Klaviyo, Inc. Q1 FY2025 Earnings Call

Good afternoon, and welcome to Klaviyo's First Quarter Fiscal 2025 Earnings Conference Call. Thank you. I would like to now hand the call over to Andrew Zilli, Vice President of Investor Relations. You may begin.

Thanks. Good afternoon, and thanks for joining Klaviyo's first quarter 2025 earnings call. Our earnings press release, investor presentation, SEC filings, and a replay of today's call can be found on our IR website at investors.klaviyo.com. With me on the call today are Andrew Bialecki, Co-Founder and CEO; and Amanda Whalen, CFO. As a reminder, our commentary today will include non-GAAP measures. Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release or earnings release supplemental materials, which can be found on our Investor Relations website. Additionally, some of our comments today contain forward-looking statements that are subject to risks, uncertainties and assumptions, which could change. Should any of these risks materialize or should our assumptions prove to be incorrect, actual company results could differ materially from these forward-looking statements. A description of these risks, uncertainties and assumptions and other factors that could affect our financial results are included in our SEC filings, including our most recent Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q. Except as required by law, we do not undertake any responsibility to update these forward-looking statements. With that, I'll now turn it over to Andrew.

Thanks, Zilli, and thank you all for joining us today. Klaviyo delivered a strong start to 2025 with Q1 revenue of $280 million, representing 33% year-over-year growth. We now empower over 169,000 customers worldwide from individual entrepreneurs to global enterprises to build smarter digital relationships. We are a must-have omnichannel platform for businesses looking to connect with their consumers in a meaningful way and drive revenues. Our performance once again proved out three defining themes for Klaviyo. First, we are a growth company and we are executing well on our strategy to deliver sustainable, efficient long-term growth with notable momentum growing in the mid-market and above and expanding internationally. Second, our vertically-integrated data-first approach with the powerful embedded Klaviyo data platform and fast pace of innovation are core differentiators. And third, Klaviyo is uniquely positioned to redefine the next era of consumer engagement as the only CRM built for B2C businesses. The future of marketing is more personalized, but companies can only deliver on that if they know who their consumers are and where to best reach them. With B2C CRM, we've brought together multichannel marketing automation, customer service and marketing analytics onto one AI-powered data platform. This allows companies to take action on their data and build long-term loyal consumer relationships across every touch point. B2C CRM positions Klaviyo to address a critical gap in the market, providing consumer brands with a system designed for their unique, high-volume, fast-paced needs. This is a natural evolution of our journey from a leading marketing automation platform to a comprehensive solution that unifies marketing, service and analytics. The combination of apps and platform reinforces our vision of empowering consumer brands to own their data and deliver seamless consumer journeys from discovery to post-purchase. Our platform combines advanced AI-driven analytics, expanded marketing tools and a new customer hub to bring service interactions further up the funnel, fostering stronger relationships and higher ROI. While it's still early, we are already seeing strong traction with marketing analytics and customer hub. Customers are excited to use data to power even more amazing consumer experiences. One customer who recently adopted marketing analytics converted 31% more customers and drove 49% of revenue from repeated purchases in the first six months of using the product. We also have several hundred customers in our customer hub limited beta from small entrepreneurs to large well-known global brands like K-Swiss. We've heard from many of our beta customers that this is a no brainer for them because it instantly upgrades the consumer experience. We're helping drive more signed-in shoppers which drives more personalization and less costly service interactions, delivering better outcomes for both consumers and brands. Klaviyo marketing combines our messaging channels with campaigns, flows, forms, reviews and more. It remains at the core of our platform, and in Q1, our team delivered several new features that leverage data and AI to make it even easier for brands to engage with their consumers across channels. This includes automated campaign follow-up to improve campaign re-engagement, brand voice consistency for email AI to automatically capture and apply unique brand guidelines to AI-generated content, and several new form features to drive better sign-up rates. We also recently introduced Custom Objects, which allows brands to define their own data structure with fully customizable properties. For example, a restaurant can create an object to capture reservation occasions, allowing them to store that on the consumer profile and leverage it for future engagement opportunities. Currently, in limited availability, this feature is particularly important for larger brands and customers outside of e-commerce. We also launched automated conversations for SMS, which enables our customers to drive more sales with a tailored shopping experience by integrating campaigns and flows into SMS conversations. This enables our customers to collect more information from their consumers and use that information to provide product recommendations, making the interactions more engaging and personalized. Our commitment to innovating across our platform remains core to why a diverse set of customers choose Klaviyo. In Q1, we signed new or expansion deals with companies of all sizes, including Quip, Burt's Bees Baby, Marc Fisher, Kendo Beauty and Feetures. We also power many of the fastest-growing companies in the consumer space. Bain recently released their 2025 Insurgent Brands list made up of companies with more than $25 million of annual revenue and growing 10 times their category average. Approximately 70% of the companies on the 2025 list are Klaviyo customers. Many companies are faced with a common challenge, the complexity brought by multiple point solutions in older legacy systems