Klaviyo, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this Annual Report on Form 10-K. As discussed in the section titled “Special Note Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included under Part I, Item 1A within this Annual Report on Form 10-K. This section of this Annual Report on Form 10-K discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 19, 2025, which is incorporated herein by reference. The period‑to‑period comparison of financial results is not necessarily indicative of future results. Overview We founded Klaviyo in 2012 to provide businesses of all sizes with powerful technology that captures, stores, analyzes, and predictively uses their own data to drive measurable, high-value outcomes. Today, Klaviyo enables over 193,000 businesses around the globe to efficiently drive revenue growth by making it easy to bring their first-party data together and use it to create and deliver highly personalized, omnichannel consumer experiences at scale. Our platform combines our proprietary data, intelligence, and action layers into one vertically-integrated solution with advanced machine learning and AI capabilities and over 350 integrations, enabling businesses to create and store unified consumer profiles, derive new insights, and rapidly segment their consumers. Klaviyo began as a database designed for speed, flexibility, and unlimited data storage. The KDP generates unified, highly granular consumer profiles populated with data from customers’ own systems and over 350 third-party integrations, and provides customers user-friendly ways to track new types of data, sync data in and out of Klaviyo at scale, and drive revenue growth. Building upon our robust data infrastructure, we developed tools, initially focusing on marketing automation, where we revolutionized email practices. Our innovation shifted the industry paradigm away from batch and blast practices with a fast, data-rich marketing tool. In addition to our email offering, we now incorporate text messaging and WhatsApp channels, Reviews, Marketing Agent, Klaviyo Service, Klaviyo Analytics, and others. In February 2025, we announced Klaviyo B2C CRM, establishing Klaviyo as a unified CRM built for B2C brands and positioning Klaviyo to address a critical gap in the market: providing consumer brands with a system designed for their unique, high-volume, fast-paced needs across marketing, service and analytics. In September 2025, we launched Marketing Agent and Customer Agent, establishing Klaviyo as the AI-first B2C CRM. This is a natural evolution of our journey – from a leading marketing automation platform to a comprehensive consumer engagement solution. Powered by the KDP and AI, we combine marketing, service, analytics, and our data platform into a single solution designed to meet the high-volume, fast-paced needs of our customers. Klaviyo Service is an AI-powered customer service offering that integrates with marketing and data to help businesses provide seamless customer support via Customer Hub, Customer Agent and Helpdesk. Marketing Analytics gives brands real-time AI-powered insight into customer and purchase behavior so they can take action faster. Our Advanced KDP offering unlocks advanced features for even more powerful ways to track, transform, cleanse, and analyze data as well as run more advanced reporting and predictive analytics to drive revenue growth for our customers. These offerings leverage 68 Table of Contents Klaviyo’s unified platform to deliver an integrated, AI-first customer experience that enhances automation, personalization, and efficiency across channels. Today, our customers primarily operate within the retail and eCommerce vertical. Due to the flexibility and adaptability of our technology, we have also seen organic growth from customers in other verticals, such as education, events and entertainment, restaurants, and travel, as well as from B2B companies. As of December 31, 2025, our platform had efficiently scaled to over 193,000 customers. See the section titled “Key Performance Metrics — Customers” for additional information on how we define customers. We generate revenue through the sale of subscriptions to our customers for the use of our platform. Our subscription plans are tiered based on the number of active consumer profiles stored on our platform and the number of emails, text messages and WhatsApp messages sent as well as tickets and conversations executed through Klaviyo Service. We currently permit our customers to send unlimited push notifications, which are included as part of our email subscription plan. Active consumer profiles are identified profiles that can be reached via at least one enabled marketing channel in Klaviyo; this means the profile is not suppressed, either by revoking consent or being rendered undeliverable. The vast majority of our subscription plans today are monthly. Our land-and-expand strategy aligns our success with that of our customers. As our customers’ businesses grow, they utilize more active consumer profiles and send more emails, text messages and WhatsApp messages, which naturally increases their usage of our platform. Our revenue also expands when our customers add additional marketing channels, such as text messaging, WhatsApp messaging, and mobile push and additional use cases, such as Customer Agent, Marketing Agent, Marketing Analytics, and Advanced KDP, or when their other companies, business units, and geographies start using our platform. Factors Affecting Our Future Performance We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including the following factors: Growth in New Customers Attracting new customers to our platform is a key driver of our revenue growth strategy. We have successfully grown our retail and eCommerce customer base and believe we have significant room to expand within this vertical as well as expand further into other industries, including education, events and entertainment, restaurants, wellness, and travel as well as from B2B companies. Our ability to attract new customers will depend on a number of factors, including our ability to innovate, the effectiveness and pricing of our new and existing offerings and capabilities, and the success of our selling and marketing efforts. Expansion of Revenue From Our Existing Customer Base We believe our product-led growth strategy enables us to efficiently expand penetration within our existing customer base. We focus on expansion in three primary ways. First, as our customers increase their usage of our platform through the number of active consumer profiles they store and email, text messages and WhatsApp messages they send, they move to higher subscription tiers. Second, we cross-sell additional use cases (e.g. Customer Agent, Marketing Analytics, etc.) and marketing channels (e.g. text messaging and WhatsApp) to customers who started on our platform with our email offering. Finally, we offer our platform to our customers’ other brands, business units, and geographies. Going forward, our ability to increase sales to existing customers will depend on a number of factors, including our customers’ satisfaction with our solutions and the ability of our customers to attract new consumers. We expect these three forms of revenue expansion to continue in the future. 