Good afternoon, and welcome to Klaviyo's Second Quarter Fiscal 2025 Earnings Conference Call. With that, I would like to turn the call over to Andrew Zilli, Vice President of Investor Relations.

Good afternoon, and thanks for joining Klaviyo's Second 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 another fantastic quarter, demonstrating our continued momentum and critical value to consumer businesses worldwide as the only CRM built for B2C. In the second quarter, we delivered revenue of $293 million, up 32% year-on-year. We now empower over 176,000 customers from individual entrepreneurs to global enterprises to build smarter digital relationships that drive revenue and grow their business. Our performance this quarter once again validated the three defining themes for Klaviyo, which continue to guide our strategy and execution. First, we are a growth company and continue to execute on our strategic priorities to deliver sustainable, efficient, long-term growth. We are expanding internationally, and we're investing and making progress with our move upmarket. Second, Klaviyo remains well differentiated with our vertically integrated data-first approach driven by fully embedded AI and powered by the Klaviyo data platform. The Klaviyo data platform's capacity to process billions of events and profiles is fundamental to our real-time capabilities, which drive faster, more intelligent segmentation and personalization at scale. And third, we're making incredible progress bringing our multiproduct B2C CRM vision to life with early momentum in service and analytics and continued innovation in multichannel marketing automation. Many companies today are dealing with disconnected systems, often bolt-ons or stitched together Frankenstack not designed for fluid consumer interactions. Our platform addresses a critical market gap by providing consumer brands with a single integrated data platform designed for their unique, high-volume, fact-based needs. We unified the pre-imposed buying experience across marketing and customer service, driven by insights from analytics, delivering inherent speed, simplicity and flexibility. In fact, IDC noted that Klaviyo clearly addresses a set of needs often overlooked by other vendors and is bridging the gap between commerce and customer service. Our product and engineering team continues to innovate fast, delivering incredible new features in the second quarter. At Klaviyo London in June, we unveiled major enhancements to our marketing platform to tackle one of marketing's most persistent challenges, fragmented customer experiences. Our focus here is twofold. First, we want to support the channels that matter to our customers and be great at these channels individually. To support real-time conversational journeys through rich interactive messages, we released native support for RCS, which is the future of text messaging, and WhatsApp. And second, we are focused on making our platform even better at supporting multiple channel affinity marketing. On that note, we announced our Omnichannel Campaign Builder, a new canvas to plan, launch and measure complex multi-data campaigns across channels. We now have omnichannel across all major areas of our marketing platform. And with built-in insights and AI optimized delivery, teams can execute faster, reduce costs and increase ROI without switching tools or duplicating work. We also announced channel affinity powered by Klaviyo AI. This intelligent new capability leverages predictive attributes to automatically discern each customer's preferred communication channels and optimal engagement time. By understanding these key predictive signals, channel affinity ensures messages are delivered precisely where and when they're most likely to convert. Finally, we launched multi-touch attribution, providing real-time visibility into revenue drivers beyond last click. Now turning to our service products. The paradigm of customer service is shifting at an unprecedented pace, moving far beyond simple exchanges and returns. In the near future, it's our belief that consumers will expect highly personalized experiences with every brand they interact with, facilitated by their own personal AI agent. We are building the technology that will empower every brand to make this a reality. Just a few weeks ago, we expanded our service offering with the launch of two private betas, one for Helpdesk and another for our Conversational Agent. Our AI-first Helpdesk brings customer support into the same platform as marketing, giving service and marketing teams a shared real-time view of every customer order, interaction and conversation. Our Conversational Agent leverages the brand's Klaviyo data, catalog, content, shopping behavior and other integrations, offering tailored product recommendations, facilitating product discovery, surfacing coupons and assisting with orders. This goes beyond customer service and cost reduction efforts. Instead, we view this as the consumer's personal assistant, which today happens via chat, but over time, this agent can assist across every touchpoint a consumer has with a brand, messaging channels, mobile push, email, voice and more. This is not just for traditional customer service issues like returning an item. For example, the agent answers questions like, which shirt pairs best with the pants I'm looking at, and it can quickly provide product recommendations directly to the consumer, which ultimately drives more revenue. Our goal is to democratize this technology, making it possible for consumer brands of all sizes and across industries to provide this level of personalized experience to all of their consumers. These products build upon our multiproduct strategy, which we launched earlier this year with Customer Hub. Importantly, we view Customer Hub as much more than just customer service. It's really a jumping-off point for the future of personalization and bridges the gap between marketing and service to bring them closer together. We're very pleased with the success we've seen to date and customers love the ability to unify consumer experiences across marketing and service using the data they have in Klaviyo. When a company successfully creates seamless consumer experiences across touchpoints, it helps build more loyal customer relationships, which also drives more lifetime revenue. In fact, in just five months since we launched Customer Hub, we've generated millions in additional incremental attributable revenue for our customers. Finally, the third product category of the B2C CRM is analytics. Our marketing analytics products, which we launched earlier this year, are gaining strong momentum and already have nearly 2,000 customers. This powerful tool ensures that critical efforts like win-back emails and abandoned cart flows are precisely targeted and timed for maximum effectiveness and ROI. For example, Tibi, a women's apparel brand, harnessed marketing analytics, RFM segmentation and catalog insights to fuel post-delivery automation that is driving significant incremental revenue. The combination of marketing analytics and SMS to complement their email strategy resulted in a 100x ROI for Tibi in the past year. Across all of our products that make up the B2C CRM stack, we're taking an AI-first approach. In addition to the many new AI-powered solutions across marketing, service and analytics, we're solidifying Klaviyo's leadership as one of the next-gen technology stacks with