Klaviyo, Inc. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID No 34 ) 88 Consolidated Financial Statements Consolidated Balance Sheets 89 Consolidated Statements of Operations and Comprehensive Loss 90 Consolidated Statements of Changes in Redeemable Common Stock and Stockholders ’ Equity (Deficit) 91 Consolidated Statements of Cash Flow 93 87 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Klaviyo, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Klaviyo, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, changes in redeemable common stock and stockholders’ equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2023 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Boston, Massachusetts February 29, 2024 We have served as the Company’s auditor since 2020. 88 Table of Contents Klaviyo, Inc. Consolidated Balance Sheets (In Thousands, Except Share and Per Share Data) As of, December 31, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 738,562 $ 385,820 Restricted cash 409 409 Accounts receivable, net of allowance for doubtful accounts 23,076 10,723 Deferred contract acquisition costs, current 15,198 11,215 Prepaid expenses and other current assets 26,244 19,336 Total current assets 803,489 427,503 Property and equipment, net 43,450 45,837 Right-of-use assets, net 36,987 45,695 Deferred contract acquisition costs, non-current 23,177 15,983 Restricted cash, non-current 686 687 Prepaid marketing expense 173,844 84,415 Other non-current assets 7,417 8,959 Total assets $ 1,089,050 $ 629,079 Liabilities, Redeemable Common Stock, and Stockholders’ Equity (Deficit) Current liabilities: Accounts payable $ 13,597 $ 8,890 Accrued expenses 62,838 36,126 Lease liabilities, current 14,081 14,864 Deferred revenue 40,100 25,109 Total current liabilities 130,616 84,989 Lease liabilities, non-current 37,498 47,544 Other non-current liabilities 6,159 876 Total liabilities 174,273 133,409 Redeemable Common Stock (Note 11) Redeemable common stock, $ 0.001 par value, 0 and 64,046,223 shares issued and outstanding at December 31, 2023 and 2022, respectively. $ — $ 1,531,853 Stockholders’ Equity (Deficit) Preferred stock: $ 0.001 par value; 100,000,000 and 0 shares authorized; 0 and 0 shares issued; 0 and 0 shares outstanding at December 31, 2023 and 2022, respectively. — — Series A common stock: $ 0.001 par value; 3,000,000,000 and 0 shares authorized; 40,841,834 and 0 shares issued; 40,841,834 and 0 shares outstanding at December 31, 2023 and 2022, respectively. 41 — Series B common stock: $ 0.001 par value; 350,000,000 and 316,000,000 shares authorized; 218,524,009 and 170,882,108 shares issued; 218,524,009 and 170,855,313 shares outstanding at December 31, 2023 and 2022, respectively. 219 171 Additional paid-in capital 1,713,560 1,249,065 Accumulated deficit ( 799,043 ) ( 2,285,419 ) Total stockholders’ equity (deficit) 914,777 ( 1,036,183 ) Total liabilities, redeemable common stock, and stockholders’ equity (deficit) $ 1,089,050 $ 629,079 The accompanying notes are an integral part of these consolidated financial statements 89 Table of Contents Klaviyo, Inc. Consolidated Statements of Operations and Comprehensive Loss (In Thousands, Except Share and Per Share Data) Year Ended December 31, 2023 2022 2021 Revenue $ 698,099 $ 472,748 $ 290,640 Cost of revenue 177,888 128,025 84,696 Gross profit 520,211 344,723 205,944 Operating expenses: Selling and marketing 394,369 213,848 156,342 Research and development 262,177 104,077 65,599 General and administrative 194,287 81,834 63,236 Total operating expenses 850,833 399,759 285,177 Operating loss ( 330,622 ) ( 55,036 ) ( 79,233 ) Other income (expense): Other (expense) income ( 470 ) 388 28 Interest income 24,051 5,538 139 Interest expense — — ( 8 ) Total other income 23,581 5,926 159 Loss before income taxes ( 307,041 ) ( 49,110 ) ( 79,074 ) Provision for income taxes 1,192 83 319 Net loss ( 308,233 ) ( 49,193 ) ( 79,393 ) Comprehensive loss $ ( 308,233 ) $ ( 49,193 ) $ ( 79,393 ) Net loss per share attributable to Series A and Series B common stockholders, basic and diluted $ ( 1.27 ) $ ( 0.21 ) $ ( 0.36 ) Weighted average common shares outstanding, basic and diluted 242,889,272 229,857,206 220,865,179 The accompanying notes are an integral part of these consolidated financial statements 90 Table of Contents Klaviyo, Inc. Consolidated Statements of Changes in Redeemable Common Stock and Stockholders’ Equity (Deficit) ( In Thousands, Except Share and Per Share Data) Redeemable Common Stock Series A Common Stock Series B Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Number of Shares Amount Number of Shares $ 0.001 Par Value Number of Shares $ 0.001 Par Value Balance as of January 1, 2021 61,020,598 $ 922,883 — $ — 151,048,048 $ 151 $ — $ ( 759,888 ) $ ( 759,737 ) Issuance of common stock upon exercise of common stock options — — — — 8,267,207 8 5,845 — 5,853 Issuance of redeemable common stock, net of issuance costs of $ 79 3,025,625 100,921 — — — — — — — Accretion of redeemable common stock to redemption value — 1,542,528 — — — — ( 145,582 ) ( 1,396,945 ) ( 1,542,527 ) Issuance of common stock, net of issuance costs of $ 270 — — — — 7,339,392 8 244,797 — 244,805 Repurchase and retirement of common stock — — — — ( 4,967,420 ) ( 5 ) ( 140,408 ) — ( 140,413 ) Stock-based compensation expense — — — — — — 35,248 — 35,248 Vesting of restricted common stock — — — — 35,727 — 100 — 100 Vesting of restricted stock units — — — — 33,333 — — — — Net loss — — — — — — — ( 79,393 ) ( 79,393 ) Balance as of December 31, 2021 64,046,223 $ 2,566,332 — $ — 161,756,287 $ 162 $ — $ ( 2,236,226 ) $ ( 2,236,064 ) Issuance of common stock upon exercise of common stock options — — — — 1,551,963 2 1,632 — 1,634 Accretion of redeemable common stock to redemption value — ( 1,034,479 ) — — — — 1,034,479 — 1,034,479 Issuance of common stock, net of issuance costs of $ 307 — — — — 2,951,846 3 69,117 — 69,120 Issuance of investment option, net of issuance costs of $ 135 — — — — — — 30,438 — 30,438 Vested warrants related to collaboration agreement — — — — — — 106,455 — 106,455 Issuance of common stock upon exercise of collaboration agreement warrants — — — — 4,526,157 4 41 — 45 Stock-based compensation expense — — — — — — 6,802 — 6,802 Vesting of restricted common stock — — — — 35,727 — 101 — 101 Vesting of restricted stock units — — — — 33,333 — — — — Net loss — — — — — — — ( 49,193 ) ( 49,193 ) Balance as of December 31, 2022 64,046,223 $ 1,531,853 — $ — 170,855,313 $ 171 $ 1,249,065 $ ( 2,285,419 ) $ ( 1,036,183 ) 91 Table of Contents Klaviyo, Inc. Consolidated Statements of Changes in Redeemable Common Stock and Stockholders’ Equity (Deficit) (cont.) ( In Thousands, Except Share and Per Share Data) Issuance of common stock upon exercise of common stock options — — — — 2,419,308 3 4,141 — 4,144 Issuance of common stock upon vesting of restricted stock units — — 27,250 — 7,179,136 7 ( 7 ) — — Accretion of redeemable common stock to redemption value — 399,685 — — — — ( 399,685 ) — ( 399,685 ) Issuance of common stock upon exercise of collaboration agreement warrants — — — — 6,051,285 6 56 — 62 Stock-based compensation expense — — — — — — 342,148 — 342,148 Vesting of restricted common stock — — — — 26,795 — 75 — 75 Vested warrants related to the collaboration agreement — — — — — — 142,326 — 142,326 Issuance of common stock in connection with Initial Public Offering, net of underwriters’ discounts, commissions and offering costs of $ 25,135 — — 11,507,693 12 — — 320,084 — 320,096 Shares withheld for tax withholding upon vesting of restricted stock units — — ( 11,874 ) ( 1 ) ( 2,735,286 ) ( 2 ) ( 81,508 ) — ( 81,511 ) Reclassification of redeemable common stock to Series B common stock ( 64,046,223 ) ( 1,931,538 ) — — 64,046,223 64 136,865 1,794,609 1,931,538 Conversion of Series B common stock to Series A common stock upon shareholder election and vesting of certain equity awards — — 27,548,447 28 ( 27,548,447 ) ( 28 ) — — — Conversion of Series B common stock to Series A common stock upon exercise of greenshoe option — — 1,770,318 2 ( 1,770,318 ) ( 2 ) — — — Net loss — — — — — — — ( 308,233 ) ( 308,233 ) Balance as of December 31, 2023 — $ — 40,841,834 $ 41 218,524,009 $ 219 $ 1,713,560 $ ( 799,043 ) $ 914,777 The accompanying notes are an integral part of these consolidated financial statements 92 Klaviyo, Inc. Consolidated Statements of Cash Flow (In Thousands) Year Ended December 31, 2023 2022 2021 Operating activities Net loss $ ( 308,233 ) $ ( 49,193 ) $ ( 79,393 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 13,651 9,040 5,269 Non-cash operating lease costs 12,997 11,831 9,120 Amortization of deferred contract acquisition costs 15,764 10,613 3,358 Amortization of prepaid marketing expense 52,897 22,040 — Loss on disposal of property and equipment 6 — 5 Bad debt expense 524 734 1,819 Stock-based compensation expense 340,799 6,802 35,248 Deferred income tax ( 3,229 ) — — Other 118 75 42 Changes in operating assets and liabilities: Accounts receivable ( 12,877 ) ( 5,164 ) ( 5,086 ) Deferred contract acquisition costs ( 26,941 ) ( 20,195 ) ( 11,277 ) Prepaid expenses, prepaid taxes, and other assets ( 2,375 ) ( 5,180 ) ( 14,124 ) Accounts payable 4,505 ( 21,115 ) 23,900 Accrued expenses 26,666 15,377 13,047 Deferred revenue 14,991 10,017 6,426 Operating lease liabilities ( 15,197 ) ( 9,272 ) ( 10,138 ) Other non-current liabilities 5,305 38 ( 954 ) Net cash provided by (used in) operating activities 119,371 ( 23,552 ) ( 22,738 ) Investing activities Acquisition of property and equipment ( 3,653 ) ( 15,821 ) ( 13,023 ) Capitalization of software development costs ( 5,705 ) ( 2,424 ) ( 987 ) Purchase of indefinite-lived intangible assets — — ( 222 ) Acquisition of business — ( 500 ) — Net cash used in investing activities ( 9,358 ) ( 18,745 ) ( 14,232 ) Financing activities Proceeds from exercise of common stock options 4,216 1,718 5,965 Cash paid for finance leases ( 21 ) ( 21 ) ( 16 ) Cash paid to repurchase shares of common stock — — ( 140,413 ) Proceeds from exercise of warrants 62 45 — Proceeds from issuance of common stock, net of issuance costs — 99,558 345,726 Proceeds from issuance of common stock in initial public offering, net of issuance costs 320,096 — — Employee taxes paid related to net share settlement of stock-based awards ( 81,625 ) — — Net cash provided by financing activities 242,728 101,300 211,262 Net increase in cash, cash equivalents, and restricted cash 352,741 59,003 174,292 Cash, cash equivalents, and restricted cash, beginning of period 386,916 327,913 153,621 Cash, cash equivalents, and restricted cash, end of period $ 739,657 $ 386,916 $ 327,913 93 Table of Contents Klaviyo, Inc. Consolidated Statements of Cash Flow (In Thousands) Supplemental disclosures of cash flow information: Cash paid for income taxes $ 283 $ 204 $ 70 Cash paid for interest $ — $ — $ 8 Cash paid for operating lease liabilities, net of tenant incentives received $ 15,197 $ 9,272 $ 10,824 Non-cash investing and financing activities Recognition of prepaid marketing asset $ 142,326 $ 106,455 $ — Vesting of restricted common stock $ 75 $ 101 $ 100 Accretion of common stock subject to redemption $ ( 399,685 ) $ 1,034,479 $ ( 1,542,527 ) Unpaid purchases of property and equipment $ 472 $ 44 $ 1,985 Reclassification of redeemable common stock to Series B common stock $ 1,931,538 $ — $ — Capitalization of stock-based