Earnings Call Transcript - KVYO Q1 FY2025

Operator

Good afternoon and welcome to Klaviyo's first quarter fiscal 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again press star 1. Thank you. With that, I would like to turn the call over to Andrew Zilley, Vice President of Investor Relations. You may begin.

Andrew Zilli, Head of Investor Relations

Thanks. Good afternoon, and thanks for joining Klaviyo's first quarter 2025 earnings call. Our earnings press release, investor presentation, SEC filings, and a replay of today's call can be found on our IR website at investors.klaviyo.com. With me on the call today are Andrew Bielecki, co-founder and CEO, and Amanda Whalen, CFO. As a reminder, our commentary today will include non-GAAP measures. Reconciliation 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.

Andrew Bialecki, CEO

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

Amanda Whalen, CFO

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

Operator

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 in your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. We ask that you please limit yourself to one question before returning to the queue. Your first question comes from the line of Remo Lenschau from Barclays. Your line is open.

Remo Lenschau, Analyst — Barclays

Perfect. And congrats for me. Simple question. You addressed it on the call already a little bit. Like, if you think about uncertain times, AD and Amanda, what have you seen before? Like, you know, we've just had, like, 2022, 2023, where it was a little bit more uncertain. Can you compare kind of what you saw there and, you know, customer behavior at the moment that you're seeing? Thank you and congrats from me again.

Andrew Bialecki, CEO

Yeah, thanks for that question, Remo. So, you know, the first thing we'll say is we're very happy about the quarter. thanks to our customers, to Klaviyo's for making it all possible. And it's because Klaviyo's mission critical, the businesses that we work with. You know, we're a revenue engine for these businesses, and we help connect them to their most important asset, which is their customers and their existing customers. So I think when, you know, the economic environment is a little more uncertain, as I've talked to customers in the last few weeks, the last few months, you know, they're doubling down on existing consumer relationships. They know there's very high ROI from our product. They're leaned into that. And, you know, as the economic cycle kind of, you know, waxes and wanes, we built Klaviyo to really be an all-weather company, an all-weather set of products. So when, you know, when businesses are growing, the number of customers, new customers, we can help with acquisition. And on the flip side, when it's more challenging, you know, I think a lot of businesses turn back to focusing on their existing customers and those relationships that they already have, and, you know, Collegio is the source of truth for all that. So I think we're very, you know, we're happy with where we are. Also, as we've talked to our customers, you know, we mentioned in the opening remarks, our customers are cautious, but they're optimistic, you know, because of those relationships they have with their customers and their ability to grow off of that. And we've also talked to a lot of businesses, and they're very resilient. You know, our customer base is very diverse. You know, there's a variety of folks that, you know, with different business models, different supply chains. And, you know, I think as collectively, I think we've been there to support them, and we think that they're going to, you know, they've been working through this, you know, cautiously, but I think they're, you know, optimistic about, you know, what's ahead.

Amanda Whalen, CFO

And just to add a couple of points to what AB had to say there, you know, first, as we shared, we're really pleased with the ongoing strength and resilience that we've seen not only in our business but in our customers as well. We are closely monitoring the key metrics in our business like customer sales cycle, which remains stable, and KAV, which is continuing to grow. And as we think about Klaviyo over multiple economic cycles, it's important to remember that we index to digital relationships, those profiles and relationships that a brand has with their consumers and not to GMV. So our business tends to experience less volatility, both in good times and in bad, where that's illustrated recently by the trends that we're seeing of KAV growth outpacing GMV growth as our customers focused on, as AB said, on those loyal existing customer relationships. And then from our business perspective, we are focused on controlling the things that we can control and leaning into the strengths that have long-defined Klaviyo. And this includes, just like AB was talking about, staying close to our customers, investing in strategic growth priorities, and operating the business prudently, just as we always

Remo Lenschau, Analyst — Barclays

Very clear. That's very helpful.

Operator

Our next question comes from a line of Jackson Ader from KeyBank Capital Markets. Your line is open.

Andrew Zilli, Head of Investor Relations

Great. Thanks for taking our questions, guys.

Andrew Bialecki, CEO

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

Amanda Whalen, CFO

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

Operator

Okay, great. That's helpful. And then a quick follow-up.

