Good afternoon and welcome to Klaviyo's third quarter fiscal 2024 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 one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to Andrew Zilli, Vice President of Investor Relations. You may begin. Thanks. Good afternoon and thanks for joining Klaviyo's third quarter 2024 earnings call. Our earnings press release, investor presentation, SEC filings, and a replay of today's call can be found on our IR website at investors.klaviyo.com. With me on the call today are Andrew Bialecki, Co-founder and CEO, and Amanda Whalen, CFO. As a reminder, our commentary today will include non-GAAP measures. Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release or earnings release supplemental materials, which can be found on our investor relations website. Additionally, some of our comments today may 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 report on Form 10-K and subsequent 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 thanks to everyone for joining us today. Klaviyo drove another strong quarter of results in Q3, delivering revenue of $235 million, growing 34% year-over-year. More than 157,000 customers around the world continue to rely on Klaviyo's data and marketing platform to grow revenue by leveraging first-party consumer data to create highly personalized, AI-powered communications over email, SMS, and push notifications. Klaviyo powers smarter digital relationships. Using real-time first-party data, our vertically integrated platform enables our customers to quickly and intuitively customize segments, orchestrate omnichannel campaigns, and measure every interaction. Instead of requiring developer support, marketers can leverage Klaviyo AI to get work done faster, optimize campaign testing, and generate creative strategies. Klaviyo makes complex tasks simple and scalable, making marketers much more efficient. Enabling customers to centralize their consumer data on Klaviyo allows them to build more personalized engagement, which ultimately drives more revenue. This is a key differentiator for Klaviyo, as many companies are dealing with a fragmented experience trying to manage consumer experiences across multiple marketing solutions. Companies choose Klaviyo to modernize and consolidate their tech stack because our platform is easy to use, flexible, and capable of handling even the most difficult use cases. This is particularly true at the high end of the market, where our platform and our best-in-class integrations drive value and create efficiencies. In the third quarter, we announced our partnership with Authentic Brands Group, an IP company that owns more than 50 large, well-known brands, including Vince Camuto, Billabong, Reebok, and Juicy Couture. Authentic came to Klaviyo to modernize their tech stack across select brands within their portfolio. We're excited to build our partnership with Authentic Brands and help them deepen their relationships with their consumers across many of their brands. Every business wants to know their consumer and deliver an experience that beats the competition so consumers keep coming back. Marketers are leveraging multiple channels with increasing complexity to reach this goal. But trying to combine data across multiple systems is more difficult as a business scales. With multiple channels, CDP, and reviews natively built on one unified platform, Klaviyo makes marketers more efficient. Rag & Bone, an iconic fashion brand, joined Klaviyo this quarter to consolidate on our vertically integrated platform a nd this is another example of an up-market business turning to Klaviyo for a unified view of the consumer. They were using a legacy marketing vendor with several other point solutions, and due to this fragmented stack, they were having a difficult time getting an aggregated view of their consumer's lifestyle. Centralizing their consumer data with Klaviyo helps them unlock increased customer lifetime value across online and in-store purchases. In the highly competitive fashion industry that relies on brand loyalty, we believe this will be a game changer. We had a similar win with Pressed, the leader in the cold-pressed juice and champion of functional wellness. They were using multiple point solutions and were struggling with reporting, basic personalization, and poor segmentation. They consolidated onto Klaviyo, leveraging email, SMS, and CDP to drive more personalized communications with their consumers. Beyond our new customer wins up market, we continue to drive cross-sell growth, particularly with SMS, as customers see the value in leveraging multiple channels on one platform. We recently expanded our relationship with Spot & Tango, a fresh dog food delivery service, and a Klaviyo email customer for the past five years. They were looking to drive an omnichannel strategy to create highly segmented, unified consumer outreach and so added SMS to drive further conversion. Moving next to international, we are continuing our investments across go-to-market and product and engineering to address this large growth opportunity. We started a new relationship with The Body Shop, a U.K.-based global beauty brand with more than 30 million global consumers. They were one of the largest customers on a legacy vendor solution, but were unable to deliver personalized communications due to the complexity of the system. Working with the new Klaviyo partner, Absolunet, they did a full strategy review and chose Klaviyo to consolidate from nine different tools to one, enabling greater personalization and streamlining their marketing tech stack. On the product side, we now support SMS in 18 countries, recently added coverage in Norway, Denmark, Sweden, Finland, Italy, and Portugal. Additionally, following the successful launch of our French-language products in Q2, we made Flows AI and Segments AI available in French, further expanding our features and functionality for those customers and just a few weeks ago, we announced our platform is available in five new languages: German, Portuguese, Korean, Spanish, and Italian. Klaviyo is now available in seven languages, including our customer help center, where we offer an immense amount of resources for all of our customers. In addition to making our product available in more languages, we're constantly working to make our platform smarter and more automated for our customers with Klaviyo AI. Our AI-driven content creation tools and streamlined automation setup allow customers to move faster and more efficiently. We're designing these features to boost productivity, deepen customer engagement, and drive revenue growth. As part of our quarterly feature release last week, we announced Enhanced Email AI, which takes an existing template and creates multiple new versions based on a text prompt. The prompt can call for copy changes or new sections being added, and the new email will match branding and voice, removing the need for manual editing. For our enterprise and international customers, we released Portfolio earlier this year, and now, with portfolio-level metric mapping, customers can set