compensation expense related to internal-use software $ 1,349 $ — $ 2 The accompanying notes are an integral part of these consolidated financial statements 94 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements 1. Organization and Business Description Klaviyo, Inc. (the “Company”) is a technology company that provides a software-as-a-service (“SaaS”) platform to enable its customers to send the right messages at the right time across email, short message service (“SMS”) and push notifications, more accurately measure and predict performance, and deploy specific actions and campaigns. Our reviews add-on allows for the collection of product reviews within our platform and our Customer Data Platform (“CDP”) offering gives user-friendly ways to track, transform, and cleanse data as well as run more advanced reporting and predictive analysis to drive revenue growth. The platform combines proprietary data and application layers into one solution with machine learning and artificial intelligence capabilities. The Company focused on marketing automation within eCommerce as its first application use case. The Company generates revenue through the sale of subscriptions to its customers for the use of its platform. Subscription plans are tiered based on the number of consumer profiles stored on the Company’s platform and the number of emails and SMS messages sent. The Company is headquartered in Boston, Massachusetts and was incorporated in the state of Delaware on September 14, 2012. The Company has three wholly-owned subsidiaries located in the United Kingdom, Australia, and the United States. Initial Public Offering On September 22, 2023, the Company completed its initial public offering of 19,200,000 shares of our Series A common stock at a price to the public of $ 30.00 per share. The Company sold 11,507,693 of such shares and certain existing stockholders sold an aggregate of 7,692,307 of such shares. We received net proceeds from the IPO of approximately $ 320.1 million, after deducting approximately $ 17.7 million in underwriting discounts and commissions, and $ 7.4 million in offering-related expenses. In connection with the IPO, all shares of the Company’s redeemable common stock automatically converted into 64,046,223 shares of Series B common stock. In connection with and immediately subsequent to the IPO, 21,233,074 shares of Series B common stock were converted to shares of Series A common stock. On October 19, 2023, the underwriters for the IPO exercised their option to purchase additional shares granted in connection with the IPO, with respect to 2,764,066 shares of Series A common stock of a possible 2,880,000 shares. The Company received no proceeds from this transaction, as the option was an option to purchase additional shares of Series A common stock from certain existing stockholders. All restricted stock units (“RSUs”) granted to employees prior to the IPO vested upon the satisfaction of both a service condition and a liquidity event condition. These RSUs with both a service condition and liquidity event condition are collectively referred to as “Double-Trigger Awards” and are described in more detail within Note 12. Stock-Based Compensation. Upon the IPO, the vesting of certain warrants issued under the Shopify Collaboration Agreement accelerated. Specifically, the vesting associated with 3,935,793 of the outstanding warrants was accelerated resulting in an increase to Prepaid Marketing Expense of $ 92.6 million. See Note 2. Summary of Significant Accounting Policies for additional detail on the warrants issued in connection with the Shopify Collaboration Agreement. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is 95 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”). Emerging Growth Company Status The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. The Company expects to use the extended transition period for any other new or revised accounting standards during the period in which it remains an emerging growth company. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions are eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include, but are not limited to, the allowance for doubtful accounts, determination of revenue recognition under ASC 606, estimated benefit period of deferred contract acquisition costs, estimated life of prepaid marketing expense, and historical valuation of common stock and stock-based compensation, including fair value of the investment option and warrants. The Company evaluates estimates based on historical and anticipated results, trends, and various other assumptions. The Company assesses these estimates on a regular basis; however, actual results could differ from these estimates. Segment Information Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer. The Company has determined that it operates in one operating segment and one reportable segment as the CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. Revenue Recognition The Company provides a SaaS solution for personalized email and SMS marketing services through a cloud-based analytics platform. The core functionalities of the software are segmentation of users’ customer lists to facilitate targeted messaging via email and SMS and the use of data science and analytics to evaluate historical sales and predict consumer activity. Revenues are derived primarily from subscription revenues, which are comprised of subscription fees from customers accessing its hosted platform services for targeted messaging. 96 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements Contractual subscriptions for customers generally auto-renew on either a monthly, quarterly, or annual basis, and customers may elect not to renew by providing at least five days ’ advance notice for contracts on a monthly billing cycle and thirty days ’ advance notice for contracts with any other billing cycle. The customer does not have the right to take possession of the Company’s software. Subscription pricing is determined based on a customer’s profile and messaging count and monthly messaging quantities and is considered fixed, based on a tiered pricing structure. Variable consideration in the Company’s contracts is not material but represents the overage charges incurred by customers who exceed their allotments. The Company recognizes revenue under the core principle to depict the transfer of control to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core principle, the Company evaluates its revenue arrangements under the five-step model as follows: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when or as the Company satisfies a performance obligation. Typically, the SaaS subscription contracts consist of a single performance obligation, and revenue is recognized over time as the performance obligation is satisfied. The performance obligation is deemed to be satisfied ratably as the customer simultaneously receives and consumes the services that the Company performs and typically have the same term. Due to the term of a majority of the Company’s contracts being less than one year, the Company has determined a significant financing component does not exist. The Company accounts for individual performance obligations separately if they have been determined to be distinct (i.e., the services are separate if identifiable from other items in the arrangement and the customer can benefit from them on their own or with other resources that are readily available to the customer). The transaction price is allocated to the distinct performance obligations on a relative stand-alone selling price basis. Stand-alone selling prices are determined based on the prices at which the Company separately sells subscriptions. Sales taxes collected from customers and remitted to government authorities are excluded from revenue. The Company incurs fees based on transaction volume and dollars processed through its credit card processor which are classified as general and administrative expense. Through the Company’s credit card processor, all receivables related to credit cards are collected within three business days. Cost of Revenue Cost of revenue consists of costs related to supporting and hosting the Company’s software platform and channel offering for paying customers. These costs primarily include cloud-based infrastructure costs, outbound communication sending costs, employee-related costs including payroll, benefits, bonuses, and stock-based compensation expense related to the customer support team, amortization of capitalized internal-use software development costs, and allocated overhead costs, including rent, facilities, depreciation, and costs related to information technology. Deferred Revenue Deferred revenue primarily consists of billings in advance of revenue recognition from subscription services and is recognized as the revenue recognition criteria is met. The Company generally bills its subscription customers monthly on the first day of the subscription term. Deferred revenue that is expected to be recognized during the succeeding 12-month period is recorded as deferred revenue. 97 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements Deferred Contract Acquisition Costs Deferred contract acquisition costs are incremental costs incurred in connection with acquiring a customer contract and consists primarily of sales commissions and the associated payroll taxes. The Company expects to benefit from those costs for more than one year as the Company primarily pays sales commissions on the initial contract, and there are no commensurate commissions paid on contract renewals. Deferred contract acquisition costs are amortized on a basis consistent with the transfer of the services to which the asset relates. This results in capitalized costs being recognized on a ratable basis over the estimated period of future benefit ranging from 18 months to 60 months. The Company estimates the future period of benefit considering the size of the customer, the current contract term, the impact of estimated customer renewal terms, and the estimated life of the technology solution underlying the contracts. The Company periodically reviews the carrying amount of capitalized costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit. As of December 31, 2023 and 2022, deferred contract acquisition costs expected to be recognized within one year were $ 15.2 million and $ 11.2 million, respectively, and deferred contract acquisition costs expected to be recognized beyond one year were $ 23.2 million and $ 16.0 million, respectively. Shopify Collaboration Agreement On July 28, 2022, the Company entered into a collaboration agreement with Shopify Inc. and certain of its affiliates (collectively, “Shopify”) to form a strategic relationship for the purposes of creating greater interoperability between the Klaviyo and Shopify platforms and forming a strategic product, distribution, and marketing relationship. Shopify became a related party upon execution of this agreement. The collaboration agreement has a term of 7 years and automatically renews for successive one-year periods unless the Company or Shopify provides written notice of non-renewal. In connection with the collaboration agreement, the Company entered into 3 separate agreements including a revenue sharing agreement, common stock warrant agreement, and stock purchase agreement. Under the revenue sharing