Klaviyo Inc

Previous wording

Our platform combines our proprietary data and application layers into one vertically-integrated solution with advanced machine learning and artificial intelligence capabilities. This enables business users of any skill level to harness their data in order to send the right message at the right time across email, short message service (“SMS”), and push notifications, more accurately measure and predict performance, and deploy the specific actions and campaigns that drive the highest impact. Our reviews add-on allows our customers to collect product reviews within our platform to provide a seamless experience across the customer lifecycle, and our Customer Data Platform (“CDP”) offering gives customers user-friendly ways to track new types of data, transform and cleanse data, run more advanced reporting and predictive analysis to drive revenue growth, and sync data in to and out of Klaviyo at scale. We focused on marketing automation within eCommerce as our first application use case, and we believe our software is highly extensible across a broad range of functions and verticals. As of March 31, 2024, our platform had efficiently scaled to over 146,000 customers. Today, our customers primarily operate within the retail and eCommerce vertical. Due to the flexibility and adaptability of our technology, we also see organic growth from customers in other verticals, such as education, events and entertainment, restaurants, and travel, as well as from business-to-business (“B2B”) companies. See the section below titled “Key Performance Metrics – Customers” for additional information on how we define customers and customers outside of retail.

Current wording

Our platform combines our proprietary data and application layers into one vertically-integrated solution with advanced machine learning and artificial intelligence capabilities. This enables business users of any skill level to harness their data in order to send the right message at the right time across email, short message service (“SMS”), and push notifications, more accurately measure and predict performance, and deploy the specific actions and campaigns that drive the highest impact. Our reviews add-on allows our customers to collect product reviews within our platform to provide a seamless experience across the customer lifecycle, and our Customer Data Platform (“CDP”) offering gives customers user-friendly ways to track new types of data, transform and cleanse data, run more advanced reporting and predictive analysis to drive revenue growth, and sync data in to and out of Klaviyo at scale. We focused on marketing automation within eCommerce as our first application use case, and we believe our software is highly extensible across a broad range of functions and verticals. As of June 30, 2024, our platform had efficiently scaled to over 151,000 customers. Today, our customers primarily operate within the retail and eCommerce vertical. Due to the flexibility and adaptability of our technology, we also see organic growth from customers in other verticals, such as education, events and entertainment, restaurants, and travel, as well as from business-to-business (“B2B”) companies. See the section below titled “Key Performance Metrics – Customers” for additional information on how we define customers and customers outside of retail.

Previous wording

Attracting new customers to our platform is a key driver of our revenue growth strategy. We have successfully grown our retail and eCommerce customer base and believe we have significant room to expand within this vertical as well as expand into other industries, including education, events and entertainment, restaurants, and travel as well as from B2B customers. Our ability to attract new customers will depend on a number of factors, including our ability to innovate, the effectiveness and pricing of our new and existing products and capabilities, and the success of our selling and marketing efforts.

Current wording

Attracting new customers to our platform is a key driver of our revenue growth strategy. We have successfully grown our retail and eCommerce customer base and believe we have significant room to expand within this vertical as well as expand into other industries, including education, events and entertainment, restaurants, wellness, and travel as well as from B2B customers. Our ability to attract new customers will depend on a number of factors, including our ability to innovate, the effectiveness and pricing of our new and existing products and capabilities, and the success of our selling and marketing efforts.

Previous wording

We believe we have significant expansion opportunities in international markets. We started by serving customers in North America and, in 2019, we expanded our operations to London, England to penetrate the European region. In 2022, we opened our office in Sydney, Australia to capitalize on the opportunities in Asia Pacific. We have already experienced significant growth with international sales outside of the Americas accounting for 31.6% of our revenue for the three months ended March 31, 2024. We believe that the introduction of additional languages and currencies to our platform will increase our efficacy and ease of use in other regions.

Current wording

We believe we have significant expansion opportunities in international markets. We started by serving customers in North America and, in 2019, we expanded our operations to London, England to penetrate the European region. In 2022, we opened our office in Sydney, Australia to capitalize on the opportunities in Asia Pacific. We have already experienced significant growth with international sales outside of the Americas accounting for 31.9% of our revenue for the six months ended June 30, 2024. We continue to expand our SMS offering, and as of June 30, 2024, we offer our SMS capabilities in more than 10 countries. In April 2024, we began offering our platform in French to help better serve our international customers based in French-speaking countries. We believe that the introduction of additional languages and currencies to our platform will increase our efficacy and ease of use in other regions.

