Amplitude, Inc. (NASDAQ:AMPL) Q1 2024 Earnings Call Transcript

Amplitude, Inc. (NASDAQ:AMPL) Q1 2024 Earnings Call Transcript May 9, 2024

Amplitude, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator:

Yaoxian Chew: Hello everyone. Welcome to Amplitude’s First Quarter 2024 Earnings Conference Call. I am Yaoxian Chew, Vice President of Investor Relations. Joining me here are Spenser Skates, CEO and Co-Founder of Amplitude; and Criss 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 second quarter and full year 2024. The expected performance of our products, our expected quarterly and long-term growth, investments and 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 in today’s call 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 this 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 Spenser.

Spenser Skates: Thanks Yao, and good afternoon, everyone. Welcome to our 2024 first quarter earnings call. I’m going to focus on three topics today. First, our Q1 financial results and the latest views on macro. Second, how we are going after our market opportunity. Third, continued product innovation and customer stories. Let’s start with the Q1 financial highlights. Our first quarter revenue was $72.6 million, up 9% year-over-year. Annual recurring revenue was $285 million, up $4 million from the end of the fourth quarter. We now have almost 3,000 paying customers, up 37% year-over-year. Results exceeded the midpoint of guidance we gave last quarter, and in part reflect the efforts we’ve made to focus our investments over the past year.

See also 16 Biggest Publicly Traded AI Companies in the World and 15 Biggest Latin American Banks.

Q&A Session

Macro conditions remain consistent. There are still challenges out there as companies continue to right size their digital investments and VC backed startups continue to cut back to survive. We believe we have our arms around the magnitude of these changes and have appropriately accounted for them in our revenue guidance. There is growing evidence to support our view that these headwinds are temporary. New ARR has been holding steady as the need for digital analytics remains consistent. We see green shoots and emerging catalysts to growth acceleration. We are getting closer to flushing out the worst excesses of the pandemic surge. We’re seeing more conversations with many customers who realize they need to future -proof the way they approach their digital analytics journey.

We remain at the beginning of a generational shift in how people view, understand, and use their customer and product data. Point solutions and legacy technology are limited. They offer a fragmented user experience and provide an incomplete picture of customer behavior. The digital experience is one of the most important channels that all businesses can control. It is the repository of first-party customer behavior and intent. Actions speak louder than words. What people do with your product is more important than anything they tell you. We are going after a multi-billion dollar addressable opportunity and believe we remain incredibly well positioned to win the category as the convergence of buyers and budgets across product, marketing, and experience continues.

Everyone wants to understand their customers better. Amplitude tells you exactly what your customers do and how they behave across the entire customer journey. Many of the largest and fastest-growing companies care deeply about acquisition, retention, and monetization and view Amplitude as their first call. You’ve heard me speak to progressively up-leveling our go-to-market efforts across many dimensions over the last year as we look to win the enterprise. I’ve shared how we’ve aligned around a more defined approach to account ownership engagement. I’ve talked about how newer leaders are driving discipline and rigor, helping us think bigger and elevating our customer relationships. We’re not just doing the basics better. We’ve also brought focus to the way we sell to drive stronger unit economics for different customers.

We launched a self-serve offering for the lower end of the market and have been resourcing our sales motion with a name-to-count focus. Amplitude Plus is our self-serve offering customers of all maturity levels try before they buy. Our PLG motion continues to gain momentum. This helps us scale our offering in a more cost-effective way. Plus is attracting a diverse range of customers. Beyond the startup and B2B SaaS players we expected, we’re also seeing railroads, universities, and semiconductor companies sign up. These users are trying Amplitude for the first time and they represent a tiny fraction of the addressable user base out there. It has only been one quarter since we instituted our named account approach, but we are seeing increased impact across our organization.

As a reminder, our CRO, Nate and team have halved the number of target accounts while growing targeted high potential account dollars by 50%. This approach will take time to mature, but we are seeing some early promising signs. There is greater traction for our professional services portfolio through the named account model. We’re also seeing early signals of improvement across pipeline and customer health that we believe will translate to better efficiency metrics. When it comes to renewals, we’ve talked before about multiyear contract customers who are rightsizing their spend, common theme across software optimizations. As expected, churn was still at an elevated level in the first quarter. There’s an important observation that’s worth noting as we work our way through these pandemic cohorts.

