Amplitude, Inc. (NASDAQ:AMPL) Q4 2022 Earnings Call Transcript

Amplitude, Inc. (NASDAQ:AMPL) Q4 2022 Earnings Call Transcript February 15, 2023

Yaoxian Chew: Investor Relations. Joining me are Spenser Skates, CEO and Co-Founder of Amplitude; and Hoang Vuong, the company’s Chief Financial Officer. During today’s call, management will make forward-looking statements, including statements regarding our financial outlook for the first quarter and full-year 2023, the expected performance of our products, our expected quarterly and long-term growth, investments, and our overall future prospects. These forward-looking statements are based on current information, assumptions, and expectations and are subject to risks and uncertainties some of which are beyond our control that could cause actual results to differ materially from those described in these statements. Further information on the risks that could cause actual results to differ is included in our filings with the Securities and Exchange Commission, you are cautioned not to place undue reliance on these forward-looking statements, and we assume no obligation to update these statements after today’s call except as required by law.

Certain financial measures used on today’s call are expressed on a non-GAAP basis. We use these non-GAAP financial measures internally to facilitate analysis of our financial and business trends and for internal planning and forecasting purposes. These non-GAAP financial measures have limitations and should not be used in isolation from or as a substitute for financial information prepared in accordance with GAAP. A reconciliation between these GAAP and non-GAAP financial measures is included in our earnings press release, which can be found on our IR website at investors.amplitude.com. With that, I’ll hand the call over to Spenser.

Spenser Skates: Thank you, Yao. Good afternoon to everyone tuning in for our Q4 and fiscal 2022 earnings call. For those of you who may be newer to our story, Amplitude helps companies build amazing products, drive growth, and win their categories. Our digital analytics platform gives self-service visibility into the entire customer journey. Amplitude helps companies unlock the power of their products. And guides them every step of the way. This empowers companies to capture the data they could trust, uncover clear insights about customer behavior and take faster action. Every C Level exec I talk to wants to keep investing in their product. They believe digital products are their strongest path to growth. The problem is their ability to execute does not match their aspirations.

Amplitude changes that. We show you what your customers love, what causes them to get stuck, and what keeps them coming back. These insights are an absolute necessity, not simply nice to have. Especially in this environment, we believe amplitude is a mission critical part of every modern stack. We closed 2022 strong. Our fourth quarter revenue was 65.3 million. This was up 32% year-over-year and above the high-end of our guidance. Our dollar based net retention was 119%. We now have almost 2,000 customers and 480 of those pay us over $100,000 in ARR per year. On top of that, we delivered almost 300 basis points of non-GAAP operating margin expansion year-on-year. We’ve always been efficient in building our business. We are in control of our own destiny as we expect to generate positive free cash flow this year.

While the environment is getting tougher, we are managing our business well demonstrated by our beats in top and bottom line guidance. To every , I am deeply appreciative of all the work you do to make our vision a reality. As we highlighted in last quarter’s earnings, we anticipated greater headwinds going into 2023. Things did get harder for us in Q4. We saw more churn among smaller customers, as well as heightened scrutiny and budget pressure. Companies across geographies and industries are expressing caution. These are common themes you’re hearing from a lot of software companies. What is more specific to Amplitude is the amount of work we do to support digital natives and early adopters. Being part of an early category is a double-edged sword.

Companies that had accelerated our growth are now pulling back the hardest. The whiplash our customers are experiencing is very real. We expect the rolling layoffs and reduced risk appetite to be headwinds in the near-term that these short-term headwinds will pass. Our long-term outlook is still the same. When it comes to product data, companies are in the first inning. We remain in the midst of a massive wave that is changing how companies build, iterate and improve their products. As the digital analytics market continues to develop, we are seeing positive momentum in both the size and length of transactions. And we’ve seen companies like move from Google Analytics to Amplitude. Long-term, I expect we will accelerate our growth. We have multiple investments designed to accelerate growth through distribution and monetization in 2023.

On distribution, we’ve been hard at work. I’m going to highlight three big bets. First, product led growth. We launched a new pricing option in January targeting startups and small businesses. It is based on unique monthly track users a metric that smaller teams already understand and forecast. This is just one of the many steps in our larger Amplitude product led growth journey, which you will hear more about as the year progresses. Second, taking new user activation to the next level, including navigation and chart control rebuild, no code or single code data ingestion and the ability to work directly off of a cloud data warehouse. Third, structurally lowering data costs by a multiple, making it easier to scale with us. On monetization, we have a long runway in expanding the use of our analytics in our customer base.