Previous wording

Since our inception, we have been focused on product innovation, seeking to create what we believe is the best software solution for our customers. We originally launched our platform with email messaging as our first channel. Since then, we have successfully added other channels, such as SMS and push notifications, as well additional use cases, such as reviews and our CDP offering. Our continued success depends on our ability to sustain product and technology innovation to continue delivering value to our customers. As technology and consumer preferences change, we believe that our ability to drive continuous product innovation will be critical to attract and retain customers and drive revenue growth.

Current wording

Since our inception, we have been focused on product innovation, seeking to create what we believe is the best software solution for our customers. We originally launched our platform with email messaging as our first channel. Since then, we have successfully added other channels, such as SMS and push notifications, as well additional use cases, such as reviews and our CDP offering. More recently, we have also launched Klaviyo AI, a suite of features that provide customers with AI-powered tools that help segment data, create and orchestrate campaigns, and drive better engagement. Our continued success depends on our ability to sustain product and technology innovation to continue delivering value to our customers. As technology and consumer preferences change, we believe that our ability to drive continuous product innovation will be critical to attract and retain customers and drive revenue growth.

Previous wording

As more customers use our platform, we are seeing organic demand from customers in other verticals, such as education, events and entertainment, restaurants, and travel, as well as from B2B companies. While we started with consumer engagement as our initial use case in the retail and eCommerce vertical, we see a large opportunity into other products and verticals. Without an active sales motion, we have attracted customers from verticals other than retail and eCommerce, which indicates the strong interest and applicability of our platform to new verticals. We have begun to explore ways to serve these new verticals more intentionally. For example, we launched Klaviyo for Wellness in June 2023, which is tailored for fitness studios, salons, and other client-based services within the vertical. In the future, we intend to more actively invest in addressing new industry verticals and product use cases.

Current wording

As more customers use our platform, we are seeing organic demand from customers in other verticals, such as education, events and entertainment, restaurants, and travel, as well as from B2B companies. While we started with consumer engagement as our initial use case in the retail and eCommerce vertical, we see a large opportunity into other products and verticals. Without an active sales motion, we have attracted customers from verticals other than retail and eCommerce, which indicates the strong interest and applicability of our platform to new verticals. We have begun to explore ways to serve these new verticals more intentionally. In the future, we intend to more actively invest in addressing new industry verticals and product use cases.

Previous wording

As of March 31, 2024, we had 2,157 customers generating over $50,000 of ARR, compared to 1,273 customers generating over $50,000 of ARR as of March 31, 2023, representing growth of 69% year-over-year.

Current wording

As of June 30, 2024, we had 2,386 customers generating over $50,000 of ARR, compared to 1,458 customers generating over $50,000 of ARR as of June 30, 2023, representing growth of 64% year-over-year.

Previous wording

As of March 31, 2024 and 2023, our NRR was 114% and 119%, respectively. We implemented a price increase in September 2022, which positively increased revenue growth in 2022 and 2023. This price increase also impacted the various measures we use to assess our usage and subscription levels based on revenue, such as NRR, and our revenue growth rate, and following its implementation, those measures experienced corresponding increases as a result. The decrease in these measures from March 31, 2023 to March 31, 2024 was largely driven by lapping the one-year anniversary of this price increase.

Current wording

As of June 30, 2024 and 2023, our NRR was 112% and 119%, respectively. We implemented a price increase in September 2022, which positively increased revenue growth in 2022 and 2023. This price increase also impacted the various measures we use to assess our usage and subscription levels based on revenue, such as NRR, and our revenue growth rate, and following its implementation, those measures experienced corresponding increases as a result. The decrease in these measures from June 30, 2023 to June 30, 2024 was largely driven by lapping the one-year anniversary of this price increase.

Previous wording

Provision for income taxes consists primarily of income taxes related to U.S. states and foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our U.S. federal and state net deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized.

Current wording

Provision for income taxes consists primarily of income taxes related to U.S. and foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our U.S. federal and state net deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized.