These relationships are actually healthier post-renewal. We are now more aligned with our customers’ current growth ambitions. Utilization relative to capacity purchased is also at more balanced levels. For customers who have optimized with us one time, the majority of the associated ARR either renews flat or grows off of that base. I speak with customers all day long, and I believe we’re being set up for long -term success in ways that we previously were not. We’re aligning with senior executive buyers at the VP and C-level as well as multiple champions. We’re driving higher-level conversations that are much more aligned with value and business outcomes. We’re attaching services, driving more use cases across our entire platform, and positioning to economically scale with their future growth.

Finally, I want to focus on the work being done to innovate on our digital analytics platform, both improving our current offerings and bringing new solutions to market. Product innovation is the biggest driver of long-term growth for Amplitude. Other companies in our space have dramatically scaled back their ambitions, pared down their teams, and reduced product velocity. We are taking the opposite approach. We are making bigger, bolder bets. Our Chief Product Officer, Francois, is strategically organizing our strong animate patient muscle. We continue to see validation that our platform approach is the right one. Traditional enterprise companies don’t want a patchwork of disjointed points solutions. They want one end-to-end platform that covers all of their digital analytics needs.

They don’t want to waste money on duplicative tools. Most importantly, they want deep customer insights so they can impact the metric that matters most, revenue. Today, 19% of our annual contracted customers use more than one product, up from 14% the same time last year. Customers who use more products retain better. There remains a very real opportunity for us to expand the platform, grow cross-sell, and displace point solutions. Our thesis is that analytics is the center of gravity for any workflow that touches customer and product data. Without analytics, the rest of the stack is much less useful. We bring data, insight, and action together in ways that no other solution can. We are expanding our platform. Session Replay is off to a nice start in its first few months.

As a reminder, Session Replay helps our customers reconstruct a user visit by capturing how they interacted with a website, app, or digital experience. It is a tool commonly used by product, marketing, and data teams to understand user behavior, diagnose product issues, and improve outcomes. The majority of Session Replay wins to date are competitive displacements of an existing points solution. In contrast, we almost never see companies transition from Amplitude Analytics to another Session Replay provider that has an analytic solution. We are leaning into win simple across our product organization. To accelerate growth, we are reducing barriers to entry. We have to bring the power of Amplitude to everyone regardless of their technical expertise.

We focused on radical simplicity as a core differentiator. We’ve made major improvements to our entire product experience to help accelerate finding and landing new customers by releasing a one line of code implementation as the default onboarding experience for Starter and Plus users. We’re already seeing a 30% increase in activation for that group from some of those early changes we’ve made. We have ambitious goals. We want to reduce our sign-up process down to seconds and then deliver a customer’s first to wow within minutes. There’s more to do. Turning to customers. Rocket Money, a leading personal finance app, is a great case study for how Amplitude’s digital analytics platform can drive incredible business outcomes. By understanding user behavior patterns and changes, Rocket Money was able to identify inconsistencies in their product experience and blockers to user success.

They made changes so that iOS, Android, and web users followed the same customer journey. They also added functionality so that every segment of users could easily upgrade to premium. These changes boosted customer lifetime value significantly and estimated by Rocket to drive millions of dollars in revenue a year. In Q1, we landed and grew with companies like Decathlon SE, Algolia, WOOP, TicketSwap, Verda Health, The Browser Company, Meow Wolf, and Calendly. One big win this quarter is Calendly, the scheduling platform with more than 20 million users around the world. Calendly needed a source of truth for clean, accurate data to activate on, and its previous analytics provider had become a black box. In Q1, Calendly selected Amplitude Analytics and CDP as a centralized source of truth for customer data and activation.

With a consolidated tech stack, Calendly will have more control over its data governance, privacy, and security. Its team will also have a deeper understanding of the customer journey so it can improve its primary growth levers, including customer activation, monetization, and retention. We also won The Browser Company, best known for its new Arc browser. The Browser Company had been using SQL infrastructure for user analytics, but it encountered bottlenecks in data access as the team grew. Several members of their leadership team came from companies that used Amplitude, and they strongly advocated for The Browser Company to adopt multiple parts of our platform. With Amplitude, The Browser Company will now have a better data-based way to make key decisions and improve its user experience.

