2q20 investor presentation · this presentation contains “forward-looking” statements, as that...

New Relic Template 2017

©2008–19 New Relic, Inc. All rights reserved.

Investor Presentation2Q20

November 5, 2019


©2008–19 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 third quarter of fiscal year 2020 and for the full fiscal year 2020, 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 November 5, 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 our November 5, 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 expense, lawsuit litigation cost and other expense, employer payroll taxes on equity incentive plans and gain or loss from lease modification, 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 is a strategic platform that companies use to monitor, manage, and operate their digital businesses. Our goal is to establish the standards by which all software and

its impact can be measured and improved.

Multi-tenant native cloud

Recurring revenue, SaaS model with high

gross margins

Gartner Magic Quadrant Leader2012 to present

Multi-billion dollar market opportunity



Trends Driving Major Market Opportunities

By 2021, at least 50%of global GDP will be digitized

Mission critical to all industries

Source: IDC FutureScape: Multiplied Innovation Takes Off, Powered by AI, Distributed Public Cloud, Microservices, Developer Population Explosion, Greater Specialization and Verticalization, and Scaling Trust



Open Connected

Digital Transformation Requires Observability

Programmable

DevOps

Cloud Migration

Customer Experience

Modern Applications


©2008–18 New Relic, Inc. All rights reserved 6

New Relic OneObservability Platform

The first open, connected, programmable observability platform built to help

customers create more perfect software.

OPEN Instrument everything

CONNECTED Understand quickly and act more effectively

PROGRAMMABLE Build unique business applications



Open: Unified data eliminates blind spots

Unified Observability & Telemetry

Metrics Events Logs Traces

Hosts, Hybrid, multi-cloud

Agent DataApplications

Services (i.e. databases, load balancers, message

queues, chatbots, pods, clusters)

Introducing New Relic Metrics and New Relic Traces

Other Open-Source Metrics and Trace Data (Support for open source libraries )

Traces

Metrics

OpenTelemetry DropWizardMicrometer

Metrics Traces

Business KPIs & Custom Metrics

OpenTelemetry



Connected: Curated UI reveals key relationships

New Relic Serverless for AWS Lambda

Kubernetes Cluster Explorer

Dashboards andChart Builder Entity Explorer

Service Maps



Full Business Visibility Cost Efficiency

Customer Experience Technical Optimization

Programmable: Build unique business applications



Growth Drivers

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Expand the platform with additional paid offerings and platform capabilities

Add new enterprise and large mid-market

logos

Expand installed base by increasing application

coverage, cross-selling additional products, and benefiting from growth in

organic usage

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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27%Year-Over-Year

2Q20 Revenue Growth

84%Non-GAAP

2Q20 Gross Margin

8%Non-GAAP

2Q20 Operating Margin

7%Non-GAAP LTM Free

Cash Flow Margin

2Q20

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

*



Key Operating Metrics

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2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20

Annualized Dollar-Based Net Expansion Rate

123% 125% 141% 118% 124% 122% 131% 109% 112%

% ARR from Enterprise Paid

Business Accounts51% 52% 54% 55% 56% 56% 61%* 62% 62%

Paid Business Accounts >$100K 586 629 703 748 786 816 858 881 906

Annualized Revenue / Avg. Paid Business

Account>$21,500 >$22,500 >$23,000 >$25,000 >$27,000 >$29,000 >$31,000 >$33,000 >$34,500

* 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.

2Q20



Strong Operating Leverage

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2Q20

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.

(% of Revenue) FY15 FY16 FY17 FY18 FY19 2Q20 DriverLong-Term

Target

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

in delivery, support and services

80–84%

Sales & Marketing 76% 66% 59% 53% 49% 46%Increased mix of productive reps,

renewals, installed base35–38%

Research & Development 20% 22% 19% 17% 18% 18% Maturation of

product portfolio 15–18%

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

Operating Margin (33%) (23%) (10%) - % 6% 8% 25%+

Free Cash Flow Margin (32%) (8%) (2%) 3% 14% (5%) 30%+

2Q20



Third Quarter and Fiscal 2020 Outlook (November 5, 2019)

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Q3 FY20 Guidance

Revenue: $148.0M – $150.0M Non-GAAP operating income: $3.0M – $4.0M Non-GAAP EPS: $0.12 – $0.13

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

FY20 Guidance

Revenue: $588.0M – $593.0M Non-GAAP operating income: $21.0M – $25.0M Non-GAAP EPS: $0.60 – $0.67

Non-GAAP gross margin >84%

Operating cash flow: $90.0M – $100.0M; Free cash flow: $30.0M – $35.0M

Q3 FY20 EPS assumes 60.3M weighted average diluted shares outstanding, which excludes 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; FY20 EPS assumes 60.6M weighted average common shares outstanding which excludes 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; See appendix for non-GAAP reconciliations and how we define free cash flow.



Investment Highlights

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High gross margins help drive significant

operating leverage

Large, underpenetrated, expanding multi-billion

dollar opportunity

Technological competitive advantage → $275M+ invested in R&D

building massively scalable 100% SaaS multi-tenant platform

Strong combination of revenue growth and

non-GAAP profitability



Appendix



GAAP to Non-GAAP Reconciliation

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2Q20



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.

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