Amplitude : Q1 2024 Transcript

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AMPL.OQ - Q1 2024 Amplitude Inc Earnings Call

EVENT DATE/TIME: MAY 09, 2024 / 9:00PM GMT

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MAY 09, 2024 / 9:00PM, AMPL.OQ - Q1 2024 Amplitude Inc Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Yaoxian Chew Amplitude, Inc. - VP, IR

Spenser Skates Amplitude, Inc. - Co-Founder, CEO & Chairperson of the Board

Christopher Harms Amplitude, Inc. - CFO & Treasurer

C O N F E R E N C E C A L L P A R T I C I P A N T S

Koji Ikeda BofA Securities - Analyst

Brent Bracelin Piper Sandler & Co. - Analyst

Michael Vidovic KeyBanc Capital Markets - Analyst

John Gomez Scotiabank - Analyst

Taylor McGinnis UBS Investment Bank - Analyst

Rob Oliver Robert W. Baird & Co. Incorporated - Analyst

Arjun Bhatia William Blair & Company L.L.C. - Analyst

Tyler Radke Citigroup Inc. - Analyst

Elizabeth Porter Morgan Stanley - Analyst

P R E S E N T A T I O N

Yaoxian Chew - Amplitude, Inc. - VP, IR

Hello, everyone, and welcome to Amplitudes first quarter 2024 earnings conference call. I'm Yaoxian Chew, Vice President of Investor Relations. Joining me are Spencer Skates, CEO, and Co-Founder Amplitude, and Chris Harms, the company's Chief Financial Officer.

During today's call, management will make forward-looking statements, including statements regarding our financial outlook for the second quarter and full year 2020 for the expected performance of our products, our expected quarterly and long-term growth, investments, and 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 in 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 statements and 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 Spencer.

Spenser Skates - Amplitude, Inc. - Co-Founder, CEO & Chairperson of the Board

Thanks, Yao, and good afternoon, everyone. Welcome to our 2024 first quarter earnings call. I'm going to focus on three topics today. First, our Q1 financial results and the latest views on macro. Second, how we are going after our market opportunity. Third, continued product innovation and customer stories.

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MAY 09, 2024 / 9:00PM, AMPL.OQ - Q1 2024 Amplitude Inc Earnings Call

Let's start with the Q1 financial highlights. Our first quarter revenue was $72.6 million, up 9% year-over-year. Annual recurring revenue was $285 million, up $4 million from the end of the fourth quarter. We now have almost 3,000 paying customers, up 37% year-over-year. Results exceeded the midpoint of guidance we gave last quarter and in part reflect the efforts we've made to focus our investments over the past year. Macro conditions remain consistent.

There are still challenges out there as companies continue to right size their digital investments and VC-backed startups continue to cut back to survive. We believe we have our arms around the magnitude of these changes and have appropriately accounted for them in our revenue guidance. There is growing evidence to support our view that these headwinds are temporary. New ARR has been holding steady as the need for digital analytics remains consistent. We see green shoots and emerging catalysts to growth acceleration.

We are getting closer to flushing out the worst excesses of the pandemic surge. We're seeing more conversations with many customers who realize they need to future proof the way they approach their digital analytics journey. We remain at the beginning of a generational shift how people view, understand and use their customer and product data.

Point solutions and legacy technology are limited. They offer a fragmented user experience and provide an incomplete picture of customer behavior. The digital experience is one of the most important channels that all businesses can control. It is the repository of first-party customer behavior and intent. Actions speak louder than words.

What people do with your product is more important than anything they tell you. We are going after a multibillion-dollar addressable opportunity and believe we remain incredibly well positioned to win the category as the convergence of buyers and budgets across product, marketing and experience continues. Everyone wants to understand their customers better. Amplitude tells you exactly what your customers do and how they behave across the entire customer journey.

