Klaviyo, Inc. Q3 FY2025 Earnings Call

Good afternoon, everyone, and welcome to the Klaviyo Third Quarter Fiscal 2025 Earnings Conference Call. Today's call is being recorded. Now, I would like to turn the call over to Andrew Zilli, Vice President of Investor Relations. Please go ahead, sir.

Good afternoon, and thanks for joining Klaviyo's Third 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 measure 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. We had an outstanding third quarter, delivering revenue of $311 million, up 32% year-over-year. These results demonstrate our ability to build products that create more engaging relationships between consumers and businesses, get those products in the hands of businesses around the world and build a high-growth software business at scale. We're now serving more than 183,000 customers in over 100 countries, including more than 6,000 enterprise and mid-market global brands like TailorMade, Mattel, Unilever, and Reebok. A few highlights from the last quarter. We delivered another quarter of record net adds in our $50,000-plus ARR customer cohort. We grew revenue in EMEA and APAC by 43% and our Klaviyo service product line, which reached general availability six weeks ago, has the fastest adoption rate of any of our products, including text messaging. We're firing on all cylinders and see a lot of opportunity ahead, especially with the addition of Agentic AI to our products. On this note, I'd like to take a few minutes to explain how AI fits in with the products we're building and how it's helping our customers grow faster. The B2C CRM we offer is made up of three vertically integrated components: a highly scalable, fast database, restoring everything a business knows about its consumers and making that data available in real time; a set of applications and infrastructure to market, message, and serve consumers across every channel and modality; and an intelligence layer that finds opportunities to market or serve customers better and can automatically create, deliver, and optimize those marketing and service experiences, leveraging the consumer data we have for real-time personalization. AI and LLMs have fundamentally changed and leveled up what is possible in real-time personalization, the intelligence layer, and made the entire stack more effective at driving results for our customers. And we then share in that accelerating value creation with our customers. The more valuable we make each relationship between a business and an end consumer, the better for that business and the better for us. AI is improving this intelligence layer in three ways. First, it's making it faster and easier for our customers to leverage our integrated database and applications because AI can do the work businesses don't have the time or the bandwidth to do. We'll share a few examples of this in a minute. Second, AI is making the quality of the marketing and service experiences our customers are creating much better. This is a win-win for both businesses who see greater engagement and revenue and end consumers who get more relevant marketing and service experiences, thanks to AI integrated into our stack. Third, as a result of AI, we're able to make Klaviyo more available to more businesses on more platforms because they can interact with Klaviyo through natural language and new applications like ChatGPT. Let me give some examples of products we've delivered and real customer use cases for each of these elements. And many of these are a direct result of products and features we've built in the last few months and released at our largest customer and partner event of the year, Klaviyo Boston back in September. Let's start with making it faster and easier to do marketing and service. We've reimagined how marketing will happen in the Agentic AI era and launched an entirely new workflow for our customers to do marketing, and we're calling it marketing agent. This agent, which is a team of task-specific agents, can augment or do the work our customers don't have the time to do. Klaviyo customers have access to an always-on research, strategy, creative, execution, and brand safety team powered by AI agents running in the background that will suggest and build complete marketing campaigns for businesses to then review, edit, and run. We're progressively rolling out this new technology and experience to our customers, but we're already seeing customers adopting our recommended campaigns and executing them with minimal or no editing on behalf of our users. Now let's talk about making the quality of experiences better. We're already seeing the quality of campaigns our agent creates is surpassing what some businesses have time to create on their own. For example, a customer in the health industry using marketing agent saw a 41% better open rate and generated 24% higher average revenue for Klaviyo attributed value per campaign compared to campaigns they created on their own. Another customer saw a 50% better open rate compared to campaigns they created on their own and 40% lift on KAV per campaign. These results show the real revenue impact agents can have, and we're quite early in what agents are capable of. Today, agent is like adding a solid marketing intern to your team. We're developing its skills to be at the level of a marketer with over a decade of experience and instant memory of all previous marketing campaigns and results. This is a paradigm shift in how marketing will happen, where businesses and teams can lean on agents to augment their work, and we are leading and excited to accelerate. We hear from our customers and partners, while they love our products, they want to do more with them. And with Agentic AI, we're delivering this. Agentic AI is also improving where businesses can connect with consumers. Our investments in building messaging and deliverability infrastructure and applications that support rich experiences across channels and modalities are paying off. Our Customer Hub and customer agent products, which are both part of our Klaviyo service product line, which we made generally available last month, now allow businesses to use AI to chat and message with their consumers across the web, e-mail, text messaging and WhatsApp, and we plan to add more channels next year. This expansion of services is resulting in more consumer engagement and incremental sales for the businesses we serve. For example, by surfacing favorative products and tailored recommendations with