Q4 2023 Klaviyo Inc Earnings Call

February 27, 2024

We'd like to ask a question during that time simply press star followed by the number one on your telephone keypad.

If you would like to withdraw your question Press Star one again.

We do want to incorporate as many analysts as possible on the call.

Please limit to one question before returning to the queue.

Thank you with that I'd like to turn the call over to Jack Grant Senior director of Investor Relations and strategic finance.

Okay.

Good afternoon, and welcome to <unk> fourth quarter of fiscal 2023 earnings Conference call.

Thanks, operator.

To welcome you to <unk> fourth quarter and full year 2023 earnings call, we will be discussing the results announced in our press release issued after the market closed to that please refer to our Investor relations website at investors <unk> Dot com for more information in our supplemental presentation related to today's earnings announcement.

After the Speakers' remarks, there will be a question and answer session.

If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad.

If you would like to withdraw your question Press Star one again.

We do want to incorporate as many analysts as possible on the call. Please limit to one question before returning to the queue.

With me on the call today are Andrew Bielecki, co founder and Chief Executive Officer, and Amanda Whalen, Chief Financial Officer.

Thank you with that I'd like to turn the call over to Jack Grant Senior director of Investor Relations and strategic finance.

During today's call, we will make statements regarding our business that may be considered forward looking under applicable securities laws and the safe Harbor provisions of the private Securities Litigation Reform Act of 1995, including statements concerning our outlook for the first quarter and full year 2024.

Thanks, operator.

I need to welcome you to <unk> fourth quarter and full year 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 in our supplemental presentation related to today's earnings announcement.

These forward looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from expectations and reflect our views only as of today, we assume no obligation to update any such forward looking statements as a result of new information future events or changes in our <unk>.

With me on the call today are Andrew Bielecki, co founder and Chief Executive Officer, and Amanda Whalen, Chief Financial Officer.

Spectation, except as required by law.

For a discussion of material risks and uncertainties that could affect our actual results. Please refer to the risks and uncertainties described under the heading risk factors in our quarterly report on Form 10-Q for the quarter ended September 32023 filed with the Securities and Exchange Commission or SEC and in subsequent filing.

These forward looking statements are subject to numerous risks and uncertainties that could.

<unk> made by us with the SEC, including our annual report on Form 10-K for the year ended December 31, 2023 to be filed with the SEC, which may be obtained on the Sec's website at www Dot SEC Gov and on our Investor Relations website at.

Cause actual results to differ materially from expectations and reflect our views only as of today.

We assume no obligation to update any such forward looking statements as a result of new information future events or changes in our expectations.

Except as required by law.

In addition, today's call includes non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures reconciliations.

Scott.

All risks and uncertainties that could affect our actual results. Please refer to the risks and uncertainties described under the heading risk factors in our quarterly report on Form 10-Q for the quarter ended September 32023 filed with the Securities and Exchange Commission or SEC and in subsequent filings made by us with the SEC.

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 close today, which are available on our Investor Relations website.

Including our annual report on Form 10-K for the year ended December 31, 2023 to be filed with the SEC, which may be obtained on the Sec's website at www Dot SEC Gov and on our Investor Relations website.

With that I'll now turn it over to Andrew.

Thanks, Jack Thank you to everyone for joining us today, we're excited to share our fourth quarter and full fiscal year results as well as updates across the business.

The fourth quarter is critical to our customers and we delivered for them.

In addition, today's call includes non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures reconciliations.

Want to thank both our partners and the <unk> team for ensuring our customers had a great holiday season.

On today's call, we'll go through some of the highlights from the quarter followed by some updates on our products our market and I'll wrap up with our fiscal year 2024 focus areas.

I'll, then turn it over to Amanda to cover our financial results in more detail and provide our outlook for the first quarter and full year 2024, before we open up the call for Q&A.

With that I'll now turn it over to Andrew.

Thanks, Jack Thank you to everyone for joining US today, we are excited to share our fourth quarter and full fiscal year results as well as update across the business.

We measure our success by our customer success.

The fourth quarter is critical to our customers and we delivered for them.

We help our customers generate well over $8 billion and Cleo attributed value for kv and 2023.

Want to thank both our partners and the <unk> team for ensuring our customers had a great holiday season.

Whether a business is just getting started or it's already a household name like Mattel, we help them power smarter digital relationships and drive revenue growth.

On today's call. We'll go through some of the highlights from the quarter followed by some updates on products, our market and I'll wrap up with our fiscal year 2024 focus areas.

This was another strong year for our business as we grew our revenue 48% year over year and drove over $100 million and free cash flow.

I'll, then turn it over to Amanda to cover our financial results in more detail and provide our outlook for the first quarter and full year 2024, before we open up the call for Q&A.

Fourth quarter marked the first quarter that we generated over $200 million in quarterly revenue for.

We measure our success by our customer success.

We're continuing to see our strategy resonate across key growth initiatives.

We help our customers generate well over $50 billion equating attributed value or kv and 2023.

Adding more customers expanding with those customers growing internationally and scaling into the mid market.

Amanda will cover our progress on these growth areas in more detail I'd like to call out a few notable moments from the past quarter.

Whether a business is just getting started or is already a household name like Mattel, we help them power smarter digital relationships and drive revenue growth.

No. The holidays are very important for our customers and we help power their growth at.

This was another strong year for our business as we grew our revenue 48% year over year and drove over $100 million and free cash flow.

At the peak, our customers generated nearly $60 million okay.

One of my favorite stories from the Black Friday, cyber Monday, or B P. M weekend with Jones wrote beauty.

Fourth quarter marked the first quarter that we generated over $200 million in quarterly revenue for.

Jones wrote the nine figure cosmetic company started by Bobbi Brown.

We're continuing to see our strategy resonate across key growth initiatives.

The Jones wrote team used <unk> helped drive our record setting the FTM for their brand.

We're adding more customers expanding with those customers growing internationally and scaling into the mid market.

With their cave during the STM up by over 150% year over year.

Amanda will cover our progress on these growth areas in more detail I'd like to call out a few notable moments from the past quarter.

John throw of US may have the best practice, we see working more broadly across the industry.

Leaned into their loyal customer base with more personalization driven by their segmentation strategy to execute them well.

No. The holidays are very important for our customers and we help power their growth.

Peak hour, our customers generated nearly $60 million and cave.

We continue to provide our customers with an efficient channel.

Drive revenue, a complement and amplify their marketing spend on advertising networks.

One of my favorite stories from the Black Friday, cyber Monday or be FTM weekend with Jones wrote beauty.

We're proud of stories like these where we're able to drive growth for our customers and empower them to own their Daphne.

Jones wrote the nine figure cosmetic company started by Bobbi Brown.

John <unk> team used <unk> helped drive our record setting the FTM for their brand.

Collectively our customers get a lot of marketing and we were there for them to meet their demand.

With their cave during the STM up by over 150% year over year.

Our system has delivered 11 6 million messages per minute at peak time, and $14 7 billion total messages during the PSTN weekend.

John drove used many of the best practices, we see working more broadly across the industry.

Leaned into their loyal customer base with more personalization driven by their segmentation strategy to execute that well.

We delivered almost two times the number of total messages this black Friday, cyber Monday compared to 2021.

We continue to provide our customers with an efficient channel.

Drive revenue that complement and amplify their marketing spend on advertising network.

We're continuing to improve our product to ensure we are providing excellent deliverability for our customers.

We're proud of stories like these where we're able to drive growth for our customers and empowered them to own their Daphne.

One of the recent focus of our R&D team has been adding to our own lower level E mail infrastructure to give us more control and visibility on how we deliver our customers' messages and reduce cost.

Collectively our customers get a lot of marketing and we were there for them to meet their demand.

Our system has delivered $11 6 million.

We delivered over 1 billion messages through <unk> mail transfer agent during the PSTN weekend.

Million messages per minute at peak time.

At $14 7 billion total messages during the PSTN weekend.

We're ensuring our platform can scale efficiently, while providing customers with the tools they need to focus on driving revenue.

We delivered almost two times the number of total messages this black Friday, cyber Monday compared to 2021.

We're continuing to turn the success, we are powering for our customers into growing our own business.

We're continuing to improve our product to ensure we are providing excellent deliverability for our customers.

We're proud of the fact that some of the fastest growing brands out there, including eight of numerator top 10 fastest growing CPG brand in 2023 and seven of retail died top eight DSD brands to keep an eye on in 2024 rely on <unk>.

One of the recent focus of our R&D team has been adding to our own lower level E mail infrastructure to give us more control and visibility on how we deliver our customers' messages and reduce costs.

We delivered over 1 billion messages through <unk> mail transfer agent during the PSTN weekend.

The power of their growth.

2023 was a banner year of France, choosing clave yo or expanding their business with us.

We're ensuring our platform can scale efficiently, while providing customers with the tools they need to focus on driving revenue.

Leading companies like Stanley 1913, dollar Shave club, Bobby Kardashians, Good American sugar Phenom and hub nutrition, all chose to drive their revenue growth with us.

We're continuing to turn our success, we are powering for our customers into growing our own business.

We're proud of the fact that some of the fastest growing brands out there, including eight of numerator top 10 fastest growing CPG brand in 2023, and seven of retail dive top eight DSD brands to keep an eye on in 2024 rely on <unk>.

Our ability to easily harnessed our customers first party data continues to be a differentiator in the mid market.

We're excited that fresh clean thread, a mid market apparel retailer and one of the fastest growing women owned businesses in the country chose Claudio during the quarter.

Power their growth.

Our 350, plus native integration and API are allowing fresh clean thread to better leverage all of their first party data for a complete view of their customers and drive more revenue.

2023 was a banner year of France, choosing <unk> or expanding their business with us.

Leading companies like Stanley 1913, dollar Shave club, Bobby Kardashian, Good American sugar Keener, and hung nutrition, all chose to drive their revenue growth with us.

We're excited about our opportunity to continue to serve large customers.

