Klaviyo, Inc. (KVYO) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary indicates strong financial performance, with raised revenue guidance and significant international growth. Product development is focused on AI-driven solutions, enhancing customer engagement. The Q&A session highlighted confidence in future growth, with strategic partnerships and successful product lines. Despite some uncertainty in management's responses, the overall sentiment is positive, supported by optimistic guidance and strategic initiatives.

Key Financial Performance

Revenue $311 million, up 32% year-over-year. This growth was driven by robust demand from new customers and continued multiproduct expansion from existing ones.

International Revenue Growth 43% year-over-year, with EMEA up 48%. This marks the sixth consecutive quarter of faster international growth, driven by focused investments abroad.

Net Revenue Retention (NRR) 109%, an acceleration attributed to email expansion, strong text messaging cross-sell, and momentum from newer products like marketing analytics.

Non-GAAP Operating Margin 14.5%, reflecting strong unit economics and disciplined execution. This contributed to a Rule of 40 performance of nearly 47%, the highest in four quarters.

Free Cash Flow $47 million, representing a 15% free cash flow margin, up year-over-year. This was driven by strong top-line performance and operational efficiency.

Customer Base 183,000 customers, up 17% year-over-year. This includes 7,000 new customers added in the third quarter, with strong adoption of new products like Klaviyo Service.

Mid-Market and Enterprise Customers 3,563 customers with over $50,000 in ARR, up 36% year-over-year. This includes a record 272 net adds this quarter, driven by new lands directly into this cohort.

Non-GAAP Gross Margin 76%, steady from Q2, balancing infrastructure scaling benefits with the growth of text messaging.

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Operating Highlights

Agentic AI: Launched new AI-powered marketing workflow called 'marketing agent' to assist businesses in creating campaigns. Early results show significant improvements in campaign performance, including better open rates and higher revenue.

Klaviyo Service Product Line: Reached general availability 6 weeks ago and has the fastest adoption rate of any product, including text messaging. Includes Customer Hub and customer agent products for AI-driven consumer interactions.

Model Context Protocol (MCP) Server: Allows seamless integration of Klaviyo into AI clients and applications, enabling new workflows and reducing manual work for customers.

International Revenue Growth: Revenue outside the Americas grew 43% year-over-year, with EMEA up 48%. EMEA and APAC now represent more than 35% of total revenue.

New Channels and Languages: Expanded text messaging coverage to 22 countries, introduced WhatsApp, and added 4 new languages to the platform.

Revenue Growth: Achieved $311 million in revenue for Q3, up 32% year-over-year. Raised full-year revenue guidance to $1.215 billion to $1.219 billion.

Customer Growth: Added 7,000 new customers in Q3, bringing the total to over 183,000 customers globally, including 3,563 customers with over $50,000 in ARR.

Profitability: Non-GAAP operating margin was 14.5%, with a free cash flow margin of 15%. Rule of 40 performance reached nearly 47%.

AI Integration: AI is being integrated across all products, enhancing personalization, marketing, and service capabilities. AI-driven products are expected to scale significantly in the long term.

Mid-Market and Enterprise Focus: Record net adds in the $50,000-plus ARR customer cohort, with strong adoption of new products by mid-market and enterprise customers.

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Risk or Challenges

AI Integration and Adoption: While AI is a significant growth driver, there is a risk of over-reliance on AI technologies. If AI adoption does not meet expectations or if competitors develop superior AI solutions, Klaviyo's competitive edge could be diminished.

International Expansion: Although international revenue growth is accelerating, expanding into new markets comes with challenges such as regulatory compliance, cultural differences, and operational complexities that could hinder growth.

Customer Retention and NRR: The company reported an NRR of 109%, but maintaining this level of retention and expansion could be challenging, especially as competition intensifies and customers demand more advanced features.

Text Messaging and Seasonal Impact: The seasonal increase in text messaging volumes could impact gross margins, and the company may face challenges in managing these costs effectively.

Economic Uncertainty: Broader economic uncertainties could impact customer spending, particularly for mid-market and enterprise clients, which are key growth segments for Klaviyo.

Regulatory Risks: The company operates in multiple jurisdictions, and changes in data privacy laws or other regulations could increase compliance costs or limit operational flexibility.

Scalability of New Products: The success of new products like Klaviyo Service and Agentic AI is not guaranteed. If adoption rates slow or fail to meet expectations, it could impact revenue growth.

Operational Efficiency: While the company is scaling rapidly, maintaining operational efficiency and managing costs effectively as it grows could be a challenge.

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Guidance & Outlook

Revenue Guidance for Q4 2025: The company expects revenue of $331 million to $335 million, representing 23% to 24% year-over-year growth.

Non-GAAP Operating Income for Q4 2025: Expected to be $43.5 million to $46.5 million, representing a non-GAAP operating margin of 13% to 14%.

Full-Year 2025 Revenue Guidance: Revenue guidance raised to $1.215 billion to $1.219 billion, reflecting 30% year-over-year growth.

Full-Year 2025 Non-GAAP Operating Income: Expected to be $161.8 million to $164.8 million, representing a non-GAAP operating margin of 13% to 14%.

