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

Amplitude, Inc. (NASDAQ:AMPL) Q4 2023 Earnings Call Transcript February 20, 2024

Amplitude, Inc. beats earnings expectations. Reported EPS is $0.04, expectations were $0.03. 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).

Yaoxian Chew: 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 first 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. I’m excited to welcome you to the Amplitude Q4 and 2023 earnings call. We have a lot to share today, and we’re going to cover it in 3 main sections. First, our financial results for Q4 and 2023 overall. Second, the maturation of Amplitude in 2023, including an update on innovation and customer wins. And thirdly, our views on 2024. Let’s start with the Q4 and full year financial highlights. Our fourth quarter revenue was $71.4 million, up 9% year-over-year. Annual recurring revenue was $281 million, up $8 million from the end of the third quarter. We’ve grown our customer base to more than 2,700. 511 of those customers pay us more than $100,000 per year, up from 480 at the end of 2022.

We also have 39 who pay us more than $1 million a year, up from 30 at the end of last year. Lastly, we delivered almost 10 percentage points of non-GAAP operating margin expansion year-over-year. We also generated $1.5 million of free cash flow in Q4, and $22 million of free cash flow in 2023. Q4 was our largest quarter for net ARR in 2023 marked by broad-based growth across all customer sizes. It was also the largest quarter of new enterprise logo wins in the company’s history. While total churn was still high, it was lower than previous quarters. 2023 was a big year for Amplitude. I’m proud of how the team delivered. First, we made great progress in stabilizing the business, focusing on what we can control, we delivered margin expansion and positive free cash flow even against slowing growth.

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Q&A Session

Second, we launched our Plus plan in October, helping us to serve the lower end of the market much more effectively with a product-led growth motion. In doing so, we provided ourselves the ability to further uplevel our go-to-market efforts, which we initiated early this year. We are scaling our strategic sales efforts across different buyers, focusing on high potential accounts up and down the stack. We are targeting the lower end of the market with our product-led growth motion and using an inside sales team to address the in between. Third, we had our strongest year ever for product innovation. I’ve said before, this is the best way to drive value long term, so I’d like to recap a few key areas. I just mentioned our Plus plan, and we are off to a great start.

It’s early days on our own product-led journey. There is more to test and iterate on, but we like what we see so far. Plus is tracking ahead of an early internal expectations. There are almost no signs of cannibalization, and we continue to see 5-figure deals in the sign-up process. We previewed session replay with customers last year and launched it publicly 2 weeks ago. Session replay helps our customers reconstruct a user visit by capturing how they interacted with a website app or digital product. It’s a tool used by product, marketing and data teams to understand user behavior, diagnose product issues and improve outcomes. Session replay is powerful because it is tightly integrated with Amplitude analytics and our broader platform. As a result, companies can get quantitative and qualitative insights to understand what their customers are doing and why.

We are already getting strong feedback and encouraging early traction with customers already ripping and replacing point solutions with our session replay offering. They tell us they love being able to watch sessions without having to leave charts and that they are excited to do everything in one platform. As we continue to demonstrate with experiment and CDP, many workflows are better with Amplitude analytics at the core. In addition to Plus and Session Replay, we introduced a suite of AI-powered capabilities, including Ask Amplitude to shorten the learning curve when you’re getting started and data assistant to make data governance effortless. We believe AI will dramatically improve the caliber of digital products and experiences. We also improved our CDP solution, bringing it close to parity with market leaders in terms of connections.

This led to an increasing number of companies choosing the powerful combination of analytics, experiment and CDP as their starting point. We also released numerous product based explicitly designed to help us win simple and win the enterprise. It’s easier to get started with Amplitude with dashboard templates for B2B, SaaS, media, FinTech and marketing analytics. Customers can now quickly send data to Amplitude in a low-code fashion. Personalized homepages deliver out-of-the-box insights to users right when they log in. Collaboration is a competitive differentiator for Amplitude and allows us to expand to different teams within the enterprise. We launched Team workspaces to make cross-functional collaboration even easier. Last but not least, we welcome Francois Ajenstat as our new Chief Product Officer in December.

