Klaviyo, Inc. (KVYO) Q3 2026 Earnings Report, Transcript and Summary

Hello, and welcome to the Klaviyo Q3 26 earnings call. We ask that you please hold all questions until the completion of the formal remarks, at which time you will be given instructions for the question and answer session. Also, as a reminder, this conference is being recorded. If you have any objections, please disconnect at this time. With that, I would like to turn the call over to Brad Sills vice president of investor relations. Brad, you may begin.

Welcome, everybody. We appreciate you joining us. Joining me today are Klaviyo co-founder and co-CEO, Andrew Bialecki; co-CEO, Chano Fernandez, and CFO, Erica E. Smith. Andrew, Chano, and Erica will first share their views on the quarter, and then we will open up the line for your questions. Our earnings press release, investor presentation, SEC filings and a replay of today's call can be found on our IR website at investors.klaviyo.com. As a reminder, our commentary today will include non-GAAP, including non-GAAP gross margin, non GAAP operating income, non GAAP operating expenses, free cash flow, adjusted free cash flow, and adjusted free cash flow margin. Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release or earnings release supplemental materials which can be found on our Investor Relations website. Additionally, some of our comments today may contain forward looking statements that are subject to risks, uncertainties and assumptions which could change. Should any of these risks materialize or should our assumptions prove to be incorrect, actual company results could differ materially from those forward looking statements. A description of these risk factors, uncertainties and assumptions and other factors that could affect our financial results are included in our filings with the SEC. We do not undertake any responsibility to update these forward looking statements except as required by law. Andrew, that concludes my introduction. We are ready to begin.

Thanks, Brad, and welcome, everyone. Starting with the numbers, revenue was $387 million for the third quarter, up 25% year on year. And we have now crossed $1.5 billion in annualized run rate with growth in large enterprise deals deeper multiproduct adoption, and growing use of our agents. Over 211 thousand customers trust Klaviyo to power their growth. And we crossed a great milestone. In the last 12 months, we have helped our customers generate over $100 billion in Klaviyo attributed value, up 25% from the same period last year. On top of that growth, we have had a very productive few months building and shipping the products we think will drive the future. And I would like to walk through their progress in adoption. We believe autonomy will be as important and maybe more than our platform and infrastructure. Every business will have a marketing AI harness and models that they use as part of running and growing their business. At Klaviyo Boston in September, we announced a dramatically improved version of Composer. In October, we released it to all our customers. In the 3 weeks since the latest release, daily active accounts of Composer have more than doubled to more than 10 thousand and overall usage has more than tripled to 18 million weekly credits. This is just the beginning. Stepping back for a moment, our strategy with AI and Composer is to build the best agent and harness for automating, personalizing, and autonomously improving marketing experiences. The new version of Composer has a host of major improvements. It takes advantage of recent models, in agentic and long horizon reasoning, its internal knowledge, has expanded. And we have made it flexible to adapt to the workflow of our customers with connectors, skills, and artifacts. For years, we have told our customers, if you can dream a customer experience, you can create it on Klaviyo. Now they can ask Composer to build it. And it will be built end to end. We believe having a leading marketing agent and intelligence will be a major value add and differentiator for our customers, and we want that intelligence to be available in as many places as possible. Yesterday, we announced 2 new embedded partnerships, Klaviyo and Shopify and Klaviyo and Wix. Both of which include Composer. And we are working on similar integrations with more platforms and agents. We are integrating Composer into our MCP, so it’s available on every AI platform. The Klaviyo mobile app, our first natively built app since 2015, will be composer first and focused on the agentic experience. Wherever you want to use Klaviyo and Composer, we are making it available. We view our headless strategy and agent strategy as not only complementary, but compounding. With headless, anyone and any agent can access Klaviyo programmatically via APIs, CLIs, or through our MCP. With Composer, businesses can access the data, marketing, and customer experience infrastructure and functionality Klaviyo offers. This gives them maximum control and flexibility. We have seen rapid adoption of our MCP server with over 70 thousand accounts using our MCP server, and usage doubling quarter over quarter. The usage of our MCP server is higher than Composer today, but Composer usage is growing faster. And these are not competing channels since we are making Composer a available through our MCP connector. We think this will be another great way to get world class marketing intelligence in the hands of more businesses. You can use your favorite AI agent to help you work, and when you need an expert marketer, you can call out to Composer for that help. On our internal marketing benchmarks, we find that Composer outperforms Frontier models at common marketing tasks. This translates to better performing marketing and ultimately, more growth for our customers and for us. This is the advantage of domain specific agents that are trained to excel at tasks that are less verifiable and require data specific to that domain. 2 nascent patterns we are very excited about that we believe will drive the next step function of Composer growth our productivity and marketing graphs and loops. I would like to spend a minute talking about each of these. Talking with our customers, whether it is Composer or other agents, many entrepreneurs and small businesses are still unsure about what agents are capable of, or are not sure what task to ask them to do. To solve this, we are making Composer proactive, where it will automatically suggest marketing campaigns to run or find issues and optimizations with their current program. For our largest customers, there is a lot of interest in making common marketing activities more automated and to have them improve over time. The same concepts in coding of creating graphs to model processes and loops that improve work and allow workflows to improve over time, we are using those with marketers. And with the latest Composer release, we are seeing positive signals. In the last 3 weeks, the number of scheduled tasks and custom skills have tripled and doubled, respectively. We think creating graphs that represent analytical and marketing, and loops that refine and improve those strategies over time will become common. And as Chano will talk about, we are working with our customers and partners to evangelize this. Customers are going to go beyond 1-off chats to setting up standing jobs. 1 example is a fast growing performance apparel brand. They are treating Composer like a member of their team, building custom skills to hold its brand voice and review campaigns before they send. And they are using Composer to put the work on a schedule, a daily revenue digest, a weekly flow audit, and a Friday review of next week's campaigns. We are also seeing customers do more with Composer. Credits per active account are growing 60% since the latest release. This includes brands like Shields, Vital Proteins, and Dermalogica. For Dermalogica, skincare is personal. And at their scale, that is easy to lose. Composer is now the team's final check before every send. When they launched a new win back flow, Composer spotted that nearly 1 in 4 recipients getting an email from another flow that same week. And in minutes, set up a filter to fence it off. We are also seeing Composer help with conversion. Free accounts that use Composer are converting to paid plans at about 1.5x the rate of those that do not. Right now, adoption is our priority. So we are deliberately giving customers free credits to try Composer and build it into their workflows and we are early. Of the customers who have tried it, most have yet to really dig in. Emily active accounts using Composer in their workflow are about 5% of Klaviyo's daily active accounts. A single digit share. That is the headroom. And it runs on 2 axes, more customers using Composer and more use from each of them. We have only just begun our growth plays, like making Composer a more prominent in the products, more broadly engaging our champion network, and bringing it to the Klaviyo mobile app. that is how you win on adoption first and why we are confident about what comes next. Composer is only as good as the data behind it. And we continue to make improvements to the Klaviyo data platform. In September, we announced a SQL interface for our data platform. So a marketer or an agent ask a question of their data in plain language and get back the answer and the query behind it. SQL opens up access to data inside Klaviyo in a way we have not offered before. Deepening the analysis beyond what was practical. This means faster business decisions for our customers. it is also the foundation for Composer. Customers are turning to Klaviyo as their data warehouse solution. With custom objects, customers can store whatever information they need in Klaviyo at scale and query it. makes Klaviyo a true data warehouse for marketing. And we are seeing customers use it that way. Take 1 customer. Their analytics team built models into their data warehouse, with our data warehouse sync, these models flow straight into Klaviyo. Where their marketing team uses them to segment and personalize without waiting on IT. The sync also runs the other way, sending Klaviyo profile events and segment data back to their other warehouse, so analysts can run attribution and modeling in the tools they already use. there is no reverse ETL vendor or custom pipeline in between. Whether the data lives in Klaviyo or alongside it, the result is the same. Marketers and agents work from the full picture. That data feeds into the unified profile and personalization, is what turns that context into growth. We have evolved marketing analytics into personalization, a single layer where specialized models decide who to reach, what to show them, and when and where to reach them in real time. Marketers set the guardrails and measure lift against a real holdout set. And customers are leaning in. In the third quarter, they sent more than 2 billion messages using personalized send time model, up 25% from the previous quarter. Our data platform strategy is to offer customers 1 platform to securely store what they want at scale, access it, and personalize it across any channel in any service. More services include customer agent for support and services, Customer agent works from the same unified profile as marketing, so every conversation starts with the full context, what we learn in service feeds back into marketing, We keep expanding what customer agent can do, with more languages and more channels, including voice coming soon. Customer agent is now resolving conversations faster. We have now exchanged over 2 million messages, and in October, we released a new single agent architecture designed to deliver even better experiences. We are already seeing this innovation deliver great results. For 1 customer, resolution rates grew 25 points relative to the 3 weeks prior. And we are seeing strong traction with larger customers with adoption of Customer Agent by $50k+ ARR cohort up nearly 60% quarter on quarter. Together, the data, the agents, and personalization run as 1 system, and that is how the value compounds. We have a great business, and everything we built over the last 14 years is the foundation for what comes next. Every email, text, purchase, sign up, service interaction, social capture, and mobile push feeds into the Klaviyo data platform. Making experiences more personal and giving agents more context. That data flywheel spins faster as agents use it. With the core business growing across enterprise, international, and with products like text and personalization, we have a long runway of opportunity in the $160 billion B2C CRM market that we serve. Agents and headless expand that meaningfully. We are only 1% done and excited about what comes next. Before turning the call over, I want to welcome our new CFO, Erica E. Smith, who joined in early September. I am thrilled to have her here. And with that, over to you, Chano.

