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

Well, good afternoon. Thank you for joining us, day 2 of the Citi Global TMT Conference. My name is YC Wong. I'm part of the software analysts here at Citi. We are happy to have CFO of Amplitude, Andrew Casey with us. Welcome, Andrew.

Thank you for hosting us.

Look forward to it. So maybe just give us a quick background about yourself. You've been at the company for, what, 2-plus years and a quick background of the company for those new to the name.

I see I'm very old, and I've been in the Valley a long time. So too much background would be -- take too long. We didn't have any chance to ask questions. But I started my career in the Valley in Silicon Valley in 1995 with Sun Microsystems. I then went to Oracle, not through the acquisition. I was there for a couple of years, then went to Symantec, then I went to HP. And then I went to a company that very few people have ever heard of called ServiceNow. I was there for a little while and really cut my teeth on building out a scalable enterprise software business.

Right. For sure. Everybody knows Mike Scarpelli over there, right?

Mike was a great mentor and a great CFO to work for. I aspire to try and live up to his standards. I probably would still be at ServiceNow if they would have made me the CFO, but the Board really wanted somebody who had already been a CFO. And at that point in time, John and Bill were in transition and both of them asked me to stay, but I told them that, look, even if Gina leaves within 5 years, the fact of the matter is by your criteria and the Board's criteria, I still wouldn't be qualified for the job. So that's why I left and I went to a company called WalkMe, helped take them public in 2021. I then left WalkMe before the sale to SAP and went to a company called Lacework, which is in cloud security. We sold that to Fortinet. And the funny story I tell people is that in August of 2024, I was signing the definitive agreement to sell Lacework to Fortinet at noon. And by 2:00 p.m., I was announced as the CFO and been with the company for 2 years now.

Congrats on that journey. That's definitely a long tenure in software. Yes. Maybe going to Amplitude, it's not too shabby to manage a company on this growth trajectory right now, especially in the past few quarters. Can you give us a sense of overview what happened that saw the reacceleration in the business?

Yes. And I would say it's funny going back 2 years, John leads our IR capabilities at corp dev. He had done a kind of a synopsis of all of our transcripts and our earnings releases and other things, you go back to that. And there were 2 major strategies that we were talking about when I first joined Amplitude. First was increasing the amount of business that we do with enterprises. And what we mean by enterprises is any company that has 1,000 employees or has $100 million in revenue, okay? So increasing the business with enterprises, everything is better with enterprises, gross retention, net retention potential, you name it. And we wanted to have a greater footprint with enterprise clients. The other thing that we were looking at was really broadening out our product portfolio. One of the things that Spenser, our CEO and the other founders had noticed was that there were all these applications that have been created around product analytics, which is what Amplitude at its core is product analytics. Think about any software that you distribute, you need to have instrumentation and observability associated with the application, the website, the wearable. You want information and feedback to see how customers are interacting with it. Well, all these other applications have been created around that, around experimentation and session replay and guides and surveys. And the posture that was that really those didn't need to be separate. They really should be part of a broader platform. So those 2 strategies were when I first joined, we were trying to get off the ground. We're trying to get in motion. And there were just a host of things that we did on both fronts building new products ourselves, acquiring companies to augment the capabilities, really engineering the applications together so they work very, very seamlessly in customers' workflows, changing the go-to-market profile, the process, territory design, pricing and packaging, all these things we were pulling levers on to really go drive those strategies. And I would tell you that the acceleration you saw in revenue from when I joined in Q2 '24 of 6%, all the way up to the most recent announcement around 22%, I would say it's kind of boring, but I would go back to those things and say, this is just us doing very well against some of those core strategies, those core actions that were meant to go drive both those strategies. Now sprinkle that, too, with we've increasingly added more agentic capabilities into our platform. We're releasing more agentic products for fee, and that's broadening our appeal and our interest from those classic enterprise clients who are asking the key question is, how do I adopt some of these new AI capabilities and get the return on investment that I'm expecting?

Yes, there's a lot of levers, a lot of products in there that are like helping drive the growth. But since we are more in a CFO discussion, maybe can you talk about what are some of the key metrics that you are seeing that give you the confidence of that 20% trajectory?

Well, certainly, as we go forward and the underpinnings of our guidance where it shows accelerating our revenue and ARR growth is based upon customer adoption, our pipeline itself, opportunities we see around moving into new product categories. I think all of those things are giving us a lot of benefit. And I would say one of the strategies that we implemented was to go drive longer-term relationships with our clients. And when you're driving a consolidation story in the market, which is us going into an enterprise client saying, look, you've got FullStory and you've got Pendo and you've got AB Tasty. We can consolidate all of those onto our platform, and we'll charge you less in aggregate fee and you'll be more efficient. So when you do that type of consolidation play, one of the things you realize quickly is that customers are not going to just rip out all those things at the same time. They want consistency in the rollout of how they're replacing that and influencing workflows. And so that usually means they want a longer-term arrangement. And for us, it's exactly what we wanted as well. We want that longer-term arrangement because it not only gives us greater predictability, but when we sign up a client who is doing a multiphase replacement of applications, they're committing to that. And they commit to it, that shows it up in RPO. And RPO has been growing over 30% for 6 consecutive quarters. And why is that important? Well, because it's greater revenue visibility, there's greater revenue predictability. -- and it reduces the actual amount of renewals that you have to do in any given period because you've got a broader set of contracts for a longer period of time. When I first joined, we had to renew 89% of the installed base. By enacting this, we had to renew 72% the next year, 56% the next year, and we're driving that down further and further. I'd much prefer a contract duration, which isn't 22 months, which we're currently at, but more closer to 30-plus months. That enables me to have an investment in sales and marketing, which is more focused on new logos and expansions rather than just doing renewals. So all of these strategies, I would say, are instrumental. In fact, I remember, it wasn't maybe a year ago that some -- an analyst asked me, well, isn't this just luck? And I said, no, it's not luck.

Like the COVID luck.

Driving the RPO growth was absolutely something we instrumented. We rewrote the comp plans. We had -- so the incentive structures were there. We taught sales how to do deal constructs, which aligned to the customers' value propositions. We got them into the right framework around gives and gets around getting to a longer contract duration. So -- and pricing and packaging reinforces this as well. All these things are, as you mentioned, the levers we were pulling to generate growth.

Yes. How does this like longer duration contract would have an impact on your like net new retention? And then also, how is it impacting your net new logo versus expansion drivers?

So it's a good question. And I would tell you that just intuitively, if I have to renew less next year, even if I had the same gross retention rate, churn would be down. Churn dollars are down, then net is up. So it's driving growth. And I would tell you that the reality is when you execute well on that front and sales has to spend less time on doing renewals, they can spend more time going after new logos. And by the way, we've slowly but surely ratcheted up the focus from the sales team on generating new logos. Every year, we've added things to the comp plan structure or the territory design in which they have to bring in new enterprise logos in order to meet their quotas. So once again, these are all tactics and instruments that we've used to go drive the right behaviors and to achieve the core KPIs that we look at. Obviously, core to us is ARR. And you know this because you've studied us. But the reality is, I think a very conservative perspective and definition around ARR. It's exactly what we will recognize over a 12-month period. There are no caveats. There are no exclusions on contracts. There's no termination for convenience. There is no monthly annualization. It's committed contracts is what -- and that's what we hold our sales reps accountable to as well, creating committed contracts.

Yes. Like since you joined, I think enterprise has been a much bigger focus. Is that like enterprise driving to have this longer-term contract versus shorter term? Or it's more the lever that Amplitude is pulling?

I would say it's more Amplitude in the construct, but you lean into the customer motivations, like I mentioned before, customer who wants to replace multiple applications over a period of time, they actually want cost predictability, which means they want a longer-term contract. So they have that cost predictability. And a champion who's doing the work, who's actually doing the replacement of those applications with Amplitude looks at their success as Amplitude being successful in that environment. And so they want to have a partner in that. And the way they have a partnership in that is you have that longer-term contract. So it's a multitude of factors. I would say the contract duration expanding is a result of the actions we're taking to align to the customers themselves.

Okay. Yes. I guess with the contract duration, there's also a pricing impact, which has been a big topic over the past few quarters. There's a new pricing model. Could you help us refresh our memory on the old pricing and the new pricing? What are the key changes?

Sure. So when I first joined, I gave a report out to the Board, and I do a very classic 30, 60, 90-day report out. And the first report I gave had a section on it basically said our pricing is not aligned to our strategy. And it's causing churn, it's causing complexities. It's causing a lower adoption rate. And the Board basically said, Andrew, why is this the case? -- and I went through, basically, the pricing that we had was very much a point product. Every product had its own meter, its own price curve, its own value proposition, its own -- in fact, it was a separate product, a different software development kit. It wasn't reflecting what we were increasingly doing in the platform and bringing products together. And customers were complaining. And it was very much an optimization for a single product rather than an optimization associated with the experience we wanted our clients to have in having access to all those applications and us being able to monetize it very easily. So what was all those things are wrong are things that we've changed. So the first thing we did is we started talking to our customers and understanding where do we think that this platform sale is going to go? Does it need a different type of meter? Ever since we've been founded, we've used event volume as the primary meter. And I would say 86% of our installed base had that. So when we were talking about all these other products having different meters, I mean, if you were a sales rep at Amplitude prior to making the change and a customer wanted to adopt the entire platform, you'd have to ask them for 5 different estimates on how they're going to use the platform. And if they were over one of those estimates and under in another, we'd still charge them. for the additional, not over one of the individual. So it's very much a point product rather than the customers looking at, well, I don't really understand exactly what my adoption pattern would be. This is what my best estimate is. So we asked them, is event volume still the primary way in which you believe you're getting value from Amplitude as you use more. And we came back and it was still one that was very valid with clients. And the industry has adopted event volume as a standard metric. And so it wasn't a problem with the meter itself. Now that doesn't mean you get the price point right, right? You have to understand that when a customer uses more, they do expect that they're going to get incremental discount associated with the unit price they're paying. That's just standard.

Yes. Yes, especially longer duration, okay, what discount are you giving me, right?

Exactly. Well, we actually didn't have that. We didn't have a volume-based curve for quoting. So the reps were quoting prices that were all over the place. And customers talk and how come I got a better price than the other one? And so having a standard framework for volume-based discount is something we had to go build and develop, and that got changed. And now we can go and talk to a customer and like, look, if you want to have 1.5 billion events, it's this price. If you move up to 2 billion, it will be this price. Now obviously, you architect that, that there's marginal incremental discounts. But as they move from one tier to the other, they are going to pay more in ARR just at a decreasing rate. And so all that architecture had to be done. And then the other thing that customers were very clear about was I need greater cost transparency on what I'm going to be paying Amplitude if I adopt more of your platform. I can't have all these different meters. You're just going to push your compliance over to me. And so what we did is we -- because we indexed off of event volume in that price point and did the volume-based curve, we then index every other application as an uplift on that price. So that's very simple for a customer to compute what they're going to pay Amplitude as they adopt more of the platform. that trend.

What is that uplift that you're seeing on the new pricing versus the old pricing?

So each module, it ranges in its, I'll call it, value attribution to a client. You have experimentation, guidance surveys, activation, experimentation. They all have a range of about 25% to 50% uplifts individually. And then you have other ones that are smaller like AI feedback, which is more like 10%, session replay, which is more like 20%, but they each add up. And if you get each one of them and you're adopting a full platform, you probably pay somewhere between 3x to 4x, what you would if you were adopting product analytics alone. So -- but it's very simple for a customer to compute what that's going to be, and it's very easy for sales reps to quote. And a funny thing happens when sales reps actually quote more often, they have more engagements. They actually drive greater velocity, forecasting improves, pipeline improves. So the underpinnings of driving greater efficiency on the sales side, greater adoption from customers, having them giving confidence in what -- and transparency what their cost is going to be and driving multiproduct adoption, all these things were objectives we have with the new pricing and packaging. And I would tell you that we're doing very well against each one of them. Now we're rolling it out in a very methodical way to our sales team. I'll tell you a funny story when I was in the boardroom when we were talking about the new pricing and packaging and changing it. One of our Board members said, "You know what, Andrew, CFOs and CEOs have been fired for getting this wrong.

And I said [indiscernible]