Previous wording

Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023

Current wording

Three and Six Months Ended June 30, 2024 Compared to the Three and Six Months Ended June 30, 2023

Previous wording

Revenue for the three months ended March 31, 2024 increased by $53.9 million or 34.5%, to $210.0 million compared to $156.1 million for the three months ended March 31, 2023. The increase was due to new business, expanded usage of our platform, and growth of our SMS channel. For the three months ended March 31, 2024, sales to existing customers accounted for approximately 45% of the increase in revenue. Approximately 55% of the increase in revenue was related to new customers. Sales to new customers represent the revenue recognized from new customers acquired in the 12 months prior to the period end.

Current wording

Revenue for the three months ended June 30, 2024 increased by $57.6 million or 35.0%, to $222.2 million compared to $164.6 million for the three months ended June 30, 2023. The increase was due to new business, expanded usage of our platform, and growth of our SMS channel. For the three months ended June 30, 2024, sales to existing customers accounted for approximately 42% of the increase in revenue, and approximately 58% of the increase in revenue was related to new customers. Sales to new customers represent the revenue recognized from new customers acquired in the 12 months prior to the period end.

Previous wording

Cost of revenue for the three months ended March 31, 2024 increased by $8.4 million or 22.9%, to $44.9 million compared to $36.6 million for the three months ended March 31, 2023. This was primarily due to an increase of approximately $4.2 million in outbound communication sending costs on behalf of our customers due to increased usage, $2.4 million of stock-based compensation expense related to the vesting of restricted stock units (“RSUs”), and $1.0 million in salaries and personnel expenses as a result of increases in headcount.

Current wording

Cost of revenue for the three months ended June 30, 2024 increased by $12.8 million or 34.1%, to $50.3 million compared to $37.5 million for the three months ended June 30, 2023. This was primarily due to an increase of approximately $6.8 million in outbound communication sending costs on behalf of our customers due to increased usage, $3.0 million in salaries and personnel expenses as a result of increases in headcount, and $2.6 million of stock-based compensation expense related to the vesting of restricted stock units (“RSUs”).

Previous wording

Gross profit for the three months ended March 31, 2024 increased by $45.5 million or 38.1%, to $165.1 million compared to $119.5 million for the three months ended March 31, 2023. This increase was primarily due to revenue growth and ongoing efforts to optimize our costs including (i) higher volume-based discounts and pricing improvements on our purchases of third-party cloud hosting infrastructure and (ii) more efficient use of data storage and elimination of legacy storage architecture.

Current wording

Gross profit for the three months ended June 30, 2024 increased by $44.8 million or 35.3%, to $171.9 million compared to $127.1 million for the three months ended June 30, 2023. This increase was primarily due to revenue growth and ongoing efforts to optimize our costs including (i) higher volume-based discounts and pricing improvements on our purchases of third-party cloud hosting infrastructure and (ii) more efficient use of data storage and elimination of legacy storage architecture.

Previous wording

Selling and marketing expenses for the three months ended March 31, 2024 increased by $31.2 million or 51.5%, to $91.9 million compared to $60.6 million for the three months ended March 31, 2023. This increase was primarily due to an increase of approximately $15.5 million in salaries and related personnel expenses as a result of increases in headcount, $11.2 million of stock-based compensation due to the vesting of RSUs, $2.5 million in partnership-related expenses across our ecosystem, $1.8 million in marketing expenses associated with our advertising campaigns across multiple channels of media, $1.1 million in professional services, and $0.8 million in technology expenses. The increase was offset by a decrease of approximately $2.1 million in restructuring expenses.

Current wording

Selling and marketing expenses for the six months ended June 30, 2024 increased by $62.4 million or 50.3%, to $186.4 million compared to $124.0 million for the six months ended June 30, 2023. This increase was primarily due to an increase of approximately $26.3 million in salaries and related personnel expenses as a result of increases in headcount, $21.3 million of stock-based compensation due to the vesting of RSUs, $4.7 million in partnership-related expenses across our ecosystem, $5.5 million in marketing expenses associated with our advertising campaigns across multiple channels of media, $3.8 million in professional services, and $1.6 million in technology expenses. The increase was offset by a decrease of approximately $1.9 million in restructuring expenses.

Previous wording

General and administrative expenses for the three months ended March 31, 2024 increased by $16.2 million or 70.5%, to $39.2 million compared to $23.0 million for the three months ended March 31, 2023. This increase was primarily due to an increase of approximately $7.7 million of stock-based compensation due to the vesting of RSUs, $2.8 million in professional services, primarily attributable to expenses incurred to operate as a public company, $2.5 million in salaries and related personnel expenses as a result of increases in headcount, $1.5 million in finance expenses, primarily attributable to expenses incurred for international tax compliance, $1.4 million in payment processing fees, and $0.8 million in technology expenses. The increase was offset by a decrease of approximately $0.9 million in restructuring expenses.

