Q3 2024 Klaviyo Inc Earnings Call
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Speaker Change: Good afternoon and welcome to CLAVIOUS 3rd quarter fiscal 2024 earnings conference call.
All lives have been placed on mute to prevent any back on noise.
after the speaker's remarks, there will be a question and answer session.
Speaker Change: If you would like to ask the question during this 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. Thank you. I would now like to turn the conference over to...
Speaker Change: Vice President of Investor Relations. You may begin.
Speaker Change: Thanks. Good afternoon and thanks for joining ClayDio's third quarter, 2024 earnings call. Our earnings press release, Investor Presentation, SACP filing, and a replay of today's call can be found on our IR website at investors.playveo.com.
with me on the Call of the Day, our Andrew Bialecki, co-founder and CEO and Amanda Whalen, COFO. As we remind our commentary today, we'll include non-gap measures.
Speaker Change: Reconciliation to the most directly comparable gap measures can be found in today's earnings press release, or earnings release supplemental materials, which can be found on our investor relations website.
Additionally, some of our comments that I am making pain for working statements that are subject to risks, uncertainties, and assumptions, which could change. Should any of these risks materialize, or should our assumptions prove to be incorrect, actual company results could differ materialies from these forward-looking statements.
Speaker Change: A description of these risks on certain these assumptions and other factors that could affect our financial results. Our included in our FDC filings, including our most recent report on Form 10K, and subsequent reports on Form 10K.
Speaker Change: except just required by law. We do not undertake any responsibility to update these forward-looking statements.
Speaker Change: with that, and I'll now turn it over to Andrew.
Andrew Bialecki: Thanks, Lily, and thanks everyone for joining us today. Clear your drove another strong quarter of results in Q3 delivering revenue up $235 million, growing 34% your over year.
More than 157,000 customers around the world continue to rely on previous data and marketing platform to grow revenue by leveraging first-party consumer data to create highly-personized AI-powered communications over email, SMS, and push notifications.
Speaker Change: Clayfield Power Smarter Digital Relationships.
Speaker Change: Using real-time first-party data, our vertically-and-gray platform enabled our customers to quickly and intuitively cut to my segments, work a straight-on-be-shell campaign, and measure every interaction.
Speaker Change: and set of requiring Galpers Quarter. Bargers can leverage Clay Dioi to get worked on faster, optimize campaign testing, and generate creative strategies.
Speaker Change: Could you make complex cap simple and scalable making marketers much more efficient?
Speaker Change: A enabling customer to centralize their consumer data on Kledio allows them to build more personalizing gaysmen, which ultimately drives more revenue.
Speaker Change: This is the key differentiator for Clevio. As many companies are dealing with a fragmented experience, trying to manage consumer experiences across multiple marketing solutions.
Speaker Change: Company choose Clasio to modernize and consolidate their text acts because they're plaster on disease, flexible, and capable of handling even the most difficult use cases.
Speaker Change: This is particularly true at the high end of the market for our platform and our best in class integration is provides value and creative efficiency.
Speaker Change: In the third quarter, we announced our partnership with authentic brand-screw, an IP company that owns more than 50 large well-known brands, including Benz Commodore, Villabong, Bichie Shues, and Giseka Tour.
Speaker Change: Optentic came to play the O2 modernize their tech DAC across the left-bran's within their portfolio.
Speaker Change: We're excited to build our partnerships with authentic brands and help them deepen their relationships with their consumers across many of their brands.
Speaker Change: Every business wants to know their consumer and deliver an experience that beats the competition so consumers keep coming back.
Speaker Change: Marketers are leveraging multiple channels with increasing complexity to reach the skull. But trying to combine data across multiple systems is more difficult as a business scale.
Speaker Change: With multiple channels, CDP and reviews natively built on one unit by platform, Clavio makes markers for efficient.
Speaker Change: Dragon Bone and iconic fashion brand, Jolink Playview this quarter to consolidate on our vertically integrated platform. And this is another example of an upmarket business turning to Playview for a unified view of the consumer.
Speaker Change: They were using a legacy marketing vendor with several other points solutions and do this fragmented stack that were having a difficult time getting an aggregated view of their consumers' lifestyle.
Speaker Change: Centralized in our consumer data with ClayDio helps them unlock increased customer lifetime value across online and in-store purchases.
Speaker Change: In the highly competitive fashion industry that relies on brand loyalty, we believe this will be a game changer.
Speaker Change: We had a similar win with PrEP, the leader in the cold press juice and champion of functional wellness. They were using multiple clinicians and were struggling with reporting basic personalization and poor segmentations.
Speaker Change: They consolidate onto Clevio, leveraging email, SMS, and CDP to drive more personalized communications with their consumers.
Speaker Change: The honor of new customer wins up market, we continue to drive cross-dell growth, particularly with SMS. As customers see the value and leveraging multiple channels on one platform.
Speaker Change: We recently spent our relationship with Spotting Tango, a fresh dog food delivery service in a clear-view email customer for the past five years.
Speaker Change: They were looking to drive an on-michannel strategy to create highly stagnated, unified consumer outreach, and so added SMS to drive further conversion.
Speaker Change: Moving next to International, we are continuing our investments across Go to Market and Project Engineering to address this large growth opportunity.
Speaker Change: We started a new relationship with the body shop at UK-based global beauty brand with more than 30 million global consumers.
Speaker Change: They were one of the largest customers on a legacy vendor solution, but we're unable to deliver personalized communications due to the complexity of the system.
Speaker Change: Working with the new Playview Partner, absolute lab, we did a full strategy review and chose Clevio to consolidate from nine different tools to one, enabling greater personalization and streamlining their marketing tech stack.
Speaker Change: On the product side, we now support KSMA in 18 countries. Recently added coverage in Norway, Denmark, Sweden, Finland, Italy, and Portugal.
Speaker Change: Additionally, following the successful launch of our French language products in Q2, we make Flow-Day Eye and segment-day eye available in French. Further expanding our features and functionality to those customers.
Speaker Change: and just a few weeks ago, we announced our project's available in five new languages.
Speaker Change: German, Portuguese, Korean, Spanish, Italian.
Speaker Change: Clayton is now available in seven languages, including our customer help center, where we offer an immense amount of resources for all of our customers.
