- Earnings call transcript Q2 2023

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Operator

Good afternoon. My name is Bailey and I will be your conference operator today. At this time, I would like to welcome everybody to the New Relic Second Quarter Fiscal Year 2023 Earnings Conference Call. All lines have been muted to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Instructions] [Operator

my of your Finance. Investor now Senior Ingo Thank to President Vice Relations pleasure is host introduce Friedrichowitz, you. It and Corporate

begin. may You

Ingo Friedrichowitz

Good year quarter afternoon our earnings call. and fiscal to welcome XXXX second

and with call Officer. Staples, Executive Chief are On David the our me Barter, our Bill Chief Officer; Financial

earnings during which On to is our the supplement Investor today's investor and our you website, release Relations remarks call. intended summary find prepared can press slide deck,

on this In ir.newrelic.com our addition, available replay will website of a call an hours. few in be audio

today's forward-looking During which statements about our today. and call, our expectations of base strategies, and including we will as on make business we predictions outlook

Our to and and the recent results number XX-Q differ the be a SEC. upcoming our to of uncertainties, quarter second filed most actual our risks with XX-Q materially risk could due including factors in

discuss during non-GAAP certain financial we measures. call, Also, this will

intended earnings for in We non-GAAP measures have financial GAAP reconciled measures not be those comparable to release. These directly GAAP results. most to a our the are our substitute

And like it turn I'd to over Bill. to that, with

Bill Staples

with Ingo. quarter report last I'm to $XXX.X million at increase another pleased quarter. a solid over you, sequential million, Thank $XX.X revenue

million operating $X.X was non-GAAP a over million, Our quarter. last $XX profit improvement

pursue first future. our discipline Importantly, our this would two recognize quarter years. while Last told in quarter also represents continuing invest you importance driving cost profitable and both we profitability that in of we to the we that growth and

compelling this to the us which the while positions first value Relic we report is that a embracing for sustainable I'm value customers, to proud Today's on mentality, deliver proposition best shareholders. creating New earnings commitment. incredibly organization for installment of believe

guidance. a in financial our our well about more share as performance minute just as will Dave updated

unique it over our to him, with Relic However, product and differentiated remind everyone before like our and what strategy. makes New go-to-market I I'd hand to

entire engineers. truth make software for with data for a all invented their New Today APM across decisions the life across application XXXX, software In to engineers Relic cycle. we're stack cloud and source of

more about than majority engineers is health the are million There data data estimated the have functions. in vast tied XX either or an distinct those access legacy up XX the world monitoring systems don't to they have performance and Today, across their of the engineers tools. in of

see new that We model a as grow still have transforming decade long emerging our the relatively software practice and observability coming to will the and win been business run. and in over we

of that provides challenges a past specialty While the platform array is disparate every platform customer engineer. and the tools rates, cloud-scale competitors and an of all-in-one sold built still for Relic data New only sell propagating experience as an at decade, unified

strategy how a take our highlights. some recent is look Let's out and at playing

competitors, acquisition. perpetual offers New First, engineer tier offers Unlike unique land every a approach, observability, credit new that let's focus a who on card no sales-led learn Relic only required lock-in. a opportunity an fear of to with customers master customer or free and

the product-led added In at Since experience customers new levels. increase paid At levels. launching two been customer we high-volume the net rate, quarter, industry-leading of pay-as-you-go years this steadily we've and working to nurture value second to model free the ago, and our tier efficiency paid this platform XXX Relic new platform now low-cost growth over using adding customers is paid New model.

and here but each who continue customers, long partially whose spend progress amounts is our offsets up growth. increasing and month, pay APM-only a signed Our customer masked legacy small is churn small new of whose us tail by not to ago years

engineering practice. start-ups individual the seeking Fortune as exploration platform with full new to their are getting companies customers, companies large phase well the developers all ground stack of teams off at of includes observability the cohort to engineering fast-growing and rate. rapid practices from XXXX a This embracing It to sizes as modernize in

cohort The initial multiyear amount from five-figure in to small this spend ranges or customer contracts. monthly annual a

into competitors the leading was to away six-figure customers team fact several from nurture able In contracts. and

tell them you me about Let one of Tibber.

fast-growing Our to consumption-based our consumption pricing They model make was using a pricing with a company Tibber, our host-based agility. of recent evaluated competitors electricity competitors technology structure digital found Europe in force driving the smarter. close behind one deal of that limits but

telemetry With New New pricing any expand appreciated data infrastructure better as modern web and Relic works well source economies and to their which and apps with get mobile provides correlating also hardware infrastructure microservice Relic, engineering architectures data much from apps cloud they the predictable They makes the how grows their they scale team. opportunity of as ingest on cloud, from easier.

to Next, let's annually they to to approach. a $XX,XXX better make rates receive expand graduate and and services to wish consumption sales-led sales-led turn when beyond technical and commitment our additional Customers focus our support. contractual our motion get

Our sales-led were motion, this quarter, strong.

platform customers. three focused with one, our priorities: spend increasing their The realization on key number align increasing enterprise customers and opportunistically adoption helping customers number sales usage; new contract number committed and landing team is two, through nurturing usage; against their commitments large their value with three,

of talk three Let's each of those priorities. examples through

at a First, look consumption.

