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Edited Transcript of NEWR earnings conference call or presentation 4-Feb-20 10:00pm GMT

Q3 2020 New Relic Inc Earnings Call

San Francisco Feb 21, 2020 (Thomson StreetEvents) -- Edited Transcript of New Relic Inc earnings conference call or presentation Tuesday, February 4, 2020 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Lewis Cirne

New Relic, Inc. - Founder, CEO & Director

* Mark Sachleben

New Relic, Inc. - CFO & Corporate Secretary

* Michael J. Christenson

New Relic, Inc. - President, COO & Director

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Conference Call Participants

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* Christopher David Merwin

Goldman Sachs Group Inc., Research Division - Research Analyst

* Hannah Rudoff

D.A. Davidson & Co., Research Division - Research Associate

* Ittai Kidron

Oppenheimer & Co. Inc., Research Division - MD

* James Derrick Wood

Cowen and Company, LLC, Research Division - MD & Senior Software Analyst

* Jennifer Alexandra Swanson Lowe

UBS Investment Bank, Research Division - Analyst

* Jon Philip Andrews

Needham & Company, LLC, Research Division - Senior Analyst

* Keith Frances Bachman

BMO Capital Markets Equity Research - MD & Senior Research Analyst

* Matthew Melotto Parron

JP Morgan Chase & Co, Research Division - Analyst

* Michael Turits

Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst

* Mohit Gogia

Barclays Bank PLC, Research Division - Research Analyst

* Robert Cooney Oliver

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Rustam Kanga

JMP Securities LLC, Research Division - Equity Research Associate

* Sanjit Kumar Singh

Morgan Stanley, Research Division - VP

* Steven Richard Koenig

Wedbush Securities Inc., Research Division - MD

* Gregory Ryan McDowell

ICR, LLC - MD

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and welcome to the New Relic Third Quarter Fiscal Year 2020 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speaker today, Greg McDowell, Investor Relations. Thank you. Please go ahead, sir.

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Gregory Ryan McDowell, ICR, LLC - MD [2]

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Thank you, operator. Good afternoon, and welcome to New Relic's Third Quarter Fiscal Year 2020 Earnings Conference Call. Joining me today are New Relic's CEO and Founder, Lew Cirne; CFO, Mark Sachleben; and COO and President, Mike Christenson.

Today's conference call contains forward-looking statements. Any statement that refers to expectations, projections or other characterizations of future events, including financial projections, financial guidance and future market conditions, is a forward-looking statement. All information provided in this conference call is as of the date hereof, and New Relic assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

For information about factors that may cause actual results to differ materially from forward-looking statements, please refer to our earnings release issued today as well as the risks described in our most recent Form 10-Q and subsequent filings with the SEC. Copies of these documents may be obtained by visiting New Relic's Investor Relations website or the SEC's website.

Our commentary today will include non-GAAP financial measures, which we believe provide an additional tool for investors to use in evaluating our operating results and trends. However, these measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliations between GAAP and non-GAAP metrics for our reported financial results can be found in our earnings release issued today.

At times, we may offer incremental metrics to provide greater insight into our business or results. This additional detail may be onetime in nature, and we may or may not provide an update in the future on these metrics. I encourage you to visit the Investor Relations section of New Relic's website to access our earnings release issued today, supplemental materials that accompany our earnings release, periodic SEC reports, a webcast replay of today's call or to learn more about New Relic.

With that, let me turn the call over to Lew.

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Lewis Cirne, New Relic, Inc. - Founder, CEO & Director [3]

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Thank you, and good afternoon to everyone joining today's call. Joining Mark and me today is Mike Christenson, our new President and Chief Operating Officer, who started at the beginning of Q3. Many of you had a chance to meet Mike during our Investor Day in December in New York, where we laid out our growth strategy and vision for the future. For those of you who are unable to attend or haven't yet seen a recording of the event, we encourage you to review our presentation on our Investor Relations website.

New Relic exists to help our customers create more perfect software, digital customer experiences and businesses. As digital becomes the primary channel for how business is done, companies simply cannot afford to have downtime or poor software experiences. It costs them in terms of lost productivity, lost brand affinity and lost revenue. Companies must be up and available 24/7.

New Relic delivers full visibility across their environment, which helps companies precisely pinpoint where issues could arise so they can quickly fix them before their customers are impacted. We serve the teams responsible for the performance of digital systems. When something goes wrong, they don't want to have to open up a collection of disparate tools to pinpoint the issue. During a system disruption, they want a single platform to see all of their data in context with a unified and simplified user interface.

Our customers demand a single platform that has 3 core characteristics. First, it must be open, so they can bring in multiple data sources across their systems, their applications, their infrastructure and now from their logs. They want a connected platform built on a single scalable database, in our case NRDB, so that they can quickly understand how all of their systems are connected. And finally, they need a platform that is programmable, so they can customize their observability platform for their unique business needs.

