Amplitude Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 9 speakers on the call.

Operator

Hello, everyone. Welcome to Amplitude's First Quarter 2023 Earnings Conference Call. I'm Yao Hsing Qiu, Vice President of Investor Relations. Joining me are Spencer Scates, CEO and Co Founder of Amplitude and Chris Harms, the company's Chief Financial Officer. During today's call, management will make forward looking statements, including statements regarding our financial outlook for the Q2 and full year 2023, The expected performance of our products, our expected quarterly and long term growth, investments and our overall future prospects.

Operator

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're 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.

Operator

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 Investor Relations website at investors. Amplitude.com. With that, I'll hand the call over to Spencer.

Speaker 1

Thank you, Yao. Good afternoon, everyone, and welcome to our Q1 2023 earnings call. We have a lot to cover today, so I'm going to focus my remarks on 3 key areas. First, Our Q1 financials and some customer, product and AI highlights. 2nd, an update on the environment and outlook for 2023.

Speaker 1

3rd, how we're adapting and why the long term opportunity remains as compelling as ever. Before I get to that, I want to reiterate my view on the market. Almost every business with a digital product needs to know more about what their customers love, what causes them to get stuck and what keeps them coming back. Product led growth will become a more important channel for any business with a digital footprint. This means we have an opportunity to help our existing to expand to multiple different departments within those customers and to dramatically extend our reach to new companies of all sizes.

Speaker 1

The demand for digital analytics remains strong and we're only just scratching the surface of the opportunity. Turning our attention to Q1 results. Our first quarter revenue was $66,500,000 reflecting 25% year over year growth. Our dollar based net retention rate was 106% With trailing 12 month NRR of 114 percent, our operating loss was $7,900,000 or negative 12% of revenue and our total customer count increased to 2,175. The Q1 saw us win new customers from multiple industries, including PGA of America, Panda Restaurant Group, Viator, RudderStack and Endeavor, home to brands such as IMG and UFC.

Speaker 1

We expanded with companies including Chick Fil A, Chess.com and AMC Networks. We also brought in substantial deals with some of the world's largest on demand music services and streaming entertainment companies. Let me share more details on 2 of those deals. Panda Restaurant Group, which operates over 2,400 Panda Express locations selected Amplitude Analytics to gain real time insights that were previously unavailable with their existing tech stack and related dashboards. Our self-service capabilities, quality of insights And scalable platform will enable the Panda team to become more sophisticated in their data driven decision making.

Speaker 1

Panda will leverage Amplitude to power their new rewards program. By understanding how rewards, coupons and promotions directly impact customer behavior, The Panda team can make informed decisions that will keep their guests coming back. RudderStack, A customer data platform powering over 30,000 apps and websites is a great example of a company purchasing both Amplitude Analytics and Experiment at inception. RudderStack was previously using a hodgepodge of point solutions, which meant that running even very basic AB tests with time consuming. Now the RudderStack team can use Amplitude to run experiments and analyze the results all in one platform.

Speaker 1

This makes it much easier for its product, sales and customer success teams to access customer data, identify pain points and deliver a better product experience. We are relentless about improving the Amplitude product experience. In Q1, we redesigned our chart creation flow and layouts, reducing the time it takes to create your first chart. Early feedback has been tremendously positive with signs of increased feature conversion and retention. We want everyone to reach their First moment much quicker, whether you're trying to craft patterns between offline buyers and online sellers, design promotions for a loyalty program We're finding hidden signals between point of sale systems, deliveries and reservations.

Speaker 1

Recent advances in artificial intelligence have the potential to greatly accelerate the growth of our category. Developments in generative AI enable users to navigate complex workflows with simple natural language interfaces. For a platform as powerful as Amplitude, this can transform both the time to value and the base of users we speak to. We think such interfaces can let every user answer questions and service insights in a self-service manner. We've also seen the ability for these models to intelligently classify and summarize information, dramatically reducing The barrier for customers to reach a clean instrumentation.

Speaker 1

We also have the world's most Comprehensive dataset on product and customer behavior, which allows us to develop powerful foundational models That would have significant impact on how companies develop digital products. We are hard at work, experimenting with new ways to leverage this powerful data set As we made our way through the Q1, it became clear that our operating plan needed to change. It is a reset year for a lot of our customers. The overall business environment was far more challenging in Q1 in comparison to Q4. The tech and SMB sectors have been hit especially hard with more tech employees laid off in Q1 and all of 2022 and buyer behavior is more cautious as a result.

Speaker 1

Volume based pricing also means a more severe rightsizing for us after a period of acceleration. In addition, our exposure to more challenged end markets was having a greater impact than we expected. When customers spending cuts were more surgical last year, amplitude fared relatively well. However, it's now apparent that companies are reducing budgets more indiscriminately as the demand for their own offerings softens. As a result of these dynamics, we are updating our full year guidance.

Speaker 1

We now expect 12% to 13% revenue growth for full year 2023, down from the 19% to 22% growth we previously guided to. Against this, we are being very deliberate about how we operate our business at its current scale and accelerating our profitability and free cash flow. Chris will take you through the details shortly. In an environment as fluid as this, We operate by focusing on what we can control. We took the difficult decision in early April to reduce the size of the Amplitude team by 13 The move focused primarily on the go to market organization, but also covered product development and G and A.

Speaker 1

To successfully capture the opportunity ahead of us, we need to continue evolving as a company. That's why I have been deliberately improving the operational maturity of the business. I'm very excited about the And driving strategy and execution for the future to lead Amplitude to $1,000,000,000 in revenue and beyond. I previously talked about the building blocks of better execution around scalable pipeline generation, sales operating cadence, enablement and value based selling. Improvements here are starting to deliver tangible results.

