Hello, everyone. Welcome to Amplitude's Second Quarter 2021 Earnings Conference Call..

I'm Jason Starr, Vice President of 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 be making forward-looking statements, including statements regarding our financial outlook for the third quarter and full year 2021 and 2022, the expected performance of our products, our expected quarterly and long-term growth, accelerated 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 may -- 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 investor relations website at investors.amplitude.com..

With that, I'll hand the call over to Spenser. .

Thank you, Jason. And good afternoon to everyone joining us on our first public earning conference call. I am just so excited..

So we decided to host this call today to provide investors with additional color on our second quarter results, which were recently included in our recently filed S-1 registration statement. I'm pleased to announce that this became effective today.

And as a result, we expect to have our Class A shares begin to trade publicly under the ticker AMPL on September 28 on NASDAQ. We're really proud of these milestones. I'd like to thank our employees, customers and investors who have helped build Amplitude's success..

I'll start today's discussion with an overview of our financial performance. Then I'll provide an overview of our business model, market opportunity and digital optimization system. I'll also detail the strong traction we saw with our customers this quarter.

And then I'll turn it over to Hoang, who will walk through our financials in detail and provide guidance for Q3 and the full year 2021 and our outlook for 2022..

Amplitude had an outstanding second quarter, reflecting the rapid acceleration of the digital world and great execution by our team. Revenue in the second quarter grew 66% year-on-year to over $39 million, showcasing the strength in customer adoption of digital optimization. We ended the quarter with 1,280 customers, up 51% year-over-year.

Customer demand for Amplitude was exceptional, further demonstrated by a dollar-based net retention rate of 119%..

As many of you are new to Amplitude's story, I would like to provide some additional background on our business, products and market opportunity.

Also, as a reminder, we held our Investor Day last week, which provided a thorough review of our business, our product demonstration, our financial model and several presentations by key members of our leadership team. A replay of this event is available on our investor relations website at investors.amplitude.com..

Amplitude's vision is to help every company use product data to drive their business. We are pioneering a new category of software called digital optimization which connects digital product data or events directly to the business. Digital optimization transforms product development from an intuition-based process to a data-driven one.

Product data is now used to understand every behavior taken in the product and which behaviors drive business outcomes. We believe digital optimization is the next wave after digital transformation. It connects product event data and user actions to deliver critical product insights.

It enables companies to improve their digital products, increase revenue and profitability and answer the strategic question how do our digital products drive our business..

Similar to how Salesforce became the system of record for sales organizations and Adobe became the system of record for marketing, we believe Amplitude is becoming the system of record for the product organization.

Digital products have become the core business driver of companies of every size and every industry and we've seen that accelerate during the global pandemic. There are 2 big trends that drive the need for Amplitude. The first is that the revenue center within companies is shifting from the sales and the marketing functions to the product function.

Product-led growth has become critical to company survival. The second is that data-driven products are how the best product teams operate today. There is a movement to use data derived from digital products to make strategic decisions. This is often the difference between the success and failure for organizations.

And we believe there is a significant market opportunity for digital optimization that we estimate to be approximately $37 billion in 2021..

At Amplitude, we've recognized from the start that data should drive business outcomes. Our digital optimization system is the command center to manage, measure and optimize the business value of digital product innovation.

Our system helps product, data, engineering, design, marketing and customer teams to leverage self-service analytics, adapt products based on user behavior and experiment to create impactful product experiences for customers.

The Amplitude Digital Optimization System brings together a new depth of customer understanding with speed of action to optimize experiences. We have 3 products that operate as an integrated solution..

The first is Amplitude Analytics. Amplitude Analytics provides teams with fast self-service insights into customer behavior and is the #1 ranked product analytics solution according to G2. The second is Amplitude Experiment. We launched Amplitude Experiment in Q2 of 2021.

It is an integrated end-to-end experimentation solution which enables teams to deliver impactful product experiences for their customers through A/B tests and controlled feature releases. The third product is Amplitude Recommend. We also released Amplitude Recommend in Q2 of 2021.