We have a long history of delivering curated experiences out of the box for our customers. However, many of our customers have incredibly complex environments. And they need a customizable, programmable platform, one that lets them build their own applications on top of their telemetry data in order to reach the gold standard of 99.999% availability for their mission-critical applications.

Our platform scales incredibly well to help the most demanding companies deliver the most available and incredible customer experiences. And that's exactly what we delivered with New Relic One, our observability platform, which we launched in the end of Q2, featuring New Relic Logs, serverless, Metrics, Traces and programmability. Given the breadth and depth of these new platform features and capabilities, our primary job in Q3 was to train our sales teams to sell the platform and educate our customers in the market at large about these exciting new capabilities that we believe is unique and only in New Relic One.

In Q3, we traveled the world and hosted global FutureStack events in London, Sydney and Melbourne, delivering our platform story. And while we're still early in our platform journey, we're seeing success with our customers. Today, over 45% of our $100,000 customers have 4 or more paid products, up from roughly 17% from the end of fiscal year '17. In its first quarter on the market, we secured nearly 100 deals for New Relic Logs. Two of these deals were 7 figures, which illustrates the power of observability all in one place as our customers want logs in context with the rest of their observability data.

Case in point, during the quarter, a large video conferencing company agreed to standardize on New Relic across APM, Infrastructure and Logs. They were previously using 3 different tools, New Relic APM and 2 different competitive offerings for monitoring their infrastructure and their logs. They consolidated onto the New Relic One platform and now can see all of their application, infrastructure and log data in context. So when there's an issue, they have one place to go to quickly pinpoint and find a resolution. What's more, they've seen significant cost savings in consolidating their tools into the New Relic One platform.

Also, we are making it easier for our customers to adopt the full platform of products. Through our New Relic Platform Pricing program, our customers commit to a certain level of spend, and they can spread that cost across whatever products they want. They get the predictability they need for spending, combined with the flexibility they need to use the right product at the right time, in the right environment.

This December, we joined many of our customers at AWS re:Invent, where we were a sponsor and showcased how our latest platform innovations can help them gain visibility into their workloads across clouds. We issued the results study from Forrester Research, which reported that New Relic can reduce the cost of moving the application to the cloud by 95% and help deploy applications into the cloud 90% faster. What's more, Forrester interviewed 4 existing customers and partners and measured a potential ROI of 191% with a 3-month breakeven on investment. The value we can deliver to our customers adopting the cloud is tangible, which has led to our strong go-to-market partnership with AWS.

Our customers tell us we have the most complete and useful platform for observing Kubernetes clusters and their workloads. We just had a big presence at KubeCon in San Diego last November, the industry event for Kubernetes with more than 10,000 attendees. As I demoed at Investor Day, New Relic Infrastructure brings together critical observability data, metrics, events, logs and application traces, all in context inside a single, beautiful, unified user interface. That's the value of our Kubernetes cluster explorer, and it delivers complete observability.

Finally, we recently announced that Bill Staples will join as our Chief Product Officer on February 14. Bill comes from Adobe, where he led the engineering teams behind Adobe Experience. Before that, he spent 17 years at Microsoft, working on the Azure cloud platform and many other initiatives around developer-focused products. Bill knows how to build and scale world-class cloud, engineering and product organizations and businesses. But above his resume and relevant experience, what's most important is that Bill shares our core values and a passion for creating products that customers love to use. Reporting to me, he will be directly responsible for leading our product, engineering and design teams to execute on our strategic product road map.

With the addition of Mike and Bill, we have grown the executive leadership team at New Relic and are excited about the future ahead.

In summary, New Relic remains committed to growth and to our strategy laid out at Investor Day. We believe we have the most complete observability platform in the market, and our customers are responding favorably. Now we are working hard to enable our go-to-market engine to bring these rich capabilities to our customers as a complete platform. And we continue to hire world-class leadership and team members to advance our growth objectives. Our job in Q4 is to continue executing on our platform vision, including the upcoming launch of our enhanced AIOps capabilities.

I'll now turn the call over to Mark to provide details on the numbers.

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Mark Sachleben, New Relic, Inc. - CFO & Corporate Secretary [4]

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Thanks, Lew. Now turning to the financials. Revenue was $153 million for the third quarter, up 23% year-over-year and above our guidance range of $148 million to $150 million.

As a reminder, at our Investor Day in December, we shared with you that we were targeting to end this fiscal year with $635 million in ARR. Based on our bookings results in Q3, we believe we are well positioned to hit our $635 million target. We ended Q3 with 926 paid business accounts with ARR over $100,000, up 13% compared to a year ago. This growth represents both new logos landed as well as installed base expansions derived from increased usage, expanded application coverage and the cross-sell of additional products.