new features like our MCP server. Brands can now access or integrate Klaviyo data directly into the LLMs they're using. And this is more than just a technical achievement. It's an important step in empowering our customers to supercharge workflows and cementing Klaviyo as the indispensable single source of truth for consumer businesses. Customers are already using our MCP server for things like planning out their campaign calendar, finding changes that can be made to flows or campaigns to drive better performance on a daily and weekly basis and other use cases. This is just one way we're empowering our customers to leverage their data for better consumer engagement. We're also proud to share that Klaviyo has been recognized as a leader in the 2025 IDC MarketScape for AI-enabled marketing platforms, which evaluates and ranks based on current capabilities and future strategy. As businesses grapple with a fragmented tech stack, the secular shift towards unified data-powered platforms at our AI-first like Klaviyo is clear. Legacy technology is a significant pain point for mid-market and enterprise companies, and we continue to see success with our efforts to displace incumbents. This quarter, we signed Winston Flowers, a premium floral and gift company. They were facing ongoing issues with their legacy marketing cloud, particularly concerning its usability and agility for their small marketing team. They chose Klaviyo for our ease of use, faster time to market, and strong multichannel capabilities. We also signed a deal with a premium coffee brand that found it difficult to execute even basic marketing functions like abandoned cart flows despite a significant investment in their legacy marketing cloud. They chose Klaviyo because they needed a solution that would deliver immediate results and provide a more intuitive and effective platform for their marketing efforts. We're pleased with the success we've seen in the mid-market and enterprise. And you've heard about many of the notable large customers who have joined us over the last couple of years. But we know there's more we can do to support the higher end of the market, and we are continuing to evolve our product and go-to-market efforts as a result. On the go-to-market side, we're adding additional enterprise experience to our team and increasing strategic partner collaboration, enabling us to drive deeper engagement with complex customers. On the product side, we continue to add features and functionality to the platform that are important to large enterprises, including custom objects, mobile in-app messaging, channel affinity and more. We are also continuing to expand the scalability of our platform to serve the largest consumer brand and the diversity of use cases they have. These features are key to winning and supporting mid-market and enterprise customers going forward, and we'll continue our rapid pace of innovation to make our platform the leading solution for their evolving needs. We continue to see companies choose Klaviyo to consolidate their marketing tech stack from the fragmented tools they have been dealing with. In the second quarter, we expanded our relationship with Princess Polly, a leading digital fashion brand with a growing physical presence. Princess Polly has been using Klaviyo email, who was one of the largest SMS customers of another vendor. They consolidated SMS with Klaviyo to leverage the power of our omnichannel platform for more effective consumer engagement across channels. We also signed a deal with Loop Earplugs, a rapidly growing company that creates stylish, high-quality ear protection. Loop was struggling with a fragmented marketing strategy relying on multiple vendors that led to a lot of inefficiency. They chose Klaviyo for our comprehensive platform that will enable them to consolidate email and SMS to drive growth and streamline their customer engagement. International expansion continues to be a significant growth opportunity for Klaviyo. In addition to the WhatsApp launch, we've simplified multilingual email campaigns in Klaviyo and launched our website in German, Spanish, and Italian. These investments are yielding results. In the second quarter, we grew international revenue over 42% year-on-year, adding brands like Nothing, a U.K.-based fast-growing challenger in the smartphone and audio category. Nothing was grappling with a fragmented CRM strategy with their legacy tool, which made it difficult to drive repeat business and loyalty. They selected Klaviyo to unify their CRM strategy and leverage our powerful automations to boost direct-to-consumer revenue. Our thriving partner ecosystem is a force multiplier, expanding our reach and functionality. We're thrilled to announce two new integrations that further expand Klaviyo's reach into the hospitality and entertainment sectors. Our partnership with Guesty, a leader in property management, will transform how property owners harness first-party data to boost direct bookings and cultivate lasting guest relationships. Our integration with vivenu, a global leader in event ticketing, will empower entertainment brands to leverage attendee data for unparalleled personalization and engagement at scale as exemplified by their work with partners like the Grammy Awards. These integrations underscore our commitment to vertical expansion and delivering transformative solutions across industries. Our vision is to empower every consumer-oriented business to standardize on Klaviyo from marketing to service to analytics, enabling them to build strong personalized relationships with each of their consumers. We are proud of the progress we have made and are driven every day by the massive amount of white space that still exists for Klaviyo. We're excited to welcome our customers, partners and all consumer businesses to Klaviyo Boston, a preeminent event for consumer businesses focused on growth, taking place in Boston, September 25 and 26. Following the success of Klaviyo London and Klaviyo Sydney, Klaviyo Boston will serve as another opportunity for sharing our strategic vision and showcasing our latest advancements in our growing ecosystem of customers, champions and partners. We will also be hosting our first Investor Day live from Klaviyo Boston on September 25, and virtual registration is open on our Investor Relations website. Before I turn it over to Amanda, I'd like to cover a couple of changes in our leadership team. I want to welcome Archana Rao, our new Chief Information Officer, who joined us in June. Archana brings 25 years of experience helping high-growth tech companies scale and will play a key role in shaping how we use AI internally to drive smarter, faster decisions and how we scale our systems to help us serve our customers better and deliver more value to the companies that rely on us. We also announced that our President, Steve Rowland, is retiring. He'll be staying on through the end of the first quarter of next year. Since joining in 2023, Steve has been instrumental in implementing our mid-market and enterprise sales motion, expanding our growth internationally, growing our partner ecosystem and building an incredibly strong go-to-market organization. During Steve's tenure, we have driven remarkable growth with our revenue run rate growing from $660 million to more than $1.1 billion today. We're incredibly grateful for his contribution and leadership at Klaviyo. And with that, I'd like to turn it over to Amanda.