Speaker 1

Pipeline has been a bright spot. Our win rates are up against the competition. We're keeping the aggressive pace of product innovation that Amplitude is known for. We remain disciplined in our investment approach and we continue to raise the bar for execution across the board. As the markets continue to change, it is crucial that we adapt.

Speaker 1

Here is how we are doing that. First, the April restructure means that we have a much clearer path towards operating as a profitable free cash flow generating business. We will operate responsibly against a short term lowered growth outlook, while still leaning into the opportunities ahead. 2nd, we have a more defined approach to account ownership and engagement in our go to market organization. We wanted to reduce the diffusion of responsibility and drive more accountability and the changes enable us to approach our customers differently depending on their needs and 3rd, our product development team will intensify its focus on a huge opportunity in the enterprise space.

Speaker 1

Many companies need more help in getting started and then driving digital maturity. Our efforts on ease of use and verticalization are specifically targeted to win this group. Last, we're doubling down on our product led growth efforts. We are in the first phase, Delivering for smaller customers, making sure that unhappy Google Analytics users have an easy natural migration path to Amplitude. Phase 2 will be targeted at smaller teams and larger accounts.

Speaker 1

We welcomed industry veteran Nate Crook to Amplitude as our new CRO in April. Nate has over 20 years of enterprise software sales and engineering experience. He spent 8 years at Microsoft and led their worldwide sales and strategic partnerships team. He's also held sales leadership roles at Cisco, Symantec and a number of other startups. Together, these developments will enable us to speak to many more prospects that we do today in a much more effective and scalable fashion.

Speaker 1

Against what is a challenging message, I want to take a step back. The market opportunity for Amplitude is incredibly compelling. The digital analytics category remains in its early days. We are under penetrated within our customer base. This is especially apparent when we look at how our most sophisticated Customers use Amplitude versus the average.

Speaker 1

We are continuing to take share from Guan O'Lakes displacements and consolidating numerous Weaker point solution in fragmented end markets. Amplitude's value proposition is unique and we are best positioned to win in this Market. We offer the most powerful digital analytics solution at the greatest value. Trying to replicate what we offer out of the box by using legacy tooling involves a combination of data scientists, extensive add ons and lengthy implementations. Amplitude's deep understanding and focus on Product persona and workflows will continue to set us apart from the pack.

Speaker 1

No other digital analytics platform can provide the self-service data, Insights and actions that we can. At Amplitude, we have succeeded by doing what is right for our customers in the long term. The growth we've experienced over recent years has been in tandem with the health and ambitions of our customers. This means more pain in the short term as many of these businesses face cyclically slowing growth. Here is a message I'd like to leave you with.

Speaker 1

It is a recent year for many of our customers. The macro headwinds are temporary and we see more validation of our And I'll turn the call over to you, and I'll turn the call over to you. Thank you, For us to improve our operational maturity and execution and all of these are controllable and fixable. Our team is rising to the occasion. We are well set up to navigate this environment.

Speaker 1

We have accelerated our path to profitability, free cash flow yet again even against the reduced growth outlook. I'd now like to turn it over to Chris to walk through the financial results. Chris, welcome to Amplitude. Thanks, Spencer. Thanks to everyone joining us today.

Speaker 1

More and more organizations see digital analytics as a must have, Making the opportunity in front of Amplitude huge. I joined Amplitude because of this opportunity. The world class platform that Amplitude provides and the asymmetrical outcomes I think we can deliver over the next few years. As I've left my arms around the business over the last 90 days or so, it's become clear that 2023 It will be a more challenging operating environment than was previously assessed. This requires more rigor and discipline And more than ever, a need for even more thoughtful and strategic capital allocation.

Speaker 1

We are intentionally shaping Amplitude to drive more operating leverage at scale and to position ourselves for reaccelerating growth As the headwinds Spencer characterized subside. Our team is rising to the occasion. We have a much clearer path towards operating as a profitable free cash flow generating business. I'm truly excited to be here and I hope to have the opportunity to meet with many of you over the coming quarters. Before I share our Q1 results and our updated outlook for 2023 in more detail, a last bit of context.

Speaker 1

As you will note in our press release and in our 10 Q, we have disclosed annual recurring revenue or ARR And our net retention rate to complement our historical disclosure of a trailing 12 month measurement of NRR. My intention in including these additional disclosures is to provide you more real time insight into our field performance in the quarter. Now on to our Q1 results. As a reminder, all financial results that I will be discussing with the exception of revenue, RPO and balance sheet figures are non GAAP. Our GAAP financial results along with a reconciliation between GAAP and non GAAP results can be found in our earnings press release and supplemental financials on our IR website.

Speaker 1

1st quarter revenue was $66,500,000 up 25% year over year and up $1,200,000 sequentially. Total ARR increased to $262,000,000 an increase of 25% year over year and an increase of approximately $7,000,000 sequentially. The mix of new ARR was fairly evenly balanced between new ARR from new logos and expansions. We're seeing growth in customers across both our $1,000,000 plus and $100,000 plus ACV base. The importance and ROI at Amplitude even in this environment remains clear.

Speaker 1

We're delivering tangible economic value with our platform, allowing us to explore new opportunities throughout organizations. Partial churns resulting from rightsizing against a weaker demand environment or reduced growth ambitions reflected about half our churn in Q1. As Spencer has said before, many of these customers want to work with us Longer term and see Amplitude becoming a more important part of their stack. Other customers are cutting deep on spend, Sometimes choosing to fly blind on product while in survival mode. This is driving some of our lost customer churn.

