Klaviyo Inc

Previous wording

This section of this Annual Report on Form 10-K discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 can be found in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section within our Final Prospectus under the Securities Act, and are incorporated herein by reference. The period‑to‑period comparison of financial results is not necessarily indicative of future results.

Current wording

This section of this Annual Report on Form 10-K discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 29, 2024, which is incorporated herein by reference. The period‑to‑period comparison of financial results is not necessarily indicative of future results.

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, 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 (as defined below) to collect product reviews within our platform to provide a seamless experience across the customer lifecycle, and our 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 December 31, 2023, our platform had efficiently scaled to over 143,000 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 demand growth from customers in other verticals, such as education, events and entertainment, restaurants, and travel, as well as from B2B companies. Based upon our available data today, we estimate verticals outside of retail represented less than 5% of our revenue for the year ended December 31, 2023. 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, 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 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. 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 B2B companies. As of December 31, 2024, our platform had efficiently scaled to over 167,000 customers.

Previous wording

Our land-and-expand strategy is designed to align our success with that of our customers. As our customers’ businesses grow, they utilize more active consumer profiles and send more emails and SMS messages, which naturally increases their usage of our platform. Our revenue also expands when our customers add additional channels, such as SMS, and additional use cases, such as reviews and our CDP offering, or when their other brands, business units, and geographies start using the platform.

Current wording

Our land-and-expand strategy aligns our success with that of our customers. As our customers’ businesses grow, they utilize more active consumer profiles and send more emails and SMS messages, which naturally increases their usage of our platform. Our revenue also expands when our customers add additional channels, such as SMS, and additional use cases, such as reviews and our CDP offering, or when their other brands, business units, and geographies start using our platform.

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 companies. 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 our product-led growth strategy enables us to efficiently expand penetration within our existing customer base. We focus on expansion in three primary ways. First, as our customers increase their usage of our platform through the number of active consumer profiles they have and email and SMS messages they send, they move to higher subscription tiers. Second, we cross-sell additional communication channels, such as SMS to customers who started on our platform with our email offering, as well as add-ons, such as reviews and our CDP offering. Finally, we sell our platform to our customers’ other brands, business units, and geographies. Going forward, our ability to increase sales to existing customers will depend on a number of factors, including our customers’ satisfaction with our solutions and the ability of our customers to attract new consumers. We expect these three forms of revenue expansion to continue in the future.

Current wording

We believe our product-led growth strategy enables us to efficiently expand penetration within our existing customer base. We focus on expansion in three primary ways. First, as our customers increase their usage of our platform through the number of active consumer profiles they store and email and SMS messages they send, they move to higher subscription tiers. Second, we cross-sell additional communication channels, such as SMS to customers who started on our platform with our email offering, as well as add-ons, such as reviews and our CDP offering. Finally, we offer our platform to our customers’ other brands, business units, and geographies. Going forward, our ability to increase sales to existing customers will depend on a number of factors, including our customers’ satisfaction with our solutions and the ability of our customers to attract new consumers. We expect these three forms of revenue expansion to continue in the future.

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. Although we only recently expanded to these regions, we have already experienced significant growth with international sales outside of the Americas accounting for 31.0% of our revenue for the year ended December 31, 2023. We believe that the introduction of additional languages and currencies to our platform will increase our efficacy and ease of use in other regions, as our platform is currently only available in English and US Dollars.

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. In 2024, we expanded our presence in the European region by adding operations in Dublin, Ireland. We have already experienced significant growth with international sales outside of the Americas accounting for 32.6% of our revenue for the year ended December 31, 2024. We also continue to expand our product offerings to better serve the international market. As of the date of this Annual Report on Form 10-K, we offer SMS capabilities in more than 15 countries, and we offer our platform in English, French, German, Portuguese, Korean, Spanish and Italian. We believe that the introduction of additional languages to our platform will increase our efficacy and ease of use in other regions. We also currently only bill in U.S. Dollars, and we believe that adding additional currencies to our platform will help us further our international expansion efforts.

