Q3 2023 Amplitude Inc Earnings Call
Joining me a sense escape CEO and co founder of aptitude and Criss harms the Companys 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 Doctor 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.
Today's call, except as required by law.
Certain financial measures used in today's call are expressed on a non-GAAP basis. We use these non-GAAP financial measures internally to facilitate analysis of our financial 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 to GAAP and non-GAAP financial measures is included in the earnings press release, which can be found on our Investor relations website at investors of aptitude Dot com.
With that I'll hand, the call over to Spencer.
Thanks, Al 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 our macro and execution update.
Second observations on our evolving market opportunity in category and third an update on platform development and some customer stories.
Let's start with a summary of the third quarter.
We closed the third quarter with $76 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 2500 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 of faulting.
On execution, our new <unk> 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 of 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 its a product led growth motion. It also allows us to incur incrementally redirect our sales efforts towards larger enterprise prospects or customers.
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 continued 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 remained 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 of 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 is 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 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 dynamics to life amplitude had been the solution of choice for the leading digital products in 2016.
Product teams, where historically given their own choice of Toolkits that agility came with the tradeoffs sprawling costs an unsuccessful implementations.
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 personalized customer experiences embraced rapid testing and drive insights to action with one singular platform.
We think we can help many more of our customers execute on that vision.
With that backdrop, let's recap product development it.
It was an excellent quarter for innovation.
We are growing our platform.
I am 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 user having understand why theyre, 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 or such.
Session replay removes the guesswork behind behavior improves the user experience across the board.
As I mentioned earlier, we launched our plus plan in mid October plus sorts of issue we've been hearing for years seemingly 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 at the plan offers best of amplitude analytics CDP and experiment starting at just $49 per month and.
And is 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.
Traction is encouraging with multiple five figure sign ups 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 clean up and taxonomy.
And we should exercise and eat vegetables everyday as well, but few people end up doing it in practice that is where amplitude can help amplitudes AI data assistant as a friendly individualized personal trainer for anyone who wants to get their product data in better shape and less than three months since launch our AI data assistant has been a huge hit with one.
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 size chunks that can be tackled in minutes and hours organizations that use data assistant and see a big uptick in data governance scores and more than a 30% average lift engagement cleaner cleaner data leads to more impactful insights happier users and better business outcomes.
Yes.
Okay.
Onto customers.
We want to stand our customers in the generative AI space amplitude is the platform of choice for some of the biggest brightest best names and generative AI, helping them guide their businesses ways that our competitors cannot match.
Mid journey is a pioneer in AI image generation, revolutionizing art and imagination, and the same way chat GPT has transformed the written work they've developed and product highest tax to image generation and R&D AI success story and image generation.
They are evolving rapidly with the 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 get the leverage of time resources and effort.
They are engaged with our entire platform from day, one across analytics experiment in CDP amplitude will enable them and journey to understand free to paid conversion correlate demographics to user patterns and AB test changes on their users' experiences.
Another win I'm really excited about his character AI Neuro language model Chatbot service character AI empowers users to easily create and interact with a variety of characters feel alive with contextual conversation and Humanlike responses. There one of the fastest growing AI companies.
If 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 ways 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 add some other incredible wins this quarter.
We welcome <unk> 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 two outdated for their current needs and couldn't provide them with the right level of flexibility.
<unk> is moving to a multi product strategy.
Multiple teams, including product and marketing needed to simplify the usage of their internal platform to shorten time to insights through a highly competitive process amplitude stood out as a winner based on both our ease of use and on our unmatched ability to deliver a unified view of their users across different games.
We also won another large global sports organization this quarter over time the organization had lost trust in the data provided by their large legacy martech provider.
Uses across data analytics, marketing and advertising desperately needed stronger support and more open integrations.
With a seamless combination of amplitudes analytics and CDP this customer will be able to recommend the best video and articles to their user base and drive engagement.
With a blueprint of their user behavior or if they can improve their mobile app experience to maximize sponsor revenues and retention.
Through this period of change we are delivering on profitable growth, while balancing thoughtful investment we are growing alongside our customers and extending our platform.
I'm confident the challenges we are enduring the short term will set us up to be a stronger company in the longer term with that thank you for your interest in amplitude I'd now like to turn it over to Chris to walk through the financial results. Thanks Spencer.
And thanks to everyone joining us today.
I'm proud of our recent performance, we beat the midpoint of all guided metrics.
As well as achieved our commitment of being free cash flow positive for two consecutive quarters.
<unk>.
