Q3 2023 Klaviyo Inc Earnings Call
Speaker 1: Good afternoon and welcome to Clavio's third quarter of fiscal 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to draw your questions, just press star one again. Thank you.
Good afternoon, and welcome to <unk> third quarter of fiscal 2023 earnings conference call. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw your question. Please press star one again thank you.
Speaker 1: With that, I'd like to turn the call over to Jack Grant, Senior Director of Investor Relations and Strategic Finance.
With that I'd like to turn the call over to Jack <unk> Senior director of Investor Relations and strategic finance.
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Speaker 2: Thanks operator. I'm excited to welcome you to Kledio's third quarter to 2023 earnings call. We'll be discussing the results announced in the press release issued after the market close today. Please refer to our investor relations website at investors.kledio.com for more information and a supplemental presentation related to today's earnings.
Thanks, Operator, I'm excited to welcome you to <unk> third quarter 2023 earnings call, we will be discussing the results announced in our press release issued after the market closed today. Please refer to our Investor Relations website at investors <unk> Dot com for more information and a supplemental presentation related to today's earnings.
Announcements.
Speaker 2: With me on the call today are Andrew Bialecke, co-founder and chief executive officer and Amanda Whalen, chief financial.
With me on the call today are Andrew Bielecki, co founder and Chief Executive Officer, and Amanda Whalen, Chief Financial Officer.
Speaker 2: During today's presentation, we'll make statements regarding our business that may be considered board looking under applicable securities laws and the safe harbor provisions of the private securities litigation reform act of 1995 as amended, including statements concerning our outlook for the fourth quarter of fiscal year 2023 and the full fiscal year ending December 31, 2023.
During today's presentation, we will make statements regarding our business that may be considered forward looking under applicable securities laws on the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 as amended including statements concerning our outlook for the fourth quarter of fiscal year 2023, and the full fiscal.
Year, ending December 31, 2023.
Speaker 2: These forward-looking statements reflect management's current beliefs, expectations, and assumptions about future events, which are inherently subject to uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of our control. These risks include, among others, our ability to achieve future growth and sustain our growth.
These forward looking statements reflect management's current beliefs expectations and assumptions about future events, which are inherently subject to uncertainties risks and changes in circumstances that are difficult to predict and many of which are outside of our control.
These risks include among others, our ability to achieve future growth and sustain our growth rate our ability to successfully execute our business and growth strategy, our relationships with third parties, our ability to attract new customers with team revenue from existing customers and increased sales both from new and existing customers.
Speaker 2: Our ability to successfully execute our business and rural strategy. Our relationships with them parties. Our ability to attract new customers, retain revenue from existing customers, and increase sales both from new and existing customers.
Speaker 2: Successful and marketing and sales strategies and business outlook, including our financial guidance for the fourth quarter in full fiscal year of 2023.
Success of our marketing and sales strategies and business outlook, including our financial guidance for the fourth quarter and full fiscal year of 2023.
Speaker 2: For discussion of the material risks and uncertainties, that could affect our actual results, please refer to the risks identified in today's press release and our SEC filings, both available on our investor relations website.
For a discussion of the material risks and uncertainties that could affect our actual results. Please refer to the risks identified in today's press release, and our SEC filings both available on our Investor Relations website.
Speaker 2: In addition, today's call includes the presentation of certain non-GAF financials.
In addition, today's call includes a presentation of certain non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures reckon.
Speaker 2: These measures should be considered as a supplement to and not as substitute for GAAP financial .
Speaker 2: Reconciliation to the most directly comparable GAAP measures can be found in today's on express release or earnings release supplemental materials distributed aftermarket close today and posted on our investor relations website and our SEC violence, which are also available on our investor relations website. With that, I'll now turn it over to Andrew.
Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release or earnings release supplemental materials distributed after market closed today and posted on our Investor Relations website, and our SEC filings, which are also available on our Investor Relations website.
With that I'll now turn it over to Andrew.
Speaker 3: Thanks Jack. Thank you for joining us today on our first earnings call.
Thanks, Jack Thank you for joining us today on our first earnings call as a public company.
Speaker 3: I decided to share our third quarter results as well as an overview of our business. We delivered a strong quarter on both.
We are excited to share our third quarter results as well as an overview of our business.
We delivered a strong quarter on both the top and bottom line.
Speaker 3: But I can start by thanking all of our customers, partners, as well as both our long-term and new shareholders.
To start by thanking all of our customers and partners as well as both are long term and new shareholders for supporting our mission.
Speaker 3: I also want to extend a special thank you to all the clasios out there. That's what we call a clasian employees. We work hard to deliver.
I also want to extend a special thank you to all the claims that's out there.
That's what we call Clayton employees.
Work hard to deliver for our customers every day.
Speaker 3: We believe that best businesses are dealt by teams who get the weeds with customers that deliver products and experience their customers.
We believe the best businesses are dealt by team get in the weeds with customers and deliver products and experiences our customers ramped up.
Speaker 3: That says our first quarterly earnings announcement of the public company.
As this is our first quarterly earnings announcement as a public company.
Speaker 3: In case you're new to our story, I'll send a few minutes introducing Clayvio and then I'll provide some of the highlights from the...
In case, you are new to our story.
Few minutes, introducing <unk> and then I'll provide some of the highlights from the quarter.
Speaker 3: Later I'll turn the call over to Amanda Whalen, our key financial officer, to cover our financial results in greater.
Later, I will turn the call over to Amanda Wang our Chief Financial Officer to cover our financial results in greater detail.
Speaker 3: So also be providing you with our fourth quarter
She will also be providing you with our fourth quarter and full fiscal year 2023 outlook before we open the call for Q&A.
Speaker 3: Play the other platform that powers smarter digital relationships.
<unk> is a platform that powers smarter giggled relationships for businesses.
Speaker 3: Plano gives our customers the tools they need to activate their first party data and connect with customers through personalized experiences across email, SMS, and mobile.
<unk> gives our customers the tools they need to activate their first party data and connect with customers through personalized experiences across E mail SMS and mobile apps.
Speaker 3: We are able to measure the revenue driven by those messages and we use artificial intelligence and machine learning to guide our customers on how to improve their market.
We are able to measure the revenue driven by those messages and we use artificial intelligence and machine learning to guide our customers on how to improve their marketing.
Speaker 3: We're giving businesses a scalable brain and voice to connect with each of their end consumers personally and treat them like they're the most important person in the world. And because the light of consumers come back,
We're giving businesses a scalable brain invoice to connect with each of their end consumers personally and treat them like they are the most important person in the world.
And because delight consumers come back more often.
Our revenue engine for businesses.
Speaker 3: A revenue engine powered by data, those businesses own, and systems and algorithms we've developed that show them how to put that data.
Our revenue engine powered by data does benefit on and systems and algorithms. We've developed that show them how to put that data to work.
Speaker 3: Ed Hall and I founded Klavio in 2012 to empower builders and creators on their death.
Ed Helen and I founded <unk> in 2012 to empower builders and creators to own their destiny.
Speaker 3: Whether a business is creating a product or service, we aim to maximize the experience that can offer consumers in their growth.
Whether a business is creating a product or service, we aim to maximize the experience they can offer consumers and our growth.
Speaker 3: Ed and I came from Enterprise software, but we both love design and making really approachable.
And and I came from enterprise software, but we both love design, making really approachable products.
Speaker 3: Claydale was architected and designed for any company bigger, small to drive outside.
Yeah. It was architected and designed for any company big or small to drive outsized outcome.
Speaker 3: started by building a database to house and explore customer data. And that was the first product we sold.
We started by building a database to house and explore customer data and that was the first product we sold.
Speaker 3: We soon realized a lot of our customers wanted to use our database for marketing. So that became the first application.
We've seen realized a lot of our customers wanted to use our database for marketing so that became the first application rebuilt.
Speaker 3: This vertical integration of the data and marking layers gives our product advanced capabilities and makes them
This vertical integration of the data and marketing layers gives our product advanced capabilities and makes them easier to use.
Speaker 3: The foundation of our product is our underlying customer data store, which is optimized for storing, processing, and analyzing large volumes of first-party consumer data.
Foundation of our product is our underlying customer data store, which is optimized for storing processing and analyzing large volumes of first party consumer data our.
Speaker 3: Our data store has a flexible set of APIs for developers to build again, as well as more than three hundred-
<unk> has a flexible set of Apis for developers to build against as well as more than 300 native integrations.
Speaker 3: process more than two billion events per day, all of which are accessible to our marking application and third party application builds on top of.
We process more than 2 billion events per day.
All of which are accessible through our marketing application and third party application built on top of claim yet.
Speaker 3: We believe our software shouldn't just make customers more productive, it should improve their ideas and help them generate.
We believe our software shouldn't just make customers more productive it should improve their ideas and helping generate new ones.
Speaker 3: As an example, we offer our customers benchmarks that use artificial intelligence to provide comparison to an anonymized set of similar peer businesses that they can use to identify opportunities to enhance their markets.
As an example, we offer our customers benchmarks that use artificial intelligence to provide comparison to an anonymised set a similar peer businesses that they can use to identify opportunities to enhance their marketing.
Speaker 3: In addition, we use generative AI to suggest specific taxing images for marketing campaigns. In other artificial intelligence techniques to generate individual product recommendation, marketers can embed and
In addition, we use generate AI to suggest with specific taxing images for marketing campaigns and other artificial intelligence techniques to generate individual product recommendation marketers can embed in your messages.
Speaker 3: As our customers use Clavio to create compelling content for their consumers, we aim to make sure they always have an AI assistant by their side, both to improve their ideas and help them when they're...
As our customers use <unk> to create compelling content to their consumers. We aim to make sure. They always have an AI assistant by their side, both to improve their ideas and help them when their stock.
Speaker 3: Claudio ended the third quarter with over 135,000.
<unk> ended the third quarter with over 135000 customers.
Speaker 3: with the large percentage of our customers being small businesses in e-commerce and resources.
With a large percentage of our customers being small businesses and e-commerce and retail.
Speaker 3: While many of our customers started with us when they were small, we're really proud that we have helped power their rep.
While many of our customers started with us when they were small we're really proud that we have help power their rapid growth.
Speaker 3: We've built our infrastructure to scale with them well into the min market.
We built our infrastructure to scale with them well into the mid market and enterprise.
Speaker 3: At the end of the third quarter, we had 1,699 customers generating ARR of over $50,000 per year, which was up 89.
At the end of the third quarter, we had 1699 customers generating <unk> of over $50000 per year.
Which was up 89% year over year.
Speaker 3: This growth has been fueled by both expanding use of our platform by our customers and landing.
This growth has been fueled by both expanding use of our platform by our customers and landing new larger accounts.
Speaker 3: We are seeing customers consolidate more of their marketing stock we're spending on to Claudio with some of our largest customers over half a million dollars.
We are seeing customers consolidate more of their marketing software spend on <unk> with some of our largest customers over half a million dollars in Iraq.
Speaker 3: As of the end of September , over 7.3 billion consumer profiles are stored in our data platforms.
As of the end of September over seven 3 billion consumer profiles are stored in our data platform.
Speaker 3: These profiles represent a complete history of the relationship between a business and a consumer and are updated in real-price.
These profiles represent a complete history of the relationship between a business and a consumer and are updated in real time.
Speaker 3: and Claudio often becomes the single system of records for us.
