Welcome, everyone, to the afternoon session of the first day of KeyBank's 19th Annual Emerging Technology Summit. My name's Jackson Ader, software analyst here at KeyBank, and we are thrilled to have Klaviyo, so we have Amanda Whalen and Jack Grant. So I'll let you guys introduce yourselves and introduce the company, and then we will get into some questions. I'll come to the audience. If anybody has any questions, you know, we'll go through a number of things, but then I'll ping you if you got any questions. Yeah, yeah.
Sure. So Amanda Whalen, CFO of Klaviyo. At Klaviyo, we power smarter digital relationships. We make it easy for B2C businesses to transform all of their data into more powerful consumer experiences across all touchpoints, from email and SMS to the web and reviews. There are over 140,000 businesses who rely on Klaviyo to drive their growth faster and more efficiently. Importantly, that efficiency is part of our DNA as a company as well. It was a big part of what drew me to Klaviyo two years ago, the fact that Andrew and Ed, who are our two co-founders, are so committed to driving not only rapid growth, but doing it in a really efficient manner. Those are the core elements of our financial framework, that we drive rapid growth at scale in an efficient manner.
How that shows up in our financials, a couple of highlights from last year. Last year we drove $698 million in revenue. We grew 48% year-over-year, and we did it with a non-GAAP operating margin of 11%. So really excited to be here with you today.
And then, Jack Grant. I lead our investor relations and been here for about two years.
Great. So speaking of the growth exiting the year, can you talk about a little bit of the just, you know, before we get into some of the background, what were some of the biggest takeaways in the fourth quarter, your first full one as a public company, right? What has been the reception since then? Yeah, that'd be great.
Yeah. So, fourth quarter was a strong quarter for us. So because so many of our businesses who we serve are in the retail space, fourth quarter is a particularly important quarter for our customers. It's holiday. It's Black Friday, Cyber Monday. That's a really important time of year for them. That also makes it a really important time of year for our business. And in our Q4 , we continue to deliver on the four elements that are really near-term drivers of growth for us. So first is adding new customer logos. Our customer count grew 20% year-over-year. The second is expanding with our existing customers. In the fourth quarter, we had a net revenue retention of 117%. The third is expanding internationally. International continues to grow rapidly and increased in penetration in our business. And then the fourth is expansion with the mid-market.
We're particularly proud in the fourth quarter that we had our highest net customer add of greater than $50,000 ARR customers in the company's history. Our number of customers with over 50,000 ARR grew 80% year-over-year. Overall, very strong quarter.
Was that metric driven more by graduation into that 50,000 level, or are you landing customers now that are landing with Klaviyo at $50,000 spend?
It is a combination of the two. We have customers who are expanding into 50,000, and we have customers today who are landing at 50,000 and well beyond.
Okay. Can we just briefly touch on pricing? I know it was a driver last year, for much of last year, but not the entirety. So what was the pricing action that you took in the previous year, and how did it factor into that overall growth rate that we saw in 2023?
Yeah. So we had a price increase that happened in September of 2022. So think of it as rolling through our customer base during that month, which meant that it had its first full quarter of impact in Q4 of 2022. And our pricing philosophy as a company is that we are going to be a premium-priced product. We deliver extraordinary results for our customers, and we want our pricing to reflect the ROI that we're helping them generate.
What we saw in our customer base was we had a segment of customers, particularly some of our larger ones, where we were underpriced relative to competitors, and our customers had very, very high ROIs, which said to us there was an opportunity in that segment of the market to, you know, capture some of that value and share in that value that we were creating for customers. So it really was a price increase targeted at that upper end of the market.
Oh, go ahead.
Oh, I was going to say, now we have anniversaried the price increase. So it did drive, if you think about our year-on-year growth rates starting in that Q4, roughly 10 points, 10 percentage points of year-on-year growth came from the price increase. Now we're fully lapped that and are at, you know, the more normalized growth rate going forward.
Right. So the fourth quarter growth rate, I mean, September to September, the fourth quarter growth rate is just with it, right?
Post-price.
Right. Post-price. Okay.
39% year-over-year in Q4.
Great. Yep. Okay. Can we start actually a little bit with the foundations of the company, you know, with Andrew really building a customer database, right, and a, you know, not necessarily a customer data platform, right, like not a CDP. I understand that you have one now, but that's not the foundation of it. And then the marketing engine and the email was built on top of that. Why did the origin of the company with customer data lead to email marketing?
Yeah. Great question. So the origin of the company was Andrew and Ed, who are our two co-founders, were working together at a small company who specialized in helping large enterprises with their data and using insights from their data to drive customer actions. So they worked with companies like Starbucks. They worked with my former employer, Walmart. And they were working with a large bank.