Andrew Bialecki, CEO

If we think about all the new products that have been launched, whether it's CRM or Customer Hub or Service, what kind of growth or expectation for contribution from those new products are baked into 2025 at this point? Thank you. Yeah, I can take that. So the first is we haven't baked in a lot of revenue into our guidance and our projections for this year to give ourselves time to tune those products and make sure we've really got them right for customers before we scale them out. But I'll tell you, since the launch in February, you know, we broadened out Klaviyo's vision from just, you know, marketing and email and SMS to well beyond that, to say, hey, you know, what are all the aspects of the customer experience that Klaviyo can help with? And we believe the core three apps for the consumer, the B2C serum stack, are marketing, service, and analytics. I can tell you that, like, we launched, you know, the first product, you know, within our service portfolio, Customer Hub, and that's been in a beta for the last few months. We've got hundreds of businesses using it. It's, you know, it's a way to extend, you know, onto your website the customer experience, allow people to log in, get help with past orders, get recommendations, get service, right, get questions answered. and the feedback there has been really strong and I think most importantly just like our marketing products we're able to tie back actual attributed revenue, additional sales that customers are seeing from those consumers, those website visitors that are taking advantage of this new functionality and that's the tune of I've talked to a couple of brands where it's generating these are small mean sized businesses that are generating incremental tens of thousands of dollars in sales so they can see the ROI from these new products. And, you know, what we're excited about is marketing and service. We think about those as the, you know, proactive and reactive sides of the customer experience. We're excited to bring those together and show that service can be more than just, you know, answering questions, but can actually drive a better engagement so much that leads to additional sales. So, we're off to a good start there. There'll be, you know, we're working on pricing and packaging for that, but critically, the feedback has been really strong. And then on the analytics side, you know, we've launched a marketing analytics product, SKU, in February. And that was based on talking to customers and realizing that, you know, the analytics that Calibio was providing as part of our formerly our CDP product, it's actually applicable to a lot more businesses that we're excited to use, some of our RFM analysis, some of our funnel analysis, to help them, you know, figure out, you know, which customers were at what stage of the lifecycle and, you know, connect that directly back into marketing. And, again, to drive incremental revenue, right, and it makes, you know, the overall ROI of the, you know, Klaviyo, their investment in Klaviyo higher. We realized that wasn't just something for larger enterprise brands, but actually our entrepreneurs, our smaller SMBs, our SMBs also benefit from that. So we're very happy with the, you know, the progress we've made and the sales we've seen for that product in Q1, and we expect that that's going to be, you know, a revenue driver as well. So, we haven't baked, you know, we didn't bake a lot of revenue expectation into the year, you know, from those new products, but we're excited, you know, about the potential they're going to have in 2026 and, you know, future years.

Amanda Whalen, CFO

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

Operator

much. Your next question comes from the line of Gabriella Borges from Goldman Sachs. Your line is

Gabriela Borges, Analyst — Goldman Sachs

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

Amanda Whalen, CFO

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

Operator

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

Parker Lane, Analyst — Stiefel

Hi, guys. Thanks for taking the question. Amanda, maybe just to stay on the same theme of the prudent guidance out there. When you look at things like FMS Attach, international traction, messaging volume, are there any particular areas you feel like would be most sensitive or have been accounted for?

Amanda Whalen, CFO

In this type of environment where you're seeing lots of uncertainty, we looked at multiple different scenarios. What might happen under multiple different views of the economy, how customers might respond. If anyone has a crystal ball out there, it's fairly challenging to see, but we wanted to make sure that we are prepared for a variety of different scenarios. And so, you know, as we've mentioned before, what we've seen in the past in our business is that because we index to digital relationships as opposed to GMV, We tend to have less volatility both on the upside and the downside, and that gives us some confidence in what we expect to see in the back half of the year.

Andrew Bialecki, CEO

I mean, I'll add one other thing is, you know, as Amanda talked about the ROI of our product, you know, even with SMS where there's a, you know, slightly higher cost basis to our customers, we're able to show the ROI of SMS campaigns, obviously, as well as email campaigns, all of this marketing directly in Klaviyo. So, and as long as that ROI continues to be very positive, you know, even if there's a little bit of variance to that, it's so good that we find, you know, as I talk to businesses, they're not, you know, constraining budget so long as they're seeing that performance. That's one of the things that gives us confidence about, you know, going forward. As Amanda said, it's like because it's not, you're not marketing to customers you don't know and have to acquire. They're customers you already know and are getting to come back. It also means that, you know, sort of the, you know, the budget, the marketing that you can deploy is already somewhat known. It's already in your Klaviyo account. And I think that also gives us some confidence.