Speaker Change: In addition to making our project available in more languages, we're constantly working to make our platform smarter and more automated for our customers with Clay Vio AI. Our AI driven content creation tool and streamlined automation setup allow customers to move faster and more efficiently.
Speaker Change: We're designing these features to boost productivity, even customer engagement and drive Red Negro.
Speaker Change: As part of our quarterly feature release last week, we announced Enhanced Email AI, which takes an existing template and creates multiple inversions based on a text prompt.
Speaker Change: The prompt can call for copycanges or new sections being added and the new email will match branding and voice, removing the needs for manual editing.
Speaker Change: For our Enterprise and International Customers, we release portfolio earlier this year.
Speaker Change: and now with portfolio level metric mapping, cost-verskenset up custom metrics that's been multiple brand accounts within a whole new company.
Speaker Change: For instance, if one brand within the portfolio uses Shopify and another uses the commerce rather than managing separate revenue reports, they go to allow our users to create a unified revenue metric.
Speaker Change: For complex businesses, we give the flexibility for brands to create these types of metrics and easily analyze performance across all brands and integrations, providing consistent reporting at the portfolio level.
Speaker Change: We've also been expanding our product offerings for the last 18 months beyond email and SMS, which reviews and CDPs. Our reviews product continues to make progress in power and brand to understand their customers.
Speaker Change: and we're seeing customers who want to consolidate their applications and relate its bandwidth with PlayView.
Speaker Change: Happy Wax, a Clevio customer for several years using both email and SMS, added reviews earlier this year, resulting in a 27% increase in the number of reviews they collected over their first 100 days using a product.
Speaker Change: As we expand our product capabilities beyond messaging and marketing, providing a powerful data analytics platform, enables marketers to uncover important insights and take action.
Speaker Change: We're really excited about our progress in CEP.
Speaker Change: and compared to other CDPs and markets, our differentiation lies in the vertical integration, making it fast implement, devalue and scale.
Speaker Change: We recently launched a new action center within our RFM analysis report containing pre-built starting points for customers to enable key use cases like triggering automation based on key and flexing point found in RFM.
Speaker Change: Ultimately, this allows brands to shorten the time from inside to action.
Speaker Change: We also launched a new product analysis feature which provides customers easy access to insights about their product catalog and purchase behavior.
Speaker Change: Using this flexible dashboard, brands can find insights on every product, including their repeat purchase timing and web products consumers can divide together or in succession.
Speaker Change: This new feature makes it simpler than ever to build a strong, mercurizing strategy, giving brands insights on how to promote the right product at the right time.
Speaker Change: to drive repeat, purchase and ultimately grow customer life on value.
Speaker Change: This quarter, Sarnian Suns, a company known for their high quality teas, added CDP for product and work on an album.
Speaker Change: By leveraging the advanced analytics capabilities on our platform, they created a consumer segment of possible turn risk and set a one-time wing back campaign.
Speaker Change: This targeted approach ultimately led to an average order value that was 29% higher than their year-to-date average order value. In fact, there's the EOS that was the one campaign that paid for the first three months for the CDP product.
Speaker Change: so
Speaker Change: So, while we continue to make great progress on our product and growth initiatives, we know that we can't do this alone.
Speaker Change: Our ecosystem of third-party partners, including marketing agencies, system integrators and developers, our key to our success and create important network effects for Clevver.
Speaker Change: We continue to see new partners who are actively reach out to join our partner ecosystem.
Speaker Change: for the outstanding outreach.
Speaker Change: Partners are also continuing to build on Play Do, adding 20 new applications for integration directory in the last three months. As well as contributing more than 40 new flow templates, and customers can implement quickly and easily.
Speaker Change: Our third party platform integrations continue to be a strong differentiator for Clevio. Allow and customers to connect nearly 400 technologies, giving them more Chile and enabling them to combine first party data on our platform.
Speaker Change: Our team is constantly working to build new connections with other companies.
Speaker Change: and in Q3 we launched our integration with Canada because it achieved the fastest adoption growth of any integration in our history.
Speaker Change: Design and content creation is one of the key roles of marketing, particularly for smart businesses and has a large impact on performance.
Speaker Change: With this integration, customers can now bring images from Kleeveo into Kamba and designs from Kamba into Kleeveo for use across our platform.
Speaker Change: These integrations are driving customers to radio as we saw in Q3 with true food kitchen, a healthy restaurant chain with over 40-by-blocations across the US.
Speaker Change: They moved from a traditional marking platform to Clay Joe because of how well we integrated with their text stack, particularly with a low open table, as well as several other software they use.
Speaker Change: They are extremely excited about the power of the Clio platform, our ability to help them execute on differentiated strategies going forward.
Speaker Change: Like to end by thanking all Kledios for their hard work.
Speaker Change: and supporting our customers and continuing to make clear view a leading data and marketing platform.
Speaker Change: and their customers gear up for Black Friday, Cyber Monday and the holiday season. Our teams are ensuring they have the support they need.
Speaker Change: Black PPM
Speaker Change: Klaveo Health Branch Generate almost $50 million of Klaveo attributed value for KZ per hour at peak times.
Speaker Change: This year we're excited to help our customers get their biggest holiday goals yet and are making it easier for them with Black Friday, Cyber Monday Hub, a dedicated space in app where users can plan, strategize and prepare for their upcoming holiday season.
Speaker Change: Thank you.
Speaker Change: Before I handed over to Amanda, I wanted to highlight two recent leadership hires.
Speaker Change: There are a few good to join as our chief technology officer in September. In earlier today, we now said a deal while he will be joining as our new chief product officer later this month.
Speaker Change: Both leaders bring deep experience in scaling world-class businesses and will help us continue to grow and deliver exceptional value to our customers.
Speaker Change: and my co-founder who has been serving as our chief proctor will transition to become our chief
Speaker Change: and has obviously played a tremendous role in growing play-bio and I'm excited for him to take a more holistic, strategic role to help drive play-bio forward over the next several years.
Speaker Change: and with that I'll turn it over to Amanda.
Amanda Whalen: and Andrew, play the out-delivered another quarter of strong financial performance in Q3, driving a efficient growth at scale.