It is a no-code personalization solution that helps teams increase customer engagement by intelligently adapting digital products and campaigns to every user based on behavior. These 3 products comprise the Amplitude Digital Optimization Systems..

We believe there are 3 core attributes that set Amplitude apart from other systems in the market. First, the Amplitude Behavioral Graph is a proprietary user-oriented database that we built from the ground up to support the real-time interactive queries that are required to power our suite of applications.

Existing databases are unable or struggle to answer the questions about a user journey. By partitioning the data on a per-user basis, the Behavioral Graph allows customers to answer complex questions about their user's journey.

It provides novel approaches to normalizing, classifying and partitioning behavioral data as a fundamentally new way of joining and making sense of complex end user and product data..

Second, we offer a vertically integrated SaaS application that gives actionable insights for nontechnical users. You can construct complex queries through a point-and-click interface. Users don't need to be technical or know SQL to answer complex behavioral questions about the user journey.

Our solution is aligned to help cross-functional teams develop data-driven products. Our customers benefit from rapid time to value across product management, engineering, design, data science, marketing, sales and customer success.

It also has collaboration built in to allow customers to share insights across teams for added visibility and productivity. Teams can bridge from data to insights and drive action all at the same time..

Finally, through the use of Recommend and Experiment, our system enables continuous optimization by feeding the data it has back into the customer experience. Both Recommend and Experiment allow the customization of the digital product experience.

The more data a customer has on our platform, the better customers can run experiments and optimize the digital product experience through recommendations to drive more product usage. The Amplitude Digital Optimization System enables our customers to transform product teams from a cost center into a revenue center.

Our focus on customer success and product innovation is why we now have a paying customer base of 1,280 organizations of every size and vertical, including 26 of the Fortune 100 and more than 300 customers with at least $100,000 in ARR..

Our success in expanding our customer base continued in the second quarter with strong demands from our products from organizations across a variety of sizes, verticals and digital maturity. Several notable new wins include Electronic Arts; Miro; Smartsheet; ClassPass; Lydia; Shift; SurveyMonkey; and a local public broadcasting station, KQED.

We also had a significant increase in ARR commitments from existing customers. This further demonstrates expansion in customer usage of our platform and shows encouraging traction with Recommend and Experiment.

I'll expand on a few customer stories from the second quarter to provide some additional context of what drove some of these wins and our value to customers..

One of my favorite stories from Q2 is our work with Anheuser-Busch InBev, the world's largest brewer of beer. AB InBev originally partnered with Amplitude in 2018 as part of its digital transformation initiative.

After the creation of its e-commerce platform BEES in 2020, the team transformed their physical sales model to a digital sales model using cutting-edge customer data tools like Amplitude.

Recently the BEES team discovered that they could better serve low- and no-technology customers who are having a hard time interacting with the BEES registration process. Amplitude's insight showed that, instead of asking new digital customers to fill out detailed online forms, the BEES team needed simple registration mechanism.

As our partnership with BEES has grown over time, BEES has increased their event volume and recently added Amplitude's new Recommend product in Q2..

The second example I want to share is that, as we help our customers become product-led organizations, our partnership grows.

A Fortune 50 consumer products company originally selected Amplitude in 2018 to help transform its consumer packaged goods product into a digital brand to compete with new direct-to-consumer companies popping up in their market.

Amplitude is helping this customer become a customer- and data-centric brand, improve one-on-one communications with their customers and create value by making their digital product loved and chosen by families around the globe.

Marketing, product, data science and vendor teams increased their Amplitude usage and event volume substantially over this time frame, including a volume-based upsell in Q2. Another example of a Q2 win and a unique use case is our new partnership with Electronic Arts, a leading publisher of video games.

They selected Amplitude as a way to measure their transformation efforts for the many tools their employees could use internally. The company uses hundreds of clouds apps and services and want to be able to optimize their employee technology experience and guide what is working and what is not..

Finally, a great new win in Q2 was Smartsheet, an enterprise collaboration and work management company. They chose Amplitude to drive digital growth and product strategy.

Smartsheet is focused on using Amplitude to help drive onboarding activation and engagement, optimize [ purchase ] flows and conversion rates and drive virality across their existing customer base. The Smartsheet team purchased Amplitude Analytics and are also replacing their in-house experimentation platform with Amplitude Experiment.

These are just a few of the ways that Amplitude customers are using the Amplitude Digital Optimization System to answer strategic business questions. These examples demonstrate the potential for growth, upsells and how Amplitude can drive product strategy and critical digital optimization efforts for customers across verticals and company sizes..

We're very pleased with our results this quarter and believe that we're at the beginning of a significant market opportunity and look forward to reporting on our success in the future. Thank you for your interest in Amplitude's story..

And I'd now like to turn it over to Hoang to walk through the financial results. .

All right, thanks, Spenser. And thanks again to everyone joining us today..

We had an exceptional second quarter with strong revenue growth, customer expansion and dollar-based net retention. Before I get into the results of the quarter, I thought it would be helpful to provide some background on our business model.

We designed our business model to help customers become data-driven in building and optimizing their digital products. We sell our subscription based on the [ product a customer needs ] and the committed event volume. We don't charge based on users because we believe everyone in an organization should have access to actionable insights.

As of Q2 2021, over 95% of our revenue is recurring and recognized ratably over the contract term. The remainder consists of overages and professional services related to implementation and training. Most of our contracts are annual, although we do have some multiyear contracts..

Now moving on to our financial results. Q2 revenue growth accelerated to $39.3 million, up 66% year-over-year, driven by strong demand for our products. Expansion from existing customers were particularly robust as the team continued to execute well on our land-and-expand strategy..

As Spenser mentioned, we had several notable customer wins. And we ended the quarter with 1,280 paying customers, an increase of 51% year-over-year. We maintained our strong dollar-based net retention rate or NRR of 119%, which is consistent with what we reported in Q4 2020. From a geographic standpoint, Q2 revenue from the U.S.

was 65% and international was 35% compared to 64% and 36%, respectively, a year ago..

Turning to current revenue performance obligations or CRPO. This metric represents the amount of contracted future revenue that has not been recognized, including both deferred revenue and noncancelable contract amount that will be invoiced and will be -- and recognized as revenue in the next 12 months.

In Q2, CRPO increased to $116.9 million, up 76% year-over-year, providing strong visibility into revenue in the quarters ahead. This increase was driven in part by strong customer upsells and some early customer renewal that took place in the quarter..

Our GAAP financial results, along with the reconciliations between GAAP and non-GAAP results, can be found in our earnings press release and supplemental financials..

Gross margin was 71%, an increase of 70 basis points from Q2 2020. This is consistent with our near-term goal of maintaining gross margins in the low 70s, while we're still targeting 75% or more in the longer term, as we discussed in our Investor Day last week..

Moving to operational expenses. We accelerated our investments in all functional areas to capture the significant momentum we're seeing in the market. In fact, we hired 2x more people in the first half of 2021 than all of 2020.

As we continue to invest for growth and build our platform, we expect our sales and marketing and research and development expenses to increase in absolute dollar amount. And although we believe these expenses as a percentage of revenue will decrease over time, we expect these expenses as a percentage of revenue will increase in the short term..

Sales and marketing expense in Q2 was $19.2 million or 49% of revenue compared to $10.9 million or 46% of revenue in Q2 last year. We're making significant investments to capitalize on the tailwinds and to establish a market leadership position. R&D expense in Q2 was $7.3 million compared to $4.6 million in Q2 last year.

This represents approximately 19% of revenue in both period. We expect this line to increase into the low 20s in the quarters ahead as we accelerate our investments in product innovation and release new features and capabilities in the quarters ahead.

G&A expense was $5.4 million for the second quarter compared to $3.1 million in the second quarter of last year. G&A was 14% of revenue versus 13% of revenue last year. We're investing in the infrastructure of our business as we prepare for life as a public company and to further scale our business..

As a result, loss from operations in the second quarter was $4.1 million compared to a loss of $1.9 million last year. Operating margins of negative 11% compare to negative 8% in the same period last year as we accelerate investment for growth..

Net loss was $4.5 million compared to $2.1 million in the second quarter of 2020. Net loss per share was $0.15 based on 29.7 million shares compared to $0.08 in the second quarter of 2020 based on 24.7 million shares..

Free cash flow was negative $5.8 million or 15% of revenue compared to negative $7.7 million or 32% of revenue in the second quarter of 2020..

In June, we closed a $173 million Series F funding round led by Sequoia Capital, with participation from [indiscernible] GIC, Battery Ventures and IVP. Subsequently, we closed an additional $26.5 million in Series F funding, including funds affiliated with Fidelity Management & Research Company..

Based on these strong second quarter results and the leading indicators that we monitor, we are pleased to provide our expectations for the third quarter and the rest of fiscal 2021..

For the third quarter of 2021, we expect revenue to be between $43 million and $44 million, representing a growth rate of 63% to 67% year-over-year; non-GAAP operating loss to be between $5 million and $4 million; and non-GAAP net loss per share to be between $0.15 and $0.12, assuming shares outstanding of approximately 34.2 million.

The weighted average share count included in these calculations includes a preferred stock conversion to common and certain RSUs vesting upon our direct listing.

And for the full year of 2021, we expect revenue to be between $160 million and $162 million, representing a growth rate of 56% to 58% year-over-year; non-GAAP operating loss to be between $25 million and $23 million; and non-GAAP net loss per share to be between $0.50 and $0.46, assuming shares outstanding of approximately 49.6 million..

Note that we included in today's press release, on a fully diluted basis, we have approximately 130 million shares outstanding.

Excluding shares that are issuable with respect to outstanding options and restricted stock units that have been granted but have not yet vested or satisfied the service-based vesting condition per their term, the fully diluted share count is 114 million.

Both measures are calculated on a treasury stock method basis with respect to all common and preferred share, assuming a hypothetical per share value price -- I'm sorry, per share price of $32.02, the price of our Series F preferred stock offering..

As we look to fiscal year 2022 given the strong trends that we have discussed today, we believe that we are well positioned to grow revenue more than 40% year-over-year..

We're looking forward to continuing our discussions with investors and analysts in the quarters ahead and are excited about Amplitude continued strong momentum and market leadership opportunity in the digital optimization system..

With that, I will turn it back over to Jason to moderate the Q&A session. .

Great. Thanks, Hoang..

Now as many of you know, given our expected direct listing next week, we're unable to hold a traditional Q&A session with sell-side analysts. Alternatively, I'm going to ask Spenser and Hoang some prepared questions that we anticipate many investors may have following today's remarks. .

So Spenser, I'm going to start with you.

Can you expand on your ambition for Amplitude to become the system of record for product organizations? And how do you expect to accomplish that over the next several years? And what else do you need in your product arsenal to improve the odds of success?.

They've done a phenomenal job of becoming a system of records for their respective functions.

I think the biggest takeaway that we have is that analytics is really the key piece, where if you get those teams, where if you get those functions to operationalize around your analytics and data store as the system of record, what happens is other spend that falls under that functional buyer will start to consolidate.

And that's why you've seen those companies be very successful. After you do that, you get ecosystem consolidation. More SIs and partners and other applications end up plugging into you as well. And so at Amplitude we're hoping to replicate the exact same thing for the product organization..

So with the product organization specifically, I think what we're seeing in a lot of companies, as I mentioned earlier in the call, is that power is shifting to them as the distribution channel, away from sales and marketing.

And if you talk to product leaders and you ask them, "Hey, what's the -- what's either the most important piece in your stack? Or what's the first piece in your stack?" they're always going to be talking about analytics as the foundation.

And so given we're the market leader in that category, per G2, and also in the enterprise more generally, I think we're very well set up to become that system of record for enterprise product buyers long term..

So we've obviously -- we started with analytics. We just launched both Experiment and recommendation in Q2. While it's early, we're excited about the traction that those -- both of those new products have so far and think that, that offers -- that's already along the path of offering a more comprehensive suite to the product buyers.

I think we're transitioning from a early adopter buyer in the product space to an early majority buyer. And what early majority buyers really care about is do you have the most complete suite and offering for those buyers, because they don't want to have to go to multiple vendors and stitch things together and what have you.

And so we've decided to be very aggressive with new products. I would expect us to continue to launch 1 to 2 new products a year basically from here on out. We're at 3 today and we'll be at many more over the next few years, and we're going to do that both through aggressively developing new ones in house. Experiment was a great case of that example.

As well as through acquisitions and consolidating the ecosystem around Amplitude. And so Recommend actually initially came through an acquisition.

And so both muscles are going to be really important for us, with the goal of offering the most complete and comprehensive suite to the product buyers so that, over the next 3 to 5 years, we turn our current lead into the space into market domination in the enterprise. .

Good. Thanks, Spenser. Let's shift over to Hoang for a few modeling questions here.

First off, what are some of the key operating metrics that you will report on quarterly versus annually?.

Thanks, Jason. So on a quarterly basis, we'll provide updates on kind of like our net retention rate, our total paying customers. And we'll also break down our revenue by geography between international and U.S.

And then once a year on an annual basis, we'll kind of give an update on total number of customers over $100,000 and number of customers over $1 million. .

Great. And then what are some of the key drivers of the model, and what metrics should investors be following? You reported on CRPO.

Will you report calculated billings? And will you provide guidance on these metrics?.

Yes. So as we look forward, on guidance, we'll provide guidance obviously on revenue, non-GAAP operating income/loss and non-GAAP net income/loss and underlying share count estimates that goes behind that.

And so when you look at between current remaining performance obligations versus calculated billings, we really believe that CRPO is actually the better metric to follow and track us, and so we would advise to look at that one. .

What are some of the assumptions that you've built into your guidance given the acceleration you saw in Q2? And is that sustainable?.

Yes. And we're obviously being very mindful that this is our first public earnings call and we're doing our direct listing next Tuesday, so we want to take a very prudent approach to how we're providing guidance.

And so we're very pleased with the fact that we're providing guidance at the midpoint of 65% growth year-over-year for Q3, 57% year-over-year growth for the full fiscal year 2021.

And then obviously when we look out further, we kind of want to -- we want to look at our current momentum we're having and then kind of be measured still and kind of balancing all that out. And that's why we're giving an outlook of 40% growth or more for the year 2022. .

Okay, great. Moving along, we have a few more here. You reported a net retention rate of 119% for Q2.

What are the primary drivers for customer expansions in Q2? And how should investors think about the trends in NRR over the next several quarters?.

Yes. First, I want to remind folks that our NRR, the metric we share, is a -- basically we can take a point measurement every month. And then it's a weighted 12-month average of those, each point and each month, for the calculation of NRR.

And so obviously as we see that, I think that we'll look at -- out kind of -- we are carrying a couple of quarters where we obviously had some impact from COVID, and we should see that kind of obviously improve..

As far as some of the primary driver for driving expansion, we're really excited by the fact that, when we look at Q2, we saw expansion coming from multiple angle. We saw folks that are just expanding purely because of their expanding from volume. As Spenser highlighted, we also saw a few customers added Recommend and Experiment.

Now I want to be careful that those are still relatively new and still relatively small, but it's really an encouraging sign to see. And then we also saw other customers really adding and expanding it into other product lines and business units. And so there wasn't one massive thing or another.

It actually kind of came pretty healthy in terms of the larger expansion coming from [ either just ] volume or people expanding into additional product lines. .

Okay, let's shift over to customers here. Net new customer adds in 1 -- in first half were particularly strong.

Do you think this level of new customer activity is sustainable in the back half? And if you lose a customer, what are the typical factors involved in that?.

Yes. I think the way that we think about the market, and the market, as been mentioned, is $37 billion and it's quite large, is that we're just in the beginning of moving from kind of the early adopter to the early majority. And I think you're starting to see some signals of that.

We're hopeful that -- obviously, that we're in the beginning stage and that's going to get bigger, but we'll let the market kind of tell us how that happens. But at the end of the day, right now what we want to focus on is making the investment to make sure we win the market and make sure we're building the right solutions for all the customers.

And so we'll look and see. And we'll kind of, I think -- don't pay so much attention to -- every quarter in terms of customer adds or additions or changes. I think it's really more about the longer term of like we gaining momentum in terms of winning more [ customer ], both enterprise and SMB, and then obviously getting them to expand..

As far as why we lose typical customers. Obviously the #1 reason for us is when there's a material change in business, similar to like what happened with COVID in last year, if the company is obviously going out of business or face a material change to their business. That's the #1 reason.

And the second reason is when a customer hasn't fully adopted and hasn't reached out to -- enough adoption and yet we've lost a champion inside that account.

And so that's another reason why we are working really both from a customer success side and a product side to constantly figure out how do we make sure that it's goes -- as wide reaching as possible in terms of usage and trying to get past what we typically think of like [ weekly learning ] users.

And our goal is always to get to at least 5 or more when we're activating an account. .

Really helpful. Good color there too. Time for 2 more questions here.

And you touched on this in the script and also in the release, but how should investors think about your total share count for market cap purposes as opposed to the weighted average share count included in your guidance for Q3 and fiscal year 2021?.

Yes. So the -- for the weighted average share count which is used to calculate earnings, that is basically the amount of common stock that's available. And obviously, I mean, preferred hasn't converted over to common. And there's always the options and other things that are -- haven't converted to common, and then you take the weight of that.

So while we do expect obviously the conversion of preferred to common to happen at the end of Q3, when we direct list, you basically only have 1 month of that. And so that's what the calculation [ does ]. That's why we obviously also provided the fully diluted share count, which again when you look at it fully, it's 130 million shares.

And then when you exclude the options that have not vested, along with RSUs that still have not been earned, in essence, it's 114 million. .

Great. And we'll wrap up on this. This has come up quite often, but you've mentioned you're significantly investing in your growth opportunity.

Where are those investments primarily being made?.

Yes. We are aggressively investing. And I know this is [ somewhat a kind of still build ] scenario, but we are really investing in all the areas. Let's first start with the sales and marketing.

We believe one of the biggest thing that you've got to do when you're in the early adopter is getting our awareness out, making sure that people understand not only what Amplitude does but all the success stories that we have with all the customers.

We obviously are investing a lot in building out our sales capacity, but you -- but at the same time on the product development. We mentioned it earlier in the script, in that building out the right solution and having a suite of solution to go after the product leader and the product organization to be their system of record is critical.

And so we'll be investing in product development to make sure that innovation happens. And obviously, becoming a public company has its own kind of additional weight and scale that comes along with G&A..

So we're growing that out in all 3 functional -- our 3 big buckets of operating expenses. And then on the cost of revenue side, we think that we'll kind of scale it similarly to revenue.

So that won't be outsized in terms of gains, but the other 3 -- for the near term, we want to make sure that we're investing in all 3 of sales and marketing, product development and G&A just to make sure that we're doing the right thing to win the market. .

We expect our Class A common stock to begin trading on NASDAQ on September 28 under the ticker symbol AMPL..

So thank you for being with us on our call today. And we look forward to reporting our success in the quarters ahead..