<unk> often becomes the single system of record for our customers.
Speaker 3: While we started with marketing the email, in 2021, we added SMS as a second marketing channel. And this year, we've added mobile apps.
While we started with marketing via E Mail in 2021, we added SMS and a second marketing channel and this year, we've added mobile App notifications.
Speaker 3: In addition, we lost your reviews product, building out our suite of marketing.
In addition, we launched our reviews product building out our suite of marketing products.
Speaker 3: We believe all of these applications and channels are better on the same platform that they should work together and Claydale should be the platform where a business can build smarter digital.
We believe all of these application and channels are better on the same platform that they should work together and <unk> should be the platform, where our business can build smarter digital relationships.
Speaker 3: We allow our customers to meet consumers where they are, with the right content at the right time and through the right.
We allow our customers to meet consumers, where they are with the right content at the right time and through the right channel.
Speaker 3: By combining easy implementation, rapid time to value, and clearly attributable outcomes, which we measure and refer to as cladio-attributed value or abbreviated KAB, we're able to show, you see,
By combining easy implementation rapid time to value and clearly attributable outcomes, which we measure and refer to U S. <unk> attributed value.
Our abbreviated AAV <unk>.
We're able to show substantial ROI to our customers.
Speaker 3: We've shifted the mindset from generating opens and clicks to driving revenue.
We've shifted the mindset from generating opens and clicks to driving revenue.
Speaker 3: pride and measure ourselves on the ROI that we help our customers.
We pride and measure ourselves on the ROI that we help our customers generate.
Speaker 3: Turning to our ecosystem, our success has been driven by building products that customers rave about.
Turning to our ecosystem. Our success has been driven by building products that customers raved about.
Speaker 3: Our products in ROI we generate for our customers has allowed us to build a very efficient product-led model.
Our products and the ROI, we generate for our customers has allowed us to build a very efficient product led model.
Speaker 3: One of the core parts of this model is our great ecosystem of partners, marketing agencies, and system integration.
One of the core parts of this model is our great ecosystem of partners marketing agencies and system integrators.
Speaker 3: Over time, we've also built deep product integration and mutually beneficial partnerships with most major commerce plants.
Over time, we've also built deep product integration and mutually beneficial partnerships with most major commerce platforms.
Speaker 3: These partners love working with us because we complete the product picture and provide the tools to make our mutual customers more successful. In turn, driving more revenue.
These partners love working with us because we complete the product picture and provide the tools to make our mutual customers more successful in turn driving more revenue for them.
Speaker 3: In addition, you have an ecosystem of over 5,000 market agencies and system integrators for experts at Clavio in help our customers get the most out of our class.
In addition, we have an ecosystem of over 5000 marketing agencies system integrators, who are experts at <unk> and help our customers get the most out of our platform.
Speaker 3: Finally, a large number of developers and software companies have integrated into and built on top of Claudio to extend our platform.
And finally, a large number of developers and software companies have integrated into and built on top of <unk> to extend our platform's capabilities.
Speaker 3: All of these partners expand what's possible with Gladio in addition to introducing business.
All of these partners expand what's possible with video in addition to introducing businesses to us.
Speaker 3: These products led in ecosystem led motions are the foundation of our efficient go to market.
These product led an ecosystem led motions are the foundation of our efficient go to market engine.
Speaker 3: Most of our demand is inbound, largely from word about, partners, and other plans.
Most of our demand is inbound largely from worried about partners and other platforms are self serve in low touch sales model keeps customer acquisition cost low.
Speaker 3: Our self-serve and low-touch sales model keeps customer acquisition costs low.
Speaker 3: As larger businesses have come to us, we built sales and customer success teams of experts to ensure businesses with more complex requirements are successful and to educate and attract more of those businesses to our class.
As larger businesses come to us, we built sales and customer success teams of experts to ensure businesses with more complex requirements, our successful and to educate and attract more of those businesses to our platform.
Speaker 3: Our customers are buying both our products and the overall ecosystem we are building.
Our customers are buying both our products and the overall ecosystem we are building.
Speaker 3: We're very proud of the community of customer and partners that's grown around Claudio, and we will stay close to that community and continue to grow.
We're very proud of the community of customers and partners that's grown around <unk>.
We'll stay close to that community and continue to grow it.
Speaker 3: With that background of business, I'll briefly cover some third quarter highlights.
With that background on our business I'll briefly cover some third quarter highlights.
Speaker 3: We delivered strong growth during the quarter with revenue of $175.8 million, growing 48% year-over-year.
We delivered strong growth during the quarter with revenue of $175 8 million growing 48% year over year.
Speaker 3: We are driving strong growth at scale while maintaining operating discipline with a 10% non-gab operating
We are driving strong growth at scale, while maintaining operating discipline with a 10% non-GAAP operating margin.
Speaker 3: We continue to see the power of our products and ecosystem led model I mentioned and remain focused on driving durable efficient.
We continue to see the power of our product and ecosystem led model.
And and remain focused on driving durable efficient growth.
Speaker 3: Our strengths in the third quarter was due to growing our cost surveys, healthy net expansion with our customers, and continuing to grow market share in the mid-month.
Our strength in the third quarter was due to growing our customer base healthy net expansion with our customers and continuing to grow market share in the mid market.
Speaker 3: We're also very excited to release our first infrastructure product with a launch of our CDB. We executed well this quarter and we are set up to deliver for our customers during the holiday season. The most important time of year for many of us. I'd like to highlight a few customer wins that illustrate these things.
We're also very excited to lead our first infrastructure products with the launch of our CDP.
We executed well this quarter and we're set up to deliver for our customers during the holiday season the.
The most important time of year for many of them.
I'd like to highlight a few customer wins that illustrate these games.
In the third quarter, we drove further momentum upmarket.
Speaker 3: publicly traded enterprise with multiple brands in its portfolio. Decided to standardize the email and SMS marketing of its home and outdoor segment.
<unk> traded enterprise with multiple brands in its portfolio decided to standardize the email and SMS marketing of its home and outdoor segment with Columbia.
Speaker 3: These brands collectively generated nearly a billion dollars in revenue.
These brands collectively generated nearly $1 billion in revenue last year.
Speaker 3: They were looking for a platform that combines best in class functionality with an easy to use platform that would allow their marketing team to move faster, create more personalized experiences, and deliver high quality revenue access.
They were looking for a platform that combine best in class functionality.
With an easy to use platform that would allow their marketing teams to move faster.
Eight more personalized experiences and deliver high quality revenue attribution.
Speaker 3: our tight integration with their commerce platform and our ability to deliver multi-region support or two of the reasons we were able to win.
Our tight integration with our commerce platform and our ability to deliver multi region support where two of the reasons, we were able to win.
Speaker 3: We're continuing to see customers of all sizes interested in consolidating their tech stack onto Claudio due to the combination of our advanced features and ease of use we provide.
We're continuing to see customers of all sizes interested in consolidating their tech stack onto <unk> due to the combination of our advanced features and ease of use we provide to our customers.
Speaker 3: Existing customers are also coming to us to consolidate their
Existing customers are also coming to us to consolidate their tech stacks.
Speaker 3: During quarter, way a brand within Proctor and Gamble in a long tenured customer, expanded their relationship with Claudio significantly by adding the SMS channel to their existing email.
During the quarter way, a brand within Procter and Gamble and a long tenured customer expanded their relationship with Claudio significantly by adding the SMS channel to their existing E mail footprint.
Speaker 3: This opportunity came to us because of our great relationship with a partner who manages wave email mark.
This opportunity came to us because of our great relationship with a partner who manages ways email marketing.
Speaker 3: Way was looking to consolidate their channels with one provider as they had a different provider for us.
Well it was looking to consolidate their channels with one provider and they had a different provider for SNS.
Speaker 3: way wanted to better enable their team with a single source of truth on their customers and to minimize the amount of time they spend solving technical problems.
Way wanted to better enable their team with a single source of truth on their customers and to minimize the amount of time they spend solving technical challenges.
Speaker 3: We're excited about the opportunity to keep partnering with way as they grow there.
We're excited about the opportunity to keep partnering with way as they grow their business.
As we look beyond our core retail and e-commerce market.
We've begun to see more businesses take advantage of their first party data to build smarter digital relationships.
Speaker 3: One of these wins during the quarter was the San Francisco Marathon.
One of these wins during the quarter was the San Francisco Marathon.
Speaker 3: They're looking to better segment potential participants to ensure they're reaching relevant eyes.
They are looking to better segment potential participant to ensure they are reaching relevant audiences.
Speaker 3: This is one of the many examples of businesses across verticals wanting to better personalize experiences for their couple.
This is one of the many examples of benefit across verticals wanting to better personalize experiences for their customers.
Speaker 3: Moving on to products, our team continued our rapid pace of delivery during the third quarter. There's a few recent prior announcements.
Moving onto product our team continued our rapid pace of deliveries during the third quarter.
There are a few recent product announcements I'm excited to talk about.
Speaker 3: First, we continue to add more artificial intelligence features to our platforms.
First we continue to add more artificial intelligence features to our platform.
Speaker 3: During the quarter, we started to roll out a new natural language interface for our segmentation.
During the quarter, we started to rollout a new natural language interface for our segmentation builder.
Speaker 3: This allows customers to define queries into their data without specific knowledge of the underlying data.
This allows customers to define queries into their data without specific knowledge of the underlying data structure.
Speaker 3: For example, the customer could ask, show me consumers who are previously frequent and loyal customers but haven't bought anything in the past few months.
For example, a customer could ask xiaomi consumers, where previously frequent and loyal customers, but havent bought anything in the past few months.
Speaker 3: We believe these kinds of features increase the accessibility of our software and the number of experiments a business can run.
We believe these kinds of features increase the accessibility of our software and the number of experiment a business can run.
Speaker 3: Another recent feature launch allows our customers to better take advantage of our data infrastructure and attribution is our launch of global hold up.
Another recent feature launch allows our customers to better take advantage of our data infrastructure and attribution is our launch of global holdout groups.
Speaker 3: This feature allows our customers to create control groups for measuring the incremental uplift their marketing activities are generating to more effectively understand their...
This feature allows our customers to create control groups for measuring the incremental uplift their marketing activities are generating to more effectively understand efficacy.
Speaker 3: In October , we expanded SMS coverage to ION.
In October we expanded SNF coverage to Ireland.
Speaker 3: This marks the sixth country we've entered with our SMS offering. And we're excited to roll out this channel across more.
This marks the sixth country, we've entered with our SNS offering and we're excited to rollout this channel across more countries.
Speaker 3: Finally, on the product front, during the quarter, we also announced the launch of our CDP product.
Finally on the product front during the quarter, we also announced the launch of our CDP product.
Speaker 3: It's early days and we're rapidly expanding the future that we offer. Our customers are particularly excited about three years.
It's early days and we're rapidly expanding the futures that we offer our customers are particularly excited about three areas.
Speaker 3: governing their data, publishing normalized data to other systems, and running customer analyses directly inside.
Turning their data publishing normalized data to other systems and running customer analysis directly inside of quite yet.
Speaker 3: For example, one business used our CDP to natively build an ARFN model, which is a recency, frequency, monetary values model.
For example, one business use our CDP and natively build an Oracle model, which is a recency frequency monetary value model and.
Speaker 3: and use that model to identify an opportunity to target, lapse, and act.
And use that model to identify an opportunity to target lapsed and inactive customers.