We can also add solutions to help our customers build better products. Our success with experiment exceeded our expectations in 2022 and we are still just scratching the surface with customer penetration. We know there are many more such opportunities. The for increased monetization of our platform remains in its infancy. We’re early our runway is immense and we are seeing real validation. I’ve never been more excited about the opportunity ahead of us. Product innovation will help us drive distribution and monetization. We released more than 100 product updates and features over the course of 2022 more than any other year in the company’s history. Our analytics helped us extend into retail and e-commerce. Marketing analytics is driving competitive displacements.

We’re addressing more data leaders by building tools that minimize data chaos increase visibility and improve accessibility across teams. Our new Amplitude data capabilities enable teams to holistically manage customer data on our platform. This increases confidence for data teams, improves collaboration, and makes it easier to identify and fix issues. Experiment is now available in our EU data center. We’ve also introduced more improvements to make it faster to plan and run product tests. As companies look for ways to consolidate spend in this environment, we’re seeing more demand for competitive displacements for experiments. ITV, one of the UK’s leading broadcasters, added Amplitude experiment in Q4 to quickly iterate around the launch of their newest streaming platform, ITVX.

After building an experimentation culture at one of ITV’s brands BritBox, Lee Marshall, the Director of Product, is expanding Amplitude usage across the larger organization. He said at best, we had no central cross platform capability experimentation is time consuming. Without Amplitude, we couldn’t measure the real value of our product increments or manage multiple experiments across the base. Industry analysts are recognizing our leadership. Amplitude was named a strong performer in the first Forrester Wave for Digital Intelligence Platforms that we took part in. The breadth and depth of our digital analytics platform allowed us to achieve market leading 5 out of 5 scores across 9 criteria in the Wave. Amplitude was ranked in the Top 3 on strategy with Adobe and Salesforce and ranked way above Google on both strategy and execution.

Several point solutions that claim Amplitude as a competitor did not even make it into the report. Amplitude received 5 awards across G2’s 2023 best Software Awards. We also ranked Number 1 in 10 categories within the G2 Winter 2023 report, including Number 1 product analytics solution for the tenth quarter in a row. While early, I’m excited by the progress we’re making in go to market. We have better alignment between marketing, sales, and customer success. For example, improved collaboration between marketing, STRs, and revenue operations is leading to increased productivity on demand generation. We’ve always been exceptional at selling to product and product managers. We continue to up level our relationships there and extend to data leaders driving larger land deals.

We’re better connecting Amplitude with value for our customers, leading to stronger executive engagement. We’ve also created an executive sponsor program for our Top 50 accounts that will be key to retention and expansion. We’ve also enhanced our approach to Amplitude on amplitude. Our product team has always used amplitude, but we’ve taken it one step further and created Amplitude dashboards for our go to market team. This is helping us better serve our customers. I’m excited to welcome Kristina Johnson as our new Chief Human Resources Officer. Kristina spent the last seven years at Okta leading the global people and places function as the company grew from 500 employees to more than 6,000. Kristina’s great perspective about how to build high performing teams and have seen the journey we’re embarking on.

She’s an amazing leader and I’m excited to partner with her. Post market closed, we also announced the CFO transition. After four incredible years at Amplitude, Vuong will be leaving the company and welcoming former Forescout executive Christopher Harms as our new CFO, you all have the opportunity to get to know him in the coming months. Vuong will remain at Amplitude in the interim to ensure a seamless transition. We’re continuing to win customers across many industries and at every part of their digital maturity journey. Some big new customers in Q4 include , Philip Morris, Malwarebytes, Black Rifle Coffee, and Standard Chartered. We also had notable customer expansions in Q4, including Fox Broadcasting, NTT Docomo, Syngenta, . One win I’m really excited about this quarter is Fandom, the world’s largest fan platform, reaching more than 350 million unique visitors per month and hosting more than 250,000 Wiki’s Fandom is the Number 1 source for information on pop culture, gaming, TV, and film.