Speaker 1

NRR on a trailing 12 month basis declined sequentially to 114%. NRR as of March 2023 was 106%, down from 127% a year ago. The primary driver to the decrease was the significant slowdown of new ARR from expansions. Gross retention this quarter was in the high 80s and has remained fairly consistent over the last few quarters. Note that gross retention has slightly declined from the high, which was in the low 90s in late 2021.

Speaker 1

Comfort expansion and rightsizing dynamics have been evident in the delta between gross and net retention, which has been shrinking since the second half of 2022. Total RPO was $240,000,000 down $8,000,000 sequentially and up 24% year over year. Current RPO was $192,000,000 up $1,000,000 sequentially and up 28% year over year and represented approximately 80% of total RPO. Gross margin was almost 75%, up more than 2 percentage points On a year over year basis, as the engineering team has driven efficiencies that lowered our core unit cost. Sales and marketing expenses increased to $32,500,000 or 49% of revenue and represented a 4 Percentage point increased sequentially, partially reflecting cyclical sales and marketing expenses like our 2023 sales kickoff.

Speaker 1

R and D expenses increased to $14,700,000 or 22 percent of revenue and represented a 2 percentage point increase sequentially. G and A expenses decreased to $10,300,000 or 15% of revenue and represented a 1 percentage point decrease sequentially. Operating loss increased to a negative $7,900,000 or a negative 12% of revenue, a 3 percentage point improvement on a year over year basis, but a 5 percentage point decrease on a sequential basis. Net loss per share was $0.04 based on 114,400,000 shares compared to a loss of $0.07 with 109,600,000 shares a year ago. Free cash flow was a negative $5,800,000 or a negative 9% of revenue, a 9 percentage point improvement on a year over year basis and flat on a sequential basis.

Speaker 1

Finally cash, cash equivalents and marketable securities were $298,000,000 at the end of Q1. Now, onto our outlook. Indications are that some of the toughest dynamics of the year on renewals are ahead of us. Our outlook strives to prudently incorporate those leading indicators into our revenue guidance. We have recalibrated our top line revenue drivers for the changes in sales headcount, but the derivative impacts on productivity levels In the near term, far more challenging to predict.

Speaker 1

Our outlook strives to prudently incorporate these considerations into our guidance. The weakness in the first half of twenty twenty three means that the revenue acceleration this year is improbable and that the path towards reacceleration will be ultimately more gradual. We completed our restructuring in April from which we have strong visibility into the resulting cost savings. We are demonstrating fiscal responsibility and proving ourselves strong stewards of shareholder capital By having improved our path to profitability targets, for the Q2, we're expecting Revenue between $66,500,000 $67,200,000 representing an annual growth rate of 15% at the midpoint. Non GAAP operating loss between $1,100,000 and 0,600,000 Non GAAP net income per share to be between $0.01 $0.02 assuming shares outstanding of approximately $116,500,000 as measured on a fully diluted basis.

Speaker 1

For the full year, our updated 2023 revenue is between $266,000,000 $269,000,000 and annual growth rate of 12% to 13%. We expect non GAAP operating loss between $8,400,000 $6,000,000 and we expect non GAAP net income Per share to be between $0.02 $0.04 assuming shares outstanding of 117,500,000 as measured on a fully diluted basis. As you adjust your models, keep in mind the following. We had accelerated our operating margin profitability profiles For Q3 and Q4, as reflected in the updated 2023 operating margin guide, Contributing to the operating margin is continued improvements in gross margins. We're expecting about $3,000,000 of interest income per quarter and the spread between free cash flow margin and operating margin Both measured excluding the restructuring charges should be between 3 to 5 percentage points for FY 2023.

Speaker 1

In summary, the environment dictates a necessary reset for our near term growth targets, but our ambition remain intact. We are controlling what we can control, delivering profitability and focusing on execution. When the environment stabilizes, we believe many of the changes we're working on will translate into better productivity, net retention and revenue growth. With that, I will open up for Q and A.

Operator

Great. Please limit yourself to one question and one follow-up in the interest of time. Turn on your microphone and camera when called upon. Our first question comes from Elizabeth Porter of Morgan Stanley followed by Koji Ikeda from Bank of America. Elizabeth, please.

Speaker 2

Great. Thank you so much. Can you hear me?

Speaker 1

I can hear you great, Elizabeth.

Speaker 2

Great. I'm sorry, my video won't go on. I just wanted to ask on the competitive environment, Adobe introduced a product analytics solution a few months ago and Google Analytics, The ops is moving towards Amplitude's direction. So first, have you seen any changes in win rates or conversions in the near term? 2nd, how are you thinking about the balance between a large greenfield opportunity versus a risk from increased competition from some of these skilled vendors?

Speaker 1

Yes. So I think it's actually been a positive. The changes both on Adobe, Google Analytics, a bunch of the other players in the space Have been in response to a very real customer demand. The thing I track very closely is win rates and those have actually gone up in Q1, if I look at that versus prior quarters. And so I think I'm very excited that they're entering the space.

Speaker 1

I think it's a great validation The massive opportunity that's here, I'm very excited about how successful we've been against them. With regards to Adobe in particular, I'd point to 2 things. The first is that I think Amplitude, we've been built for first principles for a digital product world. We own the product persona, whereas Adobe is very focused on the marketing one. So from our standpoint, it's not like there's a legacy architecture.

Speaker 1

We're not afraid of disrupting ourselves in the existing business. We don't have competing priorities. The other thing that we and this is something We hear from customers is that the right comparison to Amplitude is not the product analytics product. It's actually 15 to 20 Adobe products combined plus tons of implementation services, data engineers, data scientists and analysts. While with Amplitude, we offer much better tooling right out of the box in a self-service We're continuing to see many of Adobe's largest customers very interested in expanding their usage of Amplitude versus Adobe.