The bank had them on a project that said, "We want to look through our customers and find the customers who are likely to churn in the next 12 months so that we can run an intervention with them." Well, first, it took them a long time to get all the different customer data, how, you know, where do these customers live, what products do they buy, all these different pieces of data that you would think would be easy to bring into one place, but in a large enterprise are actually really, really hard. They ran the analysis, and then they went back to the customer. And after they had handed over the list of, "Here are your customers who are likely to churn," they went back to the customer and said, "Well, how are things going? Did you, you know, run the intervention campaigns?
Did they did you have some saves?" And they said, "Oh, yeah. We're just getting ready to launch it next month." And they said, "Well, it's been six months since we started, and there was customers likely to churn in 12 months. Half of them are already gone." And they said, "There's got to be a better way. There's got to be a way to get all of your customer data into one place, make it easy to access, and then use that to power communications." So they started with the data and said, "We're going to make it easy to bring all of your customer data into one place." But as they sold it to customers, they said, "Well, what are you using the data for?" And customers said, "We're using the data to power our email communications.
We'd really like you to build an integration with our email communication provider." Andrew said, "Well, actually, we'll just build it ourselves. We'll help. We'll make that easy for you. We'll vertically integrate and put the two together." That's how Klaviyo came to be.
That's funny because when I think of Klaviyo and because this is, you know, your typical customer tends to be, you know, internet-first or e-commerce-first, right, like very, you know, tech-forward, digital-native, I guess, is what I'm supposed to say. And that's not at all a bank, you know, like a big bank, and you tend to kind of skew a little bit towards small and medium-sized business. So at what point did was the strategic decision made to sell to maybe some of the more, you know, the digital-native?
Yeah. The big strategic decision, I would say, would be to sell to small and medium businesses because they were bootstrapping the business. So back to saying efficiency is part of our DNA, Klaviyo actually didn't take on outside capital until the business had been established for a few years. And at that point, it was actually already profitable. And so if you think about how to bootstrap a business, it's important to be really, really efficient with capital. And therefore, they placed a really high premium on being in a segment of the market that had a fast CAC payback . You know, Andrew will say we didn't, you know, we wanted to sell into Walmart, but we couldn't handle a three-year sales cycle. We needed to have a fast sales cycle so that we could get fast, efficient payback. And that's how this focus on SMBs came to be.
And then so many, you know, yes, so many of the digital natives are very, very data-oriented, but these days, we have a lot of brands who we work with as well who are omnichannel. They may have started off with stores. They also sell wholesale. Now they also have their own direct-to-consumer businesses. And what all of these businesses are realizing is what one of our customers told us the other day, that our customer database is one of our most powerful assets and most important assets. And so how we use that data is incredibly important for businesses across all different types.
Yeah, so we're catching you at the right time. You were one of the very few companies that, and certainly very few software companies to go public in the last couple of years. So Jack, just bringing you in real quick, when you're on the road, when you're telling the story of Klaviyo, what is it that you think that investors, public market investors, really grasp? And what are some of the things that, you know, might have taken a couple of times between testing the waters and the roadshow for people to finally understand?
Yeah, definitely. I think the going back to Amanda's comments on the roots of efficiency and that being part of our DNA and the financial profile of the company, that's something that we care deeply about. And we spend a lot of time thinking about what's the optimal way to grow as fast as possible, as efficient as possible. So I think that's something that's resonated really well with folks. And then I think because we've been out on the road educating folks, we've been talking about different parts of the business that might be a little bit unique to us. We have a partnership with Shopify that we're really proud of. And so educating people about the different parts of that partnership is something that we generally spend a fair amount of time with, and people are interested in understanding the dynamics.
And then I think just overall, just getting to know us as a company. We were a company that has been more of a vertical software company to date. And we've played really well within the area that we have played historically with small businesses and retail and e-commerce. And we're spreading the types of customers that we're serving across more mid-market businesses. And so people want to understand that part of the story as well. And then, increasingly going into new verticals too. So I think those are the areas where we're spending a lot of time talking about our story with all the different people on the road.
Can we follow up on Shopify? So partner, that word, you know, means a lot in this particular relationship, right? You know, they have the financial partnership and a go-to-market. So can we just get a little bit of a teach-in, a history lesson on the relationship between Klaviyo and Shopify over time?
Yeah. So the relationship with Shopify for us goes back many years. You know, we are very philosophically aligned as companies in that we are both, you know, very strong founder-led, product-driven companies who believe in building great products that customers are going to love. The companies started working together several years ago. We found we had many customers in common. We said we should, you know, be working together and, you know, partnering. But we hadn't formalized the partnership until the summer of 2022. At that point, we actually formalized the partnership, and it came with a few key things. Shopify did make a financial investment in Klaviyo. They also made the official declaration that Klaviyo is the recommended email provider for Shopify Plus merchants.
