These items include certain marketing programs and events like the sales kickoff. We expect to continue to be free cash flow positive for the full year. We expect diluted share count to increase by 3% to 5% in FY ’24. But I am happy but not satisfied with what we achieved in 2023. I am confident of the path we are setting for ourselves through 2024 and into 2025. We will continue to drive profitable growth. We will continue to deliver a rapid pace of product innovation and platform expansion. Our go-to-market efforts will be even more targeted and effective, which we believe will drive much higher sales productivity, NRR and revenue acceleration. With that, I’ll open it up for Q&A. Over to you, Yao.
A – Yaoxian Chew: Thanks, Criss. [Management Instructions]. Our first question will come from Koji Ikeda of Bank of America, followed by Taylor McGinnis from UBS. Koji, go ahead, please.
Koji Ikeda: Let me just ask the question here. Two questions, one for Spenser, one for Criss. So Spenser, starting with you, how does the demand environment feel today February 2024 versus February 2023. It sounds like things are better lapping of optimizations. It sounds like some green shoots and renewal cohorts. So as you’re talking to new customers, are the pain points the same? Are you having same types of conversations, same types of prospects, or have things changed? And if so, maybe you could talk about that a little bit.
Spenser Skates: Yes, for sure. I think demand for what we do has always been strong, whether I look at now, whether I look at a year ago, whether I look at many years ago. This is a top priority for many product and data teams for them to understand how it is their end customers are using the product, and we’re seeing that in both tech companies as well as the traditional enterprise. In terms of now versus a year ago, I’d say it’s maybe slightly stronger I think there’s still pressure on a lot of digital native ad tech companies as they’re optimizing spend. Companies continue to go through layoffs. I think the big thing that changes for us is structurally stuff gets a lot better as we go through the first half, as we talked about, once those earlier renewal cohorts wash out.
And then I think I have to give a lot of credit to — the last piece of that, I give a lot of credit to the changes that Thomas has driven across go-to-market to mature our motion. That’s really a big part of what led to our success in Q4 with a record number of enterprise lands. That’s what led to our ability to deploy a Plus Plan where we have self-service motion, and we can then take those resources and focus them up market and higher potential accounts. And I’d say the primary driver is demand has always been there. It’s our execution is getting better.
Koji Ikeda: Got it. Thank you. And then a follow-up for Criss here. ARR just grew 10%, added $8 million net new sequentially, as you said, the best of 2023. And last quarter, you said there’s a high correlation of kind of this year’s ARR as an indication of next year’s growth, but you are guiding to 6%. I did hear you on your commentary of kind of the puts and takes there. But just trying to understand a little bit further that 400-point delta, it’d be finishing ARR growth to the next year guide? Is it just added conservatism or just take key to what you said in your prepared remarks? Thank you.
Criss Harms: Yes. No. There is a spread acknowledged. There is the kind of the really the role that Q1 and Q2 were going to play in terms of our expectation and the drag on our net ARR from the anticipated churn and the impact that they’re going to have on the 2024 revenue. That’s the primary driver to that obvious disconnect, yes.
Yaoxian Chew: Taylor McGinnis, you are up next followed by Rob Oliver at Baird. Taylor go ahead please.
Taylor McGinnis: Just with the rise of layoff activity that we’ve seen in tech. Can you talk about where we stand in terms of the timeline of license rationalization and what’s embedded in the guide. So it seems like the guide implies a steady deceleration throughout the year. But it looks like in 1Q, you’re assuming similar growth to 4Q. So is that just because of you’re assuming now these tougher renewals are going to continue into the second half. Maybe it’s just conservatism. But I guess why could we not see an acceleration if churn starting to improve? Some of these new cohorts look better? Maybe you can just give a little bit of color there.
Criss Harms: Yes. Look, I’ll take that on. I talked about churn, I’ve talked about it being at commensurate levels with what we saw Q2, Q3, Q4. Commensurate level doesn’t mean down, and we did say that Q4 was down relative to Q2 and Q3. Kind of with those elements in play, I’ll remind you that my guide or I didn’t guide it specifically, but my signaling for Q4 kind of net ARR was a number much closer to 0. Like, I was very pleased with our overall performance. It’s very pleased, it was very broad-based. And I guess that same level of tempering both what we hope to achieve in Q1 and Q2 from a new ARR perspective is just being offset as I try to be prudent about how to approach it with what we see from churn. And I’ll just remind you, churn, we definitely have gotten our arms around, right, for Q2, Q3, Q4, while it’s been an elevated number, one of the positives I take away from that is at least the indicators gave us pretty good signaling to that.
So all of those different ingredients [indiscernible] is kind of what has shaped how I’m thinking about those elements.
Taylor McGinnis: Perfect. And just a little follow-up question. So it seemed like this past quarter, the pace of NRR deterioration was starting to subside. But you talked about NRR troughing in the mid-90s. And 2Q revs being down sequentially. So is there something specific to the 2Q renewal base that you’re trying to fly coming up, I guess is it larger? Does it greater tech exposure? Maybe you can just help us think through what that base looks like maybe relative to what we’ve seen in the last couple of quarters?