Customer Hub, ThirdLove has driven more than $200,000 in incremental revenue so far this year and enables over 40,000 self-serve interactions that offloaded work from their support team, incredible results for ThirdLove. And finally, as a result of AI, we're able to make Klaviyo more available to more businesses on more platforms. The launch of our Model Context Protocol or MTP server allows companies to seamlessly integrate Klaviyo into AI clients and applications. We launched this a few months ago, built on top of our comprehensive and integrated data, marketing, and service API infrastructure. And we are seeing a lot of engagement from customers who are using it on major AI platforms like ChatGPT and Cloud. This is transforming how our customers and partners use Klaviyo. For example, one of our agency partners built a reporting workflow using the Klaviyo MCP server to dramatically reduce the time their account managers needed to prepare for client updates. Instead of spending hours pulling data manually, they now have an AI application using our MCP server that reviews last month's performance, summarizes results and examines campaigns that over- or underperform historical trends, diagnoses the probable causes and suggests next best actions. This saves them hours of manual work for each client relationship and allows them to spend more time leveling up their conversations with clients. Another partner's creative team is using our MCP server to review past campaigns and identify creative assets that are high performing and can be reused. They're then creating new campaigns with those assets and mapping specific creative to different consumer segments. This is not only saving an enormous amount of time; it's allowing them to do better marketing with their clients and produce better results. We're uniquely able to capitalize on these opportunities for a few reasons. First, vertical integration matters. And our bet on an architecture that allows for low latency coupling is paying off. The tight integration of our database and marketing, service, and analytics applications allows for rich personalization by using profile data as context in real time, and engagement and behavioral data from each application is automatically available to other applications. For example, product recommendations derived from marketing campaign engagement, service conversations, and browsing behaviors are richer by using all available inputs and instantly available across all of our products. On top of that, our ability to measure and calculate attribution natively creates a closed-loop system where AI can learn from the outcomes of marketing campaigns and service experiences to improve its performance. And lastly, we have an incredible ecosystem of thousands of agencies, developers, and system integrators who are building agents around our products and agents that extend functionality and improve customer results, like the example we mentioned a minute ago. Klaviyo Boston, the anchor event of our worldwide tour for customers and partners, put this on full display with over 1,400 attendees sharing how they're using our products and what they're building on top of them. As a result of all of the above, AI is providing tremendous tailwinds to our mission of bringing businesses and consumers closer together and huge opportunities for our growth. We're rapidly moving towards a world where every business will have access to the technology that can present their products and services in the best possible way, personalized to the individual consumer and available wherever consumers are and doing this autonomously through AI with human oversight and intervention where the business wants it, not because it's required. This is our vision for the B2C CRM and why we believe defining and delivering the customer experience will be autonomous, and we couldn't be more excited. I'd like to conclude by commenting on a few recent AI developments and why we see them as clear tailwinds for Klaviyo. Businesses win when the friction between a consumer finding them and buying from them is reduced. That's why we're very excited about Agentic commerce and various protocols that are being developed, such as the Agentic Commerce Protocol or ACP from OpenAI and the Agent Payments protocol, AP2 from Google. It drives additional sales in the short run and another consumer relationship businesses can build upon in the long run. One of our core metrics is the number of digital relationships that exist between businesses and consumers. And so any new channels that accelerate discovery bode very positively for Klaviyo. Also, as brands prepare for the rise of GPT commerce, they need solutions for maintaining direct connection with their customers. Klaviyo protects that connection by unifying first-party data in the Klaviyo data platform, which allows brands to maintain visibility and turn engagement on agentic services into meaningful, measurable customer experiences across all channels. We also believe agentic commerce and commerce through natural language interfaces will become more common, and we're excited to integrate those protocols into our messaging infrastructure and marketing and customer agent products. We're offering consumers an alternative to browsing a website or a store and instead chatting or talking to an AI agent from a brand that can handle queries and transactions on its own across multiple channels. We're also excited to see more infrastructure built to create agents and agentic workflows where customers can use Klaviyo outside of our own user experience. While we'll provide customers with agents and algorithms within Klaviyo that are excellent at various aspects of marketing, service, and analysis, we're also building Klaviyo as an open platform so other developers and companies can build agents that integrate into ours. We're successful when our customers are successful, and we're excited to expand our already large partner ecosystem to include more AI-first developers and builders. To our customers and partners, thank you for the trust and support. We're very excited about what we'll build together. And to Klaviyos around the world, thank you for your hard work and dedication to supporting our customers. We're still only 1% done on our mission to empower creators to own their destiny. We're excited to build, invest, and lead and bring this AI-powered future to businesses of all sizes around the world. And with that, I'll turn it over to Amanda.

