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

All right. Guys, let's get this started. Thanks for being here. My name is Koji Ikeda. I'm one of the research analysts here at BofA on the enterprise software team. Super thrilled to have Amplitude here with us this afternoon. Criss Harms, CFO, thanks for being here.

Yes.

I guess let's just level set here for anybody in the room and on the webcast that might not be really into the -- deep into the story of Amplitude maybe from a high level, what do you guys do? What's the opportunity you're going on?

Yes. We provide product analytics. We enable business users to understand how their customers are moving through their digital products. We enable those business users to drive activation of customers, monetization and retention of those customers. We do it by giving them visibility to what works well. And that customer set ranges from a really digital native company, we referenced Atlassian a lot, brought up a matter of big PLG motion. It's fundamental to them, digital native, to more traditional companies where they're doing an omnichannel play. We use Chick-fil-A as great example, right, or Panda Express where online ordering is taking place. And that digital experience, we give them insight into what works well, how to upsell, how to -- what different targeting and other marketing messages will help put more value in each of those carts each time.

Got it. Got it. And you recently joined.

I did, yes, 3 months ago.

Yes. So tell us a little bit about yourself, your background and what brought you to Amplitude?

There's not much to say about myself, but I will go to what brought me, right? I did take some -- I took a lot of time off. It was really nice, with a lot of opportunities. And the things that really attracted me to Amplitude was the market, right? And when I think about 5 years from now, when I think of any company, whether they are digital native, but really, the traditional companies who are building an omnichannel presence to their customers through some digital experience, I can't envision a company that isn't utilizing some digital product. And I find that business leader, I want to understand how well my product is working. I want to understand how it's working with certain different segments of my customers and all the use cases I just talked about, I want to understand, it's the dashboard of how my digital product is performing and it gives me guidance to figure out how to tweak it and adjust it. I can't envision a company that doesn't have some form of it. And we see that at Amplitude, right, where we've got large enterprise customers that are getting up to 8-digit, right, ARR with us. They use us over 18, 30, 40 different business units. It's really compelling. And I would like to see us doing that same thing across the enterprise space and then up and down that space from enterprise to commercial and into the SMB space, which today for us is very VC tech-oriented start-up. But as SMB start to engage, that was really compelling to me. The second part was, and I know when you all are doing your diligence, when you talk to the Amplitude customers, they're like this product is great. It is scalable. It -- I don't see how I'm going to work without it type of mentality, right, and to have that kind of product leadership. When I think about the -- how the market is transitioning between the what has emerged as the product analytics company and the more traditional web analytics and how those are going to converge with time? And that product company is probably best positioned to dominate that market and take all of that wallet share. Pretty compelling to be with a company that has the product pull position on that. And then I really connected with Spenser and Thomas and the rest of the team, and it has a really vibrant culture and we're working through some of our execution growing pains, but that's why I was brought in, was to help take it, help it scale and it was compelling.

Earlier in the comment, you mentioned smaller tech VC-backed more cash-rich type companies going after opportunities. But when I think about Amplitude, and this helps kind of frame the opportunity out there with the TAM, what's the right way to think about it? Is it any company that has a digital experience should be able to use something like an Amplitude? I mean help me think about who could utilize this?

Yes. No, that's spot on. Within that framework, there's all -- there's -- what I described was the core play, but there's ancillary things happening within customer success, within engineering, where that level of analytics is fundamental, right? And it's the ability to get that data organized and get the insights out of it in all these different ways that are complex and which traditional web analytics products kind of do when you have a big data scientist with it, right? But one of the things I -- to your question, it also helps frame the competitive environment today. And one of the things we try to do in helping shape all the different places, it is and like think of Google Analytics and how the breadth of its deployment. But then think about all of those small teams and others where they start to hit their head on capabilities because they've got to bring a data scientist in and the -- we call them the bread line of trying to get the data scientists to help you use the tool to get insight as a business user. So I use that only to give you a sense of just the breadth of play that's there.