Thanks, Andrew. Our second quarter results were very strong as we are delivering efficient growth at scale. Revenue grew 32% year-over-year to $293 million. Non-GAAP operating margin was 14%, and free cash flow was $59 million. These results demonstrate another quarter of strong, consistent top and bottom line performance. Our vertically integrated AI-driven data platform is the only CRM built for consumer businesses. And we are expanding the functionality as we add features across marketing, service and analytics. Customers are responding well to this vision, which drove strength in the second quarter as we added new customers, expanded with our existing customers, grew internationally and expanded upmarket. We ended Q2 with more than 176,000 customers, up 17% year-over-year and up 7,000 from Q1. This strength was driven by momentum in entrepreneurial customers with support from SMB, mid-market and enterprise, affirming Klaviyo's value in every market. We delivered a Q2 NRR of 108%, in line with the last two quarters, driven by consistent gross revenue retention, improvement in email expansion and while a smaller contributor, returns from our newer product offerings. We are advancing our cross-sell motion as evidenced by more of our larger customers adopting multiple products and the growing SMS penetration in our SMB and mid-market cohorts. We are also very pleased with the early adoption of our marketing analytics product and the success of our Klaviyo Service beta. Our success in serving larger customers is evident as we ended the quarter with 3,291 customers with over $50,000 in ARR, up 38% year-over-year. This was a record quarter of net adds into this cohort as we drove strength in both new customers to Klaviyo landing in this cohort and existing customers who are growing their businesses with Klaviyo. As you heard from Andrew, our investments towards expanding internationally on both the go-to-market and product front are delivering returns as our outstanding international growth continued in the second quarter. EMEA revenue grew 47% year-over-year, and APAC revenue growth accelerated for the second quarter in a row as our international expansion strategy is driving strong results. This broad-based strength drove the revenue outperformance in Q2 as we execute on our growth priorities. As we mentioned last quarter, we incorporated some additional prudence in our guidance due to the uncertain macro environment. However, we continue to hear from customers that Klaviyo is more critical than ever to driving their growth, and we did not see an impact from the macro during the quarter. Our results against guidance, therefore, were slightly higher than they would have been in a normal environment. Moving on, second quarter non-GAAP gross margin was 76%, down approximately two points year-over-year primarily due to increased infrastructure costs and the continued growth of our SMS product. We are beginning to see efficiencies from these infrastructure investments, and our non-GAAP gross margin was flat to Q1 due to infrastructure optimizations offset by our growing SMS mix. Turning to non-GAAP operating expenses. We saw leverage in R&D and G&A. Sales and marketing as a percentage of revenue increased year-over-year as a result of continued investments in sales capacity and timing of marketing program spend. For the second quarter, our non-GAAP operating income was $41 million, representing a non-GAAP operating margin of 14%. This came in better than our guidance, primarily as a result of the revenue upside we saw in the quarter and to a lesser extent, due to operating expense leverage. We generated strong free cash flow of $59 million during the quarter due to higher collections and the timing of payments. This result excludes the impact from Andrew's option exercise, hence, the related share sale for tax payments, which took place during the quarter. Before I turn to guidance, let me quickly touch on our revenue seasonality. As a result of the profile enforcement changes we made in February, we expect our revenue to be less volatile quarter-to-quarter as profiles tend to grow consistently throughout the year compared to the seasonal increases that can happen from sending volumes. As a result, we expect that our fourth quarter revenue will experience less of a quarter-over-quarter spike in growth than it has in prior years. Additionally, with the strength in Q2, we are reducing the amount of incremental prudence incorporated into our guidance for Q3 and the full year, but not removing it completely as the environment remains dynamic. Turning now to guidance. For Q3, we expect revenue of $297 million to $301 million, representing year-over-year growth of 26% to 28%, driven by continued strength across the business. We expect third quarter non-GAAP operating income of $32.5 million to $35.5 million, representing a non-GAAP operating margin of 11% to 12%. As a result of our strong first half performance and robust customer demand signals, we are raising our full year guidance by $24 million at the midpoint from $1.195 billion to $1.203 billion for year-over-year growth of 27% to 28%. We expect non-GAAP operating income of $144 million to $150 million, representing a non-GAAP operating margin of 12%. This guidance reflects our confidence in the resilience of our business and the value that we provide to our customers, who continue to rely on our platform to drive results even in uncertain times. In a dynamic environment, our business is more relevant than ever. In closing, our performance in the first half of the year reinforces that we are executing well on our growth strategies. We are delivering on our goal of achieving sustainable, efficient, long-term growth through adding new customers, expanding with existing customers, international expansion and moving upmarket. Our single unified platform for marketing, service and analytics positions us well to deliver unmatched value to our customers and establishes a solid foundation for continued innovation and growth in the future. I look forward to discussing more about our business at our upcoming Investor Day in September. And with that, I'll open up the call for Q&A.

