Hello and welcome to the Klaviyo Q3 2026 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 Smith. Andrew, Chano, and Erica will first share their views in the quarter and then we'll 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 measures 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're 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've now crossed $1.5 billion in annualized run rate with growth in large enterprise deals, deeper multi-product adoption, and growing use of our agents. Over 211,000 customers trust Klaviyo to power their growth, and we crossed a great milestone. In the last 12 months, we've 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've had a very productive few months building and shipping the products we think will drive the future, and I'd like to walk through their progress and 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 three weeks since the latest release, daily active accounts of Composer have more than doubled to more than 10,000, 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've made it flexible to adapt to the workflow of our customers with connectors, skills, and artifacts. For years, we've 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 two new embedded partnerships, Klaviyo and Shopify and Klaviyo and Wix, both of which include Composer. And we're working on similar integrations with more platforms and agents. We're 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're 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've seen rapid adoption of our MCP server with over 70,000 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 aren't competing channels since we're making Composer 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 the 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. Two nascent patterns we're very excited about that we believe will drive the next step function of composer growth are proactivity and marketing graphs and loops. I'd like to spend a minute talking about each of these. Talking with our customers, whether it's Composer or other agents, many entrepreneurs and small businesses are still unsure about what agents are capable of or aren't sure what tasks to ask them to do. To solve this, we're 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's 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're using those with marketers. And with the latest Composer release, we're seeing positive signals. In the last three weeks, the number of scheduled tasks and custom skills have tripled and doubled respectively. creating graphs that represent analytical and marketing workflows and loops that refine and improve those strategies over time will become common. And as Chano will talk about, we're working with our customers and partners to evangelize this. are going to go beyond one-off chats to setting up standing jobs. One example is a fast-growing performance apparel brand. They're treating Composer like a member of their team, building custom skills to hold its brand voice and review campaigns before they send. And they're 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're 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's 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 one in four recipients were getting an email from another flow that same week, and in minutes set up a filter to fence it off. We're also seeing Composer help with conversion. Free accounts that use Composer are converting to paid plans at about 1.5 times the rate of those that don't. 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. Daily 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 two axes, more customers using Composer and more use from each of them. We've only just begun our growth plays, like making Composer more prominent in the products, more broadly engaging our champion network, and bringing it to the Klaviyo mobile app. That's how you went on adoption first and why we're 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 can 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 of Klaviyo in a way we haven't offered before, deepening the analysis beyond what was practical. This means faster business decisions for our customers. It's 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. That makes Klaviyo a true data warehouse for marketing, and we're seeing customers use it that way. Take one customer. Their analytics team builds models into their data warehouse, and 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's 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've 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 our personalized send time model of 25% from the previous quarter. Our data platform strategy is to offer customers one 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 and 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've now exchanged over 2 million messages. And in October, we released a new single agent architecture designed to deliver even better experiences. We're already seeing this innovation deliver great results. For one customer, resolution rates grew 25 points relative to the three weeks prior. And we're seeing strong traction with larger customers with adoption of customer agent by our 50K and plus ARR cohort up nearly 60% quarter on quarter. Together, the data, the agents, and personalization run as one system. And that is how the value compounds. We have a great business and everything we've 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're only 1% done and excited about what comes next. Before turning the call over, I want to welcome our new CFO, Erica Smith, who joined in early September. Thrilled to have her here. And with that, over to you, Chano.

Thanks, Andrew. I am thrilled for what we're building here at Clayview, alongside our customers and 5,000-plus 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 one unified profile that acts in real time, and they are choosing Klaviyo as the platform to build on. You could feel the excitement at KBOX in September, where we had our largest turnout and welcomed more large enterprise brands and partners than ever. That momentum is showing up in the results. We're executing as we said we would do, winning in the enterprise, expanding across international markets, and closing more multi-product deals than ever. I'd like to spend a few minutes on how these key initiatives are driving growth. Starting with the enterprise, where large global brands are choosing CleviU to modernize and consolidate their tech stack as they prepare for the all-important Black Friday Cyber Monday. In Q3, we grew the numbers 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 Butcher Boss, a direct-to-consumer meat brand. We also welcomed Bagel Brands, parent of Einstein Bros, Brewers Noah's, and Manhattan Bagel, as a new customer. Until now, Bagel Brands could only reach loyalty members through their loyalty platform. With Klaviyo, they're unlocking the ability to reach every guest on a single platform that brings all their data, marketing, and loyalty together. They chose Klaviyo for our native data warehousing integrations built in CDP and is of use as a marketer brand platform. Our largest customers are bought into our agented roadmap and it's helping us close new deals. This includes a Fortune 500 company who joined Kleviyo 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. They see Klaviyo as a critical part of their IT infrastructure, turning to us for insight on their marketing strategy. That's the kind of partnership we're 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's 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 multi-channel marketing hubs. And IDC named us as a leader in its market scape 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 eight 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 Golf, a long-time 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 CRM platform, personalized experiences can run off a unified customer profile tailored to channel preference. That brings me to our third growth level, 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 close our largest new logo win in EMEA today, a multi-product, multi-year agreement with Frasers Group, consolidating 13 of its brands, including Sports Direct, Frasers, 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're 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're also how we extend our reach beyond retail. In Q3, we expanded the reach deeper into the hospitality vertical with a new open table integration. 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 pre-tier and credits help marketeers embed it in their daily work. And customer agent is priced on outcomes, so our customer 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 use Composer, those learnings are embedded into the platform. That's 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'm grateful for the partnership we've built already and we're excited for her help driving growth as we scale. With that, I'll turn it over to Erica.

Thanks, Jono and Andrew, and good afternoon. This is my first call as CFO of Klaviyo, and before digging into the quarter, I'd 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 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've 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 one I'm confident in. And finally, the mission and culture. Our focus on the mission and as 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 three or more products now represent 22% of ARR, Up two points from last quarter. As a reminder, multiple product customers have a seven 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, roast 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 enforcement, which will continue to weigh on the trailing 12-month NRR through Q1. It's important to note there is a structural shift underway impacting NRR as more customers are landing with multiple products from day one. As Shano shared, in Q3, multi-product deals represented a greater portion of our new ARR. So more value shows up in the initial deal rather than later expansion. As multi-product lands becomes 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 to $644,000 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 customers' 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 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're 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 the $15 million used in the acquisition of agency. 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 the $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 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 in our product roadmap. Turning to our outlook, for Q4, we expect revenue to be in the range of $421 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. We 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 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're 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've entered Q4 with strong momentum in the enterprise, growing usage of our Argentic 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've been energized by what I've 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 one 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 one moment to allow the queue to form. Our first question comes from Ramo Lenscher with Barclays. Please unmute your line and ask your question.

Perfect. Hey, thanks. Thank you, and congrats. Great quarter. Two quick ones. I'll make them quick, so then I'll squeeze them in two. AB, if you look at Composer and how people are using it and what they're doing, what's the feedback on our idea getting there? Because that's the one thing we see across the board that AI products are really nice, but then people, especially on the low end of the market, are nervous about the value that they're getting for and nervous about token burn. 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 it's understating because you're selling more initially, but you also mentioned the profile enforcement creates a headwind initially. Can you kind of unpack which one is driving which there so that we kind of get the right number for going forward. Thank you.

Awesome. Thanks, Remo. Yeah, we're really excited about the use cases we've 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 incredibly ROI. I mean, we share numbers about, you know, Klaviyo attributed value and we typically will see ROIs anywhere from, you know, The way I would think about Composer and the sort of like the credit usage, the token burn, so to speak, is it's just a way to 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're sending more marketing messages to their customers. They're able to better personalize those messages. They're using Composer to then go back and review and audit things. Thank you for joining us. All that is amplifying that ROI they're already getting. One thing we'd like to say is that with Composer, we think there's this big almost like agent overhang. Composer as an agent is so good at doing marketing and customer analysis. The problem isn't really ROI. It's more just helping more of our customers know what's a prompt. We talked a little bit about setting up recurring workflows. And I think that's the phase that we're entering. The technology is there. Our product is there. Right. We're going to continue to improve it. But really, it's about driving large scale adoption with both like current Cladio customers and then also just other businesses that need to do marketing. So, yeah, we're really, really excited about that.

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 expectations are is that'll roll into the first quarter of next year. I think the one thing we wanted to point out when we were talking about customers landing with more products is Thank you so much for joining us today. Thank you so much for joining us. So I think what we really want to 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. Andrew, we'd love to hear about how you can make it easier for solving this diffusion of AI problem. You mentioned the technologies there, and SMBs, I'm sure they want to try agents and do more with AI, but I'm sure they would just like to simplify what they're 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. There's a major area of focus for us, and I think we've got a lot of threads that we think are going to bear a lot of fruit in the coming months. So let me give you a little bit of a summary about how we think about that. The first is just inside of Klaviyo. A lot of customers and a lot of marketers, we're just solving this problem of what to prompt. So we've seen, I think, A lot of folks, right, maybe ex-engineering, are solving this problem of, well, I don't know what the model's capable of or the agent's capable of. What should I ask it? In some cases, it's challenging Composer to do bigger tasks. I've had this happen on a lot of calls with our customers where they're 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. and does it, you know, on brand in a way that they say, wow, it's actually, this is very close and there's only a couple of edits. So for those growth plays, yeah, we're doing a lot around like showing prompts. And one of the things we've done as an example is depending on where you are inside of the Quavio application, you know, we'll provide different prompts, different suggestions based on what you're looking at. We also are learning from our customers as they Thank you for joining us. A little bit like kind of, you know, benchmarks and, 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're also working to embed Composer in a lot more surfaces. So I talked a little bit about that in our prepared remarks. You know, we partnered up with obviously our good friends at Shopify and Wix, and we're doing more to embed Klaviyo inside of other products. And this includes not just Klaviyo's, you know, functionality, our infrastructure around analytics and marketing, but also Composer as well. and we have a lot more coming there where we want to make marketing intelligence ubiquitous. So actually, it doesn't matter. You don't have to log into our Klaviyo app, our .com. We mentioned that we're now shipping a mobile app that's agentic first, but you can access Composer through our MCP connector. We just want to make it readily available so that even if you're using your own personal agent, when that personal agent says, hey, I kind of need to do this marketing task, Who do I ask for advice that that marketing agent can even find Composer and introduce customers? The last thing I'll say is for our larger customers, some of the larger enterprise customers, I think we're about to cross this chasm from marketers, when I talk to them, they're still kind of in this era of they're used to kind of prompting AI, asking a question, waiting for it to do work, come back, prompt a little bit more. It's kind of like where coding was maybe 18 or 24 months ago. I think we're about to enter the era where People really, you know, most of the entrepreneurs, small businesses, even the enterprise I talked to, they kind of want to know AI can take some bigger workloads for them. This is, you know, Shano 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's still very new, but I think that's the future. You know, you're not going to buy marketing software and you're going to sit, you know, somebody's going to log in every day and kind of pull and click their way around to, say, build campaigns. In the future, you're going to log in and say, hey, these are the outcomes that I'm after. Here's kind of how, here's my process. Here's where I want to be involved. You're going to explain that to an agent or an AI, and it's going to encode that, and then it's going to go off and do that work, and it's going to have kind of like a little bit of an inbox, or it'll, you know, call out to you, it'll chat with you when it has something that's ready for review. So that's going to be the new pattern. We've already seen this happen in other domains, and we're excited because we've seen a lot of customers that are very leaned into this, and yet the adoption, you know, we shared some of the stats. We want to show you the adoption rate is still very nascent. and for us it's just because a lot of people haven't they're not used to the patterns of how to use an agent and that's 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 Rob Oliver with Baird. Please unmute your audio and ask your question.

Great. Thank you guys very much for the question. I have a two-parter as well. I appreciate all the color on the headless strategy and the MCP server data. and around Composer. 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 going to be important. We believe that as well. The functionality seems like it's certainly much higher, particularly with your data. Thank you for joining us. either from Erica or Chano on what is new lands and what is cross-selling, how those are trending. Thank you.

Excellent. Okay, so happy to take the first part. Yeah, so for larger customers adopting, you know, kind of encoding their work into AI, I'll tell you, like, one thing I've observed is it's for a lot of marketing teams, even in larger enterprise, it's still a very new concept. And it's not that folks really want to do it, but this idea of, is it working off the right data set? Is that data set governed? Can I trust it? Can I trust this agent that it understands the underlying infrastructure, 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 worked with customers, we told them, it's like, look, we ultimately, we have our MCP, so you can access all of our infrastructure as well as Composer through our MCP. So, we're actually a little bit agnostic. If you want to use, you know, Claude, ChatGPT, or some other agent harness, You can. And we think of Composer as kind of this super smart marketer that obviously knows all your data, but it's also been trained so it just knows all of what's going on with marketing and consumer behavior generally. That's like the data set that we mentioned that's harder to get, but we have a good lens on that. So we're finding actually from a lot of our large customers, some want to build other workflows through 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 want to edit this and I want to be able to visualize and see the campaigns and the automations I'm building as I go, we're finding a lot of them are very comfortable and maybe more comfortable working inside of Plavio or inside of our services. And then that's one of the reasons why inside of Composer, we basically, all the same functionality that you get, you know, with the kind of, you know, a general purpose agent, we built all that same functionality in. So when you think about things like connectors, tools, skill, even things like we just released, you know, a week or two ago, the concept of artifacts, you know, you can have live dashboards. and applications inside of Klaviyo that are powered by, you know, an agent that built that, you know, built that and then, you know, auto refresh. So we want to basically give people a lot of choice. That's our goal is flexibility and choice. But I do ultimately think that like for the workflows, whether those kind of get encoded inside Composer or outside of Composer, right, in another agent, there's going to be some marketing work where you really want a very smart marketer you know a really very good marketing intelligence and that's the feedback we've gotten from customers so far is they trust us they trust composer to be an expert at marketing and we talked a little bit about roi because the return on investment is so good and we're not just talking about process automation we're talking about driving a business we're talking about customer experiences Our customers and brands, they have a very high bar for correctness, and then they obviously want incremental growth. So we think with Composer, we can deliver, most importantly, better results. We actually also think we can probably deliver it more cheaply, more efficiently when it comes to token usage and things like that, just because we know our own systems. We know best practices in marketing, how to do those analyses. but when I talk to customers, the thing that matters to most of them is they want the incremental growth. They know there's a lot of opportunities with their customers that they're not getting to, that they can't see, they can't find, they don't 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 going to be journey. We're pretty happy with the progress that the team is making. I'm pretty proud of how quick it's going, definitely. I mean, it shows some of these metrics, like 57% growth. Thank you very much. And going forward, what you're going to be seeing us is now that we have A, the product readiness, B, we're overcoming the impression like we're ready for this enterprise with a lot of customer references that are happy customers of Plaviyo being large enterprise customers. The partners and also the analysts like Gartner and IDC recognizing us, you're going to see us investing much more into the new logos. you know going forward because we believe that you know there is a great opportunity in this enterprise market for us and it's going to 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. Thank you so much for joining us. 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's a really great question, Tyler. I think we were very excited to be able to provide guidance for 25% growth for the full year and kind of pass through more than the beat when you're thinking about 2026 as the level set. And then I do think we want to make sure that we get through this quarter to see how the initiatives that we're driving forward from an investment perspective deliver because we have a lot of confidence in our ability to execute. and so as you're kind of moving into next year and you think about the prioritization and where we think we see a healthy area for us to continue to accelerate, we certainly think the investments that we're making in What Shauna just talked about, the new logo opportunity is an area where we do expect to see results. We also think in the enterprise. We're very encouraged by what we're seeing around Composer, what Amy talked about. I think when you think about that monetization, you know, we want to make sure we're watching those trends as we move and march through that quarter. But we are very excited about that as a growth opportunity as well into next year. So I think that that would be kind of the stack rank in terms of what we see today and what we're executing on absolutely in the fourth quarter and then as we roll into the first part of the 2027.

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

Hi, thanks very much for taking the question. Congrats on the course and also just stepping in for Elizabeth on the call. So I wanted to ask, you've 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? And could you talk a little bit about the indicators or metrics that you're watching to assess about how quickly and aggressively you go after that monetization opportunity, please? Thank you.

Yeah, absolutely. So, you know, let me quote a couple of stats that are not direct monetization, and I'll start with Composer here. So, first is, you know, we're finding that amongst our new customers, when folks are signing up, I think we talked about this in the last call as well, you know, we're 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. We expect that to persist. One of our big initiatives internally is we've redone what onboarding or first-time experience with Klaviyo is to make it much more agentic and through Composer. You can imagine things where now when you sign up, rather than you having to know what to do or pick from a default set of templates, Every part of the Klaviyo experience can be tailored to you. What marketing campaigns and strategies you should have. Obviously, we can look up some things like, for instance, from your website, your mobile app, various brand assets. We can tailor things to you directly. And we're finding what's happening is that's driving a much higher activation rate. That's the term we use for how long does it take and what percentage of users actually get to like real material repeat usage of Clayton in terms of sending messages or running queries or importing data. So we do think that will be a nice halo effect. And when Composer and our core marketing infrastructure, core products, those two things will go together. and then obviously on the retention side uh you know we find a lot of you know it's probably no surprise but we find a lot of customers one of the things especially smaller customers you know one thing that uh curtails usage is uh either a they don't 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 two is they're using Klaviyo but they have this perception that they could be doing more and Composer solves for both of those so The initiative I mentioned around proactivity, I think, is going to help amplify both of those. As we're seeing this data come in, we're actually thinking about Composer more as even potentially like 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 subscribers or customers to their business, but they're buying Composer immediately because they like the idea of having that expert marketer at their side that they can reach out to 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 around Composer, you know, we try to share some stats around, like, usage, usage of credits, and then overall adoption. So you can start to think about, you know, what the overall opportunity size is. The only thing, you know, obviously for us, the two 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've mentioned to you, ROI is clear. The one thing I would call out, though, is I go back to this comment I made of, I feel like we're, 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, right, prompt again. And if you see the, you know, kind of what really drove a lot of adoption today, and a lot of the value around my coding agents was when they became more autonomous. People got used to this concept of I'm going to run this agent on a recurring basis. It'll wake up every day or it'll run in a loop. I start to build in more of my workflows. And that's something we've launched that. We talked about the growth of some of those key capabilities. But I think we're very early there. So I think obviously there's a large number of businesses that could be using Composer. Thank you for joining us. We're 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 top 10 customers that are actively piloting and using customer agent with their business. That's another spot where we've done some really great engineering and we're seeing some great, great results. One of the things we found with customer agent, though, is that like there is a little bit more of understanding, you know, the business and getting hands on. So, well, you know, for a lot of our users, they're very used to marketing. They get the idea of using Composer to automate that. You know, in some cases, we're spending time getting to know the support side of the business and the organization, especially for larger companies. and then map out some of the internal policies. So I expect we'll see growth from Composer more quickly than we will from Consumer Engine, but we're excited about the growth trajectories of both products.

Our next question comes from Terry Tillman with Truth 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 one question. It might actually be two parts. Sorry about that. But on Composer, is there something in the 4Q during holidays? Sometimes we hear about new technologies. People want to be kind of careful how much they try them out during these all-important kind of days or weeks during the holiday season. Is that something we should consider in 4Q around usage and just active user dynamics with Composer? And then, Erica... What we've seen this year, just kind of looking at the guide, you've been beating the numbers. They've been a little bit smaller beats, so you're kind of closer to the pin. Is there any philosophical kind of change with 4Q in terms of degree of potential outcomes in the guidance? Thank you.

Awesome. So on the seasonality of Composer, I actually, I don't think we'll see too much of anything. I think it'll mirror kind of our overall business. We've seen, I've seen, I've 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 all-day plans. I'll give you an example. I was working with one retailer where they said, hey, can I use Composer to basically go audit, go review the strategy, the campaign cadence that we had in 2024 and 2025? 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 um 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's the kind that's the kind of activity that we're seeing a lot more marketers do so I think the usage, I don't think it'll 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's a lot of trust that folks have with our agent, so there's, you know, even in these most sensitive times, like, they're using it to, like, review information, understand it, and make, you know, those kind of real-time decisions.

Yeah, and then, Terry, coming back to your question on guidance and guidance philosophy, so I started about, you know, two 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's kind of the way we approached 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, and thanks for taking my questions. I guess I have two. First, I know you gave a few guidance, but can you give us any sense of what you've seen so far? I know it's only one month into the quarter, but in terms of normal seasonal trends, are you on that normal trajectory that you would see in a fourth quarter? And then, Erica, I know that this wasn't instituted previously, The new SMS pricing model that accounts for A to P, I think was supposed to start in 3Q but not really have a big impact. I'm curious if it's had any impact so far and any early trends you're 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're seeing in the business, take the pricing that we talked about, and then, Shano, if you want to add on to the seasonal trends, that would be perfect. I think so far, you know, we've seen a typical seasonal quarter when you're thinking about the October, the month of October, but we're only one month in, and the big time kind of is when you come into the back half of this quarter as well. So I think when you're thinking about the pricing, though, yes, we absolutely did roll out the pricing. There hasn't been a major impact Other than the fact that we are seeing a customer 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 didn't 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've been talking about previously. So you shouldn't see that some sort of major improvement on the gross margin. I do think, though, that we're very happy to see those pricing upon renewal roll into our P&L as well.

Nothing to call out in terms of any different seasonal trends at the beginning of the quarter. We finish September very strong and we are expecting that to continue during Q4.

Our final question comes from Derek Wood with TD Cohen. Please unmute your line and ask your question.

Great, congrats for me and thanks for taking my question. I guess this is for Chano, and it's really around the low-touch go-to-market. There's 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're navigating them? Thank you for joining us.

That's a great question, Derek. 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, diversified kind of model that we're driving there beyond kind of PET and AO. and certainly not trusting just on those to drive our business. So clearly you see us doing more partnerships embedded with, we just mentioned today, Shopify and Klaviyo. Stay tuned there. More to come. We're definitely trying different types of promos. We're 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 doing the upscale and moving towards the enterprise. We're certainly not losing the eye of the ball in terms of strengthening the core of our business. And it's something that we review very heavily, you know, activations, free-to-pay activities. 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 on the new mobile app and that they will have some of those to convert and convert faster so so clearly it's a very diversified strategy there thing is acting with a lot of speed as well in trying a lot of new things and measuring very early and see what works and what doesn't work but we are not We're certainly expanding with more partners, more trials, more channels, different promos in terms of what's working. Yeah, we're exciting and we keep a significant focus on capturing and accelerating new levels 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'll leave you with two 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 of confidence in all of the levers of our business, growing enterprise internationally, the entire Clivia product set. We think we have a lot of room for growth going forward. I want to thank our all of our customers and partners around the world and also all the studios have put in a lot of hard work the last three months and we will see everybody next quarter. Thanks.

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