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. In 2024, we also launched Klaviyo AI, a suite of features that provide customers with AI-powered tools to streamline data segmentation, 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 growth 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 continue 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

Customers. We define a customer as a distinct paid subscription to our platform. A single organization could have multiple discrete contracting divisions or subsidiaries or brands each with paid subscriptions to our platform, which would, in general, constitute multiple distinct customers. In some cases at the customer’s request, we allow subscriptions under the same parent organization to be consolidated into a single paid subscription in which case such consolidated paid subscriptions would constitute a single customer. We measure our total number of customers as a point-in-time calculation measured as of the end of a particular period. Customers do not include persons or entities that use our platform on a free trial basis. We define customers outside of retail as those customers who have an identified industry outside of retail, either through in-product selection or as part of the sales process.

Current wording

Customers. We define a customer as a distinct paid subscription to our platform. A single organization could have multiple discrete contracting divisions or subsidiaries or brands each with paid subscriptions to our platform, which would, in general, constitute multiple distinct customers. In some cases, at the customer’s request, we allow subscriptions under the same parent organization to be consolidated into a single paid subscription in which case such consolidated paid subscriptions would constitute a single customer. We measure our total number of customers as a point-in-time calculation measured as of the end of a particular period. Customers do not include persons or entities that use our platform on a free trial basis.

Previous wording

Customers Generating Over $50,000 of ARR. We calculate our number of customers generating over $50,000 of ARR as those customers that have an average ARR of greater than $50,000 over the prior twelve months (or the entire duration of the customer’s paying relationship, if it is less than twelve months) as of the date of determination. We believe the number of customers generating over $50,000 of ARR is a key performance metric to help investors and others understand and evaluate our results of operations in the same manner as our management team, as it is an indicator of our ability to grow the number of customers that are exceeding this ARR threshold, both from our existing customers expanding their usage of our platform and from our sales to larger customers. We believe this is an important indicator of our ability to continue to successfully move up market.

Current wording

Customers Generating Over $50,000 of ARR. We calculate our number of customers generating over $50,000 of ARR (as defined below) as those customers that have an average ARR of greater than $50,000 over the prior twelve months (or the entire duration of the customer’s paying relationship, if it is less than twelve months) as of the date of determination. We believe the number of customers generating over $50,000 of ARR is a key performance metric to help investors and others understand and evaluate our results of operations in the same manner as our management team, as it is an indicator of our ability to grow the number of customers that are exceeding this ARR threshold, both from our existing customers expanding their usage of our platform and from our sales to larger customers. We believe this is an important indicator of our ability to continue to successfully move up-market.

Previous wording

As of December 31, 2023, we had 1,958 customers generating over $50,000 of ARR, compared to 1,085 customers generating over $50,000 of ARR as of December 31, 2022, representing growth of 80% year-over-year.

Current wording

As of December 31, 2024, we had 2,850 customers generating over $50,000 of ARR, compared to 1,958 customers generating over $50,000 of ARR as of December 31, 2023, representing growth of 46% year-over-year.

Previous wording

Dollar-Based Net Revenue Retention Rate. We calculate our Dollar-Based Net Revenue Retention rate (“NRR”) by first identifying the cohort of customers as of twelve months prior to the date of determination. We then calculate the Annualized Recurring Revenue (“ARR”) from this customer cohort as of twelve months prior to the date of determination (the “Prior Period ARR”) and the ARR from this customer cohort as of the date of determination (the “Current Period ARR”). ARR, for any date of determination, is the annualized value of existing paid subscriptions, which we calculate by taking the amount of revenue that we expect to receive in the next monthly period for our existing paid subscriptions, assuming no changes to such subscriptions in the next month, as of that date of determination, and multiplying that amount by twelve. Current Period ARR includes any expansion, price increases, and customer subscriptions that are deactivated and subsequently reactivated during the applicable twelve-month period and reflects contraction or attrition over the last twelve months from this customer cohort, but excludes any ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the point-in-time NRR. We then calculate the weighted average point-in-time NRR as of the last day of each month in the current trailing twelve-month period to arrive at the NRR, with the weightings determined by the total ARR at the end of each period. We believe NRR is a key performance metric to help investors and others understand and evaluate our results of operations in the same manner as our management team, as it represents the expansion in usage of our platform by our existing customers, which is an important measure of the health of our business and future growth prospects. We measure dollar-based net revenue retention rate to measure this growth.