Speaker 3: They use segments generated by our model to run new campaigns that drove an incremental 9% of KV during the month.
They used segments generated by our model to run new campaign that drove an incremental 9% a cave during the month of September.
Speaker 3: With our CDP, we're going to break down the barriers between data analysis and action.
With our CDP, we're going to break down the barriers between data analysis and Actioning those insights.
Speaker 3: Turning to our team, during the quarter, Jamie Domenici joined as our new chief marketing officer.
Turning to our team during the quarter, Jamie Domenici joined as our new Chief Marketing Officer, Jamie comes to US from go to formally logging in and has a decade of experience at Salesforce and marketing leadership roles.
Speaker 3: Jamie comes to us from GoTo, formally logged me in, and has a decade of experience at Salesforce in marketing leaders.
Speaker 3: Jamie is focused on expanding our ecosystem and community to drive more awareness and customer security.
Jamie its focus on expanding our ecosystem and community to drive more awareness and customers declared yet.
Speaker 3: I'm very excited about the team we have and the talent we've been able.
I'm very excited about the team we have and the talent, we've been able to attract.
Speaker 3: While we're excited about these recent developments, as we'd like to say internally, we're only 1% down.
While we're excited about these recent developments as we like to say internally, we're only 1% done.
Speaker 3: We're focused on delivering for our customers of holiday season and beyond, building a great business and driving returns for us.
We're focused on delivering for our customers. This holiday season, and beyond building, a great business and driving returns for our shareholders.
Speaker 3: With that, I'd like to turn it over to Amanda to cover the financials in more detail. Amanda?
With that I'd like to turn it over to Amanda to cover the financials in more detail later.
Speaker 4: Thanks Andrew. Today I will provide a brief overview of Renzer's quarter of financial results and discuss guidance for a fourth quarter and full 2023 fiscal year. As a quick reminder, today's discussion includes non-Yass financial measure.
Thanks, Andrew.
I will provide a brief overview of our third quarter financial results and discuss guidance for our fourth quarter and full 2023 fiscal year is.
As a quick reminder, today's discussion includes non-GAAP financial measures.
Speaker 4: These refer to the table that our earnings release for reconciliation of gas to the most directly comparable non-gas financial measure.
Please refer to the tables in our earnings release for a reconciliation of GAAP to the most directly comparable non-GAAP financial measure.
Speaker 4: As internoted, we are pleased with our solid Q3 financial performance.
As Andrew noted we are pleased with our solid Q3 financial performance.
Speaker 4: Consistent with our financial framework, we again saw rapid growth at scale in an efficient manner.
Consistent with our financial framework, we again saw rapid growth at scale in an efficient manner.
Speaker 4: Before I go into the details of our third quarter, let me walk you through our business model.
Before I go into the details of our third quarter, Let me walk you through our business model.
Speaker 4: We generate revenues through tiered subscription plans that are based on the number of active consumer profiles that customers store in our platform, which reflects the amount of data they're storing with us. And the number of email and SMS messages that they sent.
We generate revenue through tier subscription plans that are based on the number of active consumer profiles by customers, starting our platform, which reflects the amount of data they are storing with us as the number of email and SMS messages that they sent.
Speaker 4: We also currently allow for unlimited push notifications as part of our emails and
We also currently allow for unlimited push notifications as part of our E mail subscription plans.
Speaker 4: Today, the vast majority of our subscriptions are monthly.
Today, the vast majority of our subscription our monthly.
Speaker 4: As a result, metrics such as calculated billing, deferred revenue, and remaining performance obligations are less relevant to our business model.
As a result metrics such as calculated billing.
<unk> revenue and remaining performance obligations are less relevant to our business model.
Speaker 4: Once we land a customer, there are several levers to expand our relationship with them. Our business model was designed to align our success with our customers' success.
Once we land a customer there are several levers to expand our relationship with <unk>.
Our business model was designed to align our success with our customer success.
Speaker 4: As our customers' businesses grow, expanding the number of active consumers they're serving and the number of messages they're sending them, we've made it easy to expand their views to each of our platform in a self-serve manner.
As our customers' businesses grow expanding the number of active consumers, they're serving and the number of messages they are similar.
Made it easy to expand their usage of our platform NFL Cirque manner.
Speaker 4: Our revenue also expands when customers add additional channels to their subscription, such as our SMS offering, or when new brands or business units within their overall portfolio start using our platform.
Our revenue also expands when customers add additional channels to their subscription such as our SaaS offering.
Or when new brands of our business units within our overall portfolio to start using our platform.
Speaker 4: The success of our land and expand strategy is evident from our net revenue retention rate, which has been at or above 115 percent for 10 consecutive quarters.
The success of our land and expand strategy as evidenced in our net revenue retention rate, which has been at or above 115% for 10 consecutive quarters.
Speaker 4: On a quarterly basis, we do exhibit some seasonality. Historically, we have seen our largest sequential growth in the fourth quarter as a result of Black Friday and Cyber Monday. This is a critical time for our customers when they typically increase communications with their consumers.
On a quarterly basis, we did extend that some seasonality historically, we have seen our largest sequential growth in the fourth quarter as a result of black Friday and cyber Monday.
This is a critical time for our customers when they typically increased communications with their consumers. This drive increased usage of our platform, which results in more revenue in Q4.
Speaker 4: This drives increased usage of our platform, which results in more revenue in Q4.
Speaker 4: You'll also see this in our financial results, where historically our Q1 revenue appears more muted sequentially due to this seasonal pattern.
You'll also see this in our financial results, where historically, our Q1 revenue appears more muted sequentially due to the seasonal pattern.
Speaker 4: With that backdrop, let me turn to our third quarter financial result.
With that backdrop, let me turn to our third quarter financial results.
Speaker 4: We thought total revenue during the quarter of $175.8 million, representing annual growth of 48%.
We saw a total revenue during the quarter at $175 $8 million, representing annual growth of 48% and non-GAAP operating income of $17 8 million.
Speaker 4: and non-gap operating income of $17.8 million, representing a non-gap operating margin of 10%. Our growth is powered by four main vectors.
Representing a non-GAAP operating margin of 10%.
Our growth is powered by four main factors, adding new customers expanding with those customers.
Speaker 4: growing in the mid-market and growing internationally.
Going in the Ms market and growing internationally.
Speaker 4: Our Q3 performance was strong on each of these vectors.
Our Q3 performance was strong in each of these factors.
Speaker 4: We now serve over 135,000 customers up over 20%.
We now serve over 135000 customers up over 20% year over year.
Speaker 4: Those customers continue to expand their business with us. Resulting in net revenue retention of 119% in Q3.
Those customers continue to expand their business with us.
Resulting in net revenue retention of 119% in Q3.
Speaker 4: We continue to drive strong growth in the mid-market and finished the quarter with 1,699 customers generating over $50,000 in ARR, up 89% year over year.
We continue to drive strong growth in the mid market and finished the quarter with 60 899 customers generating over $50000, an IRR of 89% year over year.
Speaker 4: Finally, international growth is outpacing the overall tips.
Finally international growth is outpacing the overall business.
Speaker 4: In Q3, a NAPAC represented 31% of our revenue, up from 30% in Q3 of last year.
We're three EMEA and APAC represented 31% of our revenue up from 30% in Q3 of last year.
Speaker 4: On the top line as a reminder late last Q3 we rolled out a price.
On the top line as a reminder, late last Q3, we rolled out a price increase this contributed high single digit millions of dollars in revenue.
Speaker 4: This contributed high single-digit millions of dollars in revenue in each of the last four quarters.
Each of the last four quarters Q4 will be the first full quarter lapping the benefit as the price increase.
Speaker 4: Q4 will be the first full quarter laughing the benefit of the price increase. The overall health of our company. The overall health of our company.
The overall health of our customer base remains strong.
Speaker 4: Our growth retention remains consistent from Q2 to Q3, which we view as a testament to the value we provide to our customers.
Gross retention remains consistent from Q2 to Q3, which we view as a testament to the value we provide to our customers.
Speaker 4: Moving down the income statement, I will be discussing results on a non-GAAP basis, which excludes stock-based compensation expense, amortization of non-cash prepaid marketing expense associated with our Shopify partnership, and restructuring expenses unless otherwise noted.
Moving down the income statement I will be discussing our results on a non-GAAP basis, which excludes stock based compensation expense.
<unk> of noncash prepaid marketing expense associated with our Shopify partnership.
Restructuring expenses unless otherwise noted.
Speaker 4: Gross profit for the quarter was $140.3 million, representing gross margin of $82.3 million.
Gross profit for the quarter was $143 million, representing gross margin of 80%. This marks a seven point improvement compared to Q3 of 2022.
Speaker 4: This marks a seven-point improvement compared to Q3 of 2022. We continue to see the benefits of our efforts around system and cloud engineering optimization.
We continue to see the benefits of our efforts around system and cloud engineering optimization.
Speaker 4: In recent quarters, we have migrated some of our infrastructure on the updated offering. Which provide enhanced reliability and scalability for our customers. It's not only provides for better customer experiences, but also increases our efficiency.
In recent quarters, we have migrated some of our infrastructure on the updated offering which provides enhanced reliability and scalability for our customers.
Not only it provides for better customer experiences, but also increases our efficiency.
Speaker 4: Turning to operating expenses, sales and marketing expense with $56.2 million or 32% of revenue for the quarter. As we discussed in our IPO Road Show, we will be investing in sales and marketing to drive durable growth. We're expecting to ramp off marketing spend and as sales capacity, particularly in the mid-mark.
Turning to operating expenses sales and marketing expense was $56 2 million or 32% of revenue for the quarter.
As we discussed in our IPO Roadshow, we will be investing in sales and marketing to drive durable growth.
I expect them to ramp up marketing spend and AD sales capacity, particularly in the mid market.
Speaker 4: As we do so, we will continue to be focused on efficient unit economic.
As we do so we will continue to be focused on efficient unit economics.
Speaker 4: R&D extends for $35 million or 20% of revenue.
R&D expense was $35 million or 20% of revenue.
Speaker 4: We're committed to investing in a number of initiatives here, including ongoing improvement of our products for customers. Further developing our capabilities. And launching new products, such as CD.
We're committed to investing in a number of initiatives here, including ongoing improvement of our products for customers and further developing our AI capabilities and launching new products such as CDP.
Speaker 4: Finally, GNA expense was $31.4 million or 18% of revenue. During the quarter, we had roughly $6 million in one-time expenses related to the IPO.
Finally, G&A expense was $31 $4 million or 18% of revenue.
During the quarter, we had roughly $6 million in onetime expenses related to the IPO.
Speaker 4: For Q3, our operating income was $17.8 million, representing an operating margin of 10%.
For Q3, our operating income was $17 8 million, representing an operating margin of 10%.
Speaker 4: We also generated free cash flow during the quarter of $21.9 million. This marks our fourth consecutive quarter of generating both positive non-gap operating income and free cash flow. This further supports our beliefs that we do not need to choose between growth and profitability.
We also generated free cash flow during the quarter of $21 $9 million. This marks our fourth consecutive quarter of generating those positive non-GAAP operating income and free cash flow.
This further supports our belief that we do not need to choose between growth and profitability.
Finally, turning to the balance sheet, we finished the quarter with $724 million in cash cash equivalents and restricted cash with no debt.