Your first question comes from Gabriela Borges with Goldman Sachs.

Congratulations on the quarter. Andrew and Amanda, I wanted to ask you a little bit about your progress in the mid-market in particular. Amanda, I remember it was a handful of quarters ago where you talked about seeing the pipeline be really good and stepping up the level of investment to go after that opportunity. And now if I look at your unit economics on an LTV to CAC standpoint, you're seeing really nice improvement on LTV to CAC. So my question for both of you is give us a qualitative overlay of what you're seeing in the mid-market in particular and if there's anything else you can add to quantitatively on what you're seeing with sales productivity and how you're thinking about the scale of investment in the mid-market in particular, that would be great as well.

Yes. Thanks, Gabriela. I’m glad to address that. Customers are increasingly choosing Klaviyo in the enterprise sector. The integration of the Klaviyo data platform with the consolidation of marketing channels and service is truly resonating. Additionally, there is a growing trend toward making the entire CRM stack autonomous, prompting enterprises to consider which partner they will collaborate with over the next 5 to 10 years to create an automated, optimized customer experience. This narrative is compelling. Our unique positioning with the data platform at the core differentiates us. Regarding unit economics, we have been investing in enhancing our mid-market enterprise demand generation and sales strategies, and we are continuously refining these efforts. While we still have room for improvement, we are very optimistic about the trends we see in unit economics.

Yes. And just a couple of examples to bring that quantitatively to life. You saw the growth in the 50,000 cohort, 14% year-over-year growth this quarter in average revenue per customer. And we're continuing to see strong growth in the average revenue that we generate from our top 10 customers. So all of them are really demonstrating that progress. And one of the examples that I really appreciated this quarter in the mid-market was Mejuri, who is a prominent jewelry brand, they chose us because of our robust integrations, our ease of use and the reliability of the platform, especially after last year, they had some issues with their prior provider and heading into Black Friday Cyber Monday, they wanted to know they had a brand who can scale with them and support their business. And Klaviyo is that partner.

Your next question comes from Terry Tillman with Truist.

Congrats on the results. My question relates to the service suite of products. And I know that they're not actually generally available, I believe, but you're talking about releasing or putting into access Helpdesk and the Conversational Agent. I'm just curious, if you take a step back, and I think investors care about this is how do you size this opportunity to run your service suite versus some of the other products, whether it’s mobile, email or marketing analytics? And the second part of this is, would it be a similar playbook where maybe it starts with traction more downmarket? Or would this be more potentially actionable across all customer segments?