Criss Harms: Yes. So remember, we do not have an evenly distributed renewal base. We are definitely highly concentrated in Q1 and Q2, relative to where we are in Q3 and Q4. And then our ability to have our arms better around our customers, the role of the multi-years and kind of where we think they’re going to reset on their renewals. All of those are just taking shape to how we’re thinking about the precision to Q1 and Q2 and how we think about the kind of the cyclical nature of being in a mechanically different place as we talked about in Q3 and that therefore kind of forming our trough.
Yaoxian Chew: Next question, Rob Oliver from Baird. Followed by Tyler Radke from Citi. Rob, go ahead please.
Rob Oliver: My question is, I think probably a bit of a follow-up to Taylor’s. You guys clearly have made some tremendous strides on managing that churn. There’s been a lot of changes in go-to-market, a lot of internal optimization of the process. So I guess what I’m wondering is when you look out to that big cohort that’s coming out in Q2. In terms of what you guys can control, because some of this is just natural there’s fewer lower headcount. But in terms of what you guys can control, maybe talk about some of the opportunities to get other products into the hands of these customers or other ways to maybe get the platform sell going. Spenser, I know in your prepared remarks, you mentioned Session Replay as an example. So maybe talk a little bit about like some of the ways you guys can maybe work those contracts a bit better? And then I have a quick follow-up.
Spenser Skates: Totally. So I divide it into 2 big ones. There’s the operational of how we manage a particular account and then there’s the strategic in terms of how we approach our entire customer base. On the operational side, we’ve gone through a lot of maturing of our go-to-market team over the last year. And I think you’re starting to see the results in terms of our ability to forecast and understand where things are going to be further out. We’re also able to have conversations with much more senior executives than we were before. A great example is one of our large food delivery customers, multimillion dollar customer have been with us for 6 or 7 years. We were stuck at the director level in terms of our conversations for many years.
And we just had a conversation with them about a month ago with the VP of Data Engineering, and that was completely changed the dynamic. They were skeptical of continuing to invest in amplitude in the past because they’re like, hey, this thing keeps growing in terms of cost without bound. And I don’t know necessarily no. Yes, it’s popular and used by a lot of end users at my company, but I don’t necessarily know and understand the value it’s driving. We had the conversation. We said, hey, we’re going to work through doing an enterprise license agreement, so you don’t have to worry about how stuff scales and work with you on the pricing side and then that helped him direct the organization to lean in to us. And so it’s like those conversations repeated again and again and again, where we’re focusing on getting into much senior levels, doing executive business reviews, talking about the value that we’re driving.
On the strategic side, I think the call-out is great. I’d point to a few different things. So first, while it’s early, we do see that customers and multiple products have higher retention rates. And so that’s a big focus for us this year, both across experiments, CDP and now a session replay as well just to get those attaches much higher. As Criss mentioned, non-analytics products are at only $30 million in ARR. So still a small portion of our customer base. We have an opportunity to penetrate way more. And the early signs there are that, if you do the retention rate gets significantly better. So that’s been very good. The other element I talk to is, the fact that we launched the Plus plan allows us to take resources and focus it on the higher-value accounts.
And so instead of running the same go-to-market motion that you do for a multimillion dollar customer with a $10,000 customer, we’re starting to specialize it a lot more and introduce things like premium professional services at the high end in order to make sure those customers get deployed and grow with us successfully. So there’s a lot as I’ve been talking about, we’re not happy with where it’s at. There’s a lot we’re doing both operationally and strategically. And as those 2021 and 2022 cohorts finished coming up for renewal, we expect that to get structurally better in terms of our growth.
Yaoxian Chew: Great. Tyler Radke from Citi. Followed by Nick Altmann from Scotia. Tyler, go ahead please.
Tyler Radke: So just starting off on the quarter, maybe a question for Criss. It looked like the revenue performance was a little bit light of the midpoint of guidance. And I think historically, you typically show some upside relative to that guidance range. So it looks like ARR was solid. So was there anything unusual to call out in terms of linearity in the quarter, maybe more back-end loaded? And then the follow-up question is, as we just think about the guidance for 2024, with sequential revenue declines in Q2. It does imply a pretty larger pace of sequential revenue increases in Q3, Q4. Can you just talk about the visibility and confidence you have in the new business side of that for that to play out? Thanks.
Criss Harms: Yes. Both very fair questions pretty straightforward answers. As it pertains to Q4, actually any quarter, we do have in-period revenue, overages, professional services, but it was overages. Overages did not come in at a consistent level with where it had. The planned beat that I had rolled into the midpoint did not materialize and we came in about $200,000 below that. It is a small part of our top line, but it did drop off in Q4 below the expectations. And then that prompted me to do the postmortem and make sure that I was more appropriately gauging it for how we look to 2024. As it pertains to your second question on the quarter-over-quarter. The churn that we’ve identified for Q1 is very back-end loaded. And some of the large ones that we’re expecting are actually happening March 30, March 31.