Our annualized dollar-based net expansion rate in Q3 was 109% compared to 122% from the year ago period. Looking at the trailing 4-quarter average, our dollar-based net expansion rate was 115%.

At the end of Q3, enterprise business was approximately 62% of ARR, up from around 56% as of the same period last year. In terms of geographic split, U.S. revenue was $104 million for the quarter, up 22% year-over-year, while non-U. S. revenue for the quarter grew to $49 million, up 26% year-over-year.

For Q3, our non-GAAP gross margin was 84%. Non-GAAP operating income was $3 million or 2% of revenue compared to $8 million or 6% of revenue in the same quarter last year. This result was at the low end of our guidance due to continued head count growth.

We had a strong hiring quarter with almost 100 net new hires and are continuing to add capacity in Q4. Overall, our non-GAAP net income attributable to New Relic per diluted share was $0.09 compared to $0.19 in the same quarter last year.

Turning to cash flow. Cash used in operating activities was $14 million. Free cash flow, defined as cash used in operating activities minus capital expenditures and capitalized software development costs, was negative $33 million. On our balance sheet, we ended the third quarter with approximately $737 million of cash, cash equivalents and short-term investments, down from last quarter's $772 million total. Elsewhere on the balance sheet, our total deferred revenue ended the quarter at $237 million, up 15% year-over-year and up 2% sequentially.

Now I will turn to our outlook for the fourth quarter and full fiscal year 2020. For the fourth quarter ending March 31, 2020, we expect revenue to be in the range of $154 million to $156 million. We expect a non-GAAP operating loss of $2 million to a breakeven result. This would lead to non-GAAP net income attributable to New Relic per diluted share in the range of $0.02 to $0.06. As we look into Q4, we anticipate deferred revenue to increase in the low-30s on a percentage basis from Q3.

For the full fiscal year 2020, we now expect revenue to range from $594 million to $596 million, an increase from our prior guidance of between $588 million to $593 million. We expect non-GAAP operating income of $19 million to $21 million versus our prior guidance of between $21 million to $25 million. This would lead to non-GAAP net income attributable to New Relic per diluted share in the range of $0.54 to $0.59 compared to our prior guidance of between $0.60 to $0.67.

Taking into account cash from operations for Q3, we now expect cash from operations to be between $67 million and $72 million for the full fiscal year, which is down from our previous guide of $90 million to $100 million. For free cash flow, we expect to be between $3 million and $8 million, which is down from $30 million to $35 million. As for capital expenditures, we expect total CapEx to remain within our previous guidance of $55 million to $60 million for the year.

As a reminder, for the reasons we touched on at Investor Day and as we elaborate in our 10-Q, we will begin reporting new metrics in fiscal '21. Beginning with the quarter ending March 31, 2020, we will be including quarterly ARR and percentage of ARR from paid business accounts with ARR over $100,000.

As mentioned, we believe we are well positioned to hit the $635 million target for fiscal '20. And these metrics reflect the renewed commitment we discussed at Investor Day to invest for the future in order to drive accelerated ARR growth in fiscal '21 of at least 200 basis points year-over-year. We expect the improved ARR growth would then float into improved operating cash flows on route to our long-term targets for fiscal '23 highlighted at Investor Day.

With that, I would like to open the call for questions. Operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question is from the line of Sanjit Singh from Morgan Stanley.

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Sanjit Kumar Singh, Morgan Stanley, Research Division - VP [2]

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I guess I wanted to start off on just the team's view on sort of the underlying demand environment. So I want to understand, as I look at the metrics, a nice beat on revenue. Billings sort of came in line. When I look at your implied billings guidance in terms of, Mark, what you said, for low-30s sequential deferred revenue growth, that also sort of came in above where we were expecting. I think the one metric that was a little bit surprising was the dollar-based net expansion rate, which ticked down versus this quarter. So in a way, if you could just, Mark, sort of address the dollar-based expansion rate this quarter, and then what's sort of the team's view on the underlying demand for New Relic in the December quarter? How would you sort of characterize that?

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Mark Sachleben, New Relic, Inc. - CFO & Corporate Secretary [3]

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(technical difficulty)

where some people were dropped off. And so I genuinely apologize for that. The recording will be made available, and the script -- the transcript will be made available later today. So apologies for that. But getting to your question, Sanjit, so the dollar-based net expansion rate did tick down from 112% to 109% in the quarter. When you look at our over $100,000, that number is stronger, that number is up. The trailing 12 months for that has been about 123%. But the overall number in the quarter was impacted by customers -- a couple of customers -- a number of customers reducing their spend and rightsizing their spend with New Relic.