Yes, Terry. I'm pleased to discuss our service developments. To begin, we believe that as customer service becomes increasingly automated and autonomous, businesses will provide their customers with personalized AI agents or concierges available across various platforms. We're starting with web and chat, and we anticipate this will extend to voice and mobile applications, becoming ubiquitous. Whenever customers have inquiries—whether typical customer service issues or proactive advice—we're already observing in our beta tests that users ask questions beyond conventional service requests. For example, customers might inquire about outfit compatibility for an upcoming event, which straddles service and marketing. This conversational aspect is essential. Regarding the market size, I see the conversational marketing category being on par with marketing automation. Although we're still in the early stages, we're making excellent progress in product development and refining it with customer feedback, aiming for a timely launch. This will be a significant growth factor. For many businesses, integrating marketing with customer conversations using the same data set seems invaluable. This trend indicates the market's shift toward increased automation. Initially, Klaviyo focused on small to medium-sized businesses, but we've begun to also target larger markets. Currently, businesses—whether small or enterprise—are evaluating who can provide a personal agent for each customer, and we aspire to fulfill that need. We're collaborating with larger enterprises to utilize our Conversational Agent, Customer Hub, and soon Helpdesk. Therefore, we intend to accelerate our offerings in mid-market and enterprise segments, given the strong interest we've encountered.

Your next question comes from Brent Bracelin with Piper Sandler.

AB, talking about the moment you're in right now and I was hoping maybe you could help quantify the opportunity. You have a good base of 50,000 customer cohort mostly using marketing today. What does that cohort look like when they layer in service, when they layer in marketing, when they layer in the AI-first Helpdesk, when they layer in this AI-first Conversational Agent? Any sort of sense of what the revenue capture or kind of cross-sell could look like as you think about the full bundle?

Sure. I'll begin by reiterating what I mentioned earlier. We believe the potential in service and the products we are developing is significant, likely comparable to or even greater than marketing, as it goes beyond merely addressing customer service inquiries. It also plays a role in assisting customers in generating additional lifetime value. Essentially, every business will need to purchase a comprehensive CRM stack, aiming for all those products to operate on a single data platform that integrates marketing, service, conversation, and analytics. Additionally, they will expect this software to become increasingly automated. We are deeply focused on the concept of what an autonomous CRM looks like. This trend will probably start with B2B companies, but in the consumer space, where every interaction is already scalable, there is a clear need for more automation, personalization, and optimization. If we can enhance the lifetime value for our clients by improving their engagement with consumers, leading to higher consumer spend, we can share in that growth. While we're not ready to provide specific numbers, I believe that, in contrast to some of our marketing products, the service area represents a significant expansion opportunity. With the advancements in AI, which can deliver improved and more automated results, we foresee further revenue growth per customer as well.

Your next question comes from DJ Hynes with Canaccord.

Congratulations on a strong quarter. AB, you've always provided an interface for brands regarding marketing, service, and analytics. However, it seems you now also have a consumer-facing interface with personalized conversational AI commerce agents. You mentioned your long-term vision and its significance. Does this create potential conflicts with e-commerce partners who may be pursuing similar initiatives? How do these agents collaborate? I'd like to understand how everything fits together.

I don't believe it creates any real competition. In fact, we're partnering with many platforms and partners to develop this technology and implement it. Currently, we feel that every customer should be able to deliver their own personal agent to their customers, but that capability is not widely available yet. While major e-commerce players have adopted the technology, many others are still catching up. When I speak with our customers about the challenges they're facing, a lot of it comes down to technical difficulties. They are uncertain about how to train these models and put them into action. Fortunately, we have a strong team dedicated to this, and we are collaborating with customers and partners to address these issues. We have worked closely with our agency partners to help them build services that can integrate conversational technology into consumer businesses. Our partners and the platforms we collaborate with share the same goal, which is to support our mutual customers in achieving success and owning their futures. I'm excited about the work we are doing together.

Your next question comes from Jackson Ader with KeyBanc Capital Markets.

Amanda, can we discuss the factors affecting gross margin? With the introduction of new services and agents, as well as products that have higher software gross margins, when do you expect these to offset the challenges from SMS? Additionally, is there any effect from the seasonal smoothing of your revenue? Would gross margin also experience any seasonal effects or similar smoothing?