Thanks, Andrew. Q3 was another outstanding quarter for Klaviyo. Demand is strong across every growth engine. AI is amplifying our impact, and we are driving innovation for our customers as the definitive CRM for B2C businesses. Revenue grew 32% year-over-year to $311 million, reflecting robust demand from new customers and continued multi-product expansion from our existing ones. International revenue growth accelerated for the sixth straight quarter. We had record net adds into our $50,000-plus customer cohort. NRR accelerated to 109% and adoption of our new service product is already outpacing what we saw from SMS at this same stage just six weeks after launch. The results are clear. Our growth engines are delivering, and AI is a force multiplier. We're investing for high growth while maintaining strong unit economics. Non-GAAP operating margin this quarter was 14.5%, meaning our Rule of 40 performance was nearly 47%, our highest in four quarters. There are fewer than 10 public software companies who are growing more than 30%, over $1 billion in revenue run rate and achieving the Rule of 40. We're proud to be among that top performing group. At our Investor Day, we outlined three engines driving Klaviyo's long-term growth: multi-product expansion, international acceleration and mid-market and enterprise momentum, all fueled by AI, which creates tailwinds for our business and positions Klaviyo to be the platform of choice for brands everywhere. In Q3, each of these engines delivered meaningful progress, which underscores the power of our model. Starting with our multi-product platform. The foundation of our growth is our large and growing customer base. In the third quarter, we added 7,000 new customers, bringing us to more than 183,000 customers, up 17% year-over-year. Companies are choosing Klaviyo as their B2C CRM because we help them grow their businesses by unifying their customer data, marketing, service, and analytics applications and now by bringing Agentic AI into that same connected platform. And as we drive success for our customers, they in turn are growing their business with us. NRR rose to 109% in the third quarter, driven by email expansion, strong text messaging cross-sell and momentum from newer products, including marketing analytics. At Klaviyo Boston in September, we accelerated innovation across the platform. In addition to the marketing and customer agents Andrew talked about, we enhanced Klaviyo marketing with new omnichannel capabilities and new channels, including WhatsApp. We also released to general availability our new product line, Klaviyo Service with Customer Hub, customer agent, and help desk. Our product velocity is accelerating, thanks in part to internal AI efforts, and we're now deploying product updates 270 times a day and have over 50 AI models in production that are predicting customer behavior, surfacing insights and marketing analytics, and helping personalize experiences across Klaviyo Marketing and Klaviyo Service. Our new Klaviyo service products are off to a fast start, increasing penetration faster than SMS did at the same point in its launch. Adoption is strong across all sizes of customers, from entrepreneurs all the way up to the mid-market and enterprise. In fact, last week, one of our customers, a large fashion business, signed a seven-figure renewal with us that included adding customer agent and customer hub across six of their portfolio brands. We view Klaviyo service as a long-term revenue engine with the potential to rival and exceed our marketing products as it scales. These launches further expand our multi-product platform, making Klaviyo even more powerful for our customers. We consistently hear from customers about the importance of having one unified platform for engagement, and that's driving continued growth across the entire platform, including text messaging, WhatsApp, and marketing analytics as well. Because our pricing model scales with the value we deliver, not with seats, our success grows directly alongside our customers. We price on a per-profile, message, and resolution basis, which lines up perfectly with the outcome-oriented business models AI is enabling. Today, more than half of our ARR comes from multi-product customers, which is clear proof that customers want to have everything running off of one platform. This deepens our relationships with customers, improves retention, and drives long-term growth. Turning now to international. Growth continues to accelerate. Revenue outside the Americas grew 43% year-over-year, our sixth consecutive quarter of faster international growth, with EMEA up 48% and gaining momentum from Q2. In Q3, we added four new languages to the platform, expanded text messaging coverage to 22 countries, and introduced WhatsApp, which was a highly anticipated channel for our global customers. EMEA and APAC now represent more than 35% of total revenue, reflecting the strength of our international strategy. Our focused investments abroad are doing exactly what we intended. They're driving strong growth and expanding Klaviyo's global opportunity. Momentum in the mid-market and enterprise continues to build. We now serve 