Q4 FY17 Financial Results · 2017-05-09 · *Operating loss and income, earnings per share, gross margin and free cash flow presented on a non-GAAP adjusted basis; Q1 FY18 EPS assumes

Q4 FY17 Financial ResultsMay 9, 2017

1©2008-17 New Relic, Inc. All rights reserved.

This presentation contains “forward-looking” statements, as that term is defined under the federal securities laws. Any statement that refers to expectations, 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 statements regarding our future financial performance, such as our outlook on financial results for the first quarter of fiscal year 2018 and for the full fiscal 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-looking statements 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 materially from those expressed or implied in any forward-looking statement. We assume no obligation and do not intend to update these forward-looking statements, except as required by law. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to our May 9, 2017 press release, as well as the risks described in our most recent Form 10-Q filed with the Securities and Exchange Commission (“SEC”), particularly in the section titled Risk Factors.

This presentation also contains certain non-GAAP financial measures as defined by the SEC rules. These non-GAAP financial measures are in addition to, and not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalents. For example, other companies may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. Please refer to our May 9, 2017 press release for additional information 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 is available 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, or free cash flow in future periods to their most directly comparable GAAP measure because certain items, namely stock-based compensation, lawsuit litigation expenses and employer payroll taxes on equity incentive plans, are out of our control or cannot be reasonably predicted. Accordingly, reconciliation is not available without unreasonable effort, although it is important to note that these factors could be material to our results computed in accordance with GAAP.

2

Forward-Looking Statements and Non-GAAP Financial Measures

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

3

Strong Financial Performance


• Land, expand, standardize model driven by increasing penetration of the enterprise and expanding product portfolio

• Recurring revenue business with industry leading net revenue retention metrics

• Growing, multibillion dollar market opportunity

$30

$63

$110

$181

$263

$344

FY13 FY14 FY15 FY16 FY17 FY18E

FY18 revenue based on midpoint of guidance; See Appendix for an explanation of how we calculate paid business accounts, revenue per average paid

business account and $100K+ per year paid business accounts.

Historical Revenue ($M)

Q4’14 Q4’17

$19.8M Revenue $73.3M

>9,100 Paid Business Accounts >15,200

~$9,000Revenue per Average Paid

Business Account~$19,500

>75$100K+ Per Year Paid

Business Accounts517

2 # of Paid Products 6

4

Our History of Innovation and Growth


2007

2017

5©2008-17 New Relic, Inc. All rights reserved.

Creating a Global Movement - #Customerlove

6

Fourth Quarter Fiscal 2017 Key Highlights


REVENUE UP 40% YOY

81% GAAP / 83% NON-GAAP GROSS MARGIN

15+ PERCENTAGE POINTS OF GAAP AND NON-GAAP OPERATING MARGIN

IMPROVEMENT VS. Q416

RECORD NUMBER OF $100K+ ARR TRANSACTIONS

FIRST $1M ARR CUSTOMER FOR NEW RELIC INSIGHTS

>35% OF NEW BUSINESS FROM NON-APM PRODUCTS

See Appendix for reconciliation of Non-GAAP metrics, including gross margin and operating margin and for an explanation of how we

define annual recurring revenue (ARR).

7

Fiscal 2017 Key Highlights


REVENUE UP 45% YOY

13+ PERCENTAGE POINTS OF GAAP AND NON-GAAP OPERATING MARGIN

IMPROVEMENT VS. FY16

~23% OF TOTAL ARR FROM NON-APM PRODUCTS

>1,700 ENTERPRISE PAID BUSINESS ACCOUNTS; >40% OF THE FORTUNE 100

ENDED YEAR WITH 46% OF ARR FROM ENTERPRISE PAID BUSINESS ACCOUNTS

>500 PAID BUSINESS ACCOUNTS PAYING $100K+ / YEAR; >30 PAYING >$1M / YEAR

See Appendix for reconciliation of Non-GAAP metrics, including operating margin, and for an explanation of how we define paid business accounts,

annual recurring revenue (ARR) and $100K+/Year and $1M+/Year paid business accounts. Enterprise paid business accounts are defined as paid

business accounts with over 1,000 employees.

8

First Quarter and Fiscal 2018 Outlook*


Q1 FY18 Guidance

REVENUE: $77.0 - 78.5M OPERATING LOSS: ($6.5) – ($7.5M) EPS: ($0.12) – ($0.14)

FLAT SEQUENTIAL DEFERRED REVENUE GROWTH

FY18 Guidance

REVENUE: $341.5 – 346.5M OPERATING LOSS: ($14.0) – ($18.0M) EPS: ($0.24) – ($0.32)

GROSS MARGIN AROUND 82%

CASH PROVIDED BY OPERATING ACTIVITIES: $35.0 - $45.0M; FREE CASH FLOW: $1.0 - $10.0M

NON-GAAP 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; Q1 FY18 EPS assumes 53.7M weighted average shares

outstanding; FY18 EPS assumes 55M weighted average shares outstanding; See Appendix for how we define free cash flow.

9

Best-in-Class Gross Margins


Source: Company earnings releases filed with the SEC covering the last nine months reported as of May 5, 2017. Peers identified based on Wall Street

Research comparable SaaS company groupings.

50%

60%

70%

80%

90%GAAP Gross Margin vs. SaaS Peers

Peer Average = 70%

NEWR

10

Consistent Historical Net Expansion Rates


90%

100%

110%

120%

130%

140%

150%

Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17

133%

Do

lla

r-B

as

ed

Ne

t E

xp

an

sio

n R

ate

s

See Appendix for an explanation of how we calculate dollar-based net expansion rate.

