Rob Oliver: Great. Thanks, guys. Good afternoon, and thanks for taking my questions. I’ll squeeze in two as well. AB one for you and then Amanda, one for you. So AB, you called out the fitness win that came via the Mindbody partnership. And obviously, mid-market very strong for you guys. And just wanted to get a sense of how we should expect that progression away from Internet retail when you look within sort of the pipeline and talk to your sales and marketing folks, how we might expect that to play out that diversification throughout ’24? And then Amanda, just for you. Just my follow-up is just around the NRR trends. Clearly, it seems like a big — obviously, a big difference between what we would see at SMB versus what we’d see mid-market and up.
Just curious not expecting to break that out, but just wanted to get a sense from you of, have those trends held steady, have they been stronger than expected up at the high end of the market? Any color there would be really helpful. Thanks, guys.
Andrew Bialecki: Great. Thanks for the question. So I’ll speak a little bit of our growth outside of e-commerce. So it’s still early here, but Ill give you a little bit of color. We’re seeing — we’re early, but we’re seeing some really encouraging signs of more businesses outside of e-commerce and retail moving over to Klaviyo. So that cohort still represents less than 5% of our revenue due to the strong growth we’re seeing in e-commerce, but it’s growing really rapidly. So we talked about European Wax Centers, F45 Training. I’ll give you one more. There’s a pizza chain, a national pizza chain with over 300 locations. They also consolidated down market spend on Klaviyo. They bought both our email and our SMS products, and they’re taking advantage of our integration with Olo as well as another point-of-sale system to essentially manage all of their first-party consumer data.
So that is going to do the same thing we’re in e-commerce. That’s going to allow them to create many more targeted campaigns, more automation and ultimately drive more sales. So if you back up a little bit, like for all of our customers, they’re as focused as ever on the importance of having direct relationships with their consumers in building their consumer database. We’re seeing that in e-commerce, in retail and beyond. And I think we’re all seeing everybody focus on collecting that data as well as how to leverage that data and put it to work. I think we’ve got a really good product market fit, both within e-commerce and retail, and then we’re seeing, with new vertical expansion that in part of [indiscernible] extends beyond that.
Amanda Whalen: Yeah. And as regards NRR and how it varies depending on customer side, I would not really call out any strong variation depending on the size of the customer. We do see in our mid-market customers that they tend to have more SMS. So some of the trends that I talked about as being more pronounced among SMS users, maybe impact the mid-market more, but it’s really, I think, more of a question of the product that they’re using and the way that they’re being more thoughtful about how they use that higher price per message channel than it is necessarily related to what we’ve seen in the size of the business. Related to what we’re doing about that and overall, the way we think about the course of the year, we are really doubling down on how do we help our customers with best practices.
So what are the things that we can do to help them generate the highest ROI that they can and to continue to drive the usage so that they’re getting great KAV growth coming out of these channels. Because we think that, that ability to generate high KAV per message is a real differentiator for us, not only helps our expansion as we drive that, but it also helps strong retention as well.
Rob Oliver: Really helpful detail all-around. Thank you guys very much.
Operator: Your next question comes from the line of DJ Hynes with Canaccord. Your line is open.
DJ Hynes: Hey, guys. Thanks for taking the question. So maybe just building on Rob’s last question there. AB, I totally understand the comments on spend thoughtfulness on SMS given the higher cost you use. I want to ask about KAV conversion versus — for email-only customers versus those that are using e-mail and SMS. Is there a discernible difference there, which I guess gets out the question of, is SMS working the way that you hoped?
Andrew Bialecki: Sure. So, one, I’m very excited about the amount of KAV we drove last year, over $50 billion. And that continues to be a north star for us. And like I said, our customers are — they’re trying to consolidate their first-party customer data and then how do you put that to work to deliver experiences that actually drive conversion? So to the question about like difference between email and SMS, no, we’re not seeing any material changes there. And as we said before, SMS is a slightly different cost structure, so the ROI there is always going to be a little bit different. However, we see from both channels customers really getting great results. And one of our goals is focused on getting more personalization, more segmentation, both through our product, through the artificial intelligence we’re layering into the product.
We’re helping them discover more and more use cases that they can apply to their customers to deliver better experiences, but also help them optimize better.
DJ Hynes: Got it, thank you.
Operator: Your next question comes from the line of Terry Tillman with Truist Securities. Your line is open.
Terry Tillman: Yeah, thank you, Andrew, Amanda and Jack, for taking my question. I’m going to pivot from SMS and just ask about international. Should we — well, it is actually a multiparter, but it’s a single question. Should we expect that, that just drift higher as a percentage of revenue? And is it still more in ’24 where you’re getting pulled in to that market as opposed to more of your directly kind of attacking it with a lot of boots on the ground? And then are you seeing some potential benefits from Shopify in that market because they’re talking about some pretty substantial growth in EMEA? Thank you.
Andrew Bialecki: Awesome. Thanks, Terry, for the question. So on international, yeah, I mean, another area that we’re very bullish on. Continue to drive strong growth there. Our aggregate EMEA and APAC revenue was up over 40%. So without commenting on the distribution, I think that we’re seeing strong growth domestically as well, I’ll tell you that we’re very excited about where international is going. It’s one of our four key drivers. So on that front, there’s a couple of things that we’re doing. On the product side, we still haven’t internationalized and localized Klaviyo’s core interface. That’s something we’re working on and will ship later this year. And then on the go-to-market side, we’re — Amanda talked about, we’re very thoughtful about how we go to market because our history is as a product-led company, our strategy to grow internationally is also product-led.