3,563 customers with over $50,000 in ARR. That's up 36% year-over-year, including a record 272 net adds this quarter. This was driven by a record number of new lands directly into the cohort. We're proud to welcome and expand with iconic mid-market and enterprise brands such as Bissell, Rhone, Books and Proper Hotels, brands that trust Klaviyo to deepen customer relationships and drive growth. Another global brand that exemplifies the power of what we're building is Meshki, an Australian-founded women's fashion brand now selling in over 190 countries. Meshki has embraced Klaviyo as its system of action, recently adding marketing analytics to power their omnichannel marketing. With Klaviyo, they're personalizing every touchpoint from product recommendations and campaigns to customer journeys and interactions, all powered by their own first-party data. Meshki also relies on Klaviyo as a central source of truth. As they scaled their U.S. presence, the team used Klaviyo to guide where to invest in infrastructure, shipping, and local distribution, transforming customer data into operational decisions. It's a great example of what Klaviyo's B2C CRM is built to do, to help brands grow faster and turn every interaction into long-term loyalty at global scale. Turning to the P&L. Non-GAAP gross margin was steady at 76%, in line with Q2, as benefits from scaling infrastructure balanced out the continued growth of text messaging. Importantly, non-GAAP gross profit growth accelerated, underscoring how we drive operating leverage as we scale. Non-GAAP operating expenses also saw broad-based leverage this quarter, improving 170 basis points year-over-year as a percentage of revenue, reflecting the power in our operating model and our ability to deliver strong growth while investing to capture an even larger AI-driven opportunity. Non-GAAP operating income for the quarter was $45 million with a 14.5% margin, up slightly year-over-year. This performance exceeded our guidance, driven by strong top-line outperformance and disciplined execution. We generated $47 million in free cash flow for a 15% free cash flow margin, which was also up year-over-year. Turning now to guidance. We are entering the peak holiday season from a position of strength, supported by robust customer demand. For the fourth quarter, we are increasing our revenue expectations to $331 million to $335 million, representing 23% to 24% year-over-year growth. We expect fourth quarter non-GAAP operating income of $43.5 million to $46.5 million, representing a non-GAAP operating margin of 13% to 14%. As a reminder, we implemented profile enforcement earlier this year, which reduces seasonality in our Q4 and Q1 revenue, making quarter-on-quarter growth steadier over the course of the year. We do expect our fourth quarter non-GAAP gross margin to experience typical seasonal impact from increased text messaging volumes. Based on our strong third quarter and our momentum heading into Q4, we are raising revenue guidance for the full year by $18 million at the midpoint to $1.215 billion to $1.219 billion for year-over-year growth of 30%. We expect non-GAAP operating income of $161.8 million to $164.8 million, representing a non-GAAP operating margin of 13% to 14%. This will be another year of delivering results above the Rule of 40. Rule of 40 is an important metric for us because it represents our commitment to strong growth with good unit economics. We will continue to invest to be the definitive CRM for B2C businesses, and we strive to deliver Rule of 40 as we do so. Looking ahead to 2026, we're confident in our growth trajectory and in the results we are seeing from our AI-powered growth engines. Based on that progress, we expect to deliver at least 21% to 22% revenue growth next year. Our core marketing products continue to deliver a strong foundation for growth. We expect to drive further adoption and expansion, particularly in mid-market, enterprise, and international. And we're seeing meaningful early traction from our new AI-powered products. Our 2026 outlook currently assumes limited near-term revenue from these launches. That said, given the pace of adoption, the upside ahead of us is significant and creates clear long-term runway as these products scale. From a profitability standpoint, we expect to increase our 2026 non-GAAP operating margin by at least one percentage point from our updated 2025 guidance. To close, Q3 demonstrated Klaviyo's strength, high growth, strong unit economics and continued progress across our three growth engines: multiproduct expansion, international growth, and mid-market and enterprise momentum. AI is accelerating our business. It is unlocking new possibilities for customers to use Klaviyo to connect with their consumers in smarter, more personalized ways. It amplifies our growth, and it strengthens our foundation for sustained leadership. We believe this is just the beginning. With our unique combination of first-party data, relentless product velocity, and Agentic AI as a force multiplier, Klaviyo is positioned to be the definitive winner in the next era of consumer engagement. With that, we'll open up the call for questions.