69 Table of Contents Growth with Larger Customers When we first launched our platform, we intentionally focused on serving entrepreneurs and SMBs based on the need we saw for a simple and easy-to-use, yet powerful solution for customers in this category, and the large market opportunity within this group of customers. As our customers have scaled and become mid-market companies and larger enterprises themselves, their success with Klaviyo has attracted more interest from similarly sized businesses that are looking to drive better engagement with their consumers. Our ability to continue to move up-market is dependent on a number of factors, including our ability to further adapt our platform to the needs of larger accounts, the effectiveness of our sales team, and pricing. International Expansion We believe we have significant expansion opportunities in international markets. We started by serving customers in North America and, in 2019, we expanded our operations to London, England to penetrate the European region. In 2022, we opened our office in Sydney, Australia to capitalize on the opportunities in Asia Pacific. In 2024, we expanded our presence in the European region by adding operations in Dublin, Ireland. In 2025, we continued our expansion into the Asia Pacific and European regions by adding operations in Singapore and France, respectively. We have already experienced significant growth with international sales outside of the Americas accounting for 35.1% of our revenue for the year ended December 31, 2025. We also continue to expand our product offerings to better serve the international market. As of the date of this Annual Report on Form 10-K, we offer text messaging capabilities in more than 20 countries, and we offer our platform in English, French, German, Portuguese, Korean, Spanish, Italian, Dutch, Swedish, Spanish (Mexico), and Polish. We believe that the introduction of additional languages to our platform increases our efficacy and ease of use in other regions. We also currently only bill in U.S. Dollars, and we believe that adding additional currencies to our platform will help us further our international expansion efforts. Investment in Innovation and Product Development Since our inception, we have been focused on product innovation, seeking to create what we believe is the best software solution for our customers. We originally launched our platform with email messaging as our first marketing channel. Since then, we have successfully added other marketing channels, such as text messaging, mobile push, and WhatsApp messaging, and additional use cases, such as Customer Agent, Marketing Agent, Marketing Analytics, and Advanced KDP. We have also introduced AI features that provide customers with AI-powered tools to streamline data segmentation, create and orchestrate campaigns, and drive better engagement, including our Marketing Agent and Customer Agent offerings as well as our MCP Server capability. Our continued success depends on our ability to sustain product and technology innovation to continue delivering value to our customers. As technology and consumer preferences change, we believe that our ability to drive continuous product innovation will be critical to attract and retain customers and drive revenue growth. Increased Adoption of Our Text Messaging and WhatsApp Messaging Offerings We have seen notable success in the expansion of our platform with our text messaging and WhatsApp messaging offerings. Once customers adopt our text messaging and WhatsApp messaging offerings, they typically grow their usage over time as they gain comfort and confidence in the new channel. Our text messaging and WhatsApp messaging offerings have higher associated communication sending costs, and as the number of text messages and WhatsApp messages sent by our customers increases, we expect our gross margin to decline modestly. Text messaging and WhatsApp messaging are particularly concentrated in the fourth quarter of each year due to the holiday shopping season, and as a result, we expect our gross margin to be most heavily impacted in that quarter. This gross margin impact could be partially offset by gaining further leverage on costs with our increased scale, increased usage of higher margin products by our customers, and ongoing efforts to drive infrastructure efficiency. We believe we will see our overall gross profit dollars increase as 70 Table of Contents customers send more text messages and WhatsApp messages if our text messaging and WhatsApp messaging offerings continue to gain traction. Expansion into New Industry Verticals and Use Cases As more customers use our platform, we are seeing organic growth from customers in other verticals, such as education, events and entertainment, restaurants, and travel, as well as from B2B companies. While we started with consumer engagement as our initial use case in the retail and eCommerce vertical, we see a large opportunity into other products and verticals. Without an active sales motion, we have attracted customers from verticals other than retail and eCommerce, which indicates the strong interest and applicability of our platform to new verticals. We continue to explore ways to serve these new verticals more intentionally. We intend to continue actively investing in addressing new industry verticals and product use cases. Key Performance Metrics Customers . We define a customer as a distinct paid subscription to our platform. A single organization could have multiple discrete contracting divisions or subsidiaries or brands each with paid subscriptions to our platform, which would, in general, constitute multiple distinct customers. In some cases at the customer’s request, we allow subscriptions under the same parent organization to be consolidated into a single paid subscription in which case such consolidated paid subscriptions would constitute a single customer. We measure our total number of customers as a point-in-time calculation measured as of the end of a particular period. Customers do