Yes, great question. Thank you, Jackson. When considering gross margin, I would focus on three main drivers. First is the growth in SMS, which we've discussed previously. Second, it's the investments in infrastructure and the leverage we are gaining from them. Third, we have new products. We're really excited about these new offerings, but I wouldn’t factor in significant revenue from them in this year's outlook, as they won't substantially impact gross margin right now. However, we do anticipate positive gross margin effects from these products over time, especially from marketing analytics, which uses much of the same infrastructure as our existing email plus data product. Regarding our new service, it's still in its early stages, and we're finalizing pricing, but I maintain a positive outlook on its margins. As for infrastructure investments, we've mentioned in Q1 the investments we've made and our expectation to leverage them as we grow with our customers. Our gross margin in Q2 remained stable compared to the previous quarter. This stability was due to the leverage gained from those infrastructure investments, which helped counter some of the challenges posed by SMS. Overall, I'm optimistic about our gross margin performance based on these factors. Regarding seasonality, I don't expect significant changes. While email revenue tends to be less seasonal because of the profile enforcement, which promotes steadier growth, SMS remains a subscription model tied to spending volume. We usually see a larger portion of SMS revenue in Q4, which is a major factor in this regard.

Your next question comes from Derrick Wood with TD Cowen.

Congratulations on an impressive quarter. Amanda, you experienced a significant seasonal rebound in both the total number of new customers and those with over 50,000. Could you provide further insights on this? Are you observing more seasonality with new customers, or did you notice some sequential improvement? Additionally, did any changes in pricing play a role? I’m curious about what contributed to the strong sequential numbers and what that might indicate for seasonality as we look towards the second half regarding customers.

Certainly. Great question, Derrick. Regarding the overall new customer additions, as we've previously mentioned, the main contributor was our entrepreneur segment, which typically has the largest customer base. We also observed improved additions in the SMB, mid-market, and enterprise segments. This highlights that our value proposition is effectively appealing to various customer sizes. Specifically, the growth in the entrepreneur segment is less about seasonality and more about the strategic changes made by our marketing and product teams focused on attracting entrepreneur customers efficiently and guiding them through product usage, from free users to engaged paying customers utilizing our platform effectively. In the second quarter, we implemented a new earlier payment step in the onboarding process for new customers, which helped to streamline the transition from free to paid users, resulting in an improved conversion rate. Additionally, we revamped our Klaviyo login page, one of our most visited pages, by testing various marketing messages and enhancing product and feature discovery. The redesign has yielded very positive results. I'm really proud of the team's efforts to enhance the overall new additions. For the 50,000-plus customer segment, as we've previously mentioned, this group comprises both new customers who join directly and existing customers who expand into this category. This quarter, we achieved a record number of net new additions in both areas. The new customers were close to our record highs, and the expansions reached a record number. We take pride in the fact that as customers increase their usage of our platform, it indicates our ability to grow alongside their businesses. A notable example from this quarter was a household electronics company that began with us a few years ago using only email. They have steadily expanded their engagement and, in Q2, incorporated marketing analytics, which, along with their natural business growth, elevated them into the 50,000-plus customer segment. We celebrate our customers' success as they continue to expand their businesses with us.

Your next question comes from Elizabeth Porter with Morgan Stanley.

Great. As customers increasingly adopt Klaviyo and move towards a unified data platform, how should the go-to-market strategy evolve? Should we still focus on the same buyer, or is there a need to engage more senior decision-makers? I would appreciate your insights on how the go-to-market approach changes with the expansion of the product portfolio. Are there any specific tactics we should be aware of that could help us seize opportunities, and where do you see yourselves in this journey?

Thank you for the question, Elizabeth. I view the expansion of our product portfolio as a way to open up more opportunities to collaborate with our target businesses, particularly in the enterprise sector. For instance, in marketing, we've typically engaged with the Chief Marketing Officer and their team. However, with our broader B2C CRM offerings, we’re now having discussions with Chief Digital Officers, CIOs, and heads of technology. They recognize the potential of our shared data platform and how it can be leveraged in various ways. By presenting multiple applications across analytics and new service products, our conversations are evolving to include a company-wide perspective. While we often start these discussions in marketing, we believe there will be a growing number of customers interested in adopting the complete Klaviyo suite. We're also excited about the opportunities presented by our Conversational Agent, which taps into a fresh market that didn't exist a few years ago. Our established trust with customers allows us to offer solutions that enhance customer relationships beyond traditional customer service. Many clients are keen to introduce us to their teams as they're looking to explore this new category. Our approach is changing, as we’re now engaging with different areas of an organization that influence customer experience, giving us various entry points to initiate discussions.

Your next question comes from Rob Oliver with Baird.

There's a significant international strength, with impressive numbers reflecting a 42% year-over-year increase. Amanda mentioned the accelerating growth in APAC, so could you update us on the language rollout? Are there still major regions that need to be addressed? Additionally, AB, I would like to hear your thoughts. Initially, I've seen a focus on SMBs and entrepreneurs, but I'm interested in understanding the types of customers involved. Is there an opportunity for multinational companies to leverage the Klaviyo platform for multilingual and global applications, potentially allowing us to expand into higher markets?