Speaker 1

And I feel really good about how we're positioned and continuing to build our lead in the space. In terms of the larger greenfield opportunities, Our main motion remains kind of land and expand 1 and that's very consistent And remains true for the large Adobe customers, we'll land with a business unit in many of these companies and then start to expand to the central team that gets standardized And we're seeing that continue to happen and there's really no change in appetite for that. In fact, there's actually more interest in Amplitude as a result of other players entering the space and talking about product analytics.

Speaker 2

Great. And then just as a follow-up, I wanted to ask on the MTU based pricing. Are you seeing a benefit as you're just addressing a larger volume of low end customers? We saw that customers came in a little bit better Then what we were expecting for the overall net adds. And then just longer term, what's the path for these customers?

Speaker 2

Is there an opportunity to Upgrade them and have more of that revenue impact?

Speaker 1

Totally. Yes. So as you mentioned, our customer count has been a huge positive. The switch to MTU based pricing basically lowered the barrier to entry, particularly for the lower end of the market. We expect a lot of those customers to grow with us over time, both because of NTU based pricing and a lot of the other things we're driving on use of use adoption.

Speaker 1

One of the biggest priorities this year that we're thinking about Our product standpoint is how do we win the simple use cases and a huge part of that is getting more ways for customers to get started with us. And that's about making sure that if someone wants to start small with us, they can and then they can kind of grow later on. And so we're already seeing that show up in customer accounts, which Fantastic and we'll continue to drive more improvements there. Great.

Operator

Next question from Koji Ikeda Bank of America followed by Michael Turits from KeyBanc. Koji, go ahead please.

Speaker 1

Yes. No, thank you. Hey, Spencer. Hey, Chris. Thanks for taking the questions.

Speaker 1

Wanted to ask you a question on the guidance and just how much is it derisk? Thinking about the guidelines and How much conservatism is embedded into the revenue guide? I mean, when we look at the guide and assuming revs don't Sequentially decline in any quarter kind of going for the rest of the year, that really implies that revenue is essentially flat for the next three quarters. I mean, is that not right? How should we be thinking about the linearity of growth for

Speaker 3

the rest of this year?

Speaker 1

Yes. So the math that you've done is the correct math that we've conveyed in the guidance. So let me just talk through some of the pieces that are in there under the umbrella of the major theme. Our end customers are going through somewhat of a reset this year, Just on the level of volume that they're having with their end customers and these were a reflection of their ambitions prior. And we're going through that rightsizing with them.

Speaker 1

As I look through the kind of leading indicators as it plays out for churn for the rest of the year, both from continuing rightsizing And continuing just full churn of some customers who are going to go blind on the product side, I've tried to be very prudent and reasonably place how that increased churn plays into our guide. The second piece of it is recognizing that we didn't do the restructuring in April And that was really driven by a theme of go to market effectiveness, how we go after the enterprise market, We go after the lower end of the market and there was a restructuring around that reflective of those headwinds. So we have pulled down kind of our new ARR ads from both land and expansion as a function of that. The 2 of those, again, as I look at it holistically, just trying to be very prudent and reasonably placing how that plays out for the rest of the year. We are definitely in a worsening condition.

Speaker 1

As I conveyed in my prepared remarks, the renewals for this year, it is a worsening case And I wanted to have that reflected in terms of the revenue guide. Got it. Thanks, Chris. And just to follow-up here. I do appreciate the focus on the path to profitability, responsible growth in this environment.

Speaker 1

But thinking about investments for the long term positioning of the business, Dialing it back up in a better environment can sometimes take longer than dialing it back down in a bad environment. So Because you're operating in what we think is such an attractive long term opportunity here, how are you managing not leaving any growth on the table from a potential lack of capacity in the future. Thanks guys. Yes. So I'm going to start a little bit of contextual level, just like my background is High End Enterprises.

Speaker 1

Nate Crook, who's joined us as CRR comes with a very high end enterprise. We're very clear with what those motions look like. We serve as a great complement with where Thomas Hansen's experience has been specifically at Microsoft on the SMB space. We think we bring a lot of Insight in how to unlock effectiveness and efficiency in 2 very different motions at the top end and the high end. In reflecting where we are from kind of a broader macro conditions, which as we've said, we view as very temporary.

Speaker 1

This is a great opportunity for us to focus on driving that effectiveness. This is very much an opportunity for us to get those muscle memories in place and be in a really great position As we start to unlock that potential heading out of 2023 to 2024, as well as hopefully a resumption or A tailwinds or at least a significant drop off in the headwinds. That's how we're thinking about it. Like I've been here too short of 90 days. I say with humility, but I look forward to shaping and influencing Along with Nate and in collaboration with Thomas, how we run all of those motions up and down the stack.

Speaker 1

Got it. Something I'd add, Koji, to your question is we're able to make all the long term investments from a product development In innovation standpoint, I've said very consistently that product innovation is going to be the biggest driver of long term growth and shareholder value for Amplitude and that remains true. So all the things I called out in the previous earnings call on accelerating the distribution and monetization, we're still doing all of those. We've done we actually just had a hackathon last week where we built a bunch on the AI front that I'm quite excited about That will start to come out as we go get into later this year. And so we're able to make all the investments we need.

Speaker 1

We've always been a relatively efficient business in terms of the amount of cash that's required to get us to our size and growth rate. And so the restructuring we did wasn't as dramatic, I think as what some other companies have had to go through. Got it. Thanks guys. Thank you so much.

Operator

Thank you. Next question from Michael Turits followed by Claire Goodish from UBS. Michael?