Thanks, Andrew. I am thrilled for what we are building here at Klaviyo. Alongside our customers and 5 thousand+ partners. As a B2C CRM connecting data agents, personalizations, and channels, our role has never been more important. Customers want to treat every consumer as an individual. But they are navigating fragmented data and a new world of AI. The answer is 1 unified profile that acts in real time and they are choosing Klaviyo as the platform to build on. You could feel the excitement at Klaviyo Boston in September. Where we had our largest turnout and welcome more large enterprise brands and partners than ever. That momentum is showing up in the results. We are executing as we said we would do: winning in the enterprise, expanding across international markets, and closing more multiproduct deals than ever. I would like to spend a few minutes on how these key initiatives are driving growth. Starting with the enterprise, where large global brands are choosing Klaviyo to modernize and consolidate their tech stack as they prepare for the all important Black Friday, Cyber Monday. In Q3, we grew the number of large enterprise deals and crossed an important milestone ending the quarter with 105 customers with $500k or more in ARR. Up 57% year over year. Customers with $250k or more in ARR grew to 390, up 49%. We had several notable enterprise expansions in the quarter. Including ButcherBox, a direct to consumer meat brand. We also welcomed Bagel Brands, parent of Einstein Bros., Bruegger's, Noah's, and Manhattan Bagel, As a new customer. Until now, Bagel Brands could only reach loyalty members through the loyalty platform. With Klaviyo, they are unlocking the ability to reach every guest on a single platform that brings order data marketing, and loyalty together. They chose Klaviyo for our native data warehouse integrations. Built in CDP and ease of use as a marketer brand platform. Our largest customers are bought into our agentic roadmap, and it is helping us close new deals. This includes a Fortune 500 company who joined Klaviyo in Q3 for email, text, customer hub, and advanced KDP. Replacing their legacy marketing solution. They selected Klaviyo so they can run on a data platform spanning multiple channels, And they see Klaviyo as a critical part of their IT infrastructure. Turning to us for insight on their marketing strategy. that is the kind of partnership we are seeing and expect with the largest global brands going forward. Every quarter, we win more large customers. They become references for us and that creates a flywheel effect. it is validated the enterprise-readiness of our platform and is changing the enterprise conversation. And the industry sees it Gartner recognized us in its magic quadrant for marketing hubs, and IDC named us as a leader in its marketscape for worldwide agentic marketing. This brings me to our second growth lever, multiproduct adoption. In Q3, multiproduct deals represented 43% of new ARR. Up nearly 8 points from a year ago. And personalization is becoming increasingly important to customers, especially in the enterprise. In Q3, personalization ARR grew over 100% year on year. Melbourne-based Gold, a longtime email customer, is a great example of the importance of consolidating personalization onto a single platform. This quarter, they expanded with us, adding text messaging, personalization, customer agent, and customer hub. With their email, SMS, RCS, and service now running on our B2C to c CRM platform. Personalized experiences can run off a unified customer profile. Tailored to channel preference. That brings me to our third growth lever, international. In Q3, we had notable strength in markets like Brazil, Germany and Spain. And growing adoption of WhatsApp. An important channel for our international customers. We closed our largest new logo win in EMEA to date, a multiproduct, multiyear agreement with Fraser's Group. Consolidating 13 of its brands, including Sports Direct, USC, and Harvey Nichols onto Klaviyo. Frasers chose us for the breadth of a single data platform across email, advanced KDP, and K-Social, and for our agentic roadmap. We are investing to capture the EMEA opportunity. Our new EU data center entered limited availability last month. With GA on track for 2027. Letting European customers keep data in region, a key requirement for many enterprise brands. Across the globe, partnerships remain core to how we go to market. sell more across the portfolio, and grow faster. They are also how we extend our reach beyond retail. In Q3, we expanded the reach deeper into the hospitality vertical with a new OpenTable integration, Turning to agents. Our agents and headless strategy are a key differentiator, especially in the enterprise. In an agentic world, usage comes first. And our pricing is built for it. Composers free tier and Credits help marketeers embed it in their daily work. And customer agent is priced on outcomes, so our customers' success ties to ours. Headless expands optionality for Klaviyo and our customers. That is what wins deals. Adoption of any new technology like agents takes time. As Andrew shared, we are making real progress. To accelerate the momentum, we are working closely with customers to map where agents can take on work. This is empowering customers to move even faster and making Composer even smarter. As more customers choose Composer, those learnings are embedded into the platform. that is exactly the flywheel effect that can help to bend the adoption curve to an inflection point. Before I close, I want to echo Andrew and welcome Erica. I am grateful for the partnership we have built already, and we are excited for her help driving growth as we scale. With that, I will turn it over to Erica.