I've been asking every management team 2 of the same question as to try and figure out broadly across the conference. We've talked to a lot of people about how companies are feeling. And the first question is about the macro and the next question is about AI. So on the macro front, the question is really framed around how does the end market feel today, June 2023 compared to January 2023 and then June 2022 a year ago? Just help us compare and contrast what it feels like what are customers talking about demand, all that kind of stuff?

Yes. Harder for me because of the break, but I can speak to how Spenser and Thomas has characterized those other data points. Let's work in reverse. Today is really hard. Amplitude did a big reset with the guidance I put out in May, very reflective of worsening conditions that got even worse. I remind myself when I get a little down on that, that we're not alone. A lot of companies had to reset their view when they came out in Q1 or like we did in Q2. We're not alone in just facing those macro headwinds, and there's a little bit of whiplash. We are definitely facing those tailwinds currently today that if you go back to '21, which you didn't ask, but I'm going to start there, right? Huge -- excuse me, I should characterize, we're facing headwinds now. I know I said tailwinds just. But 2021, just huge tailwinds, right, with the pandemic and all those. And we're going through a settling period where that tide change, that flow changed, and we're working through it. And I think the reality of all of that coming to fruition and us having a lot of us questioning just what does that trough look like? And what does it look like coming out of it? I think it brings a level of uncertainty today across the board that a lot of companies are facing. I want to go back, trying to answer your question more directly, whereas there was a lot more at least optimism of how those macros are playing definitely a year ago. And while things were getting bad, Q3, Q4, beginning of Q1 for companies like Amplitude that really came to a head in the back half of Q1. I'm going to [indiscernible] it on to one thing I said because there's -- one of the things that we're really focused on as '23 is a recognition that there's a lot of the muscle memory that we needed to create that we didn't do when we were writing the tailwinds of '21. That's the things to focus on right now, right? The go-to-market motions of how we speak to our different buyers across product managers, across data owners, across more of the business owners, right, how we communicate with them is different? Let's get better at that. Let's get better identifying who those are. Let's get better identifying where our customers are on the different use cases, where they are on the maturation curves of those. Let's get close and let's start walking them through what we know that expansion play could be. Those are all things I look to do during this period of 2023 in collaboration with Thomas and Spenser and team so that we come out into 2024, like our -- the university speak of the major and the minor right? Our major driver for accelerating growth is we're executing a lot better, really effective on our go-to-market motion. We're driving really effective contribution profits, up and down the stack from enterprise to commercial to SMB. And the minor is then the trajectory we can get off of those tailwinds. And that's -- I hit upon that because that's a reflection also of how we feel right now, right? We're very optimistic for our longer-term market opportunity. And we recognize there's a journey between where we are now and there's a little bit of a disconnect between the guidance and numbers we're putting out now versus what we all intuitively know this longer-term market is going to look like. And controlling what we can control, right? We went through the restructuring in April, really kind of rightsizing the go-to-market motions around much more focused motions across the enterprise and the account ownership. And recognizing that was hard, recognizing like we're taking that medicine now, it's tough to digest, and I'm just giving more color to the question of how we feel today, knowing those are all the right things to do. Let's focus on the things we can control over the next couple of quarters and be really well positioned in 2024 and then be able to benefit from that and then benefit from those increased tailwinds, which we know eventually will come. That's the feeling side of things.

Got it. Thank you for that answer. And you mentioned guidance. So let's talk about the guidance and the methodology and how we should be thinking about it because it's -- for lack of better words, when we issued the guidance on the first quarter call, it was tough. It essentially calls for a sequentially flat revenue second quarter, third quarter, fourth quarter which is unusual in software. And the first question or the first time I had in my mind was, okay, they're clearing the decks. But then my next thought was, wait a minute, is this safe? So maybe walk us through the methodology or the process that you went through to get to you to that guidance?

Yes. So recognizing it was a big step down. What I tried to convey is I got to benefit in the late February, March period from the fruition of a lot of efforts that had started months in advance, both in terms of what Thomas has done getting visibility into kind of the new ARR for land and expansion, getting new visibility and level of depth and breadth as it pertains to our exposure on churn both from customer rightsizing and from kind of facing their own challenges of lost customers. And what I tried to do is take the benefit of that insight, spend a lot of time with some of the sales leaders to understand some of the cultural elements that led into how we looked at things and apply all of that plus kind of a view of pattern, plus what I knew it was going on at a macro level and apply that kind of comprehensive view into a distillation of look, as I interpret all those leading indicators, here's what I think is a prudent and reasonable basis to guidance. Questions have been asked to me is it conservative? And I always respond that conservative is a subjective term. I don't like to respond to this objective. I'm just trying to describe to you how I approached it and why I think it is reasonable and the diligence that I tried to play in there. That's how I thought about guidance. And yes, the net of it is just what you said. Those leading indicators all suggest that a prudent basis to guide for the rest of the year is built around really a flat zero net ARR, where what we do in terms of landing and expanding is offset by what we're losing as we're rightsizing with customers. And what we're losing in churn is we're -- some customers are choosing to go blind. That was the net effect. Yes.

What's the right way to think about the assumptions in the guidance from the, call it, expand the net new and the churn? Is there a broad way to think about those components of the guidance? .

Yes. There is. And I've tried to give color to it, that -- let's just start with the ARR being added. That both our land and our expand have been declining. And that our expand has been declining at a much faster rate than our land. And then if you intuitively sit back and go, hey, this is the installed base. They're going through all of these budget assessments, is it reasonable that they would pull down the expand trajectories that Amplitude has experienced historically? The answer is yes, that intuitively makes sense. And that's what we're seeing. And then you, when you went from the outside, could look into the NRR and go, yes. We're seeing it manifest itself there. And we also tried to give the in-period number to even be more transparent with how that's taking shape. And so I tried to give a sense of where the trajectory was and then our expand was coming off quite a bit. And I also tried to just give some color to Q1 that the mix was roughly 50-50. It was an absolute, but in relative terms, half of that came from land and half came from expand, suggesting that the expand used to play a larger -- has historically played a larger portion. And I would expect as we -- as all of the points I hit upon earlier, start to manifest themselves, but it becomes an increasing part of our ARR add. Because as you're entering into the enterprises and then you're becoming prolific across multiple business units and digital products, that is the experience you should be having in the enterprise space, obviously, less so in the commercial and definitely much less so in the SMB space.

Got it. Got it. No, that's helpful. Enough of guidance. Let's move to AI. .

Okay.

I've been asking 3 questions, 3 flavors of AI -- in generative AI. First question. How does Amplitude think about leveraging AI -- generative AI with the platform over the next 3 to 5 years? .

Yes. No, absolutely is built upon the data set, and we have a huge data set. And we got 2 of our founders or 3 of founders are MIT and 1 was Stanford PhD, right? We are surrounded by really smart people, one of which was a versed in early machine learning AI. We look to leverage that level of product data that we have and bring it to fruition in a very natural language based.

And how do you think -- second question on AI -- gen AI is how do you think the rapid awareness of AI this year has changed the way or maybe not? The way that your end market is viewing their data, their digital analytics, what they want to do with their data. Has it created any sort of pause or certain thought processes, or changed their thought process? I'm just curious to see -- hear from you what you're seeing from your lines?

So I haven't gotten to spend enough time with customers to give a firsthand impression, like I can give some anecdotal impression. They're seeing it with other vendors, and it's going to be why are you doing at least then? And I think for Amplitude's case, it would be - why are you at the forefront? And that's where we expect to be.

Okay. Last question on AI is on...

I always defer to [ Yaoxian ] on the AI questions. He's always really on top of this stuff.

Monetization of AI. How does Amplitude think about monetizing? I mean you guys have AI in your platform, right? But into the future, we think about 3 kind of buckets of where we can monetize AI. Does it drive -- is it embedded within the platform, just drive increased usage? Could it create some sort of premium SKU, you only get these features if you pay a little bit more? Or does it create maybe the potential for a whole new product to be built? How do we think about those types of levers next 3 to 5 years? .

Yes. No. Look, the first 2 for sure. Yes. The third one, that one will be interesting to see how it unfolds, like I don't know enough of Curtis, Jeffrey and Spenser, how they think about that third one, but absolutely on the first 2.

Got it. Got it. I'm going to ask one more question and then open it up to the audience for Q&A. You can just raise your hand, we'll get a microphone over to you if you have a question. But my next question before that is competition. On the last earnings call, Spenser did mention that win rates were ticking up versus prior quarters against the competition. Maybe walk us through what is causing that in the end market as some of the other competitors begin to fall off, is there disruption out there, is Amplitude being viewed more strategic? Just very curious to dig into that comment a little more. .

Yes. I kind of frame the competitive landscape in those 2 lenses. One is definitely product analytic oriented with those we compete in the trenches with and some -- and the others are when we're competing more on a web analytic value prop that's virgin into product analytics, which is it's Adobe and Google Analytics. And even though Adobe has only announced the product, those -- you have wallet share that you're always competing for. As it pertains to the win rates, right, we are doing 2 things well, right? We're winning in the enterprise space, and we're winning in the SMB space. We're winning there partially because when you look at what's my long-term journey going to be, the answer always seems to be Amplitude. And then we try to counter the more tactical things of what happens on price, right? We changed our pricing mechanisms to go to MTU earlier in the year to compete at the lower end a little more effectively as well as make it an easier, less friction-based exchange with the customer. We try to be responsive, right? We try to see what's happening and then proactively take the steps that we think are most important from a product packaging or licensing perspective to compete and win as well as how we convey increased value and what a journey should look like. And those contribute to us, those contribute to us.

Any questions from the audience? Please raise your hand. We can get a microphone over to you.

I know it's one here. Everybody's fatigued to do it.

I have lots of questions. So you mentioned web analytics and then Amplitude in 2 different buckets, right, of the way to think about analytics. And I actually think this is somewhat overlooked, I guess, maybe for lack of better words. And since you're relatively new and you come to the financial world, curious to hear how you describe the difference of what web analytics versus what Amplitude is, because I know there's a big difference there?

Yes. I'm going to fail miserably on that question. There's definitely a segment that -- where there's some overlap right now, like what we're doing fringe and they're doing fringe. When we -- like we're covering mobile analytics up through the web and they're traditionally dealing with the website of things, right? They built it around a web play. And we've built it around a product. And we're giving that visibility within a digital product environment that's different than how that website experience is. That's simple delineation.

I got you. Thank you. Go-to-market strategy. A lot of changes, Thomas is here. He's been here 10 months now.

10.

Yes, 10 months now. sounds like it's a transition year for a lot of your customers out there, but you're also going after new customers to outside of the tech vertical, lots of every company is trying to become a tech company, right? So walk me through a little bit about what the go-to-market capacity looks like, the strategy looks like? Any things that we should be expecting from a strategy perspective or things that you've implemented that will begin to ramp over the next 12 to 18 months?

Yes. Look, Thomas was already formulating changes he wanted to make and my arrival just kind of helped rally some of those thoughts into fruition. That's what we did in April. That was the restructuring. People will often ask me questions about a RIF. And I will respond that, look, it's more than semantics for me. I really viewed what we did in April as a restructuring. The derivative outcome of it was a reduction in force. And that restructuring was to drive some cultural changes on account ownership and clarity, partially driven in that we run an enterprise motion in the enterprise. And we got a little guilty of running an enterprise motion down into the commercial stack as well. And that's not an effective way to go to market there. So yes, look, we're very focused on the enterprise and then what we do to win in commercial and SMB. But the biggest part of the market opportunity is in the enterprise. And that's the -- that's a big part of why we brought Nate Crook in was to further build up that leadership side. Thomas and Nate and I all come from heavy high-end enterprise backgrounds. And we're very focused there. And that's not to say that we deprioritize commercial. That's not to say we deprioritize SMB, but a recognition that there are different ways to serve that market, which can be much more product-led sales assist where you've got people working with the product and definitely on a kind of free-to-pay journey, a more robust PLG motion. And so getting some of the prioritization of the company around, enabling us to move beyond beta in the PLG and making that more robust to serve that facet of the market is an integral part of the broader go-to-market motion. And I'm excited about what we can do on -- back to that theme of getting really -- really more focused and concise and effective up and down the customer stack and the different motions that should be best applied there, which should speak really well to our margin profile as we go forward.

That was going to be my next, next question -- next, next question is -- well, before that, is when you're selling to the enterprise, maybe help us understand the types of personas that you selling into? What is that title of that person? .

Yes. So it's evolving. I'll tell you, our roots -- and again, I shouldn't say it as if I've been here longer than 3 months. But like what our roots have been selling to product teams and product managers and very focused on that persona. And then once we were successful there, we found ourselves, especially in the enterprise, then selling to a Chief Data Officer or a CIO who operates in right in the center of excellence type of environment where they're then making that available to business users. And now we're finding ourselves trying to spend more time engaging and communicating with the business users. And that's an evolution of our kind of multifaceted selling motion. It's not as straightforward as -- let's just go back to the web analytics, if they're selling to the CMO today. And we expect that within next few years as those markets converge, that more that we're selling beyond the PM, the data business users, now we're selling into the CMO, and we're taking that wallet share. But that's the -- that's kind of the buyer profile that we see. And then obviously, as you move down stack on customer stack, that becomes one person playing combined roles.

Right. Moving on to the path to profitability. Spenser in the past has always talked about profitable growth and even more of a sharper focus on that now going forward. So walk us through the journey to profitability, the levers there, what should we expect from that path over the next year or so?

Yes. So let's bring it back to guidance. All right. Let's talk about what's implied in the -- what was explicitly, right? We put forth a FY '23 guide that when you back into what Q3 and Q4 is, right, it is conveying tipping over from an operating loss position to an operating profit, right? I haven't guided explicitly what those numbers are or the split, but you can back into it. That's a direct derivative of the restructuring, right? We basically said, look, let's be more effective on our capital allocation about the go-to-market. Let's also make some adjustments small in R&D, G&A and others. About 3/4 of that restructuring and the cost adjustments were within a go-to-market. And that put us in a position to be, right, increase our free cash flow positive profile and it put us into the profit piece. All built around that same theme of that's a good balance point for us to be as we're working through that muscle development in 2023. And positioning us then as we head into 2024, it's a balance between going to where we think the puck is going to be, waiting to see where the puck lands, but being in a position where our ability to invest back into the business for growth is appropriately placed because we know with a finer bit of insight what we expect on the return of effort, return of investment on those individuals and those resources. When I think of the next stage, right, then it's a -- it's a fun choice, right? How much do we keep on the increasing operating profitability because we're getting so much more leverage out of the go-to-market. We're getting additional leverage out of the product piece. We get to make the choice of how much do we let that just continue to flow down and how much do we reinvest back into the business and against the backdrop of where we started, right? This is a really large and converging market that's going to be really compelling. And not being dismissive of where it is today, but in the magnitude, it will be significant. And our ability to go capture a larger portion in how the market is growing is what we're trying to position ourselves for. And like one of the things that we hit on just kind of going back to the earnings was I think there's a really great asymmetrical outcome here. There's just huge upside for us. And we're going to navigate through this painful time, a very prudent, financially responsible way, built around positioning ourselves to be remained and effective coming out of this year and heading into the future.

Got it. Criss, we're out of time. Thank you so much. It's been a fun conversation.

Thanks, Koji.

Really appreciate it.