Speaker 1

Hey, guys. Thank you for presenting, Spencer, very frank and open view of the environment. And Chris, good to be working with you again and glad to see you. Thanks. So again, I think taking off from where Koji went on the Guidance question.

Speaker 1

I'd love to right now you have 106% net expansion rate and you are growing customers. So I guess, Chris, what is it that you're exactly seeing in those forward looking indicators about around renewals That makes you think that you really will essentially get no net new sequential revenue. And doesn't that therefore imply that Your net expansion rate has to 100 or less? Great question, Michael. Let me start here.

Speaker 1

Our growth has been in the high 80s, been there for the last few quarters. And as I look out, I do expect it to drop down into the kind of mid-80s. The role that expansions play in the upcoming quarters versus the role that Golan plays, I have a better view at an aggregate level than I do at the delineated level. With that said, to the degree that our new ARR is coming in higher from a land perspective and new logo perspective, I could see the number dropping below 100 as it plays out this year and obviously vice versa. I look forward to getting my arms around more of that detail as we go forward.

Speaker 1

I've spent a lot of time with Thomas shaping how we're looking at the rest of the year. But as it pertains specifically to Contributions in an expand level and the role the NRR plays, what you've defined is possible. And then, Spencer, we've talked about the shift, probably, let's say, the expansion of the digital analytics platform to be more marketing focused. You want to have people that are using it for marketing. And one of the things we've talked about before, I think, is the fact that there There's more of an established budget for marketing analytics than for product analytics.

Speaker 1

And so I didn't think about product analytics, but Exciting to be new, I'll just say. So I think this has been some of the idea would be that with more whether it's And CDP or some of the other areas, this would help you appeal to that existing budget in this tougher environment. Has that worked out the way that you were hoping? Yes. It is early, but we're starting to see A lot of signs of consolidation.

Speaker 1

I already called out RudderStack, which moved off of a bunch of point solutions on to analytics plus experimentation. I think the penetration of experiment within our customer base is still low and it's early days. And so there's a lot of opportunity to kind of grow a cost. I think over the long term, I'd expect More than half of our customers use it. It's much less than that today as you probably imagine.

Speaker 1

We're seeing the consolidation play be fantastic. I think it is helping us offset a bunch of the churn picture. I think the other good thing is we don't see anyone consolidating away from Amplitude. It's always a consolidation What we have on analytics as well as experiment on CDP and all the other way around whether GA or other stuff almost never happens. And so I think, yes, I think we're it's early, but we're continuing to drive it and I think it will be a part of the expansion and driving NRR up over time.

Speaker 1

Great. Thank you. And again, thanks for the transparency. I really appreciate it. For sure.

Operator

Great. Next question from Claire from UBS, followed by Rob Oliver from Baird. Claire, go ahead please.

Speaker 2

Great. Thank you. I wanted to touch a little bit on NRR again, but more backward looking on the reported metrics. So can you would you be able to quantify like how much of that Has to do with rightsizing, churn and slower expansion. You touched on that obviously in prepared remarks, but just any further detail that you could provide there?

Speaker 1

So let's do this. I can't speak off top of my head to more than just Q1, which I tried to read in as transparently as I could in the prepared remarks. Give me some opportunity for your call back to see if I can get some better insight for you.

Speaker 2

Okay, sure. And then maybe I know you were just touching on where that metric Could dip to maybe below 100%. But as we look at the guide for the year, Could you talk about, given your newer to this role, how your guidance philosophy might differ From previously and if that's more conservative or anything like that?

Speaker 1

Yes. Look, I don't want to do a contrast. Those who have worked with me in the public markets know that I try to be a thoughtful person, I try to be transparent and I try to be prudent about how I'm Signaling how I think the business is going to roll out. I try not to apply any subjective assessments whether I'm too conservative or not conservative enough. I just try to give my realistic view of how I see things playing out in a prudent fashion, and that's what I've done here.

Speaker 1

As Spencer hit upon, a lot of this insight really developed in the back half of Q1. That happened to coincide with my arrival and diving in with a lot of things. I tried to convey what the leading indicators are telling us, telling me and the rest of the team. I've tried to convey What I think we'll be doing from a new ARR perspective and try to net that out as I've conveyed in the top line guidance. Okay.

Speaker 1

All right. Thank you.

Operator

Great. Next question, Rob Oliver from Baird followed by Clark Jefferies from Piper. Rob, go ahead please.

Speaker 4

Great. Can you guys hear me okay? Yes. Okay, great. Thanks so much.

Speaker 4

Spencer, I had one for you and then Chris a follow-up for you. Spencer, you mentioned a more defined approach to account ownership. I just wanted to get a better sense for you of what exactly that means? Are these changes that preceded Nate's arrival that involved Nate, maybe talk a little bit about how that Will be implemented and what sort of impact you expect it to have on the go to market?

Speaker 1

Yes. So all of this was before NAIT and as part of the restructure that we did in early April. I think one of the things that we that Thomas and I saw as we looked across the go to market teams is It was the there wasn't clarity of role responsibility. And so you had a lot of 5 or 6 people on accounts all with different roles And that how different teams handled that looked different across the board. One of the things that we wanted to do was drive standardization of that so that we had very clear accountability and roles across the team.

Speaker 1

As part of that, one of the things that we did was we made the account executive role Responsible for the entire relationship end to end. So the executive sponsorship, the renewal, any further expansion across the board. And that wasn't consistent before in a lot of the accounts that we have. So that was one change. The other big change was on the customer success side is defining that role to have a lot more product expertise responsibility.