not include persons or entities that use our platform on a free trial basis. Customers Generating Over $50,000 of ARR . We calculate our number of customers generating over $50,000 of ARR (as defined below) as those customers that have an average ARR of greater than $50,000 over the prior twelve months (or the entire duration of the customer’s paying relationship, if it is less than twelve months) as of the date of determination. We believe the number of customers generating over $50,000 of ARR is a key performance metric to help investors and others understand and evaluate our results of operations in the same manner as our management team, as it is an indicator of our ability to grow the number of customers that are exceeding this ARR threshold, both from our existing customers expanding their usage of our platform and from our sales to larger customers. We believe this is an important indicator of our ability to continue to successfully move up-market. As of December 31, 2025, we had 3,912 customers generating over $50,000 of ARR, compared to 2,850 customers generating over $50,000 of ARR as of December 31, 2024, representing growth of 37% year-over-year. Dollar-Based Net Revenue Retention Rate. We calculate our Dollar-Based Net Revenue Retention rate (“NRR”) by first identifying the cohort of customers as of twelve months prior to the date of determination. We then calculate the Annualized Recurring Revenue (“ARR”) from this customer cohort as of twelve months prior to the date of determination (the “Prior Period ARR”) and the ARR from this customer cohort as of the date of determination (the “Current Period ARR”). ARR, for any date of determination, is the annualized value of existing paid subscriptions, which we calculate by taking the amount of revenue that we expect to receive in the next monthly period for our existing paid subscriptions, assuming no changes to such subscriptions in the next month, as of that date of determination, and multiplying that amount by twelve. Current Period ARR includes any expansion, price increases, and customer subscriptions that are deactivated and subsequently reactivated during the applicable twelve-month period and reflects contraction or attrition over the last twelve months from this customer cohort, but excludes any ARR from new customers in the current period. We then divide the total Current Period ARR by the total Prior Period ARR to arrive at the point-in-time NRR. We then calculate the weighted average point-in-time NRR as of the last day of each month in the current trailing twelve-month period to arrive at the NRR, with the weightings determined by the total ARR at the end of each period. We believe NRR is a key performance metric to help investors and others understand and evaluate our results of operations in the same manner as our management team, as it represents the expansion in usage of our platform by our existing customers, which is an 71 Table of Contents important measure of the health of our business and future growth prospects. We measure Dollar-Based Net Revenue Retention Rate to measure this growth. As of December 31, 2025 and 2024, our NRR was 110% and 108%, respectively. The increase in this metric from December 31, 2024 to December 31, 2025 was largely driven by expansion of existing customer plans and cross-selling additional offerings. Klaviyo Attributed Value. We define Klaviyo Attributed Value (“KAV”) as the amount of revenue our customers generated through orders placed by consumers within a specified period of time after a message is sent using our platform, which in the case of email is five days from when the message is sent, and in the case of text messages and WhatsApp messages is twenty-four hours from when the message is sent. For email, the message also needs to be opened or clicked in order for the transaction to fall within our definition. KAV excludes orders placed with customers that do not opt-in to sharing data on placed orders, orders for which we cannot determine the currency or value, or unusual orders that appear to us to be anomalies. Since our definition of a customer does not include persons or entities that use our platform on a free trial basis, any revenue generated through orders placed with these persons or entities is also excluded from our definition of KAV. We do not net chargebacks or sales refunds from our calculation of KAV. If a customer leaves Klaviyo, we stop counting that customer’s KAV after their last contracted month. We believe KAV serves as a measure of the return-on-investment that we help generate for our customers and illustrates the value our platform can drive to our customers, which we believe enhances our ability to maintain existing customers and attract new customers. We use KAV as an internal estimate to track the value we drive to customers through our platform. KAV is an operational measure, does not represent revenue earned by us, and does not directly correlate to our pricing, revenue, or results of operations. Further, KAV is not a forecast of future revenue, and investors should not place undue reliance on KAV as an indicator of our future or expected results. Seasonality Generally, demand for our services increases during the fourth quarter as our customers run more marketing campaigns and deploy marketing spend as a result of increased consumer spending patterns during the holiday shopping season. This is specifically prominent within the retail and eCommerce sector in which the majority of our customers operate today. Given our revenue model allows our customers to scale usage as needed, our sequential revenue growth has been historically stronger in the fourth quarter of each year compared to the revenue growth we see in other quarters. Our customers utilize the text messaging offering in particular during the holidays; as such, to the extent that the text messaging offering grows in proportion to our other channels, we expect that we would see further seasonality. While our profile-based pricing structure helps reduce the impact of seasonality on our revenue, we believe seasonality may continue to impact our quarterly results. Components of Results of Operations Revenue A significant majority of our revenues are derived from sales of subscriptions, which are comprised of fees paid by customers to access our cloud-based software platform for storing first-party consumer data and using it to create and deliver personalized and targeted consumer experiences across digital channels. A small portion of our revenue is currently derived from professional services. For more information on how we recognize our revenues, see Note 2. Summary of Significant Accounting Policies within the Notes to the Consolidated Financial Statements. Cost of Revenue Our cost of revenue primarily consists of cloud-based infrastructure costs, outbound communication sending costs, employee-related costs including payroll, benefits, bonuses, and stock-based compensation expense related to our 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. 