And more and more customers are looking to consolidate their tech stack and looking to us as the one vendor for their digital relationships.

Our ability to easily harness our customers first party data continues to be a differentiator in the mid market.

During the quarter, we saw European WAC center consolidate their Fms channel, but there are existing <unk> E mail subscription.

We're excited that fresh clean thread, a mid market apparel retailer and one of the fastest growing women owned businesses in the country chose Claudio during the quarter.

They are now able to create a unified customer journey across E mail and SMS.

Our 350, plus native integration and API are allowing fresh clean thread to better leverage all of their first party data for a complete view of their customers and drive more revenue.

From marketing and customer outreach to appointment reminders and update.

Finally, we are continuing to see success expanding beyond our core retail and e-commerce market.

During the quarter, we added 45 training of fitness and training center, operator with more than 1800 location as a customer.

We're excited about our opportunity to continue to serve large customers.

And more and more customers are looking to consolidate their tech stack and looking to us as the one vendor for their digital relationships.

With their previous provider they were unable to build automation inflows into their customer journey.

During the quarter, we saw European WAC center consolidate their Fms channel, but there are existing <unk> E mail subscription.

They are now going to use our mind body integration helped incorporate more automation into their marketing effort to drive increased targeting and personalization.

They are now able to create a unified customer journey across E mail and SMS.

It's early days in a new vertical offering, but we are seeing an increasing number of proof points and our ability to scale beyond retail.

From marketing and customer outreach to appointment reminders and update.

Finally, we are continuing to see success expanding beyond our core retail and e-commerce market.

Now I'd like to talk about a few things on the product front, particularly around artificial intelligence and our vision there.

During the quarter, we added at 45 training of fitness and training that our operator with more than 1800 location as a customer.

AI has changed the world in a way ecommerce marketers work.

First predictive AI made it easier to send the right message at the right time.

With their previous provider they were unable to build automation inflows into their customer journey.

Then generative AI that off the content creation process and made marketers more productive.

They are now going to use our mind body integration helped incorporate more automation into their marketing effort to drive increased targeting and personalization.

At <unk>, we think the future of business to consumer marketing is a toddler.

Not just about AI that make messages more personal and every time, it's about empowering us to generate and refine revenue driving ideas after locally.

It's early days and these new vertical offering, but we are seeing an increasing number of proof points and our ability to scale beyond retail and e-commerce.

Now I'd like to talk about a few things on the product front, particularly around artificial intelligence and our vision there.

Imagine a platform that not only create tailored experiences for each individual consumer but continuously learn and adapt refining strategies for the best outcome in a fraction of the time.

AI has changed the world in a way ecommerce marketers work.

First predictive AI made it easier to send the right message at the right time.

The brands, who will win won't just be using one type of artificial intelligence and they'll be using predictive generative upon that AI can save time executing today's vision and building tomorrow strategy.

Then generative AI that up the content creation process and made marketers more productive.

At <unk>, we think the future of business to consumer marketing is a toddler.

Is why today, we are introducing <unk>, which powers.

Power's businesses to unlock revenue driving opportunities and deliver exceptional consumer experiences across channels.

It's not just about AI that make messages more personal and take your time.

It's about empowering us to generate and refine revenue driving ideas after locally.

AI has always been fundamental power in <unk> and today it is getting better with features like.

Imagine a platform that not only create tailored experiences for each individual consumer but continuously learn and adapt refining strategies for the best outcome in a fraction of the time.

Segment, AI, which generates complex segments for you and second based on simple audience prop.

And formed AI, which uses artificial intelligence to optimize web forms for conversion by testing multiple versions of your form to find the highest converting and play time automatically.

The brands, who will win won't just be using one type of artificial intelligence.

I'll be using predictive generative upon this AI to save time executing today's vision and building tomorrow strategy.

And finally, <unk> been able to generate high performing subject line with AI and now you can do the same for entire blocks of email content.

That's why today, we are introducing <unk> AI.

Power's businesses to unlock revenue driving opportunities and deliver exceptional consumer experiences across channels.

E Mail AI is all about helping you work more efficiently.

AI has always been fundamental power enclave yellow and today it is getting better with features like.

Simply type your campaigns gold and Palladium will design and on brand section.

Segments, AI, which generates complex segments for your second based on simple audience prop.

Our customers are already seeing the value of our artificial intelligence tools.

<unk>, which offers a wide range of floating option, including activewear outerwear and golf apparel for brands like Oakley, Adidas and Reebok started using our subject line in SMS AI to save time in early 2023.

And Forbes AI, which uses artificial intelligence to optimize web forms for conversion by testing multiple version of your form to find the highest converting display time automatically.

And finally, you have been able to generate high performing subject line with AI and now you can do the same for entire blocks content.

I called it a game changer. In addition to saving about 45 minutes, a day and subject line creation engagement improve too.

SMS on subscriber rate dropped by over 20% year over year.

E Mail AI is all about helping you work more efficiently.

Simply type your campaigns gold and Palladium will design and on brand E Mail section in seconds.

We're excited to continue to build on that as we enter this new phase of marketing.

In addition to our new offerings. The early feedback on CDP has been promising.

Our customers are already seeing the value of our artificial intelligence tools.

One of our early adopters or a frame was able to drive efficiencies across their data management and reporting.

Typically exporting the SEC file manually editing and cleaning data and analyzing that data.

As a result of adopting our CDP they saved over 10 hours per week consolidated their customer data under one roof.

They called it a game changer. In addition to saving about 45 minutes, a day and subject line creation engagement improve too.

Supercharge their retention strategy for their 8 million App users.

Their SMS on subscriber rate dropped by over 20% year over year.

We shipped hundreds of new features for our customers in 2023.

We're excited to continue to build on that as we enter this new phase of marketing.

Just this past quarter, a new feature our customers were particularly excited out was our updated UI for our core flows functionality update.

In addition to our new offering the early feedback on CDP has been promising.

One of our early adopters or a frame was able to drive efficiencies across their data management and reporting.

<unk> allows for improved editing updated components and a more modernized approach for our users.

Typically exporting the SEC file manually editing and cleaning data and analyzing the data.

We're going to pair new launches with improvements to our core to provide the tools needed for our customers to drive revenue through an evolving landscape.

As a result of adopting our CDP they saved over 10 hours per week consolidated their customer data under one roof and supercharge their retention strategy for their 8 million App users.

One of the recent changes to our industry was around updated requirements from Google and Yahoo large genome centers.

He's focused on deliverability spam and the overall consumer experience.

We shipped hundreds of new features for our customers in 2023.

As a business focused on enabling our customers to drive more personalized and relevant consumer experiences. We believe these changes are positive for the industry.

This past quarter, a new feature our customers were particularly excited about was our updated UI for our core flows functionality.

We care deeply about our efforts to ensure excellent deliverability for our customers.

This updated UI allows for improved editing updated components and a more modernized approach for our users.

And many of the requirements are in line with best practices of how our customers were already using quite yet.

We're going to pair new launches with improvements to our core to provide the tools needed for our customers to drive revenue through an evolving landscape.

We have been working with our customers to make it easy to ensure they're compliant with the updated requirement.

One of the recent changes to our industry was around updated requirements from Google and Yahoo for large E mail centers.

For example, one of the requirements is one click unsubscribe, which we built into our product in January so it is a frictionless experience for our customers.

These focused on deliverability spam and the overall consumer experience.

We also launched a deliverability score for our customers to provide a clear view on their deliverability.

As a business focused on enabling our customers to drive more personalized and relevant consumer experiences. We believe these changes are positive for the industry.

The updated requirements from Google and Yahoo went to effect in February and are continuing to rollout through April.

We care deeply about our efforts to ensure excellent deliverability for our customers.

To date, we have not seen material changes in consumer behavior as a result of these new requirements.

And many of the requirements are in line with best practices of how our customers were already using <unk>.

<unk> seen anything that would indicate that they are materially impacting subscription side at.

<unk> been working with our customers to make it easy to ensure they're compliant with the updated requirements.

At this time, we don't anticipate a meaningful impact to our business.

For example, one of the requirements is one quick unsubscribe, which we built into our product in January so it is a frictionless experience for our customers.

Over the long term, we believe that the companies that provide their customers with the ability to deliver personal line targeted and relevant content will win the market.

We also launched a deliverability score for our customers to provide a clear view on their deliverability.

We have a few key priorities to continue to drive strong growth this year.

We're continuing to invest behind our four near term growth drivers, adding more customers expanding with those customers expanding internationally and growing into the mid market and beyond.

The updated requirements from Google and Yahoo went to effect in February and are continuing to rollout through April.

To date, we have not seen material changes in consumer behavior as a result of these new requirements.

While planting seeds for longer term growth.

Within R&D, we are building more tools for customers of all sizes across the globe to make it even easier to use clean deal will.

Or seen anything that would indicate that they are materially impacting subscription ciber.

At this time, we don't anticipate a meaningful impact to our business.

We will be launching new features focused on the mid market and continuing our internationalization and localization efforts.

Over the long term, we believe that the companies that provide their customers the ability to deliver personalized targeted relevant content will win the market.

While doing this we're going to keep building more artificial intelligence into our platform to make it even easier for our customers to build smarter digital relationships.

We have a few key priorities to continue to drive strong growth this year for.

We're continuing to invest behind our four near term growth drivers, adding more customers expanding with those customers expanding internationally and growing into the mid market and beyond.

On the go to market front, we have a few focus areas within sales we are growing our sales capacity across our teams focus on mid market and international new customer acquisition and cross selling into our installed base.

Planting seeds for longer term growth.

Within R&D, we are building more tools for customers of all sizes across the globe to make it even easier to use Columbia will.

For our larger customers. We are focused on supporting these customers with cross functional teams to drive further adoption and expansion.

We will be launching new features focused on the mid market and continuing our internationalization and localization efforts.

<unk> is the marketing platform that powers smarter digital relationships.

While doing this we're going to keep building more artificial intelligence into our platform to make it even easier for our customers to build smarter digital relationships.