2026 Revenue Growth Outlook: The company expects at least 21% to 22% revenue growth in 2026.

2026 Non-GAAP Operating Margin: Expected to increase by at least 1 percentage point from the updated 2025 guidance.

AI-Powered Product Adoption: The company anticipates significant long-term revenue potential from new AI-powered products, though limited near-term revenue is assumed in the 2026 outlook.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Are conversations or pipelines evolving more around replatforming and AI adoption, and how do you view this cycle playing out?

A:Andrew Bialecki explained that in the mid-market and enterprise segments, there is a real acceleration in replatforming and AI adoption. This is driven by combining data infrastructure with marketing and service applications, and the integration of agents and agentic workflows. He emphasized that Klaviyo's closed-loop system, which stores data, helps find ideas, executes them, and provides feedback for optimization, is well-positioned to deliver this future of CRM.

Q:How does the relationship with large platforms like OpenAI and Shopify benefit Klaviyo?

A:Andrew Bialecki highlighted that Klaviyo is partner-oriented and integrates with platforms like Shopify and OpenAI to enhance commerce and consumer relationships. He mentioned that commerce through ChatGPT and embedding chat-based commerce in customer agents are key strategies. Klaviyo aims to enable businesses to have their own digital agents for real-time customer interactions, which can drive growth and streamline experiences.

Q:How is the new service product line tracking, and what are customers replacing or augmenting with it?

A:Andrew Bialecki noted that the service product line, including Customer Hub, customer agents, and a customer service help desk, is tracking ahead of expectations. Customer Hub personalizes web experiences, customer agents handle queries and provide recommendations, and the help desk integrates AI for faster resolutions. These products are either replacing legacy systems or adding new capabilities, with a focus on revenue generation and customer engagement.

Q:What gives confidence in the 2026 guidance of 21%-22% growth?

A:Amanda Whalen expressed confidence in the growth trajectory due to strong existing growth engines, international expansion, record customer additions in the mid-market, and over half of ARR coming from multiproduct customers. She also highlighted the early success of new AI and service products, which are expected to provide upside to the guidance as they gain traction.

Q:Can the acceleration in international growth continue, and what are the future unlocks?

A:Andrew Bialecki and Amanda Whalen discussed the 43% year-on-year growth in international markets, driven by product internationalization, expanded presence in Europe and Asia, and new channels like WhatsApp. They believe the growth can continue with further investments in infrastructure, partnerships, and localized customer experiences.

Q:How should we think about the opportunity for replacing legacy systems with Klaviyo's integrated platform?

A:Andrew Bialecki emphasized that Klaviyo's unified data and application stack, enhanced by AI, is attractive to enterprises looking to replace legacy systems. He noted that the company is gaining traction with large enterprises and is changing perceptions to be seen as an enterprise brand, which is expected to drive further growth.

Q:Are customers using Klaviyo to combat challenges in SEO efficiency?

A:Andrew Bialecki stated that customers are leveraging Klaviyo to strengthen existing consumer relationships and drive higher lifetime value, especially during uncertain times. He noted that AI plays a significant role in optimizing customer engagement and revenue generation, particularly during the holiday season.

Q:Are customers expanding budgets for new AI functionality, or is spending constrained?

A:Andrew Bialecki explained that Klaviyo's AI products are designed to show direct ROI by automating tasks and generating revenue. He noted that customers are excited about the agentic approach, where AI performs tasks rather than just assisting, which is driving adoption even in a constrained spending environment.

Q:What is the outlook for the holiday season and its impact on service product adoption?

A:Amanda Whalen and Andrew Bialecki noted that the holiday season is critical for customers, who focus on strengthening relationships with loyal consumers. They observed good uptake of Customer Hub and customer agents, which are easy to integrate and drive incremental revenue. However, adoption of the help desk product may be delayed until after the holiday rush.

Q:What is the strategy for pricing pilots for marketing agent, and how is the holiday season shaping up?

A:Amanda Whalen mentioned that pricing pilots for marketing agent will focus on monetizing features that deliver incremental value while keeping some capabilities natively integrated. She expressed confidence in the holiday season, emphasizing that Klaviyo helps brands strengthen relationships with loyal consumers, which is critical during this period.

Q:Review of Unclear Management Responses

A:Management avoided providing specific numbers or detailed projections for the pipeline of legacy system replacements and the exact impact of new AI functionalities on revenue. Additionally, they did not offer precise guidance on the durability of international growth acceleration or the full extent of holiday season outcomes.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call highlights strong financial performance with a 33% revenue growth, significant customer growth, and international expansion. Positive sentiment is reinforced by optimistic revenue guidance, new customer wins, and product innovation. The Q&A section reveals strong market positioning and strategic focus on AI and international growth. Despite some management vagueness, the overall outlook is positive, with potential short-term boosts from new product introductions and partnerships. The absence of a market cap limits precise impact prediction, but the sentiment leans towards a 2% to 8% stock price increase.

KVYO Slides

Klaviyo Q1 2025 slides: Revenue jumps 33%, international expansion accelerates

2025-05-06

Klaviyo Q2 2025 slides: 32% revenue growth as B2C CRM strategy gains traction

2025-08-05

KVYO Report

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