Fandom’s decision was driven by the forced migration of Google Analytics. Their Director of Business Intelligence and Site Analytics led the evaluation in this highly competitive deal against legacy and point solutions. Ultimately, Amplitude was selected due to three key reasons: First, our seamless integration of product and marketing analytics, which was perfect for Fandom’s varied advertising content and editorial needs. Second, our self-serve value proposition where we were the natural solution for technical and nontechnical teams. Third, our pace of innovation and scalability. Fandom is a media brand aggressively growing their data volume across GameSpot, Metacritic, and many other destinations, making Amplitude the right future proof solution.

Fandom will use Amplitude to drive impact for one of their key business metrics, tying content changes to revenue. This will include taking a deeper look at video content, what users are engaging with the most and how product changes impact that behavior. Publishing and editorial teams will also use Amplitude as a centralized source of truth for their site data. I’m really excited that we get to play a part in their transformation and growth. , which makes a popular sustainable shoe and clothing line, started working with us in Q4, after deciding to move off of with Google Analytics although it’s kicked off a search for a new digital analytics platform. Amplitude stood out as a superior solution because of our experience both with e-commerce and international business use case.

Now Albert’s will be able to dive into what triggers lead to repeat shoppers globally. They’ll be able to understand user behavior on their catalog of websites and pull insights across multiple geographies at once. They plan to use Amplitude analytics across product, analytics, data engineering, marketing growth, and information security teams to build a comprehensive view of their users. This will set them up to increase conversion and customer lifetime value. We’re focused on expanding beyond digital natives. While early, we’re showing good progress here with the Q4 expansion with one of the largest media companies in the world. Before Amplitude as product and data team used to meet once a week, the product team would come to that meeting with a list of questions and the data team would spend the next week digging through data in Adobe to get answers.

Following week, the data team would come to the meeting with answers and the cycle would continue. After adopting Amplitude, the time it took to answer those questions went from a week to seconds. This helped its team move so much faster. His product team can now run experiments independently and the number of requests its data team received has decreased by 50% meaning it can spend more time on higher impact work. I remain very optimistic about the future of our category and Amplitude’s continued role as a leader in digital analytics. As I’ve said before, I view this time as great opportunity for us to make and strengthen our market position. I’m confident in our ability to consistently innovate and provide value for our customers throughout this macroeconomic environment and beyond.

Persistence trumps everything else and I believe we will come out as the cycle stronger. By raising the bar for execution and investing in our product for the long-term, we are well-positioned to drive durable growth in a category where the opportunity is just beginning to unfold. Thank you for your interest in Amplitude. I’d now like to turn it over to Hoang Vuong to walk through the financial results.

Hoang Vuong: Thanks, Spenser. Good afternoon everyone. Fourth quarter revenue was 65.3 million, up 32% year-over-year. For the full-year 2022, revenue was 238.1 million, an increase of 42%. Customer count was up 25% year-over-year to based net retention was 119%. We have 480 customers with ARR over 100,000, up 25% year-over-year and representing about 75% of total revenue. And 30 customers above $1 million in ARR. Here’s some color on Q4 results. New bookings were fairly balanced between land and expand. In Q4, we had two land deals over a million dollars showing more companies are starting to understand the criticality or part of data for every modern enterprise. This contrasts with zero land deals over a million dollars in all of 2021.

We also had our largest experiment expansion ever as customer mature and more around product data we see greater adoption of the entire from experimentation to CDP. We’re seeing an increase in the number of early stage opportunities as our efforts ramp up. However, customer general level of caution has increased in Q4. We saw more deal shrunk or pushed out than we did in Q3 as budget scrutiny intensified. Earned both full and partial continues to be elevated in Q4 across the board. Customer continues to navigate the whiplash from COVID induced pull forward to the current focus on finding their . Geographically, revenue from the U.S. increased 28% year-over-year to 40 million in Q4 or 61% of total revenue. International revenue increased 39% to 25.2 million or 39% total revenue.

