Klaviyo, Inc. — Q3 2023 Form 10-Q
Business and period. Klaviyo provides a SaaS platform for personalized customer engagement across email, SMS and push notifications, with related reviews and customer data products. This unaudited report covers the three and nine months ended September 30, 2023, compared with the same periods in 2022. Klaviyo completed its IPO on September 22, 2023.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Change |
|---|---|---|---|
| Revenue | $175.8 million | $119.2 million | +47.5% |
| Gross profit / margin | $117.0 million / 66.5% | $86.5 million / 72.6% | Margin down 6.1 percentage points |
| Operating loss | $(302.2) million | $(25.7) million | Loss widened |
| Net loss | $(297.1) million | $(23.9) million | Loss widened |
| Net loss per share, basic and diluted | $(1.24) | $(0.10) | — |
Nine-month results: Revenue was $496.5 million, up 51.6%; gross profit was $363.6 million and gross margin was 73.2%, versus 72.3% a year earlier. Operating loss was $294.3 million and net loss was $281.9 million, compared with losses of $51.0 million and $48.4 million, respectively, in the first nine months of 2022.
- Drivers: Management attributed revenue growth to greater usage by existing customers, including SMS, new customer additions, and the September 2022 price increase. Existing customers contributed about 49% of Q3 revenue growth and 65% of nine-month growth; management estimated the price increase contributed a mid-teen percentage of incremental revenue dollars in both comparisons.
- Exceptional expense: The IPO satisfied liquidity conditions on employee RSUs, triggering $301.2 million of Q3 stock-based compensation expense ($303.5 million for the nine months). This was the principal reason operating expenses and reported losses rose sharply. Q3 operating expenses were $419.2 million, versus $112.2 million a year earlier.
- Cash flow: Nine-month operating cash flow was positive $80.7 million, compared with negative $44.5 million in 2022. The 2023 figure included substantial non-cash adjustments, notably $302.3 million of stock-based compensation and $39.7 million of Shopify warrant-related marketing amortization. Investing cash outflow was $5.4 million; financing cash inflow was $262.2 million, mainly IPO proceeds.
- Liquidity and debt: September 30 cash and cash equivalents were $723.4 million; including restricted cash, total cash was $724.4 million. Working capital was $661.7 million. The company reported no debt and stated it expects available resources and operating cash flows to support needs for at least the next 12 months.
- Balance-sheet items: Total liabilities were $166.1 million, including $54.5 million of lease liabilities. Prepaid marketing expense was $179.0 million, primarily related to Shopify warrants.
Material changes and operating indicators
- As of September 30, 2023, Klaviyo had more than 135,000 paid customers. Dollar-based net revenue retention was 119%, unchanged from September 2022. Customers generating over $50,000 in ARR rose 89% to 1,699.
- For the first nine months, 36.2% of revenue came from outside the United States. Management reported international sales growth, while noting that the platform was then available only in English and U.S. dollars.
- The IPO raised approximately $319.9 million net for the company; existing stockholders also sold shares but those sales generated no company proceeds. The IPO and associated RSU tax withholding materially changed equity and cash balances. Series B shares carry ten votes per share versus one vote for Series A.
- Gross margin declined in Q3, with higher communication sending costs and RSU expense contributing to cost of revenue. Management also cited hosting and data-storage efficiencies. Nine-month gross margin improved modestly year over year.
Outlook, risks and contingencies
- No numerical revenue, earnings or cash-flow guidance is provided in this filing. Management expects continued investment and higher operating expenses in dollars; it anticipates modest near-term gross-margin pressure as SMS usage grows, particularly in the seasonally strong fourth quarter.
- Management says fourth-quarter demand typically increases with holiday campaigns, and SMS usage may amplify seasonal effects. It also cautions that the September 2022 price increase may no longer boost comparable ARR and retention measures after its anniversary.
- The Shopify collaboration is a material commercial relationship: the seven-year agreement includes revenue-sharing and integration fees. Shopify-related selling and marketing expense was $5.6 million for Q3 and $16.0 million for the nine months. The company reported $308.6 million of unrecognized marketing expense related to Shopify warrants, to be recognized over 5.8 years.
- Non-cancellable purchase commitments with marketing vendors and service providers totaled $370.4 million as of September 30, 2023. No material pending or threatened litigation was reported.
- Key disclosed risks include competition, customer retention and marketing-spend sensitivity, dependence on third-party integrations—particularly Shopify—privacy and data-security regulation, SMS/email compliance, service availability, and execution of international and enterprise expansion. The company disclosed prior security incidents in 2019 and 2022.
- A March 2023 restructuring reduced the workforce by about 8% (130 employees); nine-month restructuring costs were $7.9 million. Management reported disclosure controls were effective and no material quarter-on-quarter change in internal control over financial reporting.
Important facts for investors to verify
- How much of future reported expense and loss reflects recurring operations versus IPO-related RSU expense, and how stock-based compensation evolves as awards continue to vest.
- Whether customer expansion, new-customer growth and the 119% retention rate persist after the prior-year price increase rolls out of comparisons.
- SMS growth, sending costs and seasonal fourth-quarter effects on gross margin.
- Shopify relationship economics and exposure, including warrant amortization, future partnership fees, integration dependence and the substantial purchase commitments.
- Cash-flow quality after adjusting for non-cash compensation, IPO proceeds and working-capital movements; the filing reports no debt but also describes significant future investment needs.
- Dual-class voting control, potential share supply from equity awards and lock-up expirations, and the implications of the recently established public-market trading history.