up custom metrics that span multiple brand accounts within a holding company. For instance, if one brand within the portfolio uses Shopify and another uses BigCommerce, rather than managing separate revenue reports, Klaviyo allows our users to create a unified revenue metric. For complex businesses, we give the flexibility for brands to create these types of metrics and easily analyze performance across all brands and integrations, providing consistent reporting at the portfolio level. We've also been expanding our product offerings over the last 18 months beyond email and SMS, with reviews and CDP. Our reviews product continues to make progress, empowering brands to understand their customers, and we're seeing customers who want to consolidate their applications and related spend with Klaviyo. Happy Wax, a Klaviyo customer for several years using both email and SMS, added reviews earlier this year, resulting in a 27% increase in the number of reviews they collected over their first 100 days using the product. As we expand our product capabilities beyond messaging and marketing, providing a powerful data and analytics platform enables marketers to uncover important insights and take action. We're really excited about our progress in CDP, and compared to other CDPs in market, our differentiation lies in its vertical integration, making it fast to implement, deliver value, and scale. We recently launched a new Action Center within our RFM analysis report, containing pre-built starting points for customers to enable key use cases, like triggering automations based on key inflection points found in RFM. Ultimately, this allows brands to shorten the time from insight to action. We also launched a new product analysis feature, which provides customers easy access to insights about their product catalog and purchase behavior. Using this flexible dashboard, brands can find insights on every product, including their repeat purchase timing and what products consumers tend to buy together or in succession. This new feature makes it simpler than ever to build a strong merchandising strategy, giving brands insights on how to promote the right product at the right time to drive repeat purchases and ultimately grow customer lifetime value. This quarter, Harney & Sons, a company known for their high-quality teas, added CDP for product and RFM analysis. By leveraging the advanced analytics capabilities on our platform, they created a consumer segment of possible churn risks and sent a one-time win-back campaign. This targeted approach ultimately led to an average order value that was 29% higher than their year-to-date average order value. In fact, their CEO said this was the one campaign that paid for the first three months of the CDP products. While we continue to make great progress on our product and growth initiatives, we know that we can't do this alone. Our ecosystem of third-party partners, including marketing agencies, system integrators, and developers, are key to our success and create important network effects for Klaviyo. We continue to see new partners proactively reach out to join our partner ecosystem, further expanding our reach. Partners are also continuing to build on Klaviyo, adding 20 new applications to our integration directory in the last three months, as well as contributing more than 40 new flow templates that customers can implement quickly and easily. Our third-party platform integrations continue to be a strong differentiator for Klaviyo, allowing customers to connect nearly 400 technologies, giving them more choice and enabling them to combine first-party data on our platform. Our team is constantly working to build new connections with other companies, a nd in Q3, we launched our integration with Canva, which has achieved the fastest adoption growth of any integration in our history. Design and content creation is one of the key roles of marketing, particularly for smaller businesses, and has a large impact on performance. With this integration, customers can now bring images from Klaviyo into Canva and designs from Canva into Klaviyo for use across our platform. These integrations are driving customers to Klaviyo, as we saw in Q3 with True Food Kitchen, a healthy restaurant chain with over 45 locations across the U.S. They moved from a traditional marketing platform to Klaviyo because of how well we integrated with their tech stack, particularly with Olo and OpenTable, as well as several other softwares they use. They are extremely excited about the power of the Klaviyo platform and our ability to help them execute on differentiated strategies going forward. I'd like to end by thanking all Klaviyos for their hard work in supporting our customers and continuing to make Klaviyo a leading data and marketing platform. As our customers gear up for Black Friday, Cyber Monday, and the holiday season, our teams are ensuring they have the support they need. Last BFCM, Klaviyo helped brands generate almost $60 million of Klaviyo Attributed Value, or KAV, per hour at peak times. This year, we're excited to help our customers hit their biggest holiday goals yet and are making it easier for them with the Black Friday Cyber Monday Hub, a dedicated space in-app where users can plan, strategize, and prepare for their upcoming holiday season. Before I hand it over to Amanda, I wanted to highlight two recent leadership hires. Tejaswi Gupta joined as our Chief Technology Officer in September, and earlier today, we announced that Adil Wali will be joining as our new Chief Product Officer later this month. Both leaders bring deep experience in scaling world-class businesses and will help us continue to grow and deliver exceptional value to our customers. Ed, my co-founder, who has been serving as our Chief Product Officer, will transition to become our Chief Strategy Officer. Ed has obviously played a tremendous role in growing Klaviyo, and I'm excited for him to take a more holistic strategic role to help drive Klaviyo forward over the next several years. W ith that, I'll turn it over to Amanda. Thanks, Andrew. Klaviyo delivered another quarter of strong financial performance in Q3, driving efficient growth at scale. Revenue grew 34% year-over-year to $235 million, and we reported a 14% non-GAAP operating margin, continuing our consistent top and bottom line performance. We are delivering on our four primary growth factors: adding new customers, growing in the mid-market, expanding with existing customers, and expanding internationally. In Q3, we added over 6,000 new customers, and we now have more than 157,000 customers, up 16% year-over-year. Similar to last quarter, we saw softness in the SMB market and strength in entrepreneurs and in the high end of the market. The diversity of our customer base across size and geography allowed us to deliver another strong quarter despite the softness in one part of the business. Speaking of the high end of the market, we are really pleased with the results from our go-to-market initiatives we implemented last year to support our move-up market. At the end of Q3, we had 2,619 customers