Speaker Change: Revenue is a 34% year over year to 235 million dollars, and we reported a 14% non-dap operating margin, continuing our consistent top and bottom line performance.
Speaker Change: We are delivering on our four primary growth factors, adding new customers, growing in the mid-market, expanding with existing customers and expanding internationally.
Speaker Change: In Q3, we added over 6,000 new customers, and we now have more than 157,000 customers.
Speaker Change: Up 16% year over year.
Speaker Change: The more to last quarter, we saw softness in the SMB market and strength in entrepreneurs and in the high end of the market. The diversity of our customer base across size and geography allowed us to deliver another strong quarter despite the softness in one part of the business.
Speaker Change: Speaking of the high-end of the market, we are really pleased with the results from our good market initiatives we implemented last year to support our move of our market.
Speaker Change: At the end of 2-3, we had $2,619 customers, generating over $50,000 in ARR, which was up 54% year over year.
Speaker Change: We also had another record high number of customers landing in this cohort in the quarter. A great sign of the traction we're making up market.
Speaker Change: In addition to the customers you heard Andrew speak about, we also partnered with Lulu's, a digitally native women's fashion brand that was looking to enhance its tech infrastructure, streamlined processes, and improve its reporting capabilities.
Speaker Change: In Q3, they adopted PlayView for email and are in the process of consolidating SMS with us.
Speaker Change: With both channels unified, Lulu will be able to leverage our advanced flows, segmentation, and AI tools to deliver more personalized on new channel communications.
Speaker Change: We continue to drive expansion with our existing customers as they grow their usage and add new products, as can be seen in our Dollar-Based Net Revenue Retention Rate, or NRR, which was 110% for the quarter.
Speaker Change: As we've been discussing the last few quarters, this quarterly decline in NRR was expected.
Speaker Change: As a reminder, NRR is composed of three factors, gross retention, cross-sell of additional products, and expansion of existing products.
Speaker Change: Our gross retention remains strong, which is a great indication of the value we drive for customers that makes Klaviyo a must-have platform for them.
Speaker Change: Our cross-sell efforts have also been quite strong, especially with email customers adding SMS.
Speaker Change: In fact, as of Q3, more than 80% of our top 50 customers now use Klaviyo SMS. And excluding our entrepreneur cohort, nearly 25% of our combined SMB and mid-market customers are using Klaviyo SMS.
Speaker Change: We're very pleased with that progress.
Speaker Change: On expansion, we continue hearing from some customers, especially in the SMB space, that macro pressure is continuing and that they are very focused on the ROI of their software spend.
Speaker Change: Additionally, with the success upmarket that I just discussed, we're seeing many new Klaviyo customers land with multiple products from the start.
Speaker Change: There are obvious benefits to landing bigger, multi-product deals. However, it can also limit the expansion opportunities within those customers, which has a negative effect on NRR.
Speaker Change: This pressure on expansion continues to be consistent with what we've been speaking about over the course of the year.
Speaker Change: As a result, our expectations for continued decline in NRR in the near term haven't changed, and we expect this expansion pressure to have a modest impact on our growth going into next year.
Speaker Change: As you heard from Andrew, we're making great progress internationally on both the go-to-market and product fronts, and that is driving strong results.
Speaker Change: EMEA delivered very strong growth at 45% year-over-year, and APAC accelerated from last quarter.
Speaker Change: Combined, our international revenue grew 41% year-over-year, sustaining the rate of last quarter.
Speaker Change: These are great results, and we remain focused on making our product easy to use for our international customers, including with additional language launches, as Andrew mentioned.
Speaker Change: Local language availability is an important unlock to bring more companies onto our platform and we'll continue to make our product available in more languages going forward.
Speaker Change: Moving on, non-GAAP gross profit for the quarter was $183 million, representing a non-GAAP gross margin of 78%, down 200 basis points year-over-year.
Speaker Change: In addition to the impact from our growing SMS product, gross margin was also pressured as a result of starting our Black Friday Cyber Monday preparation a bit earlier this year, which increased costs related to infrastructure and testing.
Speaker Change: As a reminder, due to the seasonality of our business in Q4, we expect Q4 gross margins to be down as a result of elevated email and SMS sending volumes related to the holiday season. We continue to expect our full year non-GAAP gross margin to be down about a point from last year.
Speaker Change: Turning to non-GAAP operating expenses.
Speaker Change: Sales and marketing and R&D expenses as a percentage of revenue came in relatively consistent with prior quarters.
Speaker Change: G&A expense was 12% of revenue, down 580 basis points year over year, primarily as the result of an additional international tax-related reserve release, similar to what we saw last quarter.
Speaker Change: Additionally, you may recall from our Q3 call last year that we had approximately $6 million in IPO-related expenses that did not reoccur this year.
Speaker Change: Normalized for this tax release and the one-time IPO related expenses, non-GAAP G&A expense as a percentage of revenue would have been down roughly 100 basis points year over year.
Speaker Change: For the third quarter, our non-GAAP operating income was $34 million, representing a non-GAAP operating margin of 14%.
Speaker Change: This was better than expected as a result of the revenue overperformance, the leverage driven primarily in G&A operating expenses, and headcount coming in a bit lighter than expected for the quarter.
Speaker Change: We generated free cash flow of $34 million during the quarter, up 57% from the prior year due to higher profit and higher interest income.
Speaker Change: Moving to guidance. For the fourth quarter, we expect revenue to be $256 to $258 million, representing growth of 27% to 28% year-over-year.
Speaker Change: We expect fourth quarter non-GAAP operating income of $7-9 million, representing a non-GAAP operating margin of 3%.
Speaker Change: This guidance includes a sequential and year-over-year decline as a result of expense of a new employee cash bonus program that will begin this fiscal year, which we are implementing in Q4.
Speaker Change: We have not previously had a cash short-term incentive program for employees outside of those associated with our go-to-market team.
Speaker Change: This will allow us to enhance our ability to align pay with performance. It will also better align our compensation structure to peers in the market and will allow us to reduce go-forward equity grants as a proportion of total compensation.
Speaker Change: Looking ahead, we will accrue for this program throughout each fiscal year.
