New Relic Announces Third Quarter Fiscal Year 2019 Results

Third quarter revenue increased 35% year-over-year to $124.0 million

Quarterly GAAP operating loss of $(8.5) million; Non-GAAP operating
income of $7.8 million

New Relic advances AIOps strategy with acquisition of SignifAI

SAN FRANCISCO–(BUSINESS WIRE)–New Relic, Inc. (NYSE:NEWR), provider of real-time insights for
software-driven businesses, today announced financial results for the
third quarter of fiscal year 2019 ended December 31, 2018.

“Results for the third quarter exceeded our guidance ranges on both the
top and bottom lines,” said Lew Cirne, CEO and founder, New Relic. “As
enterprises continue to invest in strategic software projects to drive
top-line growth, they are increasingly turning to New Relic’s platform
for monitoring, managing and operating their digital business.”

Third Quarter Fiscal Year 2019 Financial Highlights*:

  • Revenue of $124.0 million, compared to $91.8 million for the third
    quarter of fiscal 2018.
  • GAAP loss from operations was $(8.5) million, compared to $(8.0)
    million for the third quarter of fiscal 2018.
  • Non-GAAP income from operations was $7.8 million, compared to $2.7
    million for the third quarter of fiscal 2018.
  • GAAP net loss attributable to New Relic per basic share was $(0.18),
    compared to a loss of $(0.14) per basic share for the third quarter of
    fiscal 2018.
  • Non-GAAP net income attributable to New Relic per diluted share was
    $0.19, compared to $0.05 per diluted share for the third quarter of
    fiscal 2018.
  • Cash, cash equivalents and short-term investments were $722.3 million
    at the end of the third quarter of fiscal 2019, compared with $731.1
    million at the end of the second quarter of fiscal 2019.

*New Relic adopted Accounting Standards Codification (ASC) 606 “Revenue
from Contracts with Customers” (ASC 606) using the modified
retrospective method on April 1, 2018. Unless otherwise stated, the
financial metrics for reporting periods during fiscal year 2019 provided
in this release are presented in compliance with ASC 606, which replaced
ASC 605, “Revenue Recognition” (ASC 605). The financial metrics for
reporting periods prior to fiscal year 2019 are presented as previously
disclosed in conformity with ASC 605. A reconciliation between our
performance with respect to certain financial metrics under ASC 606 to
ASC 605 has been included in the appendix to this release.

Third Quarter & Recent Business Highlights:

  • $100K+ Paid Business Accounts as of December 31, 2018 of 816, compared
    to 629 as of December 31, 2017.
  • 56% of ARR from Enterprise Paid Business Accounts as of December 31,
    2018, compared to 52% as of December 31, 2017.
  • Dollar-Based Net Expansion Rate for the third quarter of fiscal 2019
    of 122%, compared to 125% as of the third quarter of fiscal 2018.
  • Opened first European
    Region
    to expand New Relic’s ability to deliver products to
    customers in Germany and across the broader European Union.
  • Opened first office
    in Paris
    to serve the growing number of customers throughout
    France.
  • Introduced the Kubernetes
    cluster explorer
    , a new way for DevOps teams to understand the
    health and performance of their complex Kubernetes environments.
  • Advanced AIOps strategy with acquisition of SignifAI. Read more here.

Outlook:

New Relic has not reconciled its expectations as to non-GAAP income from
operations or non-GAAP net income per diluted share to their most
directly comparable GAAP measure as a result of uncertainty regarding,
and the potential variability of, reconciling items such as stock-based
compensation, lawsuit litigation expenses and employer payroll taxes on
equity incentive plans. Accordingly, reconciliation is not available
without unreasonable effort, although it is important to note that these
factors could be material to New Relic’s results computed in accordance
with GAAP.

  • Fourth Quarter Fiscal 2019 Outlook:

    • Revenue between $126.5 million and $128.5 million, representing
      year-over-year growth of between 28% and 31%, respectively.
    • Non-GAAP income from operations of between $0.5 million and $1.5
      million.
    • Non-GAAP net income attributable to New Relic per diluted share
      between $0.04 and $0.06.
  • Full Year Fiscal 2019 Outlook:

    • Revenue between $473.6 million and $475.6 million, representing
      year-over-year growth of between 33% and 34%, and an increase from
      prior guidance of between $466.5 million and $469.5 million that
      was issued on November 6, 2018.
    • Non-GAAP income from operations of between $26.7 million and $27.7
      million, an improvement from prior guidance of between $22.0
      million and $24.0 million that was issued on November 6, 2018.
    • Non-GAAP net income attributable to New Relic per diluted share
      between $0.58 and $0.60, an improvement from prior guidance of
      between $0.42 and $0.48 that was issued on November 6, 2018.