In particular, we had one large customer. It's a multimillion-dollar customer. They signed up for New Relic, upgraded a year or so ago. At renewal time, they reduced their spend and rightsized their environment. Not all projects and deployments go as expected. This is one case where that was the case. And so they rightsized their investment in New Relic. They continue to be a multimillion-dollar customer, and we expect them to be continuing to increase their subscription rates going forward over the next couple of years.

We do expect our net expansion rate to improve to the best of the year in Q4. And overall, I would say that the demand environment is healthy. We continue to think that the market is very attractive and something that we want to continue to go after aggressively.

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Sanjit Kumar Singh, Morgan Stanley, Research Division - VP [4]

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And may if -- I have one follow-up for Lew. Well, you brought in a new Chief Product Officer, Bill Staples, from Adobe. Can you talk a little bit about what his sort of mission statement going into next year is going to be? What's going to be in focus in terms of getting New Relic One to sort of the next phase? And just your sort of your overall plans for Bill going into next year.

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Lewis Cirne, New Relic, Inc. - Founder, CEO & Director [5]

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Sure. So first of all, thrilled to have Bill join the company. We conducted that search last quarter. I had an opportunity to meet some incredibly talented leaders. But Bill was quite clearly the right one for New Relic. A combination of his -- not only his background and experience but his particular domain expertise and experience in servicing some of the toughest people to please in software, which are the builders of the software themselves, so his role at Microsoft, building the tools that help service developers, make them more productive was desirable to us as well as the enterprise experience at Adobe at a very large scale.

Bill's charter really is to build on what we have been doing today to continue to deliver and innovate and deliver the world's most powerful observability platform that will drive acceleration in our business growth. That's his charter. It's going to be a partnership with me. I love to think about where we take the company from an innovation perspective, and Bill is going to be execution focused and making sure that the New Relic product organization is the best in our space and delivers the capabilities that the market is asking for and delights our customers.

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Operator [6]

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Your next question comes from the line of Sterling Auty from JPMorgan.

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Matthew Melotto Parron, JP Morgan Chase & Co, Research Division - Analyst [7]

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This is Matt on for Sterling. Just trying to get a sense of the success that you guys are having with the non-APM products. I don't know if you guys mentioned previously on the call, but what have you guys been seeing in terms of percent of customers that are using infrastructure or other non-APM products?

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Lewis Cirne, New Relic, Inc. - Founder, CEO & Director [8]

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We're seeing very good attach rates for infrastructure in particular. We're seeing a meaningful percentage of our customers adopting infrastructure and a good number of that subset standardizing on infrastructure across the enterprise.

And what was actually really pleasant for us was seeing the uptake of Logs, a brand-new product. I think it only had about 60 days in the quarter where it was available for sale. And to see 2 7-digit deals come in for Logs alone into the customer base was very encouraging, showing that we have a very competitive product, and we expect it to do well in the market.

What's driving all of this is our customers do not want to switch between multiple tools when they're in the business of trying to keep these complex systems up and running. They want to see it all in one integrated place, and we firmly believe the best place to see it all in context is New Relic One. And the reason why they want it all in context is simple. They want to troubleshoot faster. They want the information in context to rapidly solve problems, to get systems back and running as quickly as possible.

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Matthew Melotto Parron, JP Morgan Chase & Co, Research Division - Analyst [9]

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Great. Great. And then just one quick follow-up. Gross margins have kind of been ticking down, I assume, from that build-out of the New Relic One. But is there anything that -- anything else that we should kind of be aware of going forward in terms of what you're expecting on that front?

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Mark Sachleben, New Relic, Inc. - CFO & Corporate Secretary [10]

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Our gross margins continue to be very high, I think, the envy of a lot of our peer group. And we're proud of that. If you look at the rate of growth of data that we collect over the last, I would say, decade, probably, that data has been increasing at a rate far higher than our revenue growth. We continue to see that and expect that to be the case. That's a competitive advantage for us. The more data we collect, we think that's better for us. It's also better for our customers. And so we expect that to be -- continue to be the case.

Historically, our gross margins have come up since we went public over the last 5 years. And we haven't assumed that that's going to be the case going forward. If you look at our medium-term and longer-term models, we do expect some mild down drift in the gross margin over time.

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Operator [11]

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Your next question comes from the line of Rob Oliver from Baird.

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Robert Cooney Oliver, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [12]

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Apologies if I have a spotty connection. Lew, one for you. And then I know Mike is on the call, so if he's available, I have a follow-up for Mike. But Lew, I wanted to just talk about -- ask about platform pricing and whether that's contributing to -- at all positively to some of the early success, which you just called out on the log side, pretty impressive 100 new deals in the quarter and 2 7-figure deals.

