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

Okay. Perfect. Hello, everyone, and welcome to day 2 of UBS' IT and AI Tech Conference. My name is Taylor McGinnis. For any of those in the audience that don't know me, I cover the application SaaS space here at UBS. And in this session, we have Amplitude. So we have Amplitude's CEO, Spenser; and then we also have Amplitude's CFO, Andrew. So Spenser and Andrew, thank you so much for joining us.

Thanks for having us. Always a pleasure, Taylor.

Perfect. Maybe a good place to start would just be on the demand environment and what you guys are seeing out there. So if I look at your guys' last 3Q earnings print, it looked like it was a step in the right direction. You saw ARR rate tick up a point. You also saw dollar-based net retention jump up 2 points or so. So Spenser, I know you talked about seeing some like green shoots in the environment. I know that there are some headwinds that still persist. So do you mind just unpacking that for the group?

Yes. I mean I think, there continues to be a lot of scrutiny in software spend overall. And so we're never going to go back to the 2021 days. And so macro might be slightly better. I think the bigger thing is that we've continued -- one, that we've continued to focus on enterprise execution. And two, we're getting past a lot of the down sells and the overspend cohort from 2021 and 2022. And so we saw some great deals there. We saw realtor.com come in, and that was due to a lot of great work on the enterprise side. I was actually at the executive briefing center meeting that we had with their CMO and Chief Product Officer and CTO as well. And that -- they were looking to consolidate their tech stack off of Adobe. We saw a large global sports league come on. We saw IKEA. We saw like all these -- lots of different more traditional companies outside of tech come on to Amplitude. So the focus that we've been putting on that segment over the last few years has been paying off. And then that combined with some of the headwinds starting to lessen, which I think we saw the highest in Q1 and Q2. And so that's going to continue as we go through Q4 and next year.

Just to add to, I think what you see is in the enterprise motion, we're increasingly appealing to a broader set of use cases within the enterprise through innovation. We've added session replay, experimentation, analytics, and we just acquired a company, Command AI that allows us to have guidance surveys. That offers a much broader set of value propositions for enterprise investing in Amplitude. And I think it's really opportune for us when we started shifting our focus from a sales perspective on enterprise clients. That value proposition along with the execution that we're doing better and better identifying where those customers really are investing and leaning into their digital transformations. They're all starting to come together.

Yes. I think it's a really good point because even you guys both commented on you're seeing good execution around enterprise momentum and some of like the initial signs of the platform play. Because when you look at some of the metrics, like I think you guys are seeing really good like new customer acquisition, right? You're landing more bigger deals the last couple of quarters than you have in the last several. So in terms of what's needed to really be like the bigger catalyst for these tailwinds to really start materializing, I guess, what are you hearing from your customers? Is it just we just got to -- get to a point where when we get into budgets next year, maybe there's just some unlock there. Like what should investors be looking out for that might be the sign that you guys are going to be like off to the races, I guess, with some of those things?

Yes. I mean Q3 was already great progress in terms of that. I think as we continue to see churn come down, we'll get there. I think gross bookings has consistently been strong. There's a lot of demand for the software and what we do. And so it's really just getting past some of the overbought and optimization contracts from the past and making sure that we're having the right enterprise relationships and have the right type of customers who are on the traditional companies versus a lot of digital native tech companies and continuing to kind of move forward on that as well as the platform story. I think one of the really exciting things that we've seen is if you are on multiple products, your gross retention rate is about 10 to 15 points higher than if you are on analytics only. So that's a really big deal. Now only 23% of our customer base today is on multiple products. That should be 100% over the long term. And so we want to make -- that's the top strategic focus next year is how do you get as much of the customer base onto the platform as possible.

I think enabling our sales team around really highlighting the value propositions to our clients. We're often still talking about how best they can get return on the investments they made in the various software categories. We have a strong position right now in selling to those clients a value for the money story, standardizing on Amplitude can not only save them in just core licensing costs across all those other point products they may have had deployed, but it's operational efficiencies. It's one pane of glass, it's one data architecture. It makes a lot of sense as you start to broaden out a broader set of use case -- analytics use cases throughout the enterprise.

