KVYO - NYSE

Good afternoon, and welcome to Klaviyo's First Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] Thank you. With that, I would like to turn the call over to Andrew

Thanks. Good afternoon, and thanks for joining Klaviyo's first quarter 2025 earnings call. 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. With me on the call today are Andrew Bialecki, Co-Founder and CEO; and Amanda Whalen, CFO. As a reminder, our commentary today will include non-GAAP measures. 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 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 these forward-looking statements. A description of these risks, uncertainties and assumptions and other factors that could affect our financial results are included in our SEC filings, including our most recent Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q. Except as required by law, we do not undertake any responsibility to update these forward-looking statements. With that, I'll now turn it over to Andrew.

Thanks,

Thanks, Andrew. Klaviyo drove a strong first quarter to kick off 2025 as we continue to deliver efficient growth at scale. Revenue grew 33% year-over-year to $280 million, and we delivered a non-GAAP operating margin of 11.6%. We are really pleased with these results. Our first quarter results were continued proof of the value we deliver to customers and reflect the successful execution of our growth strategy. We are adding new customers, growing in the mid-market, expanding with existing customers, and expanding internationally. We ended Q1 with more than 169,000 customers, up 16% year-over-year. This was better than our expectations as our customer retention was stronger than anticipated following the pricing updates we announced during the quarter and remained consistent with prior quarters. In fact, our customer retention rates coming off the holiday season were consistent with the trends we saw in Q1 last year. Our success in attracting larger customers is evident as we ended the quarter with 3,030 customers with over $50,000 in ARR, up 40% year-over-year. And we now have more than 1,000 customers paying us more than $100,000 in ARR. We continue to see a strong trend of new lands in this cohort, demonstrating the payoff from our investments in the mid-market and above. We delivered a Q1 NRR of 108%, in line with last quarter, driven by consistent gross revenue retention, improvement in email expansion and to a lesser extent, benefit from the pricing changes. While we don't forecast or guide to this number, we are pleased with the consistency we're seeing. We are continuing to drive progress in our cross-sell motion, and we're seeing more of our larger customers land on Klaviyo with multiple products. In Q1, our SMS penetration within SMB and mid-market customers increased again. We saw strong adoption of our marketing analytics application, and we are seeing a lot of interest from customers for our new Customer Hub service offering. As you heard from Andrew, our investments made towards expanding internationally on both the go-to-market and product fronts are delivering returns as our strong international growth continued in the first quarter. EMEA revenue grew 47% year-over-year, and total EMEA and APAC revenue grew 42% year-over-year. Our Q1 revenue overperformance was driven by broad-based strength. Consistent with our expectations, the pricing updates that went live in February contributed an immaterial amount to first quarter revenue. We continue to believe that the pricing changes will have a minimal impact on full year growth rates, and we will only provide further updates if our view changes. Moving on, first quarter non-GAAP gross margin was 77%, down approximately 3 points year-over-year, primarily due to increased infrastructure costs and the continued growth of our SMS product. A portion of the incremental infrastructure costs supported the expansion of important feature capabilities for larger customers and new verticals and our ongoing commitment to provide infrastructure to serve businesses of all sizes. Turning to non-GAAP operating expenses. As a reminder, in Q1, we began accruing for our employee cash bonus program on a quarterly basis, resulting in an increase in each line item year-over-year. G&A as a percentage of revenue declined year-over-year as a result of smaller one-time items compared to last year. R&D as a percentage of revenue also declined due to an increase in capitalized software. Sales and marketing as a percentage of revenue increased year-over-year as a result of timing of marketing program spend and incremental investments for B2C CRM. For the first quarter, our non-GAAP operating income was $32 million, representing a non-GAAP operating margin of 11.6%. This came in better than our guidance, primarily as a result of the revenue upside we saw in the quarter. We generated free cash flow of $6.6 million during the quarter, which was better than expected due to the higher collections and timing of payments. As a reminder, we paid out our employee cash bonus program in Q1, which impacted free cash flow. Before turning to guidance, let me briefly discuss the macro-environment. While potential tariffs and consumer sentiment are top of mind for our customers and for Klaviyo, thus far, we have not seen a material impact on our business. Klaviyo drives revenue for our customers from their existing consumers, which is typically a highly efficient and profitable growth channel. Should they need to scale back, many customers have told us that retention would be one of the last areas where they would reduce spending. Instead, they would be more likely to pull-back on new consumer acquisition costs such as ad spending. Klaviyo's position as a high ROI must have revenue generator for brands of all sizes gives us greater stability through a range of economic cycles. Our business performed well in Q1 and remain strong. However, we are also paying close attention to the macro-environment and the impact it may have on our business. As a result, our guidance reflects a balance between the strength of our business and the uncertainty of the macro-environment. We believe this is a prudent approach as it factors in some potential economic risk. As we look ahead, we remain optimistic about 2025 and beyond. For Q2, we expect revenue of $276 million to $280 million, representing year-over-year growth of 24% to 26%, driven by continued strength upmarket and internationally. We expect second quarter non-GAAP operating income of $28.5 million to $31.5 million, representing a non-GAAP operating margin of 10% to 11%. For the full year 2025, we are raising revenue guidance to $1.171 billion to $1.179 billion for year-over-year growth of 25% to 26%. We expect non-GAAP operating income of $133 million to $139 million, representing a non-GAAP operating margin of 11% to 12%. In closing, we are off to a strong start this year, and our growth strategy is bearing fruit as we are delivering balanced top and bottom-line growth efficiently and at scale. Our position in the market continues to strengthen. We are the only CRM for consumer brands that can power personalized engagement with our marketing automation, customer service, and marketing analytics application built on top of the Klaviyo data platform. This vertically-integrated offering is establishing a foundation of sustainable growth for both Klaviyo and our customers. And with that, I'll open the call up for Q&A. Operator?