Speaker 4: We finished the quarter with 724 million in cash, cash equivalent, and restricted cash with no debt.
Speaker 4: Turning to our outlook for both the fourth quarter and the whole fifth year 2022.
Turning to our outlook for both the fourth quarter and the full fiscal year 2023.
Speaker 4: For the fourth quarter, we expect revenue to be in the range of $195 to $197 million. Representing growth of 34% to 36% year over year.
For the fourth quarter, we expect revenue to be in the range of $195 million to $197 million representing growth of 34% to 36% year over year.
Speaker 4: As a reminder, due to the laughing of our price increase at the end of Q322 that I discussed earlier, our year-over-year top-line growth rate will face natural headlines moving forward as compared to the prior four quarters.
As a reminder, due to the lapping of our price increase at the end of Q3 'twenty two that I discussed earlier, our year over year top line growth rate, we will face natural headwinds moving forward as compared to the prior four quarters.
Speaker 4: We expect non-gap operating income to be in the range of 14 to 17 million dollars. Representing operating margin of 7 to 9 percent.
We expect non-GAAP operating income to be in the range of $14 million to $17 million, representing operating margin of 7% to 9%.
Speaker 4: During Q4 with increased usage of our platform, we expect to see higher costs of goods sold due to both outbound sending costs and cloud computing costs. In addition to higher sales and marketing costs, due to the go-to-market investments I've previously mentioned.
During Q4 with increased usage of our platform, we expect to see higher cost of goods sold data, both outbound spending costs and cloud computing costs. In addition to higher sales and marketing costs due to the go to market investments I previously mentioned.
Speaker 4: For the full year we are guiding revenue to be in the range of 691.5 to 693.5 million dollars. Representing growth of 46 to 47% year over year.
For the full year, we are guiding revenue to be in the range of 691, five to $693 $5 million representing growth of 46% to 47% year over year.
Speaker 4: We expect non-GAAP operating income to be in the range of 75.9 to 78.9 million, representing non-GAAP operating margin of 11%.
We expect non-GAAP operating income to be in the range of $75 nine to $78 9 million, representing non-GAAP operating margin of 11%.
Speaker 4: At the midpoint, this represents an improvement of over 16 points compared to our fiscal 22 operating margin.
At the midpoint. This represents an improvement of over 16 points compared to our fiscal 'twenty to operating margin.
Speaker 4: Lastly, with Steve Rowland and Jamie Domenici now on board, we're going to keep investing in a disciplined manner to grow our market share, due to the large market opportunity that we have ahead of us.
Lastly, with Steve Roland and Jamie are reaching now on board, we're going to keep investing in a disciplined manner to grow our market share due to the large market opportunity that we have ahead of us.
Speaker 4: Looking ahead into 2024, on an annual basis, we expect that our non-GAAP operating margins will remain relatively consistent with 2023, and you should not expect to see meaningful leverage. As the year progresses, we will also evaluate incremental go-to-market investments opportunistically.
Looking ahead into 2024 on an annual basis, we expect that our non-GAAP operating margins will remain relatively consistent with 2023, and you should not expect to see meaningful leverage as the year.
Year progress because we will also evaluate incremental go to market investments opportunistically.
Speaker 4: Before we close out, I'd like to share a few other notes to help with your model.
Before we close out I'd like to share a few other notes to help with your models.
Speaker 4: During the quarter, we had an acceleration of stock-based compensation expense related to the best thing of RF use in connection with our IPO.
During the quarter, we had an acceleration of stock based compensation expense related to the best thing is RF skus in connection with our IPO.
Speaker 4: This results in a charge of $300 million dollars turned.
This resulted in a charge of $300 million during the quarter.
Speaker 4: For the fourth quarter, we anticipate stock-based compensation to be in the low $40 million.
For the fourth quarter, we anticipate stock based compensation to be in the low $40 million range.
Speaker 4: Lastly, from a share count perspective, we expect our basic weighted average shares outstanding to be approximately 261 million in Q4 and 243 million for the full fiscal year.
Lastly from a share count perspective, we expect our basic weighted average shares outstanding to be approximately $261 million in Q4 and $243 million for the full fiscal year.
Speaker 4: We expect our diluted weight and average shares outstanding in Q4 to be approximately 299 million and 283 million for the full fiscal year.
We expect our diluted weighted average shares outstanding in Q4 to be approximately $299 million and $283 million for the full fiscal year.
Speaker 4: It is important to note that this does not include the full impact of issued but unvested security.
It is important to note that this does not include the full impact of issues, but Unvested securities. We've provided a table in the press release that shows this reconciliation and our fully diluted shares outstanding of $309 million.
Speaker 4: We've provided a table on the press release that shows this reconciliation and our fully diluted shares outstanding of $309 million.
Speaker 4: In connection with the Shopify agreement, we issued Shopify a total of 15.7 million more of which 10.2 million have vests and 5.5 million are currently unbepped.
In connection with the Shopify agreement, we issued Shopify, a total of $15 7 million warrants of which $10 $2 million of bad debt and $5 5 million are currently unvested.
Speaker 4: The remaining warrant that's on a quarterly basis and equal by permits of approximately 344,000 through July , 2027.
More than that on a quarterly basis in equal increments of approximately 344000 through July 2027.
Speaker 4: We closely monitor our new share issuances and are focused on ensuring we maintain low level.
We closely monitor our new share issuances and are focused on ensuring we maintain low level of installation.
Speaker 4: To summarize, we delivered strong results during the third quarter, with rapid growth on the top lines and a healthy bottom.
To summarize we delivered strong results during the third quarter with rapid growth on the top line and a healthy bottom line.
Speaker 4: We are investing strategically behind our key growth initiatives, including investing in our products, growing our market share and our core market internationally, and in the mid-mark.
We're investing strategically behind our key growth initiatives, including investing in our products growing our market share in our core market internationally and then the mid market.
Speaker 4: We are excited about the long-term opportunity ahead of us, and we are focused on executing against the brochure hold.
We're excited about the long term opportunity ahead of us and we are focused on executing against it for our shareholders now I will turn it back over to Andrew for some closing comments. Thanks, Amanda a few final comments before we open it up for Q&A.
Speaker 3: Now, we'll turn it back over to Andrew for some closing comments. Thanks, Amanda. A few final comments before we open it up for Q and a. I want to again, thank.
I want to again, thank the entire <unk> team.
Speaker 3: I'm proud of their work and their dedicated focus on delivering for our customers.
I'm proud of their work and their dedicated focus on delivering for our customers there.
Speaker 3: We are executing against our mission of empowering creators to own their debt.
We are executing against our mission of empowering creators to own their destiny.
Speaker 3: And that concludes our prepared remarks. Operator, please open the line for questions.
And that concludes our prepared remarks, operator, please open the line for questions.
Speaker 1: To be respectful of time, we ask that you ask one question per analyst and retune later if you have additional questions. Management wants to allow for time for everyone to ask questions. Your first question comes from the line of Gabriella Borges with Goldman Sachs. Your line is open.
To be respectful of time, we ask that you ask one question per analyst and re queue. Later, if you have additional questions management wants to allow for time for everyone to ask questions. Your first question comes from the line of Gabriela Borges with Goldman Sachs. Your line is open.
Speaker 5: Hi, good evening and welcome to the public market. I'm going to be in my comment on the overall health of your customer based being shown. Does the firm want to debate in the industry community about the health of the SMB? Is this the right now and the consumer spending environment overall? I'd love to hear that on the new answer, so you'll see in the data. Any part about you has a feeling of customer's medical or size, but on the comment show on the overall health of your customer. Thank you.
Hi, good evening and welcome to the public market.
No comment.
Okay.
Strong.
And then the community about the whole thing.
Right now on the consumer spending environment overall.
Want to talk about on the wall.
Oh, Oh, Oh my preamble.
Oh, Oh Oh.
<unk> performance for them.
Okay.
Speaker 3: Yeah, thanks, Gabrielle. Thanks for the question. So, I'll touch on some of what we're hearing and seeing from customers. Generally speaking, we work with a variety, a diverse set of businesses, right? Like you said, across geographies, across business stages, and increasingly across verticals. Overall, our customers are very healthy and their usage of Klaviyo is growing.
Yes. Thank you everyone. Thanks for the question.
So I'll touch on some of what we're hearing and seeing from customers.
Generally speaking.
We work with a variety of diverse set of businesses right and like I said across geographies across the initiated an increasingly across vertical.
Overall, our customers are very healthy and their usage of palladium is growing.
Speaker 3: We spent a lot of time looking at net retention trends and drivers of that. We shared that NRR was 119% for the quarter, and we're happy with that.
We obviously spend a lot of time looking at net retention trends and drivers of that we share that NR was.
119% for the quarter and we're happy with that.
Speaker 3: There are a couple of key drivers out there that I would point to the reason that that's so strong. The first is our customers are growing the number of digital relationships that they have with consumers.
There are a couple of key drivers out there that I would point to that are.
The reason Thats a strong the first is our customers are growing the number number of digital relationships they have with consumers.
Speaker 3: And because that tends to just increase over time, and we price our email product based on that number of customer profiles, as that increases, they tend to spend more.
And because that tends to just increase over time and.
And we price our E mail product based on that number of customer profiles.
As that increases they tend to spend more.
Speaker 3: And then 2nd is a lot of the businesses I talk with, they're looking to consolidate. This is 1 of the most consistent themes. I hear talking to customers.
And then second is a lot of the business as I talked with.
They're looking to consolidate this as one of the most consistent themes I hear youre talking to customers.
Speaker 3: They don't like the proliferation of software tools out there. So we're also seeing a lot of those folks choose to consolidate down to us that simplifies their life. And so typically what that means is they may start with email, then they'll add SMS, and then increasingly, we're starting to see customers are experimenting with our reviews and CDP products adopting those.
They don't like the proliferation of software tools out there. So we're also seeing a lot of those folks choose to consolidate down to us that simplifies their lives and.
And so typically what that means is they may start with E. Mail, then they'll add SMS and then increasingly we're starting to customers that are experimenting with a review of the CDP products adopting those.
Speaker 3: So one of the things we're trying to do for those folks is as they're moving more of their spend to Clavio is making it easier for them to start with any of our products. So not just necessarily just...
So one of the things actually we're trying to do for those folks as as they are moving more of their spend to cleave Yo is making it easier for them to start with any of our products. So not just necessarily just email.
Speaker 3: So I think those are two big drivers of what we're seeing the most are going to.
So I think those are the two big drivers of what we're seeing amongst our customers.
Okay.
Yeah.
Speaker 1: Your next question comes from a line of Keith Weiss with Morgan Stanley . Your line is open.
Your next question comes from the line of Keith Weiss with Morgan Stanley. Your line is open.
Speaker 3: So thank you guys for taking the questions and congratulations on a really solid quarter.
Excellent. Thank you guys for taking the questions and congratulations on a really solid quarter.
Speaker 3: I wanted to dig into kind of one metric that they released, or two metrics actually, that stuck out as really strong.
I wanted to dig into that kind of one metric that there really are two metrics actually that stuck out as really strong one of them being the customer additions above 50 K.
Speaker 3: One of them being the customer additions above $50K, it really kind of indicative of that move of market.
It really kind of indicative of that move up market.
Speaker 3: By my math, you added like 291 new customers in that cohort, and that's the biggest increase we've seen in sort of the history that we've been following you guys, and up a lot from what you've been doing.