And then in terms of -- you talked about getting through some of this optimization and contraction activity from some of the overbuying that historically happened. I think you were starting to like get past that, but is it possible that there might be this longer tail that it might not be until the first half of next year or second half of next year? Like any visibility to when we're really through a lot of that?

I mean we'll see. We are past the significant majority of it. We'll see -- continue to see it come down in Q4 and Q1 and Q2 as we go forward. There'll always be a small amount of that happening over the next year or so, but we're past the significant majority of it.

I think beyond some of the structural things, too, is we talked about moving more and more of our coverage on to enterprise clients, where we have a stronger value proposition to it. That's starting to show up in the percentage of enterprise customers that are in our ARR. And as that continues to grow in an overall percentage, then you get stronger gross retention and net retention rates. And the innovation pace that we've been showcasing is really, really strong. And if that continues as well, then we've got more and more to sell to those clients, more use cases to deploy on. So it just bolsters the story if we start executing well.

Yes, makes sense. And I think that you guys have done a lot over the last year plus to really position yourselves well, like in the event that we do start to see some broader recovery. And one of that has been really building out an amazing leadership team. So Spenser, obviously, you and the team brought in Andrew. You've had a new Chief Product Officer that you brought in. You just announced like a new Chief of Engineering. So Spenser, can you maybe comment a little bit about like these leadership changes? What do each of these individuals bring to Amplitude? And how should we think about like the evolvement of Amplitude over the next like couple of years because of this?

It's all about getting the executive team in place to go from where we are at to $1 billion or more in ARR. And when 2 years ago, when I started these changes, I looked at the team and what I realized was that, yes, we just hadn't had folks who had seen that journey and were capable of executing at what you needed to do like -- there's all sorts of skill sets as an executive. You need to be able to bring in the right team. You need to be able to prioritize the right things to -- at that level of scale. And so I started that transformation by bringing in Thomas on the -- as President to run go-to-market. Most recently, we had Andrew joined and very excited to have him here as part of the team. He's been fantastic in terms of tackling exceptional on the FP&A side. And so in terms of mapping out the trajectory of the business and how we're going to go drive growth while continuing to improve margin over time. And then incredibly operational in the details on how do we improve our pricing and packaging, how do we improve go-to-market. We just worked through the Command AI acquisition together. And so that was fantastic. And we didn't have a team that was capable of executing things like that before. And then most recently with Wade, our new Chief Engineering Officer, who I've actually been -- have known him for a long time, and he's probably the single -- I know a lot of others regard him as the single strongest engineering leader for this size and stage of company, and he's been someone I've always wanted to work with. And so it's been fantastic to get him. He actually was an engineering leader at Netscape a long, long time ago, way back in the day was the original Internet company. And so it's fantastic to get the opportunity to work with him.

Perfect. And Andrew, this is a good segue into you. But now that you've been in the CFO role for a couple of months now, where is your focus? And what are you prioritizing?

A lot of it is really trying to make sure the organization is focused on the strategic objectives that we've agreed to. One of the things I think Spenser didn't mention, but I -- the reason I came to Amplitude is because I think that he has assembled a good leadership team. And when you have a leadership team that is very much aligned and willing to operate without ego and focused on the customer to drive the right outcomes, I think you get magic. And for me, it was about pushing the organization in the right directions, aligning our core processes. I think that in many cases, we were a little bit siloed in how we're approaching things, like planning is a good example. If you don't have the product organization, the sales organization aligned to what customers are really demanding, you may be investing in the wrong things at the wrong times. And so having those debates, those interactions to really fortify what you're going to go do and what you're going to prioritize is really, really important. And that cascades down to the organization, too, about what people work on every day and making sure they're working on the right things, not just activity, but activity with productivity really matters. And so I'm focused on making sure that we're solving some of those big problems on our go-to-market. We need to get more efficient. We need to get more scalable. The platform motion is relatively new for Amplitude, and that transcends into pricing and packaging and what customers you target, what investments you make on generating pipeline. All those things come back to instrumentation inspection and being ruthless with respect to when you make investments that they're not progressing. Inspecting and driving changes to make sure you're getting the right outcome.

