New Relic Q1 2019 Earnings

Hi friends, since I know some of you will be interested in this, I thought I’d post it here as well…

New Relic Q1 2019

Brief Summary

The quarter looks pretty good overall. Revenue up 35%, a slight acceleration from last quarter’s growth of 34%. The biggest eye-catcher was the operating leverage on the non-GAAP operating margin. From -7% a year ago to 8% this year. Operating expenses only grew 16% so a lot of that revenue growth dropped to the bottom line.

Fourth Quarter Fiscal 2018 Financial Highlights:

Revenue: $98.4 million, growing 34% year-over-year, and up 7% sequentially from the third quarter of fiscal 2018.

Operating Loss: GAAP loss from operations was $(7.5) million for the fourth quarter of fiscal 2018, compared to $(15.1) million for the fourth quarter of fiscal 2017.
Non-GAAP income from operations was $4.8 million for the fourth quarter of fiscal 2018, compared to a loss of $(5.8) million for the fourth quarter of fiscal 2017.

Cash: Cash, cash equivalents and short-term investments were $247.9 million at the end of the fourth quarter of fiscal 2018, compared with $233.0 million at the end of the third quarter of fiscal 2018.

Customer Highlights

$100K+ Paid Business Accounts as of March 31, 2018 of 703, compared to 517 as of March 31, 2017.
Paid Business Accounts as of March 31, 2018 of over 17,000, compared to over 15,200 as of March 31, 2017.

54% of ARR from Enterprise Paid Business Accounts as of March 31, 2018, compared to 46% as of March 31, 2017.

Dollar-Based Net Expansion Rate for the fourth quarter of fiscal 2018 of 141%, compared to 133% as of the fourth quarter of fiscal 2017.

First Quarter Fiscal 2019 Financial Highlights:

Revenue: Grew 35% year-over-year and 10% sequentially to $108.2 million, compared to $80.1 million for the first quarter of fiscal 2018.

Operating Loss: GAAP loss from operations was $(3.6) million for the first quarter of fiscal 2019, compared to $(16.4) million for the first quarter of fiscal 2018.
Non-GAAP income from operations was $8.7 million for the first quarter of fiscal 2019, compared to a loss of $(5.4) million for the first quarter of fiscal 2018.

Cash: Cash, cash equivalents and short-term investments were $720.9 million at the end of the first quarter of fiscal 2019, compared with $247.9 million at the end of the fourth quarter of fiscal 2018.
Customer Highlights

$100K+ Paid Business Accounts as of June 30, 2018 of 748, compared to 555 as of June 30, 2017.
55% of ARR from Enterprise Paid Business Accounts as of June 30, 2018, compared to 49% as of June 30, 2017.

Dollar-Based Net Expansion Rate for the first quarter of fiscal 2019 of 118%, compared to 113% as of the first quarter of fiscal 2018.

Second Quarter Fiscal 2019 Outlook:

Revenue between $110.5 million and $112.5 million, representing year-over-year growth of between 30% and 33%, respectively.

Non-GAAP income from operations of between $4.5 million and $5.5 million.

My Thoughts

I like this earnings report a lot. Revenue accelerating, huge operating leverage. 16% growth in operating expenses is awfully low. What’s more, historically, the first quarter is the biggest spending quarter so it looks like it could get even better in the next couple quarters.

It is kind of surprising that sales and marketing expenses as a % of revenue only grew 17% as the company is going upstream with bigger enterprises.
Another thing is cash flow. On a non-GAAP basis, free cash flow grew over 300%. No that is not a typo. For some reason, the company didn’t put that figure out in the open on the press release. A lot of that is from accounts receivable, not stock based compensation also. Which is good in my opinion.

All in all, I was very surprised by the strength of operating leverage New Relic dispayed.

Very best,

CMFish: NEWR Ticker Guide

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I’m the newest of the noob here… help me.

You stated…
Revenue: $98.4 million, growing 34% year-over-yearand up 7% sequentially from the third quarter of fiscal 2018.

and you stated…
Second Quarter Fiscal 2019 Outlook:

Revenue between $110.5 million and $112.5 million, representing year-over-year growth of between 30% and 33%, respectively.

Isn’t that projecting a deceleration in revenue growth? Isn’t that something we’d be concerned about???

Mark

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Hey Mark, first off not sure if you realized but you quoted form Q4 2018. The latest quarter was Q1 2019 that was under the Q4 2018 report (for comparison).

But to your question, pretty much everyone of these companies give guidance that they are comfortable beating which gives them some wiggle room if something unforeseen happens and/or a nice beat if something doesn’t. To get a better idea, you could go to Q4 2018 press release and look at the guidance to compare.

Chris.

True…

First Quarter Fiscal 2019 Financial Highlights:

Revenue: Grew 35% year-over-year

Still guiding 30-33%…

So, we count on them to beat… and say get 36-39%…

But if they don’t… and they meet… then it’d be decelerating growth…

I’m trying to “understand in advance…” the criteria. Sandbagging lower guidance is “okay”… but for ANET lower guidance was not okay…

Not trying to be difficult… trying to derive where we care about lower guidance and where we don’t and why.

M

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Great question Mark. I’ve struggled with the same concern.

There are a few factors to consider.

One, most software is recurring so you will not usually see dramatic deceleration in guidance. If you do, then you can tell management sandbags heavily. Hardware on the other hand can see demand drop off in a moment’s notice. Not a cut and dry rule but generally that’s how things work out.

Two, the reason for the deceleration is important. In Arista’s case, cloud providers were/are spending like crazy with capital expenditures so you’d think that would flow through to Arista. However, it was a sign that maybe 100gb still has a ways to go. Plus, it was just another piece of evidence that hardware companies have less visibility.

Three, visibility is what it comes down to. If a company has less than 5% churn with 95% recurring revenue, you can be fairly certain the company will beat guidance of it sandbags.

Therefore, it is situational but also has a lot to do with revenue visibility.

Hope that helps. This is just what I have picked up on over time.

Thanks Mark.

Best,
Fish

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