Lastly, one big expansion this quarter is with one of the world’s largest automotive services providers for car shoppers, dealers, and lenders. Prior to 2024, Amplitude primarily worked with its B2B team. In the last year, there was a major company effort to have product, IT, and data teams roll into centralized leadership under their chief product officer. We’ve seen this move happen at other companies too, as more businesses understand the growing importance of product and the need for an aligned tech stack to solve for Customer 360. Understanding Customer 360 for them means needing to piece together the disparate digital journeys from the moment a car is purchased from auction to its listing process to inventory loading to customer website traffic and all the behavior associated thereafter.

It is a huge problem to solve from beginning to end. Amplitude was built from first principles to solve this very problem. We expanded to their consumer organization this quarter, displacing Google Analytics and another point solution due to scalability, depth of analysis, and platform breadth. Now leaders from more than 20 business units will rely on Amplitude to understand their customers and inform every product decision. Before I hand it over to Criss, I want to emphasize that our opportunity to lead the digital analytics category remains unchanged. We remain focused on what we can control. I am not satisfied with our current growth profile, and we are not standing still. I want everyone to know that we are driving focus to set ourselves up for accelerating growth.

Our platform approach is differentiated and resonating. We’re driving healthy new business and taking market share. We continue to be relentless about driving innovation. We are almost through the cycle of rightsizing renewals. Green shoots continue and we see more pockets of strength and weakness. I’m incredibly excited about what’s ahead. With that, thank you for your interest and Amplitude. I’d now like to turn it over to Criss to walk through the financial results.

Criss Harms : Thanks, Spencer, and thanks to everyone joining us today. It’s been just over one year since I joined, with this call marking my fifth earnings call. I told you throughout that we are intentionally shaping our focus across go-to-market and product at Amplitude to position ourselves for reaccelerating growth to drive more operating leverage at scale. We are making progress and I believe today’s results are in early evidence that we’re moving in the right direction. Now on to our first quarter results. As a reminder, all financial results that I will be discussing, with the exception of revenue, 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, supplemental financials, on our IR website.

As Spencer said, first quarter revenue was $72.6 million, up 9% year-over-year. And total ARR, exiting Q1, increased to $285 million, an increase of 9% year-over-year and $4 million sequentially. Here are more details on key elements of the quarter. New ARR was about one-third land and two-thirds expanded, primarily reflective of better internal execution in our enterprise business. Churn dollars, as expected, and as incorporated into our full year guide, ticked up quarter-to-quarter. The number of customers representing $100,000 or more of ARR in Q1 grew to 521, an increase of 6% year-over-year. In period, NRR dropped to 97%, and NRR, on a trailing 12 -month basis, declined sequentially to 99%. We continue to believe that the worst excesses of the pandemic surge embedded in our ARR will be in our rearview mirror shortly.

For customers who have optimized with us one time, majority of the associated ARR either renews, flat or grows off that base. Gross and net retention patterns for customers acquired in the second half of 2022 onward continue to show better dynamics than those from 2020 and 2021. And lastly, underlying utilization trends across our largest customers continue to improve slightly quarter-to- quarter, which is also impacting gross margin. Gross margin was 76% for the first quarter, up two percentage points year-over-year and down one percentage point from Q4. Investments in enterprise-related professional services and the higher utilization rates relative to the capacity purchased resulted in the sequential margin downtick. Total operating expenses were $58 million, up 0.4 percentage points year-on-year, employee payroll taxes and seasonal events like our sales kickoff contributed to higher OpEx spending this quarter.

Operating profit was a negative $2.1 million or 3% of revenue, which represents a nine percentage point improvement on a year-over-year basis. Net income per share was $0.01 based upon $130.9 million of fully diluted shares compared to a loss of $0.04 of the 114.4 million shares a year ago. Free cash flow on the quarter was negative $1.1 million or negative 2% of revenue, which represents a seven percentage point improvement on a year-over-year basis. Now, on to our outlook. For the second quarter of 2024, we expect Q2 revenue to be between $71.7 million and $72.3 million, representing an annual growth rate of 6% at the midpoint. We expect a non-GAAP operating loss between $4.4 million and $3.8 million, and we expect non-GAAP net loss per share to be between negative $0.02 and $0.01 assuming basic shares outstanding for approximately $122.5 million.