This run quarter, increase rate record both data. and driven $XX we a and saw users quarter one customers by in net million, by in increase aggregate increase their consumption

large to quarter. beverage biggest during to $X.X million million increased to $XX.X million $X.X telecom some to and million online the our customers $X.X of one million; CRR retailer increased of A $X.X one company from A quarter. $X.X from million; moved media went their just million few an from the streaming in increases, from $X.X million $X.X examples of a

fit the The excellent the market strength power business consumption and of model. of this CRR growth demonstrates quarter product

continuation continuing the final CRR who the especially our see consumption of commitments, of many we customers among manage in a customer of to down also budget, outpace However, trend quarter growth to accounts. with

last performance customers represent their this budgets up who in between gap QX contract strong help this highlighted consumption despite ongoing for to to and the commitments renewal of and support our majority needs. CRR our plan I've renewals. increased earnings are and secure the the and quarter, calls in few QX opportunity to

at look customers few support of our how let's we're to increasing Second, examples commitments helping a align consumption.

change through from their navigate other with for economic, by looking are observability standardizing technological spend and shifting social to New and vendors Relic. tool customers ways consolidating Our

are team the committed we to ahead million Our in-quarter quarter prior renewal by pleased as to pilot able for of that $XX early I renewal early who that renewals scaled the schedule. times increased talked incrementally nearly last to base our am renew in we customers three compared were sales quarter. pull ready forward I about

savings that. pandemic transformation accelerated their pool three-year annual in and at doing online agreement. their look increased A Let's social global from how of plan a growth The game digital commitment mid-six-figure to entertainment a high-seven-figure company we're and online gaming. funds

New more Relic their separate replaced productivity the efficiency, for observability standardize their to four Looking of competitors increasing engineering open-source the and and as company teams improving costs. commercial platform, their on

journey native now in New XXX% their cloud of transformation the partnering to cloud be with them this end by year. Relic is

We success the in legacy to new continue to have moving customers platform. large, multiyear, over

example get commitments. years platform competitors than For transitioned spend from a and as deep platform legacy they site online organization observability looking they managing selected quarter tools consolidate us agreement Kubernetes to developer-first their reliability three robust a all company had eight-figure to over where a and for more their engineering our support They business, environment. cloud a cost visibility were new for $X an travel this million annual

very new our this land sales team opportunistically finally, continues And nice logos year. some to

model standardize we that Tesco. example, achieve retailer agreement landed stack to seven-figure a again use cases. ability helping the recently UK, competitors high them moved their limited pricing For a reliability microservices-oriented full cloud-native grocery as increase strategic observability, with to had best systems of identify been their observability host-based a practices, architecture. in and We're three-year found they using business-impacting large a the once They but

our increased grew ongoing The capability product launched infrastructure, browser value small in and the contributed gross by again in from margin organization top efficiency to XX%. and number customers Our this four significantly quarter and XX% improvements capabilities; consumption our large to many and to of APM, logs improvements customers. using parallel support

more of customers our more adopt get. of customers adopt, platform as does they more our platform the increases the generally As consumption value revenue. their The the

We our as security strategic key well Management. several AWS, this also as with quarter of Vulnerability vendors with announced innovation multiple Atlassian partnerships marquee part as partnerships

preview already record garnered interest begin our few early availability general public the a with users has launch customers engaged thousand weeks and in just track Year. to several New ago from The on we're

also technology offering a tuck-in Cyber million for extend We to $XX approximately completed acquisition Security quarter in of further. KX this the

customers strategic In feel helping them social as change. well-positioned closing, economic, our through navigate and to partner technological we a

their Our of to their thereby all-in-one increase optimized help practice money teams. engineering New observability is them productivity and and platform standardize save Relic on

impact quarter, Last are we business not But I'd we a we're yet would world to the the I uncertain Before I can climate. we that responding. how what to Dave, climate we macroeconomic from like told seen pass an meaningful what control. seeing have control and in you that in address

Today hard for looking environment to budget We pricing we and same. be this clouds at consumption darker, serve is their proposition but the leader today highlight is our value models. that every model mentality have superior efficiency. that customers appear versus the the Nearly remains getting alignment speak macro I to will our with and looking business of believe competitors' ultimately

with see like our customers. to and these we the the we our immune said competitors, conditions in in not macroeconomic are That near-term conversations headwinds

given particularly, year's adverse For being impact, are last increased and variation. consumption in guidance, FX our seasonal this reason, patterns we prudent

Dave in and a financial minute. just on will outlook detail share more performance our

have macro unfold in keeping we strategy will conditions communicated However with and simple the to you. response the be New Relic's

and efficiency New help our we to customers Relic. drive will succeed and tirelessly First, superior work value from

a we an of help priorities are as will remain migrations well-positioned to digital they climate. In customers time, and serve transformation cloud undertake regardless as we investment initiatives partner to our uncertain believe strategic

business so us grow will while providing to in fuel on investment we rigorous cost of enable for our maintain for focus discipline business. margins regardless Doing drive also will our Second, our a future. climate, the own profitability to

we to onboarded, We our increasing customers expanding with I of leadership fair uncertain our invest With ability are performance. to strategy in throughout feel confident can even more to and transparent innovation value committed the long-term in new our deliver so this standard period. pricing and consumption raise talent and and continue execute to

profitable an growth. first continued transition We non-GAAP our committed since with quarter to are important financial with the of beginning have the profit and quarter turned

to by us, hungry We opportunity and our are potential. humbled full driving toward the continue before

over you. Dave, with that, to

David Barter

Thank you Bill.

for focus execution. We for the profit. end our Our financial quarter the second and guidance operating reflect top of results team's non-GAAP the revenue and exceeded

basis, Our a revenue a year quarterly an and of ago. X%, $XX.X was $XXX.X increase or sequential million, million up XX% on from

shares. when second quarter. the over in per $X.X on income $X.X we operating was million incurred a million, significant million a Non-GAAP was of Non-GAAP $X.XX improvement last a share loss count earnings XX.X of year share

focused achieved profitable we are of schedule. delivering on growth milestone We and ahead this

am progress focused we've with I cost profitability during made the in adjusting future. We revenue on delivering levels structure remain growth our pleased the quarter. and the of substantial

to growth. Turning our

we added During our setting and companies more engine. These the a product-led up the including geographies than growth for new for sector. is XXX diverse quarter, XXXX through in platform net key industries public foundation and This future ingredient quarters. growth customers Fortune come from the customers

