Amplitude, Inc. (NASDAQ:AMPL) Q3 2023 Earnings Call Transcript

Amplitude, Inc. (NASDAQ:AMPL) Q3 2023 Earnings Call Transcript November 8, 2023

Yaoxian Chew: Hello, everyone. Welcome to Amplitude’s Third Quarter 2023 Earnings Conference Call. I’m Yaoxian Chew, Vice President of Investor Relations. Joining me are Spenser Skates, 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 fourth quarter and full year 2023, 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 and could cause actual results to differ materially from those described in these teams.

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 used 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 are 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 Spenser.

Spenser Skates: Thanks, Yao, and good afternoon, everyone. Welcome to our third quarter earnings call, and thank you for taking the time to join us. For today’s Q3, 2023 call, I’m going to cover three main topics. First, our Q3 financial results alongside a macro and execution update. Second, observations on our evolving market opportunity and category. And third, an update on platform developments and some customer stories. Let’s start with a summary of the third quarter. We closed the third quarter with $70.6 million in revenue, up 15% year-over-year. Annual recurring revenue was $273 million, up $5 million from the end of the second quarter. We were profitable on a non-GAAP basis and generated another $7.5 million of positive free cash flow this quarter.

We now have almost 2,500 customers. To put these numbers in context, I’ll provide an update on how we’re executing on the state of the macro and on how we see our category evolving. On execution, our new ARR was more broad-based this quarter. We welcomed a number of organizations of all sizes to Amplitude, compared to Q2, which was marked by a couple large expansion deals. Total churn, while still high, was lower than the previous quarter. We also drove an incredible company-wide effort to launch our Plus plan. I’ll talk more about it shortly, but the Plus plan gives a self-service options for startups, small businesses, and first-time enterprise prospects. Given it’s a product-led growth motion, it also allows us to incrementally redirect our sales efforts towards larger enterprise prospects and customers.

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Q&A Session

The new leaders we brought into the company continue to raise the bar across the board, from discipline and rigorous inspection to elevating customer relationships. We are also beginning to think bigger. We’ve been able to grow deal scope and deal sizes significantly with some customers this quarter as we start to sell more strategically across different buyers. The macro environment remains challenging on a number of fronts. Our customers continue to recalibrate their own growth expectations under new demand and interest rate environments. We continue to battle the same ongoing themes of optimization and macro driven churn as customer budget pressures remain stubbornly persistent. This will take time to work through. On the digital analytics category, it remains in its early days and we continue to see evidence that our approach is the right one.

Adobe, Google, and many others have built great businesses on the back of a web traffic and marketing-centric view of the world. Billions of dollars are currently being spent by companies on legacy software, data scientists, and complex implementations to try to understand the digital customer experience. This approach breaks down for today’s realities. Customer data is now more fragmented than ever across multiple data sources and touch points. Growing global regulation and an increased focus on privacy means a heightened importance on first party data. Legacy approaches and point solutions only provide a snapshot when it comes to trying to understand your customer. Amplitude tells you what your customers do and how they behave across the entire customer journey.

Market awareness continues to grow alongside increasing customer sophistication. Our platform for breadth resonates with users across multiple departments, product, data, engineering, marketing, and more. As customers understand the criticality of product data, we also see increasing signs of previously siloed pools of spend coming together across marketing, product, and data budgets. We see increasing opportunities for us to grow wallet share and expand our addressable markets. One notable sports gaming customer expansion from the quarter really brings these dynamic to life. Amplitude had been the solution of choice for the leading digital products since 2016. Product teams were historically given their own choice of toolkits. That agility came with the tradeoffs of sprawling costs and unsuccessful implementation.