Speaker 1

So their responsibility was less focused on the relationship and more focused on delivering training and helping the customer onboard and scale with Amplitude from a knowledge standpoint. One of the Biggest things we tried to do with the restructure was instead of just doing kind of a cut across the board is to do a fall forward into where we how we think our business is going to need to evolve and be deliberate about that. And so one of the things we've been hearing from a lot of the traditional enterprises and mainstream customers is that They want to know how other companies are using Amplitude. So a lot of the logos I mentioned that's landing in Q1, PGA of America, Panda, Endeavor, which owns UFC. They're all looking to us for expertise on what are the best practices when it comes to the space.

Speaker 1

And so giving explicit ownership of that to customer success as well as the other teams around it was a way to kind of drive that More role clarity and clear accountability on it. So that's kind of the high bits in terms of some of the things we did on the restructuring go to market.

Speaker 4

Yes, that's great color. Really appreciate it, Spencer. Thanks. And then, 1st, welcome. Look forward to working with you.

Speaker 4

We appreciate all the disclosures as well, the new disclosures and clarity. So you guys were already guiding for to be for cash flow positive in the quarter, I mean, for the year, sorry, I think despite that, Obviously, profitability has ramped tremendously for the year. Can you talk a little bit now, admittedly, only having been 90 days about Where you view some of the internal cost potential and additional leverage that you guys can get aside from Obviously, getting into a better environment and better revenue growth. Thanks.

Speaker 1

Yes. Well, you took away what's going to be my first talking.

Operator

Yes.

Speaker 1

We're definitely going to focus on effectiveness in the go to market. I look to see that manifest itself in terms of revenue reacceleration. I look forward to today when we're getting to make the trade offs between as operating profit and free cash flow margins are improving, how much are we reinvesting back into the business? The second piece of it, we lead to it in the prepared remarks is we are seeing additional upside in our product margins, in the hosting margins. The engineering team is doing an amazing job on how they're re architecting that.

Speaker 1

We continue to see that come to fruition and we've definitely built that in to our overall operating margin guide for the year.

Speaker 4

Great. Thanks again guys.

Speaker 1

Thanks Rob.

Operator

Next question, Clark Jefferies from Piper followed by Arjun Bhatia from Blair. Clark, go ahead please.

Speaker 5

Hello. Yes, thank you for taking the question, Chris Thanks, sir. Good to see you. I think very helpful to have an ARR disclosure. I think one of the crucial things that investors will be trying to kind of Parced out and understand and I think it's twofold and two ideas that we've heard from kind of multiple companies in the challenging operating environment.

Speaker 5

And one is maybe parsing out churn versus new customer ARR. And I was wondering, Chris, if you could maybe give a sense of Maybe the history of new customer ARR, is it still growing year over year? Do you still expect that to be on a trajectory of growth So that even if the optics of net new ARR are depressed by churn, you're still building a path of new ARR in the growth side higher?

Speaker 1

So I appreciate you valuing the fact that we're doing the ARR disclosure now. And I just say one step at a time In terms of getting more specific on that, in terms of the theme that you're hitting upon, I tried to speak to that a little bit earlier of Definitely the biggest lever in terms of kind of the reset had to do with churn. And it had to do with how I was perceiving both partial churn and loss churn. And that definitely is Eating into the productivity levels that we expected from the new ARR and kind of already spoke to the fact that we saw those at least at this stage And our effort to be prudent in that guide is somewhat of a neutral. As it pertains to the trend on that, I prefer not to get into greater detail at this time.

Speaker 5

Yes, makes sense. And then the second part is really around Sizing, I think at the time of IPO, 100 ks plus customers were more than 70% of ARR. Is there anything more to say about how this trend bifurcates and maybe the 6 figure plus customers versus below, Maybe to help us size downdraft in the sub 6 figure being maybe more significant than the above 6 figure or Any way to kind of bifurcate? Because I think that's something we've heard in other companies is how to invest incremental sales and marketing dollar, ARR is going to translate to a lower number when You pull back or invest.

Speaker 1

Yes, happy to. So I believe Spencer spoke to it I know I spoke to it as well. Both of those categories grew for us, right, both the $1,000,000 plus customers, both in terms of count and value as well as the $100,000 plus. We expect and strive to have that continue to grow at an accelerating rate. On the lower end of the market, that's where we're spinning a little bit.

Speaker 1

And that's a big part of why there's a big focus on PLG in terms of doing and serving that market in a much more Contribution profit effective way that we've done historically, which has been predominantly in a direct selling motion. As it pertains to kind of how we see that taking shape out The years, right, those are very different ACV basis, right, across those 3. I know there was a second part of your question, which I've now forgotten, but

Speaker 5

I think that's a fair characterization. Yes, it sounds like Trends were continuing to be very healthy in the 6 figure plus and that the reevaluation was maybe in the sub-six figure. And so That sounds like an adequate answer to my full question. So I really appreciate

Speaker 1

it.

Speaker 4

Thank you.

Operator

Next question, Arjun Bhatia from Blair, followed by Tyler Raghu from Citi. Arjun, go ahead please.

Speaker 6

Hey, guys. Good to see you. Thanks for taking the question. Can we just dig into churn a little bit more? I'm trying to get a sense for the customers that are fully churning, What are they doing?

Speaker 6

Are they just not using product analytics? And then kind of a similar question on the partial churn customers. Is that just a factor of customers that over bought or are we seeing their digital event volumes actually drop?

Speaker 1

Yes, for sure. So in terms of what customers are doing, I think there's 2 big cases on the full churn front. The first is They're going out of business or they're significantly reducing the business or the business unit is getting killed. So some material business event is out of our control where it just doesn't make sense for them to continue using anything. The other big bucket is customers who are too early on the maturity journey and so don't have the Capabilities, whether that's engineering resources, whether that's people dedicated to making sure you have data and the implementation be That's the training of the team and they're just choosing to go without.