Current wording

General and administrative expenses for the six months ended June 30, 2024 increased by $28.3 million or 60.6%, to $75.0 million compared to $46.7 million for the six months ended June 30, 2023. This increase was primarily due to an increase of approximately $15.2 million of stock-based compensation due to the vesting of RSUs, $5.9 million in salaries and related personnel expenses as a result of increases in headcount, $3.7 million in professional services, primarily attributable to expenses incurred to operate as a public company, $2.9 million in payment processing fees, and $1.2 million in finance expenses, primarily attributable to expenses incurred for tax compliance, partially offset by a $1.7 million release attributed to tax filings in international jurisdictions.

Previous wording

Interest income for the three months ended March 31, 2024 increased by $5.7 million to $9.5 million compared to $3.8 million for the three months ended March 31, 2023. This increase was due to greater interest income from the larger cash balances held in interest-bearing accounts, including money market funds.

Current wording

Interest income for the three months ended June 30, 2024 increased by $5.5 million to $10.0 million compared to $4.5 million for the three months ended June 30, 2023. This increase was due to greater interest income from the larger cash balances held in interest-bearing accounts, including money market funds.

Previous wording

As of March 31, 2024, our principal sources of liquidity included cash, cash equivalents, and restricted cash totaling $756.9 million, with such amounts held for working capital purposes. Our cash equivalents were comprised of $320.0 million in money market funds.

Current wording

As of June 30, 2024, our principal sources of liquidity included cash, cash equivalents, and restricted cash totaling $794.6 million, with such amounts held for working capital purposes. Our cash equivalents were comprised of $322.8 million in money market funds.

Previous wording

Net cash provided by operating activities of $26.2 million for the three months ended March 31, 2024 was primarily attributable to a net loss of $12.9 million adjusted for non-cash charges of $59.8 million and net cash outflows of $20.7 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $35.6 million of stock-based compensation expense, $13.2 million of prepaid marketing expense amortization, $4.0 million of depreciation and amortization expense, $3.9 million of amortization related to deferred contract acquisition costs, and $3.1 million of operating lease costs. Net cash outflows from changes in operating assets and liabilities primarily consisted of a $7.2 million increase in deferred contract acquisition costs related to increase in sales commissions resulting from the increase in revenues, a $6.8 million increase in prepaid expenses due to prepayments for cloud infrastructure and hosting costs, a $5.3 million decrease in accrued expenses and accounts payable due to timing of payments, and a $3.9 million decrease in operating lease liabilities due to payments related to our operating lease obligations. The cash outflow was offset by cash inflows primarily from a $2.4 million increase in deferred revenue resulting from increased billings for subscriptions.

Current wording

Net cash provided by operating activities of $67.1 million for the six months ended June 30, 2024 was primarily attributable to a net loss of $17.8 million adjusted for non-cash charges of $118.8 million and net cash outflows of $33.9 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $69.1 million of stock-based compensation expense, $26.4 million of prepaid marketing expense amortization, $8.4 million of amortization related to deferred contract acquisition costs, $8.2 million of depreciation and amortization expense, and $6.3 million of operating lease costs. Net cash outflows from changes in operating assets and liabilities primarily consisted of a $14.7 million increase in deferred contract acquisition costs related to increase in sales commissions resulting from the increase in revenues, a $7.8 million decrease in operating lease liabilities due to payments related to our operating lease obligations, a $7.3 million increase in prepaid expenses due to prepayments for cloud infrastructure and hosting costs, and a $4.7 million decrease in accrued expenses and accounts payable due to timing of payments. The cash outflow was offset by cash inflows primarily from a $6.7 million increase in deferred revenue resulting from increased billings for subscriptions.