Conference Call Details:

  • What: New Relic financial results for the third quarter of
    fiscal year 2019 and outlook for the fourth quarter and the full year
    of fiscal 2019
  • When: February 6, 2019 at 2:00 P.M. Pacific Time (5:00 P.M.
    Eastern Time)
  • Dial in: To access the call in the U.S., please dial (866)
    393-4306, and for international callers, please dial (734) 385-2616.
    Callers may provide confirmation number 1686496 to access the call
    more quickly, and are encouraged to dial into the call 10 to 15
    minutes prior to the start to prevent any delay in joining.
  • Webcast: http://ir.newrelic.com
    (live and replay)
  • Replay: Following the completion of the call through 11:59 PM
    Eastern Time on February 13, 2019, a telephone replay will be
    available by dialing (855) 859-2056 from the United States or (404)
    537-3406 internationally with conference ID 1686496.

About New Relic

New Relic provides the real-time insights that software-driven
businesses need to innovate faster. New Relic’s cloud platform makes
every aspect of modern software and infrastructure observable, so
companies can find and fix problems faster, build high-performing DevOps
teams, and speed up transformation projects. Learn why more than 50% of
the Fortune 100 trust New Relic at newrelic.com.

Forward-Looking Statements

This press release and the earnings call referencing this press release
contain “forward-looking” statements, as that term is defined under the
federal securities laws, including but not limited to statements
regarding New Relic’s future financial performance, including its
outlook on financial results for the fourth quarter and for the full
year of fiscal 2019, such as revenue, non-GAAP income from operations,
non-GAAP net income attributable to New Relic per diluted share, cash
from operations, free cash flow, gross margins, operating margins,
deferred revenue, capital expenditures, capitalized software,
anticipated headcount, including hiring plans for the fourth quarter of
fiscal 2019, fiscal 2019 capital expenditures, and market trends and
opportunity, including the market opportunities within cloud computing,
digital transformation and DevOps, the anticipated opportunities within
mid-market and enterprise accounts, the ability to become the dominant
platform for monitoring, managing, and operating digital systems, the
increasing use of software to improve business outcomes, the potential
expansion of our platform and benefits to customers of the SignifAi
product, any opportunities resulting from the purchase and integration
of SignifAi by and into New Relic including the expected alignment of
the SignifAI technology with New Relic’s alert offerings, the growth of
the platform or any individual product, New Relic’s ability to drive
customer value, New Relic’s customer adoption, including any
fluctuations to the paid business accounts metric, the pace of hiring
activity and seasonality. These forward-looking statements are based on
New Relic’s current assumptions, expectations and beliefs and are
subject to substantial risks, uncertainties, assumptions and changes in
circumstances that may cause New Relic’s actual results, performance or
achievements to differ materially from those expressed or implied in any
forward-looking statement.

The risks and uncertainties referred to above include, but are not
limited to, New Relic’s ability to generate sufficient revenue to
achieve and sustain profitability, particularly in light of its
significant ongoing expenses; New Relic’s short operating history in an
evolving industry; New Relic’s ability to manage its significant recent
growth; the development of the overall market for SaaS business
software; the dependence of New Relic’s business on its customers
purchasing additional subscriptions and products from it and renewing
their subscriptions; New Relic’s ability to develop enhancements to its
products, increase adoption and usage of its products and introduce new
products that achieve market acceptance; the dependence on customers
expanding their use of New Relic’s products beyond the current
predominant use cases; New Relic’s ability to determine optimal prices
for its products; New Relic’s ability to expand its marketing and sales
capabilities and increase sales of its solutions to large enterprises
while mitigating the risks associated with serving such customers;
privacy concerns, including changes in privacy laws and regulations,
which could result in additional cost and liability to New Relic or
inhibit sales; New Relic’s ability to effectively compete in the
intensely competitive market for application performance monitoring
solutions and respond effectively to rapidly changing technology,
evolving industry standards and changing customer needs, requirements or
preferences; fluctuation of New Relic’s quarterly results, New Relic’s
dependence on lead generation strategies to drive sales and revenue;
interruptions or performance problems associated with New Relic’s
technology and infrastructure; defects or disruptions in New Relic’s
products; the expense and complexity of New Relic’s ongoing and planned
investments in data center hosting facilities; risks associated with
international operations; New Relic’s ability to protect its
intellectual property rights; risks related to the acquisition and
integration of businesses or technologies; certain risks associated with
incurring indebtedness, including risks related to servicing New Relic’s
convertible senior notes and related capped call transactions; and other
“Risk Factors” set forth in New Relic’s most recent filings with the
Securities and Exchange Commission (the “SEC”).