72 Table of Contents We expect our cost of revenue to increase in dollar amount as we continue to invest in our platform infrastructure and support, acquire new customers, and drive existing customers to expand their usage of our platform. Gross Profit Our gross profit represents revenue, less all cost of revenue. We expect our gross profit to increase over time due to an increase in revenue. We expect our gross margin to decline modestly in the near term as the volume of text messages and WhatsApp messages sent through our platform increases and as our cloud-based infrastructure costs and outbound communication sending costs increase as our customers increase usage of our platform and capabilities. This gross margin impact could be partially offset by gaining further leverage on costs with our increased scale, increased usage of higher margin offerings by our customers, and ongoing efforts to drive infrastructure efficiency. Selling and Marketing Our selling and marketing costs primarily consist of employee-related costs including payroll, benefits, bonuses, and stock-based compensation; sales commissions and partnership expenses for revenue sharing agreements, including to Shopify, other commerce platform partners, and agency partners; costs associated with advertising and marketing activities; and allocated overhead costs, including rent, facilities, depreciation, and costs related to information technology. Sales commissions are considered an incremental cost to obtain contracts with customers and these costs are deferred and amortized over the expected benefit period. On July 28, 2022, we entered into a collaboration agreement and strategic partnership with Shopify pursuant to which we issued warrants to Shopify (the “Shopify Warrants”), in exchange for promotion of our marketing services with customers within the Shopify ecosystem. In accordance with relevant accounting policies, we recognize a prepaid marketing expense in connection with vesting of the Shopify Warrants. This prepaid marketing expense represents the probable future economic benefit being amortized over a seven-year expected benefit period and is recorded based on the fair value of the warrants on the grant date. We expect to continue to make investments in our selling and marketing organization, and expect selling and marketing expense to remain our largest operating expense in dollar amount. Selling and marketing expense may fluctuate from period to period depending on the extent and timing of our marketing initiatives. We expect selling and marketing expense to increase in dollar amount but decrease as a percentage of revenue over the longer term. In the short term, we expect selling and marketing costs to increase as we increase headcount in our go-to-market team, grow into new markets, and pay more in partnership fees to Shopify and other partners as we continue to grow. Research and Development Our research and development costs primarily consist of employee-related costs associated with research and development staff, including payroll, benefits, bonuses, stock-based compensation, and allocated overhead costs, including rent, facilities, depreciation, and costs related to information technology. We capitalize a portion of our research and development costs that meet the criteria for capitalization of internal-use software. All other research and development costs are expensed as incurred. We believe continued investment and innovation in our platform, capabilities, and offerings are important for our growth and, as such, expect our research and development costs to continue to increase in dollar amount but remain consistent as a percentage of revenue for the foreseeable future. This percentage may fluctuate from period to period depending on the timing and amount of these expenses. General and Administrative Our general and administrative expenses consist of employee-related costs including payroll, benefits, bonuses, and stock-based compensation in general corporate functions, such as procurement, accounting and finance, tax, legal, project 73 Table of Contents management, and human resources, as well as allocated overhead costs, including rent, facilities, depreciation, and costs related to information technology. Credit card processing fees are also part of general and administrative expenses. We incur expenses as a result of operating as a public company, including expenses to comply with the rules and regulations governing public companies, such as Section 404 of the Sarbanes-Oxley Act, and expenses for legal, audit, insurance, investor relations, and related professional services. Further, we expect an increase in dollar amount of credit card processing fees in line with the expected increase in revenue for the foreseeable future. As a result, we expect our general and administrative expenses to increase in dollar amount for the foreseeable future but to generally decrease as a percentage of our revenue over the longer term as we scale our business. This percentage may fluctuate from period to period depending on the timing and amount of our general and administrative expenses. Interest Income Interest income consists of income and dividends earned from our cash deposits held in interest-bearing accounts and money market funds. Provision for Income Taxes Provision for income taxes consists primarily of income taxes related to U.S. and foreign jurisdictions in which we conduct business. We maintain a full valuation allowance on our U.S. federal and state net deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized. The OECD is coordinating negotiations among more than 140 countries with the goal of achieving consensus around substantial changes to international tax policies, including the implementation of a minimum global effective tax rate of 15%. Various countries have implemented or are in the process of implementing the legislation, which does not currently apply to us. As additional jurisdictions enact such legislation, we expect our effective tax rate and cash tax payments could increase in future years. Segments We operate our business through one reportable segment, as well as one business activity, providing software that brings first-party consumer data together and uses it to create and deliver highly personalized consumer experiences across digital channels. 