agreement, the Company will make payments to Shopify in exchange for marketing services received under the collaboration agreement, which are comprised of payments for the Shopify Core Revenue Share and payments for the Shopify Plus Integration Fee. These payments are calculated as follows: • Shopify Core Revenue Share: For all revenue generated through the use of the Company’s email and SMS marketing applications by Shopify merchants designated as “Shopify Core Merchants” in respect of leads attributed to Shopify, the Company is obligated to pay Shopify a percentage of such revenues or the amounts owed to Shopify under the terms of Shopify’s standard partnership agreements applicable to all Shopify partners, which is 15 % of any revenues exceeding a $ 1 million threshold. • Shopify Plus Integration Fee : On a monthly basis, the Company is required to pay Shopify a fee (“Shopify Plus Integration Fee” or “Integration Fee”), subject to an annual increase at Shopify’s election (up to a maximum increase of not more than a percentage calculated through a formula provided in the revenue sharing agreement), with respect to each Shopify Plus Merchant where all of the following circumstances apply: (a) the Shopify Plus Merchant was on Shopify’s Plus program at the end of the relevant month; (b) one or more of the Shopify Plus Merchant’s covered stores has the Company’s application installed at both the beginning and at the end of the relevant month; and (c) the Company’s application received a webhook request and/or made any Application Programming Interface calls against one or more of the Shopify Plus Merchant’s covered stores in the relevant month (i.e., the Company’s application is integrated with the Shopify platform and data is flowing between them). The Company determined that Shopify is a vendor and not a customer, as the collaboration agreement is a services contract under which the Company is receiving marketing services from Shopify in exchange for payments under the 98 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements revenue sharing agreement. The revenue sharing agreement is a mechanism for Shopify to be compensated for the customer acquisition and marketing services Shopify is providing to the Company. Shopify is not a reseller or distributor of the Company’s Platform, nor does Shopify provide any services on the Company’s behalf. During the year ended December 31, 2023, the Company incur red $ 21.9 million related to fees paid under the revenue sharing agreement. During the year ended December 31, 2022, the Company incurred an aggregate of $ 16.2 million fees paid to Shopify pursuant to revenue sharing arrangements, inclusive of $ 7.7 million paid to Shopify pursuant to the terms of the Shopify revenue sharing agreement and $ 8.5 million paid to Shopify pursuant to the terms of our prior agreement with Shopify that was in place prior to, and replaced by, the Shopify revenue sharing agreement. As of December 31, 2023 and 2022 , the Company had $ 4.5 million and $ 2.7 million, respectively, in accrued expenses owed to Shopify for fees payable under the revenue sharing agreement. As consideration for the collaboration agreement, the Company also issued warrants that allow Shopify to purchase up to 15,743,174 shares of common stock at a price of $ 0.01 per share, of whic h 25 % of the warrants vested on the grant date on July 28, 2022, and the remaining 75 % of the warrants vest quarterly over the remaining 5 year period. The aggregate grant date fair value of the warrants was $ 370.3 million and will be capitalized to prepaid marketing expense as the warrants vest. The prepaid marketing ex pense asset is amortized into selling and marketing expense on a straight-line basis over the expected benefit period, which is the 7 year term of the collaboration agreement . Pursuant to the common stock warrant agreement, upon the Company’s IPO, 25 % of the total number of warrants were accelerated, and the remaining unvested portion vests quarterly over the remaining term. During the years ended December 31, 2023 and 2022, the Company capitalized prepaid marketing expense of $ 142.3 million and $ 106.5 million related to the vested warrants, respectively. For the years ended December 31, 2023 and 2022 , the Company recorded marketing expense o f $ 52.9 million and $ 22.0 million, respectively, in the Consolidated Statements of Operations and Comprehensive Loss as a component of selling and marketing expense related to the amortization of the prepaid marketing expense. As of December 31, 2023 and 2022, the Company’s prepaid marketing expense is $ 173.8 million and $ 84.4 million, respectively. As of December 31, 2023 , there is $ 295.4 million of unrecognized marketing expense related to the warrants that will be recognized over 5.6 years. Refer to Note 11. Redeemable Common Stock, Common Stock, and Stockholders' Equity (Deficit) for further discussion of the warrants. On June 24, 2022, the Company entered into a stock purchase agreement with Shopify. On the closing date of July 28, 2022, Shopify purchased 2,951,846 shares of common stock for $ 33.88 per share. The stock purchase agreement gives Shopify the right to purchase 15,743,174 additional shares of common stock for $ 88.93 per share (the “Investment Option”). The common stock and Investment Option were determined to be freestanding financial instruments purchased at fair value and were accounted for separately from the collaboration agreement, revenue sharing agreement, and common stock warrant. Refer to Note 11. Redeemable Common Stock, Common Stock, and Stockholders' Equity (Deficit) for further discussion of the common stock purchase and Investment Option. Research and Development Costs Research and development costs are expensed as incurred, unless they qualify as capitalized internal-use software development costs. Research and development costs consist primarily of personnel-related expenses associated with the Company’s research and development staff, including salaries, benefits, bonuses, and stock-based compensation. Advertising Costs Advertising costs are expensed as incurred. During the years ended December 31, 2023, 2022 and 2021, the Company incurred advertising expenses, which are included within selling and marketing expenses on the Consolidated Statements of Operations and Comprehensive Loss, in the amount of $ 41.6 million, $ 40.3 million, and $ 41.9 million, respectively. 99 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements Stock-Based Compensation The Company recognizes stock-based compensation on awards granted under two stock compensation plans, which are described in more detail in Note 12. Stock-Based Compensation . The Company measures stock-based compensation awards, including stock options and RSUs, based on the estimated fair value of the awards on the date of grant. Stock-based compensation expense is recorded for awards issued to employees and non-employees at fair value with a corresponding increase in additional paid-in capital. For awards with service conditions only, the Company recognizes compensation expense on a straight-line basis over the requisite service period of the award. Forfeitures are recognized when they occur. RSUs granted under the Company’s 2015 Stock Incentive Plan are subject to both service-based and performance-based vesting conditions, whereby the performance condition is satisfied upon occurrence of a liquidity event. Compensation cost related to awards with liquidity-based vesting conditions has been recognized through December 31, 2023, as the Company’s registration statement on Form S-1 filed with the SEC in connection with the IPO became effective on September 19, 2023, which satisfied the liquidity-based vesting condition of the Double-Trigger RSUs. Compensation expense for these awards with both a service and performance condition are expensed under the accelerated attribution method which includes a cumulative catch up recorded upon the IPO for services that had been completed as of the IPO. The remaining expense for these awards is recognized using the accelerated attribution method over the remaining service period. The fair value of each RSU grant is calculated based on the estimated fair value of the Company’s common stock on the date of grant, or, if modified, the date of modification. RSUs granted under the Company’s 2023 Stock Option and Incentive Plan are for shares of Series A common stock and are currently subject to service-based vesting conditions only. Compensation costs related to these awards are recognized using the straight-line method over the service period of the award. The fair value of each RSU grant is calculated based on the fair value of the Company’s Series A common stock on the date of grant, or, if modified, the date of modification. Until our IPO, given the absence of an active market for the Company’s common stock, management and the Company’s Board of Directors (the “Board”) were required to estimate the fair value of the Company’s common stock at the time of each grant of a stock-based compensation award. The Company and the Board utilized various valuation methodologies in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately Held Company Equity Securities Issued as Compensation to estimate the fair value of its common stock. Each valuation methodology includes estimates and assumptions that require the Company’s judgment. These estimates and assumptions include a number of objective and subjective factors in determining the value of the Company’s common stock at each grant date, including the following factors: • prices paid for the Company’s capital stock, which the Company has sold to outside investors in arm’s-length transactions, considering the rights and privileges of the securities sold relative to the common stock; • prices paid for shares of its common stock sold in secondary market transactions; • valuations performed by an independent valuation specialist; • the Company’s stage of development and revenue growth; • the market performance of comparable publicly traded companies; • adjustments necessary to recognize a lack of marketability for the common stock underlying the granted options and RSUs; 100 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements • the likelihood of achieving a liquidity event for the common stock underlying the stock-based awards, such as an IPO or sale of the Company, given prevailing market conditions; and • the U.S. and global economic and capital market conditions and outlook. Following the Company’s IPO, there is an active market for its Series A common stock which is utilized to measure the fair value of the Company’s underlying shares. Redeemable Common Stock Redeemable common stock represents shares of the Company’s common stock that are redeemable at the option of the investor after a specified date. The initial carrying amount of redeemable common stock is equal to the respective issuance date fair value of the common stock subject to redemption, less issuance costs. The carrying amount is adjusted to equal the redemption value, which is equal to the fair value of a single share of common stock at the end of each reporting period. The carrying amount is subject to a floor equal to the initial carrying amount. The resulting changes in the redemption value are recorded with corresponding adjustments against retained earnings, if