Thanks, Chano and Andrew, and good afternoon. This is my first call as CFO of Klaviyo. And before digging into the quarter, I would like to share why I joined the company. First, I have deep conviction in the size of the opportunity. Klaviyo is a growth company with a long runway across multiple products, in the enterprise, internationally and with our agents. Since joining, I have met with many customers and prospects. The consistent thread is that they are investing in more personalized, autonomous engagement and that drives faster growth. Customers are choosing Klaviyo to unify their data and customer experiences onto a single platform. Second, I have always believed in an agentic world, data separates the winners from the rest. AI is only as powerful as the context behind it. And our data platform has underpinned our success since our founding. That is a defensible advantage and 1 I am confident in. And finally, the mission and culture. Our focus on the mission and us being builders drives better outcomes for our customers, And that success fuels the passion and commitment that the team brings every single day. Together, these position Klaviyo to deliver long term growth and profitability. Now turning to Q3. We again exceeded our guidance with Q3 revenue of $387.2 million, up 25% year over year. Reflecting consistent execution of our strategy. We continue to move upmarket with momentum in the enterprise as Chano discussed. And we are selling across the platform. Customers using 3 or more products now represent 22% of ARR, up 2 points from last quarter. As a reminder, multiple product customers have a 7-point better retention rate than single product customers. Making this an important indicator of the health of our business. Internationally, growth remains strong. Revenue outside The Americas grew 32% year over year. And in EMEA, excluding the UK, revenue grew 40%. Net revenue retention was 108% in the third quarter. Gross retention held steady, and text messaging expansion and cross sell activity supported our NRR. There was some offset from the overlapping of last year's profile enforce, which will continue to weigh on the trailing 12 month NRR through Q1. it is important to note there is a structural shift underway impacting NRR as more customers are landing with multiple products from day 1. As Chano shared, in Q3, multiproduct deals represented a greater portion of our new ARR. So more value shows up in the initial deal rather than later expansion. As multiproduct lands become the norm, NRR alone will increasingly understate the health of the business. We would encourage you to look at NRR alongside the growth of our larger customer cohorts Together, they better reflect how our customers are adopting our products. Turning to the P&L. In Q3, we delivered strong profitability. As we leaned into the infrastructure optimization and AI efficiencies across the organization. This supported revenue per full time employee growth of 26% year over year. $644 thousand in the third quarter. Gross margin was 75% a sequential increase from Q2 driven by rigorous management of our cloud infrastructure costs. Compared with last year, gross margin was down reflecting the continued success of our text business, as we increasingly become our customer's omnichannel platform of choice. Last quarter, we introduced new mobile pricing, that lets us adjust prices at renewal. Which will help offset carrier fee charges in the future. Operating income came in at $56.9 million, a 15% operating margin, exceeding our guidance This reflects expense discipline across the business including infrastructure optimization, AI driven efficiencies, and lower than anticipated expenses from Agents, the agency acquisition, Which closed during the quarter. Operating expenses were about 60% of revenue. Compared to 62% the same quarter last year. We saw leverage across go to market and G&A which more than offset investments we are making in R&D to deliver against our product roadmap to drive growth. This includes the agency team, who have already made a meaningful impact on the latest release of Composer, and Customer Agent. We are excited to have them on board at Klaviyo. Turning to the balance sheet. We generated $24.8 million of free cash flow. And ended the quarter with a total cash balance of $706 million. Excluding $15 million used in the acquisition of Agents, adjusted free cash flow was $40 million, or a 10% adjusted free cash flow margin. Just as a reminder, free cash flow can vary quarter to quarter. With the timing of payments and collections. We encourage investors to look at free cash flow over a 12-month period. In October, we completed $500 million buyback authorization announced in March. Our board has approved an additional $300 million authorization, which reflects the board and management's conviction in our strategy. And in the in the intrinsic value of our shares at current levels. Our strong cash balance and consistent cash generation allows us to continue investing to drive growth through our go to market engine and our product roadmap. Turning to our outlook. For Q4, we expect revenue to be in the range of $421 million to $425 million representing growth of 21% at the midpoint. We expect Q4 operating income to be in the range of $66.5 million to $69.5 million We are raising our full year 2026 revenue guidance by $9 million at the midpoint. Now project 2026 revenue between $1.537 billion and $1.541 billion representing 25% year over year growth at the midpoint. We are also raising our full year operating income guidance and are now expecting 2026 operating income between $233 million to $236 million As a reminder, given that customers are increasingly turning to us to power their omnichannel strategies, we expect the fourth quarter to be a strong quarter for text messaging. Creating more seasonality to our results including a step down in gross margins in Q4. In prior years, Klaviyo has provided an early look at the next year during the third quarter call. This year, we are taking a different approach. Q4 is the most important quarter in software. And sets the stage for the year ahead. And this is especially true for our business with Black Friday and Cyber Monday at the center. We have entered Q4 with strong momentum in the enterprise, growing usage of our agentic solutions, and more customers landing with multiple products. I believe it is important to give you our 2027 outlook with the benefit of our full Q4 behind us. I have been energized by what I have seen since joining in September. And will provide more color on our expectations for 2027 on our year-end call. To close, Q3 reinforced what drew me to Klaviyo. Our strategic initiatives continue to generate growth, which is made possible by a platform that has placed customer relationships and data at its core. And it is the compounding benefit of the volume and scale of the data that flows through our platform that positions Klaviyo to be a leader in autonomous marketing with our agents. With that, we will open the line for questions.