generating over $50,000 in ARR, which was up 54% year-over-year. We also had another record high number of customers landing in this cohort in the quarter, a great sign of the traction we're making up market. In addition to the customers you heard Andrew speak about, we also partnered with Lulus, a digitally native women's fashion brand that was looking to enhance its tech infrastructure, streamline processes, and improve its reporting capabilities. In Q3, they adopted Klaviyo for email and are in the process of consolidating SMS with us. With both channels unified, Lulus will be able to leverage our advanced flows, segmentation, and AI tools to deliver more personalized omnichannel communications. We continue to drive expansion with our existing customers as they grow their usage and add new products, as can be seen in our dollar-based net revenue retention rate, or NRR, which was 110% for the quarter. As we've been discussing the last few quarters, this quarterly decline in NRR was expected. As a reminder, NRR is composed of three factors: gross retention, cross-sell of additional products, and expansion of existing products. Our gross retention remains strong, which is a great indication of the value we drive for customers that makes Klaviyo a must-have platform for them. Our cross-sell efforts have also been quite strong, especially with email customers adding SMS. In fact, as of Q3, more than 80% of our top 50 customers now use Klaviyo SMS. E xcluding our entrepreneur cohort, nearly 25% of our combined SMB and mid-market customers are using Klaviyo SMS. We're very pleased with that progress. On expansion, we continue hearing from some customers, especially in the SMB space, that macro pressure is continuing and that they are very focused on the ROI of their software spend. Additionally, with the success up market that I just discussed, we're seeing many new Klaviyo customers land with multiple products from the start. There are obvious benefits to landing bigger multi-product deals. However, it can also limit the expansion opportunities within those customers, which has a negative effect on NRR. This pressure on expansion continues to be consistent with what we've been speaking about over the course of the year. As a result, our expectations for continued decline in NRR in the near term haven't changed, and we expect this expansion pressure to have a modest impact on our growth going into next year. As you heard from Andrew, we're making great progress internationally on both the go-to-market and product fronts, and that is driving strong results. EMEA delivered very strong growth at 45% year-over-year, and APAC accelerated from last quarter. Combined, our international revenue grew 41% year-over-year, sustaining the rate of last quarter. These are great results, and we remain focused on making our product easy to use for our international customers, including with additional language launches, as Andrew mentioned. Local language availability is an important unlock to bring more companies onto our platform, and we'll continue to make our product available in more languages going forward. Moving on, non-GAAP gross profit for the quarter was $183 million, representing a non-GAAP gross margin of 78%, down 200 basis points year-over-year. In addition to the impact from our growing SMS product, gross margin was also pressured as a result of starting our Black Friday Cyber Monday preparation a bit earlier this year, which increased costs related to infrastructure and testing. As a reminder, due to the seasonality of our business in Q4, we expect Q4 gross margins to be down as a result of elevated email and SMS sending volumes related to the holiday season. We continue to expect our full-year non-GAAP gross margin to be down about a point from last year. Turning to non-GAAP operating expenses, sales and marketing and R&D expenses as a percentage of revenue came in relatively consistent with prior quarters. G&A expense was 12% of revenue, down 580 basis points year-over-year, primarily as the result of an additional international tax-related reserve release, similar to what we saw last quarter. Additionally, you may recall from our Q3 call last year that we had approximately $6 million in IPO-related expenses that did not reoccur this year. Normalized for this tax release and the one-time IPO-related expenses, Non-GAAP G&A expense as a percentage of revenue would have been down roughly 100 basis points year-over-year. For the third quarter, our Non-GAAP operating income was $34 million, representing a Non-GAAP operating margin of 14%. This was better than expected as a result of the revenue overperformance, the leverage driven primarily in G&A operating expenses, and headcount coming in a bit lighter than expected for the quarter. We generated free cash flow of $34 million during the quarter, up 57% from the prior year due to higher profit and higher interest income. Moving to guidance. For the fourth quarter, we expect revenue to be $256-$258 million, representing growth of 27%-28% year-over-year. This guidance takes into account the continued softness in the expansion component of NRR, as well as the commentary from SMB customers around macro pressure. We expect fourth quarter non-GAAP operating income of $7-$9 million, representing a non-GAAP operating margin of 3%. This guidance includes a sequential and year-over-year decline as a result of expense of a new employee cash bonus program that will begin this fiscal year, which we are implementing in Q4. We have not previously had a cash short-term incentive program for employees outside of those associated with our go-to-market team. This will allow us to enhance our ability to align pay with performance. It will also better align our compensation structure to peers in the market and will allow us to reduce go-forward equity grants as a proportion of total compensation. We estimate the program will impact Q4 in the low teens of millions of dollars, which represents a catch-up accrual for bonus payments we will make in Q1 FY25 for fiscal 2024 performance. Looking ahead, we will accrue for this program throughout each fiscal year. For the fourth quarter, we expect fully diluted shares outstanding to be approximately 306 million. For the full year, we are raising our revenue guidance to be $923-$925 million for year-over-year growth of 32%-33%. As a result of the bonus program, for the full year, we are revising our non-GAAP operating income guidance range to $104-$106 million, representing a non-GAAP operating margin of 11%. This is consistent with the expectations we set at the start of the year that we would keep our 2024 non-GAAP operating margins roughly flat with 2023. Finally, for the full year, we expect fully diluted share count to be approximately 299 million. We are very pleased to be delivering this elevated level of growth at scale for FY24. Q4 is our seasonally largest quarter from a revenue perspective and has a significant influence on our outlook for 2025. While we're not providing 2025 guidance at this time, based on the trends that we are seeing, strength