Amplitude, Inc. Q4 FY2022 Earnings Call

Investor Relations. Joining me are Spenser Skates, CEO and Co-Founder of Amplitude; and Hoang Vuong, the company's Chief Financial Officer. During today's call, management will make forward-looking statements, including statements regarding our financial outlook for the first quarter and full-year 2023, the expected performance of our products, our expected quarterly and long-term growth, investments, and our overall future prospects. These forward-looking statements are based on current information, assumptions, and expectations and are subject to risks and uncertainties, some of which are beyond our control that could cause actual results to differ materially from those described in these statements. Further information on the risks that could cause actual results to differ is included in our filings with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, and we assume no obligation to update these statements after today's call except as required by law. Certain financial measures used on today's call are expressed on a non-GAAP basis. We use these non-GAAP financial measures internally to facilitate analysis of our financial and business trends and for internal planning and forecasting purposes. These non-GAAP financial measures have limitations and should not be used in isolation from or as a substitute for financial information prepared in accordance with GAAP. A reconciliation between these GAAP and non-GAAP financial measures is included in our earnings press release, which can be found on our IR website at investors.amplitude.com. With that, I'll hand the call over to Spenser.

Thank you, Yao. Good afternoon to everyone tuning in for our Q4 and fiscal 2022 earnings call. For those who may be new to our story, Amplitude helps companies build outstanding products, drive growth, and dominate their markets. Our digital analytics platform provides self-service insight into the entire customer journey. Amplitude helps companies harness the potential of their products and supports them throughout the process. This allows companies to gather reliable data, gain clear insights into customer behavior, and act swiftly. Every executive I speak to is eager to keep investing in their product, as they see digital products as vital for growth. However, their execution capabilities often fall short of their ambitions. Amplitude changes that. We reveal what customers enjoy, what obstacles they face, and what motivates them to return. These insights are essential, especially in the current environment, where we believe Amplitude is a critical component of every modern tech stack. We ended 2022 on a strong note, with fourth-quarter revenue at 65.3 million, reflecting a 32% year-over-year increase and exceeding our top-end guidance. Our dollar-based net retention stood at 119%. We have nearly 2,000 customers, with 480 of them contributing over 100,000 in annual recurring revenue. Additionally, we achieved nearly 300 basis points of non-GAAP operating margin improvement year-on-year. We have always operated efficiently in building our business and are in control of our future, expecting to generate positive free cash flow this year. Despite the challenging environment, we are managing our business effectively, as evidenced by our outperformance in both top and bottom lines. To every member of the Amplitude team, I sincerely appreciate your efforts in making our vision a reality. As we mentioned last quarter, we anticipated facing more challenges in 2023. Indeed, Q4 presented new difficulties, including increased churn among smaller customers and intensified scrutiny and budget constraints. Companies across various sectors are exercising caution. These themes are prevalent across many software companies. Specifically for Amplitude, the amount of support we provide to digital natives and early adopters is notable. Being at the forefront of an emerging category can be a double-edged sword, as those who significantly contributed to our growth are now retracting the hardest. The challenges our customers face are very real. We foresee ongoing layoffs and a reduced appetite for risk to pose short-term challenges, but we believe these will pass. Our long-term perspective remains unchanged. In terms of product data, many companies are just beginning their journey. We are amidst a significant shift in how companies develop, iterate, and refine their products. As the digital analytics market evolves, we are witnessing increased momentum both in the size and duration of our transactions. For example, we have seen organizations transition from Google Analytics to Amplitude. Long-term, I anticipate our growth accelerating. We have several initiatives aimed at enhancing growth through distribution and monetization in 2023. Regarding distribution, we are focused on three major strategies. First, product-led growth, where we launched a new pricing model in January tailored for startups and small businesses, based on unique monthly tracked users—metrics that smaller teams understand and anticipate. This is just one step in our broader journey toward product-led growth, which you will hear more about throughout the year. Second, we are enhancing user activation through improved navigation, chart control upgrades, no-code or single-code data ingestion, and allowing direct work with cloud data warehouses. Third, we are significantly reducing data costs, which will facilitate easier scaling with us. In terms of monetization, there remains substantial potential to broaden the use of our analytics among our customer base. We also have opportunities to add solutions that assist our clients in enhancing their products. Our success in experimentation surpassed our expectations in 2022, and we are still in the early stages of customer engagement. The opportunities for increased monetization of our platform are just beginning. We are in the early phase, with immense potential, and are seeing genuine validation. I have never been more enthusiastic about the opportunities that lie ahead. Product innovation will drive both distribution and monetization. We introduced over 100 product updates and features throughout 2022, more than in any previous year. Our analytics capabilities have enabled us to expand into retail and e-commerce, with marketing analytics contributing to competitive displacement. We are reaching more data leaders by creating tools that reduce data chaos, enhance visibility, and improve access across teams. Our new Amplitude data capabilities allow teams to comprehensively manage customer data on our platform, boosting confidence for data teams, enhancing collaboration, and facilitating the identification and resolution of issues. Experimentation is now available in our EU data center, and we have made additional enhancements to streamline product testing. As companies seek to consolidate spending in the current climate, we are witnessing increased demand for competitive alternatives for experimentation. ITV, a leading broadcaster in the UK, implemented Amplitude experiment in Q4 to quickly iterate around their new streaming platform, ITVX. After fostering an experimentation culture within their brand BritBox, Lee Marshall, the Director of Product, is extending Amplitude's use across the larger organization. He noted, "Previously, we had no centralized cross-platform capability. Experimentation took considerable time. Without Amplitude, we could not accurately assess the true value of our product enhancements or manage multiple experiments simultaneously." Analysts recognize our leadership, as Amplitude was named a strong performer in the first Forrester Wave for Digital Intelligence Platforms in which we participated. The depth of our digital analytics platform enabled us to earn market-leading scores across nine criteria. We ranked in the top three on strategy with Adobe and Salesforce, outperforming Google in both strategy and execution. Various point solutions claiming to compete with Amplitude did not even appear in the report. Amplitude received five awards in G2's 2023 Best Software Awards, and we ranked first in ten categories in the G2 Winter 2023 report, including as the leading product analytics solution for the tenth consecutive quarter. While it is still early days, I am encouraged by our advancements in go-to-market strategies. We have improved alignment between marketing, sales, and customer success. Enhanced collaboration among marketing, Sales Development Representatives, and revenue operations has increased productivity in demand generation. We have always excelled at engaging product managers, and we continue to strengthen those relationships while also connecting with data leaders to drive larger land deals. We are better aligning Amplitude with the value it offers our customers, leading to increased executive engagement. We have also established an executive sponsor program for our top 50 accounts to enhance retention and expansion. Our product team has long utilized Amplitude, but we have taken it a step further by creating Amplitude dashboards for our go-to-market teams, allowing us to serve our customers more effectively. I am excited to welcome Kristina Johnson as our new Chief Human Resources Officer. Kristina has spent the last seven years at Okta, leading the global people and places function as the company grew from 500 to over 6,000 employees. She brings valuable insights on building high-performing teams and understands the journey we are undertaking. She is an exceptional leader, and I look forward to collaborating with her. After the market closed, we announced a transition in our CFO position. Following four outstanding years at Amplitude, Vuong will be departing the company, and we will welcome Christopher Harms, a former Forescout executive, as our new CFO. You will have the chance to get to know him in the upcoming months, and Vuong will remain at Amplitude temporarily to ensure a smooth transition. We are continually attracting customers across various industries and at every stage of their digital maturity journey. Significant new customers in Q4 include Fandom, Philip Morris, Malwarebytes, Black Rifle Coffee, and Standard Chartered. We also experienced notable expansions in Q4 with Fox Broadcasting, NTT Docomo, Syngenta, among others. One particularly exciting win this quarter is Fandom, the world’s largest fan platform, which attracts over 350 million unique visitors each month and hosts over 250,000 Wikis. Fandom is the leading source for pop culture, gaming, TV, and film information. Their decision was influenced by the necessity to migrate from Google Analytics. Their Director of Business Intelligence and Site Analytics led the evaluation in a competitive selection process against legacy and point solutions. Ultimately, Amplitude was chosen for three primary reasons: first, our seamless integration of product and marketing analytics which catered to Fandom’s diverse advertising content and editorial needs; second, our self-service value proposition that made us a natural fit for both technical and non-technical teams; and third, our pace of innovation and scalability. Fandom plans to leverage Amplitude to impact key business metrics by connecting content changes to revenue, including analyzing video content engagement and understanding how product changes influence user behavior. Their publishing and editorial teams will also utilize Amplitude as a centralized data source. I am thrilled that we can contribute to their growth and transformation. Albert's, known for its sustainable shoe and clothing line, began working with us in Q4 after deciding to transition from Google Analytics in search of a new digital analytics platform. Amplitude emerged as the superior choice due to our expertise in e-commerce and international business use cases. Now, Albert's can delve into the triggers that lead to repeat customers globally, understand user behavior across their various websites, and extract insights from multiple geographic regions simultaneously. They aim to use Amplitude analytics across product, analytics, data engineering, marketing growth, and information security teams to develop a holistic view of their users, setting the stage for improved conversion and customer lifetime value. We are also focused on expanding beyond digital natives. Though still in the early stages, we are making progress with a significant expansion in Q4 within one of the largest media companies globally. Before Amplitude, the product and data teams met weekly, with the product team bringing questions for the data team, which spent the following week sifting through Adobe data for answers. After adopting Amplitude, they reduced the response time from a week to seconds, greatly enhancing their efficiency. The product team can now conduct experiments independently, and the data team has seen a 50% drop in requests, allowing them to devote more time to high-impact projects. I remain very optimistic about Amplitude’s future and our key role in leading digital analytics. As I mentioned earlier, I see this phase as an opportunity to make bold decisions and solidify our market position. I am confident in our ongoing ability to innovate consistently and deliver value to our customers, even amidst the macroeconomic challenges. Our persistence will prevail, and I believe we will emerge from this cycle stronger. By elevating our execution standards and investing in long-term product development, we are well-equipped to foster sustainable growth in a category that is just beginning to unfold. Thank you for your interest in Amplitude. I will now hand the call over to Hoang Vuong to review the financial results.

Thanks, Spenser. Good afternoon everyone. Fourth quarter revenue was 65.3 million, a 32% increase year-over-year. For the full year 2022, revenue reached 238.1 million, marking a 42% growth. Our customer count rose by 25% year-over-year to 1,994, and our dollar-based net retention was 119%. We now have 480 customers with annual recurring revenue exceeding 100,000, up 25% year-over-year, accounting for about 75% of total revenue, including 30 customers with over $1 million in ARR. In terms of our Q4 results, new bookings were balanced between land and expand. We secured two land deals exceeding a million dollars, indicating that more companies are recognizing the importance of data for modern enterprises. This is a significant improvement compared to zero land deals of that size in all of 2021. We also experienced our largest expansion through experimentation as customers mature and adopt our entire video analytics platform, which enhances from experimentation to customer data integration. There is an uptick in early-stage opportunities as our demand generation efforts gain momentum. However, we noticed a general increase in customer caution during Q4, leading to more deals being delayed or reduced compared to Q3 due to heightened budget scrutiny. Both full and partial earnings were elevated across the board in Q4. Customers are still managing the aftermath of COVID-induced changes while trying to find their footing. Regionally, revenue from the U.S. grew 28% year-over-year to 40 million in Q4, or 61% of total revenue, while international revenue rose 39% to 25.2 million, representing 39% of total revenue. Our total remaining performance obligations climbed to 248.2 million, up 46% year-over-year, and current RPO increased to 190.6 million, also up 39% year-over-year, making up about 77% of total RPO. It’s important to note that the growth in Current RPO throughout fiscal year 2022 has been bolstered by a rising mix of multi-year deals. If we do not continue to increase the proportion of multi-year deals, Current RPO growth may be negatively affected in 2023. Next, I will outline our non-GAAP results for Q4. Our GAAP financial results and the reconciliation between GAAP and non-GAAP results are available in our earnings press release and supplemental financial documents on our investor relations website. Our gross margin for Q4 was 74%, which reflects a 250 basis point improvement year-over-year, even as infrastructure costs continue to scale. During our IPO process, we set a long-term target of 75%, which we plan to achieve and probably exceed in the near term. Sales and marketing expenses accounted for 45% of revenue, up from 44% in Q4 2021, while R&D expenses were 21% of revenue compared to 20% the previous year. We reported an operating loss of 4.7 million, or negative 7%, an improvement from a loss of 5 million or negative 10% in Q4 2021. We have intentionally moderated operating expenses throughout the year in response to changing conditions. Our goal remains to balance growth and profitability. The net loss per share was $0.03 based on 113.1 million shares, compared to a loss of $0.05 on 107.9 million shares a year prior. At the end of Q4, cash, cash equivalents, and marketable securities stood at 301.7 million. Free cash flow for the quarter was a negative 5.9 million, or negative 9% of revenue, an improvement compared to a negative 12.2 million, or negative 25% of revenue in the same period last year. For the full year 2022, free cash flow was negative 11.2 million, or negative 5% of revenue, a considerable improvement from negative 34.9 million, or negative 21% in 2021. Now, turning to our outlook. Our guidance assumes a weak macroeconomic environment persists throughout the year. Layoffs and budget cuts are unfortunate realities for many digital natives. We anticipate that churn, expansion, and budget pressures will continue through 2023. For the first quarter, we expect revenue to range between 64 million and 66 million, which would reflect an annual growth rate of 22.5% at the midpoint. Q1 accounts for two fewer days than Q4, resulting in an approximate 1.5 million sequential headwind. We predict non-GAAP operating margins to be negative 13% to 14%. Our sales kick-off in January is expected to place additional pressure on margins in Q1. The anticipated non-GAAP net loss per share is between $0.06 and $0.08, assuming approximately 114.9 million shares outstanding. For the full year 2023, we're guiding revenue between 283 million and 291 million, corresponding to an annual growth rate of 19% to 22%. We foresee non-GAAP operating margins in the range of negative 6% to 8%, and a non-GAAP net loss per share of between $0.11 and $0.16, with shares outstanding estimated at approximately 117.5 million. We believe the lower end of our guidance accounts for potential further deterioration in macroeconomic sentiment throughout the year. Please take note of the following points: Non-GAAP gross margin is projected to be between 73% and 75% for fiscal year 2023, reflecting over 300 basis points of improvement compared to the last couple of years. We expect to conclude Q4 2023 with a non-GAAP operating profit and aim to become free cash flow positive for the full year, ahead of our previously stated medium-term goals. Given the pressures we've noted, we anticipate a continued decline in our net retention rate. The challenges we face are a natural consequence of being a pioneering player in this market and our connection to digital natives. We are addressing those challenges and managing our business with a focus on efficiency. We remain confident in our long-term opportunity and believe we are exceptionally positioned to succeed in digital analytics.

Before we move to Q&A, I actually want to just take a moment to recognize Vuong. Vuong, I just want to say you have been instrumental to our growth and success over the last four years. On behalf of myself and everyone at Amplitude, we sincerely thank you. We wish you all the best.

Thanks Spenser. It's been a really life-changing opportunity and a privilege to be able to contribute to Amplitude’s success and growth over the last few years. I want to thank the Amplitude team. I know that we'll be a billion-dollar business one day because we have the best product and an awesome culture. With that, we look forward to your questions. Over to you, Yao.

Our first question comes from Koji Ikeda at Bank of America, followed by Arjun Bhatia. Koji, you’re up.

Hey, Spenser. Hey, Vuong. Thanks for taking the questions. Super appreciated. Wanted to kind of dig into the guidance just a little bit more here. Looking at the guidance for 2023, the midpoint about 20.5% growth balanced against quarterly billings of 26.5 showing 12-month billings 32% and that current RPO of 39%. So, it is really quite a range of growth rates reported versus the guide and just trying to help reconcile, kind of the billings performance, RPO performance against that revenue guide. Appreciate all the color on the macro net revenue retention, but just curious anything else specific to call out maybe from a renewal perspective or vertical perspective that we should be aware about that you guys are considering in that guidance?

Yes. So Koji, let me start with that. I think that first of all, like we said in the prepared remarks, we're kind of assuming that the environment that we saw in Q3 and even some deterioration in Q4 can persist throughout the year. So, we want to make sure that we come out with guidance to get off the year that we feel very comfortable with. As far as the growth numbers you're talking about with billings and those are obviously all right. Just a couple of reminders. Number 1 is on the Current RPO, a lot of that growth is driven by the multi-year. Our billing can fluctuate; you see kind of when you look at quarters and over quarters and year-over-year to kind of change quite a bit and it really depends on when we're doing the billing for the linearity of the bookings. So, for instance, we had a really strong Q3 in the land quarter, and that strong Q3 actually didn't get billed into Q4. And so, you kind of have that factor the same when you look at Current RPO and billing. And once again, we point people to look at the sequential quarter-over-quarter revenue growth as being probably the best indicator.

Got it, got it. And then just broadly question for Spenser or Hoang, Vuong, thinking about the current sales capacity and line coverage to reach the 2023 growth targets, how should we be thinking about that right now? And then how should we be thinking about hiring for sales capacity this year and then broadly hiring within the rest of the organization? Thanks, guys.

For sure. So first, we're set up from a sales capacity for the targets that we've outlined for 2023. I think Thomas and a lot of the leadership he's brought in have done a great job in setting ourselves up for success to hit the targets that we do see this year. At the same time, we're also obviously very thoughtful about managing the cost side of the business. In this sort of environment, slowing down hiring, applying a lot more scrutiny at the margins, making sure that we don't get over our skis. The good thing for Amplitude is that's always been how we've operated from a cost standpoint even when things are really hot over the last few years. And so, it's not as major of an adjustment for us heading into this environment.

Got it. Thanks, guys. Thanks for taking the questions. Best of luck, Vuong. Thank you so much.

Great. Next question, Arjun Bhatia from Blair followed by Elizabeth Porter from Morgan Stanley. Arjun?

Awesome. Hey, guys. Thanks for taking the question. Maybe just – I wanted to touch on just the demand environment. I know you called out some of the digital natives as being maybe a little bit of a bigger headwind. Spenser, how do you think about what you can do from a go-to-market perspective to maybe shift the demand a little bit so that you're targeting more traditional industries? Is that part of the plan? Is that something that you're already doing? Just walk us through how those two different, how you might adjust your targeting approach a little bit?

Totally. Yes, that's something that’s very top of mind is making the shift from digital natives to the traditional enterprise. I mean, I think we've seen continued traction around that in Q4. As you saw, big expands in Fox Broadcasting, NTT Docomo and that anonymous media company that we mentioned. And so, we're continuing to make progress against that. One of the plays that I'm really excited about is – one of the things we see is that when you get a lighthouse customer in a vertical that then allows you to get a number of other companies. So, we've seen that playbook work for us. If you look at, for example, media, we've had Fox Broadcasting. We've had NBC as customers; that's helped us land HBO, Discovery, a bunch of other media brands. Same and quick-service restaurants, we did that. We landed Chick-fil-A quite a while ago; that's helped us get into RBI and their brands like Burger King and Popeyes. And so, we want to replicate that play as we go through 2023. One area I'm excited about is retail. We launched a number of e-commerce and card analysis features as we went through last year, and so standardizing that playbook and then going after some of the Lighthouse folks in that vertical to expand to others. And so, I think we're seeing continued progress in the need for digital analytics and broadening outside of digital natives to the traditional enterprise, but again, we're early in that transition.

Okay. Awesome. And then it seemed like experiment was a big theme in your prepared remarks. And I got the sense that there was a little bit of a – obviously, strong traction in Q4, and it's been, I don't know, maybe a stuff function change, but what's driven the strong traction there? Have you made product changes that are starting to resonate? Is it more of a go-to-market adjustment? And then maybe just remind us, are you seeing those lands come in off the bat with experiment plus the core platform or is this more of an expansion sale?

Yes. So, on experiment, I think because in a lot of companies, there's existing AB testing or experimentation budget, that actually makes it more attractive in a time of macroeconomic pressure. And so, we ended up exceeding our own internal goals for where revenue from an experiment would be. In 2022, as a result, we had a record deal in one of our largest accounts that was a big experiment expansion. And so, it's just kind of continuing to build this muscle on both making sure we're offering all the latest and best features on experimentation as well as deploying that in go-to-market. Now, it still has a long runway to go in terms of penetration across the customer base. In terms of lending, we're actually seeing that. Some of our 7-figure lands that we did for the first time in 2022, experiment was a big part of those deals. And so, I think the product is now mature enough where companies are willing to take a big bet on it straight out of the gate. And so that's been a hugely positive proof point.

Thank you, Spenser. Super helpful, and best of luck in the future, Vuong.

Thanks, Arjun.

Great. Next question from Elizabeth Porter from Morgan Stanley followed by Rob Oliver from Baird. Elizabeth, please?

Great. Thanks so much. So, you highlighted having churn at the low end and also helping customers right-size contracts just contributing to some of the down sell. And the question is, are we through a lot of those headwinds in Q4? And how much work is really left to do? I understand that NRR is a trailing 12-month metric. So, we're going to continue to see that pressure through fiscal 2023, but I was hoping to get a little bit more color on just the inter-quarter.

Yes. I mean I think the first thing to call out is, we expect it – our guidance assumes we expect that to continue as we go through 2023 because of our exposure to digital natives. A lot of them, they're going to continue to look for cost savings. And while we want to maintain the value we're at, I think we also want to work with customers with where they're at. I think a few things to call out. One, on the churn front, we're seeing almost no churn to competitors. And so, we continue to feel good about our market leadership position in digital analytics. Second thing is all of those customers do expect to expand with us over the long-term. And so, they're just looking for some short-term help as they're going through layoffs and trying to find additional budget dollars and all of that. And so, we want to work with them to do that. I think the last thing I call out is that it's a hyper-focus for us as a company, and like I'm not happy with where it's at, and I want us to continue to improve how we're doing on the churn front. And so, we're doing that through a number of things across product and go-to-market, making sure we get close to customers, making sure to develop more executive relationships so that we can drive an ROI story, which we've been better at in 2022 and then launching new services and products that help people implement, adopt, and grow with us over the long term.

Got it. Yes, makes a lot of sense. And then a second one just on a follow-up is on cost discipline. Really encouraging to see that help offset kind of the impact on the bottom line. So, can you just be a little bit more specific about some of the actions that you are doing to drive that incremental leverage?

Yes. Let me start with gross margins and then discuss operating margins. I'm really excited about one of our innovations, which involves significantly reducing data costs. This should provide us with substantial leverage on gross margins over the long term. We've seen improvements in this area from 2021 to 2022, and we expect to continue this trend into 2023 and beyond. This is crucial for a data-intensive business like ours. Regarding our operations, we have been more careful about increasing headcount in the current environment. Therefore, we haven't had to make major adjustments like some other companies have. In December, I sent out a survey to our team members asking them to identify ways to save costs. We received 500 responses with suggestions ranging from eliminating promotional items and perks to being more mindful about catering and travel expenses. It's encouraging to see many of our team members stepping up in this manner, and I mention this because it's always been part of our company's culture.

That’s great, thank you so much.

Great. Next question, Rob Oliver, we can get you in your comment. Thank you. And followed by Tyler Radke from Citi. Rob?

Yes. Great. Can you hear me okay?

Yes, we can. Perfect.

Okay. Great. Yes, guys, sorry, I'm not actually driving here. So, first of all, Vuong thanks for everything. It's been very working with you. First question is for you. Just on the product-led growth model, I know it's early days here still for you guys, and it's been really your planned effort here to try to expand at the lower end. It also is likely going to continue to impact deal sizes. And so, just curious how you guys are thinking about deal sizing. I know there's some natural headwinds from the macro, but in terms of the move of PLG opportunity, how we should think about ACVs and deal sizing throughout 2023? And then I had a quick follow-up.

Let me actually take the first part of that one, and I can let Vuong fill in with the color. So, we don't expect revenue impact from the switch to monthly tracked users pricing. And that's because that's specifically a motion targeted at the lower end of the market. And so, that's all about increasing distribution, so making it easier both for start-ups and traditional enterprises to find new paths onto Amplitude. And so again, we don't expect revenue impact in 2023. I think the goal is to get – make it easier for companies to come on to Amplitude. When we first talked to a lot of start-ups and told them, 'Hey, we're an event-based pricing model,' their first question back to us is, 'What's an event?' And so, whereas something like how many monthly users you have is something that they're able to estimate a lot better and forecast, and also ties better to value. So, they say, 'Hey, when we grow as a business, we'll also grow our contract with Amplitude that makes a ton of sense.' So again, that's purely focused on the distribution angle versus any sort of immediate monetization impacts.

Yes, Rob. I think Spenser mentioned it in his prepared remarks as well. Our main goal is to increase distribution, which comes from attracting more customers at the lower end—an area we weren't really addressing before. Customers either had to opt for free services or move to significantly higher-priced options. We want to target that segment. We're also gaining traction, as we observed in 2022, by engaging companies with an established digital presence. These companies recognize us as a known entity and are seeking efficiency and better ROI, leading them to consider us over their current solutions. We're seeing existing customers with substantial digital footprints transitioning to our services. This is demonstrated by the two land deals we secured over $1 million in Q4, a significant increase from none in 2021. From an average selling price perspective, we anticipate having both large deals and increased business from the lower end. Overall, we’ll achieve more distribution, which is excellent.

Yes. It's all about making sure we're set up to continue to improve our position as a market leader in digital analytics.

Got it. Okay. Yes, that makes a lot of sense. I appreciate it, guys. And then my follow-up, Spenser, is for you. So, Kristina has been in her seat now for, I think, three months. And I know earlier, you got a question and you talked a little bit in your prepared remarks about diversification away from kind of tech companies and stuff like that. Just curious – just how you might call out maybe some of her early initiatives on the marketing side? Anything that stood out to you? Anything we might expect this year, whether it be reaching out towards new verticals, end markets, stuff like that? Thank you.

Yes. Kristina has been awesome in the first few months she's been here. I think the thing I called out was specifically increased collaboration. I think pipeline generation hadn't been a whole company-wide effort. And so, I think she did a great job of driving that, getting account executives, Sales Development Representatives, partnerships, even focus on customer success to think about that in addition to marketing. We've actually seen that start to impact improved top of funnel for us as a business. And so, while it's still very early, I'm very excited about the work she's done there.

Hi. Good afternoon, good evening. Good to see you both and Vuong, all the best, and hopefully, see you soon down the road. Just going back to the comments you made on churn. I wanted to dig into that a little bit more. Number one, what's driving the churn? Is it just lower usage of applications, kind of driving fewer event volumes? Is it customers kind of optimizing those applications or maybe it's lower headcount? If you could just expand on that. And are you expecting that to get worse? And then more broadly, I guess, do you see any broader changes in terms of the pricing model beyond what you talked about on the SMB side, if you could just comment on how that changes your overall thinking on the pricing today, given what you've seen on the churn side? Thank you.

Yes, for sure. So yes, pricing and churn, the initiatives we're doing in pricing are separate, so actually want to separate those two things. First to take the churn piece. Because of our exposure to digital natives, they're obviously asking us for help in this, sort of environment where they may be shutting down parts of their business, they may be more selective about the sort of data they're tracking. There's just increased scrutiny. And so that leads to either partial churn or full churn depending on where the business is at. And so again, like I said, I'm not happy with where it's at. We want to continue focusing on improving it and improving the execution to make sure that we drive improvement in that over the long-term. I think I don't know if there's any other color that you would add to it.

No, I think on your target question about how it would be for 2023, I would say that Q3 and Q4 are very similar, and we kind of forecast to put that into our guidance that it's going to be like after the remainder of all of 2023. And so, I think the other factor that we're seeing in turn is that we see it actually coming in all segments and all geographies, all verticals. And part of that, a little bit to us is that there's definitely a big macro impact that's causing it to come from those different, so many different areas, but obviously, we're going to work a lot on that in 2023.

Yes. And then to take – Tyler, to take your question on the pricing front. I think the monthly tracked users-based pricing, again, it's specifically focused on the small – the low end of the market, just to give them another option to easily get started with Amplitude. We offer 100,000 monthly tracked users and unlimited events per MTU for free. And then we have an MTU-based model up to a million monthly tracked users. And beyond that, you kind of go on to a more traditional events-based model. And so, I think that's kind of the first salvo. We're going to continue to iterate on that. We expect more as we go into Q2 and the rest of the year, and that's going to be another lever that drives long-term distribution and growth of Amplitude.

Great. And going to the go-to-market, obviously, there's been some new sales leadership there, and you just came from your sales kick-off. I'm wondering on what you're doing differently from a verticalization approach if you're targeting obviously nondigital-native industries who might have better budgets this year, but if you could just kind of expand on the go-to-market strategy and what you're seeing there?

Yes. I mean a few different things. So, the fact that we – so I already mentioned the lighthouse customer strategy where you start in one vertical. You win some of the big customers in that, and that helps you win the rest of the verticals. So, we're continuing to do that. I think another big thing is the executive sponsorship with a lot of these companies. You really need to be able to speak to the value and show that you can teach them how to do digital analytics versus folks who are digital natives already are familiar with this sort of technology. And so that's another big part of it too. I'd say one of the number one things we hear from those traditional enterprises, 'Teach me how to do it.' And so, we want to make sure that we're evolving our go-to-market to meet them where they're at, kind of helping them do the kind of baby steps to really understand how do I use digital analytics? What does it mean for how I operate the product? How does that change? How I’m used to building product before? And so, we're evolving what we're doing in go-to-market to match that, whether it's sales, customer success, marketing, kind of the whole thing.

Thanks so much.

Great. Next question, Nick Altmann from Scotia, followed by Claire from UBS.

This is John Gomez on for Nick Altmann. Thanks for taking my question. You guys talked about in the past how implementation links have maybe deterred customers from choosing Amplitude in the current climate. Can you give us an update as to whether that is still a headwind to new customer bookings? And if so, is there anything you guys are doing to provide a solution for quicker implementations?

Absolutely, John. I appreciate your question. It definitely remains a top focus for us in 2023. Several of the significant initiatives I mentioned regarding distribution highlight this aspect. One aspect I'm particularly excited about is the no-code or single line of code implementation for Amplitude. Engineering resources have been a major barrier to getting started. If you're unable to secure those resources, it poses a challenge for product managers to initiate and track the process independently. I'm really enthusiastic about this. Additionally, Amplitude's integration with cloud data warehouses is another significant initiative we're advancing this year, which will greatly benefit enterprises that already have behavioral user data stored in platforms like Snowflake and others. Leveraging that data directly will help facilitate quick onboarding with Amplitude. On the go-to-market front, we also launched a premium services package for the first time in Q4, which allows us to engage more closely with customers needing support, moving away from a one-size-fits-all approach to implementations. This aspect remains a top priority for me in 2023, and I aim to continue enhancing it.

Awesome. Thanks and earlier this year, you made some changes to your start here. Can you just talk about what the reception has been so far with customers and maybe your level of confidence in converting some of those customers into paying customers?

Yes. So, we're already seeing a number of the changes that we made on the MTU pricing front result in more upgrades to paid plans because – and as well as more confidence in getting started with the free version. One of the blockers that we heard before is that, okay, it might be free to start up to 10 million events, but what happens when we get beyond that? I have no idea how your pricing scales, whereas when you're on a monthly tracked user model, that's much more predictable. And so, you're not worried about exactly how much data you're tracking. You have much better visibility into where your number of monthly users is going to be. So both in terms of just getting more people on to the free plan, that's been great, as well as it's early, but we've seen conversions increase. Now, I do want to go back to what Vuong said, which is that, again, this is really focused on distribution at the low end. So, it's not like we expect it to make a material impact to revenues in 2023. It's really – what will happen though is that as you just get more and more of the market on us as digital analytics, those accounts can grow in later years.

I mean the only thing I'll add to that too is that not only are we seeing an increase in conversion, but we're also seeing an increase in just sign up free, so you're actually seeing that volume in the initial interest, which is actually really the bigger piece of the growth for us.

Great. Thank you. Next question, Claire Gerdes from UBS, followed by Michael Turits from KeyBanc. Claire, go ahead.

Awesome, thanks. Hoang, congrats and best of luck. I just wanted to ask a couple on the guide. So, when we look at the full-year guide, it only assumes a couple of points difference, right, from the Q1 guide. So that kind of assumes growth flattening out. So, if macro gets worse, how conservative would you say that guide is? And maybe is there anything embedded that's the guidance philosophy changing with the CFO shift? Just anything that you could provide on that?

Yes. You want to take it?

Go for it.

I'd say no change in guidance philosophy. I think we've assumed the environment stays bad. Now, if things get way worse or things get way better, obviously, we may have to make adjustments, but based on everything we're seeing, we want to make sure to put together a guide for the year that reflected kind of the headwinds that we're seeing and particularly for digital natives. I think, yes. And then, in terms of CFO transition, look, I want to make it clear to folks on this call. I own that ultimately as CEO. And so, we want to make sure to be consistent about how we guide and set up Kris for success when he joins, so that we're not having to make major changes in how we operate the business.

Yes. And again, I'll come back to the prepared remarks in terms of the, what we guide is we assume the same level of deterioration at our midpoint. And then we actually stress this, and we did at the low end, assuming, let's say, things got worse, like you said, on a fact if churn, something like that. Again, knock on wood, hopefully, it doesn't get worse and all of that, but we wanted to make sure that we provided the guidance factoring in given the uncertainty out there.

Okay. Perfect. And then if I could just ask real quick on NRR as well. You mentioned expecting to see that decline going forward. Is there anything more you could provide on any kind of potential floor in a weakening macro? Yes, just anything on that as well. Thank you.

Yes. I mean obviously, there's a lot – there's three big things that go into the net retention rate. There's expansion, there's full churn, and there's partial churn, and that we're seeing that given—some of the customers that we saw the biggest expansion in 2021, were the ones facing the biggest budget scrutiny and budget tightening. So, we're actually seeing expansion still being like one of the large factors or the largest factor in kind of the pulling back of net retention rate. Full churn is still second and then partial churn is a third. And so, it kind of matters a little bit in terms of where the economy pans out and how much churn we actually continue to see over the next few quarters. I think, obviously, typically because most of the customer contracts are one-year annual, we're going to see it need like four full quarters to fully kind of lap that, and then we'll have to see the second half in terms of what that looks like, but like I said, our guidance kind of assumes that it stays at the same level now even in the second half.

Hi guys. Thanks very much. And Hoang, good luck and look forward to continuing to stay in touch. So, Hoang for you, I think when you talked about head count, you said, you've been judicious in the past, but it still was on higher growth in 2022, it was still a pretty good expansion of OpEx. So, can you talk about what some of the levers are that you're pulling in order to get the improvement in both operating cash flow margins from a head count perspective, as well as other cost savings?

Yes. So, let me give a little bit more detail. We actually slowed down the headcount hiring as we kind of got more and more into the year. A big part of that was we were actually building for a much larger demand environment. And as we kind of solve the signal and sign that the demand environment was not there, we're like, 'Wait a minute, we're going to get way ahead of our skis.' And so, I think we're actually early into 2022. We actually were able to cut back on the hiring quite a bit. Now, in terms of OpEx increase, and say, well, why the OpEx increase year-over-year? The OpEx increase wasn't driven so much by head count as it was driven by, well for instance, last year, we went back and did our first major marketing spend from a marketing standpoint. We're going to evaluate that when we look at it this year and go, 'Hey, do we do something that big, or do we do something at a lot smaller and make sure that it's more tailored geographically?' I think that's one area we've identified. Another big piece that changes from kind of 2022 versus 2021 was it was also our first year coming back in the office, travel and entertainment, and all like that. And so, you had some expense savings that were in 2021 that structurally when we changed post-COVID, trying to just hit us back in terms of opening up our location, people coming back in and all that, all those activities and less so on the headcount side.

Okay. That's helpful. So, can you describe how you think about headcount growth in 2023?

Yes. I mean we're slowing significantly down on headcount growth. I think we feel good about the big bets I made with the current set of headcount, as well as on the sales capacity front in terms of being set up for this year. Those are always the kind of two questions I ask: are we set up in terms of to drive the revenue? Are we set up to innovate where we need to? And we are. And so, yes, we're really, really slowing that down as we go. Now, obviously, if we do see as we do, when we do see growth pick back up, whether that be later this year or next year or in the future, there will be a sign that we want to continue to invest back in the business, but in the short term, I think we want to keep the cost profile in check.

I'd only add, I mean, again, moving back to our same philosophy of balancing growth and profitability, I think we're really excited that we're going to be doing free cash flow positive for the entire year. We're going to be exiting at a non-GAAP operating profit in Q4. But at the same time, our number-one goal is to make sure we went to market right. And so, we still are actually making investment in headcount. We're still hiring. It just we basically have a really good ROI case, a much harder one than it was back in 2021 to make sure that we're hiring and adding them, but we ultimately still want to kind of grow and scale some of that. And I think that, that's the balancing act we go through.

That’s great. I guess that was my follow-up. So, that’s good for me as of now. Thanks very much, guys.

Thank you, everyone. With that, I'm seeing no further questions in queue. We will be at the Morgan Stanley Technology, Media and Telecom Conference in March. Details will be posted to the IR page of Amplitude’s website at investors.amplitude.com. Thank you very much for attending our Q4 earnings conference call. You may now disconnect.