Jackson Ader, Analyst — KeyBanc Capital Markets

Appreciate the feedback.

Operator

Your next question comes from Alina Brent Braceland from Piper Sandler. Your line is open.

Brent Braceland, Analyst — Piper Sandler

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

Andrew Bialecki, CEO

Yeah. These are the two, you know, new product categories. so with let's take analytics first we mentioned we actually think that is wide applicability I mean there's maybe some subset of our smallest entrepreneurs that are just starting out they don't have enough data mass to use our marketing audience product but for the vast majority of Collegio customers we actually think it's a great it's an easy add on it's an easy attached product so we think that will apply to the vast majority of our customers and then for service you know it's interesting customer Overhub, we actually think is applicable to all businesses. It's a way to extend the personalization and use the data that's already in your, you know, Klaviyo data platform. A way to use that now extended onto your website. So, that also applies to all market segments. We designed, you know, it's interesting. We started the service really focused on, okay, let's work with, you know, SMBs and make sure the, you know, the product market fit is really good there. I think based on, as Amanda talked about, some of the opportunities that we're seeing in the mid-market enterprise, that's making us think harder about how we can make sure that our service products scale to the enterprise more quickly. We think there's a moment right now with service where, you know, obviously there's a big focus on automation and how to do more with that. You know, using AI and obviously using the Clibio data that backs that and, you know, combining that with AI is very powerful. So we're really thinking about how we can bring that to a larger swath of our customers faster than just our SMBs. And the last little phase, like, the story of, hey, all of the entire consumer experience, you want one brain, one Klaviyo data platform, one data platform that undergirds all that. You want all of the applications that interface with your end consumers, you know, our customers' customers. You want all that driven, you know, from one comprehensive platform. That resonates a ton with SMBs and actually more than, you know, more than we expected. it resonates a lot with enterprise. So, we're very much leaning into that opportunity. And, yeah, I'm going to talk a little about some of the, you know, ARPU uplift that we're thinking about.

Amanda Whalen, CFO

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

Jackson Ader, Analyst — KeyBanc Capital Markets

Helpful color.

Operator

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

Arjun Bhatia, Analyst — William Blair

Thank you. And maybe I'll stick to the same theme in terms of the new solutions. Obviously, a pretty exciting kind of add-on to the core platform here. But when you're thinking about the service solution, A.B., I'm curious, does this, for customers, does it necessitate the replacement of some sort of an incumbent solution? You know, maybe I'm thinking of, like, a Zendesk that might be in there, or given where you're positioned, can it sit alongside for now? Like, how are you thinking about those dynamics? And then, similarly, on the go-to-market side, should we expect this to be a little bit more of a higher-touch go-to-market motion, or can you sell these solutions through the low-touch and self-serve type of approach as well?

