NEWR Q3 2019
Brief Summary
While I am no longer a Ticker Guide, I still wanted to take a look at New Relic. So here we are…
Strong 35% revenue growth, with solid operating leverage as we’ve been accustomed to seeing lately from New Relic. Non-GAAP operating margins went from 3% to 6%, a 3% improvement. This is not as much as we’ve become accustomed to seeing but solid nonetheless.
But this report raised some questions in my mind. We’ll talk about them in the conclusion…
Let’s jump right in! We’ll start with historic numbers to give context then get more recent. Enjoy!
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: 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: 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 Financial Highlights:
Revenue: Grew 36% year-over-year and 6% sequentially to $114.9 million, compared to $85 million for the second quarter of fiscal 2018.
Operating Loss: Non-GAAP income from operations: $9.7 million, compared to a loss of $(3.5) million for the second quarter of fiscal 2018.
Cash: $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.
Customer 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.
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.
Third Quarter Fiscal 2019 Financial Highlights:
Revenue: Revenue of $124.0 million, compared to $91.8 million for the third quarter of fiscal 2018.
Operating Profit: Non-GAAP income from operations was $7.8 million, compared to $2.7 million for the third quarter of fiscal 2018.
Cash: Cash, cash equivalents and short-term investments were $722.3 million at the end of the third quarter of fiscal 2019, compared with $731.1 million at the end of the second quarter of fiscal 2019.
Customer Highlights
- $100K+ Paid Business Accounts as of December 31, 2018 of 816, compared to 629 as of December 31, 2017.
- 56% of ARR from Enterprise Paid Business Accounts as of December 31, 2018, compared to 52% as of December 31, 2017.
- Dollar-Based Net Expansion Rate for the third quarter of fiscal 2019 of 122%, compared to 125% as of the third quarter of fiscal 2018.
- Introduced the Kubernetes cluster explorer, a new way for DevOps teams to understand the health and performance of their complex Kubernetes environments.
- Advanced AIOps strategy with acquisition of SignifAI.
My Thoughts
I think the numbers look fine. The customer count slowed a little bit sequentially. But that is because the company is moving upstream and dealing with bigger accounts. This is evidenced by the increase in ARR from 56% of sales from 52% in $100k+ accounts. Gross margins came in strong at 84%, meaning the company is very efficient when it comes to customer support. This is a sign the company knows its clients well.
Quarter over quarter, the company added 30 100k+ customers versus 43 last year. This coupled with a decreasing expansion rate, from 125% to 122%, can only mean one thing. Customers are starting out with bigger spend with New Relic.
Since revenue stayed strong at 35%, the same growth rate as last year, but expansion and customer acquisition slowed, those 30 customers that New Relic landed must be big clients. It is not a function of price raises because the expansion rate would capture that. Therefore, the company must be seeing big clients use its products.
Q3 is not historically a great expansion quarter for the company but 122% is slower than normal for sure.
I am not currently a shareholder of this company anymore because I thought there were better companies out there with less competition. APM is crowded. I think the stock will do fine but some of these customer/expansion questions were on my mind when taking a look at this report.
Very best,
Fish