Current wording

Annualized Recurring Revenue (“ARR”) from this customer cohort as of twelve months prior to the date of determination (the “Prior Period ARR”) and the ARR from this customer cohort as of the date of determination (the “Current Period ARR”). ARR, for any date of determination, is the annualized value of existing paid subscriptions, which we calculate by taking the amount of revenue that we expect to receive in the next monthly period for our existing paid subscriptions, assuming no changes to such subscriptions in the next month, as of that date of determination, and multiplying that amount by twelve. Current Period ARR includes any expansion, price increases, and customer subscriptions that are deactivated and subsequently reactivated during the applicable twelve-month period and reflects contraction or attrition over the last twelve months from this customer cohort, but excludes any ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the point-in-time NRR. We then calculate the weighted average point-in-time NRR as of the last day of each month in the current trailing twelve-month period to arrive at the NRR, with the weightings determined by the total ARR at the end of each period. We believe NRR is a key performance metric to help investors and others understand and evaluate our results of operations in the same manner as our management team, as it represents the expansion in usage of our platform by our existing customers, which is an important measure of the health of our business and future growth prospects. We measure Dollar-Based Net Revenue Retention Rate to measure this growth.

Previous wording

As of December 31, 2023 and 2022, our NRR was 117% and 119%, respectively. We implemented a price increase in September 2022, which positively increased revenue growth in 2022. 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. As we have reached the one year anniversary of this price increase, these measures have seen a corresponding decrease.

Current wording

As of December 31, 2024 and 2023, our NRR was 108% and 117%, respectively. We implemented a price increase in September 2022, which positively increased revenue growth in 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 December 31, 2023 to December 31, 2024 was largely driven by lapping the one year anniversary of this price increase in September 2023.

Previous wording

A significant majority of our revenues are derived from sales of subscriptions, which are comprised of fees paid by customers to access our cloud-based software platform for storing consumer’s first-party data and using it to create and deliver personalized and targeted email and SMS marketing services. A small portion of our revenue is currently derived from professional services. For more information on how we recognize our revenues, see Note 2. Summary of Significant Accounting Policies within the Notes to the Consolidated Financial Statements.

Current wording

A significant majority of our revenues are derived from sales of subscriptions, which are comprised of fees paid by customers to access our cloud-based software platform for storing first-party consumer data and using it to create and deliver personalized and targeted consumer experiences across digital channels. A small portion of our revenue is currently derived from professional services. For more information on how we recognize our revenues, see Note 2. Summary of Significant Accounting Policies within the Notes to the Consolidated Financial Statements.

Previous wording

We expect our cost of revenue to increase in dollar amount as we continue to invest in our platform infrastructure and support, acquire new customers, and existing customers increase their usage of our platform.

Current wording

We expect our cost of revenue to increase in dollar amount as we continue to invest in our platform infrastructure and support, acquire new customers, and drive existing customers to expand their usage of our platform.

Previous wording

Our selling and marketing costs primarily consist of employee-related costs including payroll, benefits, bonuses, and stock-based compensation; sales commissions, partnership expenses for revenue sharing agreements, including to Shopify Inc. (“Shopify”), other commerce platform partners, and agency partners; costs associated with advertising and marketing activities; and allocated overhead costs, including rent, facilities, depreciation, and costs related to information technology. Sales commissions are considered an incremental cost to obtain contracts with customers and these costs are deferred and amortized over the expected benefit period. On July 28, 2022, we entered into a collaboration agreement and strategic partnership with Shopify pursuant to which we issued warrants to Shopify (and certain of its affiliates) (the “Shopify Warrants”), in exchange for promotion of our marketing services with customers within the Shopify ecosystem. In accordance with relevant accounting policies, we recognize a prepaid marketing expense in connection with the Shopify Warrants. This prepaid marketing expense represents the probable future economic benefit being amortized over a seven-year expected benefit period and is recorded based on the fair value of the warrants on the grant date.