Thank you. At this time, if you would like to ask a question, please click on the raise hand button, which can be found on the black bar at the bottom of your screen. We ask that you limit to 1 question. If you would like to ask another question, please raise your hand again to rejoin the queue. When it is your turn, you will receive a message on your screen from the host allowing you to talk and then you will hear your name called. Please accept, unmute your audio, and ask your question. We will wait 1 moment to allow the queue to form. Our first question comes from Raimo Lenschow with Barclays. Please unmute your line and ask your question.

Perfect. Hey. Thanks. Thank you, and congrats. Great quarter. 2 quick ones. I will make them quick, so then I will squeeze them too. AB, like, if you look at Composer and what people are how people are using it and what are they doing it, what is the feedback on the ROI they are getting there? Like, because that is the 1 thing we see across the board that you know, AI products are really nice, but then people, especially on the low end of the market, are nervous about you know, the value that they are getting for it and nervous about token burn. Like, how do you position it, and what do you see customers are doing there? And then, Erica, for you on the NRR I hear you that, you know, it is understating because you are selling more initially. But you also meant. Mentioned the profile enforcement creates a headwind initially. Like, can you kind of unpack which 1 is driving which data so that we kind of get the right number for going forward? Thank you.

Awesome. Thanks, Raimo. Yeah. We are really excited about the use cases we have seen so far. So on ROI, you know, we look at Composer. First, I mean, just the marketing and customer experiences customers build through Klaviyo are--the ROI, I mean, we share numbers about you know, Klavio attributed value, and we typically will see ROIs anywhere from, you know, 10 to 100x. The way I would think about Composer and the sort of, like, the credit usage, the token burn, so to speak, is it is just a way to, you know, amplify or go find more results that have a similar ROI. So just as an example, like, what are people using Composer to do? They are sending more marketing messages to their customers. They are able to better personalize those messages. They are using Composer to then go back and review and audit the different campaigns and automations they are building, 1, sometimes for, like, compliance reasons, things that they just otherwise would be expensive. They would have somebody to need to go manually check. Or for better peace of mind. But also then to go find opportunities where they can do them even better. And so when we look at the. You know, what. what is happening as a result, they are doing more messaging. it is better. Right? it is getting. it is, you know, it is self improving. All that is amplifying that ROI they are already getting. You know, 1 thing we would like to say is that with Composer, we think there is this big almost, like, agent overhang. Like, Composer as an agent is so good at doing marketing and customer analysis the problem is not really ROI. it is more just helping more of our customers know what to prompt. We talked a little bit about setting up recurring workflows. And I think that is the phase that we are entering. The technology is there. Our product is there. Right? We are gonna continue to improve it. But really, it is about driving large scale adoption with both, like, current Klaviyo customers and then also just other businesses that need to do marketing. So, yeah, we are really, really excited about that. Then, Erica?