PLG so It from partially customers only growth are product. future is This our old important why to of who legacy churn time, by will which we note naturally for use company's our headwind diminish offset the prospects. over the net APM customer new excited is is

points increased our to X.X margin over percentage another gross first Non-GAAP XX.X%. quarter

gross exit the in our execution our margin on we even while to investing year key with remain time track over on of multi-cloud initiatives. confident non-GAAP We XX% our based strategy. the gross or a expand can margin are of higher, We

one-time provided. to was During the quarter, we less $X.X we than of million The and million the million restructuring. had cost $X.X range completed our $X.X

we will our going improve expect per forward. sales and $X theme, on continue We marketing this this us efficiency. restructuring million approximately save Building to quarter

look we product-led to more sales efficient deliver to improve growth results. XX% to year, by commission As continues our to or expect add magic as model continues motion next we and or expense number, the CAC the sales prior

focused on been And cost. G&A we finally, reducing in have also

our expire line our in in estate I model. allowing subleasing expect will to make to quarter shift progress real then work area. each leases this We footprint we reducing be and through the with will hybrid

equivalents to quarter $XXX balance ended cash We sheet. investments. million cash, Shifting the the in and with

note that due coming to is on our with X, It our intent We have this convertible cash. repay XXXX. May a is

time this are pursuing interested our or that currently at We not dilute shareholders. financing in additional would

expansions rate like on and customer moving the to pleased of Before strategic I'd The guidance, well in customers, base our new to progress including consumption. business the share few a our initiatives QX. executed level on thoughts. our with We're of

by each quarters. revenue increased the $XX two in last Our over has sequentially million of

immune not we like business every However, to environment. macro the are

the is outlook driven our X% We factors. by midpoint. at year full three by are adjusting It

foremost, the and represent more million impact a million. we will growing than On it may quarter QX of FX full $X year and steadily First each be has in headwind the to been a impact basis, $X of significant QX. expect in

Second, also over mindful more being seasonal holidays. customers we the particular And of we see are in sensitive. patterns also budget third, consumption

let's to With that, move guidance. on the

third For of we between and quarter $XXX million the year expect $XXX fiscal million. XXXX, revenue

We non-GAAP earnings $X.XX and per million between $X share million, from non-GAAP income expect and operations between diluted $X.XX. and $XX

to operations million. expect to million the a a range. diluted share year At our same million full adjusting XXXX, the non-GAAP raising $X.XX income per of and are from For range $XXX between We now guidance $XX $X we $X.XX. earnings fiscal million we time, of to and range are to revenue $XXX non-GAAP

I'm performance our long-term conclude, the energized our second the with growth. and pleased strategy profitable focused on delivered in by Equally, very plan. focus we our I'm To on delivering and quarter we're executing

that, for up questions. let's With the open call Operator?

Operator

Crane question first of Our today from line Please Kingsley go Instructions] ahead. comes Canaccord. for from [Operator you. Thank the

line now open. is Your

Kingsley Crane

for Thank Bill. for my Hi. is question. taking you one This

gain So One data thinking back pricing customers idea ingestion that put platform to highly more release, into data could the platform. New one more with Relic value attractive

New the you New customers ecosystem? that. Relic now we are some and curious on Relic be Tesco terms time I'm You versus you option wins broader mentioned continuing Confluent of passed, a appreciate where standardizing in one to has do feel in that

Bill Staples

Kingsley. question Great always. Thanks, as

engineers, most I we to the little was a to the engineers either disciplined – engineers, years very of And customer for those or not strategy engineers a our wanted on-prem the important we tool solve engineering. think really of sense manage when company the well network the mobile ago, problems we truth this who launched over of cloud, proliferation. the two of as whole one application in source but just problem had infrastructure that be as and of

set data. data that collaborate at and We data on be all And send easy our low they top also can our all it easy to right, regardless cost. data of sources, specialty, suit, to would add platform strategy follow then types price so on go-to-market to very up to all so engineers, to of data that

especially engineering around platform glad And tool the standardize really I'm hindsight, In move best we the and place with now by have looking everyone vendors of other for current Relic. are the New increase their one can macro offset the all-in-one we efficiency. companies our position We climate, into made got also bringing can where help place. They globe that given They've the as to still. we team just proliferation productivity costs. on can problem hard

customer incident So it's running easier to you and the business up to healthy. resolve get the need and the data keep

the function much that stronger success better proposition. macro progress. we've increasing value a like given looking script. now with spend, few really We're a feel their We proposition. at the telling there's that and value the at in that examples we're those shared understand earlier at And climate, seeing standardization. of forcing good I I So, customers made getting

Kingsley Crane

And Okay. Thank really for Dave. helpful. then you, Bill. one a That's quick

growth revenue due but and churn? believe you Just -- I mentioned on at legacy customer at year-over-year call, XXX% NRR the to this Is to the clarify XX%.

David Barter

certainly look That business. is. when you It math weighs actually the at the on

Kingsley Crane

on Thank quarter. Okay. a Well, congrats you. solid

David Barter

so much. Thanks Yes.