Marketing is focused on evolving our brand in the area to better tell the story of our full platform capabilities for businesses.

Finally, we're going to continue to invest behind growing our 5000 plus partner ecosystem to ensure our customers have the right agencies system integrators and technology partners to help them succeed with claim yet.

Great example of this is our recently announced partnership with L. Catterton to enhance the marketing capabilities of their portfolio companies.

For our larger customers. We are focused on supporting these customers with cross functional teams to drive further adoption and expansion.

We'll be further building out our ecosystem this upcoming year and deal.

<unk> is the marketing platform that powers smarter digital relationships.

And with that I'll turn it over to Ed to cover the financials in more detail.

Marketing is focused on evolving our brand in the area to better tell the story of our full platform capabilities for businesses.

Meta.

Thanks, Andrew and Dan will provide a brief overview of our fourth quarter and full year 2023 financial results and discuss guidance for our first quarter and full year 2024.

As a quick reminder, today's discussion includes non-GAAP financial measures.

Please refer to the tables in our earnings release for a reconciliation of GAAP to the most directly comparable non-GAAP financial measure.

Great example of this is our recently announced partnership with L. Catterton to enhance the marketing capabilities of their portfolio companies.

We are pleased with our financial performance, we continue to see rapid growth at scale in an efficient manner in line with our financial framework and.

We'll be further building out our ecosystem this upcoming year and deal.

And with that I'll turn it over to Dan to cover the financials in more detail.

In the fourth quarter, we generated $201 $6 million in revenue representing year over year growth of 39% and we delivered an 8% non-GAAP operating margin.

Meta.

Thanks, Andrew and Dan will provide a brief overview of our fourth quarter and full year 2023 financial results and discuss guidance for our first quarter and full year 2024.

The fourth quarter is seasonally strong for us due to the holiday shopping season, and how our business model scales with our customers' growth.

As a quick reminder, today's discussion includes non-GAAP financial measures.

We delivered for our customers during their most critical time of the year and shared in their success.

Please refer to the tables in our earnings release for a reconciliation of GAAP to the most directly comparable non-GAAP financial measure.

Our growth is powered by four main factors, adding new customers expanding with those customers expanding internationally and growing into the mid market. We continue to perform on each of these factors.

We are pleased with our financial performance, we continue to see rapid growth at scale in an efficient manner in line with our financial framework and.

In the fourth quarter, we generated $201 $6 million in revenue representing year over year growth of 39% and we delivered 8% non-GAAP operating margin.

In terms of adding new customers, we increased our customer base, 20% year over year and are proud to now serve over 143000 customers.

We are continuing to expand with our customers as evidenced by our dollar based net retention rate or in our or of 117%.

The fourth quarter is seasonally strong for us due to the holiday shopping season, and how our business model scales with our customers' growth.

We delivered for our customers during their most critical time of the year and shared in their success.

16% of our customers now use our SMS offering up two percentage points from last year, which highlights the value customers see in our platform capabilities.

Internationally, our aggregate revenue from EMEA and APAC increased 46% year over year in Q4, as we continued to increase our global footprint.

In terms of adding new customers, we increased our customer base, 20% year over year and are proud to now serve over 143000 customers.

Finally, we're seeing more and more businesses in the mid market turning to US. We ended the fourth quarter with 1900 50 as customers generating over $50000 in IRR. This represented 80% year on year growth in Q4 was the largest quarter in company history for net customer adds.

We are continuing to expand with our customers as evidenced by our dollar based net retention rate or in our or of 117%.

16% of our customers now use our SMS offering up two percentage points from last year, which highlights the value customers see in our platform capabilities.

This cohort success.

Success with our larger customers is evident in our annualized revenue per customer as well, which was $5 $6000 in Q4, an increase of 16% Europe again.

Internationally, our aggregate revenue from EMEA and APAC increased 46% year over year in Q4, as we continued to increase our global footprint.

As expected, our NRI or saw a slight decline from the prior period due to the impact of lapping our September 2022 price increases.

Finally, we are seeing more and more businesses in the mid market turning to US. We ended the fourth quarter with 1900 50 as customers generating over $50000 in IRR. This represented 80% year on year growth in Q4 was the largest quarter in company history for net customer adds.

Historically, our customers dial back their estimates after the holidays, which we experienced at the end of this year and the.

The last two weeks of December we saw customers being more thoughtful compared to prior years with regards to some level of their overall spend particularly among customers who use our SMS offering.

This cohort success.

Success with our larger customers is evident in our annualized revenue per customer as well, which was $5 $6000 in Q4, an increase of 16% Europe again.

Looking ahead, we expect these trends and the price increase lapping to pose headwinds to enter or in the coming quarters.

Our customers continue to drive strong cave through our platform's capabilities, particularly through the ability to personalize and segments. There consumer basis. This high ROI helps drive strong customer retention.

As expected, our NRI or saw a slight decline from the prior period due to the impact of lapping our September 2022 price increases.

Historically, our customers dialed back their estimates after the holidays, which we experienced at the end of this year.

Moving down the income statement I will be discussing results on a non-GAAP basis.

And the last two weeks of December we saw customers being more thoughtful compared to prior years with regards to a level of their overall spend particularly among customers who use our SMS offering.

Gross profit for the quarter was $159 8 million representing.

Representing a gross margin of 79%. This marks a five point improvement compared to Q4 2022.

Looking ahead, we expect these trends and the price increase lapping to pose headwinds to enter or in the coming quarters.

During the quarter, we incurred a $4 million benefit or two up to five point improvement from milestone based credits related to our cloud hosting.

Our customers continue to drive strong cave through our platform's capabilities, particularly through the ability to personalize and segments there consumer basis.

We continue to see the benefits of our R&D teams efforts on system and cloud engineering optimization.

This high ROI helps drive strong customer retention.

Our efforts around K MTA that Andrew highlighted are a great example of this.

Moving down the income statement I will be discussing results on a non-GAAP basis.

Through these initiatives, we are able to provide better customer experiences while simultaneously increasing our efficiency.

Gross profit for the quarter was $159 $8 million.

Representing a gross margin of 79%. This marks a five point improvement compared to Q4 2022.

Looking ahead, while we expect to see these helped to offset a part of the higher cost associated with the SMS channel. We do expect a couple of points of headwind on our gross margin this year.

During the quarter, we incurred a $4 million benefit or two up to five point improvement from milestone based credits related to our cloud hosting.

Turning to operating expenses sales and marketing expense was $77 3 million or 38% of revenue for the quarter.

We continue to see the benefits of our R&D teams efforts on system and cloud engineering optimization.

As we said last quarter areas. We are investing in include marketing program spend in sales head count to grow our capacity.

Our efforts around K MTA that Andrew highlighted are a great example of this.

We continue to closely monitor the unit economics of different investments, we're making and we will continue to make investments where we see the right level of returns.

Through these initiatives, we are able to provide better customer experiences while simultaneously increasing our efficiency.

Some of our investments in the mid market take a bit longer to yields been F&B investments, but drive strong overall ROI.

Looking ahead, while we expect to see these helped to offset a part of the higher cost associated with the SMS channel. We do expect a couple of points of headwind on our gross margin this year.

R&D expense was $37 8 million or 19% of revenue.

Turning to operating expenses sales and marketing expense was $77 3 million or 38% of revenue for the quarter.

We're continuing to invest behind our product AI capabilities and our newer offerings.

Finally, G&A expense was $28 $5 million or 14% of revenue.

As we said last quarter areas. We are investing in include marketing program spend and sales head count to grow our capacity.

This is an area, where we expect to continue to get more leverage over time.

We continue to closely monitor the unit economics of different investments, we're making and we will continue to make investments where we see the right level of returns some of our investments in the mid market take a bit longer to yields then F&B investments, but drive strong overall ROI.

For Q4, our operating income was $16 2 million, representing an operating margin of 8%.

For the full year, we finished with an operating margin of 11%, marking a 17 point improvement compared to fiscal 'twenty two.

We also generated free cash flow of $34 $7 million during the quarter and $110 million for the year.

R&D expense was $37 8 million or 19% of revenue we're.

We're continuing to invest behind our product AI capabilities and our newer offerings.

Our full year free cash flow margin was 16% an improvement of 25 points year over year.

Finally, G&A expense was $28 $5 million or 14% of revenue.

Our performance. This year further supports our belief that we do not need to choose between growth and generating cash flow as we invest to drive long term growth.

This is an area, where we expect to continue to get more leverage over time.

For Q4, our operating income was $16 2 million, representing an operating margin of 8%.

Finally, turning to the balance sheet, we finished the quarter with $739 $7 million in cash cash equivalents and restricted cash with no debt.

For the full year, we finished with an operating margin of 11%, marking a 17 point improvement compared to fiscal 'twenty two.

One note for your models is that during the quarter, we did not settle vested equity using $18 $8 million of cash which is reflected in our financing activities and this activity is excluded from free cash flow.

We also generated free cash flow of $34 $7 million during the quarter and $110 million for the year.

Our full year free cash flow margin was 16% an improvement of 25 points year over year.

Now I'd like to talk about our outlook for the first quarter and full year 2024, as a reminder, we experienced typical seasonality in the business.

Our performance. This year further supports our belief that we do not need to choose between growth and generating cash flow as we invest to drive long term growth.

As I mentioned earlier Q4 is our strongest quarter as a result of Black Friday, cyber Monday and the holidays.

Finally, turning to the balance sheet, we finished the quarter with $739 $7 million in cash cash equivalents and restricted cash with no debt.

In turn Q1 is our seasonally lightest quarter as customers traditionally pare back their spend in response to consumers tightening their belt after the holidays.

One note for your models is that during the quarter. We did net settle vested equity using $18 $8 million of cash which is reflected in our financing activities and this activity is excluded from free cash flow.

Q2, and Q3 typically exhibit modest sequential upticks before picking back up again in Q4.

