Third quarter revenue of $175.8 million, representing 48% year-over-year growth

Expanded platform with launch of Klaviyo CDP

Klaviyo (NYSE: KVYO), the company that powers smarter digital relationships, today announced results for its third quarter ended September 30, 2023.

“Our strong third quarter results validate the strength of our purpose – to help businesses leverage their data to power smarter digital relationships with their customers,” said Andrew Bialecki, co-founder and CEO of Klaviyo. “Today, we are proud to report our inaugural quarterly financial results as a public company with revenue of $175.8 million and 10% non-GAAP operating margin. We are excited that companies and organizations like Stanley 1913, the San Francisco Marathon, Ouai, and others have chosen to switch to or expand with Klaviyo over the past quarter to drive their revenue growth and build better customer relationships.”

Recent Business Highlights:

• Ended the quarter with over 135,000 customers who are using Klaviyo to drive their own revenue growth, compared to over 109,000 customers in the third quarter of 2022.
• Increased our penetration up market, ending the quarter with 1,699 customers generating over $50,000 of ARR, compared to 899 in the third quarter of 2022, an increase of 89% year over year.
• Continued to expand our current customer base, with a dollar-based net revenue retention rate (NRR) of 119% as of September 30, 2023, marking our 10th straight quarter with a NRR of at least 115%.
• Announced the launch of the Klaviyo CDP, giving businesses a single source of truth for all customer data and advanced analytics to help them understand their audiences and business performance.
• Hired former Salesforce executive and Chief Marketing Officer of GoTo, Jamie Domenici, as our Chief Marketing Officer to lead all global strategic marketing initiatives.

Third Quarter 2023 Financial Highlights:

• Revenue: Total revenue of $175.8 million, up from $119.2 million in the third quarter of 2022, representing annual growth of 48%.
• Gross profit: Gross profit of $117.0 million, representing a gross margin of 67%, compared to gross profit of $86.5 million, representing a gross margin of 73%, in the third quarter of 2022.
• Non-GAAP gross profit: Non-GAAP gross profit of $140.3 million, representing a gross margin of 80%, compared to non-GAAP gross profit of $86.6 million, representing a gross margin of 73%, in the third quarter of 2022.
• Operating income (loss): Operating loss of $(302.2) million, representing operating margin of (172)%, compared to an operating loss of $(25.7) million in the third quarter of 2022, representing an operating margin of (22)%.
• Non-GAAP operating income (loss): Non-GAAP operating income of $17.8 million, representing non-GAAP operating margin of 10%, compared to a non-GAAP operating loss of $(16.3) million in the third quarter of 2022, representing non-GAAP operating margin of (14)%.
• Balance sheet and cash flow: Cash, cash equivalents, and restricted cash as of the end of the third quarter was $724.4 million. Cash from operating activities was $23.7 million, representing a margin of 13%. Free cash flow for the third quarter was $21.9 million, representing free cash flow margin of 12%.

“In the third quarter our team continued to drive strong growth, at scale, in an efficient manner.” said Amanda Whalen, CFO of Klaviyo. “We delivered $175.8 million in revenue and $17.8 million in non-GAAP operating income. In the fourth quarter we’ll continue to invest in our key growth initiatives, including our penetration in the mid-market and internationally, with a continued focus on areas with strong unit economics.”

Financial Outlook

Klaviyo has not provided a reconciliation of non-GAAP operating income guidance measures to the most directly comparable GAAP measures because certain items excluded from GAAP cannot be reasonably calculated or predicted at this time. Accordingly, a reconciliation is not available without unreasonable effort. Stock-based compensation-related charges, including employer payroll tax-related items on employee stock transactions, are impacted by the timing of employee stock transactions, the future fair market value of our common stock, and our future hiring and retention needs, all of which are difficult to predict and subject to constant change.

Dilutive Securities

Klaviyo has various dilutive securities. The table below details these securities (shares in millions; rounding differences may occur):

We have excluded the impact of the Shopify investment option of 15,743,174 shares at $88.93 per share as it was out of the money as of September 30, 2023. The investment option expires on July 28, 2030.

Conference Call Information

In conjunction with this announcement, Klaviyo will host a conference call for investors at 4:30 p.m. ET (1:30 p.m. PT) today to discuss the results for its third quarter ended September 30, 2023 and its outlook for its fourth quarter and fiscal year ending December 31, 2023. The live webcast and a replay of the webcast will be available at the Investor Relations section of Klaviyo’s website: https://investors.klaviyo.com (live and replay).

Select Defined Terms

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.

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.

Dollar-Based Net Revenue Retention Rate. We calculate our Dollar-Based Net Revenue Retention Rate, or 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, or ARR, from this customer cohort as of twelve months prior to the date of determination, or the Prior Period ARR, and the ARR from this customer cohort as of the date of determination, or 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.