Operator

Morgan ahead. next Sanjit you. comes line Stanley. today Singh The of go the Please, Thank from question from

line open. now is Your

Sanjit Singh

I a momentum. of terms guidance couple of for reduction think the in impact FX had and there congrats Thank the Is in about different second the to questions couple any way a in XQ? on of XQ you underlying questions for -- customer half factors. and David, the on on taking the of guide

year I think, way we dynamics remember various run into I how then, those exceeding second consumption mentioned the of, half think last macro some guidance? a with Any Bill, being of to and the seasonality factor, of sort into play customers. about sort went factors that rate commitment,

David Barter

can the because it shared, million. that's start FX, think, as at one see that at let's million end and And high end it's with I I the So, we at $X about overall, low we $X quantify.

half, of to basis it quarter, So bucks about kind maybe were a up if per looking you at think in quarterly couple on per you're of million million the least second a be quarter. could $X.X at to

has the in for in FX step each -- be just -- subsidiary up has pronounced Japan more growing to a quarter. will second again, FX So with And, it half. continued just us

you And at component, in that's second I think to is remarks that it. factor I alluded seasonal out think our So consumption. one of elements a we're component those some of that secondary I around called which certainly looking

what combined that's last would consumption seasonal year. macro a And little than is, a highlight clearly what environment with we saw different bit we

And an so, the an extrapolation it's that’s a as unknown factor, bit math but -- that into featured on well. actually of

Sanjit Singh

it. Got Okay.

similar question on Is so, Relic to within they're And spend. New of using? any sort the the customer how to a of average, Kingsley around consolidate Bill, opportunity sense different base, many there tools

the the the at opportunity prime consolidation of there's spend, tooling feel category displace community, open would that legacy the like source around a your be competitors the kind least APM that effort? most consolidate community, What's to of And or to vendors? the some that of sort you commercial extent of

Bill Staples

not Well, engineers in out yet the users say, fully this observability. by to -- access we And don't have majority data opportunity question. infrastructure most greenfield most don't the yet of applications data practice driven see Good really are first and and Yes. consumption and are increases observable. There there.

run opportunity that consumption. though data your tools. that their embrace so, rely size question about and this isn't I naturally or that more to customer have tool a consolidation, through business talked on To as and doesn't considerable literally and operate businesses to of there our practice a platform And dozen any drives

rationalize a are commercial And swiveling that between they're tools cost they also using different of a that with vendors spend a looking at across and today. they engineers And contracts both from source as or productivity disparate both from vendors. pain combination multiple expanding systems, it got different can't systems perspective, and they've of realize is the or and data open multiple perspective, sets, the

help more money it increase save them environment really to it's productivity opportunity their digital as make of great also and a presence, their they So but help their both us for them the grow engineers. observable

Sanjit Singh

sense. Bill. Makes lot of Thank you,

Operator

next today Thank Fred you. the of question The from Suisse. Please comes go Lee from line Credit ahead.

line Your open. is now

Unidentified Analyst

This questions. is Tim much Fred. so Thank you taking my on for for

us give what be trends seeing and Any you more heading year as incremental could helpful. the you're First, end the color overall here? to, especially there into consumption in color would to-date of

Bill Staples

We quarter $XX in rate Yeah. record QX, consumption increase, CRR mentioned so, the from our we a run million metric start-to-finish had $XX increased million.

give that, those consumption more higher million To little consumption, measure rate of on with the $XXX if we just they in color you who actually run a bit added actually rate. a you increases, ended -- the quarter

look you in from by those $XXX million at about of consumption million if who that run they then, rate. And the decrease decreased in offset quarter, their consumption start-to-finish $XX

how consumption this sense around can consumption power of some grow, you both the of consumption. gives a headwinds That of for gives sense, a you fast model, but also business the and

a comes about number of from decrease consumption factors. in The

launches some large have or events. as their do do they sale own in seasonality customers our product First, business

Of consumption those support are rates course fast. going down comes naturally And it to than bigger then, spike run their to events.

standard just cycles. There's and also business talent

consumption thing apps away, user-based an leave goes engineers it same on, organization, as comes hire they with As infrastructure. and the

as up, deep new revisions get data increases. infrastructure gets or that or deprecated away it telemetry one put Applications goes

consumption. drives ebb that the flow of factor that there's and So

I've actually the to we're Finally, consumption the focused the and consumption versus The run continuing is with commitments it's is, that increase. one But exceeds shared of those commitments run of rate the the as commitments overages. that We're up our customers trying covered back rate majority previously, gap manage it the to to revenue make. towards on, to far their budgets the customers really vast opportunity environment, the end for through the as customers contract align in up down sets consumption. But consumption to help their avoid particular our grows, excess commitments. any that

of drags our that then revenue And on that final contract. in the quarter

is so of who've good to We huge QX new net already end focus spend. I quarter, growth even had a contract do an for the up that revenue now with QX last success with customers bringing continues a renewals. a of to of in unlock early rightsize and and that early rate And number million to the in It predictable steady quarter commitment through $XX mentioned And focus growth forward. believe striving with focus their will QX has us. consumption us. run their those be that consumption consumption expired QX into and the the beat We're continue as to though help shore committed we'll them reached commitment going that we renewal more we the on for

Unidentified Analyst

Thank you.

understand whether to As organization follow-up help could joining product-led organization changes just the us the a structure? growth you as the thinking about be any go-to-market general self-led organization should Mark the we and CRO, or with

Bill Staples

question. good Yeah,

services and done is this of opportunity under team taking addition to within together I've -- sales You bring to executive that from is all have ranges AWS. our and has that team. And dollar obviously sales team, enablement, our Dell constituents and that hired business. hopefully what He us the He joins multibillion from This company sales Mark some our And for where Really New an technical Officer. sales-led to the our but a as he excited customer our our world-class Chief Mark. all Dodd prior our been support, Mark and Relic. companies serve to success, all we on customer also leader announced we technical Revenue Microsoft, great saw businesses. the

balance has between he that mandate and to described. with So that I ACR help just the CRR that

contracts. that's commitments sales budget and focusing customers you've secure are hand-in-hand services our technical the the customers with organization on and that with You've got teams consumption got helping driving

get benefit company the And by only help have that that leader, resources to growth. support of the we their continuing and scale not experience, customers all under we consumption the our all his putting of but one needs in so he

So it the help an motion go-to-market think have on him and organization I'm simplify us continue will to really excited I accelerate business. board. our to as to only to And focus

Unidentified Analyst

Thank you.

Operator

you. Thank

question next from of the from go & today Our comes Needham line Cikos ahead. Please Mike Co.