Looking ahead, we assumed the linearity of revenue by quarter in fiscal 2024, we'll follow the trends we experienced in 2023.

Now I'd like to talk about our outlook for the first quarter and full year 2024, as a reminder, we experienced typical seasonality in the business.

Given the current macro environment, we're setting our guidance with prudence and factoring a continuation of the recent trends we've seen in customer spend into our guidance.

As I mentioned earlier Q4 is our strongest quarter as a result of Black Friday, cyber Monday and the holidays.

For the first quarter, we expect revenue to be in the range of $201 million to $203 million representing growth of 29% to 30% year over year.

In turn Q1 is our seasonally lightest quarter as customers traditionally pare back their spend in response to consumers tightening their belt after the holidays.

We expect non-GAAP operating income to be in the range of $22 five to $25 $5 million, representing a non-GAAP operating margin of 11% to 13%.

Q2, and Q3 typically exhibit modest sequential upticks before picking back up again in Q4.

Looking ahead, we assumed the linearity of revenue by quarter in fiscal 2024, we'll follow the trends we experienced in 2023.

In the first quarter, we are continuing to invest particularly in our sales capacity.

In addition, we expect Q1 free cash flow will be muted due to the timing of vendor payments for.

Given the current macro environment, we're setting our guidance with prudence and factoring a continuation of the recent trends we've seen in customer spend into our guidance.

For the first quarter, we expect fully diluted shares outstanding to be $297 million for the full year. We are guiding revenue to be in the range of $889 million to $897 million.

For the first quarter, we expect revenue to be in the range of $201 million to $203 million.

Representing growth of 29% to 30% year over year.

Representing growth of 27% to 28% year over year.

We expect non-GAAP operating income to be in the range of $22 five to $25 $5 million, representing a non-GAAP operating margin of 11% to 13%.

We expect non-GAAP operating income to be in the range of $94 million to $102 million, representing a non-GAAP operating margin of approximately 11%.

In the first quarter, we are continuing to invest particularly in our sales capacity.

As we highlighted last quarter in fiscal 'twenty, four we're making investments across go to market and product set <unk> up for long term growth.

In addition, we expect Q1 free cash flow will be muted due to the timing of vendor payments for.

Based on the timing of these investments we expect to see some deleverage year over year and operating margin in the first half of the year as we front load investments, we expect more leverage in the latter part of the year as we head into our seasonally strong fourth quarter.

For the first quarter, we expect fully diluted shares outstanding to be $297 million for the full year. We are guiding revenue to be in the range of $889 million to $897 million.

Representing growth of 27% to 28% year over year.

Finally for the full year, we expect fully diluted share count to be $299 million.

We expect non-GAAP operating income to be in the range of $94 million to $102 million representing.

To close out we delivered strong results this quarter with rapid growth on the top line and a healthy bottom line with strong free cash flow generation we.

Representing a non-GAAP operating margin of approximately 11%.

As we highlighted last quarter in fiscal 'twenty, four we're making investments across go to market and product set <unk> up for long term growth.

We are excited for this year and for the long term opportunity ahead of us and we are focused on executing against it for our shareholders.

And with that we'll open up the call for Q&A operator.

Okay.

If you would like to ask a question simply press star followed by the number one on your telephone keypad.

As a reminder, please limit to one question before returning to the queue.

Finally for the full year, we expect fully diluted share count to be $299 million.

Your first question comes from the line of Raimo <unk> with Barclays. Your line is open.

To close out we delivered strong results this quarter with rapid growth on the top line and a healthy bottom line with strong free cash flow generation.

Hey, Congrats from me.

Two quick questions one.

Like.

There's a big discussion in the industry going on at the moment about like how some of the internet providers want to limit spam.

We are excited for this year and for the long term opportunity ahead of us and we are focused on executing against it for our shareholders.

Can you talk a little bit about what you are seeing how that's impacting your customer conversation with customers are doing there and then I had one follow up from on the pieces.

And with that we'll open up the call for Q&A operator.

Okay.

If you would like to ask a question simply press star followed by the number one on your telephone keypad.

Yeah, great. Thanks very much.

So first on some of the changes from <unk>.

<unk> and Yahoo, and others.

As a reminder, please limit to one question before returning to the queue.

We talked about in our prepared remarks at this point, we haven't seen and we're not anticipating a meaningful impact to our business.

Your first question comes from the line of Raimo <unk> with Barclays. Your line is open.

We've been working with our customers to get them compliant with updated regulations.

Hey, Congrats from me.

Two quick questions one if you like.

And well actually not all of our customers even qualify as bulks vendor. They don't send an E mail volume.

This was a big discussion in the industry going on at the moment about like how some of the internet providers want to limit spam.

We are working to get our entire customer base compliance and a lot of that compliance is happening automatically through our product and built it in directly it's actually our puffer it don't have to do that.

Can you talk a little bit about what you are seeing how that's impacting your customer conversation with customers are doing there and then I had one follow up from on the pieces.

Very little work.

Yeah, great. Thanks very much.

So on the customer side, we are feeling really good about where theyre at on the consumer side. We're also watching that as well and thus far we haven't seen any changes in consumer behavior.

So first on some of the changes from.

Google and Yahoo, and others.

As we talked about in our prepared remarks at this point, we haven't seen and we're not anticipating a meaningful impact to our business.

To give you a couple of data points.

We measure unsubscribe rates from E mail, and we've seen that increased by only seven thousands of a percent.

We've been working with our customers to get them compliant with updated regulations and well actually not all of our customers even qualify as bulks vendor. They don't sanded up E mail volume.

It's a really small number.

And then we also watch for things like spam rate.

Actually working to get our entire customer base compliance and a lot of that compliance is happening automatically through our product. We've built it in directly it's actually our customers don't have to do.

And while we don't have perfect visibility into that when we talk to customers anecdotally, we're not hearing of any broad changes in that.

<unk>.

Stan Port and for some Isps you actually can get the data from the directly and we're not observing.

Very little work.

So on the customer side, we're feeling really good about where theyre at on the consumer side, we're also watching that as well and thus far we haven't seen any changes in consumer behavior.

Materially increase as they reported there as well so overall, we feel really good about our customers consumers and then just more broadly if you think it's a great thing for businesses and reducing the amount of <unk>.

To give you a couple of data points.

We measure unsubscribe rates from E mail, and we've seen that increased by only seven thousands of a percent.

Sam and noise of consumers getting the remarks, I think product and platforms like ours that focus on.

It's a really small number.

The right content in highly personalized and that's what consumers buy the most engaging and that's working box providers love and so we think as long as we stay true to doing that.

And then we also watch for things like spam rate.

And while we don't have perfect visibility into that when we talk to customers anecdotally, we're not hearing of any broad changes in that.

The businesses that we serve will be and Richard.

Okay. Thank you that's very clear and then I'm wondering if you think about the investments in the first half can you.

<unk>.

Stan report and for some Isps, we actually can get the data from the directly and we are not observing.

We're relatively new company and on the public markets can you talk a little bit about the time between investment and returns like in terms of how long does it take for example, see those guys to get productive etcetera, just to help us understand the dynamic between investment and returns. Thank you and congrats from me again.

Materially increase as Dan reported there as well so overall, we feel really good about our customers consumers and then just more broadly is a great thing for businesses and reducing the amount of <unk>.

Sam and noise of consumers getting their inbox.

I think product and platforms like ours that focus on as well.

Thanks, Ron.

Yeah, you know as we think about the timing between investments and returns we are always focused as we talk about the.

The right content highly personalized that's what consumers buy the most engaging and thats, what <unk> box providers love and so we think as long as we stay true to doing that.

Unit economics that we get when we make these investments so as we think about it we've always been going back to Andrew and add boot strapping the business in the original phase focused on investments that make a fast payback in terms of the CAC payback. So that's one of the beautiful thing about a model focused on smbs.

The businesses that we serve are being Richard.

Okay. Thank you that's very clear and then I'm wondering if you think about the investments in the first half can you.

We're relatively new company and on the public markets can you talk a little bit about the the time between investment and returns like in terms of how long does it take for example, cheetos guys to get productive etcetera, just to help us understand the dynamic between investment and return. Thank you and congrats from me again.

They tend to have shorter payback periods associated with them in the mid market as we're making investments there we do see a bit longer payback I'm just the nature of those investments is that they are larger upfront they take a little bit longer to pay back.

Thanks, Ron.

Yeah, you know as we think about the timing between investments and returns we are always focused as we talk about the.

I have really strong LTV to CAC. So as we're making these investments we are watching that and then we're managing across the portfolio to make sure that the balance across those two mm is healthy for the business and it's important also to remember in our business whether it is in the Smbs section or in the mid market portion of the business that our sales team.

Nichols are pretty short relative to others, and we measure our sales cycles.

They tend to have shorter payback periods associated with them in the mid market as we're making investments there, we do see a bit longer payback.

Not in months and so these investments tend to have a pretty nice payback period as they ramp up.

Thank you.

It's just the nature of those investments is that they are larger upfront they take a little bit longer to pay back.

Your next question comes from the line of Alicia This quarter with Morgan Stanley. Your line is open.

They have really strong LTV to CAC. So as we're making these investments we are watching that and then we're managing across the portfolio to make sure that the balance across those two.

Excellent. This is actually Keith Weiss sitting in for Elizabeth.

Congratulations on a really nice quarter two.

Is healthy for the business and it's important also to remember in our business whether it is in the Smbs section or in the mid market portion of the business that our sales cycles are pretty short relative to others and we measure our sales cycles.

Two questions one on.

The 50 K customer.

<unk>.

Really impressive number up 80% year on year can you talk to us about.

What's driving that growth.

The extent of like how much of that is coming from existing customers just growing to be a 50 K customer taking on SMS, maybe taking on GDP and just expanding their side versus how much is like a net new mid market customer motion of customers coming on in that mid market.

Not in months and so these investments tend to have a pretty nice payback period as they ramp up.

Thank you.

Your next question comes from the line of Alicia This quarter with Morgan Stanley. Your line is open.