74 Table of Contents Results of Operations The following tables set forth our results of operations for the fiscal years presented and express the relationship of certain line items as a percentage of revenue for those periods. The period-to-period comparison of financial results is not necessarily indicative of future results. Year Ended December 31, 2025 2024 2023 ($ in thousands) Consolidated Statements of Operations Revenue $ 1,234,019 $ 937,464 $ 698,099 Cost of revenue (1) 312,523 221,305 177,888 Gross profit 921,496 716,159 520,211 Operating expenses: Selling and marketing (1) 506,241 404,209 394,369 Research and development (1) 291,209 238,459 262,177 General and administrative (1) 191,804 157,569 194,287 Total operating expenses 989,254 800,237 850,833 Operating loss (67,758) (84,078) (330,622) Other income (expense): Other (expense) income, net (2,162) 816 (470) Interest income 39,402 39,582 24,051 Total other income, net 37,240 40,398 23,581 Loss before income taxes (30,518) (43,680) (307,041) Provision for income taxes 1,250 2,462 1,192 Net loss $ (31,768) $ (46,142) $ (308,233) (1) Includes stock-based compensation expense as follows (in thousands): Year Ended December 31, 2025 2024 2023 Cost of revenue $ 7,891 $ 8,917 $ 24,973 Selling and marketing 49,725 40,907 107,954 Research and development 68,178 50,693 120,184 General and administrative 36,237 34,695 87,688 Stock-based compensation, net of amounts capitalized 162,031 135,212 340,799 Capitalized stock-based compensation expense 4,416 3,555 1,349 Total stock-based compensation expense $ 166,447 $ 138,767 $ 342,148 75 Table of Contents The following table sets forth our consolidated statements of operations data expressed as a percentage of revenue: Year Ended December 31, 2025 2024 2023 Consolidated Statements of Operations Revenue 100.0 % 100.0 % 100.0 % Cost of revenue 25.3 23.6 25.5 Gross profit 74.7 76.4 74.5 Operating expenses: Selling and marketing 41.0 43.1 56.5 Research and development 23.6 25.4 37.6 General and administrative 15.5 16.8 27.8 Total operating expenses 80.1 85.3 121.9 Operating loss (5.4) (8.9) (47.4) Other income (expense): Other (expense) income, net (0.2) 0.1 (0.1) Interest income 3.2 4.2 3.4 Total other income, net 3.0 4.3 3.3 Income (loss) before income taxes (2.4) (4.6) (44.0) Provision for income taxes 0.1 0.3 0.2 Net loss (2.5) % (4.9) % (44.2) % Comparison of the Years Ended December 31, 2025 and 2024 Revenue Year Ended December 31, 2025 2024 $ Change % Change ($ in thousands) Revenue $ 1,234,019 $ 937,464 $ 296,555 31.6 % Revenue for the year ended December 31, 2025 increased by $296.6 million or 31.6%, to $1,234.0 million compared to $937.5 million for the year ended December 31, 2024. The increase was primarily due to new business, including new customers, geographic expansion, expanded usage of our platform, including our text messaging and WhatsApp messaging channels, and new offerings. For the year ended December 31, 2025, sales to existing customers accounted for approximately 42% of the increase in revenue while approximately 58% of the increase in revenue was related to new customers. Sales to new customers represent the revenue recognized from new customers acquired in the 12 months prior to the period end. Cost of Revenue Year Ended December 31, 2025 2024 $ Change % Change ($ in thousands) Cost of revenue $ 312,523 $ 221,305 $ 91,218 41.2 % Cost of revenue for the year ended December 31, 2025 increased by $91.2 million or 41.2%, to $312.5 million compared to $221.3 million for the year ended December 31, 2024. This increase was primarily due to increases of approximately $42.4 million in outbound communication sending costs on behalf of our customers, driven by increased 76 Table of Contents text message and WhatsApp usage, $31.0 million in cloud-based infrastructure costs, $8.6 million in salaries and personnel expenses resulting from increased headcount, $5.2 million in amortization from capitalized software costs, and $4.5 million in technology expenses. Gross Profit Year Ended December 31, 2025 2024 $ Change % Change ($ in thousands) Gross profit $ 921,496 $ 716,159 $ 205,337 28.7 % Gross profit for the year ended December 31, 2025 increased by $205.3 million or 28.7%, to $921.5 million compared to $716.2 million for the year ended December 31, 2024. This increase was primarily due to revenue growth, partially offset by higher cost of revenue driven by increased usage. Selling and Marketing Year Ended December 31, 2025 2024 $ Change % Change ($ in thousands) Selling and marketing $ 506,241 $ 404,209 $ 102,032 25.2 % Selling and marketing expenses for the year ended December 31, 2025 increased by $102.0 million or 25.2%, to $506.2 million compared to $404.2 million for the year ended December 31, 2024. This increase was primarily due to increases of approximately $55.2 million in salaries and personnel expenses as a result of increased headcount, $14.5 million in marketing expenses associated with our advertising campaigns across multiple channels of media, $10.2 million in partnership-related expenses across our ecosystem, $8.8 million in stock-based compensation from the vesting of RSUs, $8.5 million in professional services, and $4.4 million in technology expenses. Research and Development Year Ended December 31, 2025 2024 $ Change % Change ($ in thousands) Research and development $ 291,209 $ 238,459 $ 52,750 22.1 % Research and development costs for the year ended December 31, 2025 increased by $52.8 million or 22.1%, to $291.2 million compared to $238.5 million for the year ended December 31, 2024. This increase was primarily due to increases of approximately $22.6 million in salaries and related personnel expenses as a result of increased headcount, $17.5 million in stock-based compensation expense from the vesting of RSUs, $8.8 million in technology expenses, and $4.8 million in severance expense primarily related to restructuring costs. General and Administrative Year Ended December 31, 2025 2024 $ Change % Change ($ in thousands) General and administrative $ 191,804 $ 157,569 $ 34,235 21.7 % General and administrative expenses for the year ended December 31, 2025 increased by $34.2 million or 21.7%, to $191.8 million compared to $157.6 million for the year ended December 31, 2024. This increase was primarily due to increases of approximately $10.8 million in salaries and personnel expenses as a result of payroll taxes from increased 77 Table of Contents option exercises, $9.1 million in payment processing fees related to increased volume of customer transactions, $6.4 million related to tax obligations in multiple jurisdictions, $4.3 million in technology expenses, and $1.5 million in stock-based compensation expense from vesting of RSUs. Other Income Year Ended December 31, 2025 2024 $ Change % Change ($ in thousands) Other (expense) income, net $ (2,162) $ 816 $ (2,978) (365.0) % Other (expense) income, net for the year ended December 31, 2025 decreased by $3.0 million or 365.0%, to $(2.2) million compared to $0.8 million for the year ended December 31, 2024. This decrease was primarily due to unfavorable foreign exchange fluctuations. Interest Income Year Ended December 31, 2025 2024 $ Change % Change ($ in thousands) Interest income $ 39,402 $ 39,582 $ (180) (0.5) % Interest income for the year ended December 31, 2025 decreased by an immaterial amount compared to the year ended December 31, 2024. 