Current wording

Our selling and marketing costs primarily consist of employee-related costs including payroll, benefits, bonuses, and stock-based compensation; sales commissions and partnership expenses for revenue sharing agreements, including to Shopify, other commerce platform partners, and agency partners; costs associated with advertising and marketing activities; and allocated overhead costs, including rent, facilities, depreciation, and costs related to information technology. Sales commissions are considered an incremental cost to obtain contracts with customers and these costs are deferred and amortized over the expected benefit period. On July 28, 2022, we entered into a collaboration agreement and strategic partnership with Shopify pursuant to which we issued warrants to Shopify (the “Shopify Warrants”), in exchange for promotion of our marketing services with customers within the Shopify ecosystem. In accordance with relevant accounting policies, we recognize a prepaid marketing expense in connection with vesting of the Shopify Warrants. This prepaid marketing expense represents the probable future economic benefit being amortized over a seven-year expected benefit period and is recorded based on the fair value of the warrants on the grant date.

Previous wording

Our research and development costs primarily consist of employee-related costs associated with research and development staff, including payroll, benefits, bonuses, stock-based compensation, and allocated overhead costs, including rent, facilities, depreciation, and costs related to information technology. We capitalize a portion of our research and development costs that meets the criteria for capitalization of internal-use software. All other research and development costs are expensed as incurred.

Current wording

Our research and development costs primarily consist of employee-related costs associated with research and development staff, including payroll, benefits, bonuses, stock-based compensation, and allocated overhead costs, including rent, facilities, depreciation, and costs related to information technology. We capitalize a portion of our research and development costs that meet the criteria for capitalization of internal-use software. All other research and development costs are expensed as incurred.

Previous wording

Our general and administrative expenses consist of employee-related costs including payroll, benefits, bonuses, and stock-based compensation in general corporate functions; procurement, accounting and finance, tax, legal, project management, and human resources, as well as allocated overhead costs, including rent, facilities, depreciation, and costs related to information technology. Credit card processing fees are also part of general and administrative expenses.

Current wording

Our general and administrative expenses consist of employee-related costs including payroll, benefits, bonuses, and stock-based compensation in general corporate functions, such as procurement, accounting and finance, tax, legal, project management, and human resources, as well as allocated overhead costs, including rent, facilities, depreciation, and costs related to information technology. Credit card processing fees are also part of general and administrative expenses.

Previous wording

We expect general and administrative expenses to increase in the near term as a result of operating as a public company, including expenses associated with compliance with the rules and regulations governing public companies, such as Section 404 of the Sarbanes-Oxley Act, and an increase in legal, audit, insurance, investor relations, professional services and other administrative expenses. Further, we expect an increase in dollar amount of credit card processing fees in line with the expected increase in revenue for the foreseeable future. As a result, we expect our general and administrative expenses to increase in dollar amount for the foreseeable future but to generally decrease as a percentage of our revenue over the longer term as we scale our business. This percentage may fluctuate from period to period depending on the timing and amount of our general and administrative expenses, including in the short term due to increased costs in connection with our initial public offering and heightened compliance requirements associated with operating as a public company. These expenses include increased professional service costs, the increased cost of directors’ and officers’ liability insurance, and costs associated with increasing our employee headcount in certain departments, such as accounting, internal audit, and investor relations.

Current wording

We expect general and administrative expenses to increase in the near term as a result of operating as a public company, including expenses associated with compliance with the rules and regulations governing public companies, such as Section 404 of the Sarbanes-Oxley Act, and an increase in legal, audit, insurance, investor relations, professional services and other administrative expenses. Further, we expect an increase in dollar amount of credit card processing fees in line with the expected increase in revenue for the foreseeable future. As a result, we expect our general and administrative expenses to increase in dollar amount for the foreseeable future but to generally decrease as a percentage of our revenue over the longer term as we scale our business. This percentage may fluctuate from period to period depending on the timing and amount of our general and administrative expenses, including in the short term due to heightened compliance requirements associated with operating as a public company. These expenses include increased professional service costs, the increased cost of directors’ and officers’ liability insurance, and costs associated with increasing our employee headcount in certain departments, such as accounting, internal audit, and investor relations.

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

We operate our business through one reportable segment, as well as one business activity, providing software that brings consumers’ first-party data together and uses it to create and deliver highly personalized consumer experiences across digital channels.