[Operator Instructions] Your first question comes from the line of Raimo Lenschow from Barclays. Your line is open.

Perfect. Thank you and congrats from me. A simple question, you addressed it on the call already a little bit. Like if you think about uncertain times, AB like -- and Amanda, what have you seen before like we've just had like 2022, 2023, where it was a little bit more uncertain. Can you compare kind of what you saw there and customer behavior at the moment that you're seeing there? Thank you and congrats from me again.

Yes. Thanks for the question, Raimo. The first thing we'll say is, we're very happy about the quarter. Thanks to our customers to Klaviyo's for making it all possible. It's because Klaviyo is mission-critical, the businesses that we work with. We are a revenue engine for these businesses and we help connect them to their most important asset, which is their customers, their existing customers. So I think when the economic environment is a little more uncertain, as I've talked to customers in the last few weeks, the last few months, they're doubling down on existing consumer relationships. They know there's very high ROI from our products and they're leaned into that. And as the economic cycle kind of waxes and wanes, we've built Klaviyo to really be an all-weather company in all-weather set of products. So when businesses are growing, the number of customers, new customers, we can help with acquisition. And on the flip side, when it's more challenging, I think a lot of businesses turn back to focusing on their existing customers and those relationships they already have and Klaviyo is the source of truth for all that. So I think we're very -- we're happy with where we are. Also, as we've talked to our customers, we mentioned in the opening remarks, our customers are cautious, but they're optimistic because of those relationships they have with their customers, their ability to grow off of that. And we've also talked to a lot of businesses and they're very resilient. Our customer base is very diverse. There's a variety of folks that with different business models, different supply chains. And I think as collectively, I think we've been there to support them and we think that they're going to -- they've been working through this cautiously, but I think they're optimistic about that.

And just to add a couple of points to what AB had to say there. First, as we shared, we're really pleased with the ongoing strength and resilience that we've seen not only in our business, but in our customers as well. We are closely monitoring the key metrics in our business like customer sales cycle, which remains stable, and KAV, which is continuing to grow. And as we think about Klaviyo over multiple economic cycles, it's important to remember that we index to digital relationships, those profiles and relationships that a brand has with their consumers and not to GMV. So our business tends to experience less volatility both in good times and in bad. And that's illustrated recently by the trends that we're seeing of KAV growth outpacing GMV growth as our customers focused on -- as AB said on those loyal existing customer relationships. And then from our business perspective, we are focused on controlling the things that we can control and leaning into the strengths that have long defined Klaviyo, and this includes, just like AB was talking about, staying close to our customers, investing in strategic growth priorities and operating the business prudently, just as we always have.

