for our internal use of LLMs and agents. Every business will have an agent that decides, delivers, and autonomously optimizes the experiences their customers have. That's the promise of an autonomous B2C CRM. I'd like to take a few minutes to share some updates on both the infrastructure and agentic layers of our products. Our data infrastructure now stores more than 9 billion consumer profiles and ingests in indexes more than a quarter of a trillion data points every quarter. We know context is the key for high-performing agents and experiences. We spent the past few months improving the scalability and versatility of Klaviyo's infrastructure to handle data and messaging workloads that require personalizing and empowering up to 100 million marketing messages and experiences in less than 20 minutes. This helps our largest enterprise customers with massive audiences as well as AI agents that want to ask more questions and do greater personalization. Having clean data and context is important too. And we've taken that a step further by using machine learning and AI to train models to predict consumer behavior. And this powers features like personalized send times, channel preference, audience optimization, and personalized product and content recommendations. Many of these features are included as part of our data and analytics products, which includes marketing analytics, and those products are collectively growing ARR more than 100% year on year. Our customers are finding there is real demonstrable ROI and growth from using AI to improve the marketing and experiences they deliver to consumers. Our marketing platform and infrastructure continue to deliver. While our messaging volume continues to scale into the hundreds of billions of messages per quarter, our compliance and deliverability infrastructure are continuing to improve. Delivery and engagement rates improved year on year, while unsubscribed spam and bounce rates decreased. We're also seeing the flexibility and scalability of our marketing platform being leveraged by enterprises and advanced users, both human and AI. Multi-channel campaigns have increased nearly 50% quarter over quarter and marketing flows have seen a 48% increase in the number of messages and decision point actions added to those automations. Our B2C CRM platform sets the table for agents, ones our customers have built outside of Klaviyo and those we built for our customers. In June, we launched our Composer agent to all of our customers and the response has been very exciting. As a reminder, Composer is our purpose-built agent harness that's trained to excel at analyzing your customers and past marketing, and taking those learnings to create and optimize marketing campaigns and automations. In the first month since launch, Composer already has over 95,000 users, and very encouragingly, nearly a quarter have turned into recurring weekly Composer users. We've given all of our customers 10,000 credits to experiments and use with Composer, and the feedback has been overwhelming. Thank you so much for joining us. To share two examples, a fashion brand used Composer to design and send two marketing campaigns about shoes that were back in stock. They used Composer to select the audiences and consumers those would go to, ask Composer to calculate the best time to send those campaigns, had Composer run in a loop to review, audit, and optimize their campaigns, ran a test send, and then scheduled both campaigns, all from our agentic interface. Another enterprise US retailer used Composer to audit the performance and logic of marketing flows and made adjustments that increased performance by tens of thousands of dollars all in a matter of hours. This is real agent ROI. I want to comment here on some of the reasons Composer is gaining traction. First, we built the ability to understand the structure of data, the ontology and semantics, Thank you so much for joining us. 3. Composer is available where and how users want to work. 4. It has access to aggregated knowledge we've curated about what makes marketing and consumer experiences convert. Focusing on these areas, we believe there is a long runway in front of us to improve agent performance and grow usage. As an example, in just the past few weeks post-launch, we improved the percentage of generated campaigns users ended up using as part of their marketing to 46%, up from 35% just a few weeks ago. as a result of improvements to taste, alignment, and validation. We have a long list of these types of gains in front of us. Finally, customer agent, which gives every business an always-on agent for their customers, covering both support and sales conversations, has seen adoption grow 40% quarter over quarter and weekly resolution volumes grow nearly 80% since early June. Boston Proper launched their customer agent and within two weeks had generated 3x ROI in incremental revenue by being embedded on their website while also resolving autonomously more than half of their support tickets. Earlier this year, we built out an AI agent, which we've embedded into Composer to help brands automate the setup and ongoing optimization of their customer agent. We believe customer agents are going to be ubiquitous, but many businesses aren't versed in how to configure or improve an agent and how to measure its performance and quality. For businesses of all sizes, from entrepreneurs and SMBs to enterprises, we're leading in building agents to train the agents that understand your business and can automatically configure, experiment, and optimize agents you deploy to customers that not only handle support cases, but also delight customers and drive revenue and growth. All of this has resulted in our customers generating nearly $50 billion in attributed revenue, or Klaviyo Attributed Value, KAV, in the first six months of the year. And we've done this while building agents for ourselves, allowing us to increase ARR per Klaviyo by 28% year over year. Thank you for joining us today. I've known the founder of Agency, Elias Torres, for over a decade, and he's been on the forefront of AI agents for customer experiences and is a technologist and a builder I deeply respect. He'll be joining Klaviyo as our Chief Product Officer, and together we'll build on the momentum of Composer, Customer Agent, and the entire B2C CRM. Before I hand it over to Chano, I'm excited to welcome Erica Smith as our next CFO. I'd also like to say a big thank you to Amanda for her leadership over the last four plus years, growing and scaling Klaviyo, championing our customers, and furthering our mission of empowering businesses and creators to own their destiny. And with that, over to you, Chana.