Previous wording

Net cash provided by operating activities of $15.6 million for the three months ended March 31, 2023 was primarily attributable to a net income of $4.3 million adjusted for non-cash charges of $24.4 million and net cash outflows of $13.1 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $13.2 million of prepaid marketing expense amortization, $3.3 million of depreciation and amortization expense, $3.5 million of amortization related to deferred contract acquisition costs, $1.8 million of stock-based compensation expense, and $3.3 million of operating lease costs. Net cash outflows from changes in operating assets and liabilities primarily consisted of a $6.0 million increase in deferred contract acquisition costs related to increase in sales commissions resulting from the increase in revenues, a $6.0 million increase in prepaid expenses due to prepayments for cloud infrastructure and hosting costs, a $3.9 million decrease in operating lease liabilities due to payments related to our operating lease obligations, and a $0.4 million increase in accounts receivable due to an increase in customer billings. The cash outflow was offset by cash inflows primarily from a $1.0 million increase in deferred revenue resulting from increased billings for subscriptions and a $2.1 million increase in accrued expenses and accounts payable due to timing of payments.

Current wording

Net cash provided by operating activities of $57.0 million for the six months ended June 30, 2023 was primarily attributable to a net income of $15.2 million adjusted for non-cash charges of $49.1 million and net cash outflows of $7.2 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $26.4 million of prepaid marketing expense amortization, $7.3 million of amortization related to deferred contract acquisition costs, $6.6 million of operating lease costs, $6.5 million of depreciation and amortization expense, and $2.3 million of stock-based compensation expense. Net cash outflows from changes in operating assets and liabilities primarily consisted of a $12.0 million increase in deferred contract acquisition costs related to increase in sales commissions resulting from the increase in revenues, a $7.6 million decrease in operating lease liabilities due to payments related to our operating lease obligations, a $3.9 million increase in prepaid expenses due to prepayments for cloud infrastructure and hosting costs, and a $2.4 million increase in accounts receivable due to an increase in customer billings. The cash outflow was offset by cash inflows primarily from a $14.7 million increase in accrued expenses and accounts payable due to timing of payments and a $4.1 million increase in deferred revenue resulting from increased billings for subscriptions.

Previous wording

Net cash used in investing activities of $3.2 million for the three months ended March 31, 2024 consisted of $1.3 million purchases of property and equipment and $2.0 million of capitalized software development costs.

Current wording

Net cash used in investing activities of $7.1 million for the six months ended June 30, 2024 consisted of $2.0 million purchases of property and equipment and $5.0 million of capitalized software development costs.

Previous wording

Net cash used in investing activities of $1.6 million for the three months ended March 31, 2023 consisted of $0.3 million purchases of property and equipment and $1.3 million of capitalized software development costs.

Current wording

Net cash used in investing activities of $3.6 million for the six months ended June 30, 2023 consisted of $2.8 million of capitalized software development costs and $0.8 million purchases of property and equipment.

Previous wording

Net cash used in financing activities of $5.7 million for the three months ended March 31, 2024 primarily consisted of approximately $3.6 million of proceeds from the exercise of stock options and $2.5 million of proceeds from the employee stock purchase plan offset by $11.9 million used for the payment of employee tax obligations related to the net share settlement of stock-based compensation awards upon vesting.

Current wording

Net cash used in financing activities of $5.1 million for the six months ended June 30, 2024 primarily consisted of approximately $4.3 million of proceeds from the exercise of stock options and $4.4 million of proceeds from the employee stock purchase plan offset by $13.8 million used for the payment of employee tax obligations related to the vesting of stock-based compensation awards.

Previous wording

Net cash provided by financing activities of $0.4 million for the three months ended March 31, 2023 primarily consisted of approximately $0.4 million of proceeds from the exercise of stock options.

Current wording

Net cash used in financing activities of $0.5 million for the six months ended June 30, 2023 primarily consisted of approximately $3.0 million of deferred offering costs offset by $2.4 million proceeds from the exercise of stock options.

Previous wording

We enter into various noncancellable lease agreements for certain office space and equipment used in the normal course of business. Our noncancellable lease obligations as of March 31, 2024 were $53.1 million, with $13.9 million payable within 12 months.

Current wording

We enter into various noncancellable lease agreements for certain office space and equipment used in the normal course of business. Our noncancellable lease obligations as of June 30, 2024 were $49.3 million, with $13.3 million payable within 12 months.

Previous wording

We enter into various noncancellable agreements with marketing vendors and various service providers. Our noncancellable obligations as of March 31, 2024 were $308.8 million.

Current wording

We enter into various noncancellable agreements with marketing vendors and various service providers. Our noncancellable obligations as of June 30, 2024 were $279.2 million.

Previous wording

There have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, 2024 as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024.

Current wording

There have been no significant changes in our critical accounting policies and estimates during the six months ended June 30, 2024 as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024.