Yeah. Absolutely. So I wanted to touch on your question about NRR. So I think absolutely profile enforcement continues to be an overhang, and our expectation is that will roll into the first quarter of next year. I think the 1 thing we wanted to point out when we were talking about customers landing with more products that as you look ahead, we anticipate that will be increasingly the case. That customers will continue to land with more and more of our product portfolio, And so that as you look ahead will be an area where we do think that will also be another headwind. But I think the really important thing to focus on is that our gross retention rates have been incredibly strong. Those have been consistent all the way along. The other thing is that we are seeing nice expansion across our product portfolio when you think about text messaging and personalization. The other piece of it is that when you think about things like agents, those will often be more consumption based. So when you are thinking about NRR, that also further down the road just will not be the primary metric for you to evaluate whether or not customers are expanding. So I think what we really want and we encourage you to do is look at not just NRR, but NRR plus the growth of those other larger cohorts of customers.

Our next question comes from Ryan McWilliams with Wells Fargo. Please unmute your audio and ask your question.

Hey, guys. Thanks for taking the question. For Andrew, we would love to hear about how you can make it easier for solving this, like, diffusion-of-AI problem. Like, you mentioned the technology's there. And, like, SMBs, like, I am sure they want to try agents and do more with AI, but I am sure they would just like to simplify what they are doing to make more money. So is it like you know, prompting the user itself to then click and take an action now that, like, the models are more capable, I guess, like, from a product perspective, what are the things that you think can enhance development. Or, sorry, enhance adoption of AI within your platform? Thanks.

Yeah. For sure. This is a major area of focus for us, and I think we have got a lot of threads that we think will bear a lot of fruit on that, you know, the coming in the coming months. So let me give you a little bit of a summary about how we think about it. The first is just inside of Klaviyo. You know, a lot of customers and a lot of marketers, we are just solving this problem of, like, what to prompt. So we have seen, you know, kind of, I think a lot of folks, right, maybe ex engineering, are solving this problem of well, I do not know what the model is capable of or the agent is capable of. You know, what should I ask it? And in some cases, it is challenging Composer to do bigger tasks. I think we have. I have seen this on a lot of calls with our customers where they are they are kind of blown away when they ask Composer to do some big analysis or they generate an entire holiday plan and then implement it. And it just gets to work and does it. It does it, you know, on brand in a way that they say, wow. it is actually. This is very close. You know, there is only a couple of edits. For those growth plays, yeah, we are doing a lot around, like, showing prompts And 1 of the things we have done as an example is depending on where you are inside of the Klaviyo application, you know, we will provide different prompts, different suggestions based on what you are looking at. We also are learning from our customers as they are prompting, you know, as they are prompting or asking for things so that we can come back and kind of recall those you know, those kind of use cases. And, obviously, we can pattern match across users. So if we see users that are similar, we can recommend other prompts that, you know, kind of a little bit like users like you, marketers like you, have been doing the following. And we plan on publishing, you know, some--a little bit like kind of, you know, benchmarks and, you know, top, you know, top prompts and use cases that others can learn from that. Beyond that, like, you know, for our entrepreneurs and SMB customers, we are also working to embed Composer in a lot more surfaces. So I talked a little bit about that in our prepared remarks. We partnered up with, obviously, our good friends at Shopify. and Wix. And we are doing more to embed Klaviyo inside of other products. And this includes not just Klaviyo's you know, functionality or infrastructure around analytics and marketing, but also Composer as well. And we have a lot more coming there where, you know, we wanna make marketing intelligence ubiquitous. So, actually, it does not matter. You do not have to log into our Klaviyo app, our .com. We mentioned that we are now shipping, you know, a mobile app that is agentic first. but you can access Composer through our MCP connector. We just wanna make it readily available so that if you are using your own personal agent, when that personal agent says, hey. I kinda need to do this marketing task. Who do I ask for advice? That marketing agent can even find Composer and introduce customers? Last thing I will say is for our larger customers, you know, some of the larger enterprise customers, I think we are about to cross this chasm from. You know, marketers. You know, when I talk to them, they are still kind of in this era of used to kind of prompting AI, asking a question, waiting for it to do work, come back. Prompt a little bit more. it is kind of like where coding was, you know, maybe 18 or 24 months ago. I think we are about to enter the era where people really. You know, most of the entrepreneurs, small businesses, even enterprise I talked to, they kinda wanna know if AI can take some bigger workloads. for them. And so this is-- You know, Chano and I spent a lot of time in the Klaviyo team getting close to our customers, helping them map out those marketing workflows and actually encode them into things like skills and tasks within Composer And I think that is that is that is still very new I think that is the future. You know, it is. You are not gonna buy marketing software. You are gonna sit-- Somebody's gonna log in every day and kind of point click their way around to, say, build campaigns. In the future, you are gonna log in and say, Hey, these are the outcomes that I am after. Here's kind of how-- Here's my process. Here's where I wanna be involved. You are gonna explain that to an agent or an AI. And it is gonna encode that. And then it is gonna go off and do that work, and it is gonna kind of, like, a little bit of an inbox or it will, you know, call out to you. It will chat with you when it has something that is ready for review. So, that is going to be the new pattern. We have already seen this happen in other domains. And we are excited because it is this is--we have seen some real. A lot of customers that are very leaned into this. And yet the adoption--you know, we shared some of the stats. We wanna show the adoption rate is still. it is still very nascent. And for us, we look at it is just because a lot of people have not. They are not used to the patterns of how to use an agent. Something that we look at as our responsibility to help teach that you know, to marketers and entrepreneurs and businesses around the world.

Our next question comes from Robert Oliver with Baird. Please unmute your audio and ask your question.

Great. Thank you guys very much for the question. I have a 2 parter as well. AB, appreciate all the color. On the headless strategy. And the MCP server data and around Composer. You, in response to the last question, you talked a little bit about the large customer activity. And I just would love to hear how much of that workflow today is currently done from frontier models? I mean, you said domain specific agents are gonna be important. You know, we believe that as well. The functionality seems like it is certainly much higher, particularly with your data. But how much of that is really kind of changing that workflow today and at the largest accounts is that a part of the sale and what you are landing are landing right now? And then I would just be curious to hear on the new expansion on the new enterprise metric that you gave out--kind of to get a sense of the breakdown. Either for Andrew or Chano on what is new lands and what is cross-sell and how those are trending. Thank you.