Your line open. is now

Mike Cikos

for that we're you renewed circle thanks a here. seeing the we did commentary renewal far we're on we had the early can guys, guys XQ. a having have that some that a little bit more headwind, think Is more look parse that the just that million in really of about, guidance kind XQ, QX? at with as there in you just Hey taking $XX questions about thought year but as creates bit that and color questions early I of when to if of the were want that when up we're to the could, get guidance full a maybe little reduction I talking

were why the we part some other guidance XQ you we I the implied the be just, And are profitability? talking from question cost curious then that just profit to is for And guys discipline down would where around downtick the seeing operating given have a of previously. that QX now is,

David Barter

much. Thank That's -- questions, very Mike. you great

I what renewals, the the contract consumption. In terms think of early way enable about is I it --

in those be one as may final of or highlighted their throttling consumption, the around moderating they alleviates two So of $XX contractual three by it that securing Bill months. pressures an or growth, extra people million incremental

us breadth the it I of for keep of them just it So is to element observability. monitoring think that and allows

as entire engineering do and just of And their level to team. it they the they'd it allows do like across to completeness to at continue depth expand them it, it,

from help to on standpoint, the you Does my opportunity consumption point? frictionless of way. and kind enables that in Mike, a So almost it -- that enabling it's continue prosecuting

Mike Cikos

does. does. the commentary XQ you. Yes, It And on profit? Thank It the go ahead. then

David Barter

question. Great Yes.

So maybe, I in terms a messaging. of job didn't guidance on good do

$X.X about is, we felt highlight trying to what think the operating were million good very non-GAAP of I profit.

of offering went came a on think and bit a little we nine ahead XX. I QX, we guide high to in

then a year, I that, up little that bit the on think the just consensus was at for with that nudged midpoint. full below line midpoint, it in And outlook. we

So to that's increasingly say, and optimistic communicate the through drive outlook. growth we're around to our we profitable ability what are I'd trying

Mike Cikos

Thank New guess here in on one more quarter earnings up. goes I call great. to what That's, I guidance? on now philosophy for if if just maybe And in clearing could. Dave, the if that us the been CFO seat But this I you're have changes help congratulations. you that any could but with and is you implemented I the role Relic, for could your first about think an New Relic tack about way its know for

place earlier. the tier talking And price the increases it's you. took but way it pipe? And down the Thank come is up I about know, new data shown coming in the that in hasn't business yet, to guys also start that still up has or the any extent possible, that can what model, you

David Barter

the second a is sequential range million would, the from this in half for What implies $X it step million. I of standard. end a had I an is of of out in guidance, last maybe, top $X That'd to I kind in about of maybe observed implied But couple I had acceleration and QX that be great. think bit I'd midpoint on it. call, guess buy a Well, to in call think a up think terms QX, guess I what you said of I others observed guidance, the of I

look it, So outlook. that what is find I lens it think the at as you'll has through you a consistent very

is on highlighted of as profitability started say particularly reducing guidance maybe close costs our Yes, specifically in element, real other I'd need factor well, in to And of in highlighting to we the it down onetime some the off that we earlier our as I'll mean, this write X.X, highlight sometimes, by leasehold I associated the what with offices estate. I improvements. is, some I'm

charges. non-cash So

at to off to ourselves points bit as have we So opportunities of different that find left knowing little we room can roll will work, sublet. a in time leases

So, on have footprint, of non-cash opportunities bit that again, that I that, I'd multiple real given help charges. profitability in minds? at terms of things like feel we've that were ourselves kind profitability terms to be we guidance we shrinking again, Does that room that But estate methodology the with we'll multiple in levers think say work knowing can and impact least and increase. of of some a little knowing to of some our

Mike Cikos

Thanks, David. around definitely asked It well new And rolled it the well I was out. core to the believe guys the the you in that was I It tier had does. definitely does. data June. increased then have as – I guess that as pricing data question as other

David Barter

a would it's standard if of basis able our opportunity, would to the well. right is they'd is enhanced have observability to as features, to one-off customers they these offer data like like to a Yes, only on standard question. What have some is at they Customers, like go if up I we but And think buy they're them to plus $X.XX. that $X.XX. now also great

We're pleased over that as or as more the adopt in people we're pleased or on adopt premium people think well HIPAA with so Data and standard. say the time seeing high-performance momentum the we're of what that have FedRAMP structurally But you'll is as platform. such I'd continue And how choosing people features time and queries. Plus we with data mix and I to more price climb see over what as

Bill Staples

a Yes. previous shared just I on calls. think reminder we've And

and happen until majority majority price good contract this of that price QX of our we customers And increase have comes very in increase in we For Once very standard their renewal. customers success good increase good in up more for the success Data QX introduced renewals Plus. getting as QX. acceptance on The and the QX. and happen the doesn't had data and from quarter price customers QX well into more

and about adoption QX definitely renewals. the as coming that's and and go feathers our It especially year the into revenue QX, throughout majority the uptake. So happening good we of

Mike Cikos

Awesome. it it. you, Appreciate there. leave I’ll guys. Thank

Bill Staples

much. so Thanks

Operator

Please go today of next The you. from comes Turits the Thank question from ahead. Michael line KeyBanc.

open. now is line Your

Michael Turits

to the year on like the see raise really Hey, that. EBIT discipline guys, guide in good evening. dollar And for I the

– to come wanted the clarify really just pattern. clarify on on I to consumption back consumption the So

$XX consumption. incremental rate run So million

are be And it's it but a down goes rate you're mentioned the couple you is year, where to just flat? past that down was you increasing that up guide consumption quarters? of the growth rate the for – rest So record bringing clear we over stays that that if the and growth of anticipating are

Bill Staples

Good Yes. question.

we reminder what or day annualized run is measure a maybe do the CRR the business. we is. First rate of on value What every consumption

present and consumption that the it from day's What describing there. So we take was sounds mute measure every unmuted. single It is throughout is value, annualize we like day. somebody quarter I line that can –

the by offsetting business I day or that. take since that walked measuring did six ago the We're consumption minute of mention I and that a that as and most see if But the net in day it of we the for quarters seen quarter is through we in the quarter, in one it a $XX decreases CRR million last you the so. compare we've significant causes that. began the today, excited ago And about increase increase.