By my math, you added like 291, new customers in that cohort and that's that's the biggest increase we've seen in.
Sort of the history that we've been following you guys and.
Up a lot from what you've seen historically, so I was wondering if you could dig into a little bit of what drove that it seems a little bit early for like CVP to be driving it but perhaps the consolidations.
Speaker 3: So, I was wondering if you could dig into a little bit of what drove that. It seems a little bit early for like CDP to be driving it, but perhaps the consolidation is.
Speaker 3: really starting to have a more positive impact on the overall results. So, question number one is, can you dig in a little bit about what's driving there? Question number two, the other outstanding metric was gross margins of separate percentage points. With SMS becoming a bigger part of the mix, I thought those were going to be going the other way. Can you talk to us a little bit about how durable that gaining gross margin is? Should we still be expecting incremental pressures from SMS, particularly as we go into Q4, which tends to be a heavier messaging quarter? Thank you.
Really starting to have a more positive impact on the overall results. So question number one is can you dig into a little bit about what's driving their question number two the other outstanding metric was gross margins up seven percentage points.
With SMS, becoming a bigger part of the mix I thought there was going to be going the other way if you talk to us a little bit about how durable that gain in gross margin is should we still be expecting incremental pressures from SMS, particularly as we go into Q4, which tends to be a heavier messaging quarter. Thank you.
Speaker 3: Great, thanks. I'll I'll talk a little bit about our growth in the mid market and then we'll talk about gross margins on the mid market side. Yeah. The reason we share that number number of customers spending over 50000 dollars a year with us.
Great. Thanks, Greg I'll talk a little bit about.
Our.
Growth in the mid market and then they will talk about gross margins.
The mid market side, yes. The reason, we share that number number of customers spending over $50000 a year.
Speaker 3: We're really proud of that number, almost 90%. We're very happy with that. And there's a couple of things driving it. I think you've got it right. There are some smaller businesses that are consolidating more spend with us. So we're just getting a greater share of wallet. But also a big part of that is we're landing with larger and larger enterprises.
With us.
We're really proud of that number almost 90%.
We're very happy with that and Theres, a couple of things driving it I think you've got it right there are some.
Smaller businesses or consolidate more spend with us. So we're just getting a greater share of wallet.
But also a big part of that is we're just we're landing with larger and larger enterprises.
Speaker 3: And I think the reason we're seeing larger companies choose Klaviyo is, first and foremost, we built a product that's flexible and scalable.
And I think the reason, we're seeing larger companies choose <unk> is first and foremost we build a product that's flexible and scales. We're processing more than 2 billion events a day for those customers even higher during peak periods.
Speaker 3: You know, we're processing more than 2 billion events a day for those customers, even higher during peak periods. You know, they're using that then to run lots of queries. We're updating tens of billions, tens of billions.
They are using that then to run lots of queries were updating tens of billions tens of billions.
Speaker 3: of updates to the various analyses that folks have built on top of Klaviyo every single day. And they're obviously actioning that data, right? They're sending, you know, over 150 million messages. So, think emails, SMS, and mobile notifications. 150 million, sometimes you start peak hours. So, we definitely scale that combined with the underlying customer data store that we built that's very flexible. I mean, for the larger businesses, we can cover pretty much any idea they have on how they want to treat their customers. We can do it.
Updates to the various analyses that folks have built on top of Palladium every single day and they are obviously actually that data right. There youre setting over 150 million messages, So think E mail SMS and mobile notifications.
Million.
Sometimes during peak hours, so we definitely scale that combined with the underlying customer data stores. We built that is very flexible and we can come pretty larger businesses. We can cover pretty much any idea they have and how they want to treat your customers. We can do it so it looks like you're really really matters. We've.
Speaker 3: So scale and flexibility really matters. We've seen a lot of larger folks, they really like this idea of the integration of the data layer and the marketing layer. That's critical in the enterprise. It means that your entire tech stack is working together, which means you can do more personalization, you can measure what's happening better, and then you can actually get more out of the artificial intelligence algorithms that we've designed, you know, to help point you in the direction of like, hey, what's the next best action?
We've seen a lot of larger folks they really liked that idea of the integration of the data layer and the marketing layer. That's critical any enterprise. It means that your entire tech stack is working together, which means you can do more personalization you can measure what's happening better and then you can actually get more out of the artificial intelligence algorithms that we've designed.
To help point you in the direction of like Hey, What's the next best action.
Speaker 3: So anyway, those are some of the things we're seeing in the market for why that number is so good and we're very proud.
So those are some of the things we're seeing the market.
Why that number so good and we're very proud of that.
Speaker 4: Yeah, thanks Keith. And to your question on gross margin, the 2 biggest drivers of gross margin during the quarter were ongoing system optimization efforts and negotiating volume based discounts with some of our infrastructure providers. So, we finished the project in Q3 that finished moving the last of our segmentation data over onto an updated infrastructure and we really did that to increase segmentation speeds in the product. It also helped our cost of goods sold.
Yeah, Thanks, Keith and to your question on gross margin. The two biggest drivers of gross margin during the quarter were ongoing system optimization efforts and negotiating volume based discounts with some of our infrastructure providers. So we finished the project in Q3, that's finished moving the last of our segmentation data over onto.
For an updated infrastructure and we really did that to increase segmentation speeds than the product. It also helps our cost of goods sold the other thing happening is that as we have grown we've additionally been able to negotiate.
Speaker 4: The other thing happening is that as we have grown, we've additionally been able to negotiate volume based discounts with our infrastructure providers, both in cloud hosting and in sending costs. And this was our 1st, full quarter where we saw the benefit of those recent renegotiation.
Based discounts with our infrastructure providers, both in cloud hosting and in sending costs and this was our first full quarter, where we saw the benefit of those recent renegotiations as you mentioned the counter to that is that SMS is a channel continues to grow in mix and there are higher costs associated with SMS as a channel so.
Speaker 4: As you mentioned, the counter to that is that SMS as a channel continues to grow and mix and there are higher costs associated with SMS as a channel. So we're cognizant of that, both in Q4, where we tend to see higher SMS usage. So we have built it into our guidance for Q4, as well as over the long term. So the long term model that we provided at the IPO assumed continued penetration of SMS.
We're cognizant of that both in Q4, we tend to see higher SMS usage that we have built it into our guidance for Q4 as well as over the long term set of long term model that we provided at the IPO assumes continued penetration of SMS.
Speaker 4: That being said, we're going to continue as we grow to be really disciplined about unit economics. We can and do walk away from business and that channel if we don't like the margin profile or the unit economics that it comes with.
That being said, we're going to continue as we grow to be really disciplined about unit economics, we can and do walk away from business in that channel as we don't like the margin profile or the unit economics that it comes right. So over the long term, we're just going to continue making sure that we are solving for customers, helping them to consolidate channels and <unk>.
Speaker 4: So over the long term, we're just going to continue making sure that we are solving for customers, helping them to consolidate channels and growing businesses where we're really happy with the economics.
<unk> businesses, where we're really happy with the economics of them.
Okay.
Speaker 1: Your next question comes from the line of Tyler Radke with SIDDHI, your line is open.
Your next question comes from the line of Tyler Radke with Citi. Your line is open.
Okay.
Speaker 6: Check in on some of the new products. Obviously, CDP's been out there, probably one of the more recent products. But if you look out over the next 12 months, I was wondering if you could kind of stack rank or rank order the key drivers that you see is, you know, driving that net retention rate, which I think, you know, held in here, you know, at 119%. Thank you.
Check in on some of the new products, obviously CDP is a bit out there are probably one of the more recent products, but if you look out over the next 12 months was wondering if you could kind of stack rank or rank order.
The key drivers that you see us.
Driving that net retention rate, which I think held in here.
At 119% Thank you.
Speaker 3: Yeah, thanks Tyler. So, on the product front, I think expansion customers adopting more of our products and then using more of them. Those are going to continue to be big drivers of net retention.
Yes, thanks, Tyler so on the product front.
I think expansion customers are adopting more of our products and using more of them. Those are going to continue to be big drivers of our net retention.
Speaker 3: And we're very focused, you know, I'll get to, I'll talk about TV in a second, but we're still very focused on improving our email, SMS, and mobile, you know, mobile notifications products. We think there's a big trend of businesses consolidating all those channels down to one, you know, marketing software provider. So, we're very focused on that. Now, I'm really excited about CDP and reviews. So, I'll start a little bit with CDP. I mentioned during the opening remarks, there are three things folks are excited about. They want to govern data with us.
And we're very focused.
I'll talk about TV second, but we're still very focused on improving our E mail SMS and mobile a mobile application products. We think there's a big trend of businesses consolidated all those channels are down to one marketing software provider. So we're very focused on that now I'm really excited about CDP and reviews.
So I'll start a little bit with CDP I mentioned during the opening remarks. There are three thing folks are excited about they want it governed data with us.
Speaker 3: They want to publish that data out to other systems. For example, we have customers that are using the data inside of Klaviyo. They're publishing out to advertising networks, to their customer service software, all to provide a better experience for end consumers. And then finally, they're using it to explore and analyze their data. And the last one, this idea of exploring and analyzing your data within Klaviyo.
They want to they want to publish that data out other systems. For example, we have customers that are using the data inside of <unk> their polishing up the advertising networks to their customer service software all to provide a better experience for consumers.
And then finally, there are you seeing to explore analyze their data.
And the last one this idea of like exploring what your data with <unk>.
Speaker 3: within kind of the same ecosystem. I'm really excited about that. I mentioned an example of figuring out how often customers buy, whose laps and then critically being able to create a marketing campaign or automation right away.
Within kind of the same ecosystem I'm really excited about that.
And an example of figuring out how often customers buy whose lapse and critically being able to create a marketing campaign or automation right away.
Speaker 3: We're very big believers that our marketing stack plus our just going to break down those walls that exist between inside of the folks that do analysis. And then how you action that, and that's huge for small businesses and for large enterprises. So we're working on with our really tightening that cycle from insight.
Very big believers that our marketing stack, plus our CDP thats going to break down those walls that exists between inside about the folks that you analysis and then how you accident and thats huge for small businesses and for large enterprises.
So we're working on with our CDP really tightening that cycle from insight to action and then for reviews. Its again its one of the things we are working really well with our marketing products.
Speaker 3: And then for reviews, it's again, it's one of the things where it works really well with our marketing product.
Speaker 3: Um, you know, it's an opportunity reviews are an opportunity for a business to learn more about their consumers and then use that data. So, what's really great is, you know, you can use marketing software platform to then collect reviews. And then that review data can be used to personalize marketing. So, this is real, like, kind of viral loop that's there.
It's an opportunity reviews are an opportunity for our business to learn more about their consumers and then use that data. So it is really great is that you can use <unk> marketing software platform.
And then collect reviews and in that review data can be used to personalized marketing. So there's this real like kind of a viral loop the therapy.
Speaker 3: So, as you think about it, we went from just email, we added SMS, we've added mobile and push notifications, we've now added reviews, which we kind of think of as another marketing product that folks buy, and now our first data infrastructure product, CDP, we're building out the set of products that we think any retail consumer business can build and grow on top of. So, we think that's going to be a tailwind for NRR for a long time to come.
So as you think about it like we went from just email we added SMS, we've added mobile and push notifications. We've now added reviews, which we kind of think it was another marketing product that folks buy and now our first data infrastructure infrastructure product CDP will.