And then as a corollary to that, I was wondering, as you start to see people take products beyond APM, does -- because they have the ability to switch between products, do you find that usage is following their initial purchase intentions? In other words, are you seeing the usage rates in Infrastructure and Logs, which admittedly, I know is early, kind of follow those initial purchase intentions?

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Lewis Cirne, New Relic, Inc. - Founder, CEO & Director [13]

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So great questions. First of all, yes, the New Relic Platform Pricing, the market is responding very well to that. And it is because our customers have very dynamic environments. First of all, they do want a consolidated unified platform to see all of this telemetry data in one place connected together. And yet it's very hard for our customer, it's a very dynamic environment, to predict exactly how much APM, exactly how much infrastructure or mobile or browser or logging they will need. So they like the predictability of a set spend rate and yet the flexibility to allocate between our various and great products.

And so I think we're doing a pretty good job of focusing on usage and consumption rates. And yet this is one of the things I would like Bill Staples to really do an even better job with. At Microsoft and Adobe, he really brought great discipline into measuring everything about the user activity in order to drive our product decisions and our growth decisions with data and with focus.

So I think that that's something we do, and we're going to do better, I think, when Bill gets in place. So that -- our customers, really, all they want is a platform to deliver faster mean time to repair and better uptime, better customer experience. So they don't think in terms of exactly how much APM that is or exactly how much infrastructure that is. And so, so as long as we deliver the solution that really helps them address those business goals, then we'll deliver great business growth.

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Robert Cooney Oliver, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [14]

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Great. And then, Mike, for you. I know you laid out a really detailed plan at the Analyst Day in December, and it's probably a little unfair to ask you to update that. But I guess what I would ask is you said a lot of things should be in place to kind of hit the ground running on April 1. And just wanted to get a sense, now that you've been -- you're not new to New Relic, but now that you're in an operational role there, how is that progressing so far?

And then on the hiring side, I know you had a long-term plan to get from 300 to 600 sales reps. You guys are definitely being pretty aggressive on the hiring front right now and wondering if your fingerprints are at all on that.

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Michael J. Christenson, New Relic, Inc. - President, COO & Director [15]

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Sure. So we are, as I described at the Investor and Analyst Day in December, we looked at it as 3 quarters where we would be making adjustments; 3 quarters, the balance of FY '21, where we might do some additional refinements; and then 2 4 quarters for fiscal '22 and fiscal '23 where we expected to see really across all of those periods improvement. We are -- we feel good about where we are in that process. We are now -- January and February are important months to get FY '21 planning behind us so that we are not distracting our sales organization in the critical fourth quarter.

So we started this quarter doing a lot of planning, trying to fill the pipeline with new potential sales reps. But that will taper off as we go through the rest of this month. And our goal is to have that completed by the end of this month so that we can focus 100% of everybody's attention on closing out a good year and then launching the new year.

So we feel good about having filled the pipeline with some good people who can start early in FY '21. We feel good about how that planning process has been going for FY '21. And now frankly, as we go through the rest of February, job #1 is make sure the team we have on the field today is successful and does well in this quarter. We've got to make sure we're taking care of the people we already have, and we're very focused on clearing the deck so that they can accomplish what they need to accomplish at the end of 4Q.

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Operator [16]

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Your next question comes from the line of Michael Turits from Raymond James.

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Michael Turits, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst [17]

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Congrats on great top line performance, especially seeing the billing -- implied billings guide get us to billings growth that is in line with revenue growth. Question is on the margins and cash flow, came in below this quarter and guide below. And 2 questions. One is, what drove that? I know you said the hiring was ahead of schedule. You had announced pretty ambitious hiring programs. What changed? And why is the miss and the guide below on cash flow from ops higher than that on EBIT?

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Mark Sachleben, New Relic, Inc. - CFO & Corporate Secretary [18]

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Sure. So Michael, yes, we are in investment mode. And I think we talked about that at Investor Day. And so we feel like we have an opportunity ahead of us, and we're going to invest to go after that opportunity. As we said on that -- at that day, we are prioritizing top line growth. And we want to see growth in and acceleration, in fact, in our ARR growth as we go into next year. And we're going to be investing to do that, and so that is having an impact on our bottom line.

Q3 was a very strong hiring quarter. Many of those folks were in place in -- early in the quarter. We've been fortunate that we've been able to retain a lot of our great talent. And so that had an impact on the results in the quarter. That -- also that operating performance also had an impact on the cash flow for Q3. Additionally, impacting the cash flow for Q3 was the deferred revenue came in a little bit lower than expected due to the drop in the net expansion rate. So that had an impact on the cash flow shortfall as well.

And then finally, when you look at cash flow, there were some timing issues that came into play. In terms of CapEx, we pulled a fair amount of CapEx forward from Q4 into Q3. And if you note, we did keep our guide for CapEx for the year consistent in the $55 million to $60 million range, but we pulled a lot of that into Q3. When you look at our guidance for the year, you can impute the -- we expect cash flow to rebound in Q4. And then we are confident in our ability for that to rebound or to increase next year as we head toward the targets we set out for our fiscal '23.