Speaker 1

And so their expectation is that they will kind of get back to using product data at some point and they need to in order for this to discuss their business. They just they're making the decision not to for the short term. I think we almost never see churn to competitors, whether that be some of the legacy stuff like Adobe or GA or whether that be some of the smaller players. And so Win rate there is something that we very carefully track because we want to make sure that we're doing well and those have actually improved, believe it or not, in that Q1 versus prior quarters. And so that remains a strong point for us.

Speaker 1

Arjun, sorry, what was the second part of your question again?

Speaker 6

On the partial churn. Yes.

Speaker 1

So I think what we're seeing there is that We had because we're a volume based pricing model, we saw kind of outsized growth in 2021 and we're seeing the rightsizing This year be more severe with us. I think a lot of those customers are actually getting more value from Amplitude than they have in previous years. It's just They're having to put pressure on us and so that maybe they're more selective with what events they track. So maybe they're forcing CPMs with us down. Agreed.

Speaker 1

I was just talking with Atlassian as an example. They went through a RIF about 2 months ago and they actually have more users on Amplitude today than they ever In the past, they've over 1,000 people using Amplitude monthly. And so we're actually getting more value out of us, out of Amplitude and Forming the whole thing and they expect to grow with us long term, but it's just there's still budget pressures and so that comes into play where we're having the right size And that's a very consistent theme across our entire customer base. So even if you're getting more value and growing in terms of how you use Amplitude, You may still say, okay, hey, I got to cut this budget by 20% this year and that's just what it is.

Speaker 6

Okay, perfect. Understood. That's helpful. And then the other part, Chris, I think you touched on this a little bit, but the seasonality, you mentioned that you're entering some of the tougher renewals going through the rest of this year. Are there any particular quarters that you think are More concentrated in terms of renewal activity or will you see churn risk being higher?

Speaker 6

How should we think about how the year might progress here?

Speaker 1

I think what you'll find when you look through the Q2 versus the full year Q2 is obviously one where I have the greater visibility And our greatest visibility in terms of precision and it does reflect how I'm thinking about The mix across churn for the rest of the year Q2, Q3, Q4. To say that more precisely, yes, giving you that next layer of detail, It is the largest churn exposure that I'm expecting for the full year based on what I'm seeing today.

Speaker 6

Okay, perfect. Helpful. Thank you guys.

Operator

Next question, Tyler Radke from Citi followed by Nick Altman from Scotia. Tyler, go ahead please.

Speaker 3

Yes. Thank you and good afternoon and nice

Speaker 7

to meet you virtually, Chris.

Speaker 3

Look forward to working with you. So Spencer, obviously, it's a challenging environment out there. I guess, as you step back and kind of diagnose The issues that you're seeing and expecting, how much of this is kind of self company specific Thanks. With go to market execution, you're bringing in new sales leadership, maybe not having that senior level of selling at these customers to really Justify the value and how much of this is stuff out of your control just with the budgets? And how are you kind of Expecting to what's the mix of those and how are you kind of expecting to respond to those?

Speaker 1

Yes. Let me answer it a little differently, Tyler. So I think the high bit is that it's a reset year for a lot of the customer base because they're encountering slower than expected growth in their businesses. And so the volume based pricing we have means more severe rightsizing for us. And as we got further into Q1 and look through the rest of the year, We wanted to make sure to update our view on what the right way to operate the business was.

Speaker 1

In terms of I think from an execution standpoint, I think there I've been very focused on how do we improve the operational maturity, Whether that's sales execution, as you asked about or whether that's being able to have visibility into further out periods from a Forecasting and guidance standpoint. And so I think we're kind of partway through that journey now. I'm very excited about the work Thomas is doing and bringing in Nathan. We've already seen the work on the marketing side in terms of improving the operational maturity in terms of driving more consistent top of funnel and pipeline. I think we absolutely will improve.

Speaker 1

I think I said on last earnings call, frankly, I'm not happy with where churn is at. And so I think the addition of Nate will help us improve over that. And then I'm working with Chris to make sure that we get much better further out visibility into where those trends are so that we can get in front of them earlier and make adjustments to how we operate and how we run and guide the business. And so I think to the high bid, I'd say it's Because of we're early in the market and we have volume based pricing that is out of our control fundamentally. And so that means more dramatic swings because of the macro.

Speaker 1

And then the part that we can control is how we manage and forecast through those swings. And that's what I'm really focused on improving from an operational maturity standpoint.

Speaker 3

Great. One area that was quite strong in the quarter was new logos with the customer additions. Wondering if you could just kind of characterize like the composition of those new logos. Did they tend to I know you referenced some on the earnings call, but did they How are land sizes relative to what you're seeing? And are you incorporating that maybe the new logos are not as strong in the coming quarters just given the environment?

Speaker 1

Yes. So a lot of that was driven by the change to MTU pricing at the low end of the market. And so that gives A much broader segment of customers and easier on ramp to Amplitude. Now Customers are just coming on, it's like I don't expect them to grow in any short term, like but those will pay dividends as we go into 2024 and beyond. And so very, very excited to see new customers coming on to Amplitude.

Speaker 1

I do think land sizes are more challenging. And so I think We've seen those cut down as we go through Q1 and what we expect for the rest of this year. But Exciting the thing from my standpoint is like, okay, we can still land a lot of these customers, we can expand, we can grow the segment of customers that are able to come on to Amplitude in Fashion in a much easier way. And so that's the part we can control. So let's focus on driving that and that will set us up for great acceleration in the long term.