available, additional paid-in capital or accumulated deficit. Redeemable common stock is classified outside of permanent equity on the Consolidated Balance Sheets as the redemption option is outside of the Company’s control. As the redemption feature applicable to certain shares of the Company’s common stock was terminated upon the IPO, all shares of the Company’s redeemable common stock converted into 64,046,223 shares of Series B common stock upon the effectiveness of the Company’s registration statement on Form S-1 filed with the SEC on September 19, 2023. Refer to Note 11. Redeemable Common Stock, Common Stock, and Stockholders' Equity (Deficit) for further discussion. Non-Vested Restricted Common Stock The Company may grant non-vested restricted common stock to employees, directors, and consultants with or without cash consideration. These grants contain certain restrictions on the sale of the shares. Non-vested restricted common stock are considered issued, but not outstanding, for accounting purposes until they vest. Upon termination of the relationship with a holder of the non-vested restricted common stock, the Company has the right to repurchase the non-vested restricted common stock at the price paid by the holder or, if there was no consideration, a price per share as defined in the Company’s agreement with the holder of the restricted common stock. All restricted common stock was vested as of December 31, 2023. Income Taxes The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”), which utilizes the asset and liability method for the financial accounting and reporting of income taxes. Under this method, deferred income taxes are recognized for the expected future tax consequences of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. The amount of any future tax benefit associated with deferred tax assets is reduced by a valuation allowance when there is uncertainty that those tax benefits will be realized. The Company accounts for uncertain tax positions using a more-likely-than-not recognition threshold in accordance with ASC 740. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity, and changes in facts or circumstances related to a tax position. Interest and penalties related to uncertain tax positions are included as a component of income tax expense. As of December 31, 2023 and 2022, the Company has no recorded liabilities for uncertain tax positions and has no accrued interest or penalties related to uncertain tax positions. 101 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements Accounts Receivable Accounts receivable are shown net of an allowance for doubtful accounts of $ 1.5 million and $ 2.3 million as of December 31, 2023 and 2022, respectively. The allowance for doubtful accounts is established to represent the Company’s best estimate of the net realizable value of the outstanding amount of receivables that it will be unable to collect. The development of the Company’s allowance for doubtful accounts is based on a review of factors such as the customer’s payment history, historical loss patterns, the general economic climate, age, and past due status of invoices. If circumstances relating to specific customers change or unanticipated changes occur in the general business environment, the Company’s estimates of the recoverability of receivables could be further adjusted. The allowance for doubtful accounts consists of the following activity (in thousands): Year Ended December 31, 2023 2022 2021 Balance at beginning of the period $ 2,253 $ 1,917 $ 125 Provisions for uncollectible accounts, net of recoveries 28 1,224 1,792 Write offs ( 802 ) ( 888 ) — Balance at end of the period $ 1,479 $ 2,253 $ 1,917 Accounts receivable is shown inclusive of unbilled accounts receivable of $ 1.8 million and $ 0.5 million as of December 31, 2023 and 2022, respectively. The unbilled accounts receivable is made up entirely of overages incurred by customers who have exceeded their subscription allotment as of period end but are not yet due for their period end billing. Cash, Cash Equivalents, and Restricted Cash The Company considers all highly liquid investments with a remaining maturity of three months or less when purchased to be cash equivalents. As of December 31, 2023, the Company had cash equivalents of $ 314.5 million in money market funds. As of December 31, 2022, the Company did not have cash equivalents. As of December 31, 2023 and 2022, the Company had a current restricted cash balance of $ 0.4 million and $ 0.4 million, respectively. As of December 31, 2023 and 2022, the Company had a non-current restricted cash balance of $ 0.7 million and $ 0.7 million, respectively. Restricted cash at December 31, 2023 and 2022 related to the Company’s required collateral to fund payroll and credit card obligations in its Australian entity as well as collateral required to be held as a result of the Company’s office lease in Australia. Restricted cash is included in current assets for obligations that expire within one year and is included in non-current assets for assets that expire more than one year from the balance sheet date. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the Consolidated Balance Sheets to the total of the amounts reported in the Consolidated Statements of Cash Flow (in thousands): As of, December 31, 2023 December 31, 2022 Cash and cash equivalents $ 738,562 $ 385,820 Restricted cash - current 409 409 Restricted cash - non-current 686 687 Total cash, cash equivalents, and restricted cash $ 739,657 $ 386,916 102 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements Concentrations of Credit Risk, Significant Customers, and Vendors Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash, restricted cash, and accounts receivable. The Company maintains its cash and restricted cash at accredited financial institutions. Bank accounts in the United States are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of December 31, 2023 and 2022, the Company’s primary operating accounts significantly exceeded federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. Credit risk with respect to accounts receivable is dispersed due to the Company’s large number of customers. The Company routinely assesses the creditworthiness of its customers. The Company does not require collateral. The Company maintains an allowance for potentially uncollectible accounts receivable. Accounts receivable is stated at the amount management expects to collect from outstanding balances. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in the Company’s accounts receivable. Significant concentrations of credit risk constitute customers that represent 10% or more of accounts receivable. As of December 31, 2023 and 2022, no individual customer accounted for more than 10% of accounts receivable. Additionally, there were no customers that represented 10% or more of the Company’s revenue for the fiscal years ended December 31, 2023, 2022, and 2021. The Company had certain vendors who individually represented 10% or more of the Company’s total vendor expenditures. For the year ended December 31, 2023, three vendors represented 19 %, 14 %, and 12 % of total vendor expenditures, respectively. For the year ended December 31, 2022, two vendors represented 19 % and 13 % of total vendor expenditures, respectively. For the year ended December 31, 2021, one vendor represented 25 % of total vendor expenditures, and no other vendors represented 10% or more of total expenditures for the year. Property and Equipment Property and equipment are recorded at cost and depreciated over the estimated useful lives of the related assets using the straight-line method. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation, are removed from the accounts, and any resulting gain or loss is included in the determination of net income or loss in the period of retirement. Expenditures for maintenance and repairs are charged to expense as incurred, whereas major improvements are capitalized as additions to property and equipment. The estimated useful lives of the Company’s property and equipment are as follows: Office equipment 5 years Computer equipment 3 years Furniture and fixtures 5 years Leasehold improvements Lesser of lease term or useful life Asset retirement cost Lesser of lease term or 5 years Asset Retirement Obligations (“ARO”) As part of the build out of the Company’s headquarters in Boston, Massachusetts, the Company built an internal staircase connecting multiple floors. This staircase required the removal of ground space to connect the floors. The lease agreement requires the Company to incur the costs required to restore the leased space to its original condition. During fiscal year 2020, on the lease commencement date, the Company established an ARO based on the present value of 103 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements contractually required estimated future costs to retire long-lived assets at the termination or expiration of a lease and to return the space to its original condition. The asset associated with the ARO is amortized over the lease term or 5 years to operating expense, and the ARO is accreted to the end of lease obligation value over the same term. The ARO established by the Company is described in more detail in Note 5. Property and Equipment, Net. Capitalized Internal-Use Software The Company capitalizes qualifying costs incurred during the application development stage in connection with the development of internal-use software, which are included on the Consolidated Balance Sheets as a component of property and equipment, net. Costs related to preliminary project activities and post-implementation stages of software development are expensed as incurred. Costs capitalized as internal-use software development costs include eligible salaries, stock-based compensation, and other compensation-related costs of employees and costs incurred in developing new features and enhancements when the costs will result in additional functionality. Capitalized internal-use software development costs are amortized on a straight-line basis over their estimated useful life of 3 years. Computer software development costs that do not qualify for capitalization are expensed as incurred. Capitalization begins when the preliminary project stage is complete, management authorizes and commits to the funding of the software project with appropriate authority, it is probable the project will be completed, the software will be used to perform the functions intended, and certain functional and quality standards have been met. Leases The Company determines whether an arrangement contains a lease at inception. At the commencement date, the Company will perform the classification tests to determine whether its leases are operating or financing and recognize the related lease liability and right-of-use (“ROU”) asset. The Company, as the lessee, recognizes in the Consolidated Balance Sheets a liability to make lease payments and an ROU asset representing the right to use the underlying asset for both finance and operating leases with a lease term longer than twelve months. Lease liabilities and their corresponding ROU assets are recognized based on the present value of unpaid lease payments over the expected lease term. The Company has elected the following practical expedients: (1) not to separate lease and non- lease components for all asset classes and (2) not to recognize leases with a term of 12 months or less on the Consolidated Balance Sheets for all asset classes. The Company leases office space and office equipment under non-cancelable operating leases ranging from 1 to 8 years. Certain leases include options to extend the leases for up to 5 years. These options will be included in the lease term when they are reasonably certain to be exercised. The Company’s leases generally do not include options to terminate the leases or to purchase the underlying asset. The Company’s leases are primarily fixed payments. Certain of the Company’s leases include variable lease payments, generally related to the lessor’s operating costs associated with the underlying asset, which are expensed as incurred. The Company’s leases generally do not contain residual value guarantees. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate (“IBR”) to calculate the present value of future minimum lease payments, which is the estimated rate the Company would be required to pay for fully collateralized borrowing over the period similar to lease terms. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. 104 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements Foreign Currency Translation The functional currency of the Company’s foreign subsidiaries is the U.S. dollar (“USD”). In certain instances, the Company enters into transactions that are denominated in a currency other than the USD. At the date that such transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction is measured and recorded in USD using the exchange rate in effect at that date. At each balance sheet date, recorded monetary balances denominated in a currency other than the USD are adjusted to USD using the exchange rate at the balance sheet date, with gains or losses recognized in other, net in the consolidated statements of operations. Foreign currency translation gains and losses were immaterial for the periods presented. Fair Value Measurements Certain assets and liabilities are carried at fair value in accordance with Accounting Standards Codification ASC 820, Fair Value Measurement (“ASC 820”). Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows: • Level 1 – Quoted prices in active markets for identical assets or liabilities • Level 2 – Observable inputs (other than level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. • Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. As of December 31, 2023 and 2022, the Company’s carrying amounts of financial instruments, including cash, restricted cash, accounts receivable, accounts payable, and accrued liabilities approximate their fair values due to their short-term maturities. Certain non-financial assets, such as intangible assets, right of use assets, and property and equipment, are measured at fair value on a non-recurring basis and are adjusted to fair value only if an impairment charge is recognized. Such fair value measures are considered to be within the Level 3 valuation hierarchy due to the subjective nature of the unobservable inputs used. The Company has not recorded any impairment charges during any of the periods presented. Loss Per Share In accordance with FASB ASC 260, Earnings Per Share , the basic net loss per share attributable to Series A and Series B common stockholders is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the applicable period. 105 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements Diluted net loss per share attributable to Series A and Series B common stockholders is computed in the same manner as basic net income loss per share as the inclusion of all potentially dilutive securities outstanding would be antidilutive. See Note 13. Loss Per Share for further information. Impairment of Long-Lived Assets The Company periodically evaluates all long-lived assets or asset groups for impairment. Long-lived assets are evaluated for impairment whenever events or changes in circumstances indicate the carrying value of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of an asset or asset group exceeds its estimated undiscounted future net cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset. There was no impairment identified during the years ended December 31, 2023, 2022, and 2021. Recent Accounting Pronouncements The Company has implemented all applicable accounting pronouncements that are in effect. In November 2023, the FASB issued Accounting Standards Update ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which requires disclosure of incremental segment information on an interim and annual basis. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal periods beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact of the guidance on the consolidated financial statements and disclosures. There are no other new accounting pronouncements that have been issued that would have a material impact on its financial position or results of operations. 3. Revenue Recognition Disaggregation of Revenue Revenue by geographic area, based on the location of the Company’s customers, was as follows (in thousands): Year Ended December 31, 2023 2022 2021 Americas: United States $ 443,471 $ 307,222 $ 197,263 Other Americas (1) 38,180 26,790 15,758 APAC (1)(2) 72,797 47,905 27,574 EMEA (1)(3) 143,651 90,831 50,045 Total Revenue $ 698,099 $ 472,748 $ 290,640 (1) Other than the United States, no other individual country accounted for 10% or more of total revenue for any of the periods presented. (2) Asia-Pacific (3) Europe, the Middle East and Africa Deferred Revenue The change in deferred revenue reflects billings during the period for which the performance obligation was not satisfied prior to the end of the period, partially offset by revenues recognized during the period. The following table summarizes the changes in the balance of deferred revenue during the periods presented (in thousands): 106 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements Year Ended December 31, 2023 2022 Balance at beginning of the period $ 25,109 $ 15,092 Plus: Billings during the period 713,090 482,765 Less: Revenue recognized during the period ( 698,099 ) ( 472,748 ) Balance at end of the period $ 40,100 $ 25,109 For the years ended December 31, 2023 and 2022, revenue recognized from amounts included in deferred revenue at the beginning of the period was $ 25.1 million and $ 15.1 million, respectively. Remaining Performance Obligations Remaining performance obligations represents the amount of contracted future revenue that has not yet been recognized, including deferred revenue. As of December 31, 2023, the Company’s remaining performance obligations are $ 83.3 million, of which $ 79.4 million is expected to be recognized within the next twelve months and $ 3.9 million is expected to be recognized during a period greater than twelve months. 4. Fair Value Measurements The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis at the periods indicated below, by level within the fair value hierarchy (in thousands): As of December 31, 2023 Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ 314,511 $ — $ — $ 314,511 Total $ 314,511 $ — $ — $ 314,511 As of December 31, 2023, certain of the Company’s cash equivalents were held in money market funds. The Company’s investments in money market funds are classified within Level 1 of the fair value hierarchy as they are valued using quoted market prices in active markets. As of December 31, 2022, the Company did not have assets or liabilities carried at fair value. 107 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements 5. Property and Equipment, Net Property and equipment consist of the following (in thousands): As of, December 31, 2023 December 31, 2022 Capitalized internal-use software $ 11,682 $ 4,460 Office equipment 3,633 3,203 Computer equipment 2,939 639 Furniture and fixtures 7,242 6,683 Leasehold improvements 45,768 45,228 Construction-in-progress 78 82 Asset retirement cost 643 643 Total property and equipment 71,985 60,938 Less accumulated depreciation and amortization ( 28,535 ) ( 15,101 ) Total property and equipment, net $ 43,450 $ 45,837 In the years ended December 31, 2023, 2022 , and 2021 , d epreciation and amortization expense related to property and equipment was approximately $ 13.7 million, $ 8.9 million, and $ 5.3 million, respectively. During the years ended December 31, 2023 and 2022, the Company capitalized $ 7.0 million and $ 2.4 million of internal-use software development costs, respectively. Of the $ 7.0 million internal-use software development costs capitalized during the year ended December 31, 2023, $ 1.3 million is attributable to stock-based compensation expense. During the year ended December 31, 2022, the Company did not capitalize any stock-based compensation expense related to services performed on capitalized software development projects. The Company recorded amortization expense associated with its capitalized internal-use software development costs of $ 1.8 million, $ 0.7 million, and $ 0.4 million for the years ended December 31, 2023, 2022, and 2021. Amortization expense is included in cost of revenue in the Consolidated Statements of Operations and Comprehensive Loss. The asset retirement obligation is included in other non-current liabilities on the Consolidated Balance Sheets. Asset retirement obligation activity is as follows (in thousands): Year Ended December 31, 2023 2022 Beginning balance $ 722 $ 685 Additions — — Accretion 39 37 Ending balance $ 761 $ 722 108 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements 6. Accrued Expenses The following table presents components of accrued expenses (in thousands): As of, December 31, 2023 December 31, 2022 Accrued compensation and employee related costs $ 25,644 $ 16,926 Accrued sabbatical 3,394 — Accrued value added tax 7,530 4,937 Other accrued taxes 6,830 1,754 Accrued cost of revenue 6,656 7,923 Accrued professional services 3,605 2,297 Accrued marketing 6,374 980 Other accrued expenses 2,805 1,309 Total accrued expenses $ 62,838 $ 36,126 7. Commitments and Contingencies Contractual Obligations and Commitments The Company has material long-term non-cancellable contractual obligations outstanding with marketing vendors and various service providers. Future minimum payments under the Company’s non-cancellable purchase commitments as of December 31, 2023, are presented in the table below (in thousands): Year Ending December 31, Contractual Commitments 2024 $ 117,668 2025 116,965 2026 70,761 2027 40,833 2028 — Total Contractual Commitments: $ 346,227 Legal Matters From time to time, the Company may become involved in legal proceedings or be subject to claims arising in the course of its business, including but not limited to claims brought by its customers in connection with commercial disputes and litigation arising from employee and ex-employee related matters. The Company is not presently subject to any pending or threatened litigation, individually or taken together, for which it is reasonably possible to have a material effect on its consolidated financial position or results of operations. Guarantees and Indemnification Obligations In the ordinary course of business, the Company enters into agreements with its customers that include commercial provisions with respect to licensing, infringement, indemnification, and other common provisions. The Company does not, in the ordinary course of business, agree to indemnification obligations for the Company under its contracts with customers except for intellectual property infringement claims related to the Company’s services. Based on historical experience and information known at December 31, 2023 and 2022, the Company has not incurred any costs for guarantees or indemnities. 