at the low and high end of the market, and pressure on customer expansion that we've been discussing since the start of the year, we expect our 2025 revenue growth rate will decelerate modestly from our Q4 guidance. Due to the success of our go-to-market and product investment initiatives this year, we plan to continue to make choiceful investments in 2025, with particular focus on growing our international footprint. As a result, operating margin is projected to remain relatively consistent to 2024 as we continue to invest for growth in our large addressable market. We will provide formal guidance for fiscal 2025 on our Q4 call, along with additional details around our investments. In closing, these strong results are a clear indication that Klaviyo's platform is driving success for our customers. We're well- positioned to continue our success, adding new customers, growing in the mid-market, expanding with existing customers, and expanding internationally. We are excited about supporting our customers through their busiest season and driving a successful Black Friday Cyber Monday weekend with Klaviyo. W ith that, we'll open the call up for Q&A. Operator? Thank you. We'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We do want to incorporate as many analysts as possible on the call. Please limit to one question before returning to the queue. Y our first question comes from DJ Hynes with Canaccord Genuity. Please go ahead. Hey, thanks, guys, a nd congrats on the nice quarter. A manda, I appreciate the early look at 2025. AB, can you just give us an update on your various customer acquisition engines or channels, whether that's through Shopify, marketing agencies, direct selling? Anything stand out to you in terms of performing particularly well or vice versa? Yeah, sure. So just as a reminder for everyone, we think about acquisition from a couple of different channels. So obviously, our marketing team is focused on what we describe as inbound acquisition. So that's driving awareness, folks coming to Klaviyo. We have a freemium motion to allow customers of all sizes to get started for free, try Klaviyo out, and really set up our sales team for success. As you alluded to, partners are a big part of how we do customer acquisition, both digital agencies, with several thousand in our program, as well as big tech platforms, obviously, Shopify amongst those. T hen finally, our sales team, as we're moving more into the mid-market enterprise, we do have a sales-driven motion for customer acquisition there. So across those, and it does kind of align a little bit to customer segments. We obviously spend more of our marketing efforts are aimed at the SMB and what we call the lower part of SMB, entrepreneur part of the market, and our sales team is more focused on the mid-market enterprise side, so I think we're seeing some strength across all three. With our entrepreneur segment, we're seeing really nice growth there. That was kind of smaller SMBs, largely driven by acquisition through Shopify and other platforms that cater to entrepreneurs that are maybe just starting out, as well as a lot of our digital marketing efforts, and on the high side, with mid-market enterprise brands, I think we're really starting to find a groove with both our sales team as well as larger partners. We're recruiting more of those into our partner program to help drive demand, as well as working with some of those larger platforms that work with more enterprise brands. So I think we're excited about all three of those motions a nd both the rest of this year, leading into the holidays and next year, we're going to keep using those three as our kind of three tentpoles for acquisition. Yes. Makes sense. Thank you. Your next question comes from Raimo Lenschow with Barclays. Please go ahead. Perfect. Thanks. Congrats for me as well. Amanda and Andrew, the softness that you kind of mentioned on the call, if you think about the economy, we've been in tougher times for a while, and you guys have been kind of actually managing this kind of pretty well. Did you see a change again in the last quarter? Do you think it's kind of more macro, or do you think it could be election uncertainty and that kind of plays a role here? I'm just saying we've been in this kind of environment for a while, and most other people talk about more stabilization on lower levels, but stabilization. Thank you. Sure. Thanks, Raimo. I would say that what we're seeing is consistent. As you said, we've been in this macro environment for a while, and the trends that we are seeing within our particularly focused on our SMB segment of customers remain very consistent with what we've seen and what we've discussed in prior quarters. We're seeing some softness in new customer acquisition. We're seeing some softness in expansion, but we are not seeing that macro environment or the impact become either materially better or materially worse. It has been steady. What we hear from customers, based on our conversations with them, is that it's clear that we are in a value-based market, meaning that customers are very focused on the value that they're getting from their software. In this environment, we are really pleased with the way that we are able to deliver strong results because we're a must-have for customers to help them drive their revenue and drive their growth. The other thing that I think is important to remember is that we have a very diverse customer base, both in terms of size, ranging all the way from, as Andrew said, entrepreneurs, all the way up to global enterprises, as well as geographies around the world, which means that we're not reliant on either one specific type of customer or one region to drive our performance. So in fact, this quarter, we saw strength in the entrepreneurs, and we also saw strength in the high end of the market. I think the last factor that's important to think about in this environment is that it's important to remember Klaviyo is not indexed to GMV. We index to digital relationships and the digital relationships that our customers are building with their consumers. S o especially during this time of year, as we get close to Black Friday, Cyber Monday, helping our customers engage with their consumers in the right way, over the right channel, with the right message at the right time is extremely important because that is how we help our customers thrive. Okay. Perfect. Thank you. Makes sense. Your next question comes from Scott Berg with Needham. Please go ahead. Hi, everyone. Thanks for taking the question in the nice quarter here. AB, I just wanted to ask on the two new hires that you mentioned, the CTO and CPO. Your platform, I know you've talked pretty extensively about the database kind of bottoms-up platform and the benefit you all receive from that. But how do these two new hires, how are you expecting them to impact the technology kind of footprint going forward? Sure. Yeah. We've got a great team. We have some big ambitions. I'm very excited for Tejaswi Gupta and Adil Wali to join forces because I know they have ambition that matches our