Thanks, Andrew. I'm about two quarters into this role, and the go-to-market changes we've made are showing up in the numbers. We strengthened sales leadership and brought up more rigor to our process. And in Q2, we saw gains in sales efficiency both in the Americas and globally. B2C CRM is a $160 billion plus market opportunity, and we're capturing more of it every quarter. Moving up market, expanding internationally, cross-selling, and pushing beyond retail represent a great long-term growth opportunity for us. Agents open up an entirely new layer on top of that. Let me walk through where growth is coming from and what's next. Enterprise momentum is where these changes are showing up first. Many of the enterprise conversations we're having start with the same problem, a business looking to replace a legacy system because it can no longer keep up. In Q2, our larger customers, those with $50K plus ARR, grew 36% year-over-year to 4,477. This group now represents approximately 40% of total ARR. Our $1 million plus ARR customers continue to outpace growth of the overall customer base. This quarter we were thrilled to welcome Warner Music Group, one of our most significant new contracts to date. They have over 1400 artists and millions of fans, and every artist needs to reach their audience in their own voice. Our platform makes that possible by consolidating everything a business knows about its customers in one place, so that every relevant team can act on it real-time. The head of e-commerce and merchandising recently shared that Kleviyo's tools are second to none and will be integral to supercharge the e-commerce business they are building. We also won Claire's, replacing two legacy vendors in a competitive bid across email, text, and analytics. That's our enterprise motion working as designed. We're building champions inside the brand, educating executives on the value of consolidation and clearing procurement and CIO approval. We're also selling deeper into the existing customer base, with strong expansion led by text messaging. We're also winning down market, as can be seen with strong net ads, which wear up 29% year on year. And we're seeing more multi-year commitments and more products being sold across our base, as our 205,000 plus customers increasingly use Klebiyo as a full, complete platform. which brings me to our second growth level, multi-product adoption. In Q2, nearly 20% of ARR came from customers using three or more products. This is important because of our multi-product customers retain more than six points better on gross retention than single product customers. Our largest ever omnichannel deal closed this quarter, an eight-figure, two-year agreement with one of the fastest-growing brands in e-commerce and a top seller on TikTok shop. They're running their entire program on Klaviyo, email, text, and marketing analytics because of the value of unifying one data-powered platform. We're also extending Klaviyo's relevance beyond traditional e-commerce. This quarter brought our first NFL franchise, the San Francisco 49ers, plus hospitality names like Sweat Hose. Every business that wants a direct, personalized relationship with its customers is a business we can serve, and that keeps widening the market in front of us. That brings me to our third growth lever, international. Revenue outside the Americas was up 35% year-on-year. With the go-to-market and product investments we've made to internationalize Cleviyo, the runaway ahead remains significant. EMEA revenue outside the UK was up 41% year on year, and we're moving to Q3 with our strongest large deal pipeline in EMEA yet. K-London drew more than 1,000 attendees, and our Paris and Berlin events were at capacity. were backing that momentum with a new France office and an EU data center coming in the second half of the year. In EMEA, the body shop expanded from the UK into email, WhatsApp, and marketing analytics across Germany, Switzerland, Belgium, Austria, and the Netherlands. and in APAC, we closed one of our largest new logos deal ever in the region with Country Road Group. I was in the region and met with their team, so I heard firsthand what choosing Cleviyo meant for them. It was a competitive multi-stage RFP win that consolidated five brands' fragmented stack onto one platform, sourced through our first global AWS marketplace deal. The focus is to get the same big-deal motion and country-by-country expansion moving at the pace EMEA is moving at today. In the Americas, we're focusing resources where we see the biggest opportunities. Enterprise, a stronger cross-sell motion, and new verticals. We're also investing in product specialist roles, so our teams can go deeper with customers as they adopt more of the platform. Before I close, echoing Andrew's note, Amanda, thank you for everything you've built here. We're grateful you'll stay in an advisory role through November, and we're thrilled to welcome Erica Smith as our next CFO on September 1st. She brings deep software experience at the scale we're heading into, and the handoff is going to be seamless. With that, I'll turn it over to Amanda.

