New Relic Announces First Quarter of Fiscal Year 2018 Results

Revenue increased 37% year-over-year to $80.1 million

Record cash provided by operating activities and record non-GAAP free cash flow

SAN FRANCISCO--()--Digital Intelligence leader New Relic, Inc. (NYSE:NEWR) today announced financial results for the first fiscal quarter ended June 30, 2017.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations”

“Our strong first quarter results reflect our continued ability to add innovative and important enterprise brands to our growing base of paid business accounts with more than $100,000 in annualized recurring revenue (ARR),” said Lew Cirne, CEO and founder of New Relic. “We are uniquely positioned to help enterprises ensure the success of their digital initiatives, with real-time insights into the performance of their infrastructure, applications and customer experience.”

First Quarter 2018 Financial Highlights:

  • Revenue of $80.1 million, growing 37% year-over-year, and up 9% sequentially from the fourth quarter of fiscal 2017.
  • GAAP loss from operations was $(16.4) million for the first quarter of fiscal 2018, compared to $(18.0) million for the first quarter of fiscal 2017. Non-GAAP loss from operations was $(5.4) million for the first quarter of fiscal 2018, compared to $(9.8) million for the first quarter of fiscal 2017.
  • GAAP net loss per share was $(0.30) for the first quarter of fiscal 2018 based on 53.7 million weighted-average shares outstanding, compared to $(0.36) for the first quarter of fiscal 2017 based on 50.2 million weighted-average shares outstanding. Non-GAAP net loss per share was $(0.09) for the first quarter of fiscal 2018, compared to $(0.20) for the first quarter of fiscal 2017.
  • Cash, cash equivalents and short-term investments were $227.3 million at the end of the first quarter of fiscal 2018, compared with $206.4 million at the end of the fourth quarter of fiscal 2017.

Customer Highlights:

  • Paid Business Accounts as of June 30, 2017 of over 15,400.
  • 49% of ARR from Enterprise Paid Business Accounts.
  • Dollar-Based Net Expansion Rate for the first quarter of fiscal 2018 of 113%.
  • New or expanded customers in the first quarter of fiscal 2018 included: ACT, Inc., Agora, Inc., Ancestry.com, Ascend Learning, Ascensus Inc., Cox Enterprises, Discovery Communications, Fiserv Inc., GeoPost UK Ltd., H&R Block, Ladbrokes Coral Group PLC, Medibank Private Limited, News Corp, Northwestern University, OLX Brasil, Quicken Inc., Ryanair Holdings, Scripps Networks, Testo SE& Co KGaA, TiVo Corporation, William Hill PLC and World Fuel Services.

First Quarter & Recent Business Highlights:

  • Announced intention to launch the first European availability zone in Germany during 2018.
  • Completed standing-room only FutureStack Global Tour events in London and Berlin, with the flagship FutureStack event to be held in New York, on September 13-14.
  • Introduced Health Map, capable of bringing together the power of New Relic APM and New Relic Infrastructure to deliver the first solution that clearly shows the relationship between application and infrastructure health data.
  • Extended the availability of Project Seymour, New Relic’s advanced AI technology, to additional customers.
  • Delivered new integrations across cloud services including AWS Elasticsearch Service, AWS Billing and Cost Management, and Amazon EC2 Container Registry, extending the capabilities of New Relic Infrastructure.

Outlook:

New Relic is initiating its outlook for its second quarter of fiscal 2018, as well as updating its outlook for the full fiscal year 2018. New Relic has not reconciled its expectations as to non-GAAP loss from operations or non-GAAP net loss per share 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 New Relic’s control and 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 New Relic’s results computed in accordance with GAAP.

  • Second Quarter Fiscal 2018 Outlook:
    • Revenue between $81.8 million and $83.3 million, representing year-over-year growth of between 29% and 31%, respectively.
    • Non-GAAP loss from operations of between $(5.0) million and $(6.0) million.
    • Non-GAAP net loss per share of between $(0.09) and $(0.11). This assumes 54.7 million weighted average common shares outstanding.
  • Updated Full Year Fiscal 2018 Outlook:
    • Revenue between $344.0 million and $348.0 million, representing year-over-year growth of between 31% and 32%, and an increase from prior guidance of between $341.5 million and $346.5 million that was issued on May 9, 2017.
    • Non-GAAP loss from operations of between $(14.0) million and $(17.0) million.
    • Non-GAAP net loss per share of between $(0.23) and $(0.28). This assumes 55.4 million weighted average common shares outstanding.

Conference Call Details:

  • What: New Relic financial results for the first quarter fiscal 2018 and outlook for the second quarter and the full year of fiscal 2018
  • When: August 3, 2017 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 (877) 201-0168, and for international callers, please dial (647) 788-4901. Callers may provide confirmation number 47077419 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 August 10, 2017, a telephone replay will be available by dialing (800) 585-8367 from the United States or (416) 621-4642 internationally with conference ID 47077419.