Further information on these and other factors that could affect New
Relic’s financial results and the forward-looking statements in this
press release and in the earnings call referencing this press release is
included in the filings New Relic makes with the SEC from time to time,
particularly under the captions “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations,” including our Annual Report on Form 10-K and subsequent
Quarterly Reports on Form 10-Q and subsequent filings. Copies of these
documents may be obtained by visiting New Relic’s Investor Relations
website at http://ir.newrelic.com
or the SEC’s website at www.sec.gov.

All information provided in this press release and in the earnings call
is as of the date hereof and New Relic assumes no obligation and does
not intend to update these forward-looking statements, except as
required by law.

Non-GAAP Financial Measures

New Relic discloses the following non-GAAP financial measures in this
release and the earnings call referencing this press release: non-GAAP
income (loss) from operations, non-GAAP gross profit, non-GAAP gross
margin, non-GAAP operating expenses (sales and marketing, research and
development, general and administrative), non-GAAP operating margin,
non-GAAP net income (loss) attributable to New Relic, non-GAAP net
income (loss) attributable to New Relic per diluted share, non-GAAP net
income (loss) attributable to New Relic per basic share, and free cash
flow. New Relic uses each of these non-GAAP financial measures
internally to understand and compare operating results across accounting
periods, for internal budgeting and forecasting purposes, for short- and
long-term operating plans, and to evaluate New Relic’s financial
performance. In addition, New Relic’s bonus plan for eligible employees
and executives is based in part on non-GAAP income (loss) from
operations. New Relic believes they are useful to investors, as a
supplement to GAAP measures, in evaluating its operational performance,
as further discussed below. New Relic’s non-GAAP financial measures may
not provide information that is directly comparable to that provided by
other companies in its industry, as other companies in its industry may
calculate non-GAAP financial results differently, particularly related
to non-recurring and unusual items. In addition, there are limitations
in using non-GAAP financial measures because the non-GAAP financial
measures are not prepared in accordance with GAAP and may be different
from non-GAAP financial measures used by other companies and exclude
expenses that may have a material impact on New Relic’s reported
financial results.

Non-GAAP financial measures should not be considered in isolation from,
or as a substitute for, financial information prepared in accordance
with GAAP. A reconciliation of the historical non-GAAP financial
measures to their most directly comparable GAAP measures has been
provided in the financial statement tables included below in this press
release.

New Relic defines non-GAAP gross profit, non-GAAP operating expenses
(sales and marketing, research and development, general and
administrative), non-GAAP gross margin, non-GAAP operating margin,
non-GAAP income (loss) from operations and non-GAAP net income (loss)
attributable to New Relic as the respective GAAP balances, adjusted for,
as applicable: (1) stock-based compensation expense, (2) amortization of
stock-based compensation capitalized in software development costs, (3)
the amortization of purchased intangibles, (4) the transaction costs
related to acquisition, (5) lawsuit litigation expense, (6) employer
payroll tax expense on equity incentive plans, and (7) amortization of
debt discount and issuance costs. Non-GAAP net income (loss) per basic
and diluted share is calculated as non-GAAP net income (loss)
attributable to New Relic divided by weighted average shares used to
compute net income (loss) per share attributable to common stockholders,
with the number of weighted average shares decreased to reflect the
anti-dilutive impact of the capped call transactions entered into in
connection with the 0.50% Convertible Senior Notes due 2023 issued in
May 2018. New Relic defines free cash flow as GAAP cash from operations,
minus capital expenditures and minus capitalized software. Investors are
encouraged to review the reconciliation of these historical non-GAAP
financial measures to their most directly comparable GAAP financial
measures.

Management believes these non-GAAP financial measures are useful to
investors and others in assessing New Relic’s operating performance due
to the following factors:

Stock-based compensation and amortization of stock-based compensation
capitalized in software development costs.
New Relic utilizes
share-based compensation to attract and retain employees. It is
principally aimed at aligning their interests with those of its
stockholders and at long-term retention, rather than to address
operational performance for any particular period. As a result,
share-based compensation expenses vary for reasons that are generally
unrelated to financial and operational performance in any particular
period.