Thanks, Jono and A.B. The growth we're building for the long term is broad-based as we expand across enterprise, international, and multi-product, and make advancements with our agentic solutions. Q2 was a strong quarter, with revenue of $370.6 million, up 26% year-over-year, and ahead of our guidance, driven by notable strength in text messaging, WhatsApp, and growth in marketing analytics. It was a strong quarter for new business, driven by sizable enterprise deals and cross-sell momentum across the base. This is proof that customers of all sizes are increasingly valuing Klaviyo as their B2C CRM platform. As Chano mentioned, in the enterprise, we're winning new customers from larger legacy vendors. The pipeline in this segment is growing, and we have the team and the platform to serve this market at scale. The value that customers realize from our platform continues to expand. Our attributed revenue, or KAV, per message continues to grow, driven by increasing personalization powered by automation. Our customers continue to shift their messaging volumes towards automated flows, which generate 10 times more revenue per message compared to static campaigns. Because our usage-based model is directly aligned with customer success, as customers realize more value, they grow and expand, and we grow alongside them. Net revenue retention was 109% in Q2, reflecting strengthening gross retention, increasing text messaging expansion, and our strongest quarter of cross-sells since our IPO. These were offset by the lapping of last year's profile enforcement, which will continue to impact NRR through Q1. It's important to remember that NRR is a trailing 12-month metric, and the leading indicators of our business are strong. Customers are staying with us, expanding with us, and buying more products from us. Turning to the P&L. Non-GAAP gross margin was 73.4%, down three points year over year, driven by strong growth in text messaging, along with higher carrier fees, which we chose to fully absorb in prior quarters. In Q3, we updated our mobile pricing to pass the higher carrier fees on to customers going forward, along with other changes to reduce friction in our mobile pricing mechanics. The new pricing will start to flow through gradually as we cycle through renewals. Due to timing and various puts and takes, this will be neutral to 2026 revenue and gross margin, but an overall positive impact for our customers and for the business. While growth in the text business impacts gross margin, it's an important channel for Klaviyo. Text has strong unit economics, driven by its lower cost of acquisition and higher rates of expansion. It also positions us as our customers' omnichannel platform of choice, driving higher retention and enabling a long runway to cross-sell other products with higher margins over time. Non-GAAP operating expenses were approximately 60% of revenue, down roughly three points year-on-year. Relative to last year, we saw leverage in sales and marketing in G&A, while R&D as a percentage of revenue increased slightly from investments we're making behind product innovation to drive our next phase of growth. The results of these investments can be seen in our increased pace of product launches in the quarter, including the important advances with Composer and Customer Agent. Non-GAAP operating income was $50.9 million in Q2, representing a 13.7% non-GAAP operating margin. We continue to drive efficient growth at scale with another quarter of operating at the rule of 40. Turning to the balance sheet, we generated $83 million of cash and ended the quarter with a total cash balance of $833 million. We used approximately $240 million in cash to repurchase shares during the quarter, leaving us with $160 million in capacity under the $500 million buyback authorization we announced in March. We've remained active in the market and expect to continue repurchasing our stock under this program, as we believe our current valuation represents an attractive opportunity. Our strong cash position provides us with the flexibility to also continue investing in growth and pursuing M&A that accelerates our roadmap, as Andrew noted earlier with our acquisition of agency. Turning to our outlook. Based on the Q2 outperformance and the broad momentum we're seeing, we are raising our full-year 2026 revenue guidance by $12 million at the midpoint, higher than our beat this quarter. We now project 2026 revenue between $1.526 billion and $1.534 billion, representing 24% year-over-year growth. We are revising our full-year 2026 non-GAAP operating income guidance down to a range of $212 to $218 million, with non-GAAP operating margin of approximately 14%. This amounts to a $10 million reduction from the midpoint of our prior outlook and includes $10 to $12 million in costs associated with our agency acquisition, as well as continued investment behind product innovation. For Q3, we expect revenue in the range of $377 to $381 million, representing growth of approximately 21.5 to 22.5%. We expect non-GAAP operating income of $40 to $43 million, or a non-GAAP operating margin of 10.5 to 11%. We expect non-GAAP gross margin to be down slightly in Q3 versus Q2, followed by a greater-than-normal seasonal stepdown in Q4 as we continue to see text growth outpace total company. To close, this was a strong quarter, as customers increasingly lean into Klaviyo as a platform solution. Our business model is built for the long term, with compounding growth across enterprise, international, and multi-product adoption. With agents, we're at the very start of our next S-curve. The B2C CRM market is large, and the opportunity ahead for Klaviyo is significant. On a personal note, this is my last earnings call as CFO of Klaviyo. I still remember my first whiteboarding session with Andrew. I left that conversation convinced of the power of the model, the size of the opportunity, and the strength of the team. Everything since has reinforced it. It's been a privilege to build this business alongside you, Andrew, and Chano, and this entire team. I'm grateful to all of you on the line as well. I leave with confidence in the business and confidence knowing it is in strong hands with Erica as she steps in. Thank you and with that we'll open the call for questions.

Thank you. At this time if you would like to ask a question please click on the raise hand button which can be found on the black bar at the bottom of your screen. When it is your turn you will receive a message on your screen from the host allowing you to talk and then you will hear your name called. Please accept, unmute your audio and ask your question. Please limit yourself to one question and then rejoin the queue if you have another. We will wait one moment to allow the queue to form. Our first question comes from Elizabeth Porter from Morgan Stanley. Please unmute your line and ask your question.

Great. Thank you so much for the question. And Amanda, I just want to say it's been great to work with you and wishing you the best of luck in the next chapter. For my first question, I wanted to dig in a bit on Composer. It was really great to hear about some of the adoption metrics. And historically, we think about the number of campaigns a brand could run really being constrained by just that available marketing headcount and production capacity. So as Composer removes some of that bottleneck, what have you seen from the early adopters in terms of that campaign creation velocity and how that's translating to potentially higher customer contract volumes and and incremental platform usage. Thanks.

Yeah, thanks, Elizabeth. So we're obviously a month out from launch and the results have been, I think, really great. So like you said, let me frame it up for folks. The way we think about Composer is it helps with really like, let's say, three different things. One is doing the research that sort of comes before actually building a marketing campaign or automation. Actually then generating that campaign are marketing flow. And then the third is actually helping verify, make sure that it's right, that it's optimized, ongoing optimization. So we actually spent a lot of time on those first two categories of helping customers do the research, figure out which customers might be interested in which products or services, where there are opportunities, and also with the actual creative generation. and yeah, we've been very excited to see the number of campaigns you're building. We talked about, you know, some examples, something that's become pretty common for these, you know, weekly active users is people coming in, building either prompts with Composer to kind of figure out what they want to do or bringing prompts that they've integrated from other places, maybe from another document or another chat that they've had, and then generating that. And what's great is oftentimes those briefs, they've got an idea of what they want to do. But like I shared in the example, they may say things like, well, I'm not actually sure what the right time to send this is or who exactly is the right audience. And what's great is they can use all of the information they have stored in Klaviyo, all the historical data, to basically allow Composer to pick that. And then when you think a little bit of question on like, how does that flow through into incremental usage? One thing we've definitely seen is that, you know, customers, they're rate limited by the ideas they have and then how fast they can execute. So we are seeing folks that use Composer, they actually do, you know, they're using more of Klaviyo. Now, because our core pricing access is that, you know, is the profile we're finding is that's driving more engagement for profile and therefore, you know, more Klaviyo attributed value, you know, more attributed revenue. And that's why we're watching that. That's why we're seeing a lot of folks use Composer. We think some of that will flow through and help. For instance, we see some folks saying more text messages because Composer is creating those campaigns. But we actually think a lot of the value is going to come from that increased attributed revenue. And ultimately, people are going to spend on Composer credits to help them do that ideation and generation, knowing that it's going to drive that incremental revenue and sales.