But that’s not the same case in Q2. The ones that we’ve identified as really weaving in, those are month 1 and early parts of month 2 of the quarter. So while the ARR or the associated churn that were kind of conveying as a consistent number, the timing of when those happen in the quarter and their associated impact is what’s in play. And Yao and I, that just felt, it was appropriate to signal that to you now as part of our color that’s our expectation for Q2.
Tyler Radke: Great. And then just on the second half, anything that you’re assuming, I guess, is it consistent new business assumptions with the first half? And then just a follow-up on the spending. So it looks like you are guiding margins to be down from this year. What are the biggest priority areas you’re spending on? And can you just talk about how you think about the pace of medium- to long-term margin expansion?
Criss Harms: Yes. So let me try to break down the first part of your question. Well, I don’t want to get into specifics of new ARR. I will say, look, I have high expectations for how we deliver in the back half of the year, but I haven’t built all of those into our top line. As it pertains to the mechanics of churn, we finish out that prior thought because of their impact on revenue in 2024, obviously, very de minimis tied to the Q3 ARR performance. As it pertains to the broader look kind of reemphasizing the point that we’ve been conveying is that the first half of the year is going to face some anticipated churn that will substantially offset our new ARR for the first half and that obviously plays a role in the broader revenue.
As it pertains to your margin question, look, we are increasing our margin profile from where we finished 2023. We are guiding a couple of points up in terms of margin expansion. One of the points I did try to call out in the prepared remarks is, as I look at our business, as I look out where we are from a market maturation. When I look at all the things that Spenser alluded to in terms of up-leveling the business, getting more focused I have a lot of confidence, and I tried to convey that in my closing remarks about how we’ll be positioned exiting 2024 and heading into 2025 when all of these pieces start to come together. With that level of confidence, there is a level of investment that I just think is appropriate for the opportunity that’s ahead of us and kind of where we are on our maturation.
I hit upon those across product innovation, platform expansion, all the things that we’ve done within PLG and all the things that we’re going to do in PLG in 2024. Now that we’ve got a much more focused go-to-market, I think our customer engagement on professional services can be much more effective. Spenser spoke to what we’re doing with kind of premium services packages there. I think we’re going to get some value out of those incremental investments, which is why I’ve given a little bit of a point drag in terms of range on gross margin. And then just in my own backyard of the business applications infrastructure and what we can do to further enable Thomas and his team to understand what dials to turn up, what dials to turn down. I think all of those investments are prudent.
And if you look at it in the overall kind of percentage of our cost structure, they are relatively nominal investments on a year-over-year basis, but I think they’re the right ones to make at this time for the long term.
Yaoxian Chew: Next question, Elizabeth Porter from Morgan Stanley, followed by Arjun Bhatia. Elizabeth, go ahead please.
Elizabeth Elliott: Really impressive acceleration in the new total customer call. I just wanted to get some color on how we should think about the pace of adds into 2024. And then additionally, just given a lot of the momentum is likely driven by some of those smaller low-end customers, how do you think about the opportunity to upgrade that customer base? If the character is the quality of those companies very likely to upgrade, any color there would be helpful.
Criss Harms: Spenser, do you want to take that?
Spenser Skates: Yes, sure. Yes. As the total customer count includes both those Plus and those annual contracted customers, so it can be deceiving as to which bucket is which I think. First, on the enterprise side, like I said, a record number of lands there on the high end, and so that was fantastic to see. Obviously, going to make not huge contribution to the total customer count. So the acceleration really comes from the Plus Plan. Now I think most of those customers, obviously, they’re going to be paying hundreds, thousands of dollars a month, not the level that are enterprise customers. But we have seen some upgrading over time, and we expect that that will be a fantastic channel for our enterprise team.
Criss Harms: Elizabeth, I’ll add. You’ll see that I actually pulled it out of our press release. I didn’t want to highlight it. We’re very focused on the $1 million-plus customers, increasing from 30 to 39. We’re very focused on the 100,000 plus customers increasing from the 480 to 511, right? That pool reflects three-quarters of our ARR base I think is central to our long-term success. We know we’re going to be able to farm and develop those who are coming into the low, but I don’t find the metric to be as insightful as to our progress, as it did before, we got the PLG motion in a much more generally available full production environment. So we’re going to continue to share the number. It’s not going to be one of my highlight bullets in the press release.
Elizabeth Elliott: Got it. And then just as a follow-up, now that you’re kind of bifurcating the strategy more between kind of the low end and high end customers, any sort of differences in the competitive landscape that you could speak to at each of those basis?
Spenser Skates: That is a great question. I think on the low end, let’s see how would I characterize it. Well, let me start with the high end first, I think that’s a little more straightforward. High end is very greenfield. I think you might see previous generation legacy marketing analytics players like Google Analytics or Adobe, but it’s not like when thinking about product analytics, Session Replay and some of these other pieces of value. A lot of times these companies are adopting it, and it might just be you and the RFP or might be you and one other company. I’d say on the lower end, that’s where we see us competing ourselves with a lot more point solutions. And it’s a big part of why we released that suite approach as well as the Plus plan so that we say, hey, we’re going to drive the most value at the lowest cost. There’s no reason not to choose Amplitude as the provider to get started with there.