Beat the top end of the range of the revenue guide and we are raising our Q4 revenue guidance from what was implied in our August guidance.
I'm energized by what lies ahead of us.
We are well positioned for an increasing portion of customer wallet share.
This will become increasingly evident as the rule of product increases in importance.
Different buyers.
Legacy approaches breakdown in a siloed pools of spend continue to come together.
Our operational execution is improving.
Our medium term visibility has improved ruder earlier in the year as.
As it relates to both new IRR forecast predictability.
And <unk> churn risk.
We're improving capital allocation.
Our plus plan will better serve the lower end of the market.
All our people led sales efforts will increasingly focus on accounts with higher potential long term value.
Now onto our third quarter results.
As a reminder, all financial results, we are 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.
Third quarter revenue was $70 6 million up 15% year over year.
Total IRR.
In Q3 increased to $273 million, an increase of 12% year over year.
5 million sequentially.
Here is more detail on key elements of <unk>.
We again saw sequential growth in customer count and IRR across both our million dollar plus and our $100000 plus <unk> base.
New <unk> was fairly evenly split between land and expand.
Direct contrast to the large expansion driven performance in the prior quarter. This was more broad based.
Churn remains elevated.
And slightly lower in absolute dollar terms in Q2 and in line with our expectations.
Themes here have been consistent.
First name as companies come up for renewals, there, often resetting and optimizing for new expected levels of growth.
The subsequent a portion of these legacy multiyear contracts are expected to be reset by the end of Q2 2024.
The second theme.
Cost pressures persist, particularly with smaller customers.
<unk> losses remain rare is the smaller customers are choosing to not use the solution from any provider to preserve cash.
In period in our our dropped to 99%.
As stated land and expand were fairly evenly split in Q3.
The new IRR from expand was lower than the prior quarter.
Churn while down from the prior quarter remained sizable combination of the two factors resulted in the in period and are are dropping below 100%.
<unk> on a trailing 12 month basis declined sequentially to 105%.
Gross dollar retention this quarter was in the mid eighties.
As a reminder, amplitude includes both <unk> reductions from fully churn and lost customers.
<unk> reductions from partially churn and retained customers in our <unk> metric.
Gross margin was 78, 7% up four percentage points year over year, mainly reflecting the improvements made in our unit hosting cost and the margin impact of restructuring our services team in the second quarter, both of which we have covered previously.
Total operating expenses were $53 million down sequentially and growing 4% year on year.
Here, we remain measure around our pace of hiring following the restructuring completed in the second quarter.
Operating profit was a positive $2 $8 million were 4% of revenue up 12 percentage point improvement on a year over year basis.
Net income per share was <unk>.
Based on $128 1 million fully diluted shares.
Impaired to a loss of three.
With 112.0 million shares a year ago.
Free cash flow was positive $7 5 million or 11% of revenue free cash flow saw a benefit this quarter from higher collections and timing of certain payments.
Now onto our outlook.
For the fourth quarter, we are raising the revenue outlook that was implied in our August Guy with a Q4 revenue guide of between $71 $371 9 million, representing an annual growth rate of 10% at the midpoint.
We expect non-GAAP operating income between positive one three and $1 $9 million.
We expect non-GAAP net income per share to be between <unk> and <unk>, assuming shares outstanding of approximately $129 8 million as measured on a fully diluted basis.
For the full year, we expect revenue to be between 276 to $276 $8 million in annual growth rate of 16%.
We expect non-GAAP operating loss between four 5% to $3 9 million and.
And we expect non-GAAP net income per share to be between <unk> and <unk> assuming shares outstanding of approximately $127 8 million as measured on a fully diluted basis.
As it relates to 2024, we will provide more detailed guidance on our fourth quarter earnings call in February.
However, I do want to provide some additional context for your modeling purposes.
We have expressed a zero add net IRR expectations for the fourth quarter of 2023 in our prior earnings calls.
Coupled with a net <unk> of $18 million year to date through September 30 of this implies a year over year growth rate of IRR for the year and is below 10%.
There is a high correlation between the current year AOR growth rate in the subsequent year revenue growth rate within our revenue model.
We expect new IRR to be relatively balanced between land and expand over the coming quarters. Accordingly, given the magnitude of churn that we have been conveyed we expect in period and are to be below 100%.
As stated earlier as companies come up on renewals, they're often resetting and optimizing for new expected levels of growth.
A substantive portion of these legacy multiyear contracts should be reset by the end of Q2 2024.
Taking this into account.