Our first question comes from Derrick Wood from TD Cowen.

AB, this is for you. I guess, at your conference, Accenture talked about fatigue in the legacy MarTech market, and there's a lot of desire to change out legacy tech and leverage new AI tech. You talked about seeing a robust replatforming cycle over the next two to three years. I know your new products in AI and CRM are still early. But now that you do have these agents in the market, are your conversations or pipelines evolving more around replatforming and AI adoption? And I mean, do you see 2026 as a step function and these type of engagements? Or how do you view this cycle playing out?

Yes, certainly. In the mid-market and enterprise sectors, we're seeing strong growth. We've added over 50,000 new customers this past quarter. There are a couple of key factors driving these discussions. I believe there's a notable acceleration happening for two reasons. The first is a traditional factor, where we're integrating our data infrastructure with marketing service analysis and application stacks. This integration helps with deliverability, creative design, and supports real-time interactions with customers. The second factor involves the use of agents and agentic workflows. Many large enterprises are expressing that there are opportunities they want to pursue but can't due to limitations in data analysis or design processes. They are seeking assistance in identifying ways to take action. Additionally, customer service is evolving; companies are starting to view it not just as a response mechanism for issues but also as a proactive tool for guidance and growth. There's a classic challenge of software compatibility that we're addressing, and with the advancements brought by LLMs, we see an opportunity to create a more intelligent technology framework. This will fundamentally transform how CRM operates for consumer-focused companies, making it more agent-driven. Operators will no longer have to make every decision alone; agents will assist with tasks they can't or prefer not to handle. Klaviyo's closed-loop system not only stores data and helps generate ideas but also evaluates performance, enabling improvements through machine learning and AI. I'm having engaging discussions with our enterprise clients and potential customers who are enthusiastic about this future. I believe we're well-positioned to deliver on these developments.

Our next question today comes from Samad Samana from Jefferies.

So I wanted to stick on the AI theme. And I know that you guys talked about the Shopify relationship. But I was wondering if you could dig deeper into how the large platforms like OpenAI are working more closely with Shopify and giving them access to maybe millions of consumers and how that ultimately benefits Klaviyo as you think about how those could potentially empower the merchants that you're helping and become more profiles, especially given how embedded you are in the Shopify ecosystem. How are you thinking about that in particular?

Yes, absolutely. Let's discuss the AI ecosystem a bit. Since our inception, Klaviyo has focused on partnerships. We've examined the ecosystem to understand how we can integrate and collaborate to enhance the experience for the businesses we support, ultimately improving their results. First, in terms of commerce and fostering consumer relationships, this is a key aspect of our business model. We aim to connect more businesses with consumers, which we consider a vital asset for those we serve, as it forms one of our primary revenue streams. The ability to facilitate commerce through tools like ChatGPT is an excellent way for consumers to discover more businesses, creating a smoother experience. As we've mentioned earlier, this leads to medium- and long-term growth for our clients by providing them with additional consumer connections. We're enthusiastic about enabling commerce through conversational interfaces, and we are working to incorporate this feature into our customer agent. Looking ahead, we envision that every business will have its own customer agent—essentially the most knowledgeable individual about their products, available in real-time, around the clock. We aim to develop that technology. Once we address queries, such as product recommendations, we want to enable consumers to make purchases directly through that interaction. In the future, instead of browsing websites, consumers could engage in conversations with a business-provided agent to complete transactions. Furthermore, we see the existing chat platforms as new avenues to engage with Klaviyo, which excites us. Indeed, our customers and partners are beginning to utilize these AI tools to interact with Klaviyo, primarily for data analysis so far. However, we anticipate that soon they will begin to use them to design marketing campaigns and initiate those processes. Many of our customers express that their progress is constrained mainly by time and their ability to build and execute marketing strategies within Klaviyo. We believe these new chat-based tools will significantly enhance that workflow, allowing them to leverage more of Klaviyo. We thrive when businesses form more connections and expand their marketing efforts to deliver enhanced customer experiences, which is why we're committed to these developments. Lastly, while it's still early, many platforms are rolling out agent builder experiences, which we view positively. We foresee a future where users will create Klaviyo campaigns and optimize them through these workflows and agents, both within and outside of Klaviyo. This is beneficial, as the more businesses can market, create customer experiences, and better understand their customers, regardless of where they do it, the more value it brings to them—and to us.

The next question is from Matt VanVliet from Cantor Fitzgerald.

I wonder if you could help us think about the attachment of service already and the fact that it's tracking so far ahead of even some of your best products in history. Are these customers that are replacing something on kind of the legacy marketing stack? Were they doing things sort of haphazardly and this brings it all together? And then maybe more importantly, how is the new product like service helping the conversation of multiproduct expansion, knowing that you can bring it all on a single platform and have that single source of truth?

I’ve been really impressed with what our product engineering teams have accomplished for all three of our Klaviyo service products. Let’s go through each of them. We launched the general availability just over a month ago, and we’re closely monitoring the tracking week by week. The trajectory looks fantastic. In terms of what these products are either replacing or enhancing, I’ll discuss them one by one. For our Customer Hub and customer agent products, we’re discovering many new opportunities. Our Customer Hub product now incorporates personalization capabilities that were previously available only in Klaviyo messaging, allowing businesses to embed these experiences directly into their websites, and potentially their mobile applications in the future. This means that when consumers visit the website, their entire experience is personalized, leading to additional revenue, as we've mentioned. It’s an easy conversation with customers, who see the value in taking successful messaging practices and applying them to their websites. Many businesses previously had no product in this area, which creates demand for our solution. Integrated into the Customer Hub is our customer agent feature. If consumers have questions and want to chat, they can receive assistance and personalized advice. We’re observing some remarkable interactions within our dataset, where consumers engage in extensive discussions about which products best meet their needs, resulting in tailored recommendations. Service is evolving from merely resolving issues to enhancing pre-sales interactions, which is a significant shift in perspective. Businesses are eager to implement this feature since it generates revenue while also helping to manage support volume. The third product is our customer service help desk, which features built-in AI capabilities. This includes functionalities where, if a conversation is initiated with our AI agent, it can perform tasks such as pulling in product recommendations and relevant information which is then relayed back to the support representative handling the conversation. This integration improves response times and resolution rates. Our offering caters to small businesses, often replacing existing customer service software that typically only manages support workloads. We are very excited about our progress in the first 40 days. We are discussing the significant impact of artificial intelligence, and we want to emphasize our efforts to expand the use of AI beyond just marketing to include applications on websites and in customer service, which is part of our broader strategy to develop a comprehensive consumer CRM.

