Amplitude, Inc. (AMPL) Earnings Call Transcript & Summary

Good afternoon, everyone. My name is Elizabeth Porter. I'm an analyst on the software equity research team. I'm really pleased to have with us today Amplitude CEO, Spenser Skates and CFO, Hoang Vuong. So I think a quick disclosure. For important disclosures, please see the Morgan Stanley disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So I think just to start off, Amplitude is a recently public company, having done a direct listing this fall. So I think it could be really helpful just to give an overview of the company for investors that might be new to the story and then dig into the recent quarter and what you guys are saying.

Yes, absolutely. Happy to give that. So for those of you who don't know us, I'm Spenser, CEO, Co-Founder of Amplitude, started the business back in 2011 with 2 cofounders and been growing at since Obviously, as I just mentioned, we just went public last year through direct listing. For those of you who don't know what we do, we are a cockpit for your website and mobile applications. So we help you understand how your users are using that, what they're doing, what they like, what they don't like, what they're frustrated by, where they're getting a lot of value on. The same thing, the way I like to think of it is that the same thing that Adobe has been for marketing teams and Salesforce has been for sales teams, Amplitude is for product teams. And so we're using product data to help you do lots of different things. Last year, we also launched 2 new products. So our core product is the product analytics product, which helps you understand what's going on in your digital applications. And then last year, we launched 2 new products, Experiments and Recommendation, where we help customers also do things like AB testing and messaging specific cohorts of users based on their behavior. We have over 20 of the Fortune 100 today and are continuing to grow and really excited about what our performance was last year and what we have in years to come.

Great. And then when we think about that digitalizing and optimizing a lot of these apps, first companies that come to mind are digital companies. But can you give us a little bit more color on your end market exposure by customers? What does it look like for non-tech companies that you guys may be serving?

Yes. So I think, we've obviously had really great success with tech companies. Some of the largest and biggest most -- we got into it, Atlassian, PayPal, Square, tons of companies like that, that we've been working with for a while and are some of our largest accounts. And that really understand that managing product data -- using product data to manage revenue through digital channel is the way of the future. I think for nontech companies, that's where we start to see a lot of adoption in the last year or 2 that I don't think we have seen prior, particularly because of coronavirus, I think a lot of the traditional economy has been shut down. And so the 1 channel that's kind of online and still running throughout the pandemic is really revenue through digital products. And so that's what we help all of our customers drive. So Q4 was a fantastic quarter for us. We had lots -- a bunch of media companies really have large expansions with us, HBO networks, A&E networks. We had car companies that came on Toyota was a really big land for us in Q4. We also had large deals with Ford and a bunch of other companies like that. And so we're really starting to see traction from nontech companies at Amplitude in a way that we haven't seen previously. And so I think something that's really exciting. Now I still think a lot of the world is still adopting coming over to this new way of running your digital revenue channel. So the reason -- part of the reason we call ourselves digital optimization is it's the next step after digital transformation. Most of the world is still going through that process of digitally transforming their business. And so we think of digital optimization and what Amplitude does and the infrastructure that we sell as the next wave after that. And so we're in the very early days of that. We're starting to -- as I mentioned, we're starting to see some traction from nontech companies. And so as we think about 2022 and beyond, we're looking to make the investments to go on that space and category.

Great. And then I wanted to touch a little bit on kind of how the product is priced. So investors often look at pricing as way to figure out what are the key metrics that you guys are trying to drive. So just kind of a quick overview of how it's priced. And once you land with a customer, what are the primary vectors to grow that spend?

Yes. So our pricing is pretty normal and that we start charge a platform. And then the main driver is what we call event volume. And when you think about events, just think of that as a user activity. So every time if you get more users or the user are doing more activity, they're generating more events. And so the combination of the events and the different features that are buying, that makes up the subscription base. And as far as how they expand. So it kind of runs the gambit from if we're into a customer and they have an app, if their customers are growing or they're doing more with their users, obviously, they'll grow their subscription. But a lot of time, a lot of our lands typically start small, especially within the enterprise because it's usually a new team testing out a new mobile app or a new feature and then they find and they go, "Wow, this is how you're supposed to build your product. You really should be looking at all the data, how your user behavior is impacting new features and what insights can we glean from all that? And then we'll expand that into additional product lines and additional business units. And then once we take that step, there's a certain point in time in some of the enterprises where they'll go, this has become our standard. This is how we are going to be building our product everywhere and then they'll go and make a standardization across all their product lines. And I think a great example of this is kind of like let's use like Intuit as an example, when it first got launched, it started out a new mobile app for $10.99. An app that probably most of us never heard of or didn't know existed for Intuit. And then when they use that for a couple of years, like, wow, this is fascinating, this is great. That product manager then showed that off to like the small business group and the small business group then implement that for QuickBooks Online payments and payroll. And then they used it for a year and they're like, wow, this is amazing, then they got to take that and then they pushed that out to consumer TurboTax.