own. I think for all leadership hires, there's maybe two core traits we look for. One is that kind of humility, the ability to dig into the details, roll up your sleeves, a nd the second is having seen things at scale. S o I think that second point is particularly material for what you're talking about. Adil, actually, interestingly, as I was getting to know him and we're spending time, Adil's actually a Klaviyo customer. Was a Klaviyo customer. One of the businesses he started was one of our early customers. So he's got a lot of context for the space, a nd for both Tejaswi Gupta and Adil, they've worked on some of the planet-scale infrastructure. So as we think about Klaviyo as the source of truth for consumer data, for businesses, being that system of record, how do you build systems that are very elastic, very scalable, very reliable, very secure? I'm excited that they both have a lot of experience building that. So I think we've done a really good job with our engineering team to date in kind of instilling that in our culture a nd I think they're going to help us scale that quite a bit. Wonderful. Your next question comes from Brent Bracelin with Piper Sandler. Please go ahead. Thank you. Good afternoon. AB, the Q4 guide here does suggest the business is poised to cross over a billion ARR exiting the year. I'd be curious to hear your thoughts and product vision here on the next billion. Wall Street always wants more. You're bringing in new talent. You have a strong balance sheet, good cash flow. You could always lean into M&A. Walk us through kind of the appetite to add that next billion and how much you're going to lean into M&A, internal investment. Walk us through that vision. That'd be helpful. Thanks. Yeah, for sure. I think it's hopefully, it will not take us nearly as long to get to the second billion as it took us to get to the first one because we'd like to get there pretty quickly. So let me talk about a couple of things. Amanda talked about the four areas that we're focused, continuing to get more SMBs on this Klaviyo platform, doing that internationally, expanding up into the mid-market enterprise, and then also growing our product portfolio. So maybe speak a little bit about the product side, and I'll come back to the customers we're going to serve. A mantra we've had inside of Klaviyo is if we're going to build a product, it's going to be best in class. The word we use is premium. A few years ago, Klaviyo's core product was a database and then kind of email and marketing on top of that. We've taken an approach of, well, how do we extend to all of the messaging channels that matter for a business? That's why we've put big investments in SMS. Now going forward, we're doing a lot more with mobile applications and the experiences there, as well as social channels, things like WhatsApp and other social networks. I think we can do a lot more than just email and go way beyond that into all of messaging and marketing. What we're doing with reviews, that's another product category that's very important to a lot of marketers. And then even thinking beyond that, we think about, well, what are the other customer experiences that you can use the source of truth that we're building, this database, to power, to personalize, to measure, to use AI to automate so those experiences get smarter over time? T hat's what we're doing with CDP. A lot of the CDP usage we've seen comes from analytics, businesses that want to understand who their customers are and immediately take action. So we're excited about the growth that we're seeing with that product. T hen we think about the other services, the other touchpoints that a business has with its consumers. So things like what's the website or the in-store experience, as well as what's the customer service experience. O ur ambition is to make sure all of those services, all of those experiences are great for the customer and high value to the business. S o for some of those, we're considering building, and some of that will be organic. We'll be open to doing M&A. But we also very much look at our ecosystem and our partners. We have a lot of great partners that have built features that we can't get to or help us address various use cases domestically, internationally, different verticals. So that's also an approach that we'll take. But ultimately, we want to be that source of truth about who your customers are and the entire software platform you use to drive customer experiences that drive revenue. Helpful color. Thank you. Your next question comes from Michael Turrin with Wells Fargo Securities. Please go ahead. Hey, congrats on the quater. Thanks for taking my question. I wanted to touch on the international opportunity quickly. Things seem to be operating on all cylinders there, and you had some pretty nice announcements across languages as well as native capabilities there. How can we think about the progress since launching those? I know it's early on, but across the new languages and the five new regions, any initial takeaways there that you can leverage for new geographies as you expand? Thank you. Sure. Thank you so much for the question, Michael. W e are very excited about the progress that we're seeing across internationals. This quarter, particular strength in EMEA with 45% revenue growth. When you talk about some of the impacts that expanding languages and that focus on international is having in the business, this quarter, we saw notable strength in our new business across France, Germany, Spain, and Finland in particular. We are focused this quarter and going forward on adding local language-speaking sales reps to support that product capability so that we can support local language selling in regions like Germany, France, Spain, and Italy. In terms of other progress that we're seeing in the business, it's leading to some great wins. We had terrific wins this quarter internationally, not only with The Body Shop, but also with Minelli and Passionata, all of which are great brands internationally. I think another important part to call out is the strength of our partner network and the impact that our partner-led approach is having on our international growth. We are very appreciative of our partners around the globe, including companies like PrestaShop, TechDivision, and Ozeo, among many others. They are helping to support us as we expand outside of the United States. Still early days, but I can tell that the customer response has been terrific for the launch of five new languages: German, Portuguese, Korean, Spanish, and Italian. It was just in October, but they are very excited, and we are excited to see how they can continue to drive growth internationally. Awesome. Thank you. Your next question comes from Rob Oliver with Baird. Please go ahead. Great. Good evening. Thanks for taking my question. AB, mine is for you. A couple of questions ago, Brent asked about the next leg of growth to 2 billion. When you look at some of the other products aside from SMS, which is obviously number one on cross-sell, I know Amanda called out cross-sell still as an area of