140%

11

Steady Growth Of Large Paid Business Accounts


204

240

273

319

367

398

427

478

517

150

250

350

450

550

Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17

Fiscal Quarter

Paid Business Accounts > $100k in Annual Subscription Revenue

See Appendix for an explanation of how we define $100K+/Year paid business accounts.

12

Steady Growth Of Enterprise Business


33%

34%

35%

37%

42%

43% 43%

44%

46%

30%

35%

40%

45%

50%

Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17

Fiscal Quarter

% of ARR from Enterprise Paid Business Accounts

See Appendix for an explanation of how we define annual recurring revenue (ARR). Enterprise paid business accounts are defined as paid

business accounts with over 1,000 employees.

13

Adding Customers At Higher Average Revenue


$8,000

$11,000

$14,000

$17,000

$20,000

8,000

10,000

12,000

14,000

16,000

Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17

Annualiz

ed

Subscrip

tion R

evenue / A

vera

ge P

aid

Busin

ess A

ccount

Paid

Busin

ess A

ccounts

~$19,500

~9,100

~15,200

~$9,000

See Appendix for an explanation of how we define paid business accounts.

76%66% 59%

20%22%

19%

18%16%

14%

19%

19%

18%

105%

133%123%

110%105%

0%

25%

50%

75%

100%

125%

150%

FY15 FY16 FY17 FY18E

S&M R&D G&A COGS

14

Increased Scale Delivering Operating Leverage


Expenses as a Percentage of Revenue (%)

Expenses and COGS are presented on a non-GAAP basis; see Appendix for reconciliation to the most directly comparable GAAP measures; FY18 Based on midpoint of guidance.

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.

Number of Paid Business Accounts

We 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.

>$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 Rate

Our 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 Flow

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

15

Appendix - Definitions


16

Appendix - Non-GAAP To GAAP Reconciliation


Reconciliation from GAAP to Non-GAAP Results

(In thousands, except per share data; unaudited)

2017 2016 2015

Reconciliation of cost of revenue:

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

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

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

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

Less: Employer payroll tax on employee equity incentive plans (114) (18) —

Non-GAAP cost of revenue $ 46,213 $ 34,444 $ 20,632

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

Non-GAAP adjustments (1%) (2%) (1%)

Non-GAAP cost of revenue as a percentage of revenue 18% 19% 19%

Reconciliation of operating expenses:

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

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


Non-GAAP research and development $ 50,631 $ 39,477 $ 21,969

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


Non-GAAP research and development as a percentage of revenue 19% 22% 20%

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


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


Non-GAAP sales and marketing $ 154,595 $ 119,866 $ 84,029

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


Non-GAAP sales and marketing as a percentage of revenue 59% 66% 76%

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


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

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

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


Non-GAAP general and administrative $ 37,460 $ 28,698 $ 19,939

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


Non-GAAP general and administrative as a percentage of revenue 14% 16% 18%

Year Ended March 31,



2017 2016 2015

Reconciliation of loss from operations and operating margin:

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

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

Plus: Lawsuit litigation 48 46 1,322

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

Plus: Transaction costs related to acquisition - 385 71

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

Plus: Employer payroll tax on employee equity incentive plans 2,013 1,080 —

Non-GAAP loss from operations $ (25,420) $ (41,176) $ (36,178)

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

Non-GAAP adjustments 13% 14% 12%

Non-GAAP operating margin (10%) (23%) (33%)

Year Ended March 31,

17

Appendix - Non-GAAP To GAAP Reconciliation




2017 2016

Reconciliation of gross profit and gross margin:

GAAP gross profit59,406$ 41,871$

Plus: Stock-based compensation 478 345

Plus: Amortization of purchased intangibles 396 200

Plus: Amortization of stock-based compensation capitalized in software development costs 230 156

Plus: Employer payroll tax on employee equity incentive plans 45 6

Non-GAAP gross profit $ 60,555 $ 42,578

GAAP gross margin 81% 80%

Non-GAAP adjustments 2% 1%

Non-GAAP gross margin 83% 81%

Reconciliation of operating expenses:

GAAP research and development $ 15,967 $ 15,009

Less: Stock-based compensation (2,522) (2,436)

Less: Employer payroll tax on employee equity incentive plans (172) (63)

Non-GAAP research and development $ 13,273 $ 12,510

GAAP sales and marketing $ 45,537 $ 36,476


Less: Amortization of purchased intangibles — (15)


Non-GAAP sales and marketing $ 41,979 $ 33,750

GAAP general and administrative $ 12,968 $ 9,679


Less: Lawsuit litigation — (3)

Less: Amortization of purchased intangibles — (44)

Less: Transaction costs related to acquisition — —


Non-GAAP general and administrative $ 11,056 $ 8,281

Reconciliation of loss from operations and operating margin:

GAAP loss from operations $ (15,066) $ (19,293)

Plus: Stock-based compensation 8,227 6,665

Plus: Lawsuit litigation - 3

Plus: Amortization of purchased intangibles 396 259

Plus: Transaction costs related to acquisition — —

Plus: Amortization of stock-based compensation capitalized in software development costs 230 156

Plus: Employer payroll tax on employee equity incentive plans 460 247

Non-GAAP loss from operations $ (5,753) $ (11,963)

GAAP operating margin (21%) (37%)

Non-GAAP adjustments 13% 14%

Non-GAAP operating margin (8%) (23%)

Three Months Ended March 31,

Documents

Q4 FY17 Financial Results · 2017-05-09 · *Operating loss and income, earnings per share, gross margin and free cash flow presented on a non-GAAP adjusted basis; Q1 FY18 EPS assumes