Excellent. Okay. So happy to take the first part. Yeah. So for larger customers adopting kind of encoding their work into AI, I will tell you, like, 1 thing I have observed is it is-- For a lot of marketing teams, even in large enterprise, it is still a very new concept. And it is not that folks do not really want to do it, but this idea of it working off the right dataset? Is that dataset kind of governed? Can I trust it? Can I trust this agent that it understands the, you know, underlying infrastructure? You know, how to build a campaign, how to build a segment, how to interpret marketing results. A lot of that, the trust factor is still being built up. So when we have worked with customers, we told them, it is like, look. We. Ultimately, we have our MCP. So you can access, you know, all of our infrastructure as well as Composer through our MCP. So we are actually a little bit agnostic. If you want to use, you know, Claude, ChatGPT, or, you know, some other agent harness, you can. And we think of Composer as kind of this, like, super-smart marketer that obviously knows all your data, but has also been trained, it just knows all of, you know, kind of what is going on with marketing consumer behavior generally. that is the dataset that we mentioned. that is you know, harder to get, but we have a good lens on that. So we are finding actually from a lot of our large customers, some want to, you know, build other workflows through, you know, some of the, you know, frontier agents. But a lot of them, because they like this kind of human, you know, in the loop, and I kind of wanna edit this, and I wanna be able to visualize and see the campaigns and the automations I am building as I go, we are finding a lot of them are very comfortable and maybe more comfortable working inside of Klaviyo or inside of our surfaces. And then that is 1 of the reasons why inside of Composer, we basically all have the same functionality that you would get, you know, with the kind of, you know, a general-purpose agent. We have built all that same functionality in. So when you think about things like connectors, tools, skills, even things like we just released, you know, a week or 2 ago. The concept of artifacts. Now you can have live dashboards and applications inside of Klaviyo. That are powered by, you know, an agent that built that and then, you know, it can auto refresh. We wanna basically give people a lot of choice. that is our goal: flexibility and choice. But I do ultimately think that, like, for the workflows, whether those are kind of getting coded inside of Composer or outside of Composer, right, in another agent, there is gonna be some marketing work where you really want a very smart marketer, you know, a really, very good marketing intelligence, And that is the feedback we have gotten from customers so far is they trust us. They trust Composer to be an expert at marketing. And we have talked a little bit about ROI, Because the return on investment is so good, and we are not just talking about process automation. We are talking about driving a business. We are talking about customer experiences. You know, our customers and brands, they have a very high bar for correctness. And they obviously want incremental growth. So, we think with Composer, we can deliver much better results. We actually also think we can probably deliver it more cheaply, more efficiently when it comes to, like, token usage. Things like that. Just because, you know, we know our own systems. We know kind of best practice in marketing, how to do those analysis. But when I talk to customers, the thing that matters to most of them is they want the incremental growth. They know there is a lot of opportunities with their customers. That they are not getting to, that they cannot see, they cannot find, they do not have the time to act on, And we look at it as our responsibility to help them discover those so they can delight their customers and then grow faster.

Rob, when it comes to the new metrics that we disclose in the enterprise, and the balance between new business and customer base. Well, let me first say that we always kind of share with you that the enterprise is gonna be a journey. But I am happy with the progress that the team is making. I am pretty proud of how quick it is going. Definitely, I mean, it shows in some of these metrics, like 57% year-on-year growth in customers with 500k ARR,, and 49% year on year growth in customers over 250 thousand ARR. I would say today is a little bit more balanced towards customer base, clearly, but obviously, we have some great activity in the net-new logos, Like customers like Frasers that I mentioned today--our largest customer to date in EMEA--is a new logo. And going forward, what you are gonna be seeing us is now that we have, A, the product readiness; B, we are overcoming the impression, like, we are ready for this enterprise, with a lot of customer references that are happy customers of Klaviyo being large enterprise customers; the partners and also the analysts like Gartner and IDC recognizing us, you are going to see us investing much more into net new logos going forward because we believe that we believe that, you know, there is a great opportunity in this enterprise market for us that is gonna be a great acceleration for the company.

Our next question comes from Tyler Radke with Citi. Please unmute your audio and ask your question.

Yeah. Thank you very much for taking the question, and great to be working with you, Erica. I know you are not providing 2027 guidance today, but 1 of the questions we are getting a lot from investors is just understanding the growth path and when growth can ultimately stabilize after the step-down Implied in Q4. So just as you think about the variables across the business, whether it is AI monetization, international expansion, new logos, upmarket, How do you think about the most important drivers of seeing that revenue growth stabilization as you go into next year.

Yeah. So it is a really great question, Tyler. I think we were very excited to be able to provide guidance of 25% growth for the full year and kind of pass through more than the beat when you are thinking about 2026 as the levelset. And then I do think we wanna make sure that we get through this quarter to see how the initiatives that we are driving forward from an investment perspective deliver because we have a lot of confidence in our ability to execute. And so as you are kind of moving into next year and you think about prioritization and where we think we see a healthy area for us to continue to accelerate, we certainly think the investments that we are making in what Chano just talked about the new logo opportunities is an area where we do expect to see results. We also think in the enterprise. We are very encouraged by what we are seeing around Composer, what AB talked about. When you think about that monetization, you know, we want to make sure we are watching those trends as we move through that quarter. But we are very excited about that as a growth opportunity as well into next year. So I think that would be kind of the stack rank in terms of what we see today and our. What we are executing on absolutely in the fourth quarter and then as we roll into the first part of 2027.

Our next question comes from James Wood with Morgan Stanley. Please unmute your line and ask your question.