About New Relic

New Relic is a leading digital intelligence company, delivering full-stack visibility and analytics to more than 40% of the Fortune 100. The New Relic Digital Intelligence Platform provides actionable insights to drive digital business results. Companies of all sizes trust New Relic to monitor application and infrastructure performance so they can quickly resolve issues, and improve digital customer experiences. Learn more 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 second quarter of fiscal 2018 and for the full year of fiscal 2018, such as revenue, non-GAAP loss from operations and non-GAAP net loss per share, free cash flow, non-GAAP operating income, gross margins, deferred revenue, physical capital expenditures, and cash from operations, New Relic’s ability to achieve one-billion dollars in annualized revenue, expectations that New Relic’s enterprise business will reach over half of New Relic’s annualized recurring revenue in Fiscal 2018, market trends and opportunity, the opening of a European data center, including timing, location and benefits thereof, additional integrations for New Relic Infrastructure with respect to the leading cloud platforms, the value of the overall and enterprise sales pipeline as well as the conversion of larger upsell opportunities in the second half of the fiscal year, New Relic Infrastructure continuing to be one of the biggest investment areas, New Relic’s customer adoption, momentum, competitive advantages, and value proposition to its customers, timing and benefits from the potential release of a product or set of features based on Project Seymour, increased investment in distribution, the timing and expense in relation to a major system implementation, pace of hiring activity, and seasonality as a result of an increase in enterprise customers and with respect to dollar-based net expansion rate and deferred revenue in fiscal 2018. 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; fluctuation of New Relic’s quarterly results; 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; risks associated with recent changes to New Relic’s management structure; New Relic’s ability to persuade New Relic’s customers to expand their use of New Relic’s products to additional 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, which could result in additional cost and liability to New Relic or inhibit sales; changes in privacy laws, regulations and standards; 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; 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; 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 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 the Annual Report on Form 10-K for the fiscal year ended March 31, 2017. 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.

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 loss from operations, non-GAAP net loss, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating margin, non-GAAP sales and marketing, non-GAAP research and development, non-GAAP general and administrative, non-GAAP net loss per 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. 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, 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. Investors are encouraged to review the reconciliation of these historical non-GAAP financial measures to their most directly comparable GAAP financial measures.

New Relic defines non-GAAP gross profit, non-GAAP sales and marketing, non-GAAP research and development, non-GAAP general and administrative, non-GAAP operating loss and non-GAAP net loss as the respective GAAP balances, adjusted for: (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, and (6) employer payroll tax expense on equity incentive plans, as applicable. Non-GAAP net loss per share is calculated as non-GAAP net loss divided by weighted average shares used to compute net loss per share attributable to common stockholders. New Relic defines free cash flow as GAAP cash from operations, minus capital expenditures, minus capitalized software.

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.

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 June 30,
  2017     2016  
Revenue $ 80,098 $ 58,607
Cost of revenue   14,977     11,655  
Gross profit 65,121 46,952
Operating expenses:
Research and development 18,266 15,969
Sales and marketing 49,361 38,786
General and administrative   13,942     10,236  
Total operating expenses   81,569     64,991  
Loss from operations (16,448 ) (18,039 )
Other income (expense):
Interest income 457 221
Interest expense (22 ) (21 )
Other income (expense), net   314     (111 )
Loss before income taxes (15,699 ) (17,950 )
Income tax provision   235     121  
Net loss $ (15,934 ) $ (18,071 )
Net loss per share, basic and diluted $ (0.30 ) $ (0.36 )
Weighted-average shares used to compute net loss per share, basic and diluted   53,697     50,224  
 
 
Condensed Consolidated Balance Sheets
(In thousands, except par value; unaudited)
 
June 30, 2017 March 31, 2017
Assets
Current assets:
Cash and cash equivalents $ 105,298 $ 88,305
Short-term investments 122,000 118,101
Accounts receivable, net of allowance for doubtful accounts of $1,024 and $1,117, respectively 39,170 62,032
Prepaid expenses and other current assets   12,349     8,169  
Total current assets 278,817 276,607
Property and equipment, net 51,136 50,728
Restricted cash 8,024 8,115
Goodwill 11,828 11,828
Intangible assets, net 2,102 2,499
Other assets   2,870     2,492  
Total assets $ 354,777   $ 352,269  
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 5,235 $ 6,522
Accrued compensation and benefits 16,148 15,935
Other current liabilities 7,085 7,607
Deferred revenue   124,841     125,269  
Total current liabilities 153,309 155,333
Deferred rent, non-current 7,979 8,272
Deferred revenue, non-current 807 1,135
Other liabilities, non-current   699     685  
Total liabilities 162,794 165,425
Stockholders’ equity:
Common stock, $0.001 par value 55 53
Treasury stock - at cost (260 shares) (263 ) (263 )
Additional paid-in capital 468,402 447,314
Accumulated other comprehensive loss (113 ) (96 )
Accumulated deficit   (276,098 )   (260,164 )
Total stockholders’ equity   191,983     186,844  
Total liabilities and stockholders’ equity $ 354,777   $ 352,269  
 
   
Condensed Consolidated Statements of Cash Flows
(In thousands; unaudited)
 