We're building out the set of products that we think any retail consumer business can build and grow on top of.
So we think thats going to be a tailwind for.
<unk>.
A long time to come.
Yes.
Speaker 1: Your next question comes from the line of Ramo Linchow with Barclays. Your line is open.
Your next question comes from the line of Raimo <unk> with Barclays. Your line is open.
Hey.
Speaker 7: At the moment, congrats from me as well, great first quarter. At the moment, you have quite a bit of overlap on the Shopify customer base. But obviously, you talked about moving mid-market is one of the options that you have here. Can you talk a little bit about how do you think that move higher in terms of how high can you go? What are the natural limits? Obviously, on the prepared remarks, you mentioned some very large customers. How should we think about?
At the moment Congrats from me as well great first quarter.
At the moment that you have.
Quite a few.
Overlap on.
Fish shopify customer base.
Obviously, you talked about moving mid market is one of the options that you have there can you talk a little bit about the.
How do you think that move higher in terms of how high can you go what are the natural limits. Obviously on the prepared remarks, you had mentioned some very large customers like how should we think about that and what's potentially still needed on the product to kind of achieve that or was it more in marketing setup.
Speaker 7: that and what's potentially still needed on the product, you cannot achieve that or is it more a market.
Speaker 7: set up. But yeah, that would be great because it seems like a very interesting opportunity at longer term. Thank you.
But yes that would be great because it seems like a very interesting opportunity that longer term. Thank you.
Speaker 3: Yeah, sure. So as you know, as I mentioned, we're going to talk about mid-market. So on the product side, we feel like we've got a product that is competitive. And the fact that we're combining these two things, larger enterprises, really want to work together. That's back-end data platform with, you know, marketing software with their front-of-off applications. We think that's a winning combination.
Yes, sure so as I mentioned, when we talked about mid market.
So on the product side, we feel like we've got a product that is competitive and the fact that we're combining these two things larger enterprises really want to work together.
Back end data platform with marketing software with their front office applications, we think thats a winning combination.
Speaker 3: And so now as we move up market, with Shopify, I mean, first I'm gonna say thanks, they've been an amazing partner as we've grown Clavio. We've worked with them since we started to move up into the mid market. We've also found like other partners, other agencies, we started to do more work with system integrators. All folks that are using Clavio can help connect us to customers.
And so now as we move up market with Shopify first because they think they have been an amazing partner as we've grown <unk> we've.
Work with them so as we start to move up into the mid market. We've also found like other partners. Other agencies, we started to do more work with system integrators.
You'll all folks that are using <unk> can help connect us to customers.
Speaker 3: So, I think that, you know, both with Shopify and with others, you know, we love this ecosystem-led model of growth. That's been a big reason why we've been able to be so efficient as we've grown. And we're going to carry that over as we move up into the mid-market and then into the enterprise. And while we're really focused on the mid-market today, there's no – I mean, we definitely have the ambition to stair-step our way up into the enterprise.
So I think that.
With shopify and with others.
We love this ecosystem led model of growth.
It's been a big reason why we've been able to be so efficient as we've grown.
And we're going to carry that over as we move up into the mid market and then as the enterprise.
What we're really focused on the mid market today.
No I mean, we definitely have the ambition to stair step our way up into the enterprise.
Speaker 1: Your next question comes from the line of CT Penagaki at Mizzou. Your line is open.
The next question comes from the line of Cte Pentagon.
Mr. <unk> your line is open.
Speaker 8: Thanks for taking my question. As you are heading into your strong, seasonally strong quarter and holiday season, what sort of visibility do you have? What sort of trends are you seeing right now? Amanda, you talked about price lapse and that sort of guidance implies deceleration, but how much conservatism also backed into your guidance and what sort of visibility do you have heading into this holiday trend?
Thanks for taking my question.
Heading into your strong seasonally strong quarter in all of this is and what sort of visibility you have what sort of plans you are seeing right now.
I know you talked about price lap and and that's what the guidance implies deceleration, but how much conservatism also baked into your guidance and what sort of visibility you have heading to this holiday trends.
Speaker 3: Great, so, as I mentioned, I'll give you kind of the quality of what I'm hearing from customers. I mean, I can speak a little bit about our guidance. You know, we work with a diverse set of businesses and so obviously there's some variation in how business are doing across those various variables, geographies stage and even industry.
Great.
As I mentioned I'll give you kind of the quality of what I'm hearing from customers. I mean, you can speak a little bit about our guidance.
We work with a diverse set of businesses and so obviously there is some variation in how businesses are doing crosses various variables geographies stage and even industry.
Speaker 3: You know, that's so many of our customers are in retail and e-commerce. What we're hearing is they're very focused on the hall ACES. This is a very important core of them. And we're working hard to support them and be that revenue engine, you know, for the months and matter most.
So many of our customers are in retail and E. Commerce. What we're hearing is they're very focused on the holiday season. This is a very important quarter for them and we're working hard to support them and be that revenue engine.
For the month to matter most.
Speaker 3: We're feeling good about our ability to help them grow and have a great holiday.
We're feeling good about our ability to help them grow and have a great holiday.
Speaker 3: And then on the backs of that, we are still very big believers in these two long-term trends of businesses, consumer businesses wanting to get closer to customers, build direct relationships with them, and then also this consolidation, this merging of their data stacks and their marketing.
And then on the backs of that we are still very big believer. These two long term trends.
Businesses consumer businesses, one year closer to customers build direct relationships with them and then also just consolidation this merging of.
Their data stacks in their marketing stacks.
Speaker 4: So that's what we're sharing out of the old. And then the native you want to talk a little bit. And you know, as regards our guidance, I would think about a few things. The first is that just as you mentioned, it's important when looking at our Q4 to remember that we're lapping the price increase from last year, which contributed, as we said, high single-digit millions of dollars in each of the last four quarters. So as you see in our guide, it reflects the natural headwinds that lapping of that price increase creates when you look at our year-on-year top line growth.
So that's what we're seeing on the deal and intimidating.
And.
With regard to our guidance I would think about a few things. The first is that just as you mentioned, it's important when looking at our Q4 to remember that we're lapping the price increase from last year, which contributed as we said high single digit millions of dollars in each of the last four quarters.
As you see in our guide it reflects the natural headwinds that lapping of that price increase creates when you look at our year on year top line growth.
Speaker 4: Also on the top line, exactly as you mentioned, Q4 is a really important quarter for our customers. It's absolutely critical for their business. It is also a big quarter for us and it's very important for our business.
Also on the top line exactly as you mentioned Q4 is a really important quarter for our customers. It's absolutely critical for their business. It is also a big quarter for us and it's very important for our business.
Speaker 4: We are still a few weeks away from Black Friday and Cyber Monday, which is the big holiday for the quarter, but based on the trends that we're seeing in the business right now, we are comfortable with where our guidance is. And then on the bottom line, you know, we're mindful, as we said, of the higher costs associated with increased usage on the platform. We have some of the sales and marketing costs in the investments that we're making in Q4, and all of those are reflected in the guidance.
We are still a few weeks away from Black Friday, and cyber Monday, which is the big holiday.
For the quarter, but based on the trends that we're seeing in the business right. Now we are comfortable with where our guidance is and then on the bottom line. We're mindful as we satisfy higher cost associated with increased usage on the platform. We have some of the sales and marketing costs.
And the investments that we're making in Q4 and all of that isn't reflected in the guidance as well.
Yes.
Speaker 1: Your next question comes from the line of Arjun Bhatia with William Blurry. Your line is open.
The next question comes from the line of our June <unk> with William Blair. Your line is open.
Speaker 9: Perfect. Thank you. And congrats on a strong first quarter here. Andrew, if I can go back to just the CDC product and how you envision that playing out, but also maybe more near term to go to market for that. Do you see that replacing.
Perfect. Thank you.
You.
Congrats on a strong first quarter Andrew.
Andrew if I can go back to just the CDP product and.
How do you envision that playing out but also maybe more near term the go to market for that do you see that replacing.
Speaker 9: existing solution that your customers have, or is that more of a greenfield opportunity? And when you're looking across your customer base,
Things solution that your customers have or is that more of a greenfield opportunity and when you're looking across your customer base.
Speaker 9: What type of profile are you targeting in terms of customer to really drive initial adoption of the CDP solution? Thank you.
What type of profile are you targeting.
Terms of customer to really drive initial adoption of the CDP solution. Thank you.
Speaker 3: Yeah, great. So we're, we've launched our CDP. It's in market. I'm very excited about the traction. We're seeing from customers and the conversations we're having. And so we're really, and we're working on really building out, broadening out the CDP.
Yeah, great. So.
We've launched our CDP is in market I'm very excited about the traction we're seeing from customers and the conversations we're having and so we're really working on really building out <unk>.
Now at the CDP.
Feature set.
Speaker 3: In terms of customers, I think it's both. There's both greenfields in terms of some of our smaller businesses that
In terms of customers I think it's both.
As both Greenfield in terms of some of our smaller businesses that.
Speaker 3: You know, we're gonna play again. We might be the first time they're really thinking about, well gosh, what does it mean to have all my data in one place? And how many different systems, if I have that data all over the spot? Can I improve, you know, I can improve the cost work experience?
Working with <unk>, we might be the first time to really thinking about gosh, what does it mean to have all my data in one place and how many how many different systems, if I have that data, but can I can improve.
I can improve the customer experience. So a very common thing, we see is folks coming to us.
Speaker 3: So, a very common thing we see is folks coming to us, they may start with our marketing products. As they adopt CDP, they realize, gosh, I can use this to centralize all my data. I can do more analysis with it. And then, like I mentioned, they're very eager to publish it out to other systems. And like I mentioned, some of the integrations we're seeing, being able to use that data, not just with marketing inside EquatIO, but say marketing on other platforms, and then also using it for other phases of the customer experience. So, for instance, like when somebody reaches out for support.
I'll start with our marketing products as they adopt CDP they realized guy who can use it to centralize all my data I can do more analysis with it and then like I mentioned, they are very eager to publish it out to other systems.
And some of the integrations, we're seeing being able to use that data not just with marketing inside Claudio, let's say marketing on other platforms.
And then also using it for other phases of the customer experience. So for instance, like when somebody reaches out for support.
Speaker 3: So in that case, or really, it's maybe the first time somebody's really thought about this and we're able to educate them. So we think that's a real opportunity.
So in that case, we're really it's maybe the first time somebody's really thought about that and we're able to educate them. So we think that's a real opportunity.
Speaker 3: And then I think about for some of our larger customers, you know, honestly, it's less about replacing existing, you know, data warehouse spend. And it's more about making that data, you know, the data that may be there, you may be copying it over into our CDP, but making it faster to action.
And then I think about it for some of our larger customers honestly, it's less about replacing.
Existing.
Data warehouse spend and it's more about making that data the data that may be there may be copied over into our CDP, but making it faster to action.
Speaker 3: And so, there, what we're finding is a lot of folks want to, they want to bring data sets they have from various data sources into Klaviyo, and the fact that we can tighten up this loop between analysis and then doing something about it, that's really like the killer feature. So, in that case, I think it's more an augmentation of the rest of their, you know, data spent.
And so there what we're finding is a lot of folks want to they want to bring datasets. They have from various data sources into <unk> and the fact that we can tighten up this loop between analysis, and then doing something about it.