Realm that 50, plus realm, and then I have a follow up on that as well.

Excellent. This is actually Keith Weiss sitting in for.

Sure Elizabeth.

Awesome. Thanks. Thank you so the Colorado quickly, yes, I mean, we're also very excited on the progress we're making in mid market.

Congratulations on a really nice.

<unk>.

Two questions one on.

The 50 K customer adds.

Hi.

<unk>.

80% year on year grow for 50, K customers is a great number and I think.

Really impressive number up 80% year on year can you talk to us about.

Emblematic or it's.

What's driving that growth.

It demonstrates the shift that we're seeing with mid market enterprise brand as it relates to their marketing.

Theyre looking for one customer platform, one database for that'd be that source of truth for their customer record and Theyre looking to layer marketing and then additionally, other applications on top of it. So just to give you. An example, there is a large.

Realm that 50, plus realm, and then I have a follow up on that as well.

Cosmetics company that we work with that initially used <unk> for our marketing products E mail and SMS, but if that's realized recognize that gosh is there a central database or all of their consumer data and now they're using our API to integrate that in other parts of the customer experience brings to the website or mobile app.

Awesome. Thanks, Thank you.

Yes, I mean, we're also very excited by the progress we're making in mid market.

Hi.

80% year on year grow for 50, K customers is a great number and I think.

Emblematic or it's.

Demonstrate the shifts that we're seeing with mid market enterprise brand as it relates to their marketing.

As well as customer service. So that's what we're seeing play out there and is it really just like the mix. It's actually it's a healthy it's a healthy part of existing customers expanding.

Theyre looking for one customer platform, one database for it'd be that source of truth for their customer record and Theyre looking to layer marketing and then additionally, other applications on top of it. So just to give you. An example, there is a large cosmetics company that we work with that initially used <unk> for our marketing products E mail in SME.

Initially with FNF, but now increasingly with PDP and reviews as well as.

As well as just net new lands, we've had some of our largest new logo land even in the last few months. So theres a lot more to do there and we're constantly working on future development.

But if that's realized recognize that gosh, but here is the central database or all of their consumer data and now they're using our API to integrate that in other parts of the customer experience brings to the website or mobile app as well as customer service. So that's what we're seeing play out there and as it relates to like the mix, it's actually it's a help.

Gail ability of our platform and we think we've got really good product market fit in this story around consolidation of really the different parts of your consumer Tech stack integrating together, that's a really really durable trend.

Got it it makes sense and then Amanda on the gross margin side of the equation.

<unk> outperformance versus.

It's a healthy part of existing customers expanding.

Where you guided to.

I appreciate the clarity on the $4 million benefit from milestone credits.

Initially with SMS, but now increasingly with PDP and reviews as well as.

As well as just net new land, we've had some of our largest new logo land even in the last few months. So theres a lot more to do there and we're constantly working on future development.

When we're thinking about the couple of points of pressure in gross margins from this year I just wanted to make sure we're basically to the right number.

Should we start to 79% level or are those like milestone Fred.

Point in time, so it's like we just started 77% and then a couple of points of pressure from there like can you just help me anchor like what's the right number that we should be starting from where we're going to see those couple of points of pressure.

Yeah. So I would think about the first half of the year gross margins being in the high Seventy's range and I think you're thinking about it right, which is that over the course of the year, you're going to see two factors happening and are back in our business that will somewhat counterbalance each other on the positive side, we have the great benefits that we continue to see from.

Got it that makes economic sense, and then Amanda on the gross margin side of the equation.

<unk> outperformance versus kind of where you guided to.

I appreciate the clarity on the $4 million benefit from milestone credits.

Thinking about the couple of points of pressure in gross margins from this year.

But the cloud engineering optimization that our R&D team has done combined with some pricing negotiations that we've had on our supplier side and those are helping to support them to drive higher gross margin the counterbalance to it as as our SMS business growth and expand them.

That creates some pressure on gross margin so the balance of those over the course here and we think we will continue to have support from the engineering optimization, but that'll be offset by SaaS metrics spansion.

Got it.

Very helpful. Thank you so much guys.

Your next question comes from the line of Gabriela Borges with Goldman Sachs. Your line is open.

Good afternoon, Thank you, Amy and Amanda I wanted to follow up on Amanda's comments customers being more thoughtful pie.

<unk> with the level of spending maybe a little more color on what you're seeing in the health of the install base and what you think is driving what sounds like a little more muted outlook on the macro beyond just the typical <unk> seasonality sure.

Thanks, Gabriela great Great question. So what we saw in Q4 with customers being more thoughtful was particularly true for customers who use our <unk> product. In addition to those who are using the email and if you think about it as a massive cost more per message then email so as customers mature in their usage.

<unk>, we're seeing a couple of things happened first thing that we're saying is that they're being more thoughtful and more targeted with the messages. They send to make sure that they're driving high ROI from those messages and then the second thing is that they're learning how to be more proactive in managing their subscriptions and managing our plans to make sure.

The subscription side aligns with the size of their usage and any given month now if you remember one of our operating principles are the businesses that we align our business with the value that we provide for our customers. So we think that that high ROI and the fact that we're able to help customers and really targeted messages that <unk>.

<unk> that high ROI.

Stickiness on our platform and that stickiness shows up in really strong retention and the other thing about stickiness in that for a high ROI does is it helps us earn the right overtime to share in that value that we create for customers.

Now as you think about this and how it relates to our guidance for the year.

We've spoken before about the fact that as a company. We're a company that strives to provide a realistic view on our business. We're prudent in the way that we forecast so that we're confident in our ability to deliver and it's also important to keep in mind. We're scaled business. We have over 143000 customers. We have a decade plus of operating history and all of that.

That data gives us a really strong foundation for forecasting. So it is not our intention to be a company who's going to significantly over exceeds the outlook that we provided where we're really trying to do a share with you and with our investors a clearer view of the health and the trends that we're seeing in our business.

Yeah.

Thank you for calling.

Okay.

Your next question comes from the line of Brent bracelet with Piper Sandler Your line is open.

Thank you maybe I'll start with you Amanda here, if I think about the growth algorithm, 20% customer growth RPC growth now that we've anniversaried. The price increase was 16% that was actually similar.

What you saw prior to the price increase can you just talk about what is driving the RPC growth and how sustainable that is.

Yeah, you know I think that you're thinking about the right things which is.

That as our business grows we have that installed base with continuing to grow and that we're continuing to sell more products to them. So overall as we think about the business going forward. We think about continued strong growth.

Powered by new logos in combination with the expansion with those customers and new logos increasingly we are moving upmarket and as we move into the mid market.

To see strong logo growth, but maybe with more of a mix driven by higher asp's as opposed to being driven by higher logo counts going forward.

Yeah. If you think about other drivers of expansion and what that expansion with our business looks like over time as I just mentioned our gross retention remains consistent it remains healthy we see customers sticking with the platform over time.

And then we continue to see customers grow their subscriptions as they add new products. So net net I think what we'll see going forward is this balance and a healthy balance between new logo acquisition as well as that upsell and cross sell that drives that strength in revenue per customer.

Helpful color, there and then.

You mentioned the <unk>.

Mail infrastructure investment I think it was 7% of your Black Friday cyber Monday volumes were sense without any infrastructure can you just double click into the the benefits why are you doing that.

Higher local tax going forward, but you know if you think about other drivers of expansion and what that expansion with our business looks like over time as I just mentioned our gross retention remains consistent it remains healthy we see customers sticking with the platform over time.

How quickly should we see volumes ramp into that infrastructure.

Sure Yeah that Cleo MTA, so kind of the underlying E mail infrastructure really some excellent engineering by our R&D team.

And then we continue to see customers grow their subscriptions as they add new products. So net net you know I think what we'll see going forward is this balance and a healthy balance between new logo acquisition as well as that upsell and cross sell that drives that strength in revenue per customer.

So the purpose of that is if you think about what you've done a lot of verticalizing stack integrate the different pieces.

From historical data and how you design messages and then obviously just extend that into how you deliver it in this case messages. So one of the big benefits to us as we've talked a lot about deliverability.

Helpful color, there and then B you may.

Email infrastructure investment I think it was 7% of your Black Friday, cyber Monday volumes, where search without any infrastructure can you just double click into the the benefits why are you doing that.

Owning that infrastructure there are some.

Cost advantages, but actually the real thing for our customers and it gives us much more visibility into <unk>.

And how quickly should we see volumes ramp into that infrastructure.

Powder messages are performing so well will give us more control on deliverability, but also visibility that we can have password upwards.

Sure Yeah that play Joe MTA, so kind of underlying email infrastructure.

We'll get better results.

That's an example of where I think we're going to be aggressive on engineering, our own solution to problems, where we think we can do a job of basically vertically integrating different parts of the customer experience.

Excellent engineering by our R&D team.

The purpose of that is if you think about things.

We've done a lot of vertical I'd stack integrates.

Integrate the different pieces.

From.

So very excited with that and then the other part of <unk>.

Volume ramping.

Being judicious about how quickly we can ramp up volume, but the fact that we've had over 1 billion messages over.

Truckload gas deliverability are owning that infrastructure there are some.

Over the Blackrock already I mean, it's a testament to the quality of the engineering that we've done.

Our cost advantages, but actually the real thing for our customers that gives us much more visibility into.

Helpful color. Thank you.

Your next question comes from the line of Arjun Bhatia with William Blair. Your line is open.

How their messages are performing so well it gives us more control on deliverability, but also the visibility that we can then password upwards.

We'll get better results.

Alright, thank you.

So that's an example of where I think we're going to be aggressive on engineering, our own solution to problems, where we think we can do a job of basically vertically integrating different parts of the customer experience.

Congrats on the quarter.

Andrew maybe I wanted to touch a little bit on the other side of some of the changes at Gmail and Yahoo.