Or or Reacceleration should become mechanically easier in the back half of 2024.
In summary, Q3 shows our ability to adapt quickly to the new environment.
We're delivering on free cash flow.
We're investing appropriately against opportunities that we expect will drive long term value.
And above all we're committed to improving execution.
With that I will open for Q&A over to you.
Great. Thanks, Chris.
As a reminder, please turn your microphone and camera on limit yourself to one question and one follow up the interest of time.
Our first question comes from Koji Ikeda from Bank of America, followed by Elizabeth Ponant from Morgan Stanley Cogent go ahead. Please.
Great. Thanks, guys. Thanks for taking the questions. So in the prepared remarks, you called out mid journey and a couple of other AI vendors out there.
That's so interesting so.
Just question on how to think about the AI category from an ops perspective, maybe what is it about this category or maybe the right question is is there something structurally different about the way AI apps are are created that makes amplitude better positioned as a digital analytics company versus others out there.
I think the key thing with AI as a wave of technological innovation is that it's all about who has the best user experience for the AI for their AI application and because of that companies in that category of looking for every single competitive edge. They can.
And that's what led to mid journey, becoming amplitude customer that's what led to character AI, becoming amplitude customers. So what we've seen from AI companies in general I would compare AI to actually previous waves of technological innovation, we've seen stuff like VR crypto mobile SaaS all of the new companies that.
Those categories created ended up becoming day, one amplitude customers from the very start starting out with a small growing with us growing.
With us growing with them over time as they continue to scale and so it's very similar in that way and that as a digital product is the only competitive advantage you have and so for us as a platform given where the best most sophisticated now with the launch of the plus plan. We also have the easiest entry point, there's no reason for someone to choose anyone else. Besides <unk>.
Amplitude youre not going to choose some of the legacy Mar Tech vendors youre not going to choose the smaller companies in the space Youre going to Youre going to go with amplitude.
Got it thanks, Spencer and on that amplitude plus does that potentially open new doors for new types of customers to try out the technology.
I guess, how does the upsell.
Up sell process from plus to the broader ablative platform work and then last question on amplitude pluses is there some sort of scale that from a revenue.
A new perspective that amplitude.
Plus customers can grow too, yes. So we have already seen multiple five figure sign ups just straight away from the three weeks. The plus plan has been out so already like very very promising in terms of a new channel for growth for amplitude. So one that I and the rest of the team are very excited about.
I think the key parks, so obviously customers can sign up they can.
Start with free they can go to the pay plans that could scale with that pay plan over time, but I think an underrated aspect of it as well as just exposing more people broadly to amplitude you get more customers signing up for free because they know hey, this is only going to be $49 a month or.
Whatever it is if I'm at a certain level and so I can figure that out without having to go through a whole sales process and talk to someone.
And.
It also is a great way to introduce them to some of the enterprise functionality. They may want and so we've already seen plus customers that started on plus and then ended up.
Upgrading to enterprise.
And so we've seen multiple instances of that already even though it's only been out for a very short amount of time. So absolutely in terms of a new channel and it's all about just okay. No matter, where you are at if you want to start a free you want to just pay by credit card and have that be easy or if you want to use more of the sophisticated features we're going to be the best choice in the space got it. Thanks Spencer. Thank you so much.
Thank you Koji.
Elizabeth Porter for moment suddenly followed by Nick Altman from Scotia.
Hi, everyone. This is San Andreas. Thank you for taking my question I wanted to ask on the go to market changes it sounds like leaning into products like growth has been a focus for you as you look to add more customers. There are no touch model on free plans and then eventually migrate them to higher value plans over time. So I'm curious if there's any update to share here.
Are you seeing any progress with this acquisition channel, bringing new logos that can a funnel and then what are the key hurdles that you are seeing converting these customers from free to paid and how are you planning to address this over time. Thank you.
Yes for sure Fiona so.
Again, as I said as I said with <unk> like we are seeing new customers come on to free right.
All right out the gate come on to paid.
And then some of those customers upgrade to the enterprise plans and so it has been successful launch even though it's only been out there.
For a few weeks at this point.
I think that in terms of for US is just making sure that no matter, where youre at Youre able to scale with amplitude overtime and that we have the most compelling offering and so.
While we don't expect the plus plan to have a massive revenue impacts in the short term, we know that just as a new way to acquire customers out there have not upgraded.
It's going to be a good one in terms of obstacles, that's something that we've been working on since prior to the plus plan. So one of the big things that we saw was one of the gates to be able to get started with amplitude was what we call activation, so being able to send us data from your product and so one of the things that we did as part of the launch of the plus.