Andrew Bialecki, CEO

Yeah, great. I'm happy to comment on both. So, when talking about service, like, let's break it into, you know, a couple of different, you know, products, piece of, you know, functionality that we're building into our case service product grouping. So, the customer hub that we've released, we actually just think is novel and new. It's a new experience, you know, embedded on a business's website. It makes it easy for, you know, consumers to log in, to see, you know, past purchases, past orders, and then, you know, get recommendations. There's a marketing element to it, as well as then get, you know, ask questions, right? Get help. And interestingly, that help could be more service. Hey, I have questions about the thing I bought. It could also just be more of a marketing, you know, sales use case of, hey, you know, I'm curious, you know, what size should I buy of this thing that I'm interested in? That we think is totally novel, and that can fit us alongside, you know, existing service products. The second thing that we're really focused on is this idea of, hey, you know, automating more of those conversations, let's say, right? I think that, as you look at it, that is a product category. You know, it's obviously been around for a few years, but it's really leveled up because of, you know, AI, you know, native solutions. And this is where I think, you know, we're – with Klaviyo, we're happy if you want to plug into our customer hub. If you want to use something you already have, adopt our customer hub first, that's great. But we think we have the ability, you know, because of our ability to build, you know, really usable products, really scalable products, as well as the fact that we have the source of truth about your customer and giving that context to our service, you know, kind of AI chat agents, that that's going to make our product really compelling. So in that case, I think there may be a little bit of, like, running side by side, making things off, but I think a lot of the customers I've talked to have said, hey, look, if you can consolidate all this together so that there's one consumer experience that spans marketing, service, helps you know who my customers are with your analytics product, that sounds great. And so I think our customers are looking for this unified set of applications. The second thing around like, hey, is this going to be higher touch or not? For service, I think for our SMB customers, again, we take a lot of pride in the quality of the products we build and how adoptable they are without needing to necessarily talk to somebody on the Klaviyo end. So I expect a lot of SMBs were designing, you know, workflows and pathing such that they can adopt these all on their own. One of the great parts about our Customer Hub project is it's literally to, you know, after you kind of review the design of it, since it's embedded on your website, it's one click to turn on. It's so fast. It doesn't require any, you know, engineering, any coding. It's just easy to turn on right away, and I think our, you know, our service agent will be similar. Now, we expect, similar with marketing, there will be customers that have more questions, you know, that have more complex, you know, implementation data feeds they want to pull in, and we're excited to do that. Obviously, we know how to do that with, you know, with marketing and all the marketing channels we support, and we'll provide the exact same great experience, you know, for those more, you know, mid-market enterprise customers or for folks that need it.

Jackson Ader, Analyst — KeyBanc Capital Markets

Very helpful. Congrats on the nice start here.

Operator

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

Terry Tillman, Analyst — Truist

Yeah, thanks. Hi, A.B., Amanda, and Billy. So congrats on the international attraction. It's a single question but a multiparter. What do you think in terms of the international attraction in terms of when you're signing new customers, are they kind of similar personas as how your business has been in the U.S.? And or are they buying kind of multiple products at one time? I mean, the second part of this is where are you in actually kind of field sales reps or kind of outbound investments versus harvesting those investments?

Andrew Bialecki, CEO

Yeah, happy to take this one. I think that's spot on. Like, I think what we found as we've expanded to internationally and especially in Europe, very proud of, you know, over 40% growth year on year in Europe. Europe's now over 34% or internationally now 34% of our total business. Yeah, what we're finding is as we've expanded, added language capabilities, we've added SMS, we've added, you know, support and Klaviyos that are, you know, speak people's native tongues, you know, native languages. That's made it a lot easier to enter some of those large European markets, France, Germany, Spain, all of which we talked about having, you know, growing at over 100% year on year. The persona is pretty similar. It started out largely as, you know, SMBs. And so we're very excited about that progress. And actually, we think that, you know, if you look at, if you kind of compare it to our growth, say, in the U.S., where we also started with SMBs and then, you know, they've grown into mid-market and now enterprise, I think we have the opportunity to do the exact same thing in Europe, but just on a faster timeline. So, we've started this year. We made some decisions to make some investments in local, you know, sales teams and starting to test that. We also launched, you know, just last week, you know, the full Cligio website experience in German and Spanish and Italian, in addition to France, which we launched last year, French. So, we think that that is going to lay the groundwork for more growth there. And I think we'll continue to see that in SMB. And I actually think we'll see that even, you know, sort of a faster acceleration into the mid-market than maybe if you look at, like, Cligio's overall growth, you know, where we were same time period here in the U.S.

Operator

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

Rob Oliver, Analyst — Baird

The product portfolio at the load of mid-range. And then, Amanda, just a follow-up for you. You saw better-than-expected retention off of the price increases, you know, in the wake of the price increases, clearly very encouraging. I was wondering if you could just comment what you thought that was and what sort of confidence that gives you guys relative to appetite, not just for additional price increases down the road, but receptivity of additional products from Klaviyo and additional value from Klaviyo.