Thank you. Our next question is from Ramo Lenshal from Barclays. Please unmute your line and ask your question. Ramo, your line is unmuted. Please go ahead. Okay, we can go ahead to the next one. Our next question comes from Arjun Bhatia from William Blair & Co. Please unmute your line and ask your question.

All right. Thank you very much. I'm curious, maybe to Carter, just on SMS, it seems like that's seeing a lot of solid traction. I'm curious if there's been Thank you very much.

Thanks for the question. So I'll take the first part on text. And yeah, that's the right read. We've definitely seen, you know, really great growth from text and now also, you know, WhatsApp as a channel. And we've seen those messaging channels grow. And the basic what customers are telling us from hearing them is, hey, we want to put all these messaging channels in one platform. We know Collegio has that centralized profile. I can use all the same personalization. I can use it across channels. I can coordinate across channels. So I would share the stat that we're actually seeing a pretty dramatic increase. I think it's 50% quarter on quarter of people building multi-channel campaigns. So this idea from maybe a couple of years ago that you'd run these channels independently, we're seeing a lot of our customers say that that doesn't work for them. And that's part of our vision around what is the B2C, the consumer CRM. And then, yes, we are definitely seeing a lot of larger enterprises You'll also choose to consolidate. They might start with Klaviyo for email, but now they're switching, you know, over moving over text messaging and WhatsApp. They're then using our marketing Linux product for personalization. And then obviously using like Composer to stitch all of that together. That's a very common pattern we're seeing, you know, comes to people consolidating their marketing tech stack.

And to your question on gross margin, Arjun, the way that I would think about that is that there were three primary drivers that were happening during the quarter. Those were carrier fee impact, investments we were making in infrastructure, and the increasing presence of text in our business. On carrier fees, as we mentioned, we made a change in Q3, and we are now pricing our mobile business to pass through the carrier fee increases that we have seen to our customers. As you look out over the balance of the year, we would expect that to be neutral both to gross margin and to revenue just due to the timing of how it flows through renewals as contracts come up for renewal. On infrastructure, we're making investments to drive product innovation and to drive growth. And I think the track record that you have seen from us over time is that we make these investments from time to time. And then we've got a strong track record of having them deliver leverage as we continue to grow. And the team is very focused on that going forward. And then the last is text and the increasing portion of text that that's making up of our business. As Andrew just said, we're seeing tremendous success there. And that is a strategic choice that we're making. Text for us is a really strong business because it's got good standalone unit economics and it plays an important strategic role in the broader portfolio. So on a standalone basis, it comes with a lower CAC because it's primarily cross-sold, and it comes with higher expansion because as customers get accustomed to using it, they continue to grow their expansion and grow their usage at a pretty rapid pace. And then strategically, having a multi-product customer really positions us as those customers' broader B2C CRM platform. They're omnichannel customers. Thank you very much. and the strategic choices that we're making with the growth in tax drives positive benefits for the business over the long term.

Thank you. Our next question is from Tyler Radka from Citi. Please unmute your line and ask your question.

Hi there. Sorry for the delay. Had to find the mute button. Amanda, again, echoing the pleasure in working with you, Can you just dive in a little bit more on the op margin side of the equation and understand there's some dynamics with mix and SMS, but strategically, how are you thinking about the right framework for investing in growth and anything we should read into that in terms of margin expansion beyond 2026?

Thanks so much, Tyler, and thank you so much for the kind words. It's been wonderful working with you as well. On operating margin, the way that I think about operating margin this year is that we are making some very deliberate choices to make investments behind our acquisition of agencies, so driving strategic growth, and importantly, behind product innovation and building the capabilities that are really going to drive growth over the long term. In the back half of the year, what you see is that investment in product innovation. It shows up in this infrastructure investment that we just made. It's showing up in our R&D, and it is driving great results. We're really pleased with the pace of innovation, the way that it's picking up, the results that Andrew talked about on the call with customer agent adoption. up 40% quarter on quarter. Over a quarter of our mid-market and enterprise customers using Composer and the great traction that we're seeing in enterprise with some of the big strong lands like Warner Music Group and Flares and the 49ers, all of which are enabled by the investments that we've made in our scale and burstability, just as Andrew referred to earlier. And so, you know, those investments are really showing strong early results and helping us drive this potential growth over the long term. Now, agency did impact, as we mentioned on the call, about 10 to 12 million dollars of P&L impact this year. That's included in the outlook that we shared. And as you think about leverage over the long term, I would focus on the fact that if you exclude that from our numbers this year, we're still driving over a percentage point of leverage year on year. So this is a business that can continue to grow strong, make these investments in innovation and drive leverage over time.

