q2 fy 18 financial results - s2.q4cdn.com€¦ · 2017 2016 2015 september 30, 2017 reconciliation...

©2008–17 New Relic, Inc. All rights reserved.

Q2 FY 18 Financial Results

November 7, 2017

©2008–17 New Relic, Inc. All rights reserved

Forward-Looking Statements and Non-GAAP Financial Measures

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This presentation contains “forward-looking” statements, as that term is defined under the federal securities laws. Any statement that refers toexpectations, projections or other characterizations of future events, including financial projections and future market conditions, is a forward-looking statement. Statements included in this presentation that are forward-looking statements include but are not limited to statementsregarding market trends and opportunity, our future financial performance, such as our outlook on financial results for the third quarter of fiscalyear 2018 and for the full fiscal year 2018, including revenue, non-GAAP operating income, non-GAAP earnings per share, deferred revenue,operating cash flow, free cash flow, gross margin, capital expenditures, and expenses as a percentage of revenue. These forward-lookingstatements are based on our assumptions, expectations and beliefs as of the date of this presentation and are subject to substantial risks,uncertainties, assumptions, and changes in circumstances that may cause our actual results, performance, or achievements to differ materiallyfrom those expressed or implied in any forward-looking statement. We assume no obligation and do not intend to update these forward-lookingstatements, except as required by law. For more information about factors that may cause actual results to differ materially from forward-lookingstatements, please refer to our November 7, 2017 press release, as well as the risks described in our filings with the Securities and ExchangeCommission (“SEC”), including our most recent Form 10-Q filed with the SEC, particularly in the section titled Risk Factors.

This presentation also contains certain non-GAAP financial measures as defined by SEC rules. These non-GAAP financial measures are inaddition to, and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. There are a number oflimitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalents. For example, other companies maycalculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce theusefulness of our non-GAAP financial measures as tools for comparison. Please refer to our November 7, 2017 press release for additionalinformation as to why we believe these non-GAAP financial measures are useful to investors and others in assessing our operating performance.As required by Regulation G, we have provided a reconciliation of those measures to their most directly comparable GAAP measures, which isavailable in the appendix to this presentation. However, we have not reconciled our expectations as to non-GAAP operating loss and income,non-GAAP earnings per share, gross margin, operating margin, non-GAAP expenses as a percentage of revenue, or free cash flow in futureperiods to their most directly comparable GAAP measure as a result of uncertainty regarding, and the potential variability of, reconciling itemssuch as stock-based compensation, lawsuit litigation expenses and employer payroll taxes on equity incentive plans. Accordingly, reconciliationis not available without unreasonable effort, although it is important to note that these factors could be material to our results computed inaccordance with GAAP.


Provider of Real-time Insights for Software-driven Businesses

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$43$48

$52

$59$63

$68

$73

$80$85

0%

10%

20%

30%

40%

50%

2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18

Revenue $M% ARR from Enterprise Paid Business Accounts

• Differentiated, multi-tenant native cloud platform

• Recurring revenue business with industry leading gross margin and net revenue retention

• Growing, multibillion dollar market opportunity

CAGR period calculated from 2Q15 to 2Q18. See appendix for how we define enterprise paid business accounts.

NYSE: NEWR

IPO: December 12, 2014

Expanding Product Portfolio:6 paid products

3-year Revenue CAGR: 49%


Second Quarter Fiscal 2018 Supplemental Data

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2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18Annualized Dollar-

Based Net Expansion Rate

121% 129% 140% 118% 116% 125% 133% 113% 123%

% ARR from Enterprise Paid

Business Accounts35% 37% 42%* 43% 43% 44% 46% 49%* 51%

Paid Business Accounts >$100K 273 319 367 398 427 478 517 555 586

Paid Business Accounts >12,800 >13,100 >13,500 >14,000 >14,500 >14,900 >15,200 >15,400 ~15,900

Annualized Revenue / Avg. Paid Business

Account>$13,500 >$14,500 >$15,500 >$17,000 >$17,500 >$18,000 >$19,000 >$20,500 >$21,500

* Period included changes to the categorization of existing paid business accounts to reflect that they had expanded beyond the 1,000 employee threshold.See appendix for definitions.