78 Table of Contents Provision for Income Taxes Year Ended December 31, 2025 2024 $ Change % Change ($ in thousands) Provision for income taxes $ 1,250 $ 2,462 $ (1,212) (49.2) % Income tax expense for the year ended December 31, 2025 decreased by $1.2 million or 49.2% to $1.2 million compared to $2.5 million for the year ended December 31, 2024. This decrease was primarily due to excess tax deductions related to stock-based compensation. Liquidity and Capital Resources We assess our liquidity in terms of our ability to generate cash to fund our operating, investing, and financing activities. In doing so, we review and analyze our primary sources and uses of liquidity, including cash balances on hand and cash flows from operations. Since our inception through December 31, 2025, we have financed our operations primarily through payments received from our customers and sales of equity securities, including the completion of our IPO in September 2023. As of December 31, 2025, our principal sources of liquidity included cash, cash equivalents, and restricted cash totaling $1.1 billion, with such amounts held for working capital purposes. Our cash equivalents were comprised of $325.9 million in money market funds. Our primary cash needs are for personnel-related expenses, selling and marketing expenses, third-party cloud infrastructure expenses, and outbound communication sending costs. Based upon our current levels of operations, we believe our operating cash flows provide sufficient liquidity to support liquidity and financing needs for at least the next twelve months. Our ability to continue to meet these requirements and obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow from operations, and our ability to manage costs and working capital successfully. Additionally, our cash flow generation ability is subject to general economic, financial, competitive, legislative, and regulatory factors, and other factors that are beyond our control. We cannot assure you that our business will generate cash flow from operations in an amount sufficient to enable us to fund our liquidity needs. The following table sets forth, for the periods indicated, our working capital: 79 Table of Contents As of December 31, 2025 2024 ($ in thousands) Cash $ 1,064,875 $ 881,473 Restricted cash, current (1) 738 375 Accounts receivable, net of allowance for doubtful accounts 60,714 43,095 Deferred contract acquisition costs 29,634 20,544 Prepaid expenses and other current assets 50,115 34,262 Accounts payable 29,072 14,579 Accrued expenses 125,159 99,828 Operating lease liabilities 24,757 20,989 Deferred revenue 103,245 64,497 Total Working Capital $ 923,843 $ 779,856 ______________ (1) Restricted cash related to our required collateral to fund payroll and credit card obligations in our Australia entity. Working capital consists of current assets (including cash, current portion of restricted cash, accounts receivable, current deferred contract acquisition costs, current prepaid expenses and other current assets), less current liabilities (including accounts payable, accrued expenses, current lease liabilities, and current deferred revenue). Statement of Cash Flows The following table sets forth, for the periods indicated, our beginning balance of cash, net cash flows provided by operating, investing and financing activities, and our ending balance of cash. For additional detail, see our consolidated financial statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. Year Ended December 31, 2025 2024 ($ in thousands) Net cash provided by (used in) Operating activities $ 218,007 $ 165,955 Investing activities (30,496) (17,226) Financing activities (4,485) (5,799) Net increase in cash, cash equivalents, and restricted cash $ 183,026 $ 142,930 Cash, cash equivalents, and restricted cash, beginning of period 882,587 739,657 Cash, cash equivalents, and restricted cash, end of period $ 1,065,613 $ 882,587 Operating Activities Net cash provided by operating activities of $218.0 million for the year ended December 31, 2025 was primarily attributable to a net loss of $31.8 million, adjusted for non-cash charges of $287.4 million and net cash outflows of $37.6 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $162.0 million of stock-based compensation expense, $52.9 million of prepaid marketing expense amortization, $29.9 million of deferred contract acquisition cost amortization, $24.8 million of operating lease costs, and $18.6 million of depreciation and amortization expense. Net cash outflows from changes in operating assets and 80 Table of Contents liabilities primarily consisted of a $54.3 million increase in deferred contract acquisition costs related to higher sales commissions resulting from our increased revenues, a $23.8 million decrease in operating lease liabilities due to payments on our operating lease obligations, a $19.7 million increase in accounts receivable due to higher customer billings, and a $6.8 million increase in prepaid expenses and other noncurrent assets. The cash outflow was offset by cash inflows primarily from a $38.7 million increase in deferred revenue resulting from increased billings for subscriptions and a $29.6 million net increase in accrued expenses and accounts payable due to timing of vendor payments. Net cash provided by operating activities of $166.0 million for the year ended December 31, 2024 was primarily attributable to a net loss of $46.1 million, adjusted for non-cash charges of $239.8 million and net cash outflows of $27.7 million from changes in operating assets and liabilities. Non-cash charges primarily consisted of $135.2 million of stock-based compensation expense, $52.9 million of prepaid marketing expense amortization, $19.8 million of deferred contract acquisition cost amortization, $17.7 million of depreciation and amortization expense, and $12.7 million of operating lease costs. Net cash outflows from changes in operating assets and liabilities primarily consisted of a $34.4 million increase in deferred contract acquisition costs related to higher sales commissions resulting from our increased revenues, a $20.8 million increase in accounts receivable due to higher customer billings, a $17.3 million increase in prepaid expenses and other noncurrent assets, and a $16.7 million decrease in operating lease liabilities due to payments on our operating lease obligations. These cash outflows were partially offset by cash inflows primarily from a $36.3 million net increase in accrued expenses and accounts payable due to the timing of vendor payments and the implementation of a company-wide bonus program and a $24.4 million increase in deferred revenue resulting from increased billings for subscriptions. Investing Activities Net cash used in investing activities of $30.5 million for the year ended December 31, 2025 consisted of $19.0 million of capitalized software costs, $9.5 million of purchases of property and equipment, and $2.0 million of business acquisition costs. Net cash used in investing activities of $17.2 million for the year ended December 31, 2024 consisted of $11.3 million of capitalized software costs and $5.9 million of purchases of property and equipment. Financing Activities Net cash used in financing activities of $4.5 million for the year ended December 31, 2025 primarily consisted of approximately $18.0 million used for the payment of employee tax obligations related to the vesting of stock-based compensation awards offset by $11.3 million of proceeds from the Company’s 2023 Employee Stock Purchase Plan (the “ESPP”) and $2.2 million of proceeds from the exercise of stock options. Net cash used in financing activities of $5.8 million for the year ended December 31, 2024 primarily consisted of approximately $23.7 million used for the payment of employee tax obligations related to the vesting of stock-based compensation awards offset by $9.7 million of proceeds from the exercise of common stock options and $8.1 million of proceeds from the ESPP. Cash Management We manage our operating cash management activities through banking relationships with our domestic and international subsidiaries and all of our cash requirements were serviced by the operating cash flows of our business. We diversify our cash deposits across a variety of well-established financial institutions based on ratings from nationally recognized rating organizations to reduce our exposure to counterparty and concentration risk. 81 Table of Contents We expect a continued increase in our cash balances as our business continues to grow. We expect to continue to diversify our cash management strategy to primarily include money market funds, highly-liquid debt instruments of the U.S. government and its agencies, senior corporate bonds, and commercial paper to reduce our global exposure on banking deposits. Lease Obligations We enter into various noncancellable lease agreements for certain office space and equipment used in the normal course of business. Our noncancellable lease obligations as of December 31, 2025 were $150.8 million, with $25.5 million payable within 12 months. Other Contractual Obligations We enter into various noncancellable agreements with marketing vendors and service providers. Our noncancellable obligations as of December 31, 2025 were $929.2 million, with $215.0 million payable within 12 months. Critical Accounting Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included elsewhere in this filing, which have been prepared in accordance with GAAP. In preparing the consolidated financial statements, we make estimates and judgments that affect the reported amounts in the consolidated financial statements and related footnote disclosures included elsewhere in this filing. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We re-evaluate our estimates on an ongoing basis. The accounting estimates we use in the preparation of our consolidated financial statements will change as new events occur, more experience is acquired, additional information is obtained and our operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in our reported results of operations and, if material, the effects of changes in estimates are disclosed in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these estimates. The critical accounting estimates that reflect our more significant judgments and estimates used in the preparation of our consolidated financial statements include those noted below. Revenue Recognition We derive revenue from subscription fees and other related professional services. Revenue is recognized when, or as, the performance obligation is satisfied by transferring the control of the promised service to a customer. The amount of revenue recognized reflects the consideration that we expect to be entitled to receive in exchange for these services. Our SaaS subscription agreements with customers offer access to our cloud-based software platform, which enables personalized email, text messaging, WhatsApp messaging, and mobile push marketing, as well as customer service offerings, marketing analytics, CDP offerings, and reviews. Subscription fees are generated from customers accessing our hosted platform services and our subscription agreements do not provide our customers with the right to take possession of our software. 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 82 Table of Contents notice for contracts on a monthly billing cycle and thirty days’ advance notice for contracts with any other billing cycles. Subscription pricing is determined based on a customer’s profile count and messaging quantities based on a tiered pricing structure and is considered fixed. Variable consideration in our contracts is not material but represents the overage charges incurred by customers who exceed their allotments. We recognize revenue under the core principle that depicts the transfer of control to our customers in an amount reflecting the consideration to which we expect to be entitled. We account for individual performance obligations separately if they have been determined to be distinct, and we allocate the transaction price to the distinct performance obligations on a relative stand-alone selling price basis. The determination of stand-alone selling price uses judgments and estimates that are based upon the prices at which we separately sell subscriptions. If not considered distinct, the goods or services promised by us are combined and accounted for as a single performance obligation. Determining the distinct performance obligations