Siti Panigrahi from Mizuho is up next...

That's great. Congrats on a great quarter. And AB, thanks for all that commentary on AI. That's helpful. Amanda, I want to ask you about your '26 guidance of that 21% to 22% growth. So you have a lot of product announcements there and also there are pricing model changes as well. But what gives you that confidence for next year's growth? What is embedded into that guidance?

Yes. And the way that I think about it is we are incredibly confident in our growth trajectory. And that preliminary '26 outlook that we gave is a strong baseline for growth next year with clear upside ahead. So we have just launched some very exciting new products in AI and expansion into new products and new service categories. We are very excited about the traction that we're seeing. As AB mentioned, you have service off to an even faster start than SMS was at this stage, but we're really early in the journey. And so at this point, we're not factoring significant revenue in there for next year. So there's even more upside to that number as those products continue to grow. And I think the other thing that gives us incredible confidence heading into next year is that our existing growth engines are really delivering. They have strong momentum as we head into the international or into next year. In international, we saw our sixth straight quarter of increasing revenue growth rates outside of the Americas, which shows that we are really growing and increasing that global opportunity that we have to build the business. In mid-market, this quarter, we had a record high number of adds into the 50,000 customer cohort, which really shows what we talked about at Investor Day, which is that customers are pulling us up into that mid-market and enterprise space because, as we just talked about earlier with AB, they want to replace those legacy tech stacks and have a more modern AI-driven way for interacting with their consumers. And then in multi-product, over half of our ARR is coming today from customers who are multi-product, which shows us that those customers really want to consolidate their platforms and they really want to consolidate their platforms with Klaviyo. So we have a huge opportunity ahead of us there with service. We think service could be as big, if not bigger, than our marketing products are today. And then, of course, AI accelerates all of that. AI makes it faster and easier for our customers to use the product. It opens up new surfaces and new places where we can generate demand and interactions with the product. And importantly, it drives even better results. You heard some of the examples that Andrew shared around marketing agent and the uplift that it's driving in open rates and in KAV or the revenue that our customers drive. So again, those products are early in market. We're already monetizing customer agent today. We're going to start pricing pilots for marketing agent in the next few months. And as they continue to grow and expand in adoption and usage, again, we see upside there. So bottom line is that what gives us confidence is that our growth engines are firing on all cylinders, and we're in the early innings of massive AI and multiproduct opportunities that are ahead of us.

The next question is from Tyler Radke, Citi.

There have been many productive discussions about AI and Service Hub. I want to focus on international growth, which has been impressive with consecutive quarters of acceleration. Do you believe this growth can sustain in the future? Can you provide insight into what we should anticipate regarding future developments? I understand you mentioned plans to add new languages and expand text messaging capabilities, but how far along are we in these product advancements? Also, do you have any thoughts on the sustainability of this growth?

That's great. I'll provide some insights on what we're doing, and then Amanda will discuss the numbers. We're proud of achieving 43% year-on-year growth and believe we can maintain high growth rates in the coming years. We're still relatively early in our efforts in Europe and Asia, with Europe slightly ahead. Over the last 12 to 24 months, we've prepared extensively for this expansion. We've increased our presence in both Europe and Asia, particularly in key markets. On the product side, we've made significant progress, especially in internationalization, which has enhanced our products and increased accessibility in various channels. For instance, having SMS available in multiple languages is beneficial, and we recently launched WhatsApp globally, which is crucial for the European and Asian markets. We have more region-specific channels set to launch soon, targeting areas where consumers and businesses interact. Additionally, we're not only expanding our customer and go-to-market teams but also boosting our infrastructure. We have a global presence and are establishing new data centers in Europe and Asia, which will benefit our larger customers and align with our enterprise strategy. We're excited about our growing customer base and expanding partnerships in key markets, and we believe there's still significant room for growth ahead of us.