Second Quarter Fiscal 2018 Key Business Highlights

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Revenue of $84.7M,up 33% YoY

Annualized Dollar-Based Net Expansion Rate of 123%

Gross margins of 81% GAAP / 83% non-GAAP

Announced New Relic Infrastructure integrations to Apache, Cassandra, MySQL, NGINX Plus, RabbitMQ, Redis, and StatsD

Crossed through 2,000 Enterprise Paid Business Accounts

Introduced New Relic Applied Intelligence (NRAI): New Relic Radar, NRQL Baseline Alerting, and New Relic APM Error Profiles

See appendix for reconciliation of non-GAAP gross margin.


40%

50%

60%

70%

80%

90%

Best-in-Class Gross Margin

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GAAP Gross Margin vs. SaaS Peers

Peer Average = 68%

NEWRSource: Company earnings releases filed with the SEC covering the most recent quarter reported as of November 3, 2017. Peers identified based on Wall Street Research comparable SaaS company groupings.


273319

367398

427478

517555

586

2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18

Paid Business Accounts >$100K

Steady Growth of Large Paid Business Accounts

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See appendix for an explanation of how we define paid business accounts >$100K.


Steady Growth of Enterprise Business

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35% 37%42% 43% 43% 44% 46%

49% 51%

2Q16 3Q16 4Q16* 1Q17 2Q17 3Q17 4Q17 1Q18* 2Q18

% ARR from Enterprise Paid Business Accounts

* Period included changes to the categorization of existing paid business accounts to reflect that they had expanded beyond the 1,000 employee threshold.See appendix for an explanation of how we define annual recurring revenue (ARR) and enterprise paid business accounts.


Third Quarter and Fiscal 2018 Outlook*

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Q3 FY18 Guidance

Revenue: $88.3M – $89.8M Operating Loss: $(4.0M) – $(5.0M) EPS: $(0.07) – $(0.09)

Deferred revenue to increase high single digits percentage-wise from Q2

FY18 Guidance

Revenue: $346.5M – $349.5M Operating Loss: $(13.0M) – $(14.0M) EPS: $(0.21) – $(0.22)

Gross Margin ~83%

Cash provided by operating activities: $35.0M – $40.0M; Free cash flow: $3.0M – $8.0M

Operating income positive by end of fiscal year

* Operating loss and income, earnings per share, gross margin and free cash flow presented on a non-GAAP adjusted basis; Q3 FY18 EPS assumes 55.3M weighted average shares outstanding; FY18 EPS assumes 55.4M weighted average shares outstanding; See appendix for how we define free cash flow.


Long-Term Target Operating Model*

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(% of Revenue) FY15 FY16 FY17 2Q18FY22

Target DriverLong-Term

Target

Gross Margin 81% 81% 82% 83% 78–82% Continued investments in delivery, support and services 78–82%

Sales & Marketing 76% 66% 59% 56% 40–42% Increased mix of productive reps, renewals, installed base 35–38%

Research & Development 20% 22% 19% 17% 17–19% Maturation of product portfolio 15–18%

General & Administrative 18% 16% 14% 14% 10–12% Economies of scale 7–9%

Operating Margin (33%) (23%) (10%) (4%) 8–12% 20–25%

* Metrics are non-GAAP and exclude stock-based compensation, amortization of purchased intangibles, litigation and acquisition-related expenses. See appendix for reconciliation.


Appendix – Definitions

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Monthly and Annual Recurring Revenue (MRR and ARR)Our monthly recurring revenue represents the revenue that we would contractually expect to receive from those customers over the following month, without any increase or reduction in any of their subscriptions. Similarly, annual recurring revenue represents the revenue that New Relic would contractually expect to receive from those customers over the following 12-month period, without any increase or reduction in any of their subscriptions.

Enterprise ARR is defined as ARR from paid business accounts with >1,000 employees.

Number of Paid Business AccountsWe define the number of paid business accounts at the end of any particular period as the number of accounts at the end of the period as identified by a unique account identifier for which we have recognized revenue on the last day of the period indicated. A single organization or customer may have multiple paid business accounts for separate divisions, segments, or subsidiaries. We define an enterprise paid business account as a paid business account that we measure to have over 1,000 employees.