Hi. Thanks very much for taking the question. congrats on the quarter and also for stepping in for Andrew on the call. So I wanted to ask you have talked a lot about the very strong adoption of particularly Composer, but also the customer agent When you think about that strength and look forward, how should we think about continuing to use them as better retention and expansion tools in the core business versus the AI becoming a much more meaningful standalone source of incremental ARR for you. Could you talk a little bit about whether the indicators or metrics that you are watching to assess about how quickly and aggressively you go for that monetization opportunity, please? Thank you.

Yeah. Absolutely. So, you know, we quote a couple of stats that are not direct monetization, and I will start with Composer here. So first is, you know, we are finding that among our new customers, when they are--just when folks are signing up, I think we talked about this in the last call as well, know, we are finding a better conversion rate from sign up to folks becoming a paid user, you know, 50%--you know, 1.5x, 50% better when folks are using Composer. I. We expect that to persist. 1 of actually 1 of our big initiatives internally is we have redone what, you know, onboarding or first time experience with Klaviyo is to make it much more, you know, agentic and through Composer. You can imagine things where, you know, now when you sign up, right, rather than you having to know what to do or pick from, say, a default set of, you know, templates, every part of the Klaviyo experience can be tailored to you. what your marketing campaigns and strategies you should have, Obviously, we can look up some things, like, you know, for instance, from your website or your mobile app, various brand assets. We can tailor things to you directly. And we are finding what is happening is that is driving a much higher activation rate. that is the term we use for how long does it take and what percentage of users actually get to, like, real material repeat usage. Of Klaviyo in terms of sending messages or running queries or importing data. So we do think that will be a nice halo effect and these. You know, when Composer and our core, you know, our core marketing infrastructure or core products, those 2 things will go together. And then, obviously, on the retention side, you know, we find a lot of. You know, it is probably no surprise, but we find a lot of customers--1 of the things, especially smaller customers, you know, 1 thing that curtails usage is either, a, they do not know how to do something, they run out of time, and so they just, you know, they kind of fail to activate. Even though they may be paying customers. Or 2, is they are using Klaviyo, but they have this perception that they could be doing more. And Composer solves for both of those. So, you know, the initiative I mentioned around productivity, I think, is gonna help amplify both of those. You know? And as we are seeing, you know, you know, this data come in, we are actually--we are thinking about Composer more as even potentially, like, you know, a landing point for our customers. We actually have a fair number of customers who are on a free Klaviyo plan, where maybe they only have a couple hundred, you know, subscribers or customers to their business, but they are buying Composer immediately because they like the idea of having that expert marketer, you know, at their side that they can reach out to you know, to help them to help them grow. So we see that as that could even be, in the future, the first product that our customers are buying. And then on overall monetization, you know, around Composer, you know, we try to share some stats around, like, usage of credits. And then overall adoption so you can start to think about what the overall opportunity size is. The only thing-- You know, and, obviously, for us, the 2 main levers are how many users, how many businesses, accounts, are using Composer, and then the same will be true for customer agent. And then what does that usage look like? You know, we have mentioned you ROI is clear. The 1 thing I would call out, though, is I go back to this comment I made of I feel like we are. You know, 18 to 24 months time shifted from where, you know, coding agents and engineering is. So a lot of the usage of Composer today, even still today, is this kind of prompt, wait for something to finish, write prompt again. And if you see the, you know, kind of what really drove a lot of adoption and a lot of the value around coding agents was when they became more autonomous. People got used to this concept of, I am gonna run, you know, this agent on a recurring basis. It will wake up every day or it will run-in a loop. I start to build in more of my workflows. And that is something we are we are. We have we have launched that. We are starting to see. We talked about the growth of some of those key capabilities. But I think we are very early there. So I think, obviously, there is a large number of businesses that could be using Composer. and customer agent. Also, the usage rate, like, of per capita, we think, is only gonna grow from here. So we have a lot of work to do. And then the last thing I will say on customer agent is that, you know, Chano and I, we spent a lot of time. We are seeing good adoption We mentioned the number of, like, 60%, you know, quarter- on-quarter growth of our larger customers, the 50k ARR and above. We are seeing good adoption of Customer agent across the board. Both among SMBs and even some of our very largest customers. We have a number of our you know, top 10 customers that are actively, you know, piloting and using Customer Agent in their business. that is another spot where we have done some really great engineering, and we are seeing some, like, great, great results. 1 of the things we found with customer agent, though, is like, there is a little bit more of understanding, you know, the business and getting hands on. So while, you know, for a lot of our users, they are very used to marketing. They get the idea of using Composer to automate that. You know, in some cases, we are spending time getting to know the, you know, support side of the, you know, the business and the organization, especially for larger businesses, and then map out some of the, you know, their internal policies. So I expect we will see growth from Composer more quickly, we will from customer agent, but we are excited about the growth trajectories of both products.

Our next question comes from Terry Tillman with Truist Securities. Please go ahead with your question.

Yeah. Can you all hear me okay? Yes, we got you. Great. And, welcome to these earnings calls, Erica. Yeah. So I have 1 question. It might actually be 2 parts. Sorry about that. But on Composer, is there something into 4Q during the holiday? Sometimes we hear about new technologies People want to be kind of careful how much they try that out during these all important kind of days or weeks. During the holiday season. Is that something we should consider in 4 q around usage and just you know, active user dynamics with Composer? And then, Erica, you know, what we have seen this year, just kinda looking at the guide, you. You have been beating the numbers. They have been a little bit smaller beat, so kinda closer to the pin. Is there any philosophical kind of change with 4Q in terms of, like, degree of potential outcomes in the guidance? Thank you.