strength. Maybe talk a little bit about what you're seeing from reviews, and then in particular, CDP, where I know you guys made some changes to how you package the CDP solution and would love to get an update on how that sort of bifurcation of the product is perhaps driving incremental wins. Thank you. Yeah. I think going forward, we very much look at going from a single product company where we worked three years ago to a multi-product company and a platform, something where you can buy all of the applications or a lot of those applications that integrate. That's our goal. So I'll start with SMS, and then I'll talk about CDP. For SMS, we talked about how 80% of our top 50 customers are using SMS. I think it was in the early remarks. I think that shows with SMS, we're seeing a lot of demand from both SMB, but as well as mid-market and enterprise, and a lot of uses there. So we're very excited what that tells about the story around wanting to consolidate, wanting things on our platform because of the data that we have, a nd we're doing more to expand coverage there. So we also mentioned that we've expanded SMS coverage to six more countries, predominantly in Europe. W e're also doing deeper integrations with SMS into other functionalities that's outside of Klaviyo. So, for example, if you do advertising and you're doing demand gen on other platforms, for instance, Meta's platform, you can now, rather than just collecting emails, you can also collect phone numbers and have a seamless integration with SMS. So I think we're making really good progress there. We continue to look at adoption rates and what percentage of our customers can adopt, and how do we make it easier for them to not just do it through our sales team, but also do it through partners and obviously do it directly through our product. So really excited about the progress there. I think we're going to see that carry over into other messaging channels that we've been working on, right? Mobile, in the future, WhatsApp, and other social channels. T hen the CDP story I've mentioned: going beyond just Klaviyo is more than just using us for marketing. Yeah. What we've done with CDP is we realized there's really two core use cases. The first is around analytics and understanding who your customers are, and the second is around data governance. F or that analytics use case, we've seen a great amount of customer adoption. They really understand the purpose of our product. What we want to do is say, if you want to understand who your customers are and you want to build, say, a funnel of where are my customers dropping off, where are they, I guess, first-time purchasers, but not repeat purchasers, we've made our product so easy that you can click in the UI and immediately turn that into a marketing campaign or a marketing automation. S o we're shortening this loop from insight to action, and we're seeing that customers get it. In fact, the ROI is great because the cost of our CDP product pays for itself almost immediately in terms of incremental revenue or KAV, as we say. So I think that analytics product, I think that's going to be a big driver of growth going forward, a nd we're excited about that. It's starting to change how people think about Klaviyo as not just email, not even just messaging and marketing, but actually even beyond that. So very excited about that. We've got a lot more in the works that I'm sure we'll be sharing in the future. Great. Thank you for all the color. Appreciate it. Your next question comes from Keith Weiss with Morgan Stanley. Please go ahead. Excellent. Thank you, guys, for taking the question, and congratulations on a solid quarter. I wanted to dig into the NRR commentary a little bit and why it weighs on growth into next year. I was a little bit surprised because it sounds like the upsell motion is going and the cross-sell motion is going quite well for you guys, particularly with SMS, but the self-serve portfolio is expanding really nicely. The expansions have been pressured by macro for a while, and so your anniversary then, that's not a net new impact into next year a nd the bigger lands, I mean, that's just you're accruing the revenues elsewhere rather than NRR. You're just getting it upfront. So can you touch on a little bit why NRR continues sliding, why there's not better offsets from cross-sell, and why that's an incremental pressure on revenue growth into the forward year? Sure. Great to hear from you, Keith. Thanks so much for the question. As we said, we don't guide to NRR specifically, but we do expect that it will continue to decline in the near term, and that expectation for a near-term decline hasn't changed. So if you break NRR into its components, there are three primary components of NRR. First is retention. Second is expansion of existing products, and third is cross-sell. Retention. On the retention side, our gross retention remains strong because we are a must-have for our customers. On the expansion side, if you split that into expansion of products, existing products, and then cross-sell, expansion of existing products tends to be the largest driver of our overall expansion. It's a significant driver of NRR, and that is part of why we're talking about the impacts that we're seeing there. We continue to hear from customers that it's a value-based market, particularly among SMBs. They're very mindful of their spend. They are intentional about the messages that they're sending. T hen also, as I mentioned earlier in the prepared remarks, and as you mentioned as well, as we move up market, customers tend to land larger with multiple products. That leaves less opportunity for expansion. It is a good thing overall. We like landing larger and earlier, but it does create some pressure on that expansion component of NRR, a nd because of those two factors, we expect that that decline in the expansion is going to continue. It's consistent with what we've seen, but again, because our NRR is a trailing 12-month calculation, and we first started seeing this appear last year, that's part of why you're seeing that impact into next year. On the cross-sell side, we are very pleased with the progress we're seeing, not only with customers adopting SMS, but also CDP and reviews. W e continue to see customers who expand with us. A great example this quarter was Spot & Tango, who added SMS after they had already been using Klaviyo for email. We also added another customer this quarter in the beauty and skincare space who had previously switched to Klaviyo for email, and this quarter, they added SMS in order to improve their multi-channel messaging. W e continue to hear from customers that they see real value in that consolidation. Most importantly, they see value from it because it creates a better experience for their consumers because consolidation helps them more effectively engage consumers across channels. They also see value because it simplifies the way that our customers run their businesses. It makes it easier for them to have a comprehensive view of performance and reporting all under one roof with Klaviyo. So we believe