Maybe we'll combine that with <unk> getting deprecated. This year can you just talk a little bit about what that means for personalized messaging E mail et cetera, and what your kind of data segmentation and personalization capabilities, what kind of benefit if any that might accrue this year from a.

So very sorry about that and then on the part of <unk>.

Volume ramping we're being judicious about how quickly you can ramp up volume, but the fact that we spent over 1 billion messages.

Over the Blackrock array of user testing into the quality of the engineering.

Helpful color. Thank you.

Greater emphasis on first party data third party data.

Your next question comes from the line of Arjun <unk> with William Blair. Your line is open.

Absolutely.

And clearly at its core our whole ethos is around giving businesses ownership of their consumer data. So.

Alright, thank you.

Congrats on the quarter.

Andrew it's a little bit on the other side of some of the changes at Gmail and Yahoo.

We actually help us collect the use of cookies first party cookies and the emphasis on that to collect more of that to you. So in this case you can think about routing behaviors like what products that somebody is looking at adding to their partner and using that to build it back into some of the personalization algorithms that we have.

Maybe we'll combine that with cookies getting deprecated. This year can you just talk a little bit about what that means for personalized messaging E mail et cetera, and what youre kind of data segmentation and personalization capabilities, what kind of benefit if any that might accrue this year from a.

So I think this is a it's.

It's a net good change for the industry for privacy, well, but that could change for our businesses.

No we're talking about like in the mid market. The same is true for F&B is the most important data asset that any consumer business is building is their coffers.

Greater emphasis on first party data over third party data.

Absolutely.

And clearly at its core our whole ethos is around getting genesis ownership of their consumer data. So.

So we look at our job is to one help them pull all that together and so we built the budget tooling to help with the <unk>.

Setting of the third party Cookie technology, but then also critically like how do you tie that no central source of truth back to action. So embedding it into marketing and I gave the example of some of our more sophisticated customers starting to use that data directly on the website. That's something actually we're very excited about starting to product type.

We actually help our business.

Select use cookies first party cookies and the emphasis on that collect more of that deal. So in this case you can think about routing behaviors like what products that somebody looking at adding to their partners using that to build it back into from the personalization algorithms that we have.

So I think this is a.

Over the next.

It's a net good change for the industry for pricing, but that could change for our businesses.

Plenty of volume in coming years.

Okay.

And then if I can touch on the AI capabilities that you're launching those same degenerative and autonomous capabilities already seen incremental and new how are you thinking about kind of Kathryn some of that value.

You haven't talked about like in the mid market. The same is true for.

Both important data asset that any consumer businesses building in their customers.

So we look at our job is to one help them pull all that together and so we built a bunch of tooling helped with.

Additional value they will deliver to customers all the time to pricing for those capabilities.

The Sun setting of the third party Cookie technology, but then also critically like how do you tie that central source of truth back to action, So indemnity into marketing and I gave the example of some of our more sophisticated customers starting to use that data directly on the website. That's something actually we're very excited about starting to product type.

Yeah, great. So I'm very excited today with our launch around <unk> I just wanted to watch I think most excited about over the last couple of years.

We've been investing in AI for the last 456 years and we've been here really building that into our core technology.

Over the next.

And you can think about when we talk about the future of marketing really future like customer experience and CRM.

Martin in coming years.

Okay.

Part of that that means that we'll think about using AI not just for productivity gains, but literally to drive better performance and that means more revenue.

And then if I can touch on the AI capabilities that you are launching or the generative and autonomous capabilities already seen incremental and new how are you thinking about kind of capturing some of that value.

For our customers and be able to do that and importantly, freeing up marketer to get back to like the core of market.

Additional value, but it will deliver to customers all the time to pricing for those capabilities.

Coming up with ideas ticking through strategy, and then being creative working on the brand.

Yeah, great. So I'm very excited today with our launch round played you AI is one that is what I think most excited about over the last couple of years.

So plenty of act for US as you think about things as existing AI features bringing those as one tool kit and then adding a couple of really four pieces.

We've been investing in AI for the last 456 years, we've been really building that into our core technology.

So I can talk a lot about generative AI with segmentation querying finding interesting set of customers. We've made that a lot easier by now, allowing users to define those queries with natural language and returns second we also talked about the creative side with E Mail AI deal to design, a full chunk whole pieces of an email.

And you can think about when we talk about the future of marketing really future like customer experience and CRM autonomous it means that one thing about using AI not just for productivity gains, but literally to drive better performance and that means more revenue.

For our customers and be able to do that and honestly freeing up marketer to get access to like the core of market.

Just from a natural language processing you combine that those general capabilities with also like some of the automatic optimization.

Coming up with ideas picking through strategy, and then being creative working on the brand.

We talked about Forum's AI and the ability that you can create a form on your website and we'll actually tune a lot of the variables for you to optimize its performance. So you add all that stuff up and what it means for our customers is literally better result.

So plenty of it out for US if you think about things as existing AI feature bringing those into one tool kit and then adding a couple of really cool pizza.

So I can talk a lot about generative AI.

To give you an example, one of our customers Willow tree.

With segmentation querying finding interesting stats our customers we've made a lot easier I know, allowing users to define those queries with natural language and retirement. Diane you also talk about the creative side with E Mail AI being able to design a whole chunk small pieces of an E mail.

Summer last year, they started using more of our predictive analytics and.

Some of our segmentation capability, they're willing to do that to use machine learning and AI.

<unk> set of customers that were hard to discover.

Started to send an E mail campaigns to those customers.

Just from a natural language problems you combine that those generative capabilities with also like some of the automatic authorization.

Literally grew their revenue from E mail by over 50% in the back half of last year.

We talked about foreign AI and the ability that you can create a form on your web site and will actually tune a lot of the variables for you to optimize its performance.

That's an example of the kind of lift in opportunities that are out there when you apply artificial intelligence the domain of marketing.

So you add all that stuff up and what it means for our customers literally better results.

And then when you think about monetization we're not.

To give you. An example, one of our customers Willow tree young and a summer last year. They started using more of our predictive analytics.

Directly monetizing it today as a separate SKU.

I will note that like our corn AI.

Capabilities do you increase the number of profile into clean Neo which we do monetize through our email product.

And some of our segmentation capability, they're all going to do that and use machine learning and AI to find that the customers that were hard to discover.

But we're not really directly monetizing our AI tool kit as one that over time, we do think theres, a real opportunity that as we add mortgage capabilities, we make marketing increasingly more economists put marketer than that kind of a director to chair.

They started to send an E mail campaigns to those customers and it literally grew their revenue from E mail by over 50% in the back half of last year.

That's a that's an example of the kind of lift opportunities that are out there when you apply artificial intelligence the domain of marketing and then when you think about monetization we're not.

There will be an opportunity to monetize on the dollar uplift that we provide.

Your next question comes from the line of Tyler Radke with Citi. Your line is open.

Directly monetizing it today as a separate SKU I will note that like our corn AI capability do you increase the number of profile interplay.

Yeah. Thanks for taking the question maybe going back to the commentary around what you saw at the end of December.

Can you just talk about did that have an impact on our total customer additions as well I think total customer additions in Q4 was a little bit below what you've typically seen in Q4 and then just curious does.

What did we do monetize through our email product.

But we're not really directly monetizing our AI tool kit as.

It's one that over time, we do think theres, a real opportunity that as we add mortgage capability Nathan marketing increasingly more economy put marketer than that you know kind of director to chair.

Is that softness in the us.

S side has that continued into January or February or do you think that that was just kind of at the end.

There will be an opportunity to monetize on the dollar uplift that we provide.

In the December event. Thank you.

Yeah, I think Tyler it's a great question so.

Yeah.

Your next question comes from the line of Tyler Radke with Citi. Your line is open.

Take them separately and think about them as two separate things on the net customer adds and what we're seeing there I guess, if you think about where is our sales and marketing engine pointed our sales and marketing engine is largely pointed at smbs in the mid market and so as we focus more of our sales and marketing efforts upmarket we expect.

Yeah. Thanks for taking the question.

Maybe going back to the commentary around what you saw at the end of December.

Can you just talk about did that have an impact.

The impact on our total customer additions as well I think total customer additions in Q4 was a little bit below what you've typically seen in Q4, and then just curious how's.

That we're going to see larger customer lands, which you see in the 50 K customer and in the expansion and the average revenue per customer with maybe not as much expansion at the lower end of the market and at the same time, we are entrepreneurs.

Is that softness in the SMS side is that continued into January or February or do you think that was just kind of end.

And the December event. Thank you.

We think that we are a great place for businesses of all sizes to drive growth and so the way that we think about continuing to drive those ads at the lower end of the market is really through product and building a great product that makes it easy for everybody to use but as you think about building the models and as we think about our outlook going forward, we factored these trends, which.

Yeah, I think Patrick Great question. So you know I haven't picked them separately and thinking about them into two separate on the net customer adds and what we're seeing there and if we think about where is our sales and marketing engine pointed our sales and marketing engine is largely pointed and smbs in the mid market and so actually.

Would be maybe more moderate customer ads and more growth in revenue per customer into our algorithm and our financial outlook going forward and then as for your question about what are we seeing in January and February I would say the trends in January and February are similar to what we spoke about at the end of Q4. So you know given the macro environment.

Okay, Margaret that with marketing efforts up market, we expect that we're gonna see larger customer lands, which you see in the 50 K customer and in the expansion in the average revenue per customer, but maybe not as much expansion at the lower end market and at the same time we are on.

Alright.

We just see customers being more thoughtful about their specs theyre, making sure that their plan sizes aligns to their usage. They are making sure that their messages are highly targeted and that those messages are driving high rois.

Yeah, we think that we are a great place for businesses of all sizes to drive growth and so the way that we think about continuing to drive those ads at the lower end of the market as we went through.

Building, a great product that makes it easy for everybody to use but as you think about building. The models do you think about our outlook going forward, we factored these trends, which would be maybe more moderate customer ads and more growth in revenue per customer into our algorithm and our financial outlook going forward and then as for your question about what.