It's really like the killer feature.
So in that case, I think it's more an augmentation of the rest of their data spend.
Okay.
Okay. Thank you.
Yeah.
Speaker 1: Your next question comes from the line of Brent Braceland with Piper Sandler. Your line is open.
Your next question comes from the line of Brent <unk> with Piper Sandler Your line is open.
Speaker 10: Good afternoon. Thank you. I wanted to go back to the demand drivers. We're clearly seeing a more challenging environment in SMB software so far in September and into October . It feels a little more challenging in B2B than the B2C retail vertical based on your strong numbers here and strong numbers from Shopify.
Good afternoon. Thank you I wanted to go back to the demand drivers, we're clearly seeing a more challenging environment in SMB software. So far in September and October it feels a little more challenging in <unk> than the beta see retail vertical based on your phone numbers.
Here in strong numbers for Shopify.
Speaker 10: I was hoping you could walk us through the business model sensitivity as we go into the holiday selling season, we're going to get numbers.
I was hoping you could walk us through the business model sensitivity as we go into the holiday selling season, we're going to get numbers.
Speaker 10: uh... in the next month uh... around black friday in favor of monday's sell through how much of
And the next month.
Around Black Friday, and cyber Monday sell through how much of.
Speaker 10: How much should investors read into where those are strong or weak and how that might impact your business? I know you're left tied to GMV and more tied to subscription bundles and volumes of messages, but just remind us visibility in the business model and how we should interpret the holiday selling season here sell-through when we get that data here in the next few weeks.
How much should investors read into where those are strong or weak and how that might impact your business I know, you're less tied to <unk> and more tied to subscription bundles and volumes of messages, but just remind us.
Visibility in the business model and how we should interpret the holiday selling season here sell through when we get that data here in the next few weeks.
Speaker 4: Yeah, as I said before, we're closely looking at these trends and watching them every day and based on the trends that we are seeing in our business as of today, we feel really comfortable with where we're coming in.
Yeah. Thanks, so much Brian.
You know as I said before very closely looking at these trends.
And watching them everyday and based on the trends that we're seeing in our business as of today, we feel really comfortable with where we're coming in with the guidance black.
Speaker 4: Black Friday, Cyber Monday for many of our customers is one of the most important times of the year. We have some of our customers who send up to half of their customer communications during this Q4 period. So it's really, really important to them. But if you think about the impact that this has in our business, as Andrew mentioned earlier, we index not to GMV, we index to digital relationships.
Black Friday cyber Monday for many of our customers is one of the most important times of the year, we have some of our customers who send up to half of their.
Customer communications during this Q4 period, so it's really really important to them, but as you think about the impact that this has on our business as Andrew mentioned earlier, we index not to GMP, We index to digital relationships and the digital relationships that our customers are building with their consumers.
Speaker 4: the digital relationships that our customers are building with their consumers. So when we think about the quarter, we think about how many customer relationships are they building, and the frequency of communication with them. So certainly, very focused on that, and for our team right now, we are entirely focused on making sure that we are there to deliver for our customers during this really important time for them.
So when we think about the quarter, we think about how many of those customer relationships are they building and there is the frequency of communication with them. So certainly very focused on that and for our team right. Now we are entirely focused on making sure that we are there to deliver for our customers. During this really important time for them.
Okay.
Speaker 1: Your next question comes from the line of Terry Tillman with Truist Securities. Your line is open.
Your next question comes from the line of Terry Tillman with <unk> Securities. Your line is open.
Speaker 11: Yeah, thanks. Good afternoon, Andrew, Amanda and Jack. Congrats on the first quarter post-E IPO. I will keep it the one question, Jack, but it may ramble and it might have a couple of parts. So that's just the heads up.
Yes, Thanks, good afternoon, Andrew Amanda and Jack Congrats on the first quarter post the IPO I will keep it to one question Jack but it may ramble and it might have a couple of parts. So that's just a heads up.
Speaker 11: You guys have this, you know, history and success with inbound and self-service motions. You brought in Steve Rowland, who definitely has a lot of enterprise selling experience. I guess I'd be curious, I'm sure it's still early days, but what are some of those, you know, early kind of outbound motions or anything you could share in terms of maybe investments in sales capacity? Or just anything else you can share about kind of starting to evolve this as a new go-to-market motion, and the second part of this is.
You guys have this history of success with inbound and self service motions. He brought in Steve Rowland, who definitely has a lot of enterprise selling experience.
Yes, I'd be curious I'm sure. It's still early days, but what are some of those early kind of outbound motions or anything you could share in terms of maybe investments in sales capacity.
Or just any anything else you can share about kind of starting to evolve. This is a new go to market motion and the second part of this is.
Speaker 11: as we start to see some hopefully traction up market with some of these outbound motions, you know, would we see it in 50k customer ads, just overall greater productivity in new customers, maybe C2P attached, just how would we also see it manifest in the numbers? Thank you.
As we start to see some hopefully traction upmarket with some of these outbound motions what.
Would we see it in 50 K customer adds just overall greater productivity and new customers, maybe CDP attached just how would we also see it manifest in the numbers. Thank you.
Speaker 3: Thanks. Sorry. So, yeah, I'm really excited for both Steve and Jamie to join and like we do with everybody. I mean, they're spending a lot of time right now with our customers and partners.
Okay. Thanks, sorry.
Yes that makes us really excited for both Steve and Jamie to join it.
It might be due with everybody I mean, there has been.
A lot of time, right now with our customers and partners.
Speaker 3: And I mention that because their mandate is really to invest across segments. So they're focused very much on continuing to grow our market share within smaller businesses, as well as larger enterprises. So we're going to continue to invest in both. And then as Amanda mentioned, we're also going to continue, we're really philosophically aligned, we're going to continue to invest with discipline around strong economic.
And I mentioned that because their.
Their mandate is really to invest across segments. So they are they are focused very much on continuing to grow our market share within smaller businesses.
As well as larger enterprises, so we're going to we're going to continue to invest in both and that is Amanda mentioned, we're also going to continue we're really philosophically aligned rigs do you invest with discipline around strong unit economics.
Speaker 3: Now as we start thinking about that larger, that mid-market enterprise segment, there's a couple of things that I'm really excited about that will work.
Now as we as we start talking about that larger.
Mid market Enterprise segment there's.
Theres a couple of things that I'm really sorry about that we're working on the first is we're rolling out new messaging and starting to run some marketing campaigns geared towards letting our customers, but also others in the market that our customers yet no that clearly it was way more than just marketing.
Speaker 3: The first is we're rolling out new messaging and starting to run some marketing campaigns geared towards letting our customers, but also others in the market that aren't customers yet, know that Klaviyo is way more than just marketing.
Speaker 3: You know, the customers that I talk to, Steve and Jamie have talked to, they're really excited about that, and we're educating them both on the products that we have today, but also the products that we're adding and growing. So, specifically, think about CDP, think about reviews, and some of the things we may build in the future. So, working on the messaging, and then, you know, as we are growing sales capacity, that is part of our strategy, but we're also very invested in this ecosystem-led model.
The customers that I talked to CPG, we've talked to you. They are really excited about that.
And we're educating them both on the products that we have today, but also the products that we're adding and growing so specifically you think about CDP think about reviews.
Things are going well in the future. So we're going to messaging and then as we are growing sales capacity that is part of our strategy, but we're also very invested in this ecosystem led model.
Speaker 3: And that means getting deeper relationships with the software platforms. We work with people relationships with the agencies and system integration partners that we have.
And that means getting deeper relationships with the software platforms, you work with deeper relationships with the agencies and system integration partners that we have and we think thats going to be a big part of how we move up market and I think it can be one of the things that helps.
Speaker 3: And we think that's going to be a big part of how we move up market. And I think it's gonna be 1 of the things that helps, you know, keep our unit economics really good. What's worked for us.
Keep our unit economics really good what's worked for us with small business, we think is going to work equally well.
Speaker 3: with smaller businesses, we think it's going to work equally well with larger enterprises. We understand there's more of a sales-driven motion there, but there's a big kill-in we get when we talk to customers or prospects and they've already heard about us from the other software that they're using. They've heard us about from partners they trust. So that's a big part of it.
With larger enterprises, we understand there is more of a sales driven motion there.
But there is a big tailwind, we get when we talk to customers or prospects and they have already heard about us from the other software that they are using they've heard about from partners. They trust.
That's really that's a big part of how we're thinking about that in terms of how you can watch that in our numbers.
Speaker 3: And in terms of how you can watch that in our numbers, yeah, we really like this 50K ads and continuing to grow that.
Yes, we really like the <unk> ads and.
And continuing to grow that.
Speaker 4: Yeah, building on what Andrew said, I think the 50K ads is a great metric to look at. That reflects both the new lands that we have in that 50K group. It also reflects expansion, just like Andrew was speaking about, as we are out increasingly telling the story of the full Klaviyo suite of products.
Yeah.
Building on what Andrew said.
Thank the 50 K ads is a great metric to look at that reflects both the new lands that we have in that 50 K group. It also reflects expansion just like Andrew was speaking about is we are out increasingly telling the story of the full <unk> suite of products.
Speaker 4: And as we add new products, that you know, starting with SMS, now adding CDP and adding reviews, explaining that into the mid market, I think you'll see growth in average revenue per customer. So those are the two main metrics that I'm...
And as we add new products, starting with SMS, now, adding CDP and adding reviews.
<unk> that into the mid market I think you will see growth in average revenue per customer. So those are the two main metrics that I would look at.
Yes.
Speaker 1: Your next question comes from the line of Rob Oliver with Baird, your line is open.
Your next question comes from the line of Rob Oliver with Baird. Your line is open.
Speaker 6: thank you guys very much for taking my question dot maybe my question is for you just yet you know you mentioned kind of looking beyond the court uh... to retail e-commerce environment and you know the history of the company which you you know articulate at the beginning of the call i think was helpful for maybe for those who don't know but that's a particular marathon deals it pretty interesting one can you maybe talk about um... what the opportunities are there what verticals might excite you uh... most and then how you go about prioritizing and resourcing those opportunities thank you very much
Great. Thank you guys very much for taking my question. My question is for you just yet.
You mentioned kind of looking beyond the core.
The retail e-commerce environment in the history of the company, which you.
At the beginning of the call I think what's helpful for maybe for those who don't know, but that San Francisco Marathon deals. It's pretty interesting one can you maybe talk about.
What the opportunities are there what verticals might excite you most and then how you go about prioritizing and Resourcing those opportunities. Thank you very much.
Speaker 3: Yeah, sure. Yeah, so we shared that. You know, we shared a marathon as an example. We're seeing really good momentum expanding beyond retail. It's still a small percentage of customers and revenue, but we really like the way it's growing. And actually, 1 of the 1 of the really interesting things.
Yes sure.
Yes, so we shared that we shared a marathon as an example, we're seeing really good momentum.
Spanning beyond retail, it's still a small percentage of customers and revenue.
But we really like the way, it's growing and actually when one of the really interesting things.
Speaker 3: we're finding that a lot of service businesses, they tend to also have a retail component. So for example, an events business may sell tickets, but they also may sell merchandise. So they're actually using Klaviyo across multiple business models. And that's really interesting. So actually we're finding that we're expanding beyond retail in part because some of our retail customers are raising their hand and saying, oh gosh, I can use Klaviyo for the parts of my business that are not pure retail, as well as then just landing straight up with businesses that have a heavier service.