Yes. And in terms of what helps drive that consistency in growth going forward and our outlook in international, it's the product expansion that AB talked about. And it's also the progress that we have on the go-to-market side around building out all of the surround sound around those product innovations. It's getting the local partner network set up, both agency partners and the platform partners as well, great platform partners, not only Shopify, who we have an incredibly strong relationship with, but partners like PrestaShop in France and Shopware in Germany, and then also continuing to build out the customer experience, including the website, the local customer case studies. And so all of that contributes to making this a truly strong, consistent growth platform for us going forward.

The next question comes from Rob Oliver from Baird.

I think at the Analyst Day, you guys called out, I think it was over 600 legacy replacements in the last couple of years. And there's been a few questions, Garek's, and one other that have tried to touch on, I think, this opportunity, which is, I think, so exciting for many of us, which is that this combination of service, marketing, and commerce has actually been tried before and there's buying there. And so maybe you can talk about as we look into the next year and the next couple of years, the pipeline you have building right now, some of the customer examples you called out, the fashion brand, seven-figure renewal, how should we think about that opportunity increasing over that kind of 600 number over the last couple of years?

We don't have any specific numbers to share today, but the momentum is impressive. Similar to our international efforts, there are initiatives we are currently finalizing that will yield even greater benefits. For example, we recently launched our Analyst Relations program and are now collaborating with more system integrators, which is connecting us with larger enterprises. Enterprise and international efforts are closely linked, and we have already partnered with several large multinationals, which we expect to improve further as we advance our international initiatives. The foundation of our strategy rests on two key principles. From the outset, we've emphasized that your data infrastructure should closely align with your marketing messaging. Coupled with our service initiatives, customers appreciate the concept of a single, increasingly intelligent database utilizing LLMs and AI to deliver a unified experience across all channels. This unified experience matters significantly to them; they want to leverage their data at scale to generate recommendations accessible across services, websites, mobile apps, and interactions in chat or voice conversations, all made possible through AI. There's a lot we are currently implementing, and the results we see are partly reflective of actions from the past 12 to 24 months. However, I believe even more opportunities lie ahead. Additionally, we've noticed a level of social proof emerging; businesses that previously did not view Klaviyo as an enterprise brand are beginning to change their perception, and I anticipate this shift will continue to gain momentum.

Ryan MacWilliams from Wells Fargo has the next question.

Great to see continued strong new customer additions. This question is more in regards to your customers. So we're hearing SEO struggles come up more for SMBs. And I was wondering, are you seeing customers look to Klaviyo as a way to support new market activities to combat SEO efficiency getting more challenging? Or are you seeing existing customers look to add new use cases as a result?

Yes, that's an excellent question. I want to highlight two points. We view Klaviyo as essential to how businesses operate, engaging with and developing their most important asset: their customers. We have observed two trends. Some businesses are experiencing significant growth through AEO and leveraging various AI applications, which is enhancing their consumer relationships. Conversely, other businesses that face uncertainty in their strategy are returning to Klaviyo to explore how they can optimize their existing customer relationships and nurture them more effectively. This is where AI becomes crucial. Our goal is to provide every business with the best possible experience pathways for their consumers. When they acquire customers, these relationships become more valuable, durable, and have a higher lifetime value. While the situation varies, we find that during uncertain times, companies tend to seek our assistance. As an example, with the upcoming holiday season, many businesses we partner with, particularly in retail, are preparing for a significant increase in returning customers. Shoppers during the holidays tend to return to familiar businesses, which explains the uptick in Klaviyo usage. We are excited to offer AI functionalities that will help these businesses better connect customers with the right products or services during this critical time of year.

The next question is from Scott Berg, Needham & Company.

Really nice quarter here. I guess one question for me is we've been to a lot of sales and marketing conferences in the last month or two. And we're seeing a ton of customer interest in the space, but budgets tend to be just a little bit light right now. And your commentary suggests that there should be a lot of expansion of budgets on some of this newer AI functionality as we get into the new calendar year. Does that track with what you all are seeing today? Or are you seeing customers more emphatically kind of spending on some of this functionality here even in the third or fourth quarters?

Yes. I have two points to clarify about our role in the awareness buying process and the marketing and sales cycle. First, every product we develop at Klaviyo is designed to demonstrate its return on investment; there needs to be revenue directly linked to that product. Many sales and marketing tools can't make this claim since they often measure productivity or time saved without directly showing the revenue generated. Second, there’s a significant difference in how we create products focused on marketing and sales for revenue generation compared to other market offerings. We refer to this as agentic. While some AI products assist individuals in their tasks, which is beneficial, they don’t perform the work for you. In Klaviyo, our AI applications are designed to take on tasks that businesses may lack the time or skills to complete, or simply prefer to avoid. We have shifted the approach from using software just as a tool to an agent that can handle a large portion of the workload, allowing humans to review the outcomes. For instance, our marketing agent not only generates creative content but also entire campaigns, selecting targets and purposes. Customers can review and make minor adjustments before deployment, which transforms the marketing process. We learn from this interaction to optimize future content and campaigns automatically. This represents a new perspective on utilizing AI, one that's more focused on driving return on investment. We've established numerous quality checks in our marketing agent to ensure reliability, which has led to enthusiasm from users who want to apply our methods to their human-generated content as well. The key takeaway is the distinction between driving actual revenue and performing the work versus merely being a supportive tool in the process.