We've built that into our guidance and over the long term. We appreciate that because we want our customers to be sending really targeted personalized high rois messages.

Yeah.

Your next question comes from the line of Rob Oliver with Baird. Your line is open.

Are we seeing in January and February I would say the trends in January and February are similar to what we spoke about at the end of Q4. So you know given the macro environment and we just see customers being more thoughtful about their specs there, making sure that their plan size it aligns to their usage there, making sure that their messages are highly targeted.

Great. Thanks, guys. Good afternoon, thanks for taking my questions I'll squeeze into as well.

For you and then Amanda one for you. So maybe you called out the fitness when that came by the by the mind body partnership.

And obviously mid market very strong for you guys just wanted to get a sense of how we should expect that.

And that those messages are driving high rois.

The progression away from Internet retail when you when you look within sort of the pipeline and talk to your sales and marketing folks how we might expect that to play out that diversification throughout 'twenty four.

We've built that into our guidance and over the long term, we appreciate that because we want our customers.

Really targeted personalized high rois messages.

Okay.

Your next question comes from the line of Rob Oliver with Baird. Your line is open.

And then Amin.

Just for you just my follow up was just around the MLR trends clearly it seems like a big deal.

Yeah.

Great. Thanks, guys. Good afternoon, thanks for taking my questions I'll squeeze into as well.

Obviously, a big difference between what we would see it SMB versus what we'd see mid market and I'm just curious.

One for you and then Amanda one for you. So maybe you called out the fitness when that came by the by the mind body partnership and obviously mid market very strong for you guys and just wanted to get a sense of how we should expect that.

To break that out, but just wanted to get a sense for you.

How have those trends hold steady.

They have been stronger than expected up at the high end of the market any color there would be really helpful. Thanks guys.

Great. Thanks, Thanks for the question so to speak a little bit our growth outside of.

E Commerce.

So it's still early here, but I'll give you a little bit of color we're seeing.

Early but we're seeing some really encouraging signs of more businesses.

And then a man.

Just for you I just my follow up is just around the <unk> trends you know clearly it seems like a big deal.

Outside of e-commerce, and retail moving over to claim yet so.

So that cohort still represents less than 5% of our revenue.

Obviously, a big difference between what we would see it SMB versus what we'd see mid market and I'm just curious.

Due to the strong growth, we're seeing in e-commerce, but its growing really rapidly. So we talked about with European WAC centers at 45 training I'll give you one more the pizza chain and Apple pizza chain with over 300 locations.

To break that out, but just wanted to get a sense for you.

How have those trends hold steady.

They've been stronger than expected up at the high end of the market any color there would be really helpful. Thanks guys.

<unk> also consolidated down marketing spend autoclave and the.

Yeah.

Great. Thanks, Thanks for the question so take a look at our growth outside of.

Both of our email and SMS product.

And they're taking advantage of our integration with <unk> as well as another point of sale system.

E Commerce.

So it's still early here, but I'll give you a little bit of color on working.

It's early but we're seeing some really encouraging time of more businesses outside of e-commerce and retail moving over to claim yet.

We manage all of their first party.

Tumor data so that that is going to do the same thing where do we need Congress doesn't allow them to create many more targeted campaigns more automation and ultimately drive more sales.

So that cohort still represents less than 5% of our revenue.

The strong growth, we're seeing in e-commerce, but its growing really rapidly and we talked about European Black Thunder at 45 training I'll give you one more the pizza chain and applebee's cameras over 300 locations.

So.

Are you back up a little bit like for all of our customers. They are as focused as ever on the importance of having direct relationships with their consumers and building their consumer day to day.

We're seeing that in e-commerce, and retail and beyond and I think we're all seeing everybody focus on collecting that data as well as how to leverage that data and put it to work I think we've got really good product market fit both within E Commerce and retail and then we're seeing with new vertical expansion at that Park partners.

<unk> also consolidated down marketing spend autoclave and they bought both of our email SMS product.

And they're taking advantage of our integration with <unk> as well as another point of sale system.

We manage all of their first party consumer data so that that is going to do the same thing where do we need Congress, that's going to allow them to create many more targeted campaigns more automation and ultimately drive more yeah.

Part of our get fit extends beyond that.

Yeah, and as regard to NR are and how it varies depending on customer size I would not really call out any strong variation depending on the size of the customer and we do see in our mid market customers that they tend to have more SMS. So some of the trends that I talked about as being more pronounced among U S. M asks users maybe impact the mid market.

So if you back up a little bit like for all of our customers, they're as focused as ever on the importance of having a direct relationship with their consumers and building their consumer day to day.

But it's really I think more of a question of the products that they're using in the way that they're being more thoughtful about how they use that higher priced per message channel than it is necessarily related to what we've seen in the size of the business.

We're seeing that in e-commerce, and retail and beyond I think we're all seeing everybody folks on collecting that data as well as how to leverage that data in wear to work I think we've got really good product market fit both within E Commerce and retail and then we're seeing with new vertical expansion at that park is part of our <unk> debt extended beyond that.

Related to what we're doing about that and overall the way we think about the course of the year. We are really doubling down on how do we help our customers with best practices. So what are the things that we can do to help them generate the highest ROI that they can and to continue to drive the usage, so that they're getting a great KFC growth coming out of these channels.

And as regards to them in our or and how it varies depending on customer size I would not really call out any strong variation depending on the size of the customer and we do see in our mid market customers that they tend to have more S. M. S to some of the trends that I talked about it being more pronounced among SMS users maybe impact the mid <unk>.

Because we think that that ability to generate high K a deeper message is a real differentiator for us not only helps our expansion as we drive that but it also helps strong retention as well.

Market more but it's really I think more of a question of the products that they're using in the way that they're being more thoughtful about how they use at higher price per message channel than it is necessarily related to what we've seen in the size of the business.

Really helpful detail all around thank you guys very much.

Uh huh.

Your next question comes from the line of D. J Hynes with Canaccord. Your line is open.

Related to what we're doing about that and overall the way we think about the course of the year. We are really doubling down on how do we help our customers with best practices or what are the things that we can do to help them generate the highest ROI that they can and to continue to drive usage, so that they're getting a great candy growth coming out of these channels.

Hey, guys. Thanks for taking my question. So maybe just building on robs last question there a b I totally understand the comments on spend thoughtfulness on how somebody to give them a higher coffee as I wanted to ask about K a V conversion versus you know for E mail only customers versus those that are using E mail and SMS is there a discernible difference there.

And because we think that that ability to generate high K a deeper message is a real differentiator for us not only helps our expansion as we drive that but it also helps strong retention as well.

That's not the question okay.

Is that something that's working the way that you hoped.

Sure so.

While I'm very excited about the amount of Kt, we drove last year over $50 billion in.

Really helpful detail all around thank you guys very much.

And that continues to be a north star for us and like I said, our customers are they're trying to consolidate their first party customer data and then how do you put that to work to deliver experiences that actually drive conversion. So.

Yeah.

Your next question comes from the line of D. J Hynes with Canaccord. Your line is open.

Hey, guys. Thanks for taking my question. So maybe just building on robs last question there a b I totally understand the comments on spend thoughtfulness on SMS give them a higher cost to us.

So just a question about like different between email enough not.

No we're not seeing any material changes there.

Second word.

I wanted to ask about K a V conversion versus you know for for email only customers versus those that are using email and SMS is there a discernible difference there, which are which I guess it gets at the question of it.

A slightly different cost structures to the ROI, there is always going be a little bit different.

However, we came from both channel customers really getting great results.

And one of our goals.

The focus on getting more personalization more segmentation.

That's working the way that you'd hoped.

Sure so.

Both through our products through the Orange components, we're layering into product, we're helping them discover more and more use cases that they can apply to their customers so to deliver better experiences, but also help either.

I'm very excited about the amount of Kt, we drove last year over $50 billion and that continues to be a north star for us and like I said, you know our customers are they're trying to consolidate their first party customer data and then how do you put that to work to deliver experiences that actually drives conversion.

Got it thank you.

Yeah.

Your next question comes from the line of Terry Tillman with Truth Securities. Your line is open.

The question about like the difference between you know what I'm not.

No we're not seeing any material changes there.

Yes, Thank you Andrew Amanda.

Our second quarter.

For taking my question I'm going to pivot from SMS and just ask about international.

Slightly different cost structures and the ROI there is always going be a little bit different. However came from both channel customers really getting great results.

You should we as well it is actually a multipart, but a single question.

Should we expect that that just drift higher as a percentage of revenue and is it still more than 24, where you're getting pulled in to that market as opposed to more of your directly kind of attacking it with a lot of boots on the ground and then are you seeing some potential benefits from shopify in that market because they're talking about some pretty substantial growth in EMEA. Thank you.

And one of our goals is okay.

The focus on getting more personalization more segmentation.

Oh, you know through our product through the Orange components, where they are in the product.

We're helping them discover more and more use cases that they can apply to their customers deliver better experiences, but also help a lot.

Awesome. Thanks, Terry for the question so on international Yeah.

Got it thank you.

Yeah.

Your next question comes from the line of Terry Tillman with Truth Securities. Your line is open.

Other area that we're very bullish on.

I'm here to drive strong growth there.

Our aggregate EMEA and APAC revenue was up over 40%.

Yes, Thank you Andrew Amanda and John for taking my question I'm going to pivot from SMS and just ask about international.

So.

Without commenting on the distributions I think we're seeing strong growth domestically as well.

You should we is it well it is actually a multipart, but a single question should.

I'll tell you that we're very excited about where in Africa is one of our four key drivers. So on that front and give you a couple of things that we're doing on the product side, we still haven't internationalize localize.

Should we expect that that just drift higher as a percentage of revenue and is it little more than 24, where you're getting pulled in to that market as opposed to more of your directly kind of attacking it with a lot of boots on the ground and then are you seeing some potential benefits from shopify in that market because they're talking about some pretty substantial growth in EMEA. Thank you.

Core interface.

That's something we're working on and will ship later this year.