Total RPO increased to 248.2 million, up 46% year-over-year. Current RPO also increased 190.6 million, up 39% year-over-year or approximately 77% of total RPO. As a reminder, CRPO growth over fiscal year 2022 has been helped by an increasing mix of multiyear deals. If we don’t keep increasing the mix of multi-year deals, CRPO growth in 2023 will be negatively impacted. Next, I’ll be discussing non-GAAP results for Q4 going forward. As a reminder, our GAAP financial results along with reconciliation between GAAP and non-GAAP results can be found in our earnings press release and supplemental financial on IR website. Gross margin in Q4 was 74%, improving 250 basis points year-over-year with infrastructure costs and continue to scale. During our IPO process, we stated a long-term goal of 75%.

We plan to achieve and likely exceed that goal in the near-term. Sales and marketing expense was 45% of revenue, compared 44% of revenue in Q4 2021. R&D expense was 21% of revenue, compared to 20% of revenue in Q4 2021. We delivered an operating loss of 4.7 million or negative 7%, compared to a loss of 5 million or negative 10% in Q4 2021. We consciously moderated operating expenses throughout the year as the environment shifted. We are committed to balancing growth and profitability. Net loss per share was $0.03 based on 113.1 million shares, compared to a loss of $0.05 with 107.9 million shares a year ago. Cash, cash equivalents, and marketable securities were 301.7 million at the end of Q4. Free cash flow for the quarter was a negative 5.9 million or negative 9% of revenue, compared to a negative 12.2 million or a negative 25% of revenue in the corresponding prior year period.

For the full-year 2022, free cash flow was negative 11.2 million or negative 5% of revenue, a significant improvement versus negative 34.9 million or negative 21% in 2021. Now on to our outlook. Our guidance assumes that macroeconomic environment continues to be weak throughout the year. Layoff and budget cuts are an unfortunate reality across many digital natives. We believe that churn expansion and budget pressure will persist through 2023. For the first quarter, we are expecting revenue between 64 million and 66 million, representing an annual growth rate of 22.5% at the midpoint. Q1 reflects two less days in Q4, which accounts for approximately 1.5 million, a sequential headwind. Non-GAAP operating margins have negative 13% to 14%. We held our sales kick-off in January, weighing on margins in Q1.

Non-GAAP net loss per share to be between $0.06 and $0.08 assuming shares outstanding of approximately 114.9 million. For the full-year 2023, we’re introducing 2023 revenue guidance between 283 million and 291 million, an annual growth rate of 19% to 22%. We expect non-GAAP operating margins between negative 6% to 8% and we expect non-GAAP net loss per share to be between $0.11 and $0.16 assuming shares outstanding of approximately 117.5 million. We believe the bottom end of our guidance is conservative as factors in further deterioration in macro environment sentiment throughout the year. Please keep in mind the following. Non-GAAP gross margin should be in the range of 73% to 75% for fiscal year 2023, representing more than 300 basis points of improvement versus the past couple of years.

We expect to exit Q4 2023 with non-GAAP operating profit. We expect to reach free cash flow positive for the full-year, well ahead of our previously stated medium-term targets. Given the pressure we mentioned, we do expect the continued decline in net retention rate. The headwinds we’re facing are the natural function of being with an early market and our exposure to digital natives. We’re working through those headwinds and managing our business for efficiency. We believe nothing has changed about our long-term opportunity and we remain incredibly well-positioned to win in digital analytics.

Spenser Skates: Before we move to Q&A, I actually want to just take a moment to recognize Vuong. Vuong, I just want to say you have been instrumental to our growth and success over the last four years. On behalf of myself and everyone at Amplitude, we sincerely thank you. We wish you all the best.

Hoang Vuong: Thanks Spenser. It’s been a really life changing opportunity and a privilege to be able to contribute to Amplitude’s success and growth over the last few years. I want to thank them Amplitude team. I know that we’ll be a billion dollar business one day because we have the best product and an awesome culture. With that, we look forward to your questions. Over to you .

Q&A Session

A – Yaoxian Chew: Our first question comes from Koji Ikeda at Bank of America, followed by Arjun Bhatia, Koji, you’re up.

Koji Ikeda: Hey, Spenser. Hey, Vuong. Thanks for taking the questions. Super appreciated. Wanted to kind of dig into the guidance just a little bit more here. Looking at the guidance for 2023, the midpoint about 20.5% growth balanced against quarterly billings of 26.5 showing 12-month billings 32% and that current RPO of 39%. So, it is really quite a range of growth rates reported versus the guide and just trying to help reconcile, kind of the billings performance, RPO performance against that revenue guide. Appreciate all the color on the macro net revenue retention, but just curious anything else specific to call out maybe from a renewal perspective or vertical perspective that we should be aware about that you guys are considering in that guidance?