Yes, it makes a lot of sense. And I want to talk a lot about the platform opportunity. But before we get there, I'd be curious for both of your thoughts on this. So when you think about hopefully getting Amplitude back up to growth well into the double digits, what does that path look like in terms of what do you think are going to be the biggest drivers of that in the near term, right? And then secondly, and whether that be now you have a bigger platform play, it's just a matter of volumes coming back, maybe it's some pricing and packaging. Like what do you see as being the biggest catalyst there? And then two, longer term, what are things that maybe you're not quite there yet today, but that you see as being opportunities down the line?

Yes. I think there's one thing that's actively happening now that kind of it's just a timing thing, and then there's 2 things we're actively driving. So the thing that's happening now is just coming off of those getting past a lot of the contract optimizations. And so that just structurally drives growth as churn rates continue to come down over the next few quarters. And so even if we don't freeze our execution and don't improve it at all, we're going to see results in terms of acceleration of growth from that. I think the other -- the 2 things that we've been focused on strategically, the first is the platform, as Andrew talked about. I think customers that buy multiple products, as I mentioned, like have 10, 15-point higher both gross and net retention rates than customers who are on analytics only. And so there is so much opportunity to get that to the rest of the customer base. And that alone is going to drive -- as we do that next year and the year after, that alone, it's going to drive a significant change in the growth trajectory of Amplitude. And then the last one, which we've been working on for a while is that enterprise motion. And so if I were to compare the nature of conversations we're having now versus the ones that we had a few years ago. A few years ago, it was -- you talked to customers about, hey, you need to buy more data volume because you're using too much data and you're talking to a director level person who owns the data stack versus having a conversation about value. Whereas today, what we're doing is we're talking with VPs and C-level executives at the companies that we work with about what they're looking to try to accomplish by instrumenting and understanding their end-to-end customer journey. And that's attaching much better to the value that we provide and saying, okay, hey, we're going to go implement end-to-end with these use cases. And so that's a much, much healthier customer for the long term for Amplitude.

Yes. And maybe just to add, I think that some the customers you're starting to see us appeal to are really just classic enterprises in telecommunications and media and health care and retail. And they're all looking for ways in which they can provide better digital experiences for their clients. And if they're doing that through software, they're going to want to understand how best can they tune that software and understand those customer interactions so they can provide better and better and better conversion rates and services they're delivering to their clients.

Yes, makes sense. And Andrew, maybe one for you, like getting into the nitty gritty on the financials. But if I look last quarter, it did seem to be the start of what looked like an inflection in the sense of your net new ARR, I think, would have been closer to $11 million if you adjusted for some of the write-downs that you had, which was the highest we've seen in several quarters. I think the guide assumes something a little bit softer than that. So one, is there just typical conservatism embedded in this? I know you guys have been talking about the recovery being more gradual. Could you walk us through the puts and takes of that?

Yes. So I think first on the Russian issue, I think there was a little bit of a misunderstanding. We talked about a revenue impact associated with the sanctions that were put in place. The actual ARR impact was more like $1 million. And what you had from the impact that came through was we basically wrote off some of the bad debt that we were not going to be able to collect on from those customers. And so that aspect, you're right. There was a little bit of a headwind from -- in the quarter on ARR, but not as much as you would expect. And I do think that we had some extraordinary deals that happened during the quarter and expansions where we really showcased the value of the platform. And although those are great, and we'd love to have every customer go through that same type of journey, we're not willing to call that that's at scale, repeatable and that everybody is executing on the same page or that customers really understand that value proposition broadly. In fact, I would tell you, for us, it's not just about executing on delivering the products, about helping customers understand how those products can really deliver value for them, especially ones that are just beginning their digital journeys. So for us, it's about continue to execute, continue to focus on that, showcase that we are the platform of choice. I can tell you, I feel that that's starting to happen because even larger service providers that are out there, they're taking customers through their own digital transformations are telling me that they recommend Amplitude to help with that instrumentation. So that's really good. That's an early sign that customers are rethinking about prioritizing core investments in their own digital areas.