And then on the go to market side were talked out we're very thoughtful about how we go to market.

Yeah.

Awesome. Thanks, Terry for the question so on international Yeah, I mean, obviously another area that we're very bullish on.

Because of our history as a product led company our strategy to grow internationally and also product glut.

He has got strong growth there.

We're putting our product in market, Washington D. Whether its adoption and then following those trends and with Shopify and others are big part of our international strategy is working with partners.

Aggregate EMEA and APAC revenue was up over 40%.

So.

Without commenting on the distributions I think we're seeing strong growth domestically as well.

Both globally and locally so I expect that we're going to be really nice growth there.

I'll tell you that we're very excited that we're in Africa is one of our four key drivers so on that front and here. There's a couple of things that we're doing on our product side, we still haven't internationalize localize core.

Yes of course I have ever seen.

Thank you.

Okay.

Core here a bit.

Your next question comes from the line of.

That's something we're working on and will ship later this year.

C G Pentagon he with Mizuho Your line is open.

Then on the go to market side were talked out we're very thoughtful about how we go to market.

Thanks for taking my question I wanted to ask you about CDP that you guys are you know Oh.

You know because of our history that a product led company our strategy to grow internationally and also product lines.

Announce to you a few months back wondering what kind of feedback you have got so far what kind of interest use cases, you're seeing there.

We're putting our product in market, Washington, D C, where there's adoption following those trends and with Shopify and others are you know a big part of our infrastructure is working with our both globally and locally.

Yeah, great. So our <unk> product launched last summer.

You can think about CDP, and especially the reporting and analysis use cases, we're seeing a lot of customers adopt us. So to just give you. An example of how our customers are using GDP.

So I expect that we're going to be really nice growth there and yeah of course I don't know.

King.

Yeah.

Thank you.

We have a there's a large pent retailer is taking advantage of some of the advanced analytics, you can do around frequency and regency offense, so finding customers who used to be really loyal but at flat and they're using that doing that analysis inside play on the <unk> core database and then immediately able to turn that.

Yeah.

Your next question comes from the line of.

City Pentagon he with Mizuho Your line is open.

Thanks for taking my question I wanted to ask about CDP that you guys are you know.

Announced few a few months back wondering what kind of feedback you've got so far what kind of interests or used cases, you were seeing there.

In Q E mail, and SMS automation campaign and monetizing those so that's the kind of what we're seeing is a lot of that kind of behavior. We're tightening the loop between traditionally what was analytics in one part of the company one set of tools for that and then actually activation putting it to work in a different part those two worlds are emerging.

Yeah, great. So our private launch last summer Ah and you can think about CDP and especially the reporting and analysis use cases, we're seeing.

A lot of customers adopt that.

To just give you an example of how our customers are using D D.

So it's still early there for us, but we're excited by what we're seeing with <unk> and I think there's a there's a lot more.

We have a there's a large retailer is taking advantage of some of the advanced analytics, you can do around frequency and ribbon gift, so finding customers who used to be really loyal, but if that lap and they're using that doing that analysis inside play on the palladium coordinating and then immediately able to turn that.

Adoption is coming to Europe.

Thanks Tobey.

Okay.

Your next question comes from the line of Scott Berg with Needham Your line is open.

Hi, everyone nice quarter for me.

In Q E Mail automation campaign.

Amanda pretty.

Pretty impressive year last year in terms of free cash flow margins.

I don't know so that's kind of what we're seeing is a lot of that kind of behavior. We're tightening the loop between traditionally what was analytics in one part of the company one set of tools for that and then actually activation putting it to work in your heart those two worlds are emerging.

The year over year improvement there was about a five point spread between operating margins and free cash flow margins for the year is that the right way to think about fiscal 'twenty four as well.

Would there be some divergence there even after taking it comes in the spending in the first half. Thank you.

It's still early there for us, but we're excited by what we're seeing in E D and I think there's a there's a lot more adopt.

Yeah, Great question, you and take care I appreciate you calling out a 17, one type of operating margin expansion year over year. It wasn't need a very strong year in general over the long term I would expect that because the majority of our customers are month to month and those payments are coming in monthly that our operating income margins in our <unk>.

Adoption of our culture.

Thanks Tobey.

Your next question comes from the line of Scott Berg with Needham Your line is open.

Hi, everyone nice quarter for me.

You had a pretty impressive year last year in terms of free cash flow margins.

Cash flow margins are going to track relatively closely over time, you may see some variation year to year, just literally depending on the timing of when some payments happen to particular vendors them, but in general you should see those tend to track pretty closely to each other.

The year over year improvement there was about a five point spread between operating margins and free cash flow margins for the year is that the right way to think about fiscal 'twenty four as well or would there be some divergence there even after taking into account the spending in the first half. Thank you.

Excellent. Thank you.

Yeah, Great question, Yeah, I can take care I appreciate it.

Yeah.

We have time for one more question and that question comes from the line of Derrick Wood with TD Cowen Your line is open.

What kind of operating margin expansion year over year. It was indeed, a very strong year in general over the long term I would expect that because the majority of our customers are month to month and those payments are coming in monthly that our operating income margins and our free cash flow margin are going to track relative.

Great. Thanks.

There was a big sequential increase in sales and marketing expenses in the quarter are you able to dimensionalize how much of this was seasonal marketing spend versus how much of it was.

It really closely over time, you may see some variation ear to ear literally depending on the timing of when some payments happen to particular vendors them, but in general you should see those tend to track pretty closely to each other.

Adding head count and I guess as a follow up to a b just would love to hear kind of house their sales hiring activity has been trending over the last few months and how you're feeling about ramping reps the productivity and trying to creating some new new growth levers up market with new capacity as you progressed in 2024.

Excellent. Thank you.

Yeah.

Yeah, Greg I'll start and then ill, let Amanda add on.

We have time for one more question and that question comes from the line of Derrick Wood with TD Cowen Your line is open.

So.

We're very excited about the sub market investments, we're making we mentioned that somebody's key growth levers of.

Great. Thanks.

There was a big sequential increase in sales and marketing expenses in the quarter are you able to dimensionalize how much of this was seasonal marketing spend versus how much of it was.

As a growing number of new logos, but getting tougher bandwidth off the number of products. They buy spilling into the mid market expanding internationally. So there's really two drivers of our sales and marketing investments today. The first is as you mentioned is increasing sales capacity and we're focused in a couple of areas international mid market as well as expanding.

Adding head count and I guess as a follow up to a b just would love to hear kind of house their sales hiring activity has been trending over the last few months, how you're feeling about ramping reps the productivity and kind of creating some new new growth levers up market with new capacity as you progressed in 2024.

What we call our customer growth team, which is about driving more of our coffers to adopt a greater portion of the play the old product set.

That's part of our one and the second part is that we're making additional investments into marketing.

Okay, Great I'll I'll start and then ill, let Amanda add on.

We're very excited about the Submarket investments, we're making in connection that's how many key growth levers.

We have a lot of customers who are super.

Super fans and play Doh.

Using their story these customer testimonial ads.

Not to throw a number of new logos, but getting tougher and with a number of products they buy band to the mid market and internationally.

A lead in to find additional customers. So we're ramping up that market investment and sharing the stories of success to drive awareness top of the funnel and ultimately net new customer acquisition.

Yeah, there's really two drivers of our sales and marketing efforts to date.

First is as you mentioned is increasing.

So.

And we're focused in a couple of areas are international mid market as well as expanding what we call our customer growth team, which is about driving more of our coffers to adopt a greater portion of the play the old chronic staff.

And in general like well those are the two drivers that come in and I were still very strong believers in the roots of what played out.

Without along with good unit economics.

So we're going to continue to experiment, but also be very disciplined.

And closely monitor the economic the ROI of those investments Yeah. If you think about how to build your models and how the investments might slow over the course of the year more of the investments as we mentioned on the call are weighted towards the first half of the year. It's we're investing to build that sales capacity to ramp up heading into the back half of the year and then historically seasonally we have.

So that's not part of our one and the second part is that we're making additional investments into marketing.

A lot of customers who are they.

It's like Super fans and played out.

Using their story deep customer testimonials and.

A lead in to find additional customers. So we're ramping up that market if that's any sharing their stories.

That's up marketing in the third quarter as we prepare for heading into Black Friday, Cyber Monday, and so I would expect those trends to continue.

Awareness top of the funnel and ultimately you know net.

Net new customer acquisition.

So.

And in general like all those are the two drivers that come in and I were still very strong believers in the roots of what played out.

Great. Thank you.

So those are all the questions I have for today's call with that I'll turn the call back over to Andrew <unk> for closing remarks.

And along with good unit economics are so we're going to continue to experiment, but also be very disciplined.

And closely monitor the economic the Rois it yeah.

Great well. Thank you all for joining us on today's call I want to thank again, the entire play their teams for their great work in delivering for our customers and 23 as we say internally, we're 1% done and we're excited for the year ahead.

Yeah, and if you think about how to build your model and how the investments might slow over the course of the year more of the investments as we mentioned on the call are weighted towards the first half of the year. It's we're investing to build that sales capacity to ramp up heading into the back half of the year and then historically seasonally we have ramped up marketing in the third quarter as we prepare for heading into.

We'll be attending the Keybanc and Morgan Stanley conferences in March and look forward to seeing many of you there.

Thanks.

This concludes today's call you may now disconnect.

Two black Friday, cyber Monday, so I wouldn't expect at this time.

Great. Thank you.

Those are all the questions I have for today's call with that I'll turn the call back over to Andrew <unk> for closing remarks.

Great well. Thank you all for joining us on today's call I want to thank again, the entire play their teams for their great work delivering for our customers and 23 at the same time, they were 1% done and we're excited for the year ahead.

Well be attending the Keybanc and Morgan Stanley conferences in March and look forward seeing many of you there have a nice evening.

This concludes today's call you may now disconnect.

Yeah.

Hmm.

Hum.

Yeah.

[music].

Yeah.

Hum.

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