Sure, thanks, Rob. It's great to connect. We are very pleased with our international results, achieving a 42% year-over-year growth outside of North America this quarter. I want to highlight the strong performance in Norway, Germany, and Spain, where the new annual recurring revenue we acquired grew over 90% year-over-year. We have introduced new languages and will continue to do so later this year, so expect more announcements on that front. A key focus for us in international markets has been enhancing the product experience for customers and improving the end-to-end customer journey throughout all our interactions. For example, in the second quarter, we released WhatsApp, which is particularly important for our international customers, as it is widely used for mobile texting. We have also simplified multilingual email campaigns for our customers in Europe, making it easier for them to manage content across various languages. Additionally, we have expanded our product offerings by launching new websites in German, Spanish, and Italian and hosted important customer events internationally this quarter, including K London and K Sydney. Moving forward, we plan to keep investing in local language selling capabilities, expand our Dublin office, and enhance our partner network, as these investments will lead to even better returns from our language initiatives.

That's great. I'll add a little bit of color on the question around like, hey, is international unlocking new enterprise opportunities. And the answer is absolutely yes. I talked to a couple of customers in Europe and Asia where we're already working with them, their business in the U.S. And we started to have opportunities to say, hey, we've actually got a larger business outside the U.S., can you help? And we mentioned some of the accelerants, some of the investments that we're making in the enterprise. There's a lot of stuff we're doing. Amanda mentioned WhatsApp support in multiple languages. We're also doing a lot with data residency and data locality, spinning up new data centers outside of the U.S. to help address those needs. So I actually think that the enterprise growth we're seeing, it's not just within the U.S. I think we're going to see that it's also around the world internationally as well.

Your next question comes from Brett Huff with Stephens.

Congratulations on the impressive results. Initially, when we started working together, we believed that international markets would be a significant growth opportunity in the short term. It now appears that international expansion is closely linked with AI conversational interactions, the service beta, and ongoing growth in higher market segments. How should we consider adjusting your focus on these areas? Could you rank them and share the advantages and disadvantages of your current approach?

Yes, we strongly believe that the future of CRM, especially for consumer businesses, will be driven by AI. We anticipate that in the coming years, all companies, both enterprise and SMB, will implement an AI-native CRM stack from the outset. This will involve not only our data platform and predictive analytics but also enhancing marketing to become more autonomous and self-optimizing. Additionally, we envision customer service evolving so that everyone has access to their own agent. This presents a significant opportunity across all market segments, including SMB and enterprise, and it is a global trend, not limited to the United States. This is the primary opportunity we see, and I am enthusiastic about the advancements we are making with our service products and marketing platform, including expanding channels and possibly integrating an autonomy layer. After that, the enterprise segment represents another substantial growth area, particularly internationally, where we still have considerable potential. While that may alter our priorities, I take pride in our team's achievements in product development, positioning us to deliver a B2C CRM solution that is genuinely AI-first and can automate personalization for consumers.

Your next question comes from Parker Lane with Stifel.

AB, you've added a lot of AI enhancements to core products this year, including things like automated campaign follow-up, automation and conversations in SMS. How would you assess the adoption and utilization by different customer cohorts, the size of those customers? And how is that correlating with message volume growth today?

Yes. That’s a good question. So the AI features that we’ve rolled out so far, we track for each of them this adoption rate. And I think what we’re finding is our more advanced users, which tend to maybe skew a little bit more towards the enterprise and SMB, tend to be faster adopters. It’s actually something we’re working on. We find that a lot of the AI features we’re building. So imagine things we rolled out like channel affinity. A lot of questions I get from customers are how should I go about using this? When is it appropriate? We actually think that’s something we can automate, too. So rather than just giving people tools, actually telling them exactly when to do it, to use it, recommending it so that they can just accept those recommendations and automatically embed it in their marketing. So that’s what’s happening on the adoption side. And then what was the second part of the question?

The message volume growth...

Message volume growth, yes. I think it’s still early for that. But I think what we’re finding is the quality of the messages that folks are sending has increased quite a bit. We have a lot of stories from customers that are now, for instance, using the channel affinity feature that we rolled out. And it’s helping them prioritize email versus SMS versus other channels. And it’s leading to better consumer interaction. And that’s why the key thing for us is it’s actually how much lifetime value as we often talk about attributed revenue back to Klaviyo, how is that growing, that’s ultimately the metric that our customers care the most about. So that’s the metric that we measure as well.

Your next question comes from Siti Panigrahi with Mizuho.

This is Phil on for Siti. I just wanted to ask for all these new products like Helpdesk, Conversational Agent, the Customer Hub, how would you stack rank them in terms of revenue potential over the medium term? And then on the MCP server, what's the early feedback been? And any initial thoughts on how you’d price this?