Speaker Change: For the fourth quarter, we expect fully diluted shares outstanding to be approximately 306 million.
Speaker Change: For the full year, we are raising our revenue guidance to be $923 to $925 million for year-over-year growth of 32 to 33 percent.
Speaker Change: As a result of the bonus program, for the full year, we are revising our non-GAAP operating income guidance range to $104 to $106 million, representing a non-GAAP operating margin of 11 percent.
Speaker Change: This is consistent with the expectations we set at the start of the year that we would keep our 2024 non-GAAP operating margins roughly flat with 2023.
Speaker Change: Finally, for the full year, we expect fully diluted share count to be approximately $299 million.
Speaker Change: We are very pleased to be delivering this elevated level of growth at scale for FY24.
Speaker Change: Q4 is our seasonally largest quarter from a revenue perspective and has a significant influence on our outlook for 2025.
Speaker Change: Well, we're not providing 2025 guidance at this time.
Speaker Change: Based on the trends that we are seeing, strength at the low and high end of the market, and pressure on customer expansion that we've been discussing since the start of the year, we expect our 2025 revenue growth rate will decelerate modestly from our Q4 guidance.
Speaker Change: Due to the success of our go-to-market and product investment initiatives this year, we plan to continue to make choiceful investments in 2025, with particular focus on growing our international footprint.
Speaker Change: As a result, operating margin is projected to remain relatively consistent to 2024 as we continue to invest for growth in our large addressable market.
Speaker Change: We will provide formal guidance for fiscal 2025 on our Q4 call, along with additional details around our investments.
Speaker Change: In closing, these strong results are a clear indication that Klaviyo's platform is driving success for our customers.
Speaker Change: We're well positioned to continue our success, adding new customers, growing in the mid-market, expanding with existing customers, and expanding internationally.
Speaker Change: We are excited about supporting our customers through their busiest season and driving a successful Black Friday Cyber Monday weekend with Klaviyo. And with that, we'll open the call up for Q&A. Operator?
Speaker Change: Thank you. We'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: We do want to incorporate as many analysts as possible on the call. Please limit to one question before returning to the queue.
Speaker Change: And your first question comes from D. J Hynes with Canaccord. Please go ahead.
Speaker Change: And your first question comes from D.J. Hines with Canaccord. Please go ahead.
Speaker Change: Hey, Thanks, guys and congrats on a nice quarter.
D.J. Hines: I appreciate the early look at 2025.
D.J. Hines: Hey, thanks guys and congrats on the nice quarter. And Amanda, I appreciate the early look at 2025.
D.J. Hines: Can you can you just give us an update on your various customer acquisition engines or channels, whether that's through Shopify marketing agency direct selling like anything stand out to you in terms of performing particularly well or or vice versa.
Speaker Change: AB, can you just give us an update on your various customer acquisition engines or channels, whether that's through Shopify, marketing agencies, direct selling, like anything stand out to you in terms of performing particularly well or vice versa?
Speaker Change: Yeah sure. So just as a reminder for everyone. We.
Speaker Change: Think about acquisition from a couple of different channels. So obviously, our marketing team is focused on what we describe it inbound acquisition. So that's driving awareness of folks coming to play, though we have a freemium motion so allowing customers of all sizes to get started FERC started for free tried play to go out of the really stepped up our sales team for success.
Speaker Change: Yeah, sure. So just as a reminder for everyone, you know, we think about acquisition from a couple of different channels. So obviously our marketing team is focused on what we describe as inbound acquisition. So that's driving awareness, folks coming to Klaviyo. We have a freemium motion.
Speaker Change: So allowing customers of all sizes to get started for free, try Flavio out, it really set up our sales team for success.
Speaker Change: Like is it you alluded to partners are big part of how would your cost per acquisition.
Speaker Change: We have, as you alluded to, partners are a big part of how we do customer acquisition, both digital agencies, you know, we have several thousand in our program.
Speaker Change: Yes.
Speaker Change: Digital agencies with several thousand of our program as well as big a tech platforms, obviously shopify amongst those.
Speaker Change: as well as big tech platforms, obviously Shopify amongst those.
Speaker Change: And then finally, you know our sales team as we're moving more into the mid market enterprise.
Speaker Change: And then finally, you know, our sales team, as we're moving more into the mid-market enterprise, we do have a sales-driven motion for customer acquisition there.
Speaker Change: We do have a sales driven motion for customer acquisition, there. So a crossover and it goes wrong, there's kind of a line a little bit the customer segments, we obviously spend more and more of our marketing effort is aimed at the SMB and what we call. It the lower part of SD Oct, where part of the market and our sales team is more focused on the mid market enterprise side.
Speaker Change: So across those, and it does kind of align a little bit to customer segments. We obviously spend more of our marketing effort is aimed at the SMB and what we call the lower part of SMB, entrepreneur part of the market.
Speaker Change: So we're seeing I think we're seeing some strength across all three.
Speaker Change: and our sales team is more focused on the mid-market enterprise side.
Speaker Change: You know with with our entrepreneur segment, we're seeing really nice growth there that was kind of smaller outside it is.
Speaker Change: So we're seeing, I think we're seeing some strength across all three. You know, with our entrepreneur segment, we're seeing really nice growth there. That's just kind of smaller SMBs. Largely driven by, you know, acquisition through Shopify and other platforms that cater to entrepreneurs that are maybe just starting out.
Speaker Change: Largely driven by acquisition and through Shopify, and other platforms or cater to entrepreneurs that are maybe just starting out.
Speaker Change: As well as a lot of our digital marketing efforts.
Speaker Change: And on the high side, you know with Midmarket and enterprise brands I think we're really starting to find a group with our both our sales team as well as larger partners, where we're putting more of those into our.
Speaker Change: And to our partner program.
Speaker Change: Drive demand as well as working with some of those larger platforms that work with more enterprise brands.
Speaker Change: into our partner program to help drive demand, as well as working with some of those larger platforms that work with more enterprise brands. So I think we're excited about all three of those motions and both for the rest of this year, leading into the holidays and next year, we're gonna keep using those three as our kind of three tentpoles for acquisition.
Speaker Change: So I think we're excited about all three of those motions and both threat this year or early in the holidays and next year.
