Q1 FY17 Financial Results August 2, 2016 1
Forward-Looking Statements and Non-GAAP Financial Measures 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 forwardlooking 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 second quarter of fiscal year 2017 and for the full fiscal 2017, including revenue, non-gaap operating income, non-gaap earnings per share, cash from operations, free cash flow, gross margin, capital expenditures and sales and marketing spending, and expenses as a percentage of revenue, and the release of our infrastructure monitoring product. 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 August 2, 2016 press release, as well as the risks described in our most recent Form 10-K 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 August 2, 2016 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 loss from operations or non- GAAP net loss per share 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
Strong Financial Performance Historical Revenue ($M) Q1 14 Q1 17 $253 $11.9M Revenue $58.6M $181 6,634 Paid Business Accounts 14,048 ~$7,600 Revenue per Average Paid Business Account ~$17,000 $63 $110 >50 $100K+ Per Year Paid Business Accounts >350 $30 2 # of Paid Products 5 FY13 FY14 FY15 FY16 FY17E 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 FY17 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. 3
Our History of Innovation and Growth 2016 Infrastructure Monitoring >14,000 Paid Business Accounts 2007 See Appendix for an explanation of how we calculate paid business accounts. 4
Creating a Global Movement - #Customerlove 5
First Quarter Fiscal 2017 Key Highlights REVENUE UP 54% YOY ~900 BPS (GAAP) / ~1,000 BPS (NON-GAAP) OPERATING MARGIN IMPROVEMENT VS. Q116 >500 NET NEW PAID BUSINESS ACCOUNTS FIRST $1M+ LAND DEAL POSITIVE CASH FROM OPERATIONS AND FREE CASH FLOW See Appendix for reconciliation of Non-GAAP metrics, including operating margin and free cash flow. 6
Second Quarter and Fiscal 2017 Outlook * Q2 FY17 Guidance REVENUE: $61.0-62.0M OPERATING LOSS: ($8.1) ($9.1M) EPS: ($0.16) ($0.18) NEGATIVE CASH FROM OPERATIONS, NEAR BREAK-EVEN FOR 1H FY17 FY17 Guidance REVENUE: $251.0 255.0M OPERATING LOSS: ($31.0) ($34.0M) EPS: ($0.60) ($0.66) GROSS MARGIN AROUND 80% CASH FROM OPERATIONS POSITIVE FOR FULL-YEAR; FREE CASH FLOW NEGATIVE FOR FULL-YEAR CAPEX SPEND OF $32-$34M, DRIVEN BY FACILITIES BUILD-OUTS, CLOUD INFRASTRUCTURE *Operating loss, earnings per share, gross margin and free cash flow presented on a non-gaap adjusted basis; Q2 FY17 EPS assumes 51.0M weighted average shares outstanding; FY17 EPS assumes 51.7M weighted average shares outstanding; See Appendix for how we define free cash flow, and for a reconciliation of these measures against the most directly comparable GAAP measure. 7
Dollar-Based Net Expansion Rates Consistent Historical Net Expansion Rates 150% 140% 130% 130% 120% 118% 110% 100% 90% Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 See Appendix for an explanation of how we calculate dollar-based net expansion rate. 8
Steady Growth Of Large Paid Business Accounts 400 Paid Business Accounts > $100k in Annual Subscription Revenue 300 200 100 0 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Fiscal Quarter See Appendix for an explanation of how we define $100K+/Year paid business accounts. 9
Paid Business Accounts Adding Customers At Higher Average Revenues 14,048 14,000 12,000 10,000 8,000 6,000 4,000 $17,008 6,634 $7,649 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 $17,500 $15,000 $12,500 $10,000 $7,500 $5,000 Annualized Subscription Revenue / Average Paid Business Account See Appendix for an explanation of how we define paid business accounts. 10
Increased Scale Delivering Operating Leverage Expenses as a Percentage of Revenue (%) 150% 125% 100% 75% 144% 17% 14% 24% 133% 19% 18% 20% 123% 19% 16% 22% 113% 50% 25% 90% 76% 66% 113% 0% FY14 FY15 FY16 FY17E S&M R&D G&A COGS Expenses and COGS are presented on a non-gaap basis; see Appendix for reconciliation to the most directly comparable GAAP measures; FY17 Based on midpoint of guidance. 11
Appendix - Definitions Monthly Recurring Revenue (MRR) 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. 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 MRR greater than $100,000 divided by twelve or $1,000,000 divided by twelve, respectively. 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. 12
Appendix - Non-GAAP To GAAP Reconciliation 13
Appendix - Non-GAAP To GAAP Reconciliation 14