that don't integrate together and make it extremely difficult to build lasting consumer relationships. This is driving a secular shift as companies are looking to modernize and consolidate their tech stack to enable a faster and more personalized consumer experience. Our modern vertically-integrated platform positions Klaviyo well as companies of all sizes look to consolidate onto a unified data-powered platform. The more complex use cases that often come with larger brands play to Klaviyo's strengths. Our platform can handle the scale, security requirements and multi-country needs of many larger customers. And our API-first design offers the flexibility to support a wide range of use cases. Our competitive position against the legacy Marketing Cloud has never been stronger as evidenced by several notable new mid-market and enterprise customer wins. One great example of this is the deal we signed in Q1 with The Hershey Company. The team was seeking a more modern and intuitive marketing platform for email and SMS for their direct-to-consumer commerce platforms. They also wanted Marketing Analytics for their Hershey's Chocolate World destination and their shophersheys.com e-commerce platform, and chose Klaviyo as their partner to drive this forward. We also welcomed Belkin, a leading consumer electronics brand to Klaviyo in Q1. The amount of manual development work required by their legacy marketing cloud was slowing down the marketing team's efforts. Belkin chose Klaviyo's marketing platform to help them improve their user experience, unlock more one-to-one personalization options and leverage automation while reducing the time spent by the marketing team operating in the platform. And we signed a great new deal with Gorjana, a Southern California-based jewelry brand that sells digitally and across retail locations in the United States. They were using a point solution vendor for email and were experiencing several pain points like issues with geo-targeting, having to use separate vendor forms and difficulty with reporting and analytics. They were also going to have to use a standalone CDP to properly analyze their data. They came to Klaviyo for email, SMS push and marketing analytics because of the combination of our built-in data platform, our extensive pre-built integration library and our ability to simplify even their most complex use cases. Internationally, the investments we made in our product and go-to-market are yielding great results. Over the last several quarters, we added several new languages, expanded our SMS channel to new countries and added more sales reps with local language capabilities, fueling continued international growth in Q1. We saw notable strength in France, Germany and Spain, each of which delivered more than 100% year-on-year growth in new business in the quarter. In Q1, we signed a new deal with Moose Knuckles, a Canadian luxury outerwear brand. They were seeking a solution to better identify and understand their customers and agility in setting up personalized communications. Without a centralized CRM, they lacked a unified view of in-store and online shoppers. Klaviyo stood out for its intuitive segmentation engine, seamless data ingestion from existing systems, and AI-powered features built throughout the platform. We also expanded our relationship with Bauhaus, a leading home-improvement chain in Europe. They were using multiple vendors across their Nordics business without a single source of truth. They are consolidating that region onto Klaviyo, leveraging marketing automation and marketing analytics. We're excited to further our relationship with Bauhaus in the future. We also started working with new customers like My 1st Years, a leading U.K. baby and child brand and expanded with existing customers like Reebok for their European business. We're also continuing our targeted marketing efforts in specific regions, including our K:Sydney event, which was held today and our K:London event in June. Many of these wins were driven by our strong and growing partner ecosystem, which continues to expand our reach and functionality. Our recently announced WooCommerce partnership is already exceeding expectations with new customer adoption across diverse segments in retail, non-retail and international. In Q1, we also deepened our relationship with major tech platforms like Meta and TikTok through expanded integrations with Klaviyo. Importantly, they are seeing the value of building on the Klaviyo data platform to help their customers drive growth and build stronger data-informed relationships. And we continue to expand the number of hospitality integrations with the availability of Punch, a loyalty vendor for restaurants. Before I wrap it up and hand it over to Amanda, let me quickly touch on the current macro-environment. We've been talking with a lot of customers and have heard some consistent themes. In general, many of our customers are feeling tentative but optimistic. Many of them have already diversified their supply chain over the last year and several brands with no exposure to China mentioned they are considering going on the offensive, growing inventory for the holiday season and going after more market share. Klaviyo's importance in both favorable and challenging macroeconomic environments stems from the critical role our platform plays. We help companies retain and engage their existing loyal consumers. And those existing consumers are an important component of every business regardless of the economic cycle. Customers have also told us that consolidating from multiple point solutions to Klaviyo is a key consideration as it enables a single source of truth to build personalized loyal relationships. Building those loyal relationships is absolutely essential and Klaviyo enables our customers to do exactly that with exceptional and measurable ROI. We have a massive market opportunity ahead of us and our data-first B2C CRM platform is a key differentiator that positions Klaviyo to redefine consumer engagement. As we look ahead, we are focused on continuing to deliver the innovations that our customers and partners are asking for. This includes further integrating AI throughout the Klaviyo platform, adding more marketing channels, and expanding service use cases. We are well-positioned to be the platform consumer-oriented businesses standardize on from marketing to service to analytics, enabling them to build strong personalized relationships with each of their consumers. And with that, I'd like to turn it over to Amanda.