Speaker Change: We're going to keep using those three as our kind of three tent poles for acquisition.
Speaker Change: Makes sense. Thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from Raimo <unk> with Barclays. Please go ahead.
Speaker Change: Yes, makes sense. Thank you.
Speaker Change: Thank you very much.
Speaker Change: Your next question comes from Raymond Lentz-Chow with Barclays. Please go ahead.
Speaker Change: Great. Thanks, Congrats from me as well.
Raymond Lentz-Chow: I'm under and Andrew like you.
Raymond Lentz-Chow: The softness that you kind of mentioned on the call. It like if you think about the economy like we've seen in <unk>.
Speaker Change: Perfect. Thanks, Congrats for me as well.
Speaker Change: Amanda and Andrew, like the softness like that you kind of mentioned on the call like if you think about the economy like we've been in
Speaker Change: I can tougher times for a while and you guys have been kind of actually managing this kind of pretty well like did you see like.
Speaker Change: like in tougher times for a while and you guys have been kind of actually managing this kind of pretty well, like, did you see like a change again, like in the last quarter, that do you think it's kind of more macro? Or do you think it could be like election uncertainty? And that kind of plays a role here? You know, like, I'm just saying, like, we've been in this kind of environment for a while. And most other people talk about more stabilization on lower levels. But
Speaker Change: Change again like in the last quarter.
Speaker Change: Do you think it's kind of more macro or do you think it could be like election uncertainty and that kind of plays a role here.
Speaker Change: I'm, just saying because like we've seen in this kind of environment for a while and most other people talk about more of a stabilization on lower levels, but stabilization. Thank you.
Speaker Change: Sure. Thanks Raimo.
Speaker Change: Thank you.
Speaker Change: I'd say that what we're seeing is consistent as you said we've been in this macro environment for a while and the trends that we're seeing within our you know, particularly focused on our F&B segment of customers remain very consistent with what we've seen and what we've discussed in prior quarters, we're seeing some softness in new customer acquisition, we are seeing some softness.
Speaker Change: An expansion, but we are not seeing that macro environment or the impacts become either materially better or materially worse. It has been steady and what we hear from customers based on our conversations with them is that it's clear that we are in a value based market, meaning that customers are very focused on the value that they're getting from their software.
Speaker Change: In this environment, we are really pleased with the way that we are able to deliver strong results. Because we are a must have for customers to help them drive their revenue and drive their growth.
Speaker Change: The other thing that I think is important to remember is that we have a very diverse customer base. Both in terms of size ranging all the way from as Andrew said entrepreneurs, all the way up to global enterprises, as well as geographies around the world, which means that we're not reliant on either one specific type of customer or one region to drive our performance.
Speaker Change: So in fact this quarter, we saw strength in the entrepreneurs and we also saw strength in the high end of the market I think the last factor that's important to think about in this environment. Instead, it's important to remember <unk> is not indexed to GMP, we index to digital relationships and the digital relationships that our customers are.
Speaker Change: Building with their consumers and so, especially during this time of year as we get close to Black Friday, cyber Monday, helping our customers engage with their consumers in the right way over the right channel with the right message at the right time is extremely important because that is how we help our customers thrive.
Speaker Change: Okay perfect. Thank you makes sense.
Speaker Change: Your next question comes from Scott Berg with Needham. Please go ahead.
Speaker Change: Okay.
Scott Berg: Hi, everyone. Thanks for taking my question and nice quarter here.
Speaker Change: I just wanted to add.
Speaker Change: On the two new hires that you mentioned, the CTO and CPO your platform I know you've talked pretty extensively about.
Speaker Change: Database.
Speaker Change: Bottoms up.
Speaker Change: Platform and independents that you all received from that but how do these two new hires.
Speaker Change: Are you expecting them to the impact of technology kind of footprint going forward.
Speaker Change: Sure Yeah, we've got a great team.
Speaker Change: We have some big ambitions and I'm very excited for our survey in adults, who joined forces because I know they are their ambition that matches our own.
Speaker Change: I think for all leadership hires just maybe two core Tracy look for one is that kind of humility the ability to dig into the details rocker sleeve and the second is having seen how.
Speaker Change: How do you think that scale and so I've got a second point it is particularly material for what you're talking about adult actually.
Speaker Change: I was I was getting to know how we are spending time adult actually a collegial customer wonderful your customer one of the businesses. He started it was one of our one of our early customers.
Speaker Change: So we've got a lot of context for the space.
Speaker Change: For both their advantage ill.
Speaker Change: Work on some of the planet scale infrastructure. So as we think about <unk> as the source of truth for consumer data for businesses being a system of record you know how do you build systems that are very elastic very scalable very reliable very secure.
Speaker Change: I'm excited that they both have a lot of experience building that so I think we've done a really good job with our engineering team to date kind of instilling a culture, but I think they're gonna help us scale that quite yet.
Speaker Change: Yeah.
Speaker Change: Wonderful.
Speaker Change: Your next.
Speaker Change: <unk> comes from Brent <unk> with Piper Sandler. Please go ahead.
Brent: Thank you good afternoon.
Brent: Maybe the Q4 guide here does suggest the businesses is poised to cross over a $1 billion <unk> exiting the year.
Speaker Change: I'd be curious to hear your thoughts on and then product vision here on the next billion Wall Street always wants more you're bringing in new talent do you have a strong balance sheet. Good cash flow you could always lean into M&A.
Speaker Change: Walk us through kind.
Speaker Change: The appetite to add that next billion and and how much you lean into M&A.
Speaker Change: Internal investment walk us through that vision that'd be helpful. Thanks.
Speaker Change: Yeah for sure.
Brent: Hopefully we will have to get for nearly as long as you get to the second billion is starting to get to the first first one because we got a pretty.
Speaker Change: Pretty quickly.
Speaker Change: So let me talk about a couple of thing Amanda talked about the four areas that we're focused.
Speaker Change: <unk>.
Speaker Change: Get more F N B's honest platelet platform.
Speaker Change: Doing that internationally expanding up into the mid market and enterprise.
Speaker Change: And then also growing our product portfolio.
Speaker Change: So let me speak a little bit on the product side and I'll come back to the customers we're going to serve.