Three Months Ended June 30,
  2017     2016  
Cash flows from operating activities:
Net loss: $ (15,934 ) $ (18,071 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 5,732 4,222
Stock-based compensation expense 9,623 7,338
Other 180 293
Changes in operating assets and liabilities:
Accounts receivable 22,862 3,695
Prepaid expenses and other assets (4,643 ) (3,567 )
Accounts payable 656 996
Accrued compensation and benefits and other liabilities 177 (324 )
Deferred revenue (757 ) 7,505
Deferred rent   (215 )   1,319  
Net cash provided by operating activities 17,681 3,406
Cash flows from investing activities:
Purchases of property and equipment (7,414 ) (1,527 )
Decrease in restricted cash 91
Purchases of short-term investments (28,959 ) (24,875 )
Proceeds from sale and maturity of short-term investments 24,954 35,774
Capitalized software development costs   (732 )   (712 )
Net cash provided by (used in) investing activities (12,060 ) 8,660
Cash flows from financing activities:
Proceeds from exercise of employee stock options   11,372     3,675  
Net cash provided by financing activities   11,372     3,675  
Net increase in cash and cash equivalents 16,993 15,741
Cash and cash equivalents, beginning of period   88,305     65,914  
Cash and cash equivalents, end of period $ 105,298   $ 81,655  
 
 
Reconciliation from GAAP to Non-GAAP Results
(In thousands, except per share data; unaudited)
 
Three Months Ended June 30,
  2017     2016  
Reconciliation of gross profit and gross margin:
GAAP gross profit $ 65,121 $ 46,952
Plus: Stock-based compensation 526 381
Plus: Amortization of purchased intangibles 397 200
Plus: Amortization of stock-based compensation capitalized in software development costs 236 165
Plus: Employer payroll tax on employee equity incentive plans   46     22  
Non-GAAP gross profit $ 66,326   $ 47,720  
GAAP gross margin 81 % 80 %
Non-GAAP adjustments   2 %   1 %
Non-GAAP gross margin   83 %   81 %
Reconciliation of operating expenses:
GAAP research and development $ 18,266 $ 15,969
Less: Stock-based compensation (2,836 ) (2,541 )
Less: Employer payroll tax on employee equity incentive plans   (262 )   (128 )
Non-GAAP research and development $ 15,168   $ 13,300  
GAAP sales and marketing $ 49,361 $ 38,786
Less: Stock-based compensation (4,306 ) (2,762 )
Less: Amortization of purchased intangibles - (11 )
Less: Employer payroll tax on employee equity incentive plans   (376 )   (129 )
Non-GAAP sales and marketing $ 44,679   $ 35,884  
GAAP general and administrative $ 13,942 $ 10,236
Less: Stock-based compensation (1,955 ) (1,654 )
Less: Lawsuit litigation - (2 )
Less: Amortization of purchased intangibles - (34 )
Less: Employer payroll tax on employee equity incentive plans   (73 )   (210 )
Non-GAAP general and administrative $ 11,914   $ 8,336  
Reconciliation of loss from operations and operating margin:
GAAP loss from operations $ (16,448 ) $ (18,039 )
Plus: Stock-based compensation 9,623 7,338
Plus: Lawsuit litigation - 2
Plus: Amortization of purchased intangibles 397 245
Plus: Amortization of stock-based compensation capitalized in software development costs 236 165
Plus: Employer payroll tax on employee equity incentive plans   757     489  
Non-GAAP loss from operations $ (5,435 ) $ (9,800 )
GAAP operating margin (21 %) (31 %)
Non-GAAP adjustments   14 %   14 %
Non-GAAP operating margin   (7 %)   (17 %)
Reconciliation of net loss:
GAAP net loss $ (15,934 ) $ (18,071 )
Plus: Stock-based compensation 9,623 7,338
Plus: Lawsuit litigation - 2
Plus: Amortization of purchased intangibles 397 245
Plus: Amortization of stock-based compensation capitalized in software development costs 236 165
Plus: Employer payroll tax on employee equity incentive plans   757     489  
Non-GAAP net loss $ (4,921 ) $ (9,832 )
Reconciliation of net loss per share, basic and diluted:
GAAP net loss per share, basic and diluted $ (0.30 ) $ (0.36 )
Non-GAAP adjustments to net loss   0.21     0.16  
Non-GAAP net loss per share, basic and diluted $ (0.09 ) $ (0.20 )
 
 
Reconciliation of GAAP Cash Flows from Operating Activities to Free Cash Flows
(In thousands; unaudited)      
 
Three Months Ended June 30,
  2017     2016  
Net cash provided by operating activities $ 17,681 $ 3,406
Capital expenditures (7,414 ) (1,527 )
Capitalized software development costs   (732 )   (712 )
Free cash flows (Non-GAAP) $ 9,535   $ 1,167  
Net cash provided by (used in) investing activities $ (12,060 ) $ 8,660
Net cash provided by financing activities $ 11,372 $ 3,675

Contacts

Investors:
New Relic, Inc.
Jonathan Parker, 503-336-9280
IR@newrelic.com
or
Media:
New Relic, Inc.
Andrew Schmitt, 415-869-7109
pr@newrelic.com

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