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

Your first question comes from the line of Raimo Lenschow from Barclays. Your line is open.

Thank you and congratulations from me. I have a simple question that you already touched on during the call. In light of the uncertain times we've experienced recently, particularly in 2022 and 2023, what have you observed in terms of customer behavior compared to those years? Thank you and congratulations once again.

Thank you for the question, Raimo. We are very pleased with the quarter and appreciate our customers for making this possible. Klaviyo is essential for the businesses we support, acting as a revenue engine that connects them to their most valuable asset: their existing customers. In times of economic uncertainty, as I've discussed with customers recently, they are focusing more on strengthening their relationships with current consumers, recognizing the strong ROI our products provide. Klaviyo is built to be reliable in any economic climate. When businesses are expanding, we can assist with acquiring new customers. Conversely, during tougher times, many companies shift their focus back to their existing customers, and Klaviyo serves as the primary resource for managing those relationships. We are pleased with our current position. While our customers are cautious, they remain optimistic due to their solid relationships and growth potential. We've also engaged with numerous businesses that demonstrate resilience, reflecting a diverse customer base with various business models and supply chains. We believe we have effectively supported them through this period, and they are cautiously but hopefully navigating ahead.

I want to emphasize a few points based on what AB mentioned. Firstly, we are very pleased with the ongoing strength and resilience in both our business and our customers. We are carefully tracking key metrics, such as the stability of customer sales cycles and the continued growth of KAV. When considering Klaviyo through various economic cycles, it’s vital to note that we focus on digital relationships, the connections and profiles that brands maintain with their consumers, rather than on GMV. This focus helps us avoid significant volatility during both prosperous and challenging times. Recent trends show KAV growth surpassing GMV growth as our customers prioritize their loyal existing relationships. From our perspective, we are dedicated to managing what we can control and leveraging Klaviyo's longstanding strengths. This includes staying close to our customers, investing in strategic growth priorities, and operating the business prudently, as we have always done.

Very clear. That's very helpful. Thank you.

Your next question comes from the line of Jackson Ader from KeyBanc Capital Markets. Your line is open.