that that trend is going to continue to be an important driver of cross-sell going forward. Got it. Just a quick follow-up. If we think about the expansion within SMB being somewhat macro-related, can we read through that you're assuming a continued sort of the continuation of the current macro environment we're seeing right now, which hasn't been great, into next year? So we could take it away as saying you're being conservative about sort of macro assumptions into 2025. I think that's a fair assumption. As we said, and we said earlier on the call as well, this trend has been pretty consistent all year a nd because it has been consistent, we're assuming that that's going to continue at a similar rate as we head into next year. So to the extent that the macro environment changes, we could see a shift there, but I think it's the prudent thing to do to assume that the current environment is going to stay stable. Absolutely. That's super helpful. Thank you so much, Amanda. Your next question comes from Arjun Bhatia with William Blair. Please go ahead. All right. Thank you very much. I wanted to touch on the market traction. It sounds like, to the earlier point you were making, Amanda, just then that your customers are landing larger. You're seeing the 50K customer count increase quite a bit, and you have a host of kind of large logos to show for it. But as you move further up market, how are you seeing the competitive dynamics change? How are you seeing the vendors that you're displacing change, and what impact is it having on win rates and sales cycles in particular? T hen as you look into next year on the NRR front, what should we expect from those larger customers b ecause it seems like some of the pressure is with smaller customers. But should we expect one year out after landing, two years out after landing, that those larger customers might actually expand at a faster rate than your customer base today? Thank you. Sure. I'll take the first part on competition and how we see their spend and adoption of our products growing over time. So from a competitive dynamic, as we move up into the mid-market enterprise, we built Klaviyo to be the system of record and extremely scalable a nd then obviously, marketing on top of that, that also scales as well. So very pleased with the expansion we're seeing there. We're competing largely with companies that didn't start, products that didn't start as a database. They really were marketing products. Some of them cover just a single channel. It could be email, could be text messaging, could be mobile. I think the fact that we cover all of those channels is a competitive advantage for us a nd the fact that we built this kind of data engine underneath. So we see a lot of folks modernizing off of maybe some older technology. I think that's going to be a very durable trend. T hen as we're landing those, Amanda already spoke to this, we're seeing a lot of customers actually want to adopt more of our product set upfront, which is great. I think over time, as I talked about, we plan to expand our product portfolio. We like what we're seeing from SMS and CDP and analytics and reviews a nd we expect that to grow over time. S o I do think there's opportunities for those businesses to grow with us. I'll add to the components of NRR that Amanda mentioned, one that we can start to take advantage of when we get into the enterprise is expanding across business units and geographies. One of the patterns we've seen is when we land with enterprise businesses, there's actually an opportunity to start with maybe a brand or a region and then grow from there. So anyways, I think there's a lot of room to both grow logos as well as then expand their spend and how much that business is relying on Klaviyo for all of the different parts. Okay. Understood. Perfect. Thank you. Your next question comes from Derek Wood with TD Cowen. Please go ahead. Thanks. Amanda, another impressive quarter around margins. Sounds like there's a lot of moving parts to consider in Q4 an d I guess by my calculation, ex the cash bonus payments operating margin guide would be around 8%, which is still down from the mid-teens year to date. Could you just comment on how to think about some of the seasonal factors, especially the degree of seasonal compression and gross margins and the seasonal uptick in sales and marketing spend, and remind us why you tend to see such big ramp in sales and marketing spend in Q4? Thank you. It's a great question. I appreciate you asking it. On operating income, we discussed in the prepared remarks, the guidance includes the impact of the accrual for the new cash bonus program. Think of that in the low teens millions of dollars as a catch-up accrual for all of fiscal 2024. In terms of the underlying performance, what we're expecting in Q4 is our normal typical seasonality in the business. What we tend to see in our business in Q4 is a bit of gross margin pressure, which comes from a result of increased sending volumes, and those sending volumes come with higher expenses in Q4, just based purely on volume, as well as additional marketing expenses. This is the most important time of year for our customers. It is a time when we want to be front and center with them, and so we tend to market more in Q4 to make sure that we are top of mind for customers in this really critical time for them. What we are expecting this quarter and this year in Q4 is very much in line with that typical seasonality. So if you took out the impact of the new bonus program, our Q4 guidance would be in line with what was implied when we issued our Q3 and full-year operating income guidance this quarter. Got it. Thank you. Your next question comes from Terry Tillman with Truist. Please go ahead. Thanks, AB, Amanda, and Zilli. My question is kind of a multi-parter here. First, in terms of just another reminder for us, Amanda, in terms of 4Q, how does that usually look in terms of seasonality of winning new customers? I don't know. Do they want to keep kind of those kind of decisions off the table because of the holiday selling or because of your upmarket motion? You could still see some strong activity in terms of new customer business. T hen the second part of this question is, I appreciate the macro dynamics and value-based kind of decisioning by your customers. Do you assume in the holiday period that your existing cohorts of SMS customers are actually going to send lower volumes than last year? Thank you. Sure. Thanks so much, Terry. I'll take the ads first, and then we can talk a little bit about what happens with SMS in Q4. So from an ads perspective, historically, Q4 is a seasonally strong quarter for us. Now, we don't separately forecast net adds, but we do tend to see many customers come to us in Q4, particularly at that lower end of the market, right as they get ready for that holiday season. It is important, though, to remember that as we are moving more and more up market, we may add fewer but higher quality customers and we think that's a worthwhile trade-off over time. So said differently, one mid-market customer or