Plan was we introduced new ways to do that from a low code or no code fashion, so being able to put a job of bookmark, let in our being able to transfer your existing Google implantation over and so that's actually increase the what we call the activation rate, which is from sign up to data and multiple percentage points through through that effort.
That's been good to see we're obviously using amplitude to look at every single part of that customer journey and figure out where we can optimize and theres still a lot more for us to go.
Thank you.
Great.
<unk> from Scotia, followed by club Jefferies from Piper Nick Go ahead. Please.
Awesome. Thanks, guys.
The first one is just on the macro I. Appreciate the update can you guys. Just maybe talk about what you sort of saw in October and how November has trended relative to them.
The <unk> in terms of whether youre seeing incremental pressure.
Things get a little bit hairier in terms of the macro or if things are kind of stable.
<unk>.
I think we've continued to see similar pressure as Chris articulated earlier, it's not gotten significantly worse. It also hasn't gotten better.
That's obviously hitting us on the churn side, which we're not happy about and we're doing quite a bit to address but.
But the macro pressures remain consistent and we expect them to remain consistent as we look through the next few quarters I think as we get into the later half of 2024, we.
We see a lot some of that potentially alleviating, but again, it's early to say.
Awesome and then just the second question was really around it's for Chris.
You guys sort of talked about their sort of multiyear customers renewing over the next three quarters and after you sort of lap that youll have a much better sense as to when things can kind of Reaccelerate I guess I guess my question is.
When you look at the renewal period of <unk> versus <unk> of next year.
Is there any sort of big Delta there and then I guess the essence of the question is will sort of post <unk>. What are you guys kind of have.
Enough visibility to kind of make that call a little bit more firmly or.
I know <unk> sort of a big bookings period Big renewal period for you guys. So so how much visibility will you have sort of post <unk> Earl we'd really have to kind of wait till to give next year. Thanks.
Yes, no no.
Can you give you instated.
As it pertains to the the absolute value of contracts that are up for renewal.
Q4, as it was in Q3 and as it will be in Q1 and Q2 they are all.
Fairly commensurate insights since we've talked about one of things I'm proud about is the operational improvements we've made in our.
Kind of medium term visibility to churn risk so against the backdrop of the end of the <unk>.
Absolute value of those of the AAR attributed to those multiyear contracts.
Clearly that's the easy part of the map and the subjective risk assessment.
Significant improvements on we've tried to convey is that the churn levels that really hit their peak for us and that Q2 2023 period, we've tried to convey while still large should be down from that peak as we progressed through this quarter Q3, as we progressed in Q4.
If those are going to stay still in relatively large amounts.
Based on how we're scoping assessment for optimization and the other elements, but then mechanically theres just not that same value of multiyear contracts.
In our renewable base beginning in Q3 of next year.
But we will have as much more of the contracts that we did in 2023 up for their annual review.
And much of what we did this year that it's been on a multi year, we're not going to see those again until 'twenty five 'twenty six so I think we will be able to as we're conveying now on a pretty good view into both for Q4 ended the first half of next year. When we speak again next in more detail into the 2024 in February I think we'll be able to give you a pretty.
Concrete view.
Of what those dynamics are and we will clearly work that into our revenue guide for the year.
Great. Thanks, guys next question Clumped Jefferies from Piper followed by <unk> <unk> from Citi Go ahead. Please.
Hello, Hi, Chris Hi.
Sir Thank you for taking the question.
I just wanted to get a gauge sort of on really the cohorts of different customers does it flip between maybe digital natives.
And new digital builder I wanted to get an update on sort of.
Any return or change in behavior and sort of traditional industries that they.
Maybe return to the prospect of digital investment and then.
What you see is the receptivity on budget at the current point for the digital natives.
It's been it's been a I think a cost rationalization environment for a long time, just an update there on maybe tone or bottoming, maybe in terms of their kind of purchasing appetite at this point.
Yes, I'm happy to take that.
Most of it is harking back to <unk>.
Made a lot of operational improvements in the last nine months and it has given us increased visibility.
So with those additional kind of levels of business insight to us.
Hit on a couple of themes of reiterating that.
At another ones.
On the digital native which is still.
Significant portion of our <unk> base, we are experiencing what we talked about right from a churn those large organizations multiyear contracts reflective of the dynamics with the pandemic because those contracts are coming up for renewal. We're resetting so we've seen increasing pressure on the net IRR side of our business.
That's been tied to the digital native.