We’re putting our product in market, watching to see where there’s adoption and then following those trends. And with Shopify and others, a big part of our intentional strategy is working with partners, both globally and locally. So I expect that we’re going to see really nice growth there. And yeah, we’re excited about what we’re seeing.
Terry Tillman: Thank you.
Operator: Your next question comes from the line of Siti Panigrahi with Mizuho. Your line is open.
Siti Panigrahi: Thanks for taking my question. I wanted to ask you about CDP that you guys announced few a few months back. Wondering what kind of feedback you have got so far, what kind of interest or use cases, you’re seeing there?
Andrew Bialecki: Yeah. Great. So our CDP product launched last summer, and you can think about CDP in especially the reporting and analysis use cases, we’re seeing a lot of customers adopt those. So to just give you an example of how our customers are using CDP, we have — there’s a large pet retailer that’s taking advantage of some of the advanced analytics you can do around frequency and frequency of spend. So finding customers who used to be really loyal but have since lapsed. And they’re using that, doing that analysis inside Klaviyo on the Klaviyo core database, and then immediately able to turn that into email and SMS automations and campaigns and monetizing those. So that’s the kind of — what we’re seeing is a lot of that kind of behavior.
We’re tightening the loop between traditionally what was analytics in one part of the company, one set of tools for that and then actually activation, putting it to work in a different part. Those two worlds are merging. So it’s still early there for us, but we’re excited about what we’re seeing with CDP, and I think there’s a lot more adoption that’s coming this year.
Siti Panigrahi: Thanks, AB.
Operator: Your next question comes from the line of Scott Berg with Needham. Your line is open.
Scott Berg: Hi everyone. Nice quarter for me. Amanda, you had a pretty impressive year last year in terms of free cash flow margins from the year-over-year improvement there. There’s about a 5-point spread in between operating margins and free cash flow margins for the year. Is that the right way to think about fiscal ’24 as well? Or will there be some divergence there even after taking into account some of the spending in the first half? Thank you.
Amanda Whalen: Yeah. Great question. And thank you. I appreciate calling out. 17 points of operating margin expansion year-over-year, it was indeed a very strong year. In general, over the long term, I would expect that because the majority of our customers are month-to-month and those payments are coming in monthly, that our operating income margins and our free cash flow margin are going to track relatively closely over time. You may see some variation year-to-year just literally depending on the timing of when some payments happen to particular vendors, but in general, you should see those tend to track pretty closely to each other.
Scott Berg: Excellent. Thank you.
Operator: We have time for one more question and that question comes from the line of Derrick Wood with TD Cowen. Your line is open.
Derrick Wood: Great. Thanks. Great. Amanda, there was a big sequential increase in sales and marketing expenses in the quarter. Are you able to dimensionalize how much of this was seasonal marketing spend versus how much of it was adding headcount? And I guess as a follow-up to AB, just would love to hear kind of how sales hiring activity has been trending over the last few months? And how are you feeling about ramping reps to productivity and trying to creating some new growth levers up market with new capacity as you progressed in 2024?
Andrew Bialecki: Hey, Derrick, I’ll start and then I’ll let Amanda add on. So we’re very excited about the sales and marketing investments we’re making. We mentioned that some of the key growth levers of not just growing a number of new logos, but getting customers to expand with us the number of products they buy, expanding into the mid-market, expanding internationally. So there’s really 2 drivers of our sales and marketing investments to date. The first is, as you mentioned, is increasing sales capacity. And we’re focused in a couple of areas. International mid-market as well as expanding what we call our customer growth team, which is about driving more and more customers to adopt a greater portion of the Klaviyo product set.
So that’s part number one. And the second part is we’re making additional investments into marketing. We have a lot of customers who are super fans of Klaviyo. We’re using their story, these customer testimonials, as a lead-in to find additional customers. So we’re ramping up that marketing investment and sharing those stories of success to drive awareness, top of the funnel and ultimately, net new customer acquisition. So in general, like well, those are the two drivers, like Amanda and I, we’re still very strong believers in the roots of what Klaviyo was founded on, which is good unit economics. So we’re going to continue to experiment, but also be very disciplined and closely monitor the economics and the ROI of those investments.
Amanda Whalen: Yeah, if you think about how to build your model and how the investments might flow over the course of the year. More of the investments, as we mentioned on the call, are weighted towards the first half of the year as we’re investing to build that sales capacity to ramp up heading into the back half of the year. And then historically, seasonally, we have ramped up marketing in the third quarter as we prepare for heading into Black Friday Cyber Monday, and so I would expect those trends to continue.
Derrick Wood: Great, thank you.
Operator: Those are all the questions I have for today’s call. With that, I will turn the call-back over to Andrew Bialecki for closing remarks.
Andrew Bialecki: Great. Well, thank you all for joining us on today’s call. I want to thank again the entire Klaviyo team for their great work delivering for our customers in 2023. As we say internally, we’re 1% done, and we’re excited for the year ahead. We’ll be attending the KeyBanc and Morgan Stanley conferences in March and look forward to seeing many of you there. Have a nice evening.
Operator: This concludes today’s call. You may now disconnect.