an enterprise customer can be worth several entrepreneur customers in terms of LTV. So that's why you may see some movement in that Q4 number, but it does tend to historically be seasonally strong. On SMS, what we are seeing in SMS volume is that SMS tends to be seasonally strong as a result of the holiday season. It is a great time for brands to use SMS because it's a highly time-sensitive time. It gets consumers' attention during that narrow window of that five-day period for Black Friday, Cyber Monday a nd we would anticipate that we're going to see that again with SMS this year. In terms of SMS and kind of what's happening with the overall trends there, what we're seeing is customers adding more subscribers and seeing healthy growth in terms of their subscriber base with SMS. They are being intentional about the number of messages that they send per subscriber a nd that is somewhat consistent or has been consistent with what we've seen in the prior quarter. So overall, continued healthy growth in that channel, just at a little bit of a moderated pace in terms of the sending versus what we would have seen in past. Yeah, I think a great example of customers and how they think about switching over during the quarter and the impact that Black Friday, Cyber Monday has with this is Lulus. Lulus, this quarter, really wanted to take advantage of the personalization and the advanced capabilities that our platform has an d despite a very tight migration goal, they switched over to Klaviyo so that they could get on SMS and deliver those personalized messages ahead of Black Friday, Cyber Monday. Your next question comes from Nick Altman with Scotiabank. Please go ahead. Hi, this is John Gomez on for Nick Altman. Thanks for taking my question. Can you talk about your pipeline for upmarket logos? W hen you think about the pipeline and seasonality upmarket, should we expect the bulk of that strength to come in Q4, given that's the biggest renewal quarter and perhaps this provides the best opportunity for displacement activity? Yeah. So just in terms of pipeline, what we think about, again, we work with a lot of retailers. So as Amanda was alluding to, a lot of our enterprise customers are not making buying and switching decisions in Q4. Typically, they'll do that offset by a couple of months or a quarter or two. I mean, we do get some larger folks that will say, "Hey, I'm getting in a rush right before the holidays, right before Thanksgiving. I want to go now." But in general, we think of this is a quarter to really build up those relationships in that pipeline. W e see a lot of that actually materialize into customers post the holidays when folks say, "Okay, we've now gotten through the rush, a nd so in January, we can start to make decisions about upgrading their tech stack or consolidating more products to our platform." Great. Thank you. Your next question comes from Mark Zgutowicz from The Benchmark Company. Please go ahead. Thank you. I was just curious if Shopify's more recent expansion and success that they're having at the enterprise level is starting to trickle into your pipeline and sort of how your preparedness and go-to-market looks there relative to mid-market? Thank you. Yeah. So our partnership with Shopify just continues to get better and better. D efinitely, as they're working with larger and larger retailers and businesses, we're doing the same. I think going to market together is a motion that we've worked on collectively. I think the reason this works so well is the complex nature of, "Hey, Klaviyo is this kind of customer platform. We've got all the customer data, and then we can help power the customer experiences." Obviously, we work with Shopify's team to integrate really well. F rom a customer's point of view, from a retailer's point of view, I think this idea of commerce and marketing working together, I mean, they think of those as they're two different products, two different categories, but they have to integrate really tightly. S o the integration that we've worked on over the last decade with the Shopify team, I think, is really paying off. T hat's a model, by the way, that as we start to do more with enterprise businesses, we want to replicate. Are there other platforms, both inside and outside of e-commerce and retail and even other verticals that we can work with where we say, "Hey, these two technologies really work well together. We expose APIs. You can do custom development, but you also know out of the box, things are just going to work.? Data is going to flow back and forth really well." So we're excited about the progress there. And definitely, working with Shopify has been great. Excellent. Thank you. O ur last question comes from Callie Valenti with Goldman Sachs. Please go ahead. Hi. Thank you for taking my question and congrats on the quarter. Building on kind of the discussion we had on integrating the e-commerce and the marketing layers, can you talk a little bit about some of the ways that you're helping Klaviyo connect to ad audiences? I know this came up last quarter. So curious kind of what use cases you're seeing and how you see that potentially expanding over time. Thank you. Sure. Callie, do you mind repeating your question? It just cut out for a second in the middle. Oh, sorry. Yeah. I just wanted to hear about how you're helping Klaviyo customers connect to ad audiences. I know that came up on the call last quarter. So just curious what kind of use cases you're seeing and how you see that expanding over time. Sure. Yeah. So think about Klaviyo and how we can help with marketing. There's a big chunk of the marketing budget that fits into advertising and doing demand generation, raising awareness. It's really important that Klaviyo as a platform integrates tightly with the Googles, the Metas. We talked about TikTok, I think it was last quarter. So all those platforms, Pinterest, we want to integrate with all of those. T the way that typically works is folks think of Klaviyo as part of their acquisition funnel. So when new customers come to the website, how can you, through forms and other data capture, how can you make sure you build a relationship with that visitor so that you don't have to maybe spend as much retargeting and getting them to come back? T hen how can you use Klaviyo and messaging over email, SMS, and mobile to actually convert them into a first-time or paying customer? So we're an important part of that acquisition funnel a nd then also, we'd like to give businesses the ability to pass that data back to those ad platforms. So we've done a lot of work that if you have, say, a best customer list inside of Klaviyo that you can obviously curate based on all the data you have, can you pass that back to those ad platforms as signal for the maybe types of consumers that are a good fit for your brand so you can get better targeting? So we think of Klaviyo as very much more than just helping you retain and keep customers coming back. We also have a big job to do on the acquisition side as well. Great. Thank you. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.