For the full year, reflective of our Q1’s new ARR achievement, coupled with the churn coming in at projected levels, we are raising our full year revenue outlook to be between $292.5 million and $295.5 million, an annual growth rate of 6% to 7%. We are holding our outlook for non-GAAP operating income between negative $1 million and positive $2 million, and we expect to be profitable on a non-GAAP net income basis, with per share of non-GAAP net income to be between $0.07 and $0.09, assuming shares outstanding for approximately $133.5 million as measured on a fully diluted basis. Here’s more color for your modeling purposes. We continue to expect churn to remain at elevated levels for at least another quarter, and we reiterate that we have incorporated those levels of churn into our full year revenue guidance.

As we have characterized previously, a primary driver to these elevated levels of churn are the multiyear contracts from 2021 and 2022 being optimized. We continue to expect in period NRR to remain below 100% and NRR to trough in the mid-90s this year. We continue to expect year-over-year ARR growth to trough in Q3 of this year in the mid-single digits. We continue to expect to be free cash flow positive for the full year as we were in 2023. What a difference a year makes? We remain hard at work on improving the business and investing in key areas that we believe will eventually lead to re-accelerating growth. I am increasingly confident of the path we are setting for ourselves through 2024 and beyond. With that, I will open for Q &A. Over to you, Yao.

Operator: [Operator Instructions]

Yaoxian Chew : Great. Please turn your microphone and camera on and limit yourself to one question and one follow-up in the interest of time. Our first question comes from Koji Ikeda of Bank of America followed by Brent Bracelin from Piper.

Koji Ikeda : Yes. Hey, guys. Thanks so much for taking the questions. Maybe a question for Criss here. Just wanted to dig in on the ARR in the quarter. You guys added $4 million. That is a bit lower than the prior two quarters. But as you stated in your prepared remarks, clearly there was a bunch of pandemic renewals coming up in the first half of this year. So just wanted to dig in a little bit on this new ARR. Did it come in as expected here, just thinking about the renewals versus upsells? Is there anything we should be thinking about within that net new ARR that wasn’t in the prepared remarks?

Criss Harms : Well, it definitely came in above what we had modeled into our revenue guidance that we shared in February. And I think if you recall from the transcripts from that February time frame, I’d signaled a zero net ARR for the quarter. So coming in right at the $4 million was an overachieve relative to that.

Koji Ikeda : Got it. Thank you. And so we’ve heard from a lot of other software companies over the past few weeks and definitely heard companies calling out SMB weakness out there. But when I look at your guys’ metrics, the customer count, strong customer growth there, thinking about the plus plan for smaller customers, and just thinking about what you guys are seeing out there from the SMB front.

Criss Harms : Spencer, do you want to take that?

Spenser Skates : I’ll take that. On the SMB side. So first, we’re obviously focused on winning the enterprise. And what we’ve seen on the SMB side is the release of Plus has allowed us to be meet those customers where they’re at and allowed a lot more customers to come on board as you’ve seen in the Plus customer count numbers. I think there continues to be headwinds on SMB. But over time, we expect a larger proportion of our customers to be on the enterprise and traditional companies segment. And so for us, it’s less about extracting the most dollars out of SMB. Butit’s about okay, how can you get them started on Amplitude? And when those folks go to larger companies or become larger companies or get acquired by larger companies, drive the revenue from the enterprise segment.

So we haven’t, I’d say macros been very consistent. It’s been tough for the last year in that segment that continues to be the case, we’re not planning on seeing any changes in that. And so for us, it’s just making sure we win over those customers with where they’re at versus maximizing the dollars on revenue. Koji, I also just wanted to comment on what you said on the $4 million previously. I mean, building on what Criss said on that obviously I want to be putting up numbers way, way stronger than $4 million in net, as we’ve talked about before, and expect to as we accelerate our growth. As we’ve talked about before, the churn levels from contract resets from 2021 and 2022 have, we’re expecting to get to the bulk, through the bulk of those, as we pass Q1 and Q2 and get into second half of this year.