And measure QX As the throughout brings patterns into look different consumption every we consumption this measure day of real-time value. the forward is quarter. a and QX,

it QX expect continue increase. go We to we to QX to into and as continue

many eye are their commitment on and the between the imbalance consumption commitments the we of run As an Dave over keeping given rate customers pressure increasing consumption puts that XXX% already. mentioned, with

and the that's we don't they increase expect guide, look do but reasons, for QX. eye impact an rate at budgets And to incur executives on was expenses. at run are keeping those continue look unplanned and We closely happening in consumption the also that ensure to we to it felt any the macro prudent to as QX

Michael Turits

Okay.

So run it increase, guess rate the I No that consumption as I was questioning. rate? growth

David Barter

asking are of about consumption? Michael, sequential the rate growth you

Michael Turits

year-over-year No, growth rate.

David Barter

growth... The year-over-year

Michael Turits

year-over-year that know increase. growth increase. rate I continue will to likely So consumption

David Barter

see can what I if I'll look and I you take a let for me have tell have -- fingertips. another you Michael, let my if at see if me Bill question

Michael Turits

could on yes it we let just to could us clarify No, -- that afterwards. be And think FX. would But you I great. talk if know then also about

-- You in you billed thought dollars. mostly I guys do

thought issue impact was or to mostly that it relative strong I FX I is dollar, the demand is guess portion So some -- there dollars? a

David Barter

yen that just that's mostly When up one Michael, set in our very are dollars. be in Japan We subsidiaries we well. those that footprint to set and we of happens up done

Michael Turits

Okay.

David Barter

we're of we're that just there impression what And outlook. is I hence seeing out And the again accelerating pressure wanted telegraphic just seeing. the

Michael Turits

Okay.

that was XX. missed I it Sorry

David Barter

Michael else? different. that's So anything

Michael Turits

fine you hear rate growth can No, question I back it no. later. That that like it. appreciate that get it. to was on I'd if Yeah,

David Barter

Okay.

Operator

today ahead. Please & The line next comes Wood Co. question the from go you. of from Derrick Thank Cowen

Your line is open. now

Derrick Wood

a for really that you could developer seeing personas. Thanks use targeting Are guys. well as offsetting indicated my slowdown free and what seeing are look dynamic? of look taking And cohorts paid less you question. guess for I for are as new Bill that? mean, customer across Atlassian they're Hey, guys to motion. thinking all in cases, kind like geos you if same about new you hiring I

to there's Just playbooks headwinds? those macro curious of some if any counter

Bill Staples

free pay coming tier up coming quarter. I question. say, and and new and platform seeing. the the to actually, them XXX customers then in, the listen success Yeah, motion on the Atlassian I'd the go this having quickly. customer they're signing And very No, customers and come into that great is expand into around acquisition. it's for see growth paid to platform strong did product-led mentioned that trends That call exciting first I with interesting call new we're graduating to

we're seeing that on front. headwinds no So,

developer different Atlassian. the user engineering very important that and is engineering low-priced differs On our model consumption factors. heavily, ubiquitous other It's it's teams have where they to situation, from a headcount how I within by influenced a seat and very front, fairly various guess, user-based understand model

almost opposite the Relic, it's New With of that.

We have very users. in terms a low of penetration

actually I that's As opportunity It's to observability, a few our mission-critical said grow. workload. practice and very also earlier, engineers

of plus like per that, I cost the $X,XXX think is it's says Gartner IT average minute. downtime

report that, full million. organizations XX% a XX million one downtime companies and single of of $X minutes downtime they think a third estimate say hour of downtime I of costs hour that cost costs $XXX,XXX, that to $XXX,XXX $X of says XX%

New a seed the Relic on at dollars. see price incredible. And trees Relic forest to cost to $XX month. the the -- you millions kind ROI They're to of entire the user of be might user can New for for starting with there. for price of that paying month see an is troubleshoot able starting The $XXX Contrast an per that happen business incident the

and user in see. actually don't of to that are data So not believe will we expect and very saw good this terms and growth, seeing continue. there both We the in headwinds growth users quarter,

Derrick Wood

give pretty this due changed take to the been expenses. that you all know sure P&L, that's on cost Great. efforts. conference then, for drop That's saw additional And in you that, last helpful restructure of to year? quarter a that, sequentially. able in we could a decent color. And you've a even But sense at structure just sales commission that some sizable change know a I for had and out? expense for accounting where Has marketing the costs had Dave and drop us I one you year. you But I'm last

David Barter

the the address first part I'll part. I'll get to last and – then me Let

of $XX year, to the commission about million. had In extra terms we year – last about legacy have This the commission $XX related we of structure, model. million the

we area, way it I'd and still, by say is the overburdened naturally, sales $XX we're with million. end about say $XX I million I'd up but So that think it's tailwind about in marketing,

number year see its continue about very is I from efficient certainly – you'll a is one motion. driver. perspective time out P&L, higher which that's a cap total from work high last of X% I just XX%, to and revenue guess, was efficient and a motion now say this a the would very that, that the of almost other product-led it's our and way a at ebb So driver, magic

get product-led I motion of find down we our going Derrick reps, think sales a sale. able and continue cost to As our that motion aligned be to we're overall to that driving account you're with traditional going

of to that's to areas focus So continuing one find my that.

Derrick Wood

it. Got Yeah. you. Thank

Bill Staples

you. Thank

Operator

today the JPMorgan. of from from ahead. question Please Noah line go Thank you. The next comes Herman

Your line is now open.