Amortization of purchased intangibles and transaction costs related
to acquisition.
New Relic views amortization of purchased intangible
assets as items arising from pre-acquisition activities determined at
the time of an acquisition. While these intangible assets are evaluated
for impairment regularly, amortization of the cost of purchased
intangibles is an expense that is not typically affected by operations
during any particular period. Similarly, New Relic views acquisition
related expenses as events that are not necessarily reflective of
operational performance during a period.

Lawsuit litigation expense. New Relic may from time to time incur
charges or benefits that are outside of the ordinary course of New
Relic’s business related to litigation. New Relic believes it is useful
to exclude such charges or benefits because it does not consider such
amounts to be part of the ongoing operation of New Relic’s business and
because of the singular nature of the claims underlying the matter.

Employer payroll tax expense on equity incentive plans. New Relic
excludes employer payroll tax expense on equity incentive plans as these
expenses are tied to the exercise or vesting of underlying equity awards
and the price of New Relic’s common stock at the time of vesting or
exercise. As a result, these taxes may vary in any particular period
independent of the financial and operating performance of New Relic’s
business.

Amortization of debt discount and issuance costs. In May 2018,
New Relic issued approximately $500 million of convertible senior notes
due in 2023, which bear interest at an annual fixed rate of 0.50%. The
effective interest rate of the convertible senior notes was
approximately 5.74%. This is a result of the debt discount recorded for
the conversion feature that is required to be separately accounted for
as equity, and debt issuance costs, which reduce the carrying value of
the convertible debt instrument. The debt discount is amortized as
interest expense together with the issuance costs of the debt. The
expense for the amortization of debt discount and debt issuance costs is
a non-cash item, and we believe the exclusion of this interest expense
will provide for a more useful comparison of our operational performance
in different periods.

Anti-dilutive impact of capped call transactions. In connection
with the issuance of its convertible senior notes due in 2023, New Relic
entered into capped call transactions to offset potential dilution from
the embedded conversion feature in the notes. Although New Relic cannot
reflect the anti-dilutive impact of the capped call transactions under
GAAP, New Relic does reflect the anti-dilutive impact of the capped call
transactions in non-GAAP net income (loss) per basic and diluted share
to provide investors with useful information in evaluating the financial
performance of the company on a per share basis.

Additionally, New Relic’s management believes that the non-GAAP
financial measure free cash flow is meaningful to investors because
management reviews cash flows generated from operations after taking
into consideration capital expenditures and the capitalization of
software development costs due to the fact that these expenditures are
considered to be a necessary component of ongoing operations.

Operating Metrics

New Relic’s dollar-based net expansion rate compares its recurring
subscription revenue from customers from one period to the next. It is
increased when customers increase their use of New Relic’s products, use
additional products, or upgrade to a higher subscription tier. New
Relic’s dollar-based net expansion rate is reduced when customers
decrease their use of New Relic’s products, use fewer products, or
downgrade to a lower subscription tier.

New Relic’s monthly recurring revenue represents the revenue that New
Relic 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.

New Relic defines 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 New Relic has
recognized revenue on the last day of the period indicated. New Relic
defines an enterprise paid business account as a paid business account
that New Relic measures to have over 1,000 employees.

New Relic is a registered trademark of New Relic, Inc.

All product and company names herein may be trademarks of their
registered owners.

 
Condensed Consolidated Statements of Operations

(In thousands, except per share data; unaudited)

      Three Months Ended December 31,   Nine Months Ended December 31,
2018   2017 2018   2017
Revenue $ 124,011 $ 91,827 $ 347,128 $ 256,610
Cost of revenue   20,206     15,671     55,703     46,342  
Gross profit 103,805 $ 76,156 291,425 $ 210,268
Operating expenses:
Research and development 26,182 18,154 72,747 54,686
Sales and marketing 66,461 51,393 185,091 152,015
General and administrative   19,702     14,596     51,293     42,843  
Total operating expenses   112,345     84,143     309,131     249,544  
Loss from operations (8,540 ) (7,987 ) (17,706 ) (39,276 )
Other income (expense):
Interest income 3,922 534 9,026 1,503
Interest expense (5,669 ) (21 ) (13,932 ) (64 )
Other income (expense), net   (8 )   (45 )   (1,285 )   117  
Loss before income taxes (10,295 ) (7,519 ) (23,897 ) (37,720 )
Income tax provision (benefit)   (106 )   210     440     634  
Net loss $ (10,189 ) $ (7,729 ) $ (24,337 ) $ (38,354 )
Net loss adjustment attributable to redeemable non-controlling
interest
 