About Klaviyo

Klaviyo (CLAY-vee-oh) powers smarter digital relationships, making it easy for businesses to capture, store, analyze, and predictively use their own data to drive measurable, high-value outcomes. Klaviyo’s modern and intuitive SaaS platform enables business users of any skill level to harness their first-party data from more than 300 integrations to send the right message at the right time across email, SMS, and push notifications. Innovative businesses like Good American, TaylorMade, Skims, Stanley 1913, and more than 135,000 other paying customers leverage Klaviyo to acquire, engage, and retain customers—and grow on their own terms.

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Forward Looking Statements

This press release includes certain “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. Other than statements of historical facts, all statements contained in this press release, including, but not limited to, statements about Klaviyo’s outlook for the fourth quarter of fiscal year 2023 ending December 31, 2023 and the full fiscal year ending December 31, 2023, and Klaviyo’s expectations regarding possible or assumed business strategies, potential growth and innovation opportunities, new products, potential market opportunities, and other similar matters, are forward-looking statements. Words such as “aim,” “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “future,” “going to,” “guidance,” “intend,” “keep,” “may,” “opportunity,” “outlook,” “plan,” “potential,” “predict,” “project,” “shall,” “should,” “strategy,” “target,” “will,” “would,” or words of similar meaning or similar references to future periods may identify these forward-looking statements, although not all forward-looking statements contain these identifying words.

Forward-looking statements reflect management’s beliefs, expectations and assumptions about future events as of the date hereof, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. These risks include, among others, the following: our ability to achieve future growth and sustain our growth rate; our ability to successfully execute our business and growth strategy, such as the success of our investment in our key growth initiatives and our ability to recognize effective areas for growth; our ability to successfully integrate with third-party platforms; our relationships with third parties, such as our marketing agency and technology partners; unfavorable conditions in our industry; our ability to attract new customers, including mid-market and enterprise customers, retain revenue from existing customers and increase sales from both new and existing customers; success of our marketing and sales strategies; costs and expenses associated with being a public company; as well as other risks and uncertainties set forth under the caption “Risk Factors” and elsewhere in our Quarterly Report on Form 10-Q for the third quarter ended September 30, 2023 to be filed with the Securities and Exchange Commission (the “SEC”) and other filings and reports we make with the SEC from time to time, which may be obtained on our Investor Relations website at https://investors.klaviyo.com and on the SEC website at www.sec.gov. Moreover, we operate in a very competitive and rapidly changing environment, and new risks may emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor(s) may cause actual results or outcomes to differ materially from those contained in any forward-looking statements we may make. In light of the risks, uncertainties, assumptions, and other factors, the future events and trends discussed in this press release may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Therefore, you should not rely on any of the forward-looking statements. Any forward-looking statement made by us in this press release is based only on information currently available to us and speaks only as of the date on which it is made. Other than as required by law, we assume no obligation to update any forward-looking statements contained in this press release in the event of new information, future developments or otherwise.

Statement Regarding Use of Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with generally accepted accounting principles in the United States (GAAP), this press release and the accompanying tables contain non-GAAP financial measures, including non-GAAP gross profit, non-GAAP operating income (loss), non-GAAP operating margin, free cash flow, and free cash flow margin. The non-GAAP financial information is presented for supplemental informational purposes only and is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. Please see the accompanying tables for reconciliations of these non-GAAP financial measures to their nearest GAAP equivalents.

Our non-GAAP gross profit and non-GAAP operating income (loss) exclude significant expenses and income that are required by GAAP to be recorded in our consolidated financial statements, including, but not limited to, (i) amortization of prepaid marketing expenses, (ii) stock-based compensation and related employer payroll taxes, and (iii) restructuring expenses. Our non-GAAP operating margin is calculated as non-GAAP operating income (loss) divided by total revenue. Free cash flow is defined as cash and cash equivalents provided by or used in operating activities less purchases of property and equipment and capitalization of software development costs. Free cash flow margin is a non-GAAP financial measure that is calculated as free cash flow divided by total revenue.

We believe that all these non-GAAP financial measures provide useful information about our financial performance, enhance the overall understanding of our past performance and future prospects and allow for greater transparency with respect to decision making by our management, who use these measures as important tools for financial and operational decision-making and for evaluating Klaviyo’s own operating results over different periods of time.

Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures versus their nearest GAAP equivalents. Other companies may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. Further, stock-based compensation expense has been, and will continue to be for the foreseeable future, a significant recurring expense in Klaviyo’s business and an important part of the compensation provided to attract and retain its employees to create long-term incentive alignment with stockholders.

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