Hoang Vuong: Yes. So Koji, let me start with that. I think that first of all, like we said in the prepared remarks, we’re kind of assuming that the environment that we saw, kind of in Q3 and even some deterioration in Q4, kind of can persist throughout the year. So, we want to make sure that we come out with guidance to get off the year that we feel very comfortable with. As far as the growth numbers you’re talking about with billings and those are obviously all right. Just a couple of reminders. Number 1 is on the CRPO, a lot of that growth is driven by the multi-year. Our billing can fluctuate, you see kind of like when you look at quarters and over quarters and year-over-year to kind of change quite a bit and it really depends on, kind of when we’re doing the billing for the linearity of the bookings.

So, for instance, we had a really strong Q3 in the land quarter and that €“ a strong Q3, they actually into Q4. And so, you kind of have that factor the same when you look at CRPO and billing. And once again, we point people to look at the sequential quarter-over-quarter revenue growth as being probably the best indicator.

Koji Ikeda: Got it, got it. And then just broadly question for Spenser or Hoang Vuong, thinking about the current sales capacity and line coverage to reach the 2023 growth targets, how should we be thinking about that right now? And then how should we be thinking about hiring for sales capacity this year and then broadly hiring within the rest of the organization? Thanks, guys.

Spenser Skates: For sure. So first, we’re set up from a sales capacity for the targets that we’ve outlined for 2023. I think Thomas and a lot of the leadership he’s brought in has done a great job in setting up ourselves up for success to hit the targets that we do see this year. At the same time, we’re also obviously very thoughtful about managing the cost side of the business. In this, sort of environment, slowing down hiring, applying a lot more scrutiny at the margins, making sure that we don’t get over our skis. The good thing for Amplitude is that’s always been how we’ve operated from a cost standpoint even when things are, kind of really hot over the last few years. And so, it’s not as major of an adjustment for us heading into this environment.

Koji Ikeda: Got it. Thanks guys. Thanks for taking the questions. Best of luck, Vuong. Thank you so much.

Yaoxian Chew: Great. Next question Arjun Bhatia from Blair followed by Elizabeth Porter from Morgan Stanley. Arjun?

Arjun Bhatia: Awesome. Hey, guys. Thanks for taking the question. Maybe just €“ I wanted to touch on just the demand environment. I know you called out some of the digital natives as being maybe a little bit of a bigger headwind. Spenser, how do you think about what you can do from a go to market perspective to maybe shift the demand a little bit so that you’re targeting more traditional industries? Is that part of the plan? Is that something that you’re already doing? Just walk us through how those two different, how you might adjust your targeting approach a little bit?

Spenser Skates: Totally. Yes, that’s something that’s very top of mind is making the shift from digital natives to the traditional enterprise. I mean, I think we’ve seen continued traction around that in Q4. As you saw, big expands in box broadcasting, NTT Docomo and that anonymous media company that we mentioned. And so, we’re continuing to make progress against that. One of the plays that I’m really excited about is €“ one of the things we see is that when you get a lighthouse customer in a vertical, that then allows you to get a number of other companies. So, we’ve seen that playbook work for us. If you look at, for example, media, we’ve had Fox Broadcasting. We’ve had NBC as customers that’s helped us land HBO, Discovery, a bunch of other media brands.

Same and quick service restaurants, we did that. We landed Chick-fil-A quite a while ago that’s helped us get into RBI and their brands like Burger King and Popeyes. And so, we want to replicate that play as we go through 2023. One area I’m excited about is retail. We launched a number of e-commerce and card analysis features as we went through last year, and so standardizing that playbook and then going after some of the Lighthouse folks in that vertical to expand to others. And so, I think we’re seeing continued progress in the need for digital analytics and broadening outside of digital natives to the traditional enterprise, but again, we’re early in that transition.