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

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

Okay, great. That's helpful. And then a quick follow-up. If we think about all the new products that have been launched, whether it's CRM or Customer Hub, or certain what kind of growth or expectation for contribution from those new products are baked into 2025 at this point? Thank you.

I can address that. First, we haven't included a significant amount of revenue from our new products in our guidance and projections for this year. This approach allows us to refine these offerings and ensure they meet customer needs before scaling them up. Since our launch in February, we've expanded Klaviyo's focus beyond just marketing, email, and SMS to encompass the entire customer experience. We see the essential components of the B2C CRM stack as marketing, service, and analytics. Recently, we launched the first products in our service portfolio, Customer Hub, which has been in beta for a few months with hundreds of businesses using it. This platform enhances the customer experience on websites, enabling users to log in, seek assistance with past orders, receive recommendations, and get their questions answered. The response has been very positive, and like our marketing products, we're able to link actual attributed revenue to the additional sales from customers interacting with these new features. I've spoken with several small to medium-sized businesses that are seeing tens of thousands of dollars in incremental sales, demonstrating the return on investment from these new products. We're enthusiastic about the integration of marketing and service as they represent the proactive and reactive elements of customer experience. We aim to show that service can go beyond merely answering questions and actually lead to better engagement and increased sales. We're in the process of developing pricing and packaging for these offerings, and the feedback has been very encouraging. On the analytics front, we launched a marketing analytics product in February based on customer feedback. We've realized that the analytics previously available through our CDP product can serve many more businesses. We are excited to leverage RFM analysis and funnel analysis to help clients understand customer life cycle stages and connect that back to their marketing efforts, driving additional revenue and enhancing their ROI from Klaviyo. We've seen positive sales for this product in Q1, and we anticipate it will be a revenue driver. While we haven't incorporated significant revenue expectations for these new products this year, we are optimistic about their potential impact in 2026 and beyond.

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

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

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

Hi, good afternoon. Thank you. Amanda, just on Jackson's earlier question, is there a way to think about the relative sizing of those two cohorts that you mentioned, the cautiously optimistic diversifying cohort versus the offensive cohort? And as you looked at the second half of the year, you mentioned taking into account macroeconomic risk. Maybe just a little bit on your forecasting approach there. When we calculate the math, it feels like the second half revenue guide is about the same as it was before. So just a little bit on how you thought about that. Thank you.

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

Thank you very much.

Your next question comes from the line of Parker Lane from Stifel. Your line is open.

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

Yes, that's a good question. In this uncertain environment, we've considered various scenarios and potential customer responses. It's difficult to predict the future, but we want to be prepared for different situations. Historically, our business shows that we rely on digital relationships rather than gross merchandise value, which generally results in less volatility in both positive and negative aspects. This gives us confidence in our expectations for the latter half of the year.

I want to add that, as Amanda mentioned regarding the ROI of our products, we can demonstrate the ROI of SMS campaigns, which have a slightly higher cost for customers, as well as email campaigns, all integrated within Klaviyo. As long as the ROI remains very positive, even with slight variations, I find that businesses are not limiting their budgets as long as they see strong performance. This gives us confidence in Klaviyo’s future, as we’re not marketing to unfamiliar customers; rather, we’re engaging with customers we already know and encouraging their return, which undeniably enhances the ROI. This also means that the marketing budget is somewhat predictable, as it’s already established in the Klaviyo account, contributing to our confidence.

Got it. Appreciate the feedback.