Recognizing the need for a more complete view of the customer journey, their VP of Marketing and MarTech recently took over additional responsibilities for product analytics. Over the course of our relationship, we’ve worked with them to execute on their vision for one provider across their entire digital product portfolio. This quarter, they went wall-to-wall with Amplitude. Amplitude analytics, CDP, and experiment are displacing several fragmented marketing and point solutions across their products. We’re helping them personalize customer experiences, embrace rapid testing, and drive insights to action with one unsingular platform. We think we can help many more of our customers execute on that vision. With that backdrop, let’s recap product development.

It was an excellent quarter for innovation. We are growing our platform. I’m very excited to announce that session replay is coming to Amplitude early next year. Session replay is a great entry point for companies who are earlier on their analytics journey. It provides video-like replays that give a more accurate picture of how digital products are being used through actions like clicks, cursor movements, and scrolling. When combined with analytics, teams can quickly identify the issues users are having, understand why they’re having them, and recommend improvements. With a visual comparison of the before and after, teams will be able to see if a problem like low engagement is resulting from user design or performance issues and how widespread specific issues are.

Session replay removes the guesswork behind behavior and improves the user experience across the board. As I mentioned earlier, we launched our Plus plan in mid-October. Plus solves an issue we’ve been hearing for years, namely that pricing for analytics is challenging. It can be expensive to go from free to paid plans, and if those plans are priced by events, smaller companies either overpay or ration what they track, which undermines the whole purpose of analytics. That is where plus comes in. The plan offers the best of Amplitude analytics, CDP, and experiment starting at just $49 per month. And it’s the first digital analytics platform to be launched in a self-service package. With this launch, we are growing distribution and can now serve the low end of the market more efficiently.

Early traction is encouraging with multiple five-figure signups in the first few weeks since launch. As it relates to AI, I’ll provide a brief update on our recent launch and what we’re seeing in the market. Data governance is like physical health. Companies should be proactive about data and cleanup and taxonomy. And we should exercise and eat vegetables every day as well, but few people end up doing it in practice. That is where Amplitude can help. Amplitude’s AI data assistant is a friendly, individualized, personal trainer for anyone who wants to get their product data in better shape. In less than three months since launch, our AI data assistant has been a huge hit with hundreds of our customers already using it to improve their governance practices.

What would normally take weeks and months of effort is being broken down into bite-sized chunks that can be tackled in minutes and hours. Organizations that use data assistant see a big uptick in data governance scores and more than a 30% average lift engagement. Cleaner data leads to more impactful insights, happier users, and better business outcomes. On to customers. We want to stand out customers in the generative AI space. Amplitude is the platform of choice for some of the biggest, brightest, and best names in generative AI, helping them guide their businesses in ways that our competitors cannot match. Midjourney is a pioneer in AI image generation, revolutionizing art and imagination in the same way ChatGPT has transformed the written word.

They have developed and productized text to image generation and are the AI success story in image generation. They are evolving rapidly with their product surface area growing from web to mobile, mobile to multi-surface. With a small but incredibly sophisticated technical team, Amplitude was the right solution to give them leverage on time, resources, and effort. They’re engaged with our entire platform from day one across analytics, experiment, and CDP. Amplitude will enable Midjourney to understand free-to-paid conversions, correlate demographics to user patterns, and A-B test changes on their user’s experiences. Another one I’m really excited about is Character AI, a neural language model chatbot service. Character AI empowers users to easily create and interact with a variety of characters that feel alive with contextual conversations and human like responses.

They’re one of the fastest growing AI companies. They’ve adopted Amplitude for both analytics and experiment and viewed Amplitude as the best long-term partner given their needs to rapidly scale their product. This is just the start. Amplitude has always been able to capitalize on waves of technological innovation. We remained well positioned to benefit from the ongoing swell of AI product and company formation. With a proliferation of digital products and experiences, the need for Amplitude only grows. We had some other incredible wins this quarter. We welcomed Playrix in Q3 as one of the top three mobile gaming companies in the world. Their games are played by 120 million people every month. Previously, they relied on a smaller mobile analytics vendor, which was too outdated for the current needs and couldn’t provide them with the right level of flexibility.