Very clear. That's very helpful. Thank you.

Your next question comes from the line of Jackson Ader from KeyBanc Capital Markets. Your line is open.

Great. Thanks for taking our questions, guys. First one is, can you just give us a sense for maybe your overall exposure or end customers' exposure to either China or other tariff countries in terms of the goods that they sell on their platform that run-through Klaviyo?

Sure. Thanks for the question, Jackson. There are many different ways to be exposed to China, especially with a customer base that's as large and diverse as ours. So it's a bit of a complex situation. But as AB mentioned, we've been having many conversations with our customers over the last month. As you might imagine, our customer base sells many diverse products, and because of that, their supply chains are very diverse as well. We've heard from many of them that they've been already diversifying their supply chain away from China over the last several quarters as tariff potential started to emerge. And then we've also heard from some brands who have no exposure to China and they're viewing this point in time as an opportunity where they're thinking about doubling down, acquiring increased inventory and even potentially going on the offensive to win market share. Overall, what they're telling us, as we said earlier, is that they're tentative, but they're really optimistic in this dynamic environment. And from our business perspective, we're very confident that we drive high ROI for our customers and we're essential for both their growth and their retention, which makes us an incredibly important partner to them in both good and challenging macro times.

Okay, great. That's helpful. And then a quick follow-up. If we think about all the new products that have been launched, whether it's CRM or Customer Hub, or certain what kind of growth or expectation for contribution from those new products are baked into 2025 at this point? Thank you.

Yes, I can take that. So the first is, we haven't baked in a lot of revenue into our guidance and our projections for this year to give ourselves time to tune those projects and make sure we really got them right for customers before we scale them out. But I'll tell you, since the launch in February, we broadened out Klaviyo's vision from just marketing and email and SMS to well beyond that to say, hey, what are all the aspects of the customer experience that can help with? And we believe the core three apps for the consumer for the B2C CRM stack are marketing, service and analytics. I can tell you that like we launched the first products within the -- within our service portfolio, Customer Hub and that's been in a beta for the last few months. We've got hundreds of businesses using it. It's a way to extend onto your website, the customer experience, allow people to log-in, get help with past orders, get recommendations, get service, right, get questions answered. And the feedback there has been really strong. And I think most importantly, just like our marketing products, we're able to tie back actual attributed revenue, additional sales that customers are seeing from those consumers, those website visitors that are taking advantage of this new functionality. And that's I've talked to a couple of brands where it's generating -- these are small, medium-sized businesses that are generating incremental tens of thousands of dollars in sales. So they can see the ROI from these new products. And we're excited about is marketing and service, we think about those as the proactive and reactive sides of the customer experience. We're excited to bring those together and show that service can be more than just answering questions, but can actually drive a better -- and better engagement, so much that it leads to additional sales. So we're off to a good start there. There'll be -- we're working on pricing and packaging for that, but critically, the feedback has been really strong. And then on the analytics side, we launched a marketing analytics product, SKU in February and that was based on talking to customers and realizing that the analytics that Klaviyo was providing as part of our formerly our CDP product, it's actually applicable to a lot more businesses that we're excited to use some of our RFM analysis, some of our funnel analysis to help them figure out which customers were at what stage of the life-cycle and connect that directly back into marketing. And again, to drive incremental revenue, right, and it makes the overall ROI of Klaviyo, their investment in Klaviyo higher. We realized that wasn't just something for larger enterprise brands, but actually our entrepreneurs, our smaller SMBs, our SMBs also benefit from that. So we're very happy with the progress we've made and the sales we've seen for that product in Q1, and we expect that that's going to be a revenue driver as well. So we haven't baked -- we didn't bake a lot of revenue expectation into the year from those new products, but we're excited about the potential they're going to have in 2026 and future years.

And one thing we're particularly excited about with marketing analytics is just as AB said, the power of the results that it drives to our customers. One of my favorite stories from the quarter was Cara Cara, a growing D2C brand, a long time Klaviyo email customer. They've recently consolidated their tech stack onto Klaviyo, adding SMS and marketing analytics because they wanted to get new insight into which messaging was resonating with which customers. And by using this really data-driven multichannel approach, they were able to achieve 170 times ROI in just three months, and over 48% of their Klaviyo revenue came from repeat purchaser segments who they identified using that RFM modeling and marketing analytics.