86

       

283

     
Net loss attributable to New Relic $

(10,103

) $ (7,729 ) $

(24,054

) $ (38,354 )
Net loss per share, basic and diluted $ (0.18 ) $ (0.14 ) $ (0.42 ) $ (0.70 )
Weighted-average shares used to compute net loss per share, basic
and diluted
  57,096     55,196     56,663     54,534  
 
 
Condensed Consolidated Balance Sheets

(In thousands, except par value; unaudited)

      December 31, 2018   March 31, 2018
Assets
Current assets:
Cash and cash equivalents $ 185,462 $ 132,479
Short-term investments 536,849 115,441
Accounts receivable, net of allowance for doubtful accounts of
$1,748 and $1,728, respectively
102,433 99,488
Prepaid expenses and other current assets 16,739 15,591
Deferred contract acquisition costs   25,275      
Total current assets 866,758 362,999
Property and equipment, net 71,076 53,899
Restricted cash 8,254 8,202
Goodwill 15,334 11,828
Intangible assets, net 3,394 1,312
Deferred contract acquisition costs, non-current 24,487
Other assets   4,536     5,086  
Total assets $ 993,839   $ 443,326  
Liabilities, redeemable non-controlling interest, and
stockholders’ equity
   
Current liabilities:
Accounts payable $ 11,237 $ 2,985
Accrued compensation and benefits 23,222 17,414
Other current liabilities 11,054 8,619
Deferred revenue   200,231     189,633  
Total current liabilities 245,744 218,651
Convertible senior notes, net 400,845
Deferred rent, non-current 10,620 8,147
Deferred revenue, non-current 6,638 649
Other liabilities, non-current   899     775  
Total liabilities 664,746 228,222
Redeemable non-controlling interest 3,313
Stockholders’ equity:
Common stock, $0.001 par value 57 56
Treasury stock – at cost (260 shares) (263 ) (263 )
Additional paid-in capital 614,674 521,119
Accumulated other comprehensive loss 39 (324 )
Accumulated deficit   (288,727 )   (305,484 )
Total stockholders’ equity   325,780     215,104  
Total liabilities, non-controlling interest, and stockholders’ equity $ 993,839   $ 443,326  
 
 
Condensed Consolidated Statements of Cash Flows

(In thousands; unaudited)

      Nine Months Ended December 31,
2018   2017
Cash flows from operating activities:
Net loss attributable to New Relic $ (24,054 ) $ (38,354 )
Net loss attributable to redeemable non-controlling interest $ (283 ) $
Net loss: $ (24,337 ) $ (38,354 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 38,585 17,306
Stock-based compensation expense 39,624 29,778
Amortization of debt discount and issuance costs 12,313
Other

(800

) 498
Changes in operating assets and liabilities:
Accounts receivable (3,411 ) 9,223
Prepaid expenses and other assets 3,262 (4,438 )
Deferred contract acquisition costs (27,689 )
Accounts payable 3,850 (829 )
Accrued compensation and benefits and other liabilities 7,771 2,475
Deferred revenue 16,827 8,938
Deferred rent   899     (504 )
Net cash provided by operating activities

66,894

24,093
Cash flows from investing activities:
Purchases of property and equipment (29,715 ) (17,577 )
Cash paid for acquisition (5,556 )
Purchases of short-term investments (581,504 ) (78,074 )
Proceeds from sale and maturity of short-term investments 161,237 88,232
Capitalized software development costs   (3,810 )   (3,054 )
Net cash used in investing activities (459,348 ) (10,473 )
Cash flows from financing activities:
Investment from redeemable non-controlling interest 3,596
Proceeds from issuance of convertible senior notes, net of issuance
costs paid of $11,582
488,669
Purchase of capped call related to convertible senior notes (63,182 )
Proceeds from employee stock purchase plan 4,887 3,029
Proceeds from exercise of employee stock options   11,519     20,370  
Net cash provided by financing activities   445,489     23,399  
Net increase in cash, cash equivalents and restricted cash 53,035 37,019
Cash, cash equivalents and restricted cash at beginning of period   140,681     96,420  
Cash, cash equivalents and restricted cash at end of period $ 193,716   $ 133,439  
 

Contacts

Investor Contact
Tony Righetti
New Relic, Inc.
503-336-9280
IR@newrelic.com

Media Contact
Andrew Schmitt
New Relic, Inc.
415-869-7109
pr@newrelic.com

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