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Michael Turits, Raymond James & Associates, Inc., Research Division - MD of Equity Research & Infrastructure Software Analyst [19]

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And then, Lew, if you could -- as you pointed out, really great to see, in the first and not even a full quarter out, wins on Logs and especially 2 large deals. Any more details you can give us on especially the big deals you won there? Did you displace existing log vendors? Was it a full displacement? Why did you win? And how should we think about your prospects there?

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Lewis Cirne, New Relic, Inc. - Founder, CEO & Director [20]

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Yes. It's early days, but really encouraged. Our customers are telling us 2 things they love about New Relic Logs. The first is the logs are in context. They use -- they rely on APM as like their strategic tool for understanding the most important thing with the health of the software, the application, right? The only reason why infrastructure is consumed is to run software, right? So you start from software. And to go straight from there to the logs and the logs that matter in context of that software problem is vitally important. That's one.

The second thing is the performance and scale of our logs blows our customers away, in particular compared to any other cloud hosting solution. So these customers were having trouble with their -- I think in both cases, they were open-source logging solutions that were just unable to handle the load or it was too much work or effort for it to perform to their requirements. And they just dropped us in, and our ability to handle in excess of 10 terabytes a day with complete ease and with no configuration or management involved really amazed our customers.

And I think -- I'm going to belabor this a little bit longer. This is why we invested in our platform, okay? NRDB has some, I talked about it at the Investor Day, some really impressive qualities, and it shines in its logging use case. And so we've invested a lot in New Relic One and in NRDB. And because of that investment, the logging team was, I think, about 8 or 10 engineers total from start to finish, about a 9-month project, to get that to market from 0. So think about that.

After we have the platform ready, we're already able to have a really competitive product in the market in a short period of time in a relatively small investment because we have the platform. And so it's not just about logs. It's about the power of the platform we've invested so much in.

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Operator [21]

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Your next question comes from the line of Rishi Jaluria from D.A. Davidson.

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Hannah Rudoff, D.A. Davidson & Co., Research Division - Research Associate [22]

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This is Hannah on for Rishi. I'm following up on one of the earlier questions. At your Investor Day, you talked a lot about one of your goals being enabling the sales org to sell the full platform. Wondering if you could provide some color on how this is going or what you've achieved and what's left to be done on that?

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Michael J. Christenson, New Relic, Inc. - President, COO & Director [23]

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Sure. It's Mike. To refresh everyone's memory, we announced most of the new capabilities, including the New Relic One platform in September and early October at our FutureStack. We immediately rolled out intensive training for our worldwide sales organization. The products came quickly. There was a lot of new things. And we felt that we wanted to front-end all of the training so that people could be customer capable in 3Q and 4Q. So we feel pretty good about that.

We are making great progress with that platform messaging and the comfort that the field has in communicating that message. And then they're also, clearly, as Lew just described with Logs, demonstrating the ability to sell what we call the 3 on-ramps to that platform: APM, Infrastructure and Logs. So it's a lot to ask to -- for people to develop the skills to sell the platform and develop the skills to sell the 3 on-ramps, but we felt like we simplified it enough that they could be effective in 3Q and 4Q in executing on that vision.

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Hannah Rudoff, D.A. Davidson & Co., Research Division - Research Associate [24]

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Great. That's really helpful. And what feedback are you guys getting on the open-source (technical difficulty) talk about what you're seeing (technical difficulty) customers building their own app?

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Lewis Cirne, New Relic, Inc. - Founder, CEO & Director [25]

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We're seeing really interesting use cases. So customers -- in particular, I think the most popular open-source application we've seen is the one that helps our customers identify their opportunity to reduce their cloud spend somewhere -- in some cases, by millions of dollars, where they've overprovisioned the cloud capacity for a given workload. And New Relic One is identifying where their opportunity is to save without sacrificing performance. So that, in particular, is doing well, and other ones are also showing uptick.

But when I look at the data, the most popular applications I see are the ones that our customers are building for themselves. And that makes sense because it's making New Relic solve their specific problem in a way that no other -- no software vendor could do, right? It has to be programmable in order to do that.

I'll give you one example. We have a company in Europe using New Relic One for an IoT use case. It actually is tracking the location of cars and helping them identify the right parking spot. It's a really cool IoT use case built on top of New Relic One and helps our customers view us as a strategic platform, not just another tool.

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Operator [26]

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Your next question comes from the line of Ittai Kidron from Oppenheimer.

