investor presentation 3q19 · this presentation contains “forward-looking” statements, as that...

New Relic Template 2017

©2008–18 New Relic, Inc. All rights reserved.

Investor Presentation3Q19

February 6, 2019


©2008–18 New Relic, Inc. All rights reserved

Forward-Looking Statements and Non-GAAP Financial Measures

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This presentation contains “forward-looking” statements, as that term is defined under the federal securities laws. Any statement that refers to expectations, projections, targets or other characterizations of future events, including financial projections and future market conditions, is a forward-looking 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 2019 and for the full fiscal year 2019, such as revenue, non-GAAP operating income, non-GAAP earnings per share, non-GAAP operating margin, free cash flow margin, non-GAAP operating expenses, deferred revenue, operating cash flow, free cash flow, and gross margin. 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, 2019 press release, as well as the risks described in our filings with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q, particularly in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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 February 6, 2019 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 income, non-GAAP earnings per share, non-GAAP gross margin, non-GAAP operating margin, non-GAAP expenses as a percentage of revenue, or free cash flow in future periods to their most directly comparable GAAP measure because certain items, namely stock-based compensation, lawsuit litigation expenses and employer payroll taxes on equity incentive plans, are out of our control or cannot be reasonably predicted. 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.



New Relic, Inc. (NEWR)

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New Relic provides the insights that businesses need to monitor, manage, and operate digital systems. New Relic’s cloud platform is designed to collect, store and analyze

massive amounts of data in real time to make modern software and infrastructure observable, so companies can find and fix problems faster, build high-performing

DevOps teams, and speed up software projects.

Multi-tenant native cloud

Recurring revenue, SaaS model with

best-in-class gross margins

Gartner Magic Quadrant Leader2012 to present

Multi-billion dollar market opportunity



Strong Tailwinds For Our Business

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The percentage of application workflows monitored by APM is expected to quadruple by 2021

5% 20% Source: Gartner, Magic Quadrant for Application Performance Monitoring Suites, March 2018

2017 2021



Modern Software is Changing Businesses

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Technology

New technology and dynamic infrastructure

Cloud Multi-cloud

Serverless computing

Processes

New processes and faster velocityContainerization

Continuous integrationContinuous deployment

DevOps

Business Models

New business modelsand revenue streams

IoTOmnichannelMobile first

Digital transformation



Dynamics Impacting Broad Range of Industries

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>75% of customer interactions with

Capital One are digital

10M streaming sessions per day

60% of US sales from digital channels in 2017



Trends Driving Major Market Opportunities

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Technology

$125BGlobal 2017 Cloud Spend 1

Processes

85%Multi-Cloud Deployment 2

Business Models

$1.3TGlobal IT spending on Digital

Transformations 3

Mission critical to all industries

1 IDC, Worldwide Semiannual Public Cloud Services Spending Guide, Dec 20172 IDC, Predominance of Multicloud Environments Among Cloud Users, IDC #US42830417, June 2017. Respondents identifying multi-cloud as their current or near-term cloud deployment option. n=6,084 worldwide respondents, weighted by country, company size and industry3 IDC, Welcome to the 3rd Platform's Second Chapter, IDC #DR2018_GS1_FG, Feb 2018



Key Technology Initiatives

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If it’s not measured, it’s not managed

DevOps Transformation

Cloud Adoption Customer Experience

Greater agility to deliver products to market

Autonomy to rapidly scale infrastructure

Deliver a flawless digital customer experience

Modern Software



Software Environments are Complex

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Visibility not included



The New Relic Platform

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End-to-end visibility to continuously observe, adapt, align ...

KPIsWeb and Mobile Concurrent UsersQoS – Process AbandonsSessions by Geography or Product# of Visitors, Views by Visitor Load TimesTrends (social, content, geography)

KPIsMulti-Product SubscriptionsFeature UptakeConversion RateRevenue at RiskRevenue per Streaming Video

Business Outcomes Customer Experience

KPIsTransaction TimesError RatesApplication BottlenecksOn-Prem vs. Cloud

Application Performance

KPIsInfrastructure Status and ChangesServer DowntimeHost HealthDatabase PerformanceCloud Spend

Infrastructure Performance



An Enterprise Platform @ Cloud Scale

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All 6 paid SKUs are equipped with New Relic Applied Intelligence

2.3B Events & Metrics per Minute

✓ SSAE-16/SOC II New Relic Platform✓ SSAE-16/SOC II Data Center✓ CSA-STAR

Enterprise security

8 Programming Languages Cloud & On-Host Integrations

Pending

Mobile Apps



Designed to Win the Cloud

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The future of enterprise workloads

