New Relic Sep 2018 Quarter

Investment Analysis Clubs Saul’s Investing Discussions
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This is a great quarter to look at if you’re trying to learn how to read financial statements.

This quarter is a good example of why looking at cash flows can be incredibly misleading. Financial statements lesson: Don’t expect cash flows to be smooth, because they involve accounting fluctuations like Accounts Receivable and Accounts Payable that have nothing to do with the quarterly performance. They had record cashflows last Q, and so cash flow was basically flat this Q. Doesn’t matter – this has more to do with accounting than company performance / progress.

Cash Flows
Sep17: -7.5m
Dec17: +2.7m
Mar18: +6.0m
Jun18: +41.5m (huh?)
Sep17: -0.6m

Ignore this. What we need to examine is apples to apples, and that’s the income statement (and state of the balance sheet). But the most important numbers to me are the Operating Profits and Costs.

Financial statements lesson: Look at how progress in Revenue and Gross Profit compares to increase in Operating Expenses (OpEx)? In other words, what is it costing them to grow?

Revenue
Sep17: 84.7m (up 33.5% YoY)
Sep18: 114.9m (up 35.7% YoY)

Gross Profit
Sep17: 69.0m (up 33.5% YoY)
Sep18: 96.4m (up 39.8% YoY)

OpEx
Sep17: 83.9m (up 27.1% YoY)
Sep18: 102.0m (up 21.7% YoY)

I love to see revenue and gross profit growing so much faster than OpEx.

Stock Based Compensation(SBC) is around 12% of revenue. I’m fine with that. Closer to 20% is more problematic. 10-12% is normal for SaaS companies.

Accounts over $100k (another key metric)
Sep17: 586 (up 37.2% YoY)
Sep18: 786 (up 34.1% YoY) – still growing nicely. very encouraging.

Conclusion
There’s plenty more to glean from the quarter. But everything I see across the board adds up to NEWR growing surely and steadily. It may not be the sexiest, but things are primed for a larger and much more valuable company 1, 2, and 3 years down the road.

Bear

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Something I found interesting from the earnings release.

On the slides for the earnings release, they list their future projections for profitability.

On the notes for the FY2022 projections, they state that it is based on revenue of 1 Billion.

So, they expect to have revenue of $470 M this year (what they just forecast), and $1000 M in FY2022, a CAGR of 29%.

A company growing in the mid 30% now, still expects to average close to 29% for 3 years (and that could be revised upwards).

I think that’s very good.

Jim

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…adds up to NEWR growing surely and steadily. It may not be the sexiest…

Hi Bear,
Isn’t it interesting: I, as an old guy, can remember when a company growing revenue at a reliable 36% a year was beyond sexy, it was almost unbelievable. How the world has changed.
Best,
Saul

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I, as an old guy, can remember when a company growing revenue at a reliable 36% a year was beyond sexy, it was almost unbelievable. How the world has changed.

That’s what I think myself every so often, reading the analysts blah about company results. I once thought a company who earns money is quite something. A company that earns a lot of money is great and a company that earns a lot of money and seems to do that for years is incredibly. I mean… if you really run a company and not just a analyst office, earning money is a challenge…
But nowadays, if a company revenue grows only by 20% per year, this is considered a sign of doom.

I am grateful for you guys here, because your thoughts and postings help me keep my emotions out of the game and keep perspective…

Have a wonderful day.

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