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

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

Sure. I'll discuss both of the new product categories. First, regarding analytics, we believe it has broad applicability. There may be a few smaller entrepreneurs just starting out who lack sufficient data to utilize our marketing product. However, for most of our customers, we see it as a valuable add-on that's easy to integrate. Moving on to service, Customer Hub is relevant for all businesses. It enhances personalization by leveraging existing data within your Klaviyo platform and can be seamlessly extended to your website. This functionality is suitable across different market segments. Initially, we focused on SMBs to ensure a strong product-market fit. Based on the opportunities Amanda mentioned in the mid-market and enterprise sectors, we are considering ways to scale our service products for enterprise customers more swiftly. There's currently a significant emphasis on automation and maximizing efficiency through AI, particularly in combination with the Klaviyo data, which presents a powerful opportunity. We're aiming to expand this offering to a wider range of customers beyond just SMBs. Finally, our overarching vision is to create a unified experience for consumers through a single Klaviyo data platform. We want all applications that interact with consumers to be driven by one comprehensive system. This concept resonates strongly with SMBs and has unexpectedly resonated with enterprise customers as well, so we are keen to capitalize on that. Now, I’ll let Amanda elaborate on the ARPU uplift we anticipate.

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

Helpful color. Thank you.

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

Thank you. I would like to focus on the new solutions, which are an exciting addition to the core platform. Regarding the service solution AB, I am curious if it requires customers to replace an existing solution, such as Zendesk, or if it can complement those systems for the time being. How are you viewing these dynamics? Also, on the go-to-market side, should we anticipate a more personalized approach, or can these solutions also be sold through a self-service model? Thank you.

Yes, I'm happy to address both points. Let's start by discussing our service offerings, specifically the various functionalities we are developing within our K service product lineup. The Customer Hub we've launched is truly innovative. It's a new feature that integrates into a business's website, enabling consumers to log in, view their past purchases and orders, and receive personalized recommendations. It also includes a marketing component where users can ask questions and seek assistance. The nature of this support can range from service inquiries about products to marketing-related questions, like which size to choose. We believe this approach is distinctive and complements our existing service solutions. Additionally, we are concentrating on automating more of these interactions. While automated solutions have been in the market for a while, advancements in AI have significantly enhanced them. We're excited about the potential synergy with Klaviyo, and we're pleased if you want to incorporate our Customer Hub. If you've started using our Customer Hub, that's a step in the right direction. We believe our ability to develop user-friendly and scalable products, along with our deep understanding of customer data, will make our offerings very appealing. Many customers I’ve spoken to have expressed interest in a streamlined experience that integrates marketing and service, while also leveraging our analytics capabilities. They’re looking for a cohesive suite of applications. Regarding whether our approach will require higher engagement, for our small to medium-sized business clients, we take great pride in ensuring that our products are of high quality and easy to adopt without the need for direct support from Klaviyo. We anticipate that many SMBs will set up workflows independently. One of the standout features of our Customer Hub is its user-friendly design; after reviewing it, businesses can activate it on their website with just one click, no engineering or coding needed. We expect a similar user experience with our service agents. On the marketing side, while some customers may have more detailed questions and need help with complex implementations, we are ready to assist them. We have extensive experience in managing marketing across various channels and look forward to delivering the same level of service to mid-market and enterprise customers who require it.

Perfect. Very helpful. Thank you. Congrats on a nice start here.

Your next question comes from the line of Terry Tillman from Truist. Your line is open.

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

I'm glad to address this. Terry, you hit the nail on the head. As we've expanded internationally, particularly in Europe, we've achieved over 40% year-on-year growth in that region. Europe now represents over 34% of our total business. Our findings indicate that by enhancing our language capabilities and adding SMS support, we've been able to connect with users in their native languages. This has significantly eased our entry into large European markets like France, Germany, and Spain, all of which have experienced over 100% year-on-year growth. The customer profile remains quite similar, starting mainly with small and medium-sized businesses, and we are thrilled with this progress. We believe that just as we grew in the U.S. from SMBs to mid-market and now enterprise, we have the same opportunity in Europe but on an accelerated timeline. This year, we’ve made strategic investments in our local sales teams and began testing those changes. Additionally, just last week we launched the full Klaviyo website and experience in German, Spanish, and Italian, complementing our earlier French launch. We expect this will pave the way for increased growth, particularly in the SMB segment, and we anticipate an even quicker ramp-up into the mid-market. When we consider Klaviyo's overall growth, it reflects a similar trajectory as what we've seen in the U.S. around this time.