Thank you. Our next question is from Samad Samana from Jefferies. Please unmute your line and ask your question.

Hi, good evening, and thanks for taking my question. Maybe let's dig into the agency acquisition, especially given that Elias will be the chief product officer going forward as well, especially as I think about that in the context of AB with the COC model focusing more on the... Thank you so much. Yeah, that's great. Yeah, I mean, that was kind of the headline for us when I, you know, talked with Elias about this. It really is that like, hey, how do we attack on, you know, or build on more dimensions at once? So first, I mean, you know, Elias is somebody I've known for, you know, over 10 years. You know, we've built and scaled companies together. So he's somebody I know well, we work really well together. What was interesting was we got to talking about what we believe about the future about agents. We both are strong believers that every business is going to have an agent, an agent that can both help them grow and run their business, make great decisions, and also an agent that can personalize and deliver experiences to every single one of those customers. We think this is going to be ubiquitous, as I said in the opening. The question is just how do we get there faster? So that was the entire intent. And then when it comes to dividing things up, we work really well together. We're both engineers. We both love working with customers. One of the things that Chano and I have talked a lot about is as we continue to do more in enterprise, I'm spending a lot of time with customers, helping figure out what we need to build for them, make sure that we can serve a lot of some of the very high-scale but very unique needs they have. But when it comes to agents, I think both across Composer and customer agent, we have a lot of service area, a lot of ambition, and this is going to help us just go faster.

Thank you. Our next question is from Raymel Lenshow from Barclays. Please unmute your line and ask your question.

Thanks. Can you hear me now?

Please go ahead.

And it's more bringing Chano in as well. If you think about it, the... In a way, the setup is much broader if you have customer agent, composer agents, because it's just more full set CRM. How does it help you in your conversation on the enterprise? You mentioned some legacy replacements as well. Just talk a little bit about how that broader vision from Klaviyo is just helping you engaging with larger customers. Thank you, and all the best for Amanda.

Thank you, Raymond, for your question. Well, the trend that we're seeing in enterprise is a consolidation. That is one area. The second area is an innovation play. And, you know, that comes all together with a better together story. So the enterprise companies are looking for, you know, someone that bring kind of the innovative play on one single platform. They understand much more the value of the, you know, one single data in terms of the context and what that provides for the outcomes that the agents will provide. So we bring in that value all together. You know, it's definitely a significant plus in terms of the conversations we're having happening in terms of how many platforms we can replace. You take someone like Claire's, we replace, you know, two legacy platforms. You take someone like Warner Music. It was even more. You turn someone like, you know, Country Crows Road. It was kind of a few number of platforms and legacy as well. that we're taking over. And clearly what they want to see is we do have a vision as well in terms of how AI is going to be basically helping them to drive much more cleverly attributed value and much more revenue. So composer and customer agent are definitely two very strategic components, right? I mean, in most of the cases, it is a rip and replace. Most on the enterprise, and they are looking for someone that can bring the strategic vision and can bring basically the full power of the better-to-better story because it provides a much better TCO with great outcomes in terms of value. So it's of tremendous help. and it's a very key reason why we're enjoying it with the architecture and the infrastructure and certainly some of the, you know, improvements that we've done and the investments that we're doing, you know, the stack around 100 million messages in less than 20 minutes is quite staggering and quite significant for many of our enterprise customers in terms of their reliability and basically the, you know, the volume at which we can operate and as they grow, that gives them as well peace of mind that we can support them on the journey going forward.

Yeah, let me give you just one example of what we're seeing. Composer adoption we've seen is actually faster with our larger customers in enterprise. And the reason for that is not only are they using it to create net new marketing campaigns and content because they just have such a large volume. But also we found that for larger enterprises, they have such a complexity in terms of the automations they want to run, the number of campaigns they use. They have more data, so they're doing more personalization. So they're using our marketing analytics, AI models to better personalize content. So a very common pattern for Composer we've seen is folks will use that and run it on some cadence, weekly or every couple of weeks. to understand, first of all, what do they have built? I've talked to some customers where somebody's new to the business, like they just got hired, and they use Composer to actually explore how that brand is doing marketing and ramp up. And then they can make changes with more confidence from Composer because we talked about not only does it create, it also validates the work. So we've seen a lot of these kind of review and audit use cases. So it's early. It's only been, you know, 30 days. I feel like two things we're seeing with Composer is in the enterprise, there's already a lot of usage and adoption because it takes away a lot of, you know, it helps people wrangle the complexity and allows them to do more. And also, we're also seeing like a lot of new customers who are brand new using Composer to just, you know, get started. They really don't know anything about marketing. That's obviously, you know, for our entrepreneurs.

Maybe, Raimo, to give you one concrete example, I was with Country Road that I mentioned in the script, and I asked the CIO, why don't we win? And we were competing with the typical suspects in terms of large markets. And his answer was like, you won, we decided for you because of your AI vision and openness, your interoperability, especially as well with the sound of, you know, the A4 word players, like, you know, the antropics and opening the eyes and the connections that you bring. And because of the robustness of your infrastructure, those were the reasons why you guys won.

Thank you. Our next question is from Matt Van Villet from Canto. Please unmute your line and ask your question.