We're finding that a lot of service businesses. They tend to also have a retail component. So for example, an events business.
Sell tickets, but they also may sell merchandise. So they are actually using <unk> across multiple business models and.
And Thats really just think so actually we're finding that we're expanding beyond retail in part because of our retail customers are raising their hand, and saying Oh gosh I can use claim for the heartland business that are not pure retail as well as then just landing straight up with businesses that have a heavier service component.
Speaker 3: And then in terms of the verticals we're interested in, because we've worked with smaller businesses, we're trying to use a lot of the same strategy that we've used with retail. Okay, well, what industries have this long tail of smaller businesses? And then how can we have this partner ecosystem led motion?
And then in terms of the verticals we're interested in.
We've worked with smaller businesses, we are trying to get a lot of the same strategy that we've used with retail of.
Okay, well what industries have this long tail of smaller.
Smaller businesses and then how can we have this partner ecosystem led motion.
Speaker 3: So, I'm really excited about that. There's some partnerships that we're working on that should expand our footprint with other software platforms. The power businesses that are outside of retail, say, the service sector and then frankly, just as we move up into the mid market enterprise.
So really excited about that there is some partnerships that we're working on that should expand our footprint with other software platforms. The power businesses that are outside of retail David service sector.
And then frankly, just as we move up into the mid market enterprise, we're just putting a lot of folks come to us saying they are looking for this combined data and marketing platform that they can standardize on and they are actually really good at recognizing that even though we work with a lot of retailers are software is totally applicable to their business. So.
Speaker 3: We're just finding a lot of folks come to us saying they're looking for this combined data and marketing platform that they can standardize on. And they're actually really good at recognizing that even though we work with a lot of retailers, our software is totally applicable to their business.
Speaker 3: So, we just see a lot of our mid market pipeline. It actually skews more outside of retail. And so I'm excited about those customers.
So we just see a lot of our mid market pipeline actually skews more outside of retail.
And so I'm excited about those customers as well.
Speaker 1: Your next question comes from the line of D.J. Hines with Canaccord, your line is open.
Your next question comes from the line of DJ Hynes with Canaccord. Your line is open.
Speaker 6: Hey, guys, congrats on a nice start here, and thanks for taking the questions. Maybe to dovetail off of Terry's question, I'm curious, as direct sales investments are set to increase, can you talk a little bit about how the unique economics of a direct sales engagement compared to that of a customer that comes directly to Klaviyo through PLG? I mean, I would guess that the sales-led relationships are probably bigger and stickier, but they also cost more. So we'd love to get some color on kind of how the economics compare.
Hey, guys. Congrats on a nice start here and thanks for taking the questions.
Maybe to dovetail off of Terry's question I'm curious as direct sales investments are set to increase can you talk a little bit about how the unit economics of a direct sales engagement compared to that of a customer that comes directly to <unk> through <unk> I mean, I would guess that.
Relationships are probably bigger and stickier, but they also cost more so we'd love to get some color on kind of how the economics compare.
Speaker 4: Yeah, thanks. Great question. The unit economics across both channels are still strong and we certainly, as we're looking at it, we're looking at unit economics. And when we look at them, we look at a couple of things. We look at the tech payback period, which would include, you know, for the ones who are coming direct more of a focus.
Hi.
Thanks.
T J and great question and the unit economics across both channels are still strong.
And we certainly as we're looking at it we're looking at unit economics, when we look at them. We look at a couple of things we look at the CAC payback period.
Which would include for the ones, who are coming direct more of a focus on marketing and other investments and for.
Folks who are coming through direct sales includes the cost of that sales channel.
Speaker 4: But both of them still have really strong economics. As we move more up market, the CAC payback period may be gets a little bit longer, but that LTV to CAC is quite attractive in that mid market segment. So, as we think about investments, we're certainly thinking about.
Both of them still have really strong economics, as we move more upmarket the CAC payback period makes it gets a little bit longer but that LTV to CAC is quite attractive in that mid market segment.
So as we think about investments, we're certainly thinking about those.
Yeah.
Speaker 1: Your next question comes from the line of Scott Berg with Needham and Company. Your line is open.
Your next question comes from the line of Scott Berg with Needham <unk> Company. Your line is open.
Speaker 12: I, Andrew, and Amanda, congrats on the great first start here, and thanks for taking my question.
Hi, Andrew and Amanda Congrats on the Great first start here and thanks for taking my question.
Speaker 12: I wanted to ask a little bit more about the Shopify partnership because it's a perpetual question that I've been receiving over the last couple of weeks. But where are we in the opportunity cycle? How early or late do we think that you are or how early or late do you think you are in the opportunity cycle knowing that this is still a six plus year agreement from today? And then how do we measure your success through that channel given the investment that Shopify made in the next?
Wanted to ask a little bit more about the shopify partnership because it's a perpetual question that I've been receiving over the last couple of weeks, but where are we in the opportunity cycle. How early or late do we think that you are or how early do you think you are and the opportunities cycle. Knowing that this is still a six plus year agreement from today and then how do we measure.
Your success through that channel given the investment that Shopify made and the company is it purely because larger customers will see more of that larger customer cohort grow or is there. Some other characteristics, we should be paying attention to thank you.
Speaker 12: purely because larger customers will see more of that larger customer or cohort growers, there's some other characteristics.
Speaker 3: Right. Thanks for the question. I would say it's still very
Great. Thanks for the question.
I would say, it's still very early.
Speaker 3: I enjoy working out with Shopify and are more product focused and customer obsessed in the partner.
Enjoyed working out with shopify.
And our more product focused and customer obsessed and partners.
Speaker 3: We've got a very similar ethos. So I think on both fronts, as we release more product, build more product, I think there's a big opportunity to expand within the Shopify customers we have. As well as there's just a lot of growth to be had in terms of customers, merchants that are already building their business on Shopify and ones that aren't yet.
As we have a sharp eye pretty we've got a very similar either so I think on both fronts as we release more product build more product I think there's a big opportunity to expand within the shop by customers we have.
As well as Theres, just a lot of growth to be had in terms of.
Customers merchants that are already building a business on shopify and ones that arent yet.
Speaker 3: So I think the key metric that we look at is how much revenue are we helping those businesses drive? So that's what we measure around KV. As that increases, we think the value of cladio increases. It increases to our customers, it increases to Shopify, it increases to us. And that's largely how we can better monitor, how we modify those customers. As we increase the value of the revenue we're driving, we make all the more products, or they may just grow their usage of our core products today, email and SSB.
So I think the.
Key metric that we look at is how much.
How much revenue are we helping those businesses drive that's what we measure and cave as that increases we think the value of <unk> increases increases to our customers increases to shopify increases to us and that's largely how we can better monitor how we monetize those customers as we increase the value of the revenue we're driving we may sell them more products.
Or they may just grow their usage of our core products today E Mail and SMS.
Speaker 3: Um, so that I would, I would look at that, look at that metric, and then maybe look at, like, customer count. Those are kind of.
So I would look at that look at that metric and then maybe look at like customer count those are the kind of the Q1.
Okay.
Speaker 1: We have time for one more question and that comes from a line of Derek Wood with PD Gallon. Your line is open.
We have time for one more question and that comes from the line of Derrick Wood with TD Cowen Your line is open.
Speaker 13: Great, thanks and all that for my congratulations. Andrew, I wanted to ask about SMS adoption trends. You guys had this sharp curve of adoption out of the gate starting a couple of years ago.
Great. Thanks, and I'll Echo my congratulations Andrew I wanted to ask about SMS adoption trends you guys had this sharp curve of adoption out of the gates, starting a couple of years ago.
Speaker 13: Over the last couple of quarters, that's moderated a bit. So, can you just talk about what demand levels look like today? How do you see adoption trends shaping over the next 12 to 18 months? And are there any kind of key feature functionality milestones you're looking to hit that may re, accelerate the adoption curve?
Over the last couple of quarters, that's moderated a bit. So can you just talk about what demand levels look like today.
How do you see adoption trends shaping over the next 12 to 18 months and are there any kind of key feature functionality milestones you're looking to hit that.
Reaccelerate the adoption curve.
Speaker 3: Sure, yeah, I fully expect that this belief that customers want to consolidate. Certainly, their marketing channel is all down to one platform. I hear that time and time again from customers.
Sure Yes.
Fully expect that.
This belief that customers want to consolidate certainly their marketing channels all down to one platform I hear that time and time again from customers.
Speaker 3: For instance, we referenced a customer this quarter that consolidated their SMS on Declavio. It was a creator-founded coffee company, and they've seen amazing growth with email. That's what attracted them about SMS, but then actually the two combined performed even better.
For instance, we referenced customer this quarter that consolidated or SMS on <unk>.
Hi.
It was a creator founded coffee company and they have seen amazing growth with E Mail, that's what attracted him about SMS, but then actually the two combined performed even better.
Speaker 3: So it's examples like that, we're seeing customers that that's what they wanna do. Now, there's a couple of things that we're hard to work on. We always believe our SMS product can be better. In this case, we're always adding new functionality. We believe our SMS product needs to be best in class all by itself, and then obviously it's even better when you combine it with our email and other messaging products.
So it's examples like that where we're seeing customers that that's what they want to do is.
Couple of things that were hard at work on we always believe our SMS product can be better.
This case, we're always adding new functionality, we believe our aetna is probably going to be best in class all by itself and then obviously, it's even better when you combined with our E mail.
Speaker 3: But on top of that, I mentioned, you know, expanding coverage to Ireland.
The other messaging products.
But on top of that I mentioned.
Expanding coverage to Ireland, as we think about internationally.
Speaker 3: As we think about internationally, one of the common reasons folks can.
One of the common reasons folks cant move.
Speaker 3: move their SMS bench was today we see the big opportunity is literally just coverage around the world so at the major focus for our team expanding that coverage within with America especially within Europe and then into Asia so I think I think you're gonna see customers want to move it all into one place They want to manage it for one place. They want all the reporting to be combined They want to be able to personalize content based on what's the right channel and have play the oh have our artificial intelligence help them figure out what that is
Move their SNF spend to us today, we see the big opportunity is literally just covered around the world. So that's a major focus for our team is expanding that coverage within North America, especially within Europe, and then into Asia. So I think youre going to see customers want to move it all into one place they want to manage it for one place they want all the reporting to be combined they wanted.
Hello, personalized content based on what's the right channel and have <unk> artificial intelligence to help them figure out what that is.
Speaker 3: That's the big macro trends. And then we're part of working so our product is awesome and we've provided a great script.
That's the big macro trend and then we're hard at work make sure our product is awesome.
<unk> <unk>.
Yes.
Yes.
Speaker 1: Those are all the questions I have for today's call. With that, I will turn the call over to Andrew Violetky for closing remarks.
Those are all the questions I have for today's call with that I will turn the call over to Andrew <unk> for closing remarks.
Speaker 11: Well, thank you all for joining us on our first earnings call into Kledger's Around the World. Thank you for all your hard work. We're looking forward to speaking with everyone again next quarter. Thanks.
Great well. Thank you all for joining us on our first earnings call into click it was around the world. Thank you for all your hard work, we're looking forward to speaking with everyone again next quarter.
Thanks.
Thank you that does conclude today's call you may now disconnect.
Yeah.
Yeah.
Okay.
Speaker 14: People.
Okay.
Yeah.