We have an agreement, where we're partnering together not only on product and product development to make sure that our products work together seamlessly, but we're also partnering together on go-to-market. So we are out doing events together. We're pitching customers together. It's a really important partnership for us in how we, you know, are going after the market. I will say, you know, what we have also found with Shopify is a couple of things. One, that the partnership with Shopify themselves is incredibly important, but also our participation in the broader Shopify ecosystem is really important. So relationships with merchants. We find that many of our customers come to us because they've been recommended to Klaviyo by their peers in the Shopify, you know, ecosystem. We also find many customers come to us because of partners.
We have relationships with over 5,000 marketing agencies, again, many of whom are aligned to a particular e-commerce platform that they tend to work most closely with, which in many cases is Shopify. And so Shopify for us has been not only a great partner on their own, but also a model for partnerships that we're building with other e-commerce platforms as well, and then also with platforms outside of e-commerce. So last summer, we launched Klaviyo for Wellness, where we're partnering with multiple products or multiple platforms in the wellness space.
Yeah. Mindbody.
Mindbody.
Yeah. One of the best user conferences there is. It's like, you know, it's three days of yoga.
I bet.
Yeah.
I bet.
Okay. So, I'm going to follow up a little bit on Shopify, but then I'll come to the audience in case anybody has any questions in the meantime. Key distinction with Shopify is how much of your customers or your ARR or your revenue is your customers also overlap into our Shopify customers versus next quarter, how much of your revenue is going to come from Shopify, the Shopify partnership. There's a key distinction.
Great question and very important distinction. And there's two key metrics on that. The first is what is the overlap in our customer bases? How many, how much of our ARR comes from customers who, if you were to draw a Venn diagram, are also customers of Shopify? And that number is 78%, 77.7%, to be precise. So many of our customers are also customers of the Shopify platform. The second important metric is how much of our new ARR comes to us from the Shopify App Store. So it's actually sourced directly from Shopify. That number is only 9%. The vast majority of the customers who are coming to us are coming to us through other channels. They're coming to us through direct organic search. They're coming to us through recommendations, as I said, of other merchants.
They're coming to us through partners, and through an outbound motion with our sales force. So Shopify is an important one, but it's important to have the 9% in context.
Yeah. Yeah. Rounding to 10% of just Shopify, if I think about the other e-commerce platforms on which you also, you know, have customers, does that 10% look about similar, or is it way more on other e-commerce sites on a go-forward basis or in the net new revenue?
Yeah. You know, I think one way to look at that is that the 10% actually went down slightly this year. A way to think about that is that actually what we saw year-on-year was growth from the Shopify App Store. We saw even more growth from other sources as well. Shopify continues to grow really, really well for us. We're seeing growth from other platforms as well.
Okay. Any questions from the audience before we move on to a couple of other topics? Sure. Go ahead.
What strategy are you using to expand to other verticals?
The question, I'm just going to repeat it for the recording. What strategy are you using to expand to other verticals?
Yep. So, for other verticals, we are aligning, we're looking at a couple of things. One, we're aligning with important platforms within each of those verticals. So a great example of that is Klaviyo for Wellness, which we launched last summer with a partnership with Mindbody, among others. So we have partnerships now with multiple platforms in the wellness space. And Klaviyo is a great fit for those businesses because they're trying to build personalized relationships with large numbers of consumers where what they're trying to drive is repeat business over time. So one vertical within wellness that's done really, really well for us is, for instance, the med spa space.
And they're using Klaviyo to personalize their communications to people based on what specific treatment they had, both in the follow-up from the treatment and in reminders to say, "Hey, it's time for your next facial appointment." Getting that repeat business is incredibly important for them. As we look to other verticals, we look to places that have some great characteristics that are similar to the retail vertical for us, large numbers of SMBs, large addressable market, you know, a strong platform we can partner with. And then we also look to places where we're already having customers come to us in that vertical. So right now, other verticals are small. They're less than 5% of our revenue today. We expect that they will grow over time. I would think about it being farther in the distance just because there's so much white space left in retail today.
Already, we have customers who are coming to us in the retail space, the hospitality space, events and ticketing, online education. So seeing where those customers are coming from gives us a really good sense of where do we have some strong product-market fit.
Do you leverage your existing infrastructure to add these additional areas, or is there additional expense associated with it?
We do. You know, there's usually some vocabulary associated with it, but think of it as more of a superficial change than a fundamental change to the structure of the underlying product. So I'll use the med spa example. Instead of buying a, you know, T-shirt, you're buying a facial. But the same concept of we run predictive analytics on what is the repeat purchase cycle, that same concept applies to that service as it applies to repeat purchase cycles in retail. So there's a lot of the same underlying data structures and the same underlying use cases. They just tend to have often a different vocabulary associated with them.