Hey, good afternoon. Thanks for taking the question. I guess when you look at the rate of adoption you're seeing on the various agents and Composer that you have now, how should we think about the monetization of that over the next year or two? How much uplift are you getting at existing customers as they use the platform more and any customers you've had land with those products? How is the average ARR for those customers trending versus similar cohorts without agents fully deployed?

Yeah, sure. So first, I'll speak a little bit to the monetization and explain where that's built in or how we're hanging out with our guides. So for Composer, Composer, we think of it as like it's intelligence to help you run and grow your business. So it's a credit-based model. And actually, when we released Composer, we gave everybody about $100, 10,000 credits to use over 90 days to start to experiment. And we think that's a very good model. You know, Klaviyo has always been focused on how do we help our customers, our businesses, you know, grow faster. We measure that through, you know, Klaviyo attributed value, attributed revenue. And one of the things we're able to do is show folks that like, hey, if you use more of our composer intelligence and models, literally you'll get better results. Either because we're helping them generate, you know, net new marketing or customer experiences that they didn't have time, they couldn't think of, right? They didn't know about or they didn't have time to create. or we're helping make their existing marketing better. So there's real ROI. So we've already seen a number of customers start to pay for Composer, even though we're still in this 90-day trial period. And I expect we'll see that grow over time. And our ultimate goal is we want to be the intelligence that our customers rely on and then obviously tightly coupled and integrated into our marketing and data infrastructure. But it's what they use to understand who their customers are, decide what marketing, what experiences to deliver, and then constantly optimize those. And we think that's a very, very large market. When I talk to our customers, they constantly feel like they don't have enough time to understand and execute various analyses or build new marketing. And if they had AI to help them do this, and it's revenue accretive, That's something that they want to use. Then for customer agent, the pricing model is a little different. That is outcome-based and resolution-based. So for our customer agent, our customers pay every time our AI resolves a conversation on its own. If it proxies back to another contact center or help desk software, our customers don't pay for that. And what's driving growth there is really two things. The first is, as Chana mentioned, we're doing a lot more. We're building a lot more pipeline with enterprise. And that's both for marketing, but as well for service and for customer agent. And what's really cool is we're starting to see a lot of use cases for customer agent where people want to use them together. They're using customer agent to collect information that they're going to leverage in marketing and vice versa. So those tend to, you know, one thing we really believe in is just how do we automate and make it a great customer experience? So we've done a lot of work. to build out not only an agent builder to make it easier to build agents, a lot of folks don't have experience with that, but even we've invested the last couple of months in an agent that will train other agents. And we think this is the future of how customer agents are going to be built and deployed, not only the first time that you kind of configure them and set them up, but also how you ongoing optimize them or teach them new things. And what that's led to is a big increase in what we measure resolution rates. So we've seen since we've deployed that, we've had one customer, a large enterprise business, went from a 52% resolution rate to a 79% resolution rate in seven days. and that didn't require extra engineering effort. It's because of our agent that's helping them understand where the gaps are, allowing them to input, share the information, connect the tools and data sets they need and get smarter and faster. So as we drive up that resolution rate, that drives up more volume. It also means that it's easy for us to run these kind of proof of concepts and pilots with enterprise customers. And the last thing I'd say is that we're also aiming for, we want everybody to have a customer agent. We know even smaller businesses, they still get a lot of customer questions that they don't have the time and the bandwidth to answer, and they need a customer agent to represent them. And so with that, because we have now this agent that can help you build an agent, even if you're not really technical or aren't up to speed on all the latest and greatest on agent development, Tech, and Nomenclature. Because you can do that, we're seeing a lot more customers deploy agents as a result when they start to use our agent trainer. So it's still growing. Composer is only 30 days out. But I think, you know, we're all very excited about the progress we've seen even in the last couple of weeks for both of those products. And we do think there'll be, you know, large revenue drivers over time.

Let me add a little bit of color, for example, on customer agent and what we're doing with some of our enterprise customers. And as I mentioned, there were significant improvements, you know, that were brought on customer agents, make the customer agent making certainly a much more robust and viable product for our enterprise customers. and we went, you know, discuss with our top 40 enterprise customers to start with in terms of let us prove you that, you know, we have a great agent that can provide much better results than, you know, the ones that you're using today. So we engage in conversations with them. We then follow up with a proof of concept and we're now on the high single digits on some of those kind of conversations of that journey. And that certainly will keep increasing during the course of the next few weeks. They are testing it. We're helping them, you know, to fine tune during a month or so. And then once they see the outcome, the expectation is that some of those customers will start converting. Of course, you know, I don't want to make here any forecast, but clearly, you know, some of those customers are very large in the numbers of millions of conversations, you know, on a yearly basis. And certainly we believe that, you know, solution is ready and we can drive that value.

And then to your question on the uplift, we want to say just quickly on the uplift, it's meaningful. It's a meaningful uplift to their total average ARR for customers. And as normal for products like this, there's a wide variety depending on the adoption because it's outcome-based and it depends on how frequently customers are using it and how much they're relying on it. But we are definitely seeing a meaningful contribution there in terms of the customers who have adopted it.

Thank you. Our next question is from Terry Tillman from Truist. Please unmute your line and ask your question.