Awesome. So on the seasonality of Composer, I actually I do not think we will see too much. If anything, I think it will mirror kind of our overall business. We have seen. I have seen. I have talked to a number of customers that have used Composer heavily to, you know, build out, you know, holiday plans, holiday strategies. And then also, to gut-check their holiday plans. I will give you an example. I was working with 1 retailer where they said, Hey, can I use Composer to basically go audit, go review, you know, the strategy, the campaign cadence that we had in 2024 and 2025 you know, give us feedback on what we did well, what we did not do well? And then, hey, This year, we plan to start marketing a couple of days earlier. You know, can you take that into account and then draft out what you think the right plan is? And then go build those campaigns for us. And that is the kind--that is the kind of activity we are seeing a lot more marketers do. So I think the usage. I do not think it will be quite as seasonal as some of the sending patterns we see. But we definitely see a lot of people turning. You know, leaning on Composer And, certainly, I think there is a lot of trust that folks have with our agent. So there is. You know, even in these most sensitive times, like, they are using it to, review information, understand it, and make these kind of real-time decisions.

Yeah. And then, Terry, when coming back to your question on guidance and guidance philosophy. So I started about, you know, 2 months ago and I think my point of view was that the company had set their guidance philosophy at the beginning of the year and maintaining that guidance philosophy as we walked into the fourth quarter felt like the right approach. So no change in the guidance philosophy around being closest to the pin, and that is kind of the way we approach this guidance model for the fourth quarter as well.

Our next question comes from Samad Samana with Jefferies. Please unmute your line and ask your question.

Hi. Good evening. Thanks for taking my questions. I guess I have 2. First, I know you mentioned you gave 4Q guidance, but anything could you give us any sense of what you have seen so far? I know it is only 1 month into the quarter. But in terms of, like, normal seasonal trends, are you on that normal trajectory that you would see in a fourth quarter? And then, you know, I know that this was not instituted by you, but, you know, the new SMS pricing model that accounts for A2P, I think it was supposed to start in 3Q but not really have a big impact. I am curious if it is had any impact so far in any early trends you are seeing on renewal for the customers that are on the new pricing model. Or should we just wait for that as being more of a 2027 impact? Thank you both for taking my questions.

So I can start on some of the seasonal trends that we are seeing in the business. Take the pricing that we talked about, and then, Chano, if you wanna add on to the seasonal trends, that would be perfect. I think so far, you know, we have seen a typical seasonal quarter when you are thinking about the October. The month of October. But we are only 1 month in--the big time kind of is when you come into the back half of this quarter as well. I think when you are thinking about the pricing, though, yes, we absolutely did roll out the pricing. There has not been a major impact other than the fact that we are seeing our customers when they come up for renewal, we are getting some of that benefit back. But I think we talked a lot about in that new pricing on SMS that there are a lot of puts and takes. So when you kind of take it holistically, we did not see a major benefit on the gross margin coming from SMS this quarter. Because of those pricing changes. And when we look ahead, I think given the increase in the mix, you will still continue to see that gross margin kind of come into the areas that we have been talking about previously. So you should not see that some sort of major improvement on the gross margin. I do think though that we are we are very happy to see those pricing upon renewal roll into the--roll into the. Our p and l as well.

Nothing to call out in terms of any different seasonal trend at the beginning of the quarter. We finished September very strong, and we are expecting that to continue here in Q4.

Our final question comes from Derrick Wood with TD Cowen. Please unmute your line and ask your question.

Great. Congrats on the quarter, and thanks for taking my question. I guess this is for Chano. And it is really around the low-touch go-to-market. I mean, there is been more questions around effectiveness of paid search and SEO or organic traffic as a source of top of funnel generation. I know you guys have a pretty diversified route-to-market, but can you talk about how exposed you are to those channels, how you are navigating through those potential headwinds, and kind of what gives you confidence in sustaining durability in the low touch business as you continue to build out the high-touch enterprise model?

Yeah. that is a great question, Derrick. Thank you for asking. I mean, we definitely continue to invest heavily in our email and SMB and entrepreneur segments and making those stronger. I think we do have very mixed, a diverse kind of model that we are driving there beyond kind of paid and SEO. And certainly not trusting just from those to drive our business. So clearly, you see us doing more partnership, embedded with--we just mentioned today, Shopify and Wix. Stay tuned there. More to come. We are definitely trying different types of promos. We are definitely. You know, even with some of the MCPs and some of the top of funnel diversifying beyond our retail, and getting there earlier into getting from other segments. So we are we. Though we are doing the upscale and moving towards the enterprise, we are certainly not losing the eye of the ball. In terms of strengthening the core of our business and it is something that we review very heavily, you know, activations of free-to-paid. A lot of customers that are getting to us as well more potentially on free plans that again, we were expecting to see the value even opening new doors through Composer, like, the new mobile app and that they will have some of those convert and convert faster. So, clearly, it is a very diversified strategy there. Team is acting with a lot of speed as well and trying a lot of new things and measuring very early and see what works and what does not work, but we are not we are certainly expanding with more partners, more trial, more channels, different promos in terms of what is working. Yeah. And we are excited, and we will keep significant focus on capturing and accelerating new logos going forward.

That is all the time we have for questions. I will now hand the call back over to Andrew Bialecki for closing remarks.

Fantastic. Thanks. I want to thank everybody for joining our call today. I will leave you with 2 thoughts. The first is the era of marketing intelligence. These domains of intelligence, is here. And we are excited to bring that to hundreds of thousands of customers today and many, many more to come. And the second is, as we talked about, we have a lot confidence in all of the levers of our business: growing enterprise, internationally, the entire Klaviyo product set. We think we have a lot of room for growth going forward. I want to thank all of our customers and partners around the world and also all Klaviyos that put in a lot of hard work. The last 3 months, and we will see everybody next quarter. Thanks.

This concludes today's call. Thank you for joining us. You may now disconnect.