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Ittai Kidron, Oppenheimer & Co. Inc., Research Division - MD [27]

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Lew, maybe we can start with you on the competitive front now that the platform has been out for a few months now. How do you look at win rates? Is there any change on that front? Help us understand what you're seeing from a competitive standpoint. What has changed?

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Lewis Cirne, New Relic, Inc. - Founder, CEO & Director [28]

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It's pretty early still. We've had less than 1 quarter with these new capabilities and offerings in the market. So I'd say the landscape is largely unchanged and the dynamic has not changed a lot. But what I'd say customers are resonating with, again, is what they love about New Relic is the fact that the platform is truly all in one place. We didn't do this through acquisition. We've built our logging on the same core database technology, all the rest of telemetry is. And what that means is our customers can troubleshoot faster because all the data is in the right context.

And so we feel like we've got now a really differentiated competitive story. It starts by being application-centric, by having context and with programmability. And now with our logging, there's differentiation I've already talked about. So we like our ability to compete in the market. But I would say that overall, it's the same set of players with not a lot of change.

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Ittai Kidron, Oppenheimer & Co. Inc., Research Division - MD [29]

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Very good. Then as a follow-up for Mike. On the hiring front, clearly an impressive quarter there. I guess my question is, was that the target? Or it just so happens that you had a lot of talent available and decided to pick that up? And as you think also into fiscal '21, will it be your intention to try and front-load hiring? Help me understand the linearity of this from a planning and execution standpoint.

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Michael J. Christenson, New Relic, Inc. - President, COO & Director [30]

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Sure. That's a great question. Now that number that Mark gave you was for the whole company. That wasn't just for sales. But we did have a good quarter.

Part of our challenge now at this time of the year is we don't want to take people out of selling mode to do interviews. So we try to get as much done in November, now in January, a little bit in February. But I expect it to tail off significantly in March.

What we're really focused on now is with our talent acquisition team filling that pipeline of prospects that have been qualified and had an initial interview so that we can front-load as much FY '21 sales capacity hiring as we possibly can. If we can get those people in early, it gives us the spring and summer to train them. And then they'll be ready as we roll into 3Q and 4Q. So we're trying as hard as we can to pull that in into the right windows, and we'll see how it goes.

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Operator [31]

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Your next question comes from the line of Jennifer Lowe from UBS.

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Jennifer Alexandra Swanson Lowe, UBS Investment Bank, Research Division - Analyst [32]

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Great. I wanted to go back quickly to the deferred revenue guidance, and it was certainly great to see that look a little bit more like what we would normally expect in a Q4. But given that you're coming off of a Q2 and a Q3 or deferred did come in a little bit later than you had expected at the outset, can you just talk to us about what gives you the conviction that we get back to more of a normal seasonal trend? What's your visibility? What's sort of your assumption in terms of sales execution getting back to where we've seen it historically? If you could just give us a little more on that, that would be really helpful.

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Mark Sachleben, New Relic, Inc. - CFO & Corporate Secretary [33]

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Sure. So now we're pleased to see that. For us, internally, we look at things like pipeline, look at capacity and what our various forecasts are for the various regions. We've got a lot of history to go on in terms of conversion rates and things like that. We're looking at the uptake that we're seeing and the excitement we're seeing around the new products and the platform story as our fuel gets more and more comfortable with that sales process. We put that together and come up with a forecast that we feel comfortable with.

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Jennifer Alexandra Swanson Lowe, UBS Investment Bank, Research Division - Analyst [34]

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Okay. Great. And maybe just one more for me. Looking at the net dollar retention, you mentioned earlier there's one particular large customer that had reduced their planned usage and those things happen. Do you have a sense of what that retention rate would have looked like ex that one customer? Or in terms of the upsell piece of that, did that improve from what we saw in Q2? Any more color on that.

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Mark Sachleben, New Relic, Inc. - CFO & Corporate Secretary [35]

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We don't have the explicit detail around that one customer's impact. I will say, as I mentioned, the renewal rate did tick downwards slightly in the quarter. And so that's something that we want to make sure to improve. And at our Investor Day, Mike talked about some of the initiatives we're working on, and one of them was around renewal yield.

And so we've been in the process of really being more clear in the roles in the go-to-market organization around new ARR and renewals and expansions and who's responsible for what. I think in the past, it's -- those lines have been arguably too blurry. And so we've been really identifying, being more crisp about whose roles are and whose job it is to do those various pieces. And so as we do that, we'd like to see that renewal rate come back up.

The other factor is one of the issues -- the issue driving that renewal rate was customers rightsizing their spend. And what we've got to do a better job is get -- make sure that customers are deploying their software that they purchased. In these cases, the customers are purchasing the amount of software they expect to need over the next year, and they're not deploying all that so they get to the end of the year and it will be a reduction spend for New Relic.