Many of the largest and fastest-growing companies care deeply about acquisition, retention and monetization and view Amplitude as their first call. You've heard me speak to progressively up-leveling our go-to-market efforts across many dimensions over the last year as we look to win the enterprise. I've shared how we've aligned around a more defined approach to account ownership and engagement. I've talked about how newer leaders are driving discipline and rigor helping us think bigger and elevating our customer relationships.

We're not just doing the basics better. We've also brought focus to the way we sell to drive stronger unit economics for different customers. We launched a self-serve offering for the lower end of the market and have been resourcing our sales motion with a named account focus.

Amplitude Plus is our self-serve offering that lets customers of all maturity levels try before they buy. Our PLG motion continues to gain momentum. This helps us scale our offering in a more cost-effective way. Plus is attracting a diverse range of customers. Beyond the start-up in B2B SaaS players we expected, we're also seeing railroads, universities and semiconductor companies sign out. These users are trying Amplitude for the first time, and they represent a tiny fraction of the addressable user base out there. It has only been one quarter since we instituted our named account approach, but we are seeing increased impact across the organization.

As a reminder, our CRO, Mate and team have had the number of target accounts while growing targeted high-potential account dollars by 50%. This approach will take time to mature, but we are seeing some early promising signs. There is greater traction for our professional services portfolio through the named account model. We're also seeing early signals of improvement across pipeline and customer health that we believe will translate to better efficiency metrics.

When it comes to renewals, we've talked before about multiyear contract customers who are rightsizing their spend, common theme across software optimizations. As expected, churn was still at an elevated level in the first quarter. There's an important observation that's worth noting as we work our way through these pandemic cohorts. These relationships are actually healthier post renewal. We are now more aligned with our customers' current growth ambitions.

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MAY 09, 2024 / 9:00PM, AMPL.OQ - Q1 2024 Amplitude Inc Earnings Call

Utilization relative to capacity purchased is also at more balanced levels. For customers who have optimized with us one time, the majority of the associated ARR either renews flat or grows off of that base. I speak with customers all day long, and I believe we're being set up for long-term success in ways that we previously were not.

We're aligning with senior executive buyers at the VP and C level as well as multiple champions. We're driving higher level conversations that are much more aligned with value and business outcomes. We're attaching services, driving more use cases across our entire platform and positioning to economically scale with their future growth.

Finally, I want to focus on the work being done to innovate on our digital analytics platform, both improving our current offerings and bringing new solutions to market. Product innovation is the biggest driver of long-term growth for Amplitude. Other companies in our space have dramatically scaled back their ambitions, pared down their teams and reduced product velocity.

We are taking the opposite approach. We are making bigger, bolder bets. Our Chief Product Officer, Francois, is strategically organizing our strong inpatient muscle. We continue to see validation that our platform approach is the right one. Traditional enterprise companies don't want a patchwork of disjointed point solutions. They want one end-to-end platform that covers all of their digital analytics needs. They don't want to waste money on duplicative tools.

Most importantly, they want deep customer insights so they can impact the metric that matters most revenue. Today, 19% of our annual contracted customers use more than one product, up from 14% at the same time last year. Customers who use more products retain better. There remains a very real opportunity for us to expand the platform, grow cross-sell and displace point solutions.

Our thesis is that analytics is the center of gravity for any workflow that touches customer and product data. Without analytics, the rest of the stack is much less useful. We bring data insight and action together in ways that no other solution can. We are expanding our platform. session replay is off to a nice start in its first few months.

As a reminder, session replay helps our customers reconstruct a user visit by capturing how they interacted with a website app or digital experience. It is a tool commonly used by product, marketing and data teams to understand user behavior, diagnose product issues and improve outcomes. The majority of session replay wins to date are competitive displacements of an existing point solution.

In contrast, we almost never see companies transition from Amplitude analytics to another session replay provider that has an analytics solution. We are leaning into win simple across our product organization. To accelerate growth, we are reducing barriers to entry. We have to bring the power of Amplitude to everyone regardless of their technical expertise.

We focused on radical simplicity as a core differentiator. We've made major improvements to our entire product experience to help accelerate finding and landing new customers by releasing a one line of code implementation as the default onboarding experience for Starter and Plus users. We're already seeing a 30% increase in activation for that group from some of these early changes we've made. We have ambitious goals. We want to reduce our sign-up process down to seconds and then deliver a customer's first row within minutes. There's more to do.

Turning to customers. Rocket Money, a leading personal finance app is a great case study for how Amplitude's digital analytics platform can drive incredible business outcomes. By understanding user behavior patterns and changes, Rocket Money was able to identify inconsistencies in their product experience and lockers to user success. They made changes so that iOS, Android and web users followed the same customer journey.

They also added functionality so that every segment of users could easily upgrade to premium. These changes boosted customer lifetime value significantly and estimated by Rocket to drive millions of dollars in revenue a year. In Q1, we landed and grew with companies like Decathlon SE, Algolia, WOOP, TicketSwap, Verda Health, The Browser Company, Meow Wolf, and Calendly. One big win this quarter is Calendly, the scheduling platform with more than 20 million users around the world.

Calendly needed a source of truth for clean, accurate data to activate on and its previous analytics provider had become a black box. In Q1, Calendly selected Amplitude Analytics and CDP has a centralized source of truth for customer data and activation with a consolidated tech stack, Calendly

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MAY 09, 2024 / 9:00PM, AMPL.OQ - Q1 2024 Amplitude Inc Earnings Call

will have more control over its data governance, privacy and security. Its team will also have a deeper understanding of the customer journey, so it can improve its primary growth levers, including customer activation, monetization and retention.

We also won the browser company best known for its new Arc Browser. The browser company had been using SQL infrastructure for user analytics, but it encountered bottlenecks in data access as the team grew. Several members of their leadership team came from companies that use Amplitude, and they strongly advocated for the browser company to adopt multiple parts of our platform.

With Amplitude, the browser company will now have a better databased way to make key decisions and improve its user experience. Lastly, one big expansion this quarter is with one of the world's largest automotive services providers for car shoppers, dealers and lenders. Prior to 2024, Amplitude primarily worked with its B2B team. In the last year, there was a major company effort to have product, IT and data teams roll into centralized leadership under their Chief Product Officer.

We've seen this move happen at other companies, too, as more businesses understand the growing importance of product and the need for an aligned tech stack to solve the Customer 360. Understanding Customer 360 for them means needing to piece together the disparate digital journeys from the moment a car is purchased from auction to its listing process to inventory loading to customer website traffic and all the behavior associated thereafter. It is a huge problem to solve from beginning to end.

Amplitude was built from first principles to solve this very problem. We expanded to their consumer organization this quarter, displacing Google Analytics and another point solution due to scalability, depth of analysis platform breadth. Now leaders from more than 20 business units will rely on amplitude to understand their customers and inform every product decision. Before I hand it over to Chris, I want to emphasize that our opportunity to lead the digital analytics category remains unchanged.

We remain focused on what we can control. I am not satisfied with our current growth profile, and we are not standing still. I want everyone to know that we are driving focus to set ourselves up for accelerating growth. Our platform approach is differentiated and resonating. We're driving healthy new business and taking market share. We continue to be relentless about driving innovation. We are almost through the cycle of rightsizing renewals. Green shoots continue and we see more pockets of strength than weakness. I'm incredibly excited about what's ahead. With that, thank you for your interest in Amplitude. I'd now like to turn it over to Chris to walk through the financial results.

Christopher Harms - Amplitude, Inc. - CFO & Treasurer

Thanks, Spencer, and thanks to everyone joining us today. It's been just over one year since I joined with this call marking my fifth earnings call told you throughout that we are intentionally shaping our focus across go-to-market and product at Amplitude to position ourselves for reaccelerating growth to drive more operating leverage at scale. We are making progress, and I believe today's results are an early evidence that we're moving in the right direction. Now on to our first quarter results.

As a reminder, all financial results that I will be discussing with the exception of revenue, are non-GAAP. Our GAAP financial results, along with a reconciliation between GAAP and non-GAAP results can be found in our earnings press release, a supplemental financials on our IR website.

As Spencer said, first quarter revenue was $72.6 million, up 9% year-over-year, and total ARR exiting Q1 increased to $285 million, an increase of 9% year-over-year and $4 million sequentially. Here are more details on key elements of the quarter. New ARR was about one-third land and two-third expand, primarily reflective of better internal execution in our enterprise business. Churn dollars, as expected and as incorporated into our full year guide ticked up quarter-to-quarter.

The number of customers representing $100,000 or more of ARR in Q1 grew the 521, an increase of 6% year-over-year. In period NRR dropped to 97% and NRR on a trailing 12-month basis declined sequentially to 99%. We continue to believe that the worst excesses of the pandemic surge embedded in our ARR will be in our rearview mirror shortly. For customers who have optimized with us one time, majority of the associated ARR either renews flat or grows off that base.

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MAY 09, 2024 / 9:00PM, AMPL.OQ - Q1 2024 Amplitude Inc Earnings Call

Gross and net retention patterns for customers acquired in the second half of 2022 onward continue to show better dynamics than those from 2020 and 2021. And lastly, underlying utilization trends across our largest customers continue to improve slightly quarter-to-quarter, which is also impacting gross margin. Gross margin was 76% for the first quarter, up 2 percentage points year-over-year and down 1 percentage point from Q4.

Investments in enterprise-related professional services and the higher utilization rates relative to the capacity purchase resulted in the sequential margin downtick. Total operating expenses were $58 million, up 0.4 percentage points year-on-year, employee payroll taxes and seasonal events like our sales kickoff, contributed to higher OpEx spending this quarter.

Operating profit was a negative $2.1 million or 3% of revenue, which represents a 9 percentage point improvement on a year-over-year basis. Net income per share was $0.01 based upon 130.9 million fully diluted shares compared to a loss of $0.04 with 114.4 million shares a year ago. Free cash flow in the quarter was negative $1.1 million or negative 2% of revenue, which represents a 7 percentage point improvement on a year-over-year basis. Now on to our outlook.

For the second quarter of 2024, we expect Q2 revenue to be between $71.7 million and $72.3 million, representing an annual growth rate of 6% at the midpoint. We expect a non-GAAP operating loss between $4.4 million and $3.8 million, and we expect non-GAAP net loss per share to be between negative $0.02 and $0.01, assuming basic shares outstanding were approximately $122.5 million.

For the full year, reflective of our Q1's new ARR achievement, coupled with the churn coming in at projected levels, we are raising our full year revenue outlook to be between $292.5 million and $295.5 million, an annual growth rate of 6% to 7%. We are holding our outlook for non-GAAP operating income between negative $1 million and positive $2 million. And we expect to be profitable on a non-GAAP net income basis with per share non-GAAP net income to be between $0.07 and $0.09, assuming shares outstanding approximately $133.5 million as measured on a fully diluted basis.

Here's more color for your modeling purposes. We continue to expect churn to remain at elevated levels for at least another quarter, and we reiterate that we have incorporated those levels of churn into our full year revenue guidance. As we have characterized previously, the primary driver to these elevated levels of churn are the multiyear contracts from 2021 and 2022 being optimized. We continue to expect in-period NRR to remain below 100% and NRR to trough in the mid-90s this year.

We continue to expect year-over-year ARR growth to trough in Q3 of this year in the mid-single digits. We continue to expect to be free cash flow positive for the full year as we were in 2023. What a difference a year makes? We remain hard at work on improving the business and investing in key areas that we believe will eventually lead to reaccelerating growth. I am increasingly confident of the path we are setting for ourselves through 2024 and beyond. With that, I will open for Q&A. Over to you, Yao

Q U E S T I O N S A N D A N S W E R S

Yaoxian Chew - Amplitude, Inc. - VP, IR

(Event Instructions)

Our first question comes from Koji Ikeda of Bank of America, followed by Brent Bracelin from Piper

Koji Ikeda - BofA Securities - Analyst

Hey, guys. Thanks so much for taking the questions. Maybe a question for Chris here. Just wanted to dig in on the ARR in the quarter. You guys added $4 million. That is a bit lower than the prior two quarters. But as you stated in your prepared remarks, clearly, there was a bunch of pandemic air renewals coming up in the first half of this year. So I just wanted to dig in a little bit on this net new ARR. Did it come in as expected here? Just thinking about the renewals versus upsells? Is there anything we should be thinking about within that net new ARR that wasn't in the prepared remarks?

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MAY 09, 2024 / 9:00PM, AMPL.OQ - Q1 2024 Amplitude Inc Earnings Call

Christopher Harms - Amplitude, Inc. - CFO & Treasurer

Well, it definitely came in above what we had modeled into our revenue guidance that we shared in February. And I think if you recall from the transcripts from that February time frame, I had signaled a 0 net ARR for the quarter. So coming in, right, the $4 million was an overachievement relative to that.

Koji Ikeda - BofA Securities - Analyst

Got it, thank you. And so we've heard from a lot of other software companies over the past few weeks and definitely heard companies calling out SMB weakness out there. But when I look at your guys' metrics, the customer count, strong customer growth there, thinking about the Plus plan for smaller customers, just thinking about how -- what you guys are seeing out there from the SMB front.

Christopher Harms - Amplitude, Inc. - CFO & Treasurer

Spencer, do you want take that?

Spenser Skates - Amplitude, Inc. - Co-Founder, CEO & Chairperson of the Board

Yeah, I'll take that. On the SMB side, so first, we're obviously focused on winning the enterprise and what we've seen on the SMB side is the release of Plus has allowed us to be -- meet those customers where they're at and allowed a lot more customers to come on board as you've seen in the plus customer count numbers. I think there continues to be headwinds on SMB. But over time, we expect a larger proportion of our customers to be on the enterprise and traditional companies segment. And so for us, it's less about extracting the most dollars out of SMB, but it's about, okay, how can you get them started on Amplitude? And when those folks go to larger companies or become larger companies or get acquired by larger companies, drive the revenue from the enterprise segment.

So we haven't -- I'd say macro has been very consistent. It's been tough for the last year in that segment. That continues to be the case. We're not planning on seeing any changes in that. And so for us, it's just making sure we win over those customers with where they're at versus maximizing the dollars on revenue. Koji, I also just wanted to comment on what you said on the four previously.

I mean, building on what Chris said on that, obviously, I want to be putting up numbers way, way stronger than $4 million in net as we talked about before and expect to as we accelerate our growth. As we talked about before, the churn levels from contract resets from 2021 and 2022 have -- we're expecting yet the bulk through the bulk of those as we pass Q1 and Q2 and get into second half of this year. And so I'm really looking forward to that.

Koji Ikeda - BofA Securities - Analyst

Thanks, guys. Thanks for taking the questions.

Yaoxian Chew - Amplitude, Inc. - VP, IR

Next question, Brent Bracelin from Piper followed by Jackson Ader from KeyBanc.

Brent Bracelin - Piper Sandler & Co. - Analyst

Thank you. Good afternoon. Maybe I'll start with you, Chris, here. We've seen RPO backlog growth decline for a couple of years now. But this quarter reversed a little bit. Looks like CRPO growth is not high but back to growth after being negative last quarter. What drove the improvement in

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MAY 09, 2024 / 9:00PM, AMPL.OQ - Q1 2024 Amplitude Inc Earnings Call

backlog this quarter? Was there some anomalies that aided you this quarter? Or do you think maybe that one metric is starting to kind of reverse here?

Thanks.

Christopher Harms - Amplitude, Inc. - CFO & Treasurer

So I remind you, I don't spend a lot of time looking at the RPO. I do focus on the ARR and would encourage everyone to continue to focus on ARR. But I will speak to the dynamic that you just raised. If you recall prior comments that I've made is that our renewal base is more heavily weighted towards Q1 and Q2 than it is in Q3 and Q4. It's very reasonable for me to expect the RPO in aggregate to increase as we enter Q2 and Q -- excuse me, Q1 and Q2. And I would expect it to have a little bit of downward pool in the Q3 and Q4. Now I expect that historical renewal base to somewhat shift as we mature and get a larger footprint into the enterprise space, reflective of their more Q3 and predominantly Q4 buying patterns, but that's what we're seeing today.

Brent Bracelin - Piper Sandler & Co. - Analyst

Helpful color. And then maybe Spencer for you. We're trying to think through potential levers that could accelerate the business. You clearly have some new products that you can control, new product-led growth initiatives that are in your control. One of the debates out there in the software land is when does AI start to show up at the application layer.

And so my question here is on AI, but not a product AI question, more of an industry driver question, we're hearing a lot of these application companies do experimentation with AI features, the UX is going to be quite different as you think about layering in a large language model. Are you seeing any of your customers that are now starting to lean in on AI start to either show increasing volume commitments, as they do experimentation, do you think ultimately amplitude could benefit as more and more of these application companies, B2B applications companies start to layer in large models or not.

Spenser Skates - Amplitude, Inc. - Co-Founder, CEO & Chairperson of the Board

And Brent, just to make sure I understand what you're saying. I mean there's a few different ways. First, it's like if they have more end usage from their customers because, hey, we created a chatbot, there's a lot more engagement that's sending us more data. Is that what you're talking about? Are you talking about Amplitude itself having a capabilities that drive a bunch of the out of the platform?

Brent Bracelin - Piper Sandler & Co. - Analyst

Yeah, for the end users and any sort of like acceleration you might see based on more application companies layering in these AI features?

Spenser Skates - Amplitude, Inc. - Co-Founder, CEO & Chairperson of the Board

Yes, for sure. I think -- so what we've seen with every wave of technology disruption is that, that's been an accelerant to the amount of data that gets tracked for your end users and the need for something like an Amplitude. So when we first founded that wave was mobile and then the whole rise of SaaS kind of coincided with some of our largest customers today are SaaS companies. We saw that with crypto. And now we're starting to see that with AI and all the workflows on that.

I'd say B2B companies that have a strong help or like a support component that uses chat with agents, we've seen some upticks from that. And then it kind of goes back to -- if you look at AI native companies, they desperately need us. And so that's why we see mid-journey character, a whole bunch of others adopt Amplitude. And so absolutely, that's that's a growth lever for us.

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MAY 09, 2024 / 9:00PM, AMPL.OQ - Q1 2024 Amplitude Inc Earnings Call

The more people spend time on -- in the digital world, the better that is for us because that means that's where your customers are and you want to optimize that journey. So now that all said, I want to be really clear, it's early for a lot of these companies. I think I've probably seen like three or four companies on the B2B side that have a real AI offering. I mean a lot of people just brand their stuff with AI, but the percentage of value driven through that workflow is minimal. So it's early days for it.

Brent Bracelin - Piper Sandler & Co. - Analyst

That's consistent what we're seeing. Thank you so much.

Yaoxian Chew - Amplitude, Inc. - VP, IR

Next question, Jackson Ader from KeyBank, followed by Nick Altmann from Scotia.

Michael Vidovic - KeyBanc Capital Markets - Analyst

This is Michael Vidovic on for Jackson. So on renewals, they've been a large part of your story as of late. So I guess, could you just speak to the different factors at play that you're looking at that, I guess, will drive customer renewals to kind of better or worse than you expect in the next year here?

Spenser Skates - Amplitude, Inc. - Co-Founder, CEO & Chairperson of the Board

Yes. So the -- on the renewal side, I mean, we've obviously talked a lot about the customers who bought in 2021 and the early part of 2022, that are resetting their contracts. That was just part of one renewal where the customer size went from $2.5 million to $1.9 million because they had overbought in 2022, and we're looking to reset that. Now that customer expects to grow with us here on out, and that's like a onetime pandemic reset where people had overprojected the 2021 growth rates forward without realizing that they were going to reset to normal levels.

And so that's the biggest driver behind the elevated churn levels that we're seeing in both Q1 and Q2 of this year. The early indicators are that once that happens, a customer is much more likely to renew flat on the subsequent renewal or even grow. And then I think the other thing that we see is from customer cohorts in 2023 and beyond, while it's early, obviously, we're only one quarter into those renewals. They are significantly stronger and more like our kind of 2019 cohorts and before, which had much higher gross in net dollar retention.

Michael Vidovic - KeyBanc Capital Markets - Analyst

Great. And then just to make sure I understand, you didn't see any change in upsell down seller turn dynamics this quarter compared to 4Q, right?

Spenser Skates - Amplitude, Inc. - Co-Founder, CEO & Chairperson of the Board

It was elevated. So we called that it was elevated because we have a significant number of customers who are renewing in Q1 or Q2 on the large customer side.

Christopher Harms - Amplitude, Inc. - CFO & Treasurer

Yes. I think it's worth adding, since last May, we have been calling out an expectation for an elevated level of churn plus Q2 of last year, Q3, Q4 continuing into Q1 of this year and continuing into Q2 with the two drivers being the multiyear contracts getting optimized for the dynamics that Spenser just sit upon. And then the VC start-ups, right, cutting our solution just to survive.

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MAY 09, 2024 / 9:00PM, AMPL.OQ - Q1 2024 Amplitude Inc Earnings Call

What we've tried to profile is that we will be in a structurally different place as we enter into Q3 of this year, where we will have worked our way through most of those multiyear resets that will be in a structurally different place and an expectation of a notably reduced churn from the levels that we've been experiencing for those prior four quarters and then the fifth quarter, including this upcoming Q2 as we enter into Q3 and Q4.

What I'll add is we haven't changed our assumptions in terms of the VC kind of start-ups of them exiting out of our ARR base that I think consistent with what you've been hearing from some of our peers is that we don't know where that endpoint is going to be. And so therefore, we have not built any improvement in terms of that part of our churn that's for the lower end of the market into our revenue guide for the year and our outlook for the top line. Those, I think, are the two dynamics to embrace.

Michael Vidovic - KeyBanc Capital Markets - Analyst

Great. Thanks, guys.

Yaoxian Chew - Amplitude, Inc. - VP, IR

Next question, Nick Altmann from Scotia followed by Taylor McGinnis UBS

John Gomez - Scotiabank - Analyst

Hi, this is John Gomez on for Nick Altmann. Thanks for taking my question. Can you talk about the factors that pressured NRR and whether there are any drivers to NRR that is improving or holding up better than others?

Christopher Harms - Amplitude, Inc. - CFO & Treasurer

So there are two factors. The first one by far is the role that churn is playing in bringing down our GDR and obviously, then the impact it has on interim. And with the more macro conditions of budgets having getting tighter, right? Our expand motion has not been operating at the same level it was when we were up north of 120% on interim. Combination of those two factors have clearly brought us down. So what we've tried to signal to you is where we feel that trough is going to be and a sense about where that trough was the level.

I think we quoted in the prepared remarks kind of the mid-90s. Inclusive in that, look, we will be in a fundamentally different place as we've talked about in Q3. And then the other point to highlight is we did talk about the new ARR that we brought in this quarter and that it was about two-thirds driven by expand. It gives you a sense of the magnitude of the churn that we're working through as part of this reset of the optimization because we did continue to trick down on interim.

All of those, we continue to convey, we see troughing in the very near term and having us positioned for a much cleaner level of reacceleration. Now the degree of that reacceleration is something we'll convey later in the year at an Investor Day, we talk about our long-term model. And then we'll talk through the drivers about how we would see that growth rate developing over the coming years.

John Gomez - Scotiabank - Analyst

Got it. And I think you mentioned the pipe you saw the pipeline is improving and can you talk about what exactly you're seeing there?

Christopher Harms - Amplitude, Inc. - CFO & Treasurer

I'll let Spencer speak about pipeline.

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