Many of you may recognize Francois from Tableau. He was there for 13 years and led the product organization. I have huge respect for the work Tableau has done in the data space and inspired a lot of Amplitude’s owned approach. The same is true for Francois, he is a world-class product leader and an inspirational storyteller who helps Tableau scale to beyond $1 billion in ARR. I am thrilled he is joining us on the next phase of our journey. Let’s turn our attention to customers. Q4 was the largest quarter for new enterprise logo wins in the company’s history. We saw more traction with traditional companies, too. We both landed and grew with companies like Polaroid, CrossFit, iFit, Culvers, Lithia Motors, Rover, Crafton, Strava and SpartanNash.

In Q4, Driveway, a Lithia Motors Company moved away from their existing analytics provider and went all in on Amplitude across their web properties. Ross Sherman, Driveway’s VP of Digital Innovation told us that Amplitude was the best solution to iteratively improve Driveway’s experience so they can meet customers in their moment of need. Buying or selling a vehicle online is an emotional decision. With Amplitude now positioned to ingest all of Driveway’s web session telemetry, its team can easily understand customer insights and test new features. This will improve the customer life cycle, unlocking the full potential of its ecosystem. We also won a large aerospace company this quarter. Airlines rely heavily on this company’s digital products to manage their most critical aerospace needs, including warranties, repairs and key safety updates.

Every error results in unwanted ground time for aircraft which cost their customers millions of dollars per minute. Their team realized it needed to use data to better meet their customers’ needs. It have been using a legacy MarTech solution for years but it lacked adoption, trust and relevance. In Q4, they turned to Amplitude. With Amplitude analytics, they will help customers better leverage their online portals, quickly dive into data related to critical issues and easily fix problems in a timely manner. We’ll also aim to help them more effectively use their R&D dollars and improve road map prioritization. Another one, I’m excited about is with DFL Digital Sports, the subsidiary of Deutsche Fußball Liga, the German Professional Football League.

DFL digital sports is rapidly growing, so it needed a new partner that could handle traffic spikes, connects the web and mobile experience and provide deep insights. In Q4, it chose Amplitude Analytics to help grow its global fan base. We’ll be partnering with DFL digital sports to help them reach their most important acquisition goals, including conversion and audience creation and management. With Amplitude, they’ll also be able to create personalized span engagements, investigate issues causing drop-off and discover new areas of opportunity. Let’s talk about what’s ahead for Amplitude this year. It is too early to signal an all clear on the macro environment, especially with layoffs persisting across our digital native heavy customer base.

However, there is early evidence to suggest recent renewal cohorts are doing better. We are also starting to see clear examples of companies who are on stronger footing, starting to grow following their initial reset. While slower growth is our reality for this year, nothing has fundamentally changed about our long-term opportunity. Digital products and experiences will continue to proliferate. There’s increasing recognition that legacy web traffic and marketing-centric approaches are no longer sufficient. We see continued validation that our strategic approach, a digital analytics platform with product analytics at its core is the right one to win in the long-term. We will continue to execute with urgency, drive product innovation aggressively and widen our lead over our competitors.

We will continue to make bold strategic bets. This will all help to drive business growth towards the end of the year and set us up for greater success in the future. Here are the key areas of operational focus. We will continue to improve the effectiveness of our sales motion. We made substantial progress across the board last year, but there’s plenty more to do to go from good to great. Our named account approach drives focus and prioritization. This increases our opportunity set materially. Targeted high-potential account dollars grew by 50%, while we almost have the number of accounts that we go after. We’re leading with value and selling more strategically, everything from industry-specific use cases to more sophisticated account engagement.

We will continue to elevate our platform value proposition. With experiment, CDP and now session replay, we offer an all-in-one digital analytics platform that enables teams to create products that adapt to users, not the other way around. We know that our customers want a single provider for all their analytics needs. We see many opportunities to grow cross-sell and displace point solutions. With Francois now on board, we expect that our pace of product innovation will be even more aggressive. I have been intentional about up-leveling accountability, maturation and execution at Amplitude throughout 2023. We are demonstrating progress. We will continue to drive profitable growth and invest for the future. At the foundation, our team remains persistent and adaptable.

I’m optimistic about what we’ll accomplish in 2024 and beyond. With that, thank you for your interest in Amplitude. I’d now like to turn it over to Criss to walk through the financial results.