Great. And then -- so in addition to kind of going on to new products within the business and Spenser, you hit necessarily, that you have 2 new products out in the market as well. There's Amplitude analytics. And can you just kind of give a brief overview, what are the 2 new products that you launched? And now that they've been in the market for about 2 quarters now. What kind of traction are you seeing with those?

Yes. So our core product has always been the analytics product, and this is the system of record for your product teams. It's what product managers use to measure things from daily active users to conversion rates to retention rates and looking at different segments of their customer base. So that's always kind of been our bread and butter from 2020 and before and the vast majority of our revenue. This past year, we launched 2 new products, Experiment and Recommend, which I'm really excited about because -- let me go into what they do and then I'll talk about how they work in the context of Amplitude. So Experiment is an AB testing in experimentation product. It helps you under -- show different variations of a product experience to different groups of customers. So you can say, "Hey, do they like red button or blue button? Or do they like a feature that helps them watch video previews or do they just want a long list of videos and just really understand, looking at how do different variations of the product perform. And so we launched that at the end of Q2 last year and traction -- it's very -- still very early, but traction has been very, very strong on that product. The other product is Amplitude Recommend, which allows us to -- allows Amplitude customers to give targeted recommendations based on past behavior on the product. And so this has kind of been the holy grail of the MarTech industry for a really long time as product personalization. The real challenge that I think a lot of previous generation MarTech problems -- products have had is that they don't have that data on what a user has done. And so it's very hard for them to do the deep personalization and customization on a per user basis. And so this is where Amplitude strength really shines through. It's just like if you're watching Netflix, you want the best recommendations based on what you've seen before. And so we help a lot of the companies that are on Amplitude do the same thing. NBC to give media recommendations to their customers. We help a bunch of fintech companies customize offers on a per user basis based on what they've done before and things like that. We help retail companies give customized coupons and customize offers to their customer base. And so that's been a really exciting way where it's kind of another way to leverage and drive value from that same data stream that they already have within Amplitude Product Analytics. Now the traction from them, to be clear, very early, just 6 months into the launch of those new products. So we have -- but we've gotten great traction. We have 100 new customers, 100 customers on those new products that weren't there when we first launched them. And so really, really exciting traction. Just for context, our customer base is 1,600 customers overall. And so while early for those products, really good signs, I think one of the most challenging -- the thing that makes me really excited about those is I think the most challenging part of the journey for SaaS companies as they go from $100 million in revenue to $1 billion is to find product market fit second time. It's very hard to do. You have to kind of -- there's a lot of assumptions baked into your company that -- in terms of how your product team operates, in terms of how you go to market, in terms of how you build and sell that and communicate that value. To do that, most -- frankly, most -- a lot of SaaS companies fail at doing that, and that ends up being the biggest roadblock for them to get to $1 billion and beyond in revenue. And so that early traction is a huge strong signal to me as a CEO that we have at least the starting part of that muscle down. And so we're looking to continue to make investments behind those new products. We're going to be looking to launch more products later this year. And the last thing I want to say about that is that I think the other piece is that is a lot of that demand, ultimately, it's all driven by a customer base. I think this is one of the other mistakes I see a lot of SaaS companies were like, "Oh, hey, maybe let me make a mobile version or let me maybe make a, hey, someone in my competitors is doing something in this space, so I should do it too. But both Experiment and Recommend have come from strong customer demand over the years. And there's a real desire for them to see more pieces of value being brought to them from the same set of product data that they already have from our analytics front. And so that's kind of a really exciting milestone for us. And one that I'm looking forward to in terms of how we're going to drive traction on that in 2022 and beyond.

Great. And then I want to move a little bit into competition. A question that we often get is companies like [indiscernible] from Adobe or Google Analytics, pick up similar data points on web activity and what users are doing? So how does the Amplitude differ for those relative to what those guys are building?

Yes, for sure. Happy to talk about that. So I think a lot of those -- I think Adobe and Google Analytics is very common. We see those within the companies we sell to. Ford has that. Walmart has that, Intuit even has an Adobe account. And so I think -- the way we think about what we're doing in a lot of ways is the next generation of these same set of tools. So a lot of the analogs in terms of, hey, we're doing the same thing you were doing on the marketing side, except with product data. And so we're doing analytics, we're doing experimentations. We're doing customized per user recommendations. It's very analogous. Now in terms of calling out the differences, I think that the way that data is architected in a MarTech context is just so different from product. If you think of the average marketing funnel, you're may be talking something that's 3 to 5 steps long. So there's not a lot of customer touch points that happen in that process. Whereas if you look at the average surface area of the product, of your average product, even relatively simple ones, you're talking thousands of different possible interactions. And so way you manage and understand that data becomes qualitatively different. And so this is something that we saw when we first started the company in 2011, where we said, "Hey, this is going to require a different and new type of architecture." So we built their own custom database to help drive that. And then we built the set of applications that we talked about on top of that data stream in order to help you understand and manage these new products. And so what we often see in terms of the customers that we talk to is Ford is a phenomenal example. They're an Adobe user, and they have a bunch of these data tools to track all this data, but they got really -- their big question was -- they want to -- they have 300 features in their kind of smart dashboard in their car. 300 different things you can do from cruise control to messing with your radio to navigation, to lots of other things. And they want to know how do people use their in-car dashboards. Because right now, they just kind of -- they're just -- it's their best guess of how their customers are using. They don't really know how people are interacting with them. And so they've been collecting that data, but to understand and visualize it has been incredibly difficult for their business. And so they tried lots of different other approaches. They tried Google Analytics and Adobe, they've tried data warehouse with BI tools on top. They've tried managing it through spreadsheets, and it really hasn't given their team the visibility they need -- they've needed. And so a big moment for us was when they finally looked at Amplitude and they said, "Hey, this is actually something that can help solve this problem of these 300 different features in the car, what are people using? How are they using it? And what keeps -- what do they get the most value out of? And that's when they came to us, in the Amplitude. And so we're in the process of working with them to help them standardize how they do the data visualization of all the different features that are used within their cars. And so that's something that's been really exciting for us. And the challenge is on a lot of these previous generation products like Adobe and Google Analytics as well as on their custom BI stack, the data wasn't architected in the way that allowed them to do it.

Got it. So that's super helpful that the Adobes and the Googles are taking it from more of the products -- I mean, the targeting side, and you guys are taking it from the product side. So when you go in and kind of win a deal on some of this product side, like who is it some of the smaller vendors out there be competing with? Or what if it's a certain type of process are you replacing when you win?

Yes. So typically, I think within large -- so let me take 2 different segments. So first, I'll talk about our SMB and corporate segments, where we're selling to startups and tech companies, small tech companies and things like that. I think like in any SaaS market, you'll kind of have like a set of vendors at the low end. Within the enterprise, though, it's very greenfield. It's more about, hey, -- how do I even -- is it -- what does it even mean to do product analytics? How do I visualize this data? Hey, I want answers to what are the features people are using in my car, if I'm Ford? And that's where that's really an education process at our end to help teach them that, hey, product analytics is the answer to that question. And let me show you these 10 different reports to help you understand the user journey within that context. Let me show you how people navigate through the app. Let me show you how people come back over time. Let me show you your most engaged groups of users. And then it's like you get the lightbulb moment and like, "Oh, okay, this is what I've been looking for. And so that's -- it's less of a competitive challenge with the large enterprises, whether that be a Ford or an NBC or Walmart, it's more of helping them understand that, hey, there's actually a way to solve this problem. You don't need to build out this massive internal data team, you can actually use Amplitude to self-serve and have your product managers, and your engineers, your data scientists, and your designers and your marketers all look at the customer journey through this.

Great. And then I do want to move over into financials. You recently lowered the fiscal '22 revenue guidance from at least 40% growth to 37.5% at the midpoint. So can you walk us through what changed in the recent quarter that drove the lower outlook?

Yes. I mean first, we kind of finished a really strong 2021 with growing over 60% revenue growth. We guided Q1 to 51% to 54% year-over-year growth for Q1, and you mentioned the year-end grow. And that is lower than what we previously stated. And the main driver for that is really around our visibility around large expansion. We're very -- we're roughly about a $200 million company. And we're very fortunate to have 29 million-plus account, which is fantastic. That shows the value and potential of Amplitude within the organization. But it also means that the large expansion, when there's a lot of them, can really help accelerate and this large expansion timing doesn't happen exactly right. They can also have a material impact given our current size and scale. And so as we kind of go into Q1 and we look at the pipeline and we look at those large expansion, the timing of some of those products expansion kind of didn't look the same and then shifted a little bit. And obviously, the sooner they happen, the bigger they have an impact into the full year. And so it seems like the right thing to do to make sure that we didn't get too far ahead of our skis to kind of make sure the guidance reflected what we saw in the pipeline.

Got it. And just to put a finer point on that. Is it -- some of these new cohorts and these big expansions are happening slower than some of the prior cohorts? Or was it just a change in versus expectations?

Yes. Empathy, we're kind of very early in our market. And so when we look at the customers that have expanded to 1 million-plus and you look at, let's say, those 29 accounts, there is not like uniformality around those expansions. Some of those customers, expanded very quickly kind of started expansion within the year. Some took 3 to 4 years before they really started expanding that way because it is really like taking that in and going, this is how I build products now. This is how I look at what my users are doing and how I make a better product. And when they make that leap, that's when they really expand and they go to their core product and then from their core product into multiple products. And so when we look at the expansion that we feel like at the most, again, change from where we thought it was going to be a few months ago, it's really the looking at the expansion of those customers that was like, okay, they are over 100,000, but they're not over 1 million yet, and they're going to about to make that expansion leap and kind of what that timing looks like. And even it's a handful of customers or a handful of opportunities. It's not like a broad thing. And when we look at those and trying to understand the rationale behind those, they also vary. I mean there's just different customers with the point to just the amount of uncertainty that exists out there today, whether somebody point out like, hey, engineering resources aren't ready for us to prioritize that. There's a myriad of different things that we're hearing. We're still obviously seeing really good expansion, really good growth. I mean, again, to emphasize, I mean, when we came out in June, we had 22 million-plus customers. Two quarters later, we reported 29 million. So we still added 7 million. We're still seeing really good expansion that's probably -- obviously, the bigger your base gets, the more you need more and more of them to kind of keep the growth rate and so we just felt that growing at 51% to 54% in Q1 and looking at, call it, 37.5% to 40% for the year, it seems like a reasonable call.

Got it. And then on the NRR side, so in the most recent quarter, NRR did improve to 123% from 121% in the prior quarter. And understanding it's a trailing 12 metric, there is some noise in that. How should investors square kind of the improvement that you're seeing in the uptick in NRR with some of that slower expansion that you mentioned some of the large customers. And then secondly, what's the outlook for NRR going forward?

Yes. I mean on of the reasons why we use the trailing 12-month for our net retention rate is we do find that our expansion and something like that tends to kind of be a little bit lumpy. I think like in 2020, we were looking at net retention rate, we saw a drop because we obviously had a bunch of SMB and commercial kind of churning from that and also business that were impacted from either call it, travel and hospitality or entertainment kind of reducing. And then often in 2021, you had the inverse of that where you had a bunch of our clients, as our clients tend to be pretty diversified. They really benefited from COVID and so that we have a big expansion from them, and we also had a lot of companies that accelerated their digital effort. So their business may have not been positive impacted by COVID, but they really said digital is the way to go. And so we saw a lot of expansion that happened in 2021. Because of the trailing 12 months in a way that net retention rate is calculated, you kind of have this trailing. But if you kind of match those 2 years together, it seems to be kind of right within kind of where we would expect in a normal wide world. And so as we look forward, what we gave guidance to is that we expect net retention rates to stay above 120%.

Got it. And then for the audience, I'm going to open up to Q&A shortly. So a mic will go around, so just raise your hand if you have any questions. I wanted to hit on billings, which was a question that we got asked a lot over the last quarter. So billings quarter-over-quarter declined in Q4. So kind of what was the rationale for that? And any sort of context around historical seasonality you could provide?

Sure. And so first is to make sure that everyone understands our practice, at least for us. When we close a deal, whether that be in November or December, that deal would then hit what we call RPO and so that is when the deal closed and stuff like that. But when we bill, and this has been historic, we bill on the start of the contract. So if you sign a deal or you know that's in November, December, the billing would happen obviously on January 1 is because most of the contracts start on January 1. And -- and so it's been pretty historical for us that like Q1 tends to have a pretty high calculated billing or billings as we tend to finish at year-end well and Q1 is strong. In Q4, as you pointed out, the sequential decline, I think part of the reason for that is we ended up having a really strong RPO increase in Q2 because of all the expansion. We mentioned a couple of times where we saw a lot of expansion that happened in Q2. When those expansion happened in Q2, you saw a big increase in billing in Q3. And so obviously, your sequential comparison from Q4 to Q3 is a lot tougher because your Q3 was impacted by those Q2 expansions. But then at the same time, we're going to expect and see that like if the billings from Q1 will reflect the RPO -- the CRPO still increased 60% in Q4 and total RPO increased by 80%. So again, it shows the customers that are not only doing well from a renewal and booking, but they're actually also doing longer-term contracts because that's what your RPO is growing at 80% shows. And so I think the calculated building, as we said before between calculated billing and RPO, they're going to have some timing differences, especially when you look sequentially. But kind of between the 2, it's kind of the right numbers.

Got you. Good. Do you have any questions currently.

You kind of described this a moment ago, but I didn't catch everything, so I sincerely apologize. But can you talk about -- a little bit about how the revenue ramps when a customer signs up the length of time in terms of when you start billing the customer. And how historically, folks have seasoned on the platform?

Sure. So when a customer signs typically, they sign for an annual contract. And say the typically sign, let's say, in December month, that contract typically starts again on January 1 of the following year, January 1. And then it's recognized ratably for that contract through the next 12 months on a daily basis. So if I do basically [indiscernible] 120%, every month we're recognizing basically 10, but it's not exactly 10, because it's the number of days. And as far as billing is concerned, we bill that out on January 1.

When we think about your NRR or the expansion component of that, what percentage of that is coming from increasing usage on apps or web platforms or whatever that are already plugged in and using Amplitude? And what percentage of that is from like expanding to new projects or new teams across your investor base?

Yes. It's both. We obviously don't break it out between the 2, but both are quite significant contributors where I think both in terms of on an existing project, you'll have customers who will instrument more, their customer base will grow. And so that -- both those effects, their product service area will grow. All of those effects contribute to increased data volume to Amplitude and therefore, to increase contract sizes. The other really big effect, obviously, is going to more products. And I think particularly earlier on in a customer's life cycle, that's the predominant motion and where you get larger expands. Often, we'll land in a lot of these enterprises in like a periphery product or the mobile product or a small product as the case with Ford, that was the case with Intuit, Atlassian, I mean all these other folks. And then there, the -- most of the expansion dollars are going to be driven by going on, moving horizontal expansions, where you go into new properties and new SKUs and new products across the team. And so in terms of how that -- so in terms of the NRR dollars and expansion dollars, kind of both those end up being significant contributors to that overall number.

I think the mic been's moved to somebody else.

Go ahead. Just shout it out, man. We got you.

We'll repeat it.

[indiscernible].

Yes, yes. So the question is why isn't our NRR, -- why isn't the baseline? If Atlassian's growing at 30% of the business, why isn't that the baseline for kind of our NRR generally? So I think this is, again, you got to understand that -- this is -- NRR is blended across the entire customer base. So I think there's a portion of our customers that are in SMB and commercial segments that may not necessarily have that growth. And then I think for a lot of these enterprises, I think, obviously, we have 29 accounts over 1 million in ARR, and so a lot of those have adopted Amplitude centrally and they are seeing those growth rates that you might expect. I think in other of our enterprise customers, we're still -- we're doing the work to expand and break into the core products that are seeing those level of growth volumes and all of that. And so you kind of blend that all together and you get the 120%-plus that we're talking about. Now over the long term, absolutely, as this becomes more adopted as a religion, we expect that to accelerate. And the baseline to continue to be above that and all of that. But that's why you're seeing what you're seeing right now.

I think we're up on time. If you have any questions, please e-mail them to me. I'm happy to get them to the company. And thank you so much for joining us today. I think it's a really interesting story. You guys are pioneering kind of this digital product optimization and product-led growth. So look forward to following as a public company.

Thanks so much. Really appreciate the time.

Thanks, everyone.