Yes, it's promising. Out of these three, I think it's still early, so I'll share some preliminary thoughts. We are very optimistic about the potential for every business to provide their consumers with a personal AI or agent, mainly supported by our Conversational Agent technology. We anticipate significant value in this area. We're also excited about our work with Customer Hub, which incorporates the Conversational Agent, so it's important to see these two as interconnected. We believe this presents an additional revenue opportunity. Regarding the Helpdesk, we've spoken to customers who acknowledge that while our Conversational Agent handles many queries, there are still some complex questions it struggles with. That's where our Helpdesk comes in to assist. However, what excites me the most—and seems to excite consumers and our customers—is the potential for extending customer service beyond typical inquiries about product orders, evolving into more proactive use cases that resemble marketing and add greater value for the customer. As for MCP, we're not currently focusing on pricing and packaging it. It’s fascinating to see customers using it alongside their personal LLMs, finding it another way to inquire about their data within Klaviyo. We’re gaining valuable insights into the types of questions people want to ask, which influences how we develop agentic technology in Klaviyo. For example, users are requesting analyses of their recent campaigns to understand performance, and we enjoy making that data accessible. This feedback also provides excellent examples for enhancements in our analytics products and recommendations, ultimately aiding in making marketing more autonomous and improving the interactions our Conversational Agent has with customers.

Your next question comes from Arjun Bhatia with William Blair.

AB, you mentioned in your prepared remarks that you're experiencing good traction with incumbent displacements, which is reflected in the growth of new customers. I'm curious about the current state of the market regarding the replacement of legacy players. How much opportunity remains in this area? When considering this opportunity, do you find it is mainly with larger enterprises, or do you also see significant potential among smaller businesses and entrepreneurs?

Yes. I see a lot of potential in both areas, although there is some difference in the opportunities available. Among our entrepreneurs and SMB customers, there are always numerous new businesses emerging in the retail and commerce sectors. However, we believe there are even greater opportunities outside of commerce. This is why we have launched partnerships and integrations this quarter, such as with Guesty and vivenu, which open up new markets for us. We see significant opportunities beyond just retail or e-commerce. In the enterprise sector, we've made substantial progress in recent quarters, and as we delve further into this segment, we recognize a wealth of opportunities. The investments we are making in sales, marketing, and product engineering, such as the development of custom objects for tailored enterprise data models, are crucial. These enhancements allow important data to reside within Klaviyo. Moreover, our efforts to better support mobile applications and create an integrated experience for all marketing channels in one place are indicative of our progress. Customers are responding positively, acknowledging that we meet their needs with the Klaviyo data platform, our AI initiatives, and the ease of use that comes with Klaviyo. This has resulted in increased social proof that is driving our growth in the enterprise segment.

And an example recently of a customer who came to us from one of these legacy providers was a customer of ours who is in the food space. And with their legacy technology, what they were finding was that it was really cumbersome. And whenever they wanted to execute on even just very basic marketing tests, they needed developer support in order for the marketers to put their ideas into action. And the other thing that they were dealing with was that they had a totally separate data warehouse and maintaining the data integrations was a big burden on them. So they came over to Klaviyo. They actually replaced four different products and moved into Klaviyo not only for email but also for our CDP, the advanced Klaviyo data platform. And as a result, two things happened. One is they saved over 50 developer hours per month because the Klaviyo system is just so much easier and self-enabled to use; and two, more importantly, it empowered their marketers. So now they can move faster and generate more revenue. And that’s what we hear consistently from customers is that they want to reduce their reliance on development teams and increase their ability to move with speed and engage their customers.

Your final question comes from Scott Berg with Needham & Company.

This is Rob Morelli on for Scott Berg. Congrats on the quarter. Excited to see the addition of support for new channels like RCS and WhatsApp. I know it's still might be early days, but can you touch on customer feedback and interest so far? Is it just skewing more upmarket? Or is it relatively broad-based? And then additionally, apologies if this was touched on earlier, but any insight you can provide on the potential impact to gross margins with the increased adoption of these channels?

I'm glad to address that. With RCS, we see it as SMS 2.0, the next evolution of text messaging, along with WhatsApp. WhatsApp is creating a new communication avenue that is particularly gaining traction outside the U.S. Both platforms enhance the customer experience a brand can provide. We are very enthusiastic about both developments and have noticed strong interest from small to medium-sized businesses as well as larger mid-market and enterprise clients. I'm pleased with the progress we've made to support these channels and the new media types they offer. Regarding the impact on gross margins, while it’s still early, I believe the gross margin profile will likely resemble that of SMS. I see RCS eventually replacing SMS in many areas, and we view WhatsApp as a messaging channel that is comparable to SMS, although it may serve as the primary option in specific markets.

There are no further questions at this time. This concludes today's conference call. You may now disconnect.