>$100K and >$1M / year paid business accounts represents paid business accounts who have ARR greater than $100,000 or $1,000,000, respectively.

We define our annualized revenue per average paid business account as the annualized revenue for the current period divided by the average of the number of paid business accounts at the end of the current period and the end of the prior period.

Dollar-Based Net Expansion RateOur dollar-based net expansion rate compares our recurring subscription revenue from customers from one period to the next. We measure our dollar-based net expansion rate on a monthly basis because many of our customers change their subscriptions more frequently than quarterly or annually.

To calculate our annual dollar-based net expansion rate, we first establish the base period monthly recurring revenue from all our customers at the end of a month. This represents the revenue we would contractually expect to receive from those customers over the following month, without any increase or reduction in any of their subscriptions.

We then (i) calculate the actual monthly recurring revenue from those same customers at the end of that following month; then (ii) divide that following month’s recurring revenue by the base month’s recurring revenue to arrive at our monthly net expansion rate; then (iii) calculate a quarterly net expansion rate by compounding the net expansion rates of the three months in the quarter; and then (iv) calculate our annualized net expansion rate by compounding our quarterly net expansion rate over an annual period.

Free Cash FlowWe define free cash flow as cash from operating activities minus purchases of property and equipment and capitalized software development costs.


Appendix – Non-GAAP to GAAP Reconciliation

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2017 2016Reconciliation of gross profit and gross margin:

GAAP gross profit 68,991$ 51,662$ Plus: Stock-based compensation 603 513Plus: Amortization of purchased intangibles 397 200Plus: Amortization of stock-based compensation capitalized in software development costs 238 169Plus: Employer payroll tax on employee equity incentive plans 39 30

Non-GAAP gross profit 70,268$ 52,574$

GAAP gross margin 81 % 81 %Non-GAAP adjustments 2 % 2 %

Non-GAAP gross margin 83 % 83 %Reconciliation of operating expenses:GAAP research and development 18,266$ 14,741$

Less: Stock-based compensation (3,305) (2,522)Less: Employer payroll tax on employee equity incentive plans (169) (88)

Non-GAAP research and development 14,792$ 12,131$

GAAP sales and marketing 51,261$ 40,382$ Less: Stock-based compensation (3,875) (3,409)Less: Amortization of purchased intangibles — (14)Less: Employer payroll tax on employee equity incentive plans (218) (148)

Non-GAAP sales and marketing 47,168$ 36,811$

GAAP general and administrative 14,305$ 10,833$ Less: Stock-based compensation (2,439) (1,819)Less: Lawsuit litigation — (2)Less: Amortization of purchased intangibles — (41)Less: Employer payroll tax on employee equity incentive plans (65) (395)

Non-GAAP general and administrative 11,801$ 8,576$ Reconciliation of loss from operations and operating margin:

GAAP loss from operations (14,841)$ (14,294)$ Plus: Stock-based compensation 10,222 8,263Plus: Lawsuit litigation — 2Plus: Amortization of purchased intangibles 397 255Plus: Amortization of stock-based compensation capitalized in software development costs 238 169Plus: Employer payroll tax on employee equity incentive plans 491 661

Non-GAAP loss from operations (3,493)$ (4,944)$

GAAP operating margin (18)% (23)%Non-GAAP adjustments 14 % 15 %

Non-GAAP operating margin (4)% (8)%

Reconciliation from GAAP to Non-GAAP Results(In thousands, except per share data; unaudited)

Three Months Ended September 30, Six Months Ended September 30,

2017 2016Net cash provided by (used in) operating activities 16,601$ 3,837$

Capital expenditures (14,394) (8,490)Capitalized software development costs (1,486) (1,733)

Free cash flows (Non-GAAP) 721$ (6,386)$ Net cash provided by (used in) investing activities (14,483)$ 11,788$ Net cash provided by financing activities 20,293$ 12,406$

Reconciliation of GAAP Cash Flows from Operating Activities to Free Cash Flows(In thousands; unaudited)


Appendix – Non-GAAP to GAAP Reconciliation

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Three Months Ended

2017 2016 2015 September 30, 2017

Reconciliation of cost of revenue:

GAAP cost of revenue 49,990$ 37,183$ 21,802$ 15,694$

Less: Stock-based compensation (1,847) (1,238) (591) (603)

Less: Amortization of purchased intangibles (1,062) (939) (400) (397)

Less: Amortization of stock-based compensation capitalized in software development costs (754) (544) (179) (238)

Less: Employer payroll tax on employee equity incentive plans (114) (18) — (39)Non-GAAP cost of revenue $ 46,213 $ 34,444 $ 20,632 $ 14,417

GAAP cost of revenue as a percentage of revenue 19% 21% 20% 19%

Non-GAAP adjustments (1%) (2%) (1%) (2%)Non-GAAP cost of revenue as a percentage of revenue 18% 19% 19% 17%

Reconciliation of gross profit and gross margin:

GAAP gross profit $ 213,489 $ 144,126 $ 88,589 $ 68,991

Non-GAAP adjustments 3,777 2,739 1,170 1,277 Non-GAAP gross profit $ 217,266 $ 146,865 $ 89,759 $ 70,268

GAAP gross margin 81% 79% 80% 81%

Non-GAAP adjustments 1% 2% 1% 2%Non-GAAP gross margin 82% 81% 81% 83%

Reconciliation of operating expenses:

GAAP research and development $ 61,054 $ 46,394 $ 24,024 $ 18,266

Less: Stock-based compensation (9,975) (6,659) (2,055) (3,305)

Less: Employer payroll tax on employee equity incentive plans (448) (258) — (169)Non-GAAP research and development $ 50,631 $ 39,477 $ 21,969 $ 14,792

GAAP research and development as a percentage of revenue 23% 26% 22% 22%

Non-GAAP adjustments (4%) (4%) (2%) (5%)Non-GAAP research and development as a percentage of revenue 19% 22% 20% 17%

GAAP sales and marketing $ 168,163 $ 129,677 $ 89,162 $ 51,261


Less: Amortization of purchased intangibles (25) (50) (25) —

Less: Employer payroll tax on employee equity incentive plans (501) (503) — (218)Non-GAAP sales and marketing $ 154,595 $ 119,866 $ 84,029 $ 47,168

GAAP sales and marketing as a percentage of revenue 64% 72% 81% 61%

Non-GAAP adjustments (5%) (6%) (5%) (5%)Non-GAAP sales and marketing as a percentage of revenue 59% 66% 76% 56%

GAAP general and administrative $ 45,615 $ 35,693 $ 25,319 $ 14,305


Less: Lawsuit litigation (48) (46) (1,322) —

Less: Amortization of purchased intangibles (75) (150) (75) —

Less: Transaction costs related to acquisition — (385) (71) —

Less: Employer payroll tax on employee equity incentive plans (950) (301) — (65)Non-GAAP general and administrative $ 37,460 $ 28,698 $ 19,939 $ 11,801

GAAP general and administrative as a percentage of revenue 17% 20% 23% 17%

Non-GAAP adjustments (3%) (4%) (5%) (3%)Non-GAAP general and administrative as a percentage of revenue 14% 16% 18% 14%

Reconciliation of loss from operations and operating margin:

GAAP loss from operations $ (61,343) $ (67,638) $ (49,916) $ (14,841)

Plus: Stock-based compensation 31,946 23,268 11,666 10,222

Plus: Lawsuit litigation 48 46 1,322 —

Plus: Amortization of purchased intangibles 1,162 1,139 500 397

Plus: Transaction costs related to acquisition - 385 71 —

Plus: Amortization of stock-based compensation capitalized in software development costs 754 544 179 238

Plus: Employer payroll tax on employee equity incentive plans 2,013 1,080 — 491 Non-GAAP loss from operations $ (25,420) $ (41,176) $ (36,178) $ (3,493)

GAAP operating margin (23%) (37%) (45%) (18%)

Non-GAAP adjustments 13% 14% 12% 14%Non-GAAP operating margin (10%) (23%) (33%) (4%)

Year Ended March 31,

q2 fy 18 financial results - s2.q4cdn.com€¦ · 2017 2016 2015 september 30, 2017 reconciliation...

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