Andrew Bialecki, CEO

So on Meta and TikTok, if you think about Klaviyo marketing, obviously our primary focus has been on the direct channels between a business and its end customers, consumers. So email, SMS, things where the business has, you know, kind of complete control and direct connection. We're obviously putting a lot of product and engineering investment towards continuing to build out other channels there. You know, we've launched work for mobile applications, also, you know, owned and operated by a business. But now, you know, the last 12 months, we've taken a look at, hey, what are other, you know, places, you know, digital places on the Internet that businesses and consumers are meeting? And obviously, a big part of that is social platforms, Meta and TikTok. So a couple of things that we're doing there. You know, what we've launched the last few months is better, tighter integrations into the ad networks and some of the shopping capabilities of those platforms. So, for example, with Meta, you know, on Instagram shops, you can now take some of the reviews and the content that you're collecting from customers, And you can use that not just as, you know, social proof in email, in SMS, on your website. You can actually also use that inside of Instagram. So it's deepening this, you know, the connection between Flavio and these platforms. And so that's a way you can look at our reviews, products, functionality, and, you know, leveraging those assets beyond just email, SMS, mobile. And for TikTok, that's one where, you know, we're excited for every, you know, for every social network, you know, they often have a variety of different ad units. And one of the things that we're excited about is a lot of those, you know, advertising networks have a way to not just drive click-through traffic, but actually collect some information about who that, you know, end consumer is. So, for TikTok, they have lead ad units that allow somebody, rather than just acquiring clicks for traffic, you can actually also acquire somebody's name, phone number, email address. And obviously, that inside of Collegio is very powerful. It basically gives them a way to collect more subscribers directly from those other platforms. So, we're going to continue to invest in these social networks, other major internet applications. We're doing some work with WhatsApp, building a tighter integration there. So I think our primary focus is still on these, you know, kind of owned and operated channels like email, SMS, mobile. But I think we're going to try to round out our entire marketing portfolio with some of these other channels that we know are important for brands and consumers.

Amanda Whalen, CFO

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

Rob Oliver, Analyst — Baird

I appreciate all the color.

Operator

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

Elizabeth Porter, Analyst — Morgan Stanley

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

Andrew Bialecki, CEO

Yep. Okay, so I'll talk through some of the more seeing on the demand side of the top-of-funnel side. So, as Amanda mentioned, you know, look, the fact that we have such great retention, which I think then translates into word of mouth from customers, I mean, that's a key part of how we thought about driving demand. So, I'll give you a quick rundown as what we're seeing a little bit by a different type of customer. You know, we mentioned for our smallest customers, you know, for their just starting out entrepreneurs, we call them, we're actually seeing quite a bit of strength in that cohort. You know, I think we think that's testament to, you know, again, businesses loving Klaviyo. When they spin up a new venture, they're, you know, they're either using Klaviyo because they've used it in a past life or referring it to, you know, to friends. And that's been something we've really been investing in. And we're very excited to see that, you know, kind of that continued growth in that smaller SMB segment. In our core SMB segment, we continue to see that, you know, those customers growing with us. Interestingly there, like, I think we're seeing increasing demand both internationally. We knew about that. Also, a little bit more outside of pure retail. You know, other use cases, travel, hospitality, restaurants, et cetera. So, that's in that core kind of SMB segment, still seeing very good growth there. And then we mentioned, you know, in the mid-market and enterprise, you know, man already talked about, you know, measuring yield cycles. We're not seeing any real lengthening there. We're very excited about some of the milestones we've hit, having over 1,000 customers now at 100K in ARR. We think there's a lot of opportunity there. And I mentioned how sharing our product vision of this B2C CRM and building it all AI first from the ground up, attached to our Collegio data platform, so all of these applications work together, that has gotten a lot of folks' attention in that mid-market enterprise segment. And so I think a lot of folks are excited for us to deliver on that. And we do see, you know, some good leading indicators in terms of pipeline growth and then obviously customer addition.

Amanda Whalen, CFO

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

Elizabeth Porter, Analyst — Morgan Stanley

Great. Thank you very much.

Operator

Your next question comes from a line of DJ Hines from Canaccord. Your line is open.

DJ Hines, Analyst — Canaccord

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

Andrew Bialecki, CEO

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

Operator

thank you and we have time for one more question your final question comes from the line of brett

Brett Huff, Analyst — Stevens

huff from stevens your line is open thanks so much for sitting me and appreciate it congrats on a nice quarter digging in a little bit on international which we've been excited about how did international perform relative to your expectations vis-a-vis what's built in the guidance and the thrust of the question is trying to understand as we look at the raised guidance which is great you know how much of that is being buoyed by international because it seems like it's a net new market you all are going after, right? It's new stuff that maybe has less to do with

Amanda Whalen, CFO

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

Operator

conference call. Thank you for your participation. You may now disconnect.