So actually, that dovetails nicely into what I wanted to talk about next, which is the multi-product strategy. Keeping all the underlying architecture and infrastructure the same, Klaviyo has been able to launch, you know, expand beyond just marketing email and email automation. Can either Jack or Amanda just walk us through kind of the timeline on when you have expanded the products and where we sit now relative to maybe where you were five years ago?
Yeah. five years ago, we had 1 product, which was email plus data. We sell email and the data profiles combined as a single SKU. We added SMS as our second SKU towards the end of 2021. So it's been in market about three years now. And then last year, we added two new products. We added a CDP, which helps customers get additional functionality out of the data that they're already storing with Klaviyo. And we added reviews, which helps customers communicate with the customers who they're getting reviews from and make that a seamless part of their overall marketing strategy. So we, you know, went from one product to multi-product very rapidly, and that is becoming an increasing part of our strategy over time.
Any kind of penetration rates? I think mid-teens on SMS, right? Where was that last year, or what is that now?
Yeah. Mid-teens on SMS. So SMS was at 16%. It was at 14% last year. So we're up 200 basis points over the course of the last year. Reviews and CDP are early, but what we hear from customers is that there's incredible power in using the full Klaviyo platform together. So for example, customers, you know, if they have somebody who is on their SMS subscriber list who has been unengaged recently, if you are able to connect that into your email platform, you can use email as a way to try and re-engage that customer. Or an example with Reviews, we have one customer, who is in the cookware space, Made In Cookware. They make some fantastic high-end cookware for both home use and professional.
They've integrated into reviews a couple of additional questions that just ask customers a little bit more about how they're using the product, what's your favorite type of cooking, what type of cookware are they using, and then that enables them to be more personalized in their email communications with those customers. So there's power in being able to move seamlessly with one data platform across all of these different products.
How do I pay for it? If I want email and SMS, do I pay for the full platform if I want every single, you know, product? How does this actually turn in money?
Terrific question. So email is priced based on profiles and sends. So it's based on the number of profiles you're storing with us, which reflects the data that you store with our platform. And then it has a multiplier/limit on it, on the number of sends per profile, which averages out to about 10 messages per person per month. SMS is priced based on the number of sends that you have, so how many, just based on number of messages, because there's a little bit of a different structure in that business. CDP profiles, because it's a data product, and then reviews is based on number of orders. So each of them are slightly different. I think one important nuance to understand about our business model is that all of those, for the majority of our customers, are month-to-month.
So for the vast majority of our customers, they are not currently on annual contracts. They can, you know, adjust the size of their contract each month depending on what's happening in their business, which means that it's incredibly flexible. And customers, particularly in that SMB space, appreciate the ability to flex their business over time.
Okay. Have to ask about your comments on the most recent call about the guidance philosophy, right? Are you not aware that there is a game being played here on Wall Street? Okay. So what's your guidance philosophy? And tell us a little bit how that's been received by investors, I guess.
Yeah. It's a terrific question, and I appreciate it because I know that it's on a lot of investors' minds, and it's part of why we wanted to make sure that, we were out there talking about our guidance philosophy and how we approach it. So a few thoughts on it. One is we're prudent in the way we forecast so that we are confident in the guidance that we deliver, that those are numbers that we will deliver. We also are a scale business. We have 143,000 customers. We have 10 years of operating history. That gives us great information for being able to forecast so that when we forecast and when we give guidance, we are not aiming to significantly overexceed the numbers that we provide.
What we're aiming for is to share with you, our investor base, a realistic view of where we think our business is trending, what are the trends that we're seeing, and where do we think we'll come out.
One problem that I would have as an investor is that that is great, but with month-to-month contracts, you know, I can't do the RPO or the billings because of the variability in contract lengths, and then, you know, there isn't deferred revenue in month-to-month paying reverse, right? What are the good leading indicators then that we should be looking out for that will give us externally confidence in your guidance?
Yeah. Terrific question because in our business, it is true. RPO and billings don't tend to be great metrics to look at in our business. I would be looking at what are the trends and what's happening with customer count, and importantly, because so much of our focus is going up market, in what's happening with our trend in our number of customers who are over 50K, because that gives you a sense of how much progress are we making in landing, as you said, those big new relationships and with expanding with our customers who are really growing with us. I'd look at our NRR and how's that trending, and are we able to sustain that at a high level, you know, given the current customer base we have? Those are some of the big ones that I would look at.
Okay. All right. Great. Any other final questions before we let Amanda and Jack go? Seeing none . All right. Thank you very much. Thanks for being here.
Thank you.
That's great. Thank you. You too.