New Relic Q1 FY2018 beats on top and bottom line, holds guidance

SUMMARY:

New Relic handily beat analyst expectations but remains relatively cautious in its forward projections. There’s plenty to look forward towards as it expands its physical footprint, especially in Europe

new relic q1 FY2018

New Relic Q1 FY2018 (statement) was solid, with beats on revenue and operating loss. Forward guidance was in-line with expectations for which you can likely predict that the company can look forward to a future beat. First the numbers for which check out the graphic above for the highlights.

At the risk of repetition, revenue at $80.1 million was more than $2 million ahead of estimates, while operating EPS of -$0.09 was well ahead of estimates of -$0.13. A good part of that improvement came about from a 10% improvement in operating margin. Operating cashflow was $17.7 million compared to $3.4 million in 2016. Current and future deferred revenue was steady at a combined $133 million.

This year, New Relic is focusing upon expansions inside existing accounts while continuing its ‘land and expand’ strategy. On the call, CEO Lew Cirne reiterated:

As we shared on our last call, our primary goals entering this fiscal year are to extent our leadership in the cloud as well as capitalize on our platform expansion strategy. We aim to be the day facto of standard for monitoring, measuring and analyzing every enterprise digital initiative running in the cloud.

That confirms what I heard at this year’s Berlin Future Stack event, where customers talk about early wins encouraging expansion well beyond the ‘credit card’ sign up that’s possible with New Relic’s operating model.

On the call, New Relic reported expansions at a slew of customers including well known names like Ancestry.com, Cox Enterprises, Discovery Communications, GeoPost UK Ltd., H&R Block, Ladbrokes Coral Group PLC, News Corp, Northwestern University and Ryanair Holdings. New logos included Alaska Airlines, Pfizer, HSBC, Texas Instruments and Chelsea Football Club.

From my conversations with the company, it is clear that management is especially proud of the fact they are now in a rhythm that regularly sees them signing multi-million dollar deals.

Success in software is often a matter of timing. New Relic has got that vibe going well for itself as the confluence of dev-ops, an increasing comfort with cloud technologies and new ways of working are accelerating across multiple industries. Cirne notes that:

To increase the velocity of their journey to digital, they are adopting dev-ops practices and increasingly running workloads on cloud platforms. These modern cloud first enterprises have very different requirements for monitoring than ever before. Digital is so strategic to their overall business that they now need to look at a single source of truth to understand their infrastructure health, application performance and our customer’s experience.

And we make it easy for them to deploy and use New Relic, in fact I recently met with an exec who during the initial stages of a pilot rolled us out to monitor just four applications and within a week they already had us deployed across 40 applications. I tell that story because it speaks to both how quickly our customers can deploy our technology and how they can immediately begin to see value from our products.

When we met in Berlin, Cirne talked about the continuing work on Project Seymour. On the analyst call, he expanded upon that theme:

…we also delivered increased intelligence into our platform by beginning the rollout of Project Seymour, which provides our customers with more accurate and actionable insights into their increasingly complex environment. Seymour leverages unique machine learning algorithms to surface targeted and actionable information to users depending on their role and their interests.

My take

New Relic is one of a few companies with which I deal that are easy to like and which always bring a smile. They represent a new breed of vendor that has successfully combined integrity, fun, fresh thinking and laser focus on execution. That combination makes it easy to see where they are going and how they will be successful. It helps that tone at the top is directly reflected in operations and outcomes.

From a market perspective, companies like New Relic are noticeably more predictable than others, hence the company’s confidence in reiterating guidance rather than falling into the trap of making outlandish predictions that come bite the company later. Instead, we tend to see a steady set of beats.

The announced expansion into Europe can only bode well for the future.

Image credit - New Relic earnings slide deck

Disclosure - New Relic is a premier partner at time of writing.

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