Amplitude, Inc. Q3 FY2023 earnings

Amplitude's September 2023 quarter told two stories at once. Demand held up. Revenue was $70.6 million, up 14.6% from the prior-year quarter, and gross profit was $53.3 million, up 22.5%. Gross margin for the quarter was 75.5%, up 4.9 percentage points, helped by lower third-party hosting costs and personnel costs as a share of revenue. Year to date, revenue of $204.9 million was up 18.6% and gross margin of 73.8% was up 3.4 percentage points.

The customer base kept expanding, but the installed base is spending less. Paying customers grew 29% year over year to 2,471, and Annual Recurring Revenue reached $273 million, up 12% and up $5 million from the second quarter of 2023. Dollar-based net retention for the trailing twelve months was 105%, down from 123% a year earlier, and the ending net retention rate was 99%, down from 113%. Deferred revenue of $109.0 million was up 14.2% from the prior-year quarter. Remaining performance obligations of $237.6 million were down 4.2%. The softness sits in longer commitments: the slice due within twelve months grew modestly, while the portion due beyond twelve months fell at a double-digit rate. Management ties RPO swings to the timing of renewals and purchases, average contract terms and seasonality. The company also launched Amplitude Plus, a self-service package that puts analytics, customer data platform and feature-management tools in front of more teams at a lower price.

The bottom line stayed red. The net loss for the quarter was $17.7 million, narrower than the prior-year quarter, and diluted loss per share was $0.15, against $0.20 a year earlier. For the first nine months the net loss of $71.8 million was wider than the same stretch of 2022, while diluted loss per share of $0.62 was narrower than $0.63. Cash was the strongest part of the release. Operating cash flow was $8.0 million for the quarter, up $11.1 million year over year, and $23.3 million for the first nine months. Capital expenditures were $0.00 million for the quarter, down from $0.5 million a year earlier. Free cash flow, defined as operating cash flow less purchases of property and equipment and capitalized internal-use software costs, was $7.5 million, an $11.4 million improvement year over year.

The spread between GAAP and non-GAAP results still rests on stock compensation. Non-GAAP income from operations was $2.8 million in the quarter, against a non-GAAP loss of $4.9 million a year earlier, and non-GAAP net income per diluted share was $0.05, against a loss of $0.03. Those figures exclude stock-based compensation and related employer payroll taxes, amortization of acquired intangible assets, and restructuring charges. The April 2023 restructuring plan removed approximately 13% of the global workforce, and management does not expect significant further charges from it. Research and development spending rose 1% in the quarter, general and administrative 3%, and sales and marketing 18%, with commissions rising alongside the customer base, deal values and sales headcount.

Guidance for the fourth quarter of 2023 and the full fiscal year 2023 covers non-GAAP measures. For the fourth quarter, the company expects non-GAAP operating income of $1.3 million to $1.9 million and non-GAAP net income per diluted share of $0.02 to $0.03, on 129.8 million diluted shares. For the full year 2023, it guides to a non-GAAP operating loss of $4.5 million to $3.9 million and non-GAAP net income per diluted share of $0.05 to $0.06, on 127.8 million diluted shares. Revenue outlooks were published for both periods, but no GAAP operating income, GAAP net income or GAAP per-share outlook was provided, because stock-based compensation and intangible amortization cannot be forecast without unreasonable effort.

The risk list is long for a company of this size. Amplitude cites a limited operating history, a history of losses, falling customer retention, heavier reliance on large enterprise deals that stretch and vary sales cycles, a restructuring that may not deliver the expected savings, a SaaS market that could develop more slowly than assumed, weaker information technology spending in a soft economy, and evolving privacy and data laws. International operations add complexity. Revenue from outside the United States was 39% of the total for the nine months ended September 30, 2023, and the company ended certain customer relationships in Russia after the war in Ukraine began, with some affected customers struggling to pay.