Arjun Bhatia: Okay. Awesome. And then it seemed like experiment was a big theme in your prepared remarks. And I got the sense that there was a little bit of a €“ obviously, strong traction in Q4, and it’s been, I don’t know, maybe a stuff function change, but what’s driven the strong traction there? Have you made product changes that are starting to resonate? Is it more of a go-to-market adjustment? And then maybe just remind us, are you seeing those lands come in off the bat with experiment plus the core platform or is this more of an expansion sale?

Spenser Skates: Yes. So, on experiment, I think, because in a lot of companies, there’s existing AB testing or experimentation budget, that actually makes it more attractive in a time of macroeconomic pressure. And so, we ended up exceeding our own internal goals for where revenue from an experiment would be. In 2022, as a result, we had a record deal in one of our largest accounts that was a big experiment expansion. And so, it’s just kind of continuing to build this muscle on both making sure we’re offering all the latest and best features on experimentation, as well as deploying that and go to market. Now, it still has a long, kind of runway to go in terms of penetration across the customer base. In terms of lending, we’re actually seeing that.

Some of our 7-figure lands that we did for the first time in 2022, experiment was a big part of those deals. And so, I think the product is now mature enough where companies are willing to take a big bet on it straight out of the gate. And so that’s been a hugely positive proof point.

Arjun Bhatia: Thank you, Spenser. Super helpful and best of luck in the future, Vuong.

Hoang Vuong: Thanks, Arjun.

Yaoxian Chew: Great. Next question from Elizabeth Porter from Morgan Stanley followed by Rob Oliver from Baird. Elizabeth, please?

Elizabeth Porter: Great. Thanks so much. So, you highlighted to have churn at the low end and also helping customers right-sized contracts just contributing to some of the down sell. And the question is, are we through a lot of those headwinds in Q4? And how much work is really left to do? I understand that NRR is a trailing 12-month metric. So, we’re going to continue to see that pressure through fiscal 2023, but I was hoping to get a little bit more color on just the inter-quarter.

Spenser Skates: Yes. I mean I think the first thing to call out is, we expect it €“ our guidance assumes we expect that to continue as we go through 2023 because of our exposure to digital natives. A lot of them, they’re going to continue to look for cost savings. And while we want to maintain the value we’re at, I think we also want to work with customers with where they’re at. I think a few things to call out. One, on the churn front, we’re seeing almost no churn to competitors. And so, we continue to feel good about our market leadership position in digital analytics. Second thing is all of those customers do expect to expand with us over the long-term. And so, they’re just looking for some short-term help as they’re going through layoffs and trying to find additional budget dollars and all of that.

And so, we want to work with them to do that. I think the last thing I call out is that it’s a hyper focus for us as a company and like I’m not happy with where it’s at, and I want us to continue to improve how we’re doing on the churn front. And so, we’re doing that through a number of things across product and go-to-market, making sure we get close to customers, making sure to develop more executive relationships so that we can drive an ROI story, which we’ve been better at in 2022 and then launching new services and products that help people implement, adopt, grow with us over the long-term.

Elizabeth Porter: Got it. Yes, makes a lot of sense. And then a second one just on a follow-up is on cost discipline. Really encouraging to see that help offset kind of the impact on the bottom line. So, can you just be a little bit more specific about some of the actions that you are doing to drive that incremental leverage?

Spenser Skates: Yes. So, let me start with gross margins, and then I’ll talk to operating margins. One of the innovations that I’m really excited about is, we’re looking at reducing data costs by a multiple that should drive us huge leverage on gross margins in the long-term. You’ve seen that continue to improve in the 2021 versus 2022, and then we’re expecting to continue to drive that in 2023 and beyond. So that’s really obviously really big for a data-intensive business like us. The other thing on just operating the business, we’ve obviously been much more judicious about adding head count in the, sort of environment. And so, it hasn’t been a massive adjustment for us like it has been for some other companies out there to change the way we’re operating.

One of the things I actually did back in December was I sent a survey out to to ask them to step up and look for different ways of cost savings, and we actually got 500 responses across the company from everything like, hey, maybe we can get rid of swag or these sort of parks or maybe we can be more thoughtful about how we approach our catering expense or we can look at the travel. And so, it’s awesome to see a lot of step up in that way. And so I think I called that out because it’s always been part of the company’s .

Elizabeth Porter: That’s great, thank you so much.

Yaoxian Chew: Great. Next question, Rob Oliver, we can get you in your comment. Thank you.