Current wording

We operate our business through one reportable segment, as well as one business activity, providing software that brings first-party consumer data together and uses it to create and deliver highly personalized consumer experiences across digital channels.

Previous wording

Revenue for the year ended December 31, 2023 increased by $225.4 million or 47.7%, to $698.1 million compared to $472.7 million for the year ended December 31, 2022. The increase was primarily due to expansion with existing customers driven by expanded usage of our platform as well as our SMS channel. For the year ended December 31, 2023, sales to existing customers accounted for approximately 68% of the increase in revenue. We estimate our price increase in September 2022 represented a low-double digit increase of incremental revenue dollars in 2023. For the year ended December 31, 2023, approximately 32% of the increase in revenue was related to new customers, particularly in the mid-market and outside of the Americas. 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 year ended December 31, 2024 increased by $239.4 million or 34.3%, to $937.5 million compared to $698.1 million for the year ended December 31, 2023. The increase was primarily due to expansion with existing customers driven by expanded usage of our platform as well as our SMS channel. For the year ended December 31, 2024, sales to existing customers accounted for approximately 54% of the increase in revenue while approximately 46% of the increase in revenue was related to new customers, particularly in the mid-market and outside of the Americas. 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 year ended December 31, 2023 increased by $49.9 million or 38.9%, to $177.9 million compared to $128.0 million for the year ended December 31, 2022. This increase was primarily due to an increase of approximately $24.8 million of stock-based compensation mainly due to the vesting of Double-Trigger RSUs upon and subsequent to the IPO, $17.4 million in outbound communication sending costs on behalf of our customers, and $7.3 million in salaries and personnel expenses as a result of increases in headcount and the implementation of a company-wide sabbatical program.

Current wording

Cost of revenue for the year ended December 31, 2024 increased by $43.4 million or 24.4%, to $221.3 million compared to $177.9 million for the year ended December 31, 2023. This increase was primarily due to an increase of $24.5 million in cloud-based infrastructure costs, $24.2 million in outbound communication sending costs on behalf of our customers, $8.6 million in salaries and personnel expenses as a result of increases in headcount, and $2.8 million in amortization related to capitalized software development costs. The increase was offset by a decrease of approximately $16.1 million in stock-based compensation expense related to the vesting of restricted stock units (“RSUs”) in connection with our IPO in September 2023.

Previous wording

Selling and marketing expenses for the year ended December 31, 2023 increased by $180.5 million or 84.4%, to $394.4 million compared to $213.8 million for the year ended December 31, 2022. This increase was primarily due to an increase of approximately $107.0 million of stock-based compensation mainly due to the vesting of Double-Trigger RSUs upon and subsequent to the IPO, $30.9 million in amortization of prepaid marketing expense driven by the Shopify Warrants issued in connection with the Shopify partnership, $26.5 million in salaries and personnel expenses as a result of increases in headcount and the implementation of a company-wide sabbatical program, $14.1 million in partnership-related expenses across our ecosystem, $6.1 million in marketing expenses associated with our advertising campaigns across multiple channels of media, and $1.5 million due to restructuring expenses incurred in the first quarter of 2023. The increase was offset by a decrease of approximately $5.7 million due to a reduction in marketing professional services.

Current wording

Selling and marketing expenses for the year ended December 31, 2024 increased by $9.8 million or 2.5%, to $404.2 million compared to $394.4 million for the year ended December 31, 2023. This increase was primarily due to an increase of approximately $51.7 million in salaries and personnel expenses as a result of increases in headcount and the introduction of a company-wide bonus program, $12.7 million in marketing related services, $10.2 million in partnership-related expenses across our ecosystem, and $3.7 million in technology expenses. The increase was offset by a decrease of approximately $67.0 million in stock-based compensation expense related to the vesting of RSUs in connection with our IPO in September 2023 and $2.1 million in restructuring expenses.

Previous wording

Research and development costs for the year ended December 31, 2023 increased by $158.1 million or 151.9%, to $262.2 million compared to $104.1 million for the year ended December 31, 2022. This increase was primarily due to an increase of approximately $119.0 million of stock-based compensation mainly due to the vesting of Double-Trigger RSUs upon and subsequent to the IPO, $34.2 million in salaries and related personnel expenses as a result of increases in headcount and the implementation of a company-wide sabbatical program, $3.0 million in technology expenses, and $2.5 million due to restructuring expenses incurred in the first quarter of 2023.