Noah Herman

is This Pinjalim. our quarter, for taking Hey, and the guys. questions. on Congrats Noah on

fiscal to there think be reduced? look Just of two then through quick where really on And you that on quarter? cost referring a any anything way maybe initiatives to growth just And as there saving the maybe year? was questions. going other the consumption to sort maybe think costs can you to trends. basis this elaborate or Maybe back the monthly about some October Is what that outlined next we, the linearity maybe earlier. of, into Is

Bill Staples

increases Dave months I'll take consumption you strong saw growth of can On the QX. question. Maybe linearity on we all costs. quarter opine consumption the consumption in three linearity,

month The were second stronger and than first. third the

this This is. quarter in -- bit a October month of consumption quarter month was -- first of little that first last quarter quarter's last ahead

we're that. So values not sharing on the month-to-month

But our some that gives sense can how information a the you hopefully around You it's see for investor letter more key of trending. in metrics.

David Barter

areas. In I into terms out three guess, break I of it cost,

as what just product. as I finding our out savings climb gross where and the we continue our strategy legacy naturally to down cost multi-cloud think, I we also just from as in strategy the continuing, shutting are We suggested engineering find both but remarks we're on centers, build multi-cloud my prepared we building margins how are

think we I to So enthused. be continue

higher. a of but and we think journey. or I point would an not that broader XX% a it's highlighted of finish a That's just we is margin kind that at a gross milestone checkpoint ending

So you'll come to down. see core continue

You'll to continue that. continue opportunity estate, optimizing to we And to sales and alluded I in efficiencies. then see on G&A as marketing real have an certainly

on that and we'll cost up drive imagine press margins. can you So

Noah Herman

you so helps Yes. Thank All much. that a lot.

David Barter

Thanks. Yes.

Operator

from from next the The question of today Jaluria comes RBC. Rishi you. Please ahead. go line Thank

is line open. now Your

Rishi Jaluria

questions. much Two Wonderful. for Thanks see for questions underlying to me. business. And so in nice my taking strength the

about by wanted churn. asking I start to First,

macro I'll terms are add to a customers? but New that seeing you And follow-up. what in those -- wrinkle spend Just I've existing from unplugging, your Relic? of of just those quick a got headwind that actually the with fully reducing terms And then their in of maybe light who are are in the not churn

Bill Staples

on lenses couple churn. A Yes.

churn dollar we shared point back the numbers. if a our that reached around Day May, And low final quarter. you Investor we X% at had in think in remember, I of

the would of churn new quarter first week few a did for been a We quarter. another that but record, In of in mentioned the we in achieve the out the deals X%. low of record closed slipped have QX, new low and QX actually

our So success we that are helping proud and the customers work on continue realize value the to stay platform after. that in and of they're to

customer legacy the -- have I churn around terms so earlier platform it continue came us to this out, churning small credit a customer count business that into and count In we that paid allow that are customer our on APM put but last offsetting file churn or charge new customers mentioned customers but of XXX growth. to quarter, that XXX of very card

much coming that Overall, it's the when answer your full we And because feel a very good look growing into we and rolls question? adopting Does platform customers about new that faster. platform future are off, obviously as forward the that the trend ahead. exciting churn churn

Rishi Jaluria

think CRR then a know of kind trends very going be metric. And us call very, number? feels cetera, that And help directional it seems et I a one. I color to through a Thanks. is why helpful. Really sort the this lot that. Look, around some kind consumption of overconsumption, outright quick as for you slide and environment. really around it of there's some like Thank does. important been a especially absolutely throughout just stuff this having conversations the you in That we've would cut like that and that in deck. give of noise But not -- disclose just

David Barter

question great a Rishi. It's

share CRR. using give up I think we think end model, will and as a an we prepare analyst update long-term to I

a Bill a I kind do we like smooth use think of little question highlighted to in because there's bit. it point it on as It's it's of in a basis balance kind as time moves still sheet probably my mind measure. almost a and a

a you adoption. representation best the users week thinking it's thinking useful time that definitely that in But it's of bit as and almost I kind through measure. to want metric. but present metric, of good spend knowing with a it's still perfecting platform whether you to as so XX-day, so little through that we're a give and way rolling to more a possible say rolling a data And We every line one it's I'd

Rishi Jaluria

Thank appreciate I it. really Awesome. you.

David Barter

your for you question. Thank

Operator

today next your open. the question comes is line Please Bachman from ahead, now go BMO. from Your of Keith line

Keith Bachman

good ask of evening, time. afternoon. in the Thank the Good my two concurrently at just the back We're you. interest of hour. I'll questions part

capacity to symmetry back and the of one consumption around you're bring versus customers at our yet contract. recent those is their pay trying mentioned into first in for XX% are related to closer And XXX% The conversations the of you some XXX% and so some speak. are to

get -- trying bring to how some think Because the takes? your I New work a bit it's model How to It like long you is doing side on customers of a two Relic these do a your it try model, little And base where change balance? more customer think the bit. but variability you're maturing quite you caused condition bit this bit, how sounds of is in you're caused a in to there? historically, you go-to-market little little but do

So, question that's one.

actually -- customers, that metrics these size did what's that adds I size any you customer winning words, there give is In Is the of the a case? you what's why given land you us new thanks. of second customer you'd color win frequent kind add other land? if around are hoping what's a histogram maybe what's on me the or Many XXX new was little -- customer, the of impressive the you thought the I quite could And macro. the was give a bit what's more kind

Bill Staples

Yes. Thanks Keith.