That's great. Really thorough. Thank you very much.

Your next question comes from the line of Gabriela Borges from Goldman Sachs. Your line is open.

Hi, good afternoon. Thank you. Amanda, just on Jackson's earlier question, is there a way to think about the relative sizing of those two cohorts that you mentioned, the cautiously optimistic diversifying cohort versus the offensive cohort? And as you looked at the second half of the year, you mentioned taking into account macroeconomic risk. Maybe just a little bit on your forecasting approach there. When we calculate the math, it feels like the second half revenue guide is about the same as it was before. So just a little bit on how you thought about that. Thank you.

Yes. Great question. So as we said, there's an incredible amount of diversity across our customer base. And so, therefore, not sizing the specifics. But as you think about the revenue guidance and the outlook that we've built in, we raised the revenue guidance on the back of strong Q1 performance as well as robust customer demand signals that we're seeing. And these conversations that we're having with our customers indicate that they are very clearly focused on retention and growth with their loyal consumers as well as focused on efficiency, which is exactly where our platform helps them to deliver value. As we looked at the back half of the year, we undertook extensive scenario planning and a deep analysis of our business just given the macro backdrop, and that includes looking closely at trends in operational metrics like customer KAV trends, looking at sales cycling, all of which have remained consistent through the end of April. Overall, we've got a lot of confidence in the trajectory of the business. And while it remains healthy, we're mindful of the current macro-environment. And so we built a healthy dose of prudence into the guidance for the back half of the year. That gives us flexibility to adjust for unforeseen risks throughout the year. So as we look forward, we will continue to monitor the macro-environment and we will remain agile in responding to any changes that we see out there. We are going to plan to continue to invest behind our growth strategy because we've seen great returns from those investments thus far. And we're confident that our platform's value proposition, combined with disciplined approach to execution positions us really well for continued success.

Thank you very much.

Your next question comes from the line of Parker Lane from Stifel. Your line is open.

Hi, guys. Thanks for taking the question. Amanda, maybe just to stay on the same theme of the prudent guidance in light of the uncertainty out there. When you look at things like SMS attach, international traction, messaging volume, are there any particular areas you feel like would be most sensitive or have been accounted for greater sensitivity in light of what we're seeing out there?

Yes, it's a great question. In this type of environment where you're seeing lots of uncertainty, we looked at multiple different scenarios and what might happen under multiple -- different views of the economy, how customers might respond. If anyone has a crystal ball out there, it's fairly challenging to see, but we wanted to make sure that we are prepared for a variety of different scenarios. And so as we've mentioned before, what we've seen in the past in our business is that because we index to digital relationships as opposed to GMV, we tend to have less volatility, both on the upside and the downside and that gives us some confidence in what we expect to see in the back half of the year.

And maybe I'll add one other thing is that as Amanda talked about the ROI of our products, even with SMS where there's a slightly higher-cost basis to our customers, we're able to show the ROI of SMS campaigns, obviously as well as email campaigns, all of this marketing directly in Klaviyo. And as long as that ROI continues to be very positive. Even if there's a little bit of variance to that, it's so good that we find as I talk to businesses, they're not constraining budgets so long as they're seeing that performance and that's one of the things that gives us confidence about Klaviyo going forward as Amanda because it's not -- you're not marketing to customers you don't know and have to acquire, they're customers you already know and are getting to come back and that obviously helps with the ROI. It also means that sort of the budget of the marketing that you can deploy is already somewhat known. It's already in your Klaviyo account. And I think that also gives us some confidence.

Got it. Appreciate the feedback.

Your next question comes from the line of Brent Bracelin from Piper Sandler. Your line is open.

Thank you. Good afternoon. I wanted to go back to the new service and analytics products. AB, what's the sweet spot relative to size of customer that is responding most favorably to the new products? And then Amanda, could you maybe frame the potential ARPU uplift as you see some early customers consolidate the tech stacks? Is it the 10%, maybe 20%, more than 20% uplift to ARPU? Just love to hear those two things. Any color there would be helpful. Thanks.

Yes. So I'll touch on each of the two new product categories. So with -- let's take analytics first. As we mentioned, we actually think that has wide applicability. I mean, there's maybe some subset of our smallest. The entrepreneurs that are just starting out, they don't have enough data mass to use our marketing product. But for the vast majority of customers, we actually think it's a great -- it's an easy add-on, it's an easy attached product. So we think that will apply to the vast majority of our customers. And then for service, it's interesting Customer Hub, we actually think is applicable to all businesses. It's a way to extend the personalization and use the data that's already in your Klaviyo data platform. A way to use that now extended onto your website. So that also applies to all market segments. We designed -- interesting, we started the service really focused on, okay, let's work with SMBs and make sure that the product market fit is really good there. I think based on as Amanda talked about, some of the opportunities that we're seeing in the mid-market enterprise, that's making us think harder about we can make sure that our service products scale to the enterprise more quickly. We think there is a moment right now with service where obviously, there's a big focus on automation and how to do more with that, using AI and obviously using the Klaviyo data that backs that and combine that with AI is very powerful. So we're really thinking about how we can bring that to a larger swath of our customers faster than just our SMBs. And the last thing I'd say is like the story of, hey, all of the entire consumer experience, you want one brain, one Klaviyo data platform, one data platform that under-grids all that. You want all of the applications that interface with your end consumers, our customers' customers, you want all that driven from one comprehensive platform that resonates a ton with SMBs and actually more than -- more than we expected, it resonates a lot with enterprise. So we're very much leaning into that opportunity. And yes, I'll let Amanda talk a little bit some of the ARPU uplift that we're thinking about.

Yes, in terms of the ARPU uplift, service, as AB mentioned, is early days. We are still in beta, so more to come on service and service pricing, both as we approach GA later this year and also as we continue to build out the suite of offerings related to service. Marketing analytics has a nice ARPU uplift associated with it. It's a portion of email. So it's not necessarily the same ARPU uplift that you would see from products like SMS. But also one of the wonderful things about both marketing analytics and service is that they are leveraging the same underlying data, the same consumer relationships, in other words, largely the same cost structure associated with our email and data platform. They don't necessarily come with the same per message sending costs that a product like SMS does, therefore, they also come with a nice gross margin profile that's more akin to what we see in our email post-data product.

Helpful color. Thank you.

Your next question comes from the line of Arjun Bhatia from William Blair. Your line is open.

Thank you. And maybe I'll stick to the same theme. In terms of the new solutions, obviously, a pretty exciting kind of add-on to the core platform here. But when you're thinking about the service solution AB, I'm curious, does this -- for customers, does it necessitate the replacement of some sort of an incumbent solution? Maybe I'm thinking of like a

Yes, great. Happy to comment on both. So when talking about service, like let's break it into a couple of different product piece of functionality that we're building into our K service product grouping. So the Customer Hub that we've released, we actually just think is novel and new. It's a new experience embedded on a business' website. It makes it easy for consumers to log in and to see past purchases, past orders and then get recommendations. There's a marketing element to it as well as then get asked questions, right, get help. And interestingly, that help could be more service, question is another thing I buy. It can also just be more of a marketing sales use case of, hey, I'm curious what size should I buy of this thing that I'm interested. That we think is totally novel and that consists alongside existing service products. The second thing that we're really focused on is this idea of, hey, automating more of those conversations, with that right? I think that as you look at that as a product category, it's obviously been around for a few years, but it's really leveled up because of AI native solutions. And this is where I think we are -- with Klaviyo, we're happy if you want to plug into our Customer Hub. If you want to use -- I mean, you've already have adopted our Customer Hub first, that's great. But we think we have the ability because of our ability to build really useful -- usable products, really scalable products as well as the fact that we have the source of truth about your customer in giving that context to our service kind of AI chat agents that that's going to make our product really compelling. So in that case, I think there may be a little bit of like running side-by-side, baking things off, but I think we're -- a lot of the customers I talked to said, hey, look, if you can consolidate all this together so that there's one consumer experience that stitches -- that spans marketing, service, help you know who my customers are with your analytics product, that sounds great. And so I think that's -- I think our customers are looking for this unified set of applications. The second thing around like, hey, is this going to be higher touch or not? You know for service, I think for our SMB customers, again, we take a lot of pride in the quality of the products we build and how adoptable they are without needing to necessarily talk to somebody on the Klaviyo end. So I expect a lot of SMBs were designing workflows and pathing such that they can adopt these all on their own. One of the great parts about our Customer Hub product is, it's literally to after you kind of reviewed the design of it since it's embedded on your website, it's one click to turn-on. It's so fast. It doesn't require any engineering, any coding, it's just easy to turn on right away. And I think our service agent will be similar. We expect similar with marketing, there will be customers that have more questions that have more complex implementations, data fees they want to plan, and we're excited to do that. Obviously, we know how to do that with marketing and all the marketing channels we support and we'll provide the exact same great experience for those more mid-market enterprise customers or for folks that need it.

Perfect. Very helpful. Thank you. Congrats on a nice start here.

Your next question comes from the line of Terry Tillman from Truist. Your line is open.

Yes, thanks. Hi, AB, Amanda and

Yes. Happy to take this one. Yes, Terry, I think that's spot-on. I think what we found as we expanded to internationally and especially in Europe, very proud of over 40% growth year-on-year in Europe. Europe is now over 34% or international at 34% of our total business. Yes, what we're finding is, as we've expanded added language capabilities, we've added SMS. We've added support in Klaviyo's that are speak people with native tongues, native languages. But that's made a lot easier to enter some of those large European markets, France, Germany, Spain, all which we talked about having growing at over 100% year-on-year. The persona is pretty similar. It started out largely as SMBs and so we're very excited about that progress. And actually, we think that if you look at you kind of compare it to our growth, say, in the U.S. where we also started with SMBs and then grown into mid-market and now enterprise, I think we have the opportunity to do the exact same thing in Europe, but just on a faster timeline. So we've started this year, we made some decisions to make some investments in our local sales teams and starting to test that. We also launched just last week full -- the full Klaviyo website and experience in German, in Spanish, in Italian, in addition to France, which we launched last year, French. So we think that that is going to lay the groundwork for more growth there. And I think we'll continue to see that in SMB, and I actually think we'll see that even sort of a faster acceleration into the mid-market, and maybe if you look at Klaviyo's overall growth, where we were same time period if you're in the U.S.?

Thank you.

Your next question comes from the line of Rob Oliver from Baird. Your line is open.

Great. Thanks, guys. I appreciate it. I had two. AB, for you, I was wondering if you could give us or frame for us a little bit where we are with the Meta and TikTok integrations on the platform. They both seem like potentially meaningful opportunities, particularly as you continue to fill out the product portfolio at the low-to mid-range. And then, Amanda, just a follow-up for you, you had mentioned how you saw better than expected retention off of the price increases in the wake of the price increases, clearly very encouraging. I was wondering if you could just comment relative to kind of why you thought that was and what sort of confidence that gives you guys relative to appetite, not just for additional price increases down the road, but receptivity of additional products from Klaviyo, and additional value from Klaviyo? Thanks.

Yes. Okay, great. So on Meta and TikTok, if you think about Klaviyo marketing, obviously, our primary focus has been on the direct channels between a business and its end-customers, consumers. So email, SMS, things where the business has kind of complete control and direct connection. We're obviously putting a lot of product and engineering investment towards continuing to build out other channels there. We've launched Sport for mobile applications, also owned and operated by a business. But now in the last 12 months, we've taken a look at, hey, what are other places, digital places on the Internet that businesses and consumers are meeting. And obviously, a big part of that is social platforms, Meta and TikTok. So a couple of things that we're doing there. What we've launched in the last few months is better, tighter integrations into the ad networks and some of the shopping capabilities of those platforms. So for example, with Meta on Instagram shops, you can now take some of the reviews and the content that you're collecting from customers and you can use that not just as social proof in email, in SMS, but on your website, you can actually also use that inside Instagram. So it's deepening this -- the connection between Klaviyo on these platforms. And so that's a way you can look at our reviews, products, functionality and leveraging those assets beyond just email, SMS, mobile. And for TikTok, that's one where we're excited for every social network, they often have a variety of different ad units. And one of the things we're excited about is a lot of those advertising networks have a way to not just drive click through traffic, but actually collect some information about who that end-consumer is. So for TikTok, they have lead ad units that allow somebody rather than just acquiring clicks for traffic, you can actually also learn -- acquire somebody's name, phone number, email address. And obviously that inside of Klaviyo is very powerful. It basically gives them a way to collect more subscribers directly from those other platforms. So we're going to continue to invest in these social networks, other major Internet applications. We're doing obviously some work with WhatsApp, building a tighter integration there. So I think our primary focus is still on these kind of owned and operated channels like email, SMS, mobile. But I think we're going to try to round out our entire marketing portfolio with some of these other channels that we know are important for brands and consumers.