Operator

Great. Next question from Nick Altman from Scotia followed by Gil Luria from D. A. Davidson. Nick, go ahead please.

Speaker 7

Yes, awesome. Thanks guys. Really appreciate the ARR disclosure. Is there any way to sort of Now when you look at the full year revenue guide, what does that sort of imply for net new ARR Growth year over year. And if you don't want to get that specific, maybe just some directional commentary, kind of how you've done with And our on a go forward basis.

Speaker 7

And then just to clarify, the new ARR metric that does not include overages?

Speaker 1

So on the first part of the ARR, I think one of your colleagues had already Kind of done the math and said it implied relatively flat net ARR for the upcoming quarters. And I kind of confirm that math As we've increased the drag on us from increased churn and as I've kind of recalibrated the new ARR Reflecting the macro headwinds and us really focusing on the effectiveness. As to the second part of your question, I pause because I'm 99% confident it doesn't include our overages, but I would really love the opportunity to go verify that with my team. Fair enough.

Speaker 7

And then just I know there's been Changes on some of the sales leadership and you guys have talked about a little bit, but what are sort of the go to market tweaks You guys are making obviously factoring in that the macro is very turbulent and that's a challenge Within its own right. But any sort of broader tweaks to the go to market, significant changes to sales comp structure, Just sort of any color around that you can provide, I think will be very helpful. Thanks.

Speaker 1

Yes, for sure. So I spoke to a little bit earlier where Thomas and I use the restructure as a deliberate opportunity to drive more consistency in how we approach accounts. And so giving account executives end to end Relationship and Executive Sponsorship Responsibility. And so that's been a huge that's been quite a big change. And then redefining a lot of the customer Our organization roles, in particular customer success, focusing on product expertise and training and onboarding and making sure that we share best practices With them on how to do it.

Speaker 1

And so we've used the yes, we've used and so I think Thomas, yes, I've been working with Thomas to kind of drive a bunch of these changes over the last few quarters and we'll continue to do this and adapt. With respect to goals, I think one of the other things we did, we obviously want to make sure everyone here at Amplitude is set up for success in a challenging environment. So we did take the opportunity to look at goals across the go to market organization, including quotas and make sure they're set at a place where folks I feel good about achieving them and can find success for the team that is here at Amplitude.

Operator

Great. Thank you. Gil, can you turn your mic?

Speaker 8

Yes. Thank you. In the prepared remarks, you talked about the difficulties of selling right now into software and technology companies. How about the non digital natives? You have customers in a lot of other verticals that are just expanding their digital footprint, fast food restaurants, etcetera.

Speaker 8

What are the trends in those non digital natives that are maybe not doing as many layoffs and cutting their budgets as much as those Digital natives are doing right now.

Speaker 1

Yes. I mean that's I think we're in this moment where we're going from having a large base of technology Companies to trying to get this out to the rest of the market. And then to your point, there have been a few verticals, quick service restaurants is 1, media is another where we have found a lot of success. I want to be clear, it's early for us in that transition for both Amplitude and for the market, but we're continuing to get wins From that standpoint, I think 2 things in particular I'd call out. 1 is a deliberate Drive to get Lighthouse customers in a particular category.

Speaker 1

So we saw that bear a lot of success within media where we got NBC and then that's led to Fox Broadcasting, HBO, Discovery, a whole bunch of other media companies over the last few years. Quick service restaurants has been another. I think some areas where we're still earlier, but we're looking to drive more of that is retail and financial services this year. I think there's big opportunities in both. A lot of what we're doing, so that's on the go to market front.

Speaker 1

On the product front, one of the concepts that we think a lot about is winning the simple use cases, Because a lot of these companies don't have the same level of expertise as the technology companies. So how can you provide them with a ton of value right out of the box And as easy as implementation as possible. On the last thing in this call, I called out a lot of the initiatives we have on that front. So single line of code instrumentation, Warehouse native Amplitude, so being able to get set up with on top of your data warehouse if you've already put data in there, out of the box reporting, chart So there's a lot that we're doing to make it easier for the traditional companies to get on to Amplitude. So we had some good wins in Q1 with some of the companies already mentioned.

Speaker 1

And so we're going to be focused on continued driving because I think you're exactly right from a strategic standpoint, which is You want to get to these traditional companies both because they don't have as much headwinds in the current macro and because that's the much bigger market opportunity ultimately. And I'll just do a

Speaker 8

very quick follow-up on the digital natives. How much of what you're seeing right now is just a shock from VC Capital Drawing Funds Being at Risk Because of Silicon Valley, how much of it is a discrete short term shock versus A change in secular demand from those customers?

Speaker 1

Everything I'm seeing is pointing. We ask ourselves We ask ourselves that question a lot and everything we're seeing is that point is pointing to it as a short term shock. I mentioned that Atlassian Even though we're driving more value, they need to shrink budgets with us this year. I mean, that's true of a lot of our customers. And so I talked to them, their expectation is they're going to grow with us long term.

Speaker 1

Great example, I just talked to one of our largest Japanese customers And they're looking to roll out Amplitude to 30,000 end users. They want 30,000 of their employees to become Amplitude users because they believe And the importance of self-service data across the organization. And so we're seeing it, we're still having conversations top of funnel. That's actually improved a whole bunch. It really is just short term budget pressures as we go through 2023.

Speaker 8

Thank you.

Operator

Great. Thank you. With that, I'm seeing no further questions in queue. We'll be at the Bank of America Global Technology Conference in June. Details will be posted on our IR website.

Operator

Thank you very much for attending our Q1 earnings conference call. You may now disconnect.

Speaker 1

Thank you all.

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Earnings Conference Call
Amplitude Q1 2023
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