Thank you.

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

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

Yes, so regarding Meta and TikTok, our main focus has been on direct channels between businesses and consumers, such as email and SMS, where businesses have full control and a direct connection. We are making significant investments in product and engineering to expand into additional channels. Recently, we have added support for mobile applications also run by businesses. In the past year, we've explored various digital spaces where businesses and consumers engage, particularly on social platforms like Meta and TikTok. We've launched tighter integrations into their ad networks and shopping features. For instance, with Meta on Instagram Shops, businesses can now utilize customer reviews and content not only as social proof in emails and SMS but also on their websites and directly within Instagram, enhancing the connection between Klaviyo and these platforms. For TikTok, we are excited about the variety of ad units they offer. Many of these networks not only drive traffic but also enable the collection of consumer information, such as names, phone numbers, and email addresses. This capability on TikTok allows us to gather more subscribers directly from their platform, which is powerful within Klaviyo. We will continue investing in these social networks and other major internet applications, including building a tighter integration with WhatsApp. Our primary focus remains on owned channels like email and SMS, but we aim to enhance our marketing portfolio with these important additional channels for brands and consumers.

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

I appreciate all the color. Thank you, guys.

Your next question comes from the line of Elizabeth Porter from Morgan Stanley. Your line is open.

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

Sure. I'll discuss the demand side and top of funnel activities. As Amanda highlighted, our strong customer retention is leading to significant word-of-mouth referrals. This is a crucial element in driving demand. Let me break down what we're observing across different customer segments. For our smallest customers, typically just starting out entrepreneurs, we are witnessing solid performance in that group. This suggests that these businesses are really appreciating Klaviyo when launching new ventures, either because they have used us previously or are recommending us to their peers. We're excited to see continued growth in this small SMB segment. In our core SMB segment, our customers continue to grow with us. Notably, we are seeing increasing demand both internationally and beyond traditional retail into other sectors such as travel, hospitality, and restaurants. This core segment is still showing strong growth. In the mid-market and enterprise space, as Amanda mentioned regarding deal cycles, we haven’t observed any significant delays. We're pleased to have crossed the milestone of over 1,000 customers with $100,000 in ARR, indicating substantial potential in that area. Our vision of a B2C CRM built on an AI-first foundation, integrated with our Klaviyo data platform, has garnered much attention in the mid-market and enterprise segments. There’s enthusiasm for us to deliver on this, and we are seeing positive indicators for pipeline growth and customer additions.

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

Great. Thank you very much.

Your next question comes from the line of DJ Hynes from Canaccord. Your line is open.

Hi. Thank you, guys, and congrats on a nice quarter. AB, I was hoping you could talk a little bit about how you're thinking about sequencing or prioritizing investment dollars these days? I feel like from the time of the IPO, you've been very explicit. It's kind of new customer acquisition or new logo adds first, then upmarket, then international. Now the surface area is greatly expanded with all the new product introductions. Just talk about kind of prioritization of investments these days and where you're focused?

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

Yes, very helpful. Thank you.

And we have time for one more question. Your final question comes from the line of Brett Huff from Stephens. Your line is open.

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

Yes, great question. Thanks so much, Brett. So the international trends that we're seeing are, as you said, incredibly strong. We made investments last year in launching new languages, in expanding SMS multiple markets. And we're seeing those paid off this year. The fact that I think we're particularly proud of is France, Germany and Spain, each growing their new business in the quarter over 100% year-over-year, which was 4 times to 10 times faster than those markets we're growing last year. So it certainly is an important accelerator and it's an accelerator that we continue to invest behind, making investments like AB spoke about earlier of last year, we launched the product in new languages. This year, we are launching an important part of the customer journey by making local websites in German, Spanish, and Italian. So built into the guidance is an assumption that we're going to continue to see results from those strong investments that we've made. And then also that we will start to see some benefit that comes through later in the year from some of the investments that we're making now in go-to-market and localization of that customer journey, that really helps to build upon the investments that we started last year.

Great. Thanks so much.

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