Hey, can you hear me okay? Yes. That's exciting. Glad I worked this time. So hi, A.B., Chano, and Ryan, and welcome aboard, Brad and Erica and Amanda. Good luck with whatever you do next. That's been great working with you. My question is going to be on the enterprise business. I'd like to double-click on that. It's good hearing about an eight-figure, I think it was a two-year deal. I think last quarter you had like a mid seven-figure transaction. So those are sizable. I think, Chano, you said that you've got some newer sales leadership there. What about actually the sales capacity? Do you have all the right people on the field? Are you still building out that sales team? And also, I think last year in Boston, when you had the customer conference, I think you had a It was a division of Accenture that was actually going to start partnering with you all. Maybe agencies are helping you. And just lastly, on this enterprise side, is there anything missing, product market fit, or do you feel like you have everything at this point? Thank you.

Great questions, Terry. Thank you so much. So first, let me start with sales leadership. As you know, we brought in a new CRO, a new head of Americas, and These guys have worked with me before and they really know enterprise business quite well. They'll be helping out with attracting and bringing in great talent on board as well in terms of sales leaders across the board. as you rightly say yes we last year last quarter we have a really uh you know very large deal i mean this quarter we have our first ever eight figure deal that is a two year uh we also have you know inside basically our largest transaction neighboring demand our large pipeline Thank you very much. We're moving ourselves basically, you know, go-to-market motion from being very transactional to a client being much more self-consultative. We're moving from a single stakeholder to a multi-stakeholder relationship. We're moving them from, you know, less senior people to much more senior people that they need to liaise with, much more kind of business case-driven. And that takes time, right? So all early signals and all the progress that we're making when I look at the number of deals that we do have. It doesn't matter how you cut things, over 500K, a million dollar, again, which is outpacing our regular business in terms of growth, all is looking great, even in terms of the pipeline, what is looking good in terms of the journey, but it will be a journey, right? So in terms of the sales capacity, we do have the sales capacity we need. I am not someone that likes to just feed on the street without productivity. So I can also tell you that we remain flat, but definitely our productivity per head is much higher than it was kind of a year ago. And that is how I like it to be and how I want it to be. because what I want the sales teams to do is make sure that they do qualify deals properly. You know, a good outcome is we win three out of four of which we participate because these cycles are expensive, right? So we're going through that process where we're training, we're educating, we're learning, but we do have the right leadership in place, we do have the right sales capacity in place. Certainly we're a growth company, Terry, so when we feel like we are producing all the right yields and we get to the productivities per head that are maximum, as we see more territories and more opportunities for expansion and that will come, we will have to invest. And we will invest in order to gain and win those opportunities. But overall, we do have the pieces on the passes in place, right? We're also working with a new agency partners. I mean, you heard our partners, if it doesn't matter, without Sanctuary, but there are also some agencies in the marketing business that are working with much larger customers that we didn't have relationship with. So we're also expanding, obviously, our ecosystem. And at the same time, we're doing our investments in infrastructure, right? Those are some of the volume investments that we talked before. That is where EU data center in EMEA and, you know, a much better guardrails in terms of security, safety, compliance, especially in terms of, you know, some of the requests that come more from some of the largest companies. So it is a journey as well there. I will take a bit of time. Early signals and early datas and early facts are good and are solid. But if you think about it, this opportunity is massive for us. And we're just in the early innings. So I can only be excited for the long-term opportunity that this provides to play video. And I like how the team is performing. But I expect that we will get better, getting much better over time as we really, you know, engage in many more sub-cycles and understand better how we win.

Thank you. Our next question is from DJ Hines from Canaccord Genuity. Please unmute your line and ask your question.

Hey, thank you, guys. Amanda, I wanted to ask about net revenue retention. Look, I realize it's early for a composer or a customer agent to contribute, but everything else I'm hearing, right, improving gross retention, SMS strength, multi-product customers, would make me think that NRR could start to gradually inflect up. So I guess the questions are, A, how much is profile enforcement B, does the intra-quarter picture tell us something different than the trailing 12-month metric? And C, I know it's not a metric you guide to, but is it right to think that net revenue retention should go up from here?

Thanks, DJ, and it's a great question. On NRR, just as you said, we're seeing strength and we're seeing strong performance and improvement in the metrics that for us are the ones that matter for the long-term health of the business. That's improving gross retention, strength in text expansion and customers' usage of text, and cross-sell, which has been particularly strong and increasing over time. This quarter, those benefits were offset by the lapping of profile enforcement. And as you think about NRR going forward, I would think about that impact of profile enforcement gradually winding out of the metric since it's trailing 12 months through Q1 of next year. But as we think about the business going forward and back to how do we think about long-term outlook here, what we feel very positive on is the fact that customers are staying with us They are expanding their business with us and their usage of our product, and they are buying more products for us. And I think those are the ones that are really going to drive NRR over the longer term.

Thank you. Our next question is from Derek Wood from TD Cowen. Please unmute your line and ask your question.

Great, thanks. I guess this is for AB. International continues to be a really bright spot, and over the last couple of years, we've heard from you about your journey with expanding languages and local support and sales teams in various countries. Can you just talk about what the next phases are on the international front, just as we're thinking about both the product and the go-to-market sides to sustain this momentum?