Criss Harms: Thanks, Spenser. Thanks to everyone joining us today. I take pride in our recent performance. We exited 2023 with Q4 being our largest quarter for net ARR for the year. It was also the largest quarter of new enterprise logo wins, which were a positive indicator to the momentum we are building as part of the win the enterprise pillar of our broader strategy. Total churn was still high but I’m encouraged that it was lower than previous quarters. And I’m also encouraged that for the third quarter in a row, actuals were in line with what the forward-looking indicators were projecting. We came in above our guide on Q4 operating profit and delivered positive free cash flow for the third consecutive quarter. We’re demonstrating fiscal responsibility and proving ourselves strong stewards of shareholder capital by delivering 13 points of free cash flow margin improvement year-over-year, even against slowing growth in a stubbornly challenging macro environment.

Now on to the fourth quarter results. As a reminder, all financial results that I will be discussing with the exception of revenue 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. Fourth quarter revenue was $71.4 million, up 9% year-over-year. Total ARR exiting Q4 increased to $281 million, an increase of 10% year-over-year and $8 million sequentially. Here’s more details on key elements of ARR. New ARR was evenly split between land and expand, exemplified by a broad-based new ARR across our customer segments. Churn remained elevated and slightly lower in absolute dollar terms than Q2 and Q3, consistent with our expectations.

Full churn accounted for just under 2/3rds of the total amount in the quarter. As expected, in-period NRR dropped to 98% and NRR on a trailing 12-month basis declined sequentially to 101%. Spenser alluded to early evidence of recent renewal cohorts doing better, first year gross retention patterns from customers acquired in the second half of 2022 onward is on average, 5 to 10 points higher than cohorts across 2020 and 2021. Non-analytics ARR across the $30 million threshold at the end of 2023. Our base of $1 million and $100,000 customers grew year-over-year. Double clicking into these metrics, customers who spent more than $1 million increased to 39 up from 30 customers at the end of last year. Customers who spend more than $100,000 continue to represent approximately three-quarters of our ARR base.

Gross margin was 77% for the fourth quarter, up 3 percentage points year-over-year. Total operating expenses were $53 million, flat, sequentially and down 1% and year-over-year. Operating profit was a positive $2.3 million or 3% of revenue, almost a 10 percentage point improvement on a year-over-year basis. Net income per share was $0.04 based on 129.2 million of fully diluted shares compared to a loss of $0.03 with 113.1 million shares a year ago. Free cash flow in the quarter was positive $1.5 million or 2% of revenue. For the full year 2023, free cash flow was positive $22.4 million or 8% of revenue, a 13 percentage point improvement over last year’s margin of negative 5%. Now on to our outlook. We’ve taken many steps to stabilize the business, up level execution and revisit how we allocate capital.

We are selectively investing in key areas to ensure we successfully reaccelerate growth. The top of our list are continued product innovation, platform expansion, product-led growth, professional services and business application infrastructure to better enable our go-to-market efforts. For the first quarter of 2024, we expect Q1 revenue to be between $72.1 million and $72.7 million, representing an annual growth of 9% at the midpoint. We expect a non-GAAP operating loss between $2.8 million and $2.2 million, and we expect non-GAAP net loss per share to be between negative $0.01 and $0.00, assuming basic shares outstanding approximately 120.5 million. For the full year, we expect revenue to be between $291.5 million to $294.5 million, an annual growth rate of 6% to 7%.

We expect non-GAAP operating income between negative $1.0 million and positive $2.0 million. And we expect non-GAAP net income per share to be between $0.06 and $0.08, assuming shares outstanding of approximately 133.0 million as measured on a fully diluted basis. Here’s more color for your modeling purposes. Consistent with what we conveyed in November of 2023, we expect churn to remain at elevated levels through Q2 2024 and at similar levels to recent quarters. As we’ve characterized previously, the primary driver to these elevated levels of churn are multiyear contracts from 2021 and 2022 that are being optimized upon renewal. As reflected in our 2024 revenue guidance, we are implying that healthy new business trends in the first half of 2024 will be substantively offset by churn during this period.

Specific to quarter-to-quarter dynamics, we expect Q2 revenue to be down slightly from Q1 due to the timing of anticipated churn within each of the respective quarters. We expect end period NRR to remain below 100% and NRR to trough in the mid-90s this year. Both metrics should increase as we exit in 2024. We expect year-over-year ARR growth will trough in Q3 of this year in mid-single digits. Gross margin should be between 76% and 77% for the year due to the aforementioned investments in professional services. While we have guided to operating profit for fiscal year 2024, we expect to generate a non-GAAP operating loss in the first half of 2024 due to the timing of certain events, such as employee tax resets and a higher concentration of discretionary spending.