Amplitude - Q4 2022
February 15, 2023
Transcript
Spencer Skates (CEO)
Good afternoon to everyone tuning in for our Q4 and fiscal 2022 earnings call. For those of you who may be newer to our story, Amplitude helps companies build amazing products, drive growth, and win their categories. Our digital analytics platform gives self-service visibility into the entire customer journey. Amplitude helps companies unlock the power of their products and guides them every step of the way. This empowers companies to capture the data they can trust, uncover clear insights about customer behavior, and take faster action. Every C-level exec I talk to wants to keep investing in their product. They believe digital products are their strongest path to growth. The problem is their ability to execute does not match their aspirations. Amplitude changes that. We show you what your customers love, what causes them to get stuck, and what keeps them coming back.
These insights are an absolute necessity, not simply nice-to-haves. Especially in this environment, we believe Amplitude is a mission-critical part of every modern stack. We closed 2022 strong. Our fourth quarter revenue was $65.3 million. This was up 32% year-over-year and above the high end of our guidance. Our dollar-based net retention was 119%. We now have almost 2,000 customers, and 480 of those pay us over $100,000 in ARR per year. On top of that, we delivered almost 300 basis points of non-GAAP operating margin expansion year-on-year. We've always been efficient in building our business. We are in control of our own destiny as we expect to generate positive free cash flow this year.
While the environment is getting tougher, we are managing our business well, demonstrated by our beats on top and bottom-line guidance. To every Amplituder, I am deeply appreciative of all the work you do to make our vision a reality. As we highlighted in last quarter's earnings, we anticipated greater headwinds going into 2023. Things did get harder for us in Q4. We saw more churn amongst smaller customers, as well as heightened scrutiny and budget pressure. Companies across geographies and industries are expressing caution. These are common themes you're hearing from a lot of software companies. What is more specific to Amplitude is the amount of work we do to support digital natives and early adopters. Being part of an early category is a double-edged sword. Companies that had accelerated our growth are now pulling back the hardest. The whiplash our customers are experiencing is very real.
We expect the rolling layoffs and reduced risk appetite to be headwinds in the near term, but these short-term headwinds will pass. Our long-term outlook is still the same. When it comes to product data, companies are in the first inning. We remain in the midst of a massive wave that is changing how companies build, iterate, and improve their products. We've seen companies like Fandom, Allbirds, and Brainly move from Google Analytics to Amplitude. Long term, I expect we will accelerate our growth. We have multiple investments designed to accelerate growth through distribution and monetization in 2023. On distribution, we've been hard at work. I'm going to highlight three big bets. First, product-led growth.
We launched a new pricing option in January targeting startups and small businesses. It is based on unique monthly tracked users, a metric that smaller teams already understand and forecast. This is just one of the many steps in our larger Amplitude product-led growth journey, which you will hear more about as the year progresses. Second, taking new user activation to the next level, including navigation and chart control rebuild, no-code or single code data ingestion, and the ability to work directly off of a cloud data warehouse. Third, structurally lowering data costs by a multiple, making it easier to scale with us. On monetization, we have a long runway in expanding the use of our analytics in our customer base. We can also add solutions to help our customers build better products.
Our success with Experiment exceeded our expectations in 2022, and we are still just scratching the surface with customer penetration. We know there are many more such opportunities. The potential for increased monetization of our platform remains in its infancy. We're early, our runway is immense, and we are seeing real validation. I've never been more excited about the opportunity ahead of us. Product innovation will help us drive distribution and monetization. We released more than 100 product updates and features over the course of 2022, more than any other year in the company's history. Our analytics helped us extend into retail and e-commerce. Marketing analytics is driving competitive displacements. We're addressing more data leaders by building tools that minimize data chaos, increase visibility, and improve accessibility across teams. Our new Amplitude Data capabilities enable teams to holistically manage customer data on our platform.
This increases confidence for data teams, improves collaboration, and makes it easier to identify and fix issues. Experiment is now available in our E.U. data center. We've also introduced more improvements to make it faster to plan and run product tests. As companies look for ways to consolidate spend in this environment, we're seeing more demand for competitive displacements for Experiment. ITV, one of the U.K.'s leading broadcasters, added Amplitude Experiment in Q4 to quickly iterate around the launch of their newest streaming platform, ITVX. After building an experimentation culture at one of ITV's brands, BritBox, Lee Marshall, the Director of Product, is expanding Amplitude usage across the larger organization. He said it best: We had no central cross-platform capability. Experimentation is time-consuming. Without Amplitude, we couldn't measure the real value of our product increments or manage multiple experiments across the base. Industry analysts are recognizing our leadership.
Amplitude was named a strong performer in the first Forrester Wave for Digital Intelligence Platforms that we took part in. The breadth and depth of our digital analytics platform allowed us to achieve market-leading five out of five scores across nine criteria in the Wave. Amplitude was ranked in the top three on strategy with Adobe and Salesforce and ranked way above Google on both strategy and execution. Several point solutions that claim Amplitude as a competitor did not even make it into the report. Amplitude received five awards across G2's 2023 Best Software Awards. We also ranked number one in 10 categories within the G2 Winter 2023 report, including the number one product analytics solution for the 10th quarter in a row. While early, I'm excited by the progress we're making in go-to-market. We have better alignment between marketing, sales, and customer success.
For example, improved collaboration between marketing, SDRs, and revenue operations is leading to increased productivity on demand generation. We've always been exceptional at selling into product and product managers. We continue to up-level our relationships there and extend to data leaders driving larger land deals. We're better connecting Amplitude with value for our customers, leading to stronger executive engagement. We've also created an executive sponsor program for our top 50 accounts that will be key to retention and expansion. We've also enhanced our approach to Amplitude on Amplitude. Our product team has always used Amplitude, but we've taken it one step further and created Amplitude dashboards for our go-to-market team. This is helping us better serve our customers. I'm excited to welcome Kristina Johnson as our new chief human resources officer.
Kristina spent the last seven years at Okta leading the global people and places function as the company grew from 500 employees to more than 6,000. Kristina has great perspective about how to build high-performing teams and has seen the journey we're embarking on. She's an amazing leader, and I'm excited to partner with her. Post market closed, we also announced a CFO transition. After four incredible years at Amplitude, Hoang will be leaving the company. I'm welcoming former Forescout executive Christopher Harms as our new CFO, and you will all have the opportunity to get to know him in the coming months. Wang will remain at Amplitude in interim to ensure a seamless transition. We're continuing to win customers across many industries and at every part of their digital maturity journey.
Some big new customers in Q4 include Fandom, Philip Morris, Malwarebytes, Black Rifle Coffee, and Standard Chartered. We also had notable customer expansions in Q4, including Fox Broadcasting, NTT DOCOMO, Syngenta, Gusto, and Calm. One win I'm really excited about this quarter is Fandom, the world's largest fan platform. Reaching more than 350 million unique visitors per month and hosting more than 250,000 wikis, Fandom is the number one source for information on pop culture, gaming, TV, and film. Fandom's decision was driven by the forced migration of Google Analytics. Their director of business intelligence and site analytics led the evaluation in this highly competitive deal against legacy and point solutions. Ultimately, Amplitude was selected due to three key reasons. First, our seamless integration of product and marketing analytics, which was perfect for Fandom's varied advertising, content, and editorial needs.
Second, our self-serve value proposition, where we were the natural solution for technical and non-technical teams. Third, our pace of innovation and scalability. Fandom is a media brand aggressively growing their data volume across GameSpot, Metacritic, and many other destinations, making Amplitude the right future-proof solution. Fandom will use Amplitude to drive impact for one of their key business metrics, tying content changes to revenue. This will include taking a deeper look at video content, what users are engaging with the most, and how product changes impact that behavior. Publishing and editorial teams will also use Amplitude as a centralized source of truth for their site data. I'm really excited that we get to play a part in their transformation and growth. Allbirds, which makes a popular sustainable shoe and clothing line, started working with us in Q4.
After deciding to move off of Google Analytics, Allbirds kicked off a search for a new digital analytics platform. Amplitude stood out as a superior solution because of our experience both with e-commerce and international business use cases. Now, Allbirds will be able to dive into what triggers lead to repeat shoppers globally. They'll be able to understand user behavior on their catalog of websites and pull insights across multiple geographies at once. They plan to use Amplitude analytics across product analytics, data engineering, marketing, growth, and information security teams to build a comprehensive view of their users. This will set them up to increase conversion and customer lifetime value. We're focused on expanding beyond digital natives. While early, we're showing good progress here with a Q4 expansion with one of the largest media companies in the world.
Before Amplitude, its product and data team used to meet once a week. The product team would come to that meeting with a list of questions, and the data team would spend the next week digging through data in Adobe to get answers. The following week, the data team would come to the meeting with answers, and the cycle would continue. After adopting Amplitude, the time it took to answer those questions went from a week to seconds. This helped its team move so much faster. Its product team can now run experiments independently, and the number of requests its data team received has decreased by 50%, meaning it can spend more time on higher impact work. I remain very optimistic about the future of our category and Amplitude's continued role as a leader in digital analytics.
As I've said before, I view this time as a great opportunity for us to make bold bets and strengthen our market position. I'm confident in our ability to consistently innovate and provide value for our customers throughout this macroeconomic environment and beyond. Persistence trumps everything else, and I believe we will come out of this cycle stronger. By raising the bar for execution and investing in our product for the long term, we are well-positioned to drive durable growth in a category where the opportunity is just beginning to unfold. Thank you for your interest in Amplitude. I'd now like to turn it over to Wong to walk through the financial results.
Hoang Vuong (CFO)
Thanks, Spencer. Good afternoon, everyone. fourth quarter revenue was $65.3 million, up 32% year-over-year. For the full year of 2022, revenue was $238.1 million, an increase of 42%. Customer count was up 25% year-over-year to 1,994. dollar-based net retention was 119%. We have 480 customer with ARR over $100,000, up 25% year-over-year, and representing about 75% of total revenue, and 30 customer above $1 million in ARR. Here's some color on Q4 results. New bookings were fairly balanced between land and expand. In Q4, we had two land deals over $1 million, showing more companies are starting to understand the criticality of product data for every modern enterprise.
This contrasts with zero land deals over $1 million in all of 2021. We also had our largest Experiment expansion ever. As customer mature and more team unite around product data, we see greater adoption of the entire digital analytic platform, from experimentation to CDP. We're seeing an increase in the number of early-stage opportunities as our demand gen efforts ramp up. However, customer general level of caution has increased in Q4. We saw more deals shrunk or pushed out than we did in Q3 as budget scrutiny intensified. Churn, both full and partial, continues to be elevated in Q4 across the board. Customer continues to navigate the whiplash from COVID-induced pull forward to the current focus on tightening their belts. Geographically, revenue from the U.S. increased 28% year-over-year to $40 million in Q4, or 61% of total revenue.
International revenue increased 39% to $25.2 million or 39% of total revenue. Total RPO increased to $248.2 million, up 46% year-over-year. Current RPO also increased to $190.6 million, up 39% year-over-year, or approximately 77% of total RPO. As a reminder, CRPO growth over fiscal year 2022 has been helped by an increasing mix of multi-year deals. If we don't keep increasing the mix of multi-year deals, CRPO growth in 2023 will be negatively impacted. Next, I'll be discussing non-GAAP results for Q4 going forward. As a reminder, our GAAP financial results, along with reconciliation between GAAP and non-GAAP results, can be found in our earnings press release and supplemental financial on IR website.
Gross margin in Q4 was 74%, improving 250 basis point year-over-year as we drove efficiency with infrastructure costs and continued to scale. During our IPO process, we stated a long-term goal of 75%. We plan to achieve and likely exceed that goal in the near term. Sales and marketing expense was 45% of revenue, compared to 44% of revenue in Q4 of 2021. R&D expense was 21% of revenue, compared to 20% of revenue in Q4 of 2021. We delivered an operating loss of $4.7 million, or -7%, compared to a loss of $5 million, or -10%, in Q4 of 2021. We consciously moderated operating expenses throughout the year as the environment shifted. We are committed to balancing growth and profitability.
Net loss per share was $0.03 based on 113.1 million shares, compared to a loss of $0.05 with 107.9 million shares a year ago. Cash, cash equivalents, and marketable securities were $301.7 million at the end of Q4. Free cash flow for the quarter was -$5.9 million or -9% of revenue, compared to -$12.2 million or -25% of revenue in the corresponding prior year period. For the full year 2022, free cash flow was -$11.2 million or -5% of revenue, a significant improvement versus -$34.9 million or -21% in 2021. On to our outlook. Our guidance assumes the macroeconomic environment continues to be weak throughout the year.
Layoffs and budget cuts are an unfortunate reality across many digital natives. We believe that churn, expansion, and budget pressure will persist through 2023. For the first quarter, we are expecting revenue between $64 million and $66 million, representing an annual growth rate of 22.5% at the midpoint. Q1 reflects two less days than Q4, which accounts for approximately $1.5 million of sequential headwinds. Non-GAAP operating margins of -13% to -14%. We held our sales kickoff in January, weighing on margins in Q1. Non-GAAP net loss per share to be between $0.06 and $0.08, assuming shares outstanding of approximately 114.9 million. For the full year 2023, we're introducing 2023 revenue guidance between $283 million and $291 million, an annual growth rate of 19%-22%.
We expect non-GAAP operating margins between -6% to 8%. We expect non-GAAP net loss per share to be between $0.11 and $0.16, assuming shares outstanding of approximately 117.5 million. We believe the bottom end of our guidance is conservative. It factors in further deterioration in macro environment sentiment throughout the year. Please keep in mind the following. Non-GAAP gross margin should be in the range of 73%-75% fiscal year 2023, representing more than 300 basis points of improvement versus the past couple of years. We expect to exit Q4 of 2023 with non-GAAP operating profit. We expect to reach free cash flow positive for the full year, well ahead of our previously stated medium term targets. Given the pressure we mentioned, we do expect the continued declines in net retention rate.
The headwinds we're facing are the natural function of being with an early market and our exposure to digital natives. We're working through those headwinds and managing our business for efficiency. We believe nothing has changed about our long-term opportunity, and we remain incredibly well-positioned to win in digital analytics. Before we move to Q&A, I actually want to just take a moment to recognize Hoang. Hoang, I just wanted to say you have been instrumental to our growth and success over the last few, four years. On behalf of myself, and everyone at Amplitude, we sincerely thank you. We wish you all the best. Thanks, Spencer. 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 wanna thank the amazing 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.
Operator (participant)
Great. Please unmute your mic and turn on your video when called upon. Our first question comes from Koji Ikeda at Bank of America, followed by Arjun Bhatia. Koji, you're up.
Koji Ikeda (Director in Enterprise Software Equity Research)
Hey, Spencer. Hey, Hoang. Thanks for taking the questions. super appreciate it. wanted to kinda dig into the guidance just a little bit more here. You know, looking at the guidance for 2023, the midpoint about 20.5% growth, you know, balanced against quarterly billings of 26.5%, showing 12-month billings 32%, and then that current RPO of 39%. It's really quite a range of growth rates, you know, reported versus the guide. Just trying to help reconcile kind of the billings performance, RPO performance against that revenue guide.
You know, appreciate all the color on the macro net revenue retention, but just curious, you know, anything else specific to call out, maybe from a renewal perspective or vertical perspective, you know, that we should be aware about that you guys are considering in that guidance?
Hoang Vuong (CFO)
Koji, let me start with that. I think that first of all, like we said in the prepared remarks, we're kinda assuming that the environment that we saw, you know, kinda in Q3 and even some deterioration in Q4 kinda can persist throughout the year. We wanna make sure that we come out with guidance that, you know, to kick off the year that we feel very comfortable with. As far as the growth numbers you're talking about with billings and stuff like that, those are obviously all, you know, all right. Just a couple reminders. Number one is on the CRPO. A lot of that growth is driven by the multi-year. Our billing can fluctuate. You see kinda like when you look at quarters and over quarters and year-over-year they kinda change quite a bit.
It really depends on kind of when we're doing the billing for the linearity of the bookings. For instance, we had a really strong Q3 in the LAN quarter, and that strong Q3 they actually didn't get billed until Q4. You gotta kinda factor those in when you look at CRPO and billing. Once again, we point people to look at the sequential quarter-over-quarter revenue growth as being probably the best indicator.
Koji Ikeda (Director in Enterprise Software Equity Research)
Got it. Just broadly, you know, a question for Spencer or Hoang, Yu Hoang. Thinking about the current sales capacity and pipeline coverage to reach the 2023 growth targets, you know, how should we be thinking about that right now? How should we be thinking about hiring, you know, for sales capacity this year, and then broadly hiring within the rest of the organization? Thanks, guys.
Spencer Skates (CEO)
For sure. 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 has done a great job in setting up 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. You know, 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 were kinda really hot over the last few years. It's not as major of an adjustment for us heading into this environment.
Koji Ikeda (Director in Enterprise Software Equity Research)
Got it. Thanks, guys. Thanks for taking the questions. Best of luck, Hoang. Thank you so much.
Operator (participant)
Great. Next question, Arjun Bhatia from William Blair, followed by Elizabeth Porter from Morgan Stanley. Arjun?
Arjun Bhatia (Partner and Co-Head Technology Equity Research)
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 a maybe a little bit of a bigger headwind. Spencer, 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 a part of the plan? Is that something that you're already doing? Just walk us through how those two differ and how you might adjust your targeting approach a little bit.
Spencer Skates (CEO)
Totally. Yeah. 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. 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. 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 in 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. We wanna replicate that play as we go through 2023. You know, one area I'm excited about is retail. We launched a number of e-commerce and cart 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 into others. I think we're seeing continued progress in the need for digital analytics and broadening outside of digital natives to the traditional enterprise. Again, you know, we're early in that transition.
Arjun Bhatia (Partner and Co-Head Technology Equity Research)
Okay, awesome. It seemed like, you know, Experiment was a big theme in your prepared remarks, and I got the sense that, you know, there was a little bit of a, obviously, strong traction in Q4, and it's been, I don't know, maybe a step function change. 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? 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?
Spencer Skates (CEO)
Yeah. On Experiment, I think because in a lot of companies there's existing A/B testing or experimentation budget, that actually makes it more attractive in a time of macroeconomic pressure. 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. It's just kinda continuing to build this muscle on both, you know, making sure we're offering all the latest and best features on experimentation as well as deploying that and go to market. Now, it still has a long kinda runway to go in terms of penetration across the customer base.
In terms of landing, we're actually seeing that of some of our seven-figure lands that we did for the first time in 2022, Experiment was a big part of those deals. I think the product is now mature enough where companies are willing to take a big bet on it straight out of the gate. That's been a hugely positive proof point.
Arjun Bhatia (Partner and Co-Head Technology Equity Research)
Awesome. Thank you, Spencer. Super helpful. Best of luck in the future, Hoang.
Spencer Skates (CEO)
Thanks, Arjun.
Operator (participant)
Great. Next question for Elizabeth Porter from Morgan Stanley, followed by Rob Oliver from there. Elizabeth, please.
Elizabeth Porter (Equity Research Analyst)
Great. Thanks so much. So you highlighted kind of churn at the low end and also helping customers right-size contracts, just contributing to some of the downsell. My 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 gonna continue to see that pressure through fiscal 2023. Just hoping to get a little bit more color on just the inter-quarter.
Spencer Skates (CEO)
Yeah. I mean, I think 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 gonna continue to look for cost savings. You know, while we wanna maintain the value we're at, I think, you know, we also wanna 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. We continue to feel good about our market leadership position in digital analytics. Second thing is all of those customers do expand, do expect to expand with us over the long term.
You know, 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. You know, we wanna work with them to do that. I think the last thing I'd 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.
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, grow with us over the long term.
Elizabeth Porter (Equity Research Analyst)
Got it. Yeah, makes a lot of sense. A second one, just in the follow-up, is on cost discipline. Really encouraging to see that help offset kind of the impact on the bottom line. Can you just be a little bit more specific about some of the actions that you're doing, to drive that incremental leverage?
Spencer Skates (CEO)
Let me start with gross margins, and then I'll talk to operating margins. One of the innovations that I'm really excited about is we're looking at reducing data costs by a multiple, and that should drive us huge leverage on gross margins in the long term. You've seen that continue to improve in the 2021 versus 2022, and we're expecting to continue to drive that in 2023 and beyond. That's really, obviously really big for a data-intensive business like us. The other thing on just operating the business, we've obviously been much more judicious about adding headcount in this sort of environment. It hasn't been, you know, a massive adjustment for us like it has been for some other companies out there to change the way we're operating.
One of the things I actually did back in December was I sent a survey out to Amplituders to ask them to step up and look for different ways of cost savings, and we actually got 500 responses across the company from everything like, "Hey, maybe we can get rid of, you know, swag," or, you know, these sort of perks, or, "Maybe we can be more thoughtful about how we approach our catering expense," or, you know, "We can look at the travel." It's awesome to see a lot of Ampliteer step up in that way. I think I call that out because it's always been part of the company's ethos.
Elizabeth Porter (Equity Research Analyst)
Great. Thank you so much.
Spencer Skates (CEO)
For sure, Elizabeth.
Operator (participant)
Great. Next question, Rob Oliver, if we can get you from your car. Thank you. Followed by, Tyler Radke from Citi. Rob?
Rob Oliver (Managing Director and Senior Equity Research Analyst in Software)
Yeah. Great. Can you hear me okay?
Spencer Skates (CEO)
Yes, we can. Perfect.
Rob Oliver (Managing Director and Senior Equity Research Analyst in Software)
Okay, great. Yeah, guys, sorry. I swear I'm not actually driving here.
Spencer Skates (CEO)
Thank you for it.
Rob Oliver (Managing Director and Senior Equity Research Analyst in Software)
... so yeah. Yeah. First of all, Hoang, thanks for everything. It's been great working with you. First question's for you, just on the product-led growth model. I know it's early days here still for you guys, and it's been, you know, really, you know, planned effort here to try to expand at the lower end. It also, you know, is likely gonna continue to impact deal sizes, you know. 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 towards the pre-PLG PLG opportunity, you know, how we should think about, you know, ACVs and deal sizing throughout 2023. I had a quick follow-up.
Spencer Skates (CEO)
Let me actually take the first part of that one, and I can let Hoang fill in the color. We don't expect revenue impact from the switch to MTU pricing, and that's because that's specifically a motion targeted at the lower end of the market. That's all about increasing distribution, so making it easier both for startups and traditional enterprises to find new paths onto Amplitude. You know, again, we don't expect, you know, revenue impact in 2023. I think the goal is to make it easier for companies to come onto Amplitude.
When we first talk to a lot of startups and tell them, "Hey, you know, we're an event-based pricing model," their first question back to us is, "What's an event?" 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. They see, "Hey, when we grow, as a business, we'll also grow our contract with Amplitude," that makes a ton of sense. Again, that's purely focused on the distribution angle versus, you know, any sort of immediate monetization impacts.
Hoang Vuong (CFO)
Yeah. Rob, I mean, I think Spencer said it too in his preparing mark. I think our first primary goal is just really increase distribution, that comes from obviously getting more customer at the low end, which we weren't even really servicing before. You either had to go free or really up to kinda like really higher paid price. We really wanna go after that. We're also seeing really good traction, and we saw this in 2022 in terms of going after companies that already had large digital footprint, right? Because they already had a large digital footprint and now they're like, "Oh, you guys are a, you know, a known commodity. You guys, your product is great. We were doing this in-house. We gotta look for more efficiency. We gotta look for better ROI.
Like, hey, let's look at you guys." They're out in Google Analytics and they're looking at product analytics. You're seeing some customers who already have a huge digital footprint and are coming over to us, and that's indicated by the fact that we had two land deals of, you know, over $1 million in Q4. You know, it, you know like, we didn't have any in 2021. If you look at it from an ASP standpoint, we're probably gonna have, like, both ends of the spectrum. We're gonna have some really large deals, and then we're gonna get a lot more from the low end. In the net-net, we're gonna have more distribution, which is fantastic.
Spencer Skates (CEO)
Yeah. It's all about making sure we're set up to continue to improve our position as a market leader in digital analytics.
Rob Oliver (Managing Director and Senior Equity Research Analyst in Software)
Got it. Okay. Yep, that makes a lot of sense. Appreciate it, guys. My, my follow-up, Spencer, is, you know, for you. Tifenn Dano Kwan has been in her seat now for, I think, three months. You know, I know earlier you got a question and you talked a little bit in your prepared remarks about, you know, diversification away from, you know, kinda tech companies and stuff like that. Just curious if, you know, 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.
Spencer Skates (CEO)
Yeah. Tifenn's 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. I think she did a great job of driving that, getting account executives, SDRs, partnerships, even folks from customer success to think about that in addition to the marketing. We've actually seen that start to impact, improved top of funnel for us as a business. While still very early, you know, very excited about the work she's done there.
Rob Oliver (Managing Director and Senior Equity Research Analyst in Software)
Great. Thanks again, guys. Appreciate it.
Spencer Skates (CEO)
For sure. Thanks, Rob.
Operator (participant)
Great. Next question, Tyler Radke from Citi, followed by Nick Altmann from Scotia. Tyler?
Tyler Radke (Managing Director and Senior Equity Research Analyst in Software)
Hey, good afternoon, good evening.
Spencer Skates (CEO)
Good evening.
Tyler Radke (Managing Director and Senior Equity Research Analyst in Software)
Good to see you both, and Hoang. All the best and hopefully, see you soon down the road. Just going back to the comments you made on churn, wanted to dig into that a little bit more. Number one, what's driving the churn? Is it just lower usage of applications kinda driving fewer event volumes? Is it customers kinda optimizing those applications? Or maybe it's lower headcount. If you could just expand on that. You know, are you expecting that to get worse? 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.
Spencer Skates (CEO)
Yeah, for sure. Yeah, pricing and churn, the initiatives we're doing on pricing are separate, so I actually wanna separate those two things. First, to take the churn piece, you know, 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. You know, there's just increased scrutiny, and so that leads to either partial churns or full churns, depending on where the business is at. You know, again, like I said, I'm not happy with where it's at. You know, we wanna 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 can add to it.
Hoang Vuong (CFO)
Yeah. No, I think on your target question about, you know, how it would be for, like, 2023, I would say that, you know, we saw Q3 and Q4 very similar, and we kind of, forecasted, put that into our guidance, that it's gonna be like that for the remainder of all of 2023. You know, I think the other factor we're seeing in turn is that we see it actually coming, you know, in all segments and all geographies, all verticals. Part of that a little bit to us is that, like, there's definitely a big macro impact that's causing it to kinda come from that, those different, you know, so many different areas. Obviously we're gonna work a lot on that, in 2023.
Spencer Skates (CEO)
Yeah. To take Tyler, to take your question on the pricing front, I think the MTU-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 MTUs and unlimited events per MTU free. Then we have an MTU-based model up to a million monthly tracked users, beyond that, you kind of go onto a more traditional events-based model. So I think that's kind of the first salvo. We're gonna continue to iterate on that. We expect more as we go into Q2, and the rest of the year, that's gonna be another lever that drives long-term distribution and growth of Amplitude.
Tyler Radke (Managing Director and Senior Equity Research Analyst in Software)
Great. Going to the go-to-market, obviously there's been some new sales leadership there and you just came from your sales kickoff. I'm wondering on, you know, how, what you're doing differently from a verticalization approach, you know, if you're targeting kinda obviously non-digital native industries who might have better budgets this year. If you could just kinda expand on the go-to-market strategy and what you're seeing there.
Spencer Skates (CEO)
Yeah. I mean, a few different things. I already mentioned the lighthouse customer strategy where you start in one vertical. You know, you win some of the big customers in that, and that helps you win the rest of the vertical. 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 in, you know, who are digital natives, already are familiar with this sort of technology. That's another big part of it too. I'd say what else would I say on the bridge?
You know, I think the Forrester Wave, that was a kinda great endorsement. A lot of traditional enterprises look to that for, you know, what's the greatest and best in digital analytics. The fact that we got a top three score on the strategy front there was really exciting, even though that was the first time we were in that report. I think just on all fronts, the number one thing we hear from those traditional enterprises, "Teach me how to do it." We wanna make sure that we're evolving our go-to-market to meet them where they're at, kind of help them do the kind of baby steps to really understand, how do I use digital analytics? What does it mean for how I operate product?
How does that change, how I'm used to building product before? We're kinda, 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.
Tyler Radke (Managing Director and Senior Equity Research Analyst in Software)
Thanks so much.
Spencer Skates (CEO)
Thanks, Tyler.
Operator (participant)
Great. Next question, Nick Altmann from Scotia, followed by Claire from UBS.
John Gomez (Research Analyst)
Hey, guys. This is John Gomez, on for Nick Altmann. Thanks for taking my question. You guys talked about in the past how implementation length has maybe deterred customers from choosing Amplitude in the current climate. Can you give us an update as to whether, you know, that is still a headwind to new customer bookings? If so, is there anything you guys are doing to provide a solution for quicker implementations?
Spencer Skates (CEO)
Totally. Yeah, no, appreciate the question, John. Absolutely, it remains a top focus for us in 2023. A bunch of the big bets that I highlighted on the distribution side of my prepared remarks spoke to this. One of the things I'm really excited about is no code implementation or single line of code implementation for Amplitude. Engineering resources remains one of the major blockers to get up and running. If you aren't able to secure those, how can you just get started and track it yourself if you're a product manager? I'm really excited about that. Amplitude that's native to a data, cloud data warehouse is another big bet that we're in the process of getting out there this year, and that will also help.
A lot of these enterprises already have this behavioral, user behavioral data within a cloud data warehouse, whether that's Snowflake or BigQuery or some of the others. Being able to work directly off of that data is another big way to provide a path to getting up and running quickly with Amplitude. You know, the other thing I'd call out on the go-to-market side is we just introduced a premium services packages for the first time in Q4. That was great because that allows us to be much more hands-on with customers who need it versus kind of our more one-size-fits-all to the implementation process. It remains a top priority for me in 2023 to continue to work on that and drive it down.
John Gomez (Research Analyst)
Awesome, thanks. you know, earlier this year you made some changes to your start tier. 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?
Spencer Skates (CEO)
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 gonna be.
Both in terms of just getting more people onto the free plan, that's been great, as well as, you know, it's early, but we've seen conversions increase. I do wanna go back to what Wang said, which is that, again, 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. What will happen though is that as you just get more and more of the market on us as digital analytics, you know, those accounts can grow in later years.
Hoang Vuong (CFO)
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 the sign-up for free. You're actually just seeing that just volume and initial interest, which is actually really the bigger piece of the for us.
Operator (participant)
Great. Thank you. Next question, Claire Gerdes from UBS, followed by Michael Turits from KeyBank. Claire, go ahead.
Claire Gerdes (Equity Research Analyst)
Awesome. Thanks. Well, Hoang, congrats and best of luck. I just wanted to ask 2 on the guide. You know, when we look at the full year guide, it only assumes a couple points difference, right, from the 1Q guide. You know, that kind of assumes growth flattening out. You know, as if macro gets worse, how conservative would you say that guide is? You know, maybe is there anything embedded that's, you know, the guidance philosophy changing with the CFO shift? Just anything that you could provide on that?
Spencer Skates (CEO)
Yeah. You wanna take it? Yeah.
Hoang Vuong (CFO)
Yeah, go for it.
Spencer Skates (CEO)
I'd say, you know, no change in guidance philosophy. I think we've assumed the environment stays bad. Now, you know, if things get way worse or if things get way better, obviously, we may have to make adjustments. Based on everything we're seeing, we wanted 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, yeah.
In terms of CFO transition, look, I wanna make it clear to folks on this call, you know, I own that ultimately as CEO, and so we wanna make sure to be consistent about how we guide and set up Chris for success when he joins so that we're not having to make, you know, major changes in how we operate the business.
Hoang Vuong (CFO)
Yeah. Again, I'll go back to the prepared remarks in terms of that, you know, What we guide is we assume the same level of deterioration as our midpoint, and then we actually stress test and we did at the low end, assuming let's say things got worse, like you said, on a factor of return and stuff like that. It's, you know, again, knock on wood, hopefully it doesn't get worse and all that, but we wanted to make sure that, you know, we provided the guidance factoring in, given the uncertainty out there.
Claire Gerdes (Equity Research Analyst)
Okay. Perfect. If I could just ask real quick on NRR as well? You know, 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? Yeah, just anything on that as well. Thank you.
Hoang Vuong (CFO)
Yeah, I mean, obviously, there's three big things that go into the net retention rate. There's both, you know, there's expansion, there's full return, there's partial return. I think that we're seeing that given some of the customer that we saw the biggest expansion in 2021, they're the one that's facing the biggest budget scrutiny and budget tightening. We're actually seeing expansion still being like one of the large factor or the largest factor in kind of the pulling back of net retention rate. Full return is still at second, partial return is at third. It kind of matters a little bit in terms of where the economy pans out and how much return we actually continue to see over the next few quarters.
I think, you know, obviously, typically because most of the customer contract are 1 year annual, we're gonna see, need like four full quarters to kind of fully kinda lap that, and then we'll have to see the second half, in terms of what that looks like. Like I said, our guide is kinda assumed that it stays at the same level now, even in the second half.
Claire Gerdes (Equity Research Analyst)
Perfect. Thank you.
Operator (participant)
Great. Michael Turits. Go ahead.
Michael Turits (Managing Director and Senior Analyst, and Enterprise Software Equity Research Analyst)
Hey. Hey, guys. Thanks very much. Hoang, of course, good luck, and look forward to continuing to stay in touch. Hoang, for you, I think we when you talked about headcount, you said that you've been judicious in the past, but it still was, you know, on higher growth in 2022. It was still pretty good expansion of OpEx. 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 headcount perspective, as well as other cost savings?
Hoang Vuong (CFO)
Yeah. Let me give a little bit more detail. We actually slowed down the headcount hiring as we kinda got more and more into the year. A big part of that was we were actually building for a much larger demand environment. As we kinda saw the signal and sign that the demand environment was not there, we're like, "Wait a minute, we're gonna get way ahead of our skis." I think because we're actually early into it in 2022, we actually were able to cut back on the hiring quite a bit. Now, in terms of OpEx increase, and it's like, well, you know, why the OpEx increase year-over-year? The OpEx increase wasn't driven so much by headcount as it much it was driven by, well, for instance, last year we went back and did our first Amplify.
That was a pretty huge spend from a marketing standpoint. We're gonna evaluate that. We're gonna look at it this year and go, "Hey, do we do something that big, or do we do something 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 kinda 2022 versus 2021, was it was also our first year of kinda coming back into the office, travel and entertainment and stuff like that. You had some expense saving that were in 2021 that structurally when we changed post-COVID, kinda just hit us back in terms of opening up our locations, people coming back in and all that, all those activities, and less so on a headcount side.
Michael Turits (Managing Director and Senior Analyst, and Enterprise Software Equity Research Analyst)
Okay. That's helpful. Can you describe how you think about headcount growth into 2023?
Spencer Skates (CEO)
Yeah. I mean, we're slowing significantly down on headcount growth. You know, 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? We are. We're, yeah, we're 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, You know, that'll be a sign that we wanna continue and to invest back in the business.
You know, in the short term, I think we wanna, as the revenue grows, we wanna you know, keep the cost profile in check.
Hoang Vuong (CFO)
Mike, I wanna add, I mean, again, you know, living 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 an entire year. We're gonna be exiting at a, you know, non-GAAP operating profit in Q4. At the same time, you know, our number 1 goal is to make sure we win the market, right? You know, we're, we still are actually making the investment in headcount. We're still hiring. It just, you know, you basically have to 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. We ultimately, we still want to kind of grow and scale some of that.
I think that that's the balancing act we go through. Back in 2021, a lot of folks would say, "Hey, why aren't you guys like being more aggressive with spending?" We would monitor efficiency and et cetera. Same thing here. I think that we're also, again, understand the environment. We're gonna be looking at cash flow. We're gonna be looking at operating margins. We wanted to make sure we didn't like lose the long game.
Michael Turits (Managing Director and Senior Analyst, and Enterprise Software Equity Research Analyst)
That's great. I guess that's my follow-up, so that's good for me for now. Thanks very much, guys.
Spencer Skates (CEO)
Thank you.
Operator (participant)
Thank you, everyone. With that, I'm seeing no further questions in queue. We will be at the Morgan Stanley Technology, Media & 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.