Yeah, absolutely. So that's one big area where we see there's a lot of market share out there and our share is relatively small. So international continues to grow really nicely, about 35% year on year. And a couple of things, I'll talk a little about the product side and then a little bit of what we're doing on the go-to-market side. On the product side, we've been very invested in, one of the things we find with a lot of international businesses is not only are we helping them transact in different currencies, but also they're working across many markets. We've done a lot of work to help businesses that are working across multiple markets, multiple regions, manage things like their product catalogs across those regions. Oftentimes, they have different rules or different strategies, and sometimes even different teams that manage those different businesses. For instance, we recently, with Klaviyo Organizations, we went further in allowing folks to understand whether you're multi-brand or multi-market, understand all your customers, even leverage that data across region, understand how different regions are performing. Some of the things we've done around scale, we're expanding our footprint of our data centers where we house data and run our software, expanding that into Europe. Chano mentioned some of the great marketing and we've always loved putting on user conferences, both for our existing customers and partners and users, but also for folks that are thinking about Klaviyo. We expanded that this year to cover all of Europe. We've added some sales headcount Some Klaviyos that are now in, you know, France and Germany. And I'd say like, you know, internationally, our main focus right now is probably more in Europe than it is in Asia, although we see opportunities all over the world. And maybe the last thing I'll mention that's just kind of been a Another maybe bright spot is when we launched WhatsApp, we knew that that was going to have a lot of pull in Europe, but we found that that has even opened up some new markets. I was just talking with the team last week, and we closed a major deal that has a big WhatsApp component down in Brazil. So that's opened up more of the Americas to us as well. So I think there's a lot of room to go there. And obviously, when Shano and I joined up. One of the things we both believe in is we believe we should be able to get Klaviyo to a point where the majority of our revenue comes ex-North America. And I think we're very much on that track.

Yeah, I would add that, again, the opportunity in international is very exciting. I think it's the very early innings as well. There are some large markets like Germany, even Spain and Italy, where we're doing well. But, you know, when you look at the market share, because we didn't have any teams in the ground in some places like Germany, we do have now, the opportunity is significantly larger. When you go in APAC, definitely Australia is a great market for us. Outside of Australia, we're making some leadership changes that I think they will pay down the road in terms of producing much more growth in places like Southeast Asia and Singapore and potentially other places like Japan that I've been recently visiting. So that's very exciting. So while it's great to see kind of the growth that internationally is producing, when I think about long term, The opportunity that international represents is definitely much larger than what we're seeing today.

Thank you. Our final question is from Brett Huff from Stevens, Inc. Please unmute your line and ask your question.

Good evening, AB and Chano, and welcome, Erica, and good luck, Amanda. Thanks for taking my question here at the end. I'm asking another of the AI question from a little bit different angle as the market, as you all know, continues to litigate the potential for disruption, especially within the SMB and maybe just medium-sized customers. The stats you gave on composer adoption being really good in enterprise was interesting, but we still get a lot of questions just more philosophically on, you know, are we seeing any... compelling data points, anecdotal or more systematic, about how your smaller customers are choosing AI from you versus another vendor, be it an LLM or etc. So any update on that?

Yeah, absolutely. So I'll give you a kind of a stat or, you know, some data on that. Like, you know, we've been watching in the last month customers, you know, new signups, right? You know, folks that are trying out CLEGO for the first time. And a lot of those are smaller businesses, right? Entrepreneurs that are just getting started. And, you know, probably not surprisingly, you know, those that are using Composer are the ones that end up being more successful with CLEGO, literally in the first few weeks. and end up converting to paid customers. So it's still, it's still, this is still early and we're weaving, you know, Composer into more of the UI of Flavio. But intuitively, we think this makes a lot of sense. You know, what we found when I talked to, you know, some of these, you know, entrepreneur, you know, SMB customers, a lot of them, like, they're not even sure, you know, when they know they need to do marketing or they need to, you know, set up, you know, customer agent for customer support, but they're not sure what to do or where to start. We talked about some of the benefits that Composer has over a general purpose model. This fact that we organize a business's data so we understand the products or services they sell, we understand who their customers are, we have all of this data about past orders, transactions, customer preferences, and our model has organized that and can reason about that. The fact that we have an understanding of what that business likes from past marketing they've done. And obviously, if it's somebody's brand new, we also can help them define what their brand looks like. And then finally, we've actually even only recently in the last two weeks, we've upgraded the system behind the scenes that provides kind of the cladial proprietary knowledge about what works in marketing. and we're finding a lot of customers, they're querying into that to understand from Composer, you know, I mentioned things like what's the best time to send, who should I send to, all these things that, you know, maybe questions they didn't know to ask or they don't know the answers to and we just have a better data set. So we're actually, I think one of the things we're quite bullish on is that for, you know, for SMBs and these like, you know, smaller businesses, They're actually going to look for more domain or task-specific AI. And obviously, we want to offer that with Composer. And embedding in Klaviyo is great because it means that they get a software interface that kind of feels both agentic but also has that kind of point-and-click element if they want to drag and drop in design. But we've also opened up Composer where it integrates into other agents. and other systems that they use. And we think there, it's just, now we're going to drive composer usage just because we're just, you can think of our agent as the expert at understanding your customers and the expert at marketing. And so that's one of the things we said, it doesn't really matter where you want to work. You're still going to be able to get value out of composer. So I think I'm also very excited about what we're seeing from our entrepreneurs and SMBs. I think for them, a lot of it is just educating them on even what's possible with AI. But I think we have an advantage there because a lot of them are actually used to using our interface. And we've kind of merged the two, our agents and our kind of more traditional interface together.

Thank you.

That was our final question. I will now hand back to management for closing remarks.

All right. Thanks, everybody, for joining us today. Amanda, thank you for helping us continue to grow Klaviyo. And as we like to say, we're 1% done. Look forward to seeing everybody next quarter.

This concludes today's call. Thank you for joining us. You may now disconnect.