question First commitment. balancing to CRR and around your

important we first eclipsed the that one of the think piece our customers of into I just of to is year context platform. majority migrating remember

they to commitment model. had make. full used that hard It a commitment a brand-new so year it. customers platform And value never was first understand pricing was for the our because of the didn't They

for they would customers access price, of to some having seeing thought they Many, platform commitment. first customers They up best or but than more ended hard way budgetary their many more year that created where one what's consumed many, may of commitment. offering we're headwinds first are make platform that And all-in-one XXX% We tried exceeded year this very expectations many the that's commitment. a have them we're our before, they to used now original APM now and with to them. guide their

You're right maturing. we're They that a the have in platform. now full year

their structure to a them, growth, in dynamic. year. full the We we've We year increased increase executing. contract at put both more have help commitment time. them for for And add to top-ups allows have now the got didn't incentivize first they this budget into right of where importantly, that to a tools any that That can also most them,

the low we year, also make we early didn't also the third, up Once in no now you we first plan because risk risk any year. offer ability an your or commitment. basically ability commitment, if to the our that not consuming again, the end And up to -- can with have for them. the contract renew you in to then ability roll full structure offer We additional have savings forward funds

customers of we that to for sellers, commitments consumption commitments All right-size none year. much our had is those of easier with patterns those our it to and to makes their now last make available

So, think I help us going that's bit. to quite a

And the two-thirds QX quarter through in as the I will. if and the or to of the get cycle -- have us. we so before next. business the that quarters do do for this we re-contracted in next the customers and you QX getting course, biggest go rightsizing are Think is renewal to renewal like Of with chance mentioned,

go those And getting to a so, way in more that will help long us balance.

often in in a we circle developer marketing motion, a mind their as share lot. word-of-mouth invested even the means To customer the company And your continues ultimately, Relic lot trust. own developer-first, of free a capability we budget, a matters doesn't of growth great lot. as known a course, the product-led was APM why a can New developer a tier as yes, cloud-first, because We're that developers case, as final tailwinds. is and us adds, It's if the see it's question as around of a give brand to strength the

first their that their the we've also that discovering We and platform a trust and full their share. then win get just they reputation want win of all with in and to to mind coming easy us lot the APM in are a we brand And coming not their evolved also have, but the quick us way customers minutes new their their for to over of platform and instrument three it get visibility just infrastructure there, but time, is application logs and how few to stack.

that proposition these other to the card free, hey, And that competitor to no their then them I really required. does in want of more say, it no want card credit add go. teammates, do for and a size they bit. my That's we leads data and credit The quite add can I in to they way offers value powerful a put customers really range

at As I some start -- free. out mentioned, they all

Each dollars a see quarter, month. hundred few a cohort pay dramatically quite over and of first expands the card in come five to the that we credit their their add Some four quarters. customers consumption

can come for and get want they or realize they retail. even than better rates And the some month in contract a customers two, so even a

and Timber I with and paying we tier a six-figure as came mentioned contract, annual under And through in so, free spend this got Relic. contract New they're them funnel

very those Relic their strong but get where customers on motion that model sales-led into now high support they consumption from high-volume widely, into to can we're varies even and expand our focusing it's a efficient it New helping more So move contracted consumption.

Keith Bachman

All right. Perfect. Many thanks.

Operator

call Capital line Please today's go of The from the question Markets. from for Kim Thank Loop last ahead. you. comes Yun

line Your now is open.

Yun Kim

All right. Great.

quickly introduced the to the success serves that for and as CRR. It renewal looks your like between Just program, gap future Obviously, proxy opportunity a the and early commitment want with you regarding an business. that question had the on a in represents you up the follow gap the quarter.

regular at what And commitment, renewal uptick this Thanks, early cycle in that's given in So expanding then even incremental there? should gap? your expectation is least drive that renewal of also, the some gap renewals, half, program without the early out reflecting regarding second

David Barter

,Yun you Yes. the Thank question. Kim for

-- million, will What actually it's and be was the QX think the helpful. It $XX up do with about XXX%. cycle X%. net think the we is [ph] I ACR about QX expansion interesting went that of was in GAAP even

quarter at I XXX%. think the we finished

have question what or the actually focus reason consolidation that whether with work support we line cloud expansions, plenty in with. customers to strategy almost of think on or commitments continue tool I just earlier, transformation, are in to is contract continuing So, digital doing they to and the it's their

thinking the even went percentage gap ironically, of success with kind So last point. went actually one up we the quarter, of

just And as whatever with, to digital so, contracts, we'll supporting focus a key execute work they continue maintain giving transformation customers plenty expanding cloud on them our to or and have. priority initiative may they on

Yun Kim

it on quick anniversary of that Does renew length, the contract especially does end on Real the contract? one-year renewals. a of at the original one-year Great. at renew length, early or kind

David Barter

we're days continue -- in And strategy. phasing other three-year in one-year early the terms very contracts. shop, you'll multiyear see multiyear something We're of days to to play the out, early contracts. But support that's annual the Great order in been of contracts that much traditionally a in through question. we're of shifting RPO measures. and We've to in

Yun Kim

much Thanks for so questions. the

David Barter

you so much. Thank

Operator

concludes That Thank today's you. question-and-answer session.

like for to ahead. go over I'd Bill Please Staples pass So, to closing remarks. the conference

Bill Staples

interest to company really questions QX solid thank express quarter Relic. growth. world, all opportunity New to excited all gratitude of you really work in around to I'm I'll customers, call. today's the them by Relics profitable and and We and resume for for your tirelessly new you. and we our a as Hey really ahead. who the my was the a joining appreciate chapter serve

on these the further uncertain And and for of really to I times to road set customers believe quarter, observability the own their both has time. business and we've successfully predictability wherever in of greater interest your support, again manage Relic this forward undergone and to and transformation, spend, and New product again, to us many and digital opportunity in up help Thanks seeing bring or all through arises. efficiency better look your I the next for their model, business. -- you until

Operator

conference call. participation. concludes your Thank all This you today's for

You may disconnect your lines. now

New Relic (NEWR) 8 Nov 222023 Q2 Earnings call transcript