in a contract requires judgment. Typically, our SaaS subscription agreements consist of a single performance obligation, and revenue is recognized over time as the performance obligation is satisfied. Our single performance obligation primarily consists of access to our platform and related professional services. Costs to Obtain Customers We capitalize incremental costs of obtaining revenue contracts, which primarily consist of sales commissions. Contract costs are amortized on a straight-line basis over a period of up to five years, which reflects the expected period of benefit of the performance obligation and may be longer than the initial contract period. We determine the estimated benefit period by considering both qualitative and quantitative factors, including the length of the subscription terms in our customer contracts and the anticipated life of our technology, among other factors. Shopify Collaboration Agreement We entered into a collaboration agreement on July 28, 2022 with Shopify to form a strategic relationship for the purposes of creating greater interoperability between the Klaviyo and Shopify platforms. In connection with the collaboration agreement, we entered into three separate agreements, including a revenue sharing agreement, common stock warrant agreement, and stock purchase agreement. The revenue sharing agreement was entered into in connection with, and the Shopify Warrants were issued in exchange for, compensation for marketing services that we will receive from Shopify under the collaboration agreement. We have estimated the fair value of the Shopify Warrants on the date of issuance using the Black-Scholes option pricing model. The Black-Scholes option pricing model uses assumptions that are based upon estimates made by management. The key assumptions used to value the Shopify Warrants include the fair value of the common stock, a dividend yield of zero, contractual term of 10 years, volatility of 55.00%, and a risk-free rate of 2.85%. We estimate the volatility based upon an average historical volatility of several peer public companies over a period equivalent to the term of the Shopify Warrants. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of grant for time periods approximately equal to the expected term of the Shopify Warrants. Expected dividend yield is 0.0% as we have not paid and do not anticipate paying dividends on our common stock. We recognize a prepaid marketing expense asset associated with the Shopify Warrants over a straight-line five-year vesting period. Pursuant to the common stock warrant agreement, upon our IPO, 25% of the total number of warrants were accelerated, and the remaining unvested portion vests quarterly over the remaining vesting term. The prepaid marketing expense asset is amortized into selling and marketing expense on a straight-line basis over the expected benefit period, which we determine to be the seven-year term of the collaboration agreement as the core activities and deliverables of the collaboration agreement will remain in place for seven years and Shopify does not have the right to terminate the collaboration agreement for convenience. 83 Table of Contents Under the stock purchase agreement, we issued and sold shares of common stock to Shopify and provided an investment option which allows Shopify to purchase additional shares of common stock at a fixed price, exercisable at any time at Shopify’s option until July 28, 2030. We determined that the purchase price equals the fair market value of the instruments issued as Shopify was an outside investor at the time we entered into the stock purchase agreement and the purchase represented an arms-length transaction. Further, the fair value of the instruments was substantiated through a probability weighted expected return method analysis as part of common stock valuations performed at the time the agreement was entered into. The common stock and investment option are classified as equity on our Consolidated Balance Sheets. We do not recognize marketing expense associated with these instruments as they are freestanding from the other agreements entered into with Shopify and were issued at fair market value. Stock-Based Compensation Compensation expense related to stock-based transactions, including employee, directors, and non-employee awards as well as secondary market transactions, is measured and recognized in the consolidated financial statements based on fair value. Pursuant to our 2015 Plan, we have issued stock options, RSUs, and restricted stock awards (“RSAs”); however, all equity grants issued subsequent to our IPO are made pursuant to our 2023 Stock Option and Incentive Plan (“2023 Plan”), which was approved by our board of directors effective as of September 19, 2023. During the years ended December 31, 2025 and 2024, stock-based compensation awards issued were in the form of RSUs subject to only service-based vesting conditions under our 2023 Plan. Stock-based compensation awards that contain only service-based vesting conditions are recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. In addition to service requirements, RSUs granted under our 2015 Plan prior to our IPO are subject to a performance-based vesting condition, which we have concluded represents a performance condition. Fair value of such awards is measured on the grant date and recognized over the vesting term when the performance condition is considered probable of being achieved. This performance condition was achieved when our registration statement on Form S-1 filed with the SEC in connection with our IPO became effective on September 19, 2023. Compensation expense for these awards with both service-based and performance-based vesting conditions is expensed under the accelerated attribution method, which includes a cumulative catch up recorded upon the satisfaction of the performance-based vesting condition for services that had been completed as of the satisfaction of the performance-based vesting condition. The remaining expense for these awards is being recognized using the accelerated attribution method over the remaining service period. For option awards granted in prior years, we estimate grant date fair value using the Black-Scholes option pricing model. The grant date fair value of RSUs and RSAs is estimated based on fair value of the underlying common stock. Recent Accounting Pronouncements See Note 2. Summary of Significant Accounting Policies in the notes to our consolidated financial statements included elsewhere in this filing for a discussion of new accounting pronouncements adopted as of the date of this Annual Report on Form 10-K. 84 Table of Contents