Up next is Arjun Bhatia from William Blair.

I just had a couple of quick ones. First, Amanda, I think you mentioned you're going to start running sort of pricing pilots for marketing agent coming up here. Can you just maybe touch a little bit on what that might look like and what you're starting to experiment with? And then second, we're heading into Q4, an important holiday season, as you pointed out, just would love to get your sense on how you think that's shaping up relative to last year?

Sure. We're seeing impressive results from our marketing agent. During the call, we highlighted some of the exceptional improvements our customers are experiencing, such as higher open rates and increased KAV per campaign. This tool is enhancing their existing efforts and allowing them to achieve more high-quality work in less time, generating considerable excitement and value. Over the next few months, we plan to experiment with a pricing pilot to explore how we can monetize this. We’ll continue integrating essential features into the product that we believe all brands should access, such as the image enhancements discussed in our last quarterly call. For areas where customers are noticeably benefiting, we are developing a pricing strategy and are confident in this approach due to positive results in other AI-driven areas of our product. Currently, customer agents are live and showing excellent outcomes, contributing to paid revenue. We are also achieving strong results with our marketing analytics, which includes AI-driven insights that help customers better target their campaigns. For instance, one customer is utilizing our marketing analytics and its predictive gender feature to enhance their targeting and increase KAV. This traction gives us optimism about our monetization efforts. Regarding the holiday outlook, we recognize that this season is critical for our customers as they generate a significant portion of their annual revenue. They are intensely focused on making this holiday successful. While it's challenging to predict exactly how the holiday will unfold, we can confidently say that, historically, consumers tend to return to brands they trust. As our customers prepare for the holiday, they aim to strengthen relationships with their loyal customers to ensure a successful season. Klaviyo is key in assisting these brands with their marketing efforts, and we are becoming increasingly vital as they incorporate service into their operations to create a comprehensive consumer experience. Looking ahead to the holiday season, we are confident that customers will turn to us, regardless of how the season progresses.

And our final question today comes from Terry Tillman, Truist Securities.

This is Connor Passarella speaking on behalf of Terry. I want to follow up on the earlier comments regarding the holiday season, particularly in relation to the adoption of our service products. For the three service products, we have introductory promotional pricing available until December 31. Is there generally a significant interest from customers to invest in these new products during the holiday period of Q4, or do customers tend to focus more on wrapping up their year?

Yes, that's a great question. Within our service product line, we're noticing some different behaviors among the three offerings. Let's go through them. First, our Customer Hub product has been seamlessly integrated into our customers' websites and stacks with just a few clicks, drawing on all the data in a Klaviyo account. Many customers are keen to adopt this, especially with the holiday season approaching, as they see it driving additional revenue. We're seeing strong interest there. Similarly, customers who haven't yet used our AI customer agent, which can resolve conversations automatically or assist consumers, are starting to test it and deploy it on a larger scale, with good uptake. For our help desk product, however, depending on team size, it may involve a more significant adjustment period. We've had many discussions with clients who have expressed interest but prefer to reconnect after the holiday rush in December or early January. So, this product might see a delay of a few months. Overall, I'm genuinely excited because we launched all these products at the end of September, and many companies have indicated their technology setups are typically finalized by year's end. Despite this, we're already seeing impressive growth at an unexpected time. To summarize, we've been a public company for 2 years, and I want to reflect on our achievements. Amanda mentioned these points. We've been adding new logos, expanding our product range beyond email and text messaging to include various marketing channels, customer service, analytics, and our Klaviyo data platform products. We're truly building a comprehensive CRM stack. We've seen substantial growth in international markets and larger enterprise accounts, aligning with our objectives since going public. We aim to be one of the highest growth software companies at scale while proving profitability, and I think we're doing an excellent job. Additionally, we view AI as a major driver for our business and our customers. By equipping our software with a logical engine, customers will enhance their marketing efforts and create better experiences, ultimately increasing lifetime value with consumers. When our customers succeed, we succeed. Thank you all for your time, and we're eager to continue our progress.

Once again, everyone, that concludes today's conference. We would like to thank you all for your participation today. You may now disconnect.