Speaker Change: You know our mantra, we've had decided to play if we're going to build a product it's going to be best in class. A word we use is premium and so a few years ago. I guess core product was a database and then you know kind of E mail and marketing on top of that.
Speaker Change: We've taken approach it well how do we extend to all of the messaging channels that matter for our business and so that's why we put big investments at SMS and now going forward, we're doing a lot more with mobile a mobile application and experience it there as well as social channel things like Whatsapp and other social networks. So I think we can do a lot more than just email go way beyond.
Speaker Change: That until all of messaging and marketing you know what we're doing with reviews at another product category, that's very important to a lot of marketers and anything beyond that we can think about like what are the other customer experiences that you can use the source of truth that we're building this database to power to personalize to measure to use AI to automate those experiences gets.
Speaker Change: Smarter over time.
Speaker Change: And that's what we're doing with PDP a lot of CP usage, we've seen comes from analytics.
Speaker Change: Businesses that want to understand who their customers are and immediately take action.
Speaker Change: So we're excited about the growth that we're seeing with that product and then we think about the other services. The other touch points that a business has with its consumers.
Speaker Change: So things like what's the you know the website for the in store experience as well as what the customer service experience.
Speaker Change: Our ambition is to make sure all of those services all of those experiences are great for the customer and high value to the business.
Speaker Change: And so for some of those were considering a building and some of that will be organic. We're also will be open to doing M&A, but we're also very much if we look at our ecosystem and our partners. We have a lot of great partners that have built features that we can't get to or help us address various use cases domestically internationally different vertical.
Speaker Change: <unk>. So it's also an approach that will take but ultimately we want to be that source of truth about who your customers are and the entire software platform that used to drive customer experiences that drive revenue.
Speaker Change: Okay.
Speaker Change: Helpful color. Thank you.
Speaker Change: The next question comes from Michael Berg with himself Fargo Securities. Please go ahead.
Michael Berg: Hi, Congrats on the quarter. Thanks for taking my question I wanted to touch on the international opportunity quickly.
Michael Berg: Thank you seem to be operating on all cylinders, there and you had some pretty nice announcements across languages as well as data capabilities. There what how can we think about the progress since launching those I know it's early on but.
Speaker Change: Across the new languages.
Speaker Change: The five new regions I mean, any initial takeaways there that you can.
Speaker Change: Leverage for new geographies as you expand thank you.
Speaker Change: Sure. Thank you so much for the question Michael and we are very excited about the progress that we're seeing across the international.
Speaker Change: This quarter particular strength in EMEA with 45% revenue growth and when you talk about some of the impacts that expanding languages and that focus on international is having in the business. This quarter. We saw notable strength in our new business across France, Germany, Spain, and Finland in particular.
Speaker Change: Our focus this quarter and going forward on adding local language speaking sales reps to support that product capability. So that we can support local language selling in regions, like Germany, France, Spain and Italy.
Speaker Change: In terms of other progress that we're seeing in the business and it's leading to some great wins, we had terrific wins this quarter internationally not only with the body shop, but also with Minnelli and passion at our all of which are great brands internationally and I think another important part to call out is the strength of our partner network and the impacts that our partner led approach is having.
Speaker Change: On our international growth, we are very appreciative of our partners around the globe, including companies like Cresta shop thinks digital and is among many others. They.
Speaker Change: They are helping to support us as we expand outside of the United States still.
Speaker Change: Still early days, but I can tell you that the customer response has been terrific for the launch of five new languages, German Portuguese Korean Spanish and Italian it was just in October but they are very excited and we're excited to see how they can continue to drive growth internationally.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Awesome. Thank you.
Speaker Change: Your next question comes from Rob Oliver with Baird. Please go ahead.
Rob Oliver: Great. Good evening, Thanks for taking my question.
Speaker Change: Minus for you.
Speaker Change: Couple of questions ago, Brian asked about the next leg of growth to two 2 billion and when you look at some of the other products aside from SMS, which is obviously number one on cross sell I know a man to call that cross sell still is an area of strength.
Speaker Change: And maybe talk a little bit about what youre seeing some reviews, and then particular CDP, where I know you guys made some changes to.
Speaker Change: How you package, the CDP solution and would love to get an update on how that sort of bifurcation of the product is perhaps driving incremental wins. Thank you.
Speaker Change: Yeah, So I think going forward.
Speaker Change: Very much look at being going from a single product company, where he worked for years ago to a multi product company and a platform you know something where you can buy all of <unk>. There are a lot of those applications that integrate.
Speaker Change: So I'll start with SMS, and then I'll talk about CDP.
Speaker Change: And as we talked about how 80% of our top 50 customers are using us announcing a than it was in the early remarks.
Speaker Change: And I think that that shows that a lot of demand from both F&B, but as well as mid market and enterprise and a lot easier. So we're very excited what that tells a story around wanting to consolidated wanting things on our platform because of what the data that we have and we're doing more to expand coverage. There. So we also mentioned that we've expanded fms coverage to more six more countries.
Speaker Change: Predominantly in Europe.
Speaker Change: And we're also doing deeper integrations with SMS into other other functionality that sits outside of players. So for example, if you.
Speaker Change: You advertise when Youre doing demand Gen on other platforms for instance, medical platform you can now.
Speaker Change: You know I'd, rather just collecting emails you can also collect phone numbers and you know have a seamless integration with us at us. So I think we're really really good progress there and continue to look at like adoption rates and what percentage of our customers can adopt and how do we make it easier for them to not just do it through our sales team, but also do it through partners and obviously do it directly through our products so really.
Speaker Change: Quite a lot of progress there I think we're going to see that carryover into other messaging channels that we've been working on mobile and the future of Whatsapp and other social channels.
Speaker Change: And then the CDP story I've mentioned going beyond just you know clearly it's more than just more than just using us for marketing.
Speaker Change: Yeah, well, we've done with GDP as we realize there's really two core use cases, the first is around analytics and understand who your customers are and the second is around data governance.
Speaker Change: And for that analytics use case, we've seen a great amount of customer adoption to really understand the purpose of our product.
Speaker Change: You know what we want to do is say if there's if you wont understand who your customers are and you want to build a funnel of where my customers dropping off where are they I guess first I heard her but not repeat purchasers. We we've made our products. So easy that you can.
