Q3 FY 18 Financial Results

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Transcription:

Q3 FY 18 Financial Results February 6, 2018.

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 market trends and opportunity, our future financial performance, such as our outlook on financial results for the fourth quarter of fiscal year 2018 and for full fiscal years 2018 and 2019, including revenue, non-gaap operating income, non-gaap earnings per share, deferred revenue, operating cash flow, free cash flow, gross margin, operating margin, and expenses as a percentage of revenue, and our long-term target operating model. 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 February 6, 2018 press release, as well as the risks described in our filings with the Securities and Exchange Commission ( 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 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 February 6, 2018 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, operating margin, non-gaap expenses as a percentage of revenue, or free cash flow in future periods to their most directly comparable GAAP measure as a result of uncertainty regarding, and the potential variability of, reconciling items such as stockbased 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 our results computed in accordance with GAAP. 2

Provider of Real-time Insights for Software-driven Businesses NYSE: NEWR IPO: December 12, 2014 Revenue $M % ARR from Enterprise Paid Business Accounts $92 60% Expanding Product Portfolio: 6 paid products $73 $80 $85 50% 40% 3-year Revenue CAGR: 47% Differentiated, multi-tenant native cloud platform Recurring revenue business with industry leading gross margin and net revenue retention $48 $52 $59 $63 $68 30% 20% 10% Growing, multibillion dollar market opportunity 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 0% CAGR period calculated from 3Q15 to 3Q18. See appendix for how we define enterprise paid business accounts. 3

Third Quarter Fiscal 2018 Supplemental Data 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 Annualized Dollar- Based Net Expansion Rate % ARR from Enterprise Paid Business Accounts Paid Business Accounts >$100K 129% 140% 118% 116% 125% 133% 113% 123% 125% 37% 42%* 43% 43% 44% 46% 49%* 51% 52% 319 367 398 427 478 517 555 586 629 Paid Business Accounts Annualized Revenue / Avg. Paid Business Account >13,100 >13,500 >14,000 >14,500 >14,900 >15,200 >15,400 ~15,900 >16,600 >$14,500 >$15,500 >$17,000 >$17,500 >$18,000 >$19,000 >$20,500 >$21,500 >$22,500 * 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. 4

Third Quarter Fiscal 2018 Key Business Highlights Revenue of $91.8M, up 35% YoY Gross margins of 83% GAAP / 84% non-gaap Operating margins of (9%) GAAP / 3% non-gaap Annualized dollar-based net expansion rate of 125% $100K+ ARR paid business accounts crosses 600 Announced new product capabilities, customer enablement, and best practice guidance for organizations leveraging Amazon Web Services through their cloud journey See appendix for reconciliation of non-gaap gross margin and non-gaap operating margin. 5

Best-in-Class Gross Margin 90% GAAP Gross Margin vs. SaaS Peers 80% 70% Peer Average = 68% 60% 50% 40% NEWR Source: Company earnings releases filed with the SEC covering the most recent quarter reported as of February 5, 2018. Peers identified based on Wall Street Research comparable SaaS company groupings. 6

Steady Growth of Large Paid Business Accounts Paid Business Accounts >$100K 398 367 319 427 478 517 555 586 629 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 See appendix for an explanation of how we define paid business accounts >$100K. 7

Steady Growth of Enterprise Business % ARR from Enterprise Paid Business Accounts 37% 42% 43% 43% 44% 46% 49% 51% 52% 3Q16 4Q16* 1Q17 2Q17 3Q17 4Q17 1Q18* 2Q18 3Q18 * 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. 8

Fourth Quarter and Fiscal 2018 Outlook* Q4 FY18 Guidance Revenue: $95.0M $96.5M Operating income: $2.0M $3.0M EPS: $0.04 $0.05 Deferred revenue to increase mid-twenties percentage-wise from Q3 FY18 Guidance Revenue: $351.6M $353.1M Operating Loss: $(3.3M) $(4.3M) EPS: $(0.04) $(0.06) Gross Margin ~83% Cash provided by operating activities: $35.0M $40.0M; Free cash flow: $5.0M $10.0M FY19 Guidance Operating Margin in the low to mid-single digits on post-asc 606 basis * Operating loss and income, earnings per share, gross margin, operating margin and free cash flow presented on a non-gaap adjusted basis; Q4 FY18 EPS assumes 58.6M weighted average diluted shares outstanding; FY18 EPS assumes 55.3M weighted average common shares outstanding; See appendix for how we define free cash flow. 9

Long-Term Target Operating Model* (% of Revenue) FY15 FY16 FY17 3Q18 FY22 Target Gross Margin 81% 81% 82% 84% 78 82% Sales & Marketing 76% 66% 59% 52% 40 42% Driver Continued investments in delivery, support and services Increased mix of productive reps, renewals, installed base Long-Term Target 78 82% 35 38% Research & Development General & Administrative 20% 22% 19% 16% 17 19% Maturation of product portfolio 15 18% 18% 16% 14% 13% 10 12% Economies of scale 7 9% Operating Margin (33%) (23%) (10%) 3% 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. 10

Thank you February 6, 2018.

Appendix Definitions 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 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. 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 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 and capitalized software development costs. 12

Appendix Non-GAAP to GAAP Reconciliation Reconciliation from GAAP to Non-GAAP Results (In thousands, except per share data; unaudited) Reconciliation (In thousands; unaudited) of GAAP Cash Flows from Operating Activities to Free Cash Flows (In thousands; unaudited) Three Months Ended December 31, 2017 2016 Reconciliation of gross profit and gross margin: GAAP gross profit $ 76,156 $ 55,469 Plus: Stock-based compensation 587 475 Plus: Amortization of purchased intangibles 196 266 Plus: Amortization of stock-based compensation capitalized in software development costs 228 190 Plus: Employer payroll tax on employee equity incentive plans 30 17 Non-GAAP gross profit $ 77,197 $ 56,417 GAAP gross margin 83 % 81 % Non-GAAP adjustments 1 % 2 % Non-GAAP gross margin 84 % 83 % Reconciliation of operating expenses: GAAP research and development $ 18,154 $ 14,377 Less: Stock-based compensation (2,959) (2,390) Less: Employer payroll tax on employee equity incentive plans (124) (60) Non-GAAP research and development $ 15,071 $ 11,927 GAAP sales and marketing $ 51,393 $ 43,458 Less: Stock-based compensation (3,933) (3,479) Less: Amortization of purchased intangibles Less: Employer payroll tax on employee equity incentive plans (96) (58) Non-GAAP sales and marketing $ 47,364 $ 39,921 GAAP general and administrative $ 14,596 $ 11,578 Less: Stock-based compensation (2,454) (1,774) Less: Lawsuit litigation (44) Less: Amortization of purchased intangibles Less: Employer payroll tax on employee equity incentive plans (59) (268) Non-GAAP general and administrative $ 12,083 $ 9,492 Reconciliation of income (loss) from operations and operating margin: GAAP loss from operations $ (7,987) $ (13,944) Plus: Stock-based compensation 9,933 8,118 Plus: Lawsuit litigation 44 Plus: Amortization of purchased intangibles 196 266 Plus: Amortization of stock-based compensation capitalized in software development costs 228 190 Plus: Employer payroll tax on employee equity incentive plans 309 403 Non-GAAP income (loss) from operations $ 2,679 $ (4,923) GAAP operating margin (9)% (20)% Non-GAAP adjustments 12 % 13 % Non-GAAP operating margin 3 % (7)% Reconciliation of net income (loss): GAAP net loss $ (7,729) $ (13,883) Plus: Stock-based compensation 9,933 8,118 Plus: Lawsuit litigation 44 Plus: Amortization of purchased intangibles 196 266 Plus: Amortization of stock-based compensation capitalized in software development costs 228 190 Plus: Employer payroll tax on employee equity incentive plans 309 403 Non-GAAP net income (loss) $ 2,937 $ (4,862) Non-GAAP net income (loss) per share: Basic $ 0.05 $ (0.09) Diluted $ 0.05 $ (0.09) Shares used in non-gaap per share calculations: Basic 55,196 52,328 Diluted 57,943 52,328 Three Months Ended December 31, 2017 2016 Net cash provided by operating activities $ 7,492 $ 5,500 Capital expenditures (3,183) (8,111) Capitalized software development costs (1,568) (1,342) Free cash flows (Non-GAAP) $ 2,741 $ (3,953) Net cash provided by (used in) investing activities $ 3,923 $ (21,636) Net cash provided by financing activities $ 3,106 $ 2,361 13

Appendix Non-GAAP to GAAP Reconciliation Reconciliation from GAAP to Non-GAAP Results (In thousands, except per share data; unaudited) Reconciliation of cost of revenue: Year Ended March 31, Three Months Ended 2017 2016 2015 December 31, 2017 GAAP cost of revenue $ 49,990 $ 37,183 $ 21,802 $ 15,671 Less: Stock-based compensation (1,847) (1,238) (591) (587) Less: Amortization of purchased intangibles (1,062) (939) (400) (196) Less: Amortization of stock-based compensation capitalized in software development costs (754) (544) (179) (228) Less: Employer payroll tax on employee equity incentive plans (114) (18) (30) Non-GAAP cost of revenue $ 46,213 $ 34,444 $ 20,632 $ 14,630 GAAP cost of revenue as a percentage of revenue 19% 21% 20% 17% Non-GAAP adjustments (1%) (2%) (1%) (1%) Non-GAAP cost of revenue as a percentage of revenue 18% 19% 19% 16% Reconciliation of gross profit and gross margin: GAAP gross profit $ 213,489 $ 144,126 $ 88,589 $ 76,156 Non-GAAP adjustments 3,777 2,739 1,170 1,041 Non-GAAP gross profit $ 217,266 $ 146,865 $ 89,759 $ 77,197 GAAP gross margin 81% 79% 80% 83% Non-GAAP adjustments 1% 2% 1% 1% Non-GAAP gross margin 82% 81% 81% 84% Reconciliation of operating expenses: GAAP research and development $ 61,054 $ 46,394 $ 24,024 $ 18,154 Less: Stock-based compensation (9,975) (6,659) (2,055) (2,959) Less: Employer payroll tax on employee equity incentive plans (448) (258) (124) Non-GAAP research and development $ 50,631 $ 39,477 $ 21,969 $ 15,071 GAAP research and development as a percentage of revenue 23% 26% 22% 20% Non-GAAP adjustments (4%) (4%) (2%) (4%) Non-GAAP research and development as a percentage of revenue 19% 22% 20% 16% GAAP sales and marketing $ 168,163 $ 129,677 $ 89,162 $ 51,393 Less: Stock-based compensation (13,042) (9,258) (5,108) (3,933) Less: Amortization of purchased intangibles (25) (50) (25) Less: Employer payroll tax on employee equity incentive plans (501) (503) (96) Non-GAAP sales and marketing $ 154,595 $ 119,866 $ 84,029 $ 47,364 GAAP sales and marketing as a percentage of revenue 64% 72% 81% 56% Non-GAAP adjustments (5%) (6%) (5%) (4%) Non-GAAP sales and marketing as a percentage of revenue 59% 66% 76% 52% GAAP general and administrative $ 45,615 $ 35,693 $ 25,319 $ 14,596 Less: Stock-based compensation (7,082) (6,113) (3,912) (2,454) 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) (59) Non-GAAP general and administrative $ 37,460 $ 28,698 $ 19,939 $ 12,083 GAAP general and administrative as a percentage of revenue 17% 20% 23% 16% Non-GAAP adjustments (3%) (4%) (5%) (3%) Non-GAAP general and administrative as a percentage of revenue 14% 16% 18% 13% Reconciliation of loss from operations and operating margin: GAAP loss from operations $ (61,343) $ (67,638) $ (49,916) $ (7,987) Plus: Stock-based compensation 31,946 23,268 11,666 9,933 Plus: Lawsuit litigation 48 46 1,322 Plus: Amortization of purchased intangibles 1,162 1,139 500 196 Plus: Transaction costs related to acquisition - 385 71 Plus: Amortization of stock-based compensation capitalized in software development costs 754 544 179 228 Plus: Employer payroll tax on employee equity incentive plans 2,013 1,080 309 Non-GAAP loss from operations $ (25,420) $ (41,176) $ (36,178) $ 2,679 GAAP operating margin (23%) (37%) (45%) (9%) Non-GAAP adjustments 13% 14% 12% 12% Non-GAAP operating margin (10%) (23%) (33%) 3% 14