Current wording

Research and development costs for the year ended December 31, 2024 decreased by $23.7 million or 9.0%, to $238.5 million compared to $262.2 million for the year ended December 31, 2023. This decrease was primarily due to a decrease of approximately $69.5 million in stock-based compensation expense related to the vesting of RSUs in connection with our IPO in September 2023 and $2.6 million in restructuring expenses. The decrease was offset by an increase of approximately $42.2 million in salaries and related personnel expenses as a result of increases in headcount and the introduction of a company-wide bonus program, $4.5 million in technology expenses, and $1.2 million in professional services.

Previous wording

General and administrative expenses for the year ended December 31, 2023 increased by $112.5 million or 137.4%, to $194.3 million compared to $81.8 million for the year ended December 31, 2022. This increase was primarily due to an increase of approximately $81.7 million of stock-based compensation mainly due to the vesting of Double-Trigger RSUs upon and subsequent to the IPO, $15.5 million in salaries and personnel expenses as a result of increases in headcount and the implementation of a company-wide sabbatical program, $6.4 million in payment processing fees, $5.1 million in professional expenses, primarily attributed to the IPO and public company readiness efforts, and $2.7 million in technology expenses, primarily attributed to an increase in licenses as a result of the aforementioned increases in headcount.

Current wording

General and administrative expenses for the year ended December 31, 2024 decreased by $36.7 million or 18.9%, to $157.6 million compared to $194.3 million for the year ended December 31, 2023. This decrease was primarily due to a decrease of approximately $53.0 million in stock-based compensation expense related to the vesting of RSUs in connection with our IPO in September 2023 and a $6.1 million release in reserves due to tax filings in international jurisdictions. The decrease was offset by an increase of approximately $10.4 million in salaries and personnel expenses as a result of increases in headcount and the introduction of a company-wide bonus program, $6.6 million in payment processing fees, $3.6 million in professional expenses, primarily attributed to expenses incurred to operate as a public company, and $2.2 million in technology expenses, primarily attributed to an increase in licenses as a result of the aforementioned increases in headcount.

Previous wording

Other income for the year ended December 31, 2023 decreased by $0.9 million or 221.1%, to $(0.5) million compared to $0.4 million for the year ended December 31, 2022. This decrease was primarily due to unfavorable foreign exchange fluctuations.

Current wording

Other income for the year ended December 31, 2024 increased by $1.3 million or 273.6%, to $0.8 million compared to $(0.5) million for the year ended December 31, 2023. This increase was primarily due to favorable foreign exchange fluctuations.

Previous wording

Interest income for the year ended December 31, 2023 increased by $18.5 million or 334.3%, to $24.1 million compared to $5.5 million for the year ended December 31, 2022. This increase was primarily due to an increase in interest rates, greater cash balances due to the IPO, and the volume of newly opened interest-bearing accounts, including money market funds, as part of our diversified cash management strategy.

Current wording

Interest income for the year ended December 31, 2024 increased by $15.5 million or 64.6%, to $39.6 million compared to $24.1 million for the year ended December 31, 2023. This increase was primarily due to an increase in interest rates, greater cash balances due to our IPO, and the volume of newly opened interest-bearing accounts, including money market funds, as part of our diversified cash management strategy.

Previous wording

Income tax expense for the year ended December 31, 2023 increased by $1.1 million to $1.2 million compared to $0.1 million for the year ended December 31, 2022. This increase was primarily due to an increase in profits before taxes in our international entities.

Current wording

Income tax expense for the year ended December 31, 2024 increased by $1.3 million or 106.5% to $2.5 million compared to $1.2 million for the year ended December 31, 2023. The increase was primarily due to the increase in profits before taxes in our international entities and an increase in our U.S. taxable income.

Previous wording

As of December 31, 2023, our principal sources of liquidity included cash, cash equivalents, and restricted cash totaling $739.7 million, with such amounts held for working capital purposes. Our cash equivalents were comprised of $314.5 million in money market funds.

Current wording

As of December 31, 2024, our principal sources of liquidity included cash, cash equivalents, and restricted cash totaling $882.6 million, with such amounts held for working capital purposes. Our cash equivalents were comprised of $278.2 million in money market funds.

Previous wording

(1)Restricted cash related to our required collateral to fund payroll and credit card obligations in the Australia entity.

Current wording

(1)Restricted cash related to our required collateral to fund payroll and credit card obligations in our Australia entity.

Previous wording

Net cash used in operating activities of $23.6 million for the year ended December 31, 2022 was primarily attributable to a net loss of $49.2 million adjusted for non-cash charges of $61.1 million and net cash outflows of $35.5 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $22.0 million of prepaid marketing expense amortization, $9.0 million of depreciation and amortization expense, $10.6 million of deferred contract acquisition cost amortization expense, $6.8 million of stock-based compensation expense, and $11.8 million of operating lease costs. Net cash outflows from changes in operating assets and liabilities primarily consisted of $20.2 million increase in deferred contract acquisition costs related to increase in sales commissions resulting from our increase in revenues, $9.3 million decrease in operating lease liabilities due to payments related to our operating lease obligations, $5.2 million increase in accounts receivable due to an increase in customer billings, $5.2 million increase in prepaid expenses due to prepayments for cloud infrastructure and hosting costs, and a $5.7 million net decrease in accrued expenses and accounts payable due to timing of vendor payments. The cash outflow was offset by cash inflows primarily from a $10.0 million increase in deferred revenue resulting from increased billings for subscriptions.

Current wording

Net cash provided by operating activities of $166.0 million for the year ended December 31, 2024 was primarily attributable to a net loss of $46.1 million adjusted for non-cash charges of $239.8 million and net cash outflows of $27.7 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $135.2 million of stock-based compensation expense, $52.9 million of prepaid marketing expense amortization, $19.8 million of deferred contract acquisition cost amortization, $17.7 million of depreciation and amortization expense, and $12.7 million of operating lease costs. Net cash outflows from changes in operating assets and liabilities primarily consisted of a $34.4 million increase in deferred contract acquisition costs related to increase in sales commissions resulting from our increase in revenues, a $20.8 million increase in accounts receivable due to an increase in customer billings, a $17.3 million increase in prepaid expenses and other noncurrent assets, and a $16.7 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 $36.3 million net increase in accrued expenses and accounts payable due to timing of vendor payments and introduction of the company-wide bonus program and a $24.4 million increase in deferred revenue resulting from increased billings for subscriptions.

Previous wording

Net cash provided by operating activities of $119.4 million for the year ended December 31, 2023 was primarily attributable to a net loss of $308.2 million adjusted for non-cash charges of $433.5 million and net cash outflows of $5.9 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $340.8 million of stock-based compensation expense, $52.9 million of prepaid marketing expense amortization, $15.8 million of deferred contract acquisition cost amortization, $13.7 million of depreciation and amortization expense, and $13.0 million of operating lease costs. Net cash outflows from changes in operating assets and liabilities primarily consisted of a $26.9 million increase in deferred contract acquisition costs related to increase in sales commissions resulting from our increase in revenues, a $15.2 million decrease in operating lease liabilities due to payments related to our operating lease obligations, and a $12.9 million increase in accounts receivable due to an increase in customer billings. The cash outflow was offset by cash inflows primarily from a $15.0 million increase in deferred revenue resulting from increased billings for subscriptions and a $31.2 million net increase in accrued expenses and accounts payable due to timing of vendor payments and the implementation of a company-wide sabbatical program.

Current wording

Net cash provided by operating activities of $119.4 million for the year ended December 31, 2023 was primarily attributable to a net loss of $308.2 million adjusted for non-cash charges of $433.5 million and net cash outflows of $5.9 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $340.8 million of stock-based compensation expense, $52.9 million of prepaid marketing expense amortization, $15.8 million of deferred contract acquisition cost amortization, $13.7 million of depreciation and amortization expense, and $13.0 million of operating lease costs. Net cash outflows from changes in operating assets and liabilities primarily consisted of a $26.9 million increase in deferred contract acquisition costs related to increase in sales commissions resulting from our increase in revenues, a $15.2 million decrease in operating lease liabilities due to payments related to our operating lease obligations, and a $12.9 million increase in accounts receivable due to an increase in customer billings. The cash outflow was offset by cash inflows primarily from a $31.2 million net increase in accrued expenses and accounts payable due to timing of vendor payments and the implementation of a company-wide sabbatical program and a $15.0 million increase in deferred revenue resulting from increased billings for subscriptions.

Previous wording

Net cash used in investing activities of $18.7 million for the year ended December 31, 2022 consisted of $15.8 million purchases of property and equipment, $2.4 million of capitalized software costs, and $0.5 million cash paid for an acquisition.

Current wording

Net cash used in investing activities of $17.2 million for the year ended December 31, 2024 consisted of $11.3 million of capitalized software costs and $5.9 million purchases of property and equipment.

Previous wording

Net cash used in investing activities of $9.4 million for the year ended December 31, 2023 consisted of $3.7 million purchases of property and equipment and $5.7 million of capitalized software costs.

Current wording

Net cash used in investing activities of $9.4 million for the year ended December 31, 2023 consisted of $5.7 million of capitalized software costs and $3.7 million purchases of property and equipment.

Previous wording

Net cash provided by financing activities of $101.3 million for the year ended December 31, 2022 primarily consisted of approximately $99.6 million of proceeds from the issuance of common stock net of issuance costs and $1.7 million of proceeds from the exercise of common stock options.

Current wording

Net cash used in financing activities of $5.8 million for the year ended December 31, 2024 primarily consisted of approximately $23.7 million used for the payment of employee tax obligations related to the vesting of stock-based compensation awards offset by $9.7 million of proceeds from the exercise of stock options and $8.1 million of proceeds from the employee stock purchase plan.

Previous wording

Net cash provided by financing activities of $242.7 million for the year ended December 31, 2023 primarily consisted of approximately $320.1 million of IPO proceeds net of issuance costs and $4.2 million of proceeds from the exercise of stock options offset by $81.6 million used for the payment of employee tax obligations related to the net share settlement of stock-based compensation awards.

Current wording

Net cash provided by financing activities of $242.7 million for the year ended December 31, 2023 primarily consisted of approximately $320.1 million of our IPO proceeds net of issuance costs and $4.2 million of proceeds from the exercise of common stock options offset by $81.6 million used for the payment of employee tax obligations related to the net share settlement of stock-based compensation awards.

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 December 31, 2023 were $56.9 million, with $14.4 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 December 31, 2024 were $57.2 million, with $21.5 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 December 31, 2023 were $346.2 million, with $117.7 million payable within 12 months.

Current wording

We enter into various noncancellable agreements with marketing vendors and various service providers. Our noncancellable obligations as of December 31, 2024 were $225.5 million, with $102.5 million payable within 12 months.

Previous wording

Our SaaS subscription agreements with customers offer personalized email and SMS marketing services through a cloud-based software platform, as well as add-ons, such as reviews and our CDP offering. Subscription fees are generated from customers accessing our hosted platform services and our subscription agreements do not provide our customers with the right to take possession of our software. Contractual subscriptions for customers generally auto-renew on a monthly basis and customers may elect not to renew by providing five days’ advance notice. Subscription pricing is determined based on a customer’s profile count and monthly messaging quantities based on a tiered pricing structure and is considered fixed. Variable consideration in our contracts is not material but represents the overage charges incurred by customers who exceed their allotments.

Current wording

Our SaaS subscription agreements with customers offer personalized email and SMS marketing services through a cloud-based software platform, as well as add-ons, such as reviews and our CDP offering. Subscription fees are generated from customers accessing our hosted platform services and our subscription agreements do not provide our customers with the right to take possession of our software. Contractual subscriptions for customers generally auto-renew on either a monthly, quarterly, or annual basis, and customers may elect not to renew by providing at least five days’ advance notice for contracts on a monthly billing cycle and thirty days’ advance notice for contracts with any other billing cycles. Subscription pricing is determined based on a customer’s profile count and monthly messaging quantities based on a tiered pricing structure and is considered fixed. Variable consideration in our contracts is not material but represents the overage charges incurred by customers who exceed their allotments.