Speaker Change: Click in the UI and immediately turned that into a marketing campaign or marketing automation and so we're shortening this loop from insight to action and we're seeing that customers get it.
Speaker Change: In fact, if the ROI is great because you know that the cost of our CDP product pays for itself almost immediately in terms of incremental revenue or Katie as we say.
Speaker Change: So I think that analytics product I think that's going to be a big driver of growth going forward and we're excited about that that's starting to change how people think about <unk> as not just E mail messaging and marketing, but actually even beyond that.
Speaker Change: So very excited about that we've got a lot more in the works that I'm sure we'll be sharing future.
Speaker Change: Great. Thank you for all the color I appreciate it.
Speaker Change: Your next question comes from Keith Weiss with Morgan Stanley. Please go ahead.
Keith Weiss: Excellent. Thank you guys for taking the question and congratulations on a solid quarter.
Speaker Change: Yeah.
Speaker Change: I wanted to dig into the commentary a little bit.
Speaker Change: And why it weighs on growth in the next year.
Speaker Change: A little bit surprised because it sounds like the upsell motion is going and the cross sell motion is going quite well for you guys, particularly if that's a nice but the switch portfolio expanding really nicely. The expansions have been pressured by macro for a while and so youre anniversarying that and that's not like a net new impact into next year and the.
Speaker Change: The bigger land I mean, that's just you're accruing the revenues elsewhere, rather than an IRR or are you just getting it upfront so.
Speaker Change: Talk to us a little bit of why <unk> can use sliding like why there is not better off that through cross sell and why that's a incremental pressure on revenue growth into the forward here.
Speaker Change: Sure.
Speaker Change: Right Sir from you Keith Thanks, so much for the question and as we said, we don't guide specifically, but we do expect that it will continue to decline in the near term and that expectation for a near term decline hasn't changed so.
Speaker Change: If you break in our our into its components. There are three primary components of that are our first is retention second is expansion of existing products and third as cross sell and retention on the retention side. Our gross retention remains strong because we are a must have for our customers.
Speaker Change: On the expansion side, if you split that into expansion of products existing products and the cross sell expansion of existing products tends to be the largest driver of our overall expansion. It's a significant driver of NR are and that is part of why we're talking about the impacts that we're seeing there we continue to hear from customers that it's a value based <unk>.
Speaker Change: Yes.
Speaker Change: Particularly among smbs, they're very mindful if their spend they are intentional about the messages that they're spending and then also as I mentioned earlier in the prepared remarks, and as you mentioned as well as we move up market customers tend to land larger with multiple products that leaves less opportunity for expansion. It is a.
Speaker Change: Good thing overall, we like landing larger and earlier, but it does create some pressure on that expansion component of NR or and because of those two factors. We expect that that decline in the expansion is going to continue.
Speaker Change: It's consistent with what we've seen but again because our in our hours of trailing 12 month calculation.
Speaker Change: And we first started seeing this appear last year, that's part of why you're seeing that impact into next year on the cross sell side. We are very pleased with the progress we're seeing them not only with customers adopting athabasca, but also CDP and reviews and we continue to see customers who expanded as a great example, this quarter was spot and tango who.
Speaker Change: Added SMS after they had already been using <unk> for email. We also added another customer this quarter in the beauty and skincare space, who had previously switched to claim here for email and this quarter. They added SMS in order to approve their multichannel messaging and we continue to hear from customers that they see real value in that consolidation.
Speaker Change: Most importantly, they see value from it because it creates a better experience for their consumers because consolidation helps them more effectively engage consumers across channels, but they also see value because it simplifies the way that our customers run their businesses. It makes it easier for them to have a comprehensive view of performance and reporting.
Speaker Change: All under one roof with claim yet so we believe that that trend is going to continue to be an important driver of cross sell going forward.
Speaker Change: Got it Hey, just a quick follow up if we think about the expansion.
Speaker Change: Within SMB being somewhat macro related can we read through the like you're assuming a continued.
Speaker Change: Continue.
Speaker Change: The continuation of the current macro environment right now it hasn't been great into next year. So like we could take it away you say, you're being conservative about sort of macro assumptions into 2020 cod.
Speaker Change: I think that's a fair assumption, but you know as we said this and we said earlier on the call as well that this trend has been pretty consistent all year and because it has been consistent we're assuming that that's going to continue at a similar rate as we head into next year. So to the extent that the macro environment changes, we could see a shift there, but everything gets the prudent.
Speaker Change: Thing to do to assume that the current environment is going to stay stable.
Speaker Change: Absolutely that's super helpful. Thank you so much.
Speaker Change: Your next question comes from Arjun Bhatia with William Blair. Please go ahead.
Speaker Change: Alright.
Arjun Bhatia: Thank you very much.
Arjun Bhatia: I wanted to touch on the upmarket traction it sounds like.
Arjun Bhatia: To the earlier point, you were making a matter just on that.
Arjun Bhatia: Estimates are landing larger or are you seeing the sophisticated customer count increased quite a bit.
Arjun Bhatia: A host of kind of large logos to show for it.
Speaker Change: But as you move further up market.
Speaker Change: Are you seeing the competitive dynamics change are you seeing the vendors that you are displacing.
Speaker Change: And what impact is it having on win rates.
Speaker Change: Sales cycles in particular, and then as you look into next year and are our friends.
Speaker Change: What should we expect from those larger customers because it seems like some of the pressure.
Speaker Change: With smaller customers.
Speaker Change: Should we expect one year out after landing two years out after landing that those larger customers might actually expand at a faster rate.
Speaker Change: Are your customer base today. Thank you.
Speaker Change: Sure I'll take the uptick the first part on competition and how we see there.
Speaker Change: Spend in adoption of our product.
Speaker Change: <unk> products growing over time, so from a competitive dynamic as you move up into the mid market enterprise.
Speaker Change: We built <unk> to be the system of record and extremely scalable and then honestly like marketing on top of that that also scales as well so very pleased about with the expansion. We're seeing there we're competing largely with.
Speaker Change: Companies that didn't Star project did start at a database there really were marketing products.
Speaker Change: Some of them to cover just a single channel could be email it could be tax messaging could be mobile I think the fact that we cover all of those channels as a as a competitive advantage for us and the fact that we built this kind of data engine underneath so we see a lot of folks modernizing off of maybe some older technology and I think that's going to be very durable.
Speaker Change: Friend.
Speaker Change: And then as we're landing those minority talked spoke to we're seeing a lot of customers actually want to adopt more of our product set upfront which is great.
Speaker Change: And I think overtime as I talked about like we planned to expand our product portfolio.
Speaker Change: We like what we're seeing from SMS and CDP and analytics.
Speaker Change: We expect that to grow over time and so on.
Speaker Change: I do think there's opportunities for those businesses to grow with us.
Speaker Change: I'll add to the components of NR or that Amanda mentioned, one that we can start taking advantage of when we get into the enterprise is expanding across business units and geographies are one of those one of the patterns. We've seen is like when we land with enterprise businesses, there's actually an opportunity to start with maybe a brand or a region and then grow from there.
Speaker Change: Okay.
Speaker Change: A lot of room to both grow logos as well as to.
Speaker Change: Expand their spend and our you know how how much that business is relying on <unk> for all of the different parts.
Speaker Change: Okay understood perfect. Thank you.
Speaker Change: Your next question comes from Derrick Wood with TD Cowen. Please go ahead.
Derrick Wood: Thanks, Amanda another impressive quarter around margins sounds like Theres, a lot of moving parts to consider in Q4.
Derrick Wood: And I guess by my calculation ex the cash bonus payments operating margin guide would be around 8%, which is still down from the.
Speaker Change: Mid teens year to date.
Speaker Change: I'll just comment on how to think about some of the seasonal factors, especially the the degree of seasonal compression in gross margins and the seasonal uptick in sales and marketing spend and remind us why you tend to see such.
Speaker Change: Ramp in sales and marketing spend in Q4.
Speaker Change: Thank you it's a great question and I appreciate you asking it.
Speaker Change: And on operating income we discussed in our prepared remarks. The guidance includes the impact of the accrual for the new cash bonus program and think of that in the low teens millions of dollars. So its a catch up accrual for all of fiscal 2020 for them.
Speaker Change: In terms of the underlying performance what we're expecting in Q4 is our normal typical seasonality in the business, where we tend to see in our business. In Q4 is a bit of gross margin pressure, which customers also increased spending volumes.
Speaker Change: And they're sending volumes come with higher expenses in Q4, just based purely on volume as well as additional marketing expenses. This is the most important time for us here for our customers. It at a time when we want to be front and center with them and so we tend to market more in Q4 to be make sure that we are.
Speaker Change: Top of mind for our customers in this really critical time for them and.
Speaker Change: What we were expecting this quarter and this year in Q4 is very much in line with typical seasonality. So if you took out the impact of the new bonus program. Our Q4 guidance would be in line with what was implied when we issued our Q3 and full year operating income guidance this quarter.
Speaker Change: Got it thank you.
Speaker Change: Your next question comes from Terry Tillman with two of them. Please go ahead.
Terry Tillman: Thanks, Amanda and Lilly.
Terry Tillman: My question is.
Speaker Change: End of a multi parter here.
Speaker Change: In terms of just another reminder, for some and in terms of <unk>. How does that usually look in terms of seasonality of winning new customers I don't know what do they want to keep kind of those kind of decisions are off the table because of the holiday selling or because of Europe market motion you could still see some strong activity in terms of new customer business and then the <unk>.
Speaker Change: Second part of this question is I appreciate the macro dynamics and value based kind of decisioning by your customers do you assume in the holiday period that like your existing cohorts. If that's the most customers are actually going to some lower volumes than last year. Thank you.
Speaker Change: Sure. Thanks, so much Terry.
Speaker Change: I'll take the ads at first and then we can talk a little bit about what happens with how some asking Q4 mm. So from an ASP perspective, historically Q4 is a seasonally strong quarter for US now we don't separately forecast net add them, but we do tend to see many customers come to us in Q4, particularly at that low.
Speaker Change: Sure and of the market right as they get ready for that holiday season.
Speaker Change: It is important to remember that as we are moving more and more up market, we may add fewer but higher quality customers and we think that's a worthwhile tradeoff overtime. So said differently you know one mid market customer or an enterprise customer can be worth several entrepreneur customers in terms of LTV. So that's why you may see.
Speaker Change: Some movement in that Q4 number but it does tend to historically be seasonally strong an S. M. S. What we're seeing in SMS volume is it SMS tends to be seasonally strong as a result of the holiday season, and it's just a great time for brands to use SMS.
Speaker Change: Because it's a highly time sensitive time it gets consumers attention during that narrow window with that five day period for Black Friday, cyber Monday, and we would anticipate.
Speaker Change: That we're going to see that again with SMS this year.
Speaker Change: In terms of SMS and kind of what's happening with the overall trends there what we're seeing is customers, adding more subscribers and seeing healthy growth.
Speaker Change: In terms of their subscriber base with SMS, they are being intentional about the number of messages that they send her subscriber.
Speaker Change: And that is somewhat consistent has been consistent with what we've seen in the prior quarter. So overall continued healthy growth in that channel just set a little bit of a moderated pace in terms of ascending versus what we would've seen.
Speaker Change: In past, Yeah, I think a great example of customers and how they think about switching over during the quarter and the impacts of the Black Friday Cyber Monday has this is louis.
Speaker Change: Really this quarter really wanted to take advantage of the personalization and the advanced capabilities that our platform has and despite a very tight migration goal they switched over to clay via air So that they could get off Madison deliver those personalized messages ahead of Black Friday cyber Monday.
Speaker Change: Your next question comes from Nick <unk> with Scotiabank. Please go ahead.
John <unk>: Hi, This is John <unk> on for Nick Altmann, Thanks for taking my question.
John <unk>: Can you talk about your pipeline for upmarket logos and when you think about the pipeline and seasonality.
John <unk>: Market should.
John <unk>: Should we expect the bulk of that strength to come in Q4, given that's the biggest renewal quarter and.
John <unk>: Perhaps this provides the best opportunity for displacement activity.
Speaker Change: Yeah, So just in terms of pipeline.