Perfect. And Spenser, maybe one for you just because I still believe today, a good portion of your expansion activity still comes from volumes, right? So when we can start -- when you're speaking with your customers and what's the catalyst for starting to ingest and analyze more monthly tracked users, what is that? Is that just you'll see that with the recovery in the environment? Is there a certain catalyst, right, that maybe your customers are facing that could drive more volumes? Like how are those conversations going?

It's less -- actually, the good part of the expansions, the nature of the expansions we're seeing today is it's actually not volume-based. It's more like Realtor, I mentioned earlier, they were looking -- they had tried us out on the small part, and they were looking to deploy us end-to-end to replace Adobe and what they're doing with Adobe. And so -- and it wasn't like -- so like, yes, part of it is you're going to need more data and more coverage, but it was like, okay, what does a full deployment of Amplitude look like and let's get you that and let's negotiate something that looks like that. And that is -- yes, you're not -- like while volume is one kind of lever in that negotiation, really, you're talking about how do you help this customer be successful with their digital data strategy. And so those are much more like the types of conversations that we're generally having. And actually, we're trying to deemphasize volume in that we're trying to encourage people -- like one of the things is the more data you send to Amplitude, the more valuable we become. And so we actually want to reduce the cost of data as you get to -- we're reducing the cost of data as you get to larger and larger scale so that people do send more and get more value, and they're not thinking of Amplitude as buying volume. And instead, they're thinking about, okay, hey, I'm getting all these capabilities on understanding and improving my customer journey so that I can drive improvements to my digital business.

Yes. And I think from a strategic perspective, historically, even you had a single product, that was the only vector expansion. But now that we've got multiproducts, you've got both vectors for driving expansions. And I think the way that starts to show up in a pricing and packaging strategy is you give the right incentives for customers to do greater volumes, greater product adoption, right? So those things are areas, I would say, of maturity that the company is going through. And as we execute better and better on it, you start to see the results.

Yes. Could you elaborate on that a little bit more? So like shifting over into the platform opportunity, I guess where are you guys in that journey? Like what are the opportunities as it relates to pricing and packaging? And when you think about where you're starting to see the most demand, like maybe we're not necessarily seeing it in numbers today, but you see it in customer conversations, what does that look like?

Yes, I can start if you want to -- so I think the first thing is when I started talking to customers early on, it was it was they like the and they are interested in the technology that we're innovating, but they see the price barrier to adoption. And you never really want to -- in a platform sale, you don't want pricing to be a barrier for them to get access and understand how value is accruing to them, right? And so the ways in which we construct our current pricing is very much a stackable LEGO, if you will, so that they can compare very easily against alternative technology they may have deployed or considering. And in many cases, customers don't want to necessarily understand that except at the aggregate level, and they want to make sure that they're not going to be surprised. They may have a multiyear journey in how they want to adopt Amplitude with all those capabilities. And so you need to make sure that you construct both of those. Now a phrase I use often when we're talking about pricing and packaging and strategy with clients or even in a negotiation is you want to have a fair exchange of value. But that presumes that the customers already understood what their value proposition is. And so if you can't construct something as volume for increasing volume and gender lower unit price, one, predictability associated with how that adoption occurs because nobody likes to have a surprise. No CIO likes to come to their CFO and say, "Oh, I messed up on my forecast. I need more budget." And so there's flexibility and usage that you can have in a platform framework. And then two, it's kind of telegraphing out the adoption and leaning into customer value prop such that they have the perception that they're using in advance of what they're paying for, even though the contract structure may be one that's committed over a period of time. And that's the balance you have to do in a platform sale. And some of it's art, but some of it comes down to real science, too, about how best to generate that fair value exchange.

Perfect. Spenser, anything to add?

I think the Yes. I think part of it is one of the things that we've been working on is how do you drive adoption of the multiple products. And so we're going to be doing a whole lot next year. I think we're a step 1 out of 10 in terms of pricing and packaging. It's less so that like because we're a sales-based motion, the team is already quite good at extracting value from customers. And so it's less of like, well, we can double the prices. It's more that how do you remove it as a barrier for adoption, as Andrew said.

Perfect. And then because this is an AI conference, maybe let's move into that. Yes, let's move to the AI piece. I know there's lots of AI embedded in Amplitude's whole platform. But when we think about maybe some of the recent announcements, you guys acquired Command AI. Spenser, maybe you can offer a little bit more color on that acquisition, how that fits into Amplitude's AI strategy. And then also too, you've had Amplitude AI, right? So any update you can provide there?

Yes. So I think I'm almost hesitant to share this, but it's a small room. So we'll keep it to this group. So there's obviously tremendous hype around it, and there's some very exciting capabilities that AI is coming out -- that AI is enabling. One of the things that I have seen, frankly, with most B2B companies out there is that what they say they're adding to their offering from an AI standpoint is not real. And that is just a thin wrapper around, frankly, something you'd rather do in a point-and-click interface or it's vaporware that they're talking about, but haven't actually released. The reason -- and so my view is that 90% of -- probably more of the B2B companies who are talking about it, it's not real. And the reason is, is because it's a fundamental like shift in technology capabilities, and you basically have to reinvent your product and platform to work effectively with that. Now from my view with an Amplitude -- and look, I'm an engineer, we're a very product-centric company. My co-founder is an engineer like on the spectrum of like product versus salesperson, like I'm about as far as there as you can get. Even for us, that is tremendously hard. And so the way that you are going to make a breakthrough as a company is by acquiring a company who has proven out some of the product and technology, and then they have a better understanding of the product market fit. And so one of the things -- the reason we acquired Command AI, and I'm really excited about the founders, James and Vinay and the team that they've built is because they have been thinking about the problem of how do you integrate chat with the website and application, right? So a lot of companies, you have a chatbot that you can ask, hey, how do I do such and such in this product or I'm confused and stuck, help me out. And they'll give you a long list of instructions back. And it's like, okay, what's the point of this? Like I'm just -- it's like, okay, maybe it's a little better than reading the help docs, but I'm not actually getting that much more value. What the Command AI guys figured out, which it's so -- we just had a demo of it yesterday where it's integrated with the Amplitude product. And what they figured out that's really exciting is that instead of just giving you a text response back, they actively show you within the product how to do something. So if you're like, hey, how do I create a new event, for example? What they'll do is they'll have a guide pop up that says, okay, hey, you want to navigate to this part of the product, click here, and then you can click there. And then you can say, okay, hey, to add a new event, click on this button right here. Okay, cool. Click there. And so the AI agent is now instead of just giving you text back, it's actually helping you navigate proactively through product. And so that was super cool. And so that was a capability that they had spent a bunch of years trying to figure out and develop. And so adding their expertise to our team. And so we're going to be coming out with that later next year, and I'm really, really excited about it. It's kind of -- I'm sure a lot of people here remember Microsoft Clippy and how useless that was. This is what it was always envisioned to be. And so I'm really excited that we're going to have this offering for our customers.

Yes. It's super interesting. And just hearing you talk about it, it sounds like it feeds into what you guys have also been doing around enablement, right? So I know that you guys have made lots of investment in terms of trying to help the speed of use and deployment of Amplitude. So you have introduced native integrations with Snowflake. I think in September, you talked about the launch of Amplitude Made Easy. So can you talk about how all of this together? I guess, one, what's the reasoning behind that? Like what was the hurdle that you were having in customer conversations that now this is going to be a big enabler of that? And then two, how is that today contributing to new logo and expansion activity?

Yes. So one of the things we've seen with products in our space is that there is a lift to adopt them. So if you go back to the previous generation of products, either Adobe or Google Analytics, those are very, very heavy implementations to do it right. And a big -- one of the -- like, frankly, the biggest part of the value of Amplitude is that it is much easier to get up and running and get in the hands of a team. So you can put in -- and we want to continue to lower that barrier to adoption. And so one of the things that we did on the Amplitude Made Easy was we introduced a single line of code to instrument for the first time. And through that, we will capture clicks, we'll capture page views. We'll capture all the different actions you're taking on your application or website. We've actually seen for customers who do self-serve sign up a 40% increase in the number of customers who are actually sending us data. And so that's a huge like 40% jump. So it's a huge deal. And now we're rolling it out to our enterprise customer base as well and helping them get the advantage of that. And then the other benefit it gives is that it's -- all of our products are bundled together as part of that. So before you'd have to do separate implementations if you wanted to do analytics and then experimentation and the session replay, you'd have to do code for each one of those. Now it's like you get them all as part of that single line of code so that the adoption of these other products. Like I think we looked at the data and someone who uses that one line of code is 20x more likely to adopt session replay than someone who has to instrument it on their own. So like not just 40% improvement in other products. Now we're talking 2,000% improvement in terms of the ability to adopt other products. And so we're always like a huge part of the -- a core part of the value proposition of Amplitude versus like a lot of the data the prior generation or building your house is, hey, you can get this value of understanding your customer and optimizing their journey much, much, much faster than you can through any other way. And so we're always going to be doing stuff there to improve that. Snowflake was another great example where now it's much easier to get up and running if you're coming and you already have your data in the Snowflake data warehouse.

Perfect. And let's talk about the old way of doing things and specifically Google Analytics. I know you guys made some comments on the last earnings call, you're starting to see some opportunities pop up. So could you just elaborate a little bit more on that? And what are you seeing in the pipeline as it relates to maybe some of that displacement activity or some of those opportunities?

It's picked up in the last quarter. So Google Analytics, the enterprise version just had its sunset in July of this year. And so a lot of customers who are being forced to use it are quite frustrated. So we've seen actually a lot of what you think of as traditional non-tech companies poke their heads up for the first time, be like, all right, this isn't workable. What else is out there on the market? So Decathlon that came in, in Q2, that was a huge deal, really big retailer. IKEA was like another one that we saw in Q3, join the juice. There's like a whole bunch of companies that are poking their heads up and reevaluating their data stack for the first time, specifically because GA4 has finally been -- or sorry, Universal Analytics has finally been fully sunset in favor of GA4, which is much less feature full in terms of their capabilities. So it's a great opportunity.

Perfect. And in the last minute here, so Andrew, maybe one last one for you would just be on margins. I know you made a comment on the last earnings call saying that sales efficiency isn't quite where you guys want to see it just yet. So in terms of the opportunities on the margin side and how you're thinking about managing operating income and free cash flow expansion along with growth. Any high-level thoughts you can provide there?

Well, one of the things I mentioned was that as we started our planning, the focus was really driving growth primarily, but growth with leverage. And so it's not good enough for us to just say we're going to get back to double-digit growth without at least talking about how that's going to flow down to operating income improvements and free cash flow improvements. And so that's a very disciplined way as a leadership team that we came together about this is how we're going to build the plan. We've made investments in core areas in their sales and marketing coverage. Now it's time for us to execute. So in that area, it was a little bit -- continue to execute on the plan and focus with the existing investment profile we have. On the G&A side, I would tell you, we were heavy. And in some of the areas, we just needed to get a little bit more focus on the things that really matter. I'm not one who likes pet projects. Pet projects aren't ones aligned back to the core processes and focus for the company, then we're not going to invest in it. So there's a bit of prioritization and focus that we had to drive. And I think that, that's got to be the mantra for us going. We'd love to do a lot more things on the product side. Spenser has a road map that could probably last us forever. But the reality is you only have so many resources you can put to it, and you got to be very methodical about how you prioritize.

Perfect. All makes sense. Well, that's all we have time for. So I appreciate thoughts from both of you today, and thanks to everyone joining in the audience. Let's give Sensor and Andrew a round of applause.

Thank you.