And to your question on pricing, thank you so much. We were very pleased by the higher than expected retention rates that we saw following the February pricing changes because it validates the important role that we play as a must-have revenue-driving platform for brands who are serious about their growth and serious about their retention. And the key difference that we saw from pilot into GA was that our team took and applied the learnings from the pilot to get out ahead of and mitigate the churn risks as we moved into GA. We went out and very proactively communicated with customers about the tools and the resources that we had put in place to help them clean up their active profiles, which allows them to more effectively target the right customers and drive high ROI from those highly engaged profiles who remain. And the consistent retention in Q1 shows the stickiness of the platform and the value that customers get from having all of their data on Klaviyo's vertically-integrated platform where they can easily take action and build lasting customer relationships. And in fact, in some cases, we have already seen customers who left Klaviyo earlier in the year because of profile enforcement coming back to us because of the value and the ease-of-use of our platform. And to your question on new products and how this fits in as we think about pricing going forward, as we mentioned last quarter, these changes that we made in February are very important because they anchor the pricing in the value of the consumer profile and the power of the data that it contains. There also, if you recall, were some parts of it that reduce pricing friction for our customers, so that Klaviyo can be as easy to buy as we are easy to use. But it's that anchoring on consumer profiles that's really important as we think going forward because consumer profiles are also the driver of pricing for, for instance, our new marketing analytics. So having this change while it provides very little minimal, as we said, uplift to revenue, it's very important strategically because it provides that foundation for growth in the future.

I appreciate all the color. Thank you, guys.

Your next question comes from the line of Elizabeth Porter from Morgan Stanley. Your line is open.

Great. Thank you so much for the question. In the commentary on existing customers and Klaviyo being the last thing that they're willing to cut is really encouraging. And I was hoping you just provide additional color on what you're seeing on more of the new customer, top of funnel demand-side. So could you just talk to what you saw from the gross adds? Is WooCommerce starting to become a bigger contributor to customer acquisition? And just lastly, how top of funnel has trended kind of thus far into Q2? Thank you.

Yes. Okay. So I'll talk through the -- some of the -- more seeing on the demand-side on the top of funnel side. So as Amanda mentioned, look, the fact that we have such great retention, which I think then translates into word-of-mouth from customers. I mean, that's a key part of how we thought about driving demand. So I'll give you a quick rundown is what we're seeing a little bit by a different type of customer. I mentioned for our smallest customers for just starting out entrepreneurs, we call them, we're actually seeing quite a bit of strength in that cohort. I think -- we think that's testament to again business is loving Klaviyo when they spin-up a new venture, they're either using Klaviyo because they've used in the past life or referring it to friends. And that's been something we've really been investing in, and we're very excited to see that kind of that continued growth in that smaller SMB segment. In our core SMB segment, we continue to see that those customers growing with us. Interestingly there, like I think we're seeing increasing demand both internationally. We knew about that. Also a little bit more outside of pure retail. Other use cases, travel, hospitality, restaurants, et cetera. So that's in a core kind of SMB segment, still seeing very good growth there. And then we mentioned in the mid-market in enterprise, Amanda already talked about measuring deal cycles, we're not seeing any real lengthening there. We're very excited about some of the milestones we've hit having over 1,000 customers now at $100,000 in ARR, we think there's a lot of opportunity there. And I mentioned how sharing our product vision of this B2C CRM and building it all AI first from the ground-up attached to our Klaviyo data platform. So all of these applications work together. That is really -- that has gotten a lot of folks' attention in that mid-market enterprise segment. And so I think a lot of folks are excited for us to deliver on that and we do see some good leading indicators in terms of pipeline growth, and then obviously customer additions.

And we're clearly early in Q2, so we're not going to specifically disclose metrics related to April, but I will say that we look at all of our key operational metrics and indicators on a daily basis. And through the end of April, those remained consistent. And we took those trends that we're seeing in the business into account when we were building our outlook, and we have really strong confidence in the Q2 guide.

Great. Thank you very much.

Your next question comes from the line of DJ Hynes from Canaccord. Your line is open.

Hi. Thank you, guys, and congrats on a nice quarter. AB, I was hoping you could talk a little bit about how you're thinking about sequencing or prioritizing investment dollars these days? I feel like from the time of the IPO, you've been very explicit. It's kind of new customer acquisition or new logo adds first, then upmarket, then international. Now the surface area is greatly expanded with all the new product introductions. Just talk about kind of prioritization of investments these days and where you're focused?

Sure. Well, in general, we're going to be a very ambitious company. And for us, that means aiming at the biggest opportunities. Where's the place we can drive the most value for customers and not restrict ourselves to just the markets or the products we have today. So let me touch on a couple of things there that I think we're very excited about. The first is what we're doing around machine learning and artificial intelligence. I've talked in the past about like the fact that we can help businesses use their data to do better personalization and do that automatically. We actually are increasingly over the last few months, think that opportunity is even larger than we previously thought. I think there's the opportunity to use some of the technology that's come out, the improvements in some of the large language models to actually help businesses automate more of the content creation even without personalization and the amount of leveling up that does. We think that a lot of the businesses that work with Klaviyo, we give them very powerful tools, but they're actually rate limited by how fast they can dream up and create content. A lot of those barriers are going away. So that's technologically, plus the fact that we have all of this data to provide as context into that content creation process and that we can measure the results and iterate and help businesses improve. We think there's a massive opportunity there. We think that's both an opportunity to strengthen our product market fit with existing customers, but we also think there's large monetization opportunities because there's incremental value we can provide to businesses. So we're putting a lot of focus on that. We already talked about the mid-market and now moving into the enterprise. We think that that's just -- there's a lot of businesses there, some of which still haven't are aware of Klaviyo that when they find out that Klaviyo exists and that we've built sort of marketing and now other applications with this data first AI first point-of-view, they're eager to level up. The technologies, the marketing technology from 10 years, 15 years ago, it's not state-of-the-art anymore. They're looking for best-in-breed and we think that we can fill that and do a great job there. So we're putting a lot of effort there. And then finally, obviously, the B2C CRM, this expansion of new marketing channels as well as these other applications of service and analytics. I think service is a very interesting use case. We think about marketing as kind of the how do you help customers and consumers, remind them what's top-of-mind in a very personal way. We think the other side of that is like when people need help, how are we doing that in a way that answers our question more quickly. We think that's a huge market and very important. So all three of those, we think match our criteria of, hey, the market is very large. When we talk to customers, there's a lot of willingness to try, they want to level up what they're doing. They know AI is new-age and I think we have teams that are very committed, working really hard to build great products and great experiences for all those opportunities.

Yes, very helpful. Thank you.

And we have time for one more question. Your final question comes from the line of Brett Huff from Stephens. Your line is open.

Thanks so much for fitting me in. Appreciate it. Congrats on a nice quarter. Digging in a little bit on international, which we've been excited about. How did international perform relative to your expectations vis-a-vis what's built into guidance? And the thrust of the question is trying to understand as we look at the raised guidance, which is great, how much of that is being buoyed by international because it seems like it's a net-new market you all are going after, right? It's new stuff that maybe has less to do with macro. Thanks for the time.

Yes, great question. Thanks so much, Brett. So the international trends that we're seeing are, as you said, incredibly strong. We made investments last year in launching new languages, in expanding SMS multiple markets. And we're seeing those paid-off this year. The fact that I think we're particularly proud of is France, Germany and Spain, each growing their new business in the quarter over 100% year-over-year, which was 4 times to 10 times faster than those markets we're growing last year. So it certainly is an important accelerator and it's an accelerator that we continue to invest behind, making investments like AB spoke about earlier of last year, we launched the product in new languages. This year, we are launching an important part of the customer journey by making local websites in German, Spanish, and Italian. So built into the guidance is an assumption that we're going to continue to see results from those strong investments that we've made. And then also that we will start to see some benefit that comes through later in the year from some of the investments that we're making now in go-to-market and localization of that customer journey, that really helps to build upon the investments that we started last year.

Great. Thanks so much.