Rather than see that happen, we should be more proactive. And 6 months ahead of time, if we see them not getting to a path where they're going to be fully deployed, we should be proactive and intervene there and help them with that deployment or find other opportunities in that organization to deploy those hosts. So rather than all of a sudden have a reduction in spend when the renewal time comes up, we stay flat or potentially have an upsell.

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Operator [36]

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Your next question comes from the line of Derrick Wood from Cowen and Company.

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James Derrick Wood, Cowen and Company, LLC, Research Division - MD & Senior Software Analyst [37]

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First one for you, Mike. One of the initiatives you laid out at the Analyst Day was to focus on generating more $100,000 account deals. Didn't seem like there was much strength there in the December quarter, but it's obviously very early. And you do have a multipronged plan ahead. So can you give us a sense in terms of when you think that could be realistic and seeing more net new $100,000 deals? Is that next fiscal year? Any more color there would be helpful.

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Michael J. Christenson, New Relic, Inc. - President, COO & Director [38]

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Well, whenever you -- remember, we talked about 3 big metrics on Investor Day: new ARR, $100,000 customers and improved renewal yields. The first thing you do when you communicate that message to the organization is you've got to make sure everybody is aligned around those objectives. And when you first announce them or first communicate that message, there's -- you're limited in the amount of organizational change you can effect to make that happen.

So as we rolled through November, December last year, it was all about management attention, planning, how do we achieve those goals, how do we make sure everybody is focused on executing against those goals. It's more of a management practice, if you will, to try and get people to move those numbers. As we roll into this quarter, we can make some other changes, adjustments to coverage plans. We can make some compensation adjustments. We can -- there's more we can do as each quarter passes by actually making changes in the way we do business on a day-to-day basis.

So I feel far better in this quarter than I did last quarter in our ability to generate new $100,000 customers. I'm actually -- this will be a really important quarter for that metric. As we go into next fiscal year, I expect to see a significant improvement over what we've done this year. But I'm hopeful that this quarter, we'll be able to show material progress on that front and then carry that momentum into FY '21.

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James Derrick Wood, Cowen and Company, LLC, Research Division - MD & Senior Software Analyst [39]

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Great. And I guess maybe for Lew. On the 100 log deals, that certainly seem pretty impressive. Can you give us a sense, is there some pent-up demand from beta customers? And should we expect that to bounce around? Or do you think that we're kind of off to the races with accelerating adoption curve over the next several quarters?

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Lewis Cirne, New Relic, Inc. - Founder, CEO & Director [40]

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Let's see. I wouldn't want to use the term off to the races right now. I'm excited about the potential. Let's show it in the numbers. But I was pleasantly surprised with, quite frankly, given how crowded the logging market is, how rapidly -- how eager the market was to look at our product and forgo other solutions. That's what's really encouraging to me, is we've got a competitive product in that they really do value logs in application context and they value that they don't want to be managing these really hard to manage high-volume data collection servers, right?

But when they move to the cloud, they find that most of the other cloud offerings, they have scalability challenges or management challenges. So I'm very excited about our logging capability. But Mark wouldn't allow me to say off to the races in any earnings call, I think.

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Operator [41]

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Your next question comes from the line of Jack Andrews from Needham.

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Jon Philip Andrews, Needham & Company, LLC, Research Division - Senior Analyst [42]

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I was wondering if we could drill down a little bit more on the programmability aspect of things. I know it's early, but are you seeing any sort of differences in behavior from customers that are actively developing applications? Do you foresee them to be expanding faster or just other sort of interesting characteristics that you've observed from those who are really actively taking advantage of this new feature?

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Lewis Cirne, New Relic, Inc. - Founder, CEO & Director [43]

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One of those 7-digit logging deals that we did last quarter came out of a customer who also built, I think, 4 applications on New Relic One. So the correlation is high. What -- the theme behind all of it is we want a platform that people can bet their digital business on to make sure that they're -- they deliver more perfect software.

And it's a combination of the openness of getting all the data into the New Relic platform, not just the data of the customer agents; the connectedness of showing the relationship between the application, the infrastructure and the logs; and the end user experience; and finally, programmability to say there is no use case that you can't pursue in New Relic as it relates to observability and delivering the visibility presented the right way to help you deliver more perfect software.

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Jon Philip Andrews, Needham & Company, LLC, Research Division - Senior Analyst [44]

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Great. So just to put a fine point on it, it sounds like you think that programmability will lead customers to perhaps consume products like Infrastructure and Logs rather than just merely strengthening the value proposition of APM. Is that the right way to think about it?

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Lewis Cirne, New Relic, Inc. - Founder, CEO & Director [45]

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Yes. Our customers are now thinking about us in terms of a platform. They're not thinking about us in terms of APM, I think, particularly the strategic customers.

And another way to think of it is if you look in the early days of SaaS, companