New Relic, Inc. (NYSE: NEWR), provider of real-time insights for software-driven businesses, today announced financial results for the second quarter of fiscal year 2019 ended September 30, 2018.
“Results for the second quarter exceeded our expectations and marked a successful first half of FY19,” said Lew Cirne, CEO and founder, New Relic. “Enterprise DevOps teams are under pressure to move faster and deliver high-performing software, at scale. That’s why they’re increasingly adopting New Relic as the single platform to manage the performance of their critical digital initiatives – from the customer experience, through applications to the underlying infrastructure.”
Second Quarter Fiscal Year 2019 Financial Highlights*:
- Revenue of $114.9 million, compared to $84.7 million for the second quarter of fiscal 2018.
- GAAP loss from operations was $(5.5) million, compared to $(14.8) million for the second quarter of fiscal 2018.
- Non-GAAP income from operations was $9.7 million, compared to a loss of $(3.5) million for the second quarter of fiscal 2018.
- GAAP net loss attributable to New Relic per basic share was $(0.15), compared to a loss of $(0.27) per basic share for the second quarter of fiscal 2018.
- Non-GAAP net income attributable to New Relic per diluted share was $0.20, compared to a loss of $(0.06) per basic share for the second quarter of fiscal 2018.
- Cash, cash equivalents and short-term investments were $731.1 million at the end of the second quarter of fiscal 2019, compared with $720.9 million at the end of the first 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.
Second Quarter & Recent Business Highlights:
- $100K+ Paid Business Accounts as of September 30, 2018 of 786, compared to 586 as of September 30, 2017.
- 56% of ARR from Enterprise Paid Business Accounts as of September 30, 2018, compared to 51% as of September 30, 2017.
- Dollar-Based Net Expansion Rate for the second quarter of fiscal 2019 of 124%, compared to 123% as of the second quarter of fiscal 2018.
- Added Michael Christenson, Managing Director of Allen & Company LLC, and Caroline Watteeuw, Executive Vice President and Chief Information Officer of Caliber Home Loans, to the Board of Directors, effective August 21, 2018, bringing the total number of directors to nine.
- Signed a definitive agreement establishing a Japanese joint venture with Japan Cloud.
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.
Third Quarter Fiscal 2019 Outlook:
- Revenue between $118.5 million and $120.5 million, representing year-over-year growth of between 29% and 31%, respectively.
- Non-GAAP income from operations of between $3.5 million and $4.5 million.
- Non-GAAP net income attributable to New Relic per diluted share between $0.12 and $0.13.
Full Year Fiscal 2019 Outlook:
- Revenue between $466.5 million and $469.5 million, representing year-over-year growth of between 31% and 32%, and an increase from prior guidance of between $457.5 million and $462.5 million that was issued on August 7, 2018.
- Non-GAAP income from operations of between $22.0 million and $24.0 million, an improvement from prior guidance of between $18.0 million and $22.0 million that was issued on August 7, 2018.
- Non-GAAP net income attributable to New Relic per diluted share between $0.42 and $0.48, an improvement from prior guidance of between $0.39 and $0.46 that was issued on August 7, 2018.
Conference Call Details:
- What: New Relic financial results for the second quarter of fiscal year 2019 and outlook for the third quarter and the full year of fiscal 2019
- When: November 6, 2018 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 (404) 537-3406. Callers may provide confirmation number 9225017 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 November 13, 2018, a telephone replay will be available by dialing (800) 585-8367 from the United States or (416) 621-4642 internationally with conference ID 9225017.
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 third quarter and for the full year of fiscal 2019, such as revenue, non-GAAP income from operations, non-GAAP net income per diluted share, free cash flow, gross margins, operating margins, deferred revenue, physical capital expenditures, capitalized software, cash from operations, anticipated headcount, including hiring plans for the remainder of fiscal 2019, fiscal 2019 capital expenditures, and market trends and opportunity, including the anticipated success of New Relic’s application-centric strategy, the ability to become the dominant platform for monitoring, managing, and operating digital systems, the increasing use of software to improve business outcomes, the opportunity in the market segment that is currently not using a monitoring platform, the market opportunity beyond APM, New Relic’s favorable position within the technology value chain, the ability to provide meaningful value to evolving modern digital environments using New Relic’s multi-tenant model, the growth of the platform or any individual product, New Relic’s customer adoption, including any fluctuations to the paid business accounts metric as New Relic focuses toward upmarket opportunities and optimizing for economical growth, New Relic’s ability to scale, 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; 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 in the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2018 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 margin, non-GAAP sales and marketing expense, non-GAAP research and development expense, non-GAAP general and administrative expense, non-GAAP net income (loss), non-GAAP net income per diluted share, non-GAAP net loss 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 sales and marketing expense, non-GAAP research and development expense, non-GAAP general and administrative expense, non-GAAP income (loss) from operations and non-GAAP net income (loss) 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) 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 imputed 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.
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.
Full press release available here: https://ir.newrelic.com/press-releases/Press-Release-Details/2018/New-Relic-Announces-Second-Quarter-Fiscal-Year-2019-Results/default.aspx