109 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements 8. Leases The components of lease expense are as follows (in thousands): Year Ended December 31, 2023 2022 2021 Operating lease cost $ 12,618 $ 12,091 $ 10,517 Short-term lease cost 630 121 — Financing lease cost 21 21 16 Total lease cost $ 13,269 $ 12,233 $ 10,533 Supplemental balance sheet information related to the Company’s operating leases is as follows (in thousands): As of, December 31, 2023 December 31, 2022 Operating lease ROU assets $ 36,987 $ 45,695 Operating lease liabilities, current 14,081 14,864 Operating lease liabilities, non-current 37,498 47,544 Total lease liabilities $ 51,579 $ 62,408 Supplemental cash flow information and non-cash activity related to the Company’s leases are as follows (in thousands): Year Ended December 31, 2023 2022 2021 Cash paid for operating lease liabilities, net of tenant incentives received $ 15,197 $ 9,272 $ 10,824 ROU assets recognized for new leases and amendments (non-cash) $ 1,299 $ 3,452 $ 6,132 Other information related to leases is as follows: As of, December 31, 2023 December 31, 2022 Weighted average remaining lease term 4.1 years 5.0 years Weighted average discount rate 4.97 % 4.96 % 110 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements Future undiscounted annual cash flows for the Company’s operating leases as of December 31, 2023 are as follows (in thousands): Year Ending December 31, Operating Leases 2024 $ 14,383 2025 13,237 2026 13,429 2027 12,692 2028 3,205 Thereafter — Total future undiscounted lease payments 56,946 Less imputed interest ( 5,367 ) Total lease liabilities $ 51,579 The table above does not include options to extend lease terms that are not reasonably certain of being exercised or leases signed but not yet commenced as of December 31, 2023. 9. Income Taxes The domestic and foreign components of loss before income taxes are as follows (in thousands): Year Ended December 31, 2023 2022 2021 United States $ ( 312,759 ) $ ( 51,729 ) $ ( 80,260 ) Foreign 5,718 2,619 1,186 Loss before income taxes $ ( 307,041 ) $ ( 49,110 ) $ ( 79,074 ) The provision (benefit) for income taxes contained the following components (in thousands): Year Ended December 31, 2023 2022 2021 Current: Federal $ — $ — $ — State ( 26 ) 99 45 Foreign 4,652 56 179 4,626 155 224 Deferred: Federal — ( 95 ) — State — ( 16 ) — Foreign ( 3,434 ) 39 95 ( 3,434 ) ( 72 ) 95 Provision for income taxes $ 1,192 $ 83 $ 319 111 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements The Company’s effective tax rates for the years ended December 31, 2023, 2022, and 2021 are less than the U.S. federal statutory income tax rate of 21.0% primarily due to the valuation allowance on the U.S. federal and state deferred tax assets and excess tax deductions related to stock-based compensation awards. Year Ended December 31, 2023 2022 2021 U.S. federal taxes at statutory rate 21.0 % 21.0 % 21.0 % State taxes, net of federal benefit 4.3 4.4 4.8 Federal research and development credits 3.8 10.3 7.9 State research and development credits 0.9 7.8 3.2 Permanent items ( 0.4 ) ( 1.0 ) ( 0.2 ) Stock-based compensation 1.6 5.6 5.0 Foreign rate differential — — — Non-deductible officers compensation ( 2.3 ) — — Prepaid marketing expense 3.6 — — Other — ( 0.8 ) 0.1 Change in valuation allowance ( 32.9 ) ( 47.5 ) ( 42.2 ) Total ( 0.4 ) % ( 0.2 ) % ( 0.4 ) % Deferred income taxes reflect the impact of carryforwards and temporary differences between the amounts of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws. The carryforwards and temporary differences that give rise to a significant portion of the Company’s deferred tax assets and liabilities as of December 31, 2023 and 2022, are as follows (in thousands): Year Ended December 31, 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 88,200 $ 49,093 Research and development credits 36,217 21,829 Stock-based compensation 32,204 1,218 Lease liability 12,933 17,225 Capitalized research and development 63,701 21,728 Other 5,553 2,864 Total deferred tax assets 238,808 113,957 Deferred tax liabilities: Depreciation ( 3,543 ) ( 5,481 ) Deferred commissions ( 7,657 ) ( 5,451 ) Amortization ( 2,049 ) ( 85 ) ROU asset ( 9,303 ) ( 13,202 ) Prepaid marketing expense ( 43,084 ) ( 20,666 ) Total deferred tax liabilities ( 65,636 ) ( 44,885 ) Valuation allowance ( 170,076 ) ( 69,205 ) Net deferred tax assets (liabilities) $ 3,096 $ ( 133 ) As of December 31, 2023 and 2022, the Company has federal net operating loss (“NOL”) carryforwards of $ 349.2 million and $ 199.2 million, respectively, which can be carried forward indefinitely, and state net operating loss carryforwards of $ 245.1 million and $ 118.6 million, respectively, which expire at various dates beginning in 2027. As of December 31, 2023 and 2022, the Company has federal credit carryforwards of $ 25.1 million and $ 13.6 million, 112 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements respectively, and state credit carryforwards of $ 14.0 million and $ 10.4 million, respectively, which are available to reduce future tax liabilities. If not utilized, the federal research and development credit will begin to expire in 2037 and the state research and development credit will begin to expire in 2025. The Company is not subject to an annual limitation of its NOL and research and development credit attributes as of December 31, 2023, but subsequent ownership changes may affect the limitation in future years. The net changes in the total valuation allowance for the year ended December 31, 2023, was an increase of $ 100.9 million, primarily as a result of the generation of additional net operating losses and federal research and development credits. The net changes in the total valuation allowance for the year ended December 31, 2022 was an increase of $ 23.3 million, primarily as a result of the generation of additional net operating losses and federal research and development credits. The Company has not recognized any liabilities for uncertain tax positions or unrecognized benefits as of December 31, 2023 and 2022. The Company does not expect any material change in uncertain tax benefits within the next 12 months. As of December 31, 2023 and 2022, the Company had an immaterial amount of earnings from its wholly-owned non-U.S. subsidiaries indefinitely reinvested outside the U.S. The Company does not intend to repatriate these earnings or realize the outside basis differences in its foreign subsidiaries, and accordingly, the Company has not provided any taxes for those amounts, given the indefinite reinvestment and it is not practicable to estimate the amount of deferred tax liability that would be incurred. 10. Employee Benefit Plans The Company maintains a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. The plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pretax basis, subject to legal limitations. Employees can designate the investment of their 401(k) accounts into several mutual funds. The Company does not allow investment in its common stock through the 401(k) plan. During the years ended December 31, 2023, 2022, and 2021 , the Company made contributions to the plan of $ 7.4 million, $ 6.6 million, and $ 3.8 million respectively. The Company contributes to defined contribution savings plans for its employees in the United Kingdom and Australia who satisfy certain eligibility requirements. The plans allow each participant from the United Kingdom and Australia to defer a percentage of their compensation and the Company contributes an additional 5 % and 11 % of all wages for those employees in the scheme on a monthly basis, respectively. The Company made contributions to the plans of $ 1.8 million, $ 0.8 million, and $ 0.3 million for the years ended December 31, 2023, 2022, and 2021 respectively. 11. Redeemable Common Stock, Common Stock, and Stockholders’ Equity (Deficit) Redeemable Common Stock The Company issued 64,046,223 shares of common stock at various dates in 2019, 2020, and 2021 to select investors that were subject to redemption at fair value of common stock at the investor’s option after November 6, 2029. In accordance with the SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within control of the Company require classification of the associated instrument outside of permanent equity. 113 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements During the year ended December 31, 2021, the Company entered into the 2021 Stock Purchase agreement. The Company issued and sold 10,365,017 shares of common stock to investors at a price of $ 33.38 per share, for an aggregate purchase price and gross proceeds of $ 346.0 million. At the time of the sale, 3,025,625 of the total shares issued allowed investors to acquire additional substantive rights including financial information rights, restrictive covenants, secondary refusal rights, right of co-sale, and right of redemption after November 6, 2029, at fair value. These shares were classified outside of permanent equity. The remaining 7,339,392 shares were classified in permanent equity as they did not contain the right of redemption after November 6, 2029. As of December 31, 2022 and 2021, the Company determined that the redeemable shares were probable of becoming redeemable. In accordance with ASC 480-10-S99, the Company elected to recognize changes in redemption value immediately as they occur. The per-share redemption value is equal to the fair market value of a single share of the Company’s common stock subject to a floor of the initial carrying value. Immediately prior to the IPO, the redeemable common stock was accreted to the IPO issuance price of $ 30.00 per share. Upon the IPO, the redemption right of these shares was terminated and all shares of the Company’s redeemable common stock automatically converted into 64,046,223 shares of Series B common stock. This transaction resulted in a reclassification of $ 1,931.5 million in redeemable common stock to stockholder’s equity including an increase to additional paid-in capital of $ 136.9 million and Accumulated Deficit of $ 1,794.6 million to reverse accretion recorded to these accounts. Common Stock Immediately following the effectiveness of the registration statement relating to our IPO, we filed our Amended and Restated Certificate of Incorporation, which authorized a total of 3,000,000,000 shares of Series A common stock, 350,000,000 shares of Series B common stock, and 100,000,000 shares of undesignated preferred stock. All shares of common stock then outstanding were reclassified as Series B common stock. The rights of the holders of Series A common stock and Series B common stock are identical, except with respect to voting and conversion. Each share of Series A common stock is entitled to one vote per share and is not convertible into any other shares of the Company’s capital stock. Each share of Series B common stock is entitled to ten votes per share and is convertible into one share of Series A common stock at any time. Shares of the Company’s Series B common stock will also automatically convert into shares of Series A common stock upon certain transfers and other events. Upon the seventh anniversary of our IPO, all outstanding shares of Series A common stock and Series B common stock will convert automatically into shares of a single series of common stock. Preferred Stock The Company has authorized 100,000,000 shares of preferred stock with a par value of $ 0.001 per share. As of December 31, 2023, there were no shares of preferred stock issued or outstanding. Common Stock Warrants On July 28, 2022, the Company granted warrants to purchase up to 15,743,174 shares of common stock in connection with the collaboration agreement and strategic partnership with Shopify as compensation for marketing services. 25 % of the shares subject to the warrants vested on the grant date, and the remaining 75 % of the shares subject to the warrants vest quarterly in equal amounts until July 28, 2027. On September 22, 2023, upon the Company’s IPO, the vesting of 25 % of the total number of warrants was accelerated, and the remaining unvested portion vests quarterly over the remaining term. Vesting will cease, and any unvested portion of the warrants will be cancelled, in the event of a material breach or early termination of the collaboration agreement by Shopify. The exercise price is $ 0.01 per share, and the term of the warrants is 10 years. These common stock warrants are included as a component of additional paid-in capital within the Consolidated Balance Sheets upon vesting. The Company valued the warrants at the grant date using the Black-Scholes 114 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements option pricing model with the following assumptions: fair value of common stock, a dividend yield of zero , contractual terms of 10 years, volatility of 55.00 %, and a risk-free rate of 2.85 %. The following table summarizes the warrants activity during the year ended December 31, 2023: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Life (years) Warrants outstanding at December 31, 2022 11,217,017 $ 0.01 9.57 Granted — — — Exercised ( 6,051,285 ) 0.01 8.95 Cancelled — — — Warrants outstanding at December 31, 2023 5,165,732 $ 0.01 8.58 During the years ended December 31, 2023 and 2022, 6,051,285 and 4,526,161 warrants vested, respectively. The Company has no vested but not exercised warrants outstanding as of December 31, 2023. Restricted Stock In 2019, the Company permitted the purchase of 142,908 shares of restricted stock prior to vesting by an employee of the Company. These shares are restricted and subject to repurchase by the Company until the conditions for vesting are met. Upon termination of employment of the restricted stockholder, the Company has the right to repurchase, at the original purchase price, any unvested restricted shares. Accordingly, the Company has recorded the proceeds from the issuance of restricted stock as a liability on the Consolidated Balance Sheets as a component of other current liabilities, given the implicit repurchase feature. As of December 31, 2022, the Company has recognized a restricted stock liability of approximately $ 0.1 million as a component of accrued expenses. The Company reclassified an immaterial amount of restricted stock liability to stockholders’ deficit upon vesting of restricted shares during the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, all restricted stock has been fully vested. The following is a summary of the non-vested restricted common stock activity during the year ended December 31, 2023: Number of Shares Weighted Average Grant Date Fair Value Unvested and outstanding at December 31, 2022 26,795 $ 2.84 Granted — — Vested ( 26,795 ) $ 2.84 Unvested and outstanding at December 31, 2023 — $ — The aggregate fair value of restricted stock that vested was $ 0.7 million and $ 1.2 million during the years ended December 31, 2023 and 2022, respectively. Stock Purchase and Investment Option On July 28, 2022, the Company entered into a stock purchase agreement in connection with the collaboration agreement and strategic partnership with Shopify. Under the stock purchase agreement, the Company issued and sold 2,951,846 shares of common stock to Shopify at a price of $ 33.88 per share. The stock purchase agreement also granted Shopify an Investment Option, which allows Shopify to purchase an additional 15,743,174 shares of common stock at a purchase price of $ 88.93 per share. The Investment Option is exercisable at any time at Shopify’s option until July 28, 115 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements 2030. As of December 31, 2023, the Investment Option has not been exercised. The Company determined that the $ 100.0 million purchase price represents the fair value of the common stock and Investment Option issued to Shopify since the transaction occurred at arm’s length and was not compensatory. The gross proceeds of $ 100.0 million were allocated to the common stock and Investment Option based on the relative fair value of each instrument, resulting in $ 69.4 million being allocated to the common stock and $ 30.6 million allocated to the Investment Option. The Company incurred $ 0.4 million of issuance costs which were allocated to the common stock and Investment Option based on their relative fair values. The proceeds allocated to the Investment Option, net of issuance costs, are included as a component of additional paid-in capital within the Consolidated Balance Sheets. 12. Stock-Based Compensation Equity Incentive Plans On September 1, 2015, the Board adopted the 2015 Stock Incentive Plan (the “2015 Plan”). The Board or, at its sole discretion, a committee of the Board, is responsible for the administration of the 2015 Plan. All equity grants subsequent to the IPO will be made pursuant to the Company’s 2023 Stock Option and Incentive Plan (the “2023 Plan”), which was approved by the Board effective as of September 19, 2023. Subsequent to the IPO, generally 2015 Plan awards vest into shares of Series B common stock and are immediately reclassified to Series A common stock based upon the employee’s conversion election made at the time of the IPO. The Board or, at its sole discretion, a committee of the Board, is responsible for the administration of the 2023 Plan. As of December 31, 2023, the Company’s authorized common stock includes 44,981,488 shares of Series A common stock reserved for issuance of equity awards under the 2023 Plan, of which 40,775,315 shares are available for future grants. The 2015 Plan provides for the grant of various types of stock-based compensation awards including, but not limited to, RSUs, incentive stock options (“ISOs”), non-qualified stock options (“NSOs,” referred to collectively with ISOs as options) and restricted stock awards (“RSAs”) to directors, consultants, employees, and officers of the Company. ISOs may only be granted to employees, and the exercise price thereon cannot be less than the fair value of the Company’s common stock on the date of grant or less than 110 % of the fair value in the case of employees holding 10% or more of the voting stock of the Company. The exercise price on NSOs must be at least equal to the fair value of the Company’s common stock on the date of grant. The Company has historically granted RSUs, ISOs, NSOs, and RSAs. The 2023 Plan provides for the grants of various types of stock-based compensation awards including, but not limited to, RSUs, ISOs, NSOs, and RSAs. During the years ended December 31, 2023, 2022 and 2021, the Company solely granted RSUs as further described below. Stock Options Stock Options (“Options”) generally vest over 4 years with the first 25 % of the award vesting upon the 12-month anniversary of the vesting commencement date and the remaining 75 % vesting monthly over the following 3 years. Grants of Options shall not be exercisable after expiration of 10 years from the date of grant or such shorter period specified in the associated award agreement. Options may not be transferable except by will or by the laws of descent and distribution and domestic relations orders. The 2015 Plan does not allow for the early exercise of Options. The Company did not grant any Options during the years ended December 31, 2023, 2022 and 2021. 116 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements Option activity for the year ended December 31, 2023 is as follows (in thousands, except per share data): Number of Options Weighted Average Exercise Price (Per Share) Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Outstanding at January 1, 2023 34,207,554 $ 0.61 3.74 $ 781,247 Exercised ( 2,419,308 ) 1.56 Forfeited and expired ( 53,521 ) 3.22 Outstanding at December 31, 2023 31,734,725 $ 0.54 2.65 $ 864,605 Exercisable at December 31, 2023 31,639,454 0.53 2.64 $ 862,297 Expected to vest at December 31, 2023 31,734,725 0.54 2.65 $ 864,605 The total intrinsic value of Options exercised during the years ended December 31, 2023, 2022 and 2021 amounted to $ 54.7 million, $ 53.2 million and $ 169.7 million, respectively. Restricted Stock Units During the years ended December 31, 2023, 2022 and 2021, the Company granted RSUs to employees under the 2015 Plan and 2023 Plan. In general, RSUs granted under the 2015 Plan vest upon the satisfaction of both a service condition and a liquidity condition (“Double-Trigger”). Generally, the service condition requires the grantee to remain an eligible participant, as that term is defined in the 2015 Plan, for a period of 4 years. Generally, RSUs vest quarterly over the entire 4-year period or vest 25 % after 1 year, with the remainder vesting quarterly over the following 3 years. The liquidity condition was satisfied upon the occurrence of the IPO. In general, RSUs granted after the IPO under the 2023 Plan vest upon the satisfaction of a service condition only. These service conditions are consistent with those under the 2015 Plan detailed above. Restricted stock unit activity for the year ended December 31, 2023 is as follows (in thousands, except per share data): Number of Units Weighted Average Grant Date Fair Value Unvested and outstanding at January 1, 2023 11,712,446 $ 30.24 Granted 11,896,929 26.23 Vested ( 7,206,386 ) 29.49 Forfeited ( 1,712,572 ) 29.51 Unvested and outstanding at December 31, 2023 14,690,417 $ 27.44 The fair value of the RSUs that vested during the years ended December 31, 2023, 2022 and 2021 was $ 214.7 million, $ 1.3 million and $ 0.5 million, respectively. Modifications During the year ended December 31, 2023, the Company extended the expiration dates of four employees’ options. The extension of the expiration date impacted 1,004,667 granted stock options, resulting in incremental stock-based compensation expense of $ 0.8 million during the year ended December 31, 2023. 117 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements During the year ended December 31, 2023, the Company accelerated the vesting start dates of two employees’ RSUs. The modification impacted 167,500 previously granted RSUs that were Double-Trigger awards in which the liquidity-based vesting condition was not considered probable at the date of modification. As the liquidity-based vesting condition was met upon the IPO, the impact of the modified RSUs is included in the total stock-based compensation recognized during the year ended December 31, 2023. On April 10, 2023, the Company approved an amendment to the vesting schedule of 4,250,947 RSUs governed by the 2015 Plan. Specifically, the vesting schedule of these RSUs were amended to align with the Company’s standard four quarterly vesting dates that were established on a prospective basis in June of 2022. This modification impacted 657 grantees, and all RSUs that were modified were Double-Trigger awards in which the liquidity-based vesting condition was not considered probable at the date of modification. As the liquidity-based vesting condition was met upon the IPO, the impact of this modification is included in the total stock-based compensation recognized during the year ended December 31, 2023 and is based on the fair value of the award on the date of modification. On March 15, 2023, the Company announced a reduction in workforce that resulted in the termination of approximately 8 % of the Company’s full-time workforce ( 130 employees). As part of the reduction in workforce, the Company modified 608,698 previously granted stock options and 64,301 previously granted RSUs. During the year ended December 31, 2023, the Company incurred an incremental stock-based compensation expense of $ 0.6 million related to the modification of the stock options modified. All RSUs that were modified were Double-Trigger awards in which the liquidity-based vesting condition was not considered probable at the date of modification. As the liquidity-based vesting condition was met upon the IPO, the impact of the modified RSUs is included in the total stock-based compensation recognized during the year ended December 31, 2023 and is based on the fair value of the award on the date of modification. During the year ended December 31, 2022, the Board approved the modification of an executive’s stock-based awards. At the modification date, the executive had 177,684 RSUs outstanding for which the service-based vesting condition was satisfied but the liquidity-based vesting condition was not. Pursuant to the modification agreement, the Company elected to cancel 63,775 of the unvested RSUs in exchange for $ 1.5 million, which the Company recorded stock-based compensation as general and administrative expense in the Consolidated Statements of Operations and Comprehensive Loss. Additionally, during the year ended December 31, 2022, the Company recorded incremental stock-based compensation expense of $ 0.1 million associated with 2,616 stock options granted and 154 RSUs granted to one employee that was terminated but continued to vest in previously issued awards for a limited period after provision of substantive services ceased. During the year ended December 31, 2022, the Company amended the terms of certain stock option awards issued to three employees to add a change of control provision. Such modification did not result in any incremental stock-based compensation expense. The Company also extended the post-termination exercise periods for two terminated employees holding 65,704 stock options. The Company determined the incremental stock-based compensation expense resulting from the modifications was not material. Additionally, the Company provided two terminated employees with accelerated vesting on the service-based vesting condition of 22,029 Double-Trigger RSUs held. Because satisfaction of the liquidity-based vesting condition was not probable, the Company did not record the incremental stock-based compensation expense resulting from the modifications. Such amounts will be recorded upon vesting (that is, upon occurrence of a qualifying liquidity event). During the year ended December 31, 2021, the Board approved a modification to three executives who were terminated during 2021. These modifications resulted in the accelerated vesting of tranches beyond the termination date as well as extension of the exercise window for these employees. The modification covered 1,326,461 options and resulted in incremental stock-based compensation of $ 9.9 million during the year. Additionally, during the year ended December 31, 2021, the Board approved a modification to a former executive’s stock-based compensation awards who was terminated 118 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements during 2021. The Company prorated the expense for the years ended December 31, 2022 and 2021, which was $ 3.8 million and $ 1.1 million, respectively, as the modification impacted both years presented as services were provided by the employee in both years as part of the terms of the award modification. Secondary Transactions The Company’s employees historically participated in secondary market transactions whereby existing or third-party investors purchased shares owned by the employee associated with previously issued stock-based compensation awards. The Company’s involvement in such secondary market transactions was generally limited to waiving or assigning its right of first refusal over the respective shares. During the years ended December 31, 2023, 2022, and 2021 secondary investors purchased 912,187 , 1,002,968 , and 4,262,974 shares of common stock from certain employees, respectively. Stock-based compensation expense related to these transactions, representing amounts paid in excess of then current fair value, totaled $ 0.8 million and $ 21.5 million and during the year ended December 31, 2022 and 2021, respectively, and is recorded in operating expenses in the accompanying Consolidated Statements of Operations and Comprehensive Loss. No stock-based compensation expense was recorded during the year ended December 31, 2023 related to secondary transactions. Stock-Based Compensation Expense During the year ended December 31, 2023, the Company capitalized $ 1.3 million of stock compensation expense related to services performed on capitalized software development projects. During the year ended December 31, 2022, the Company did not capitalize any stock compensation expense related to services performed on capitalized software development projects, and during the year ended December 31, 2021 , the Company had an immaterial amount of capitalized stock compensation expense related to services performed on capitalized software development projects. Stock-based compensation included in the Consolidated Statements of Operations and Comprehensive Loss is as follows (in thousands): Year Ended December 31, 2023 2022 2021 Cost of revenue $ 24,973 $ 129 $ 960 Selling and marketing 107,954 985 29,713 Research and development 120,184 1,230 8,193 General and administrative 87,688 5,958 13,123 Stock-based compensation, net of amounts capitalized 340,799 8,302 51,989 Capitalized stock-based compensation expense 1,349 — 2 Total stock-based compensation expense $ 342,148 $ 8,302 $ 51,991 During the year ended December 31, 2022, stock-based compensation expense included $ 1.5 million paid in cash in exchange for the cancellation of an executive’s unvested RSUs outstanding for which the service-based vesting condition was satisfied but the liquidity-based vesting condition was not. This is included within general and administrative expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss. During the year ended December 31, 2021, stock-based compensation expense included $ 16.7 million paid in cash for the repurchasing and retirement of common stock, of which $ 8.8 million is included within selling and marketing expense, $ 5.8 million within research and development expense, and $ 2.1 million within general and administrative expense in the Company’s Consolidated Statements of Operations and Comprehensive Loss. As of December 31, 2023, total unrecognized compensation cost related to unvested Options was $ 0.1 million, which will be recognized on a ratable basis over a weighted-average remaining period of 0.4 years. 119 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements As of December 31, 2023, total unrecognized compensation cost related to unvested RSUs was $ 257.5 million, which will be recognized on a ratable basis over a weighted-average remaining period of 3.3 years. 13. Loss Per Share Basic net loss per share attributable to Series A and Series B common stockholders is computed by dividing the net loss by the number of weighted-average outstanding common shares. Diluted net loss per share attributable to Series A and Series B common stockholders is determined by giving effect to all potential common equivalents during the reporting period, unless including them yields an antidilutive result, and is calculated using the treasury stock method. The Company considers its warrants, Investment Option, restricted stock units and stock options as potential common equivalents, but excluded them from the computation of diluted earnings per share attributable to common stockholders in the periods presented, as their effect was antidilutive during the years ended December 31, 2023, 2022 and 2021. The rights, including the liquidation and dividend rights, of the holders of Series A and Series B common stock are identical, except with respect to voting and conversion. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis to each series of common stock and the resulting basic and diluted net loss per share attributable to common stockholders are, therefore, the same for both Series A and Series B common stock on both individual and combined basis. The following table presents the calculation of basic and diluted net loss per share attributable to Series A and Series B common stockholders for the periods presented, (in thousands, except share and per share data): Year Ended December 31, 2023 2022 2021 Net loss per share attributable to Series A and Series B common stockholders, basic and diluted: Numerator: Net loss $ ( 308,233 ) $ ( 49,193 ) $ ( 79,393 ) Denominator: Weighted-average shares - basic and diluted 242,889,272 229,857,206 220,865,179 Net loss per share attributable to Series A and Series B common stockholders, basic and diluted $ ( 1.27 ) $ ( 0.21 ) $ ( 0.36 ) The following table summarizes the potential common shares excluded from the computation of diluted net income (loss) per share: Year Ended December 31, 2023 2022 2021 Warrants outstanding 5,165,732 11,217,017 — Investment Option 15,743,174 15,743,174 — RSUs outstanding 14,690,417 11,712,446 7,430,700 Options outstanding 31,734,725 34,207,554 36,858,706 Restricted stock outstanding — 26,795 62,522 Total 67,334,048 72,906,986 44,351,928 14. Restructuring Costs 120 Table of Contents Klaviyo, Inc. Notes to the Consolidated Financial Statements On March 15, 2023, the Company announced a restructuring plan that resulted in a reduction of approximately 8 % of the Company’s full time workforce. The Company’s restructuring actions were intended to improve operational efficiencies. Restructuring costs consist primarily of employee severance and related benefits as well as stock-based compensation from the modification of terminated employee stock options. See Note 12. Stock-Based Compensation for further detail on award modifications due to the restructuring. Restructuring costs included in the Consolidated Statements of Operations and Comprehensive Loss is as follows (in thousands): Year ended, December 31, 2023 Cost of revenue $ 1,138 Selling and marketing 1,832 Research and development 3,375 General and administrative 1,532 Total $ 7,877 There were no unpaid restructuring costs as of December 31, 2023. 121 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None.