Massive Scalability

Easy to Use

Quick Time to Value

SaaSDelivery

Full StackVisibility



Growth Drivers

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Expand the platform: new products, deeper

integrations, and innovative features

and use cases

Add new enterprise logos and extend

breadth within existing ones

Increase non-APM adoption to raise

annualized revenue per average paid business

account

Further penetrate international markets



Land and Expand … Standardize Business Model

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“Land” application usage swells

Multiple applications

New digital / software initiative

Enterprise: $50K - 100K+

LandIT / Ops / Dev Middle

Manager

ExpandSoftware applications

Director level IT / Ops / Dev

ExpandPlatform

VP / GVP / CIO for IT / Ops / Dev

StandardizeCTO and above

Enterprise: $100K - 500K+

All new software applications

On-premises displacement

100s - 1,000s of users

Executive dashboards

CTO as advocate

Enterprise: $1M+

Customers adopt multiple paid products

Deployment across all cloud applications

Replacing point solutions

Customer Success Investment

Enterprise: $500K - 1M+

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Financial Highlights

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35%Year-Over-Year

3Q19 Revenue Growth

85%Non-GAAP

3Q19 Gross Margin

6%Non-GAAP

3Q19 Operating Margin

9%Non-GAAP LTM Free

Cash Flow Margin

3Q19

See appendix for non-GAAP reconciliations.* Mid-point of FY19 guidance

*



Key Operating Metrics

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3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19Annualized

Dollar-Based Net Expansion Rate

125% 133% 113% 123% 125% 141% 118% 124% 122%

% ARR from Enterprise Paid

Business Accounts44% 46% 49%* 51% 52% 54% 55% 56% 56%

Paid Business Accounts >$100K 478 517 555 586 629 703 748 786 816

Annualized Revenue / Avg. Paid

Business Account>$18,000 >$19,000 >$20,500 >$21,500 >$22,500 >$23,000 >$25,000 >$27,000 >$29,000

* 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.

3Q19



Strong Operating Leverage

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3Q19

See appendix for non-GAAP reconciliations.



Target Operating Model*

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* Metrics are non-GAAP and FY15 to FY18 were calculated prior to the April 1, 2018 adoption of ASC 606. See appendix for reconciliations and how we define free cash flow.** Assuming a $1B revenue run-rate for period ending March 31, 2022.

(% of Revenue) FY15 FY16 FY17 FY18 3Q19 FY22** DriverLong-Term

Target

Gross Margin 81% 81% 82% 84% 85% 80–84%Continued investments

in delivery, support and services

80–84%

Sales & Marketing 76% 66% 59% 53% 48% 38-40%Increased mix of productive reps,

renewals, installed base35–38%

Research & Development 20% 22% 19% 17% 17% 19-21% Maturation of

product portfolio 15–18%

General & Administrative 18% 16% 14% 14% 13% 10–12% Economies of scale 7–9%

Operating Margin (33%) (23%) (10%) - % 6% 10–14% 25%+

Free Cash Flow Margin (32%) (8%) (2%) 3% (6%) 15-20% 30%+

3Q19



Fourth Quarter and Fiscal 2019 Outlook (February 6, 2019)

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Q4 FY19 Guidance

Revenue: $126.5M – $128.5M Non-GAAP operating income: $0.5M – $1.5M Non-GAAP EPS: $0.04 – $0.06

Deferred revenue to sequentially increase in the low twenties on a percentage basis

FY19 Guidance

Revenue: $473.6M – $475.6M Non-GAAP operating income: $26.7M – $27.7M Non-GAAP EPS: $0.58 – $0.60

Non-GAAP gross margin ~85%

Operating cash flow: $70.0M – $80.0M; Free cash flow: $30.0M – $40.0M

Q4 FY19 EPS assumes 60.3M weighted average diluted shares outstanding, which excludes the anti-dilutive impact of the capped call transactions entered into in the connection with the 0.50% convertible senior notes due 2023 issued in May 2018; FY19 EPS assumes 60.0M weighted average common shares outstanding which excludes the anti-dilutive impact of the capped call transactions entered into in the connection with the 0.50% convertible senior notes due 2023 issued in May 2018; See appendix for non-GAAP reconciliations and how we define free cash flow.



Investment Highlights

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Best-in-class SaaS gross margins help

drive significant operating leverage

Large, underpenetrated, expanding multi-billion

dollar opportunity

Technological competitive advantage → $225M+ invested in R&D

building massively scalable 100% SaaS multi-tenant platform

Strong combination of revenue growth and

non-GAAP profitability



Appendix

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ASC 605 to ASC 606 GAAP Reconciliation

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3Q19



ASC 605 to ASC 606 Non-GAAP Reconciliation

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3Q19



Definitions

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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 AccountsWe 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 RateOur 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 FlowWe define free cash flow as cash from operating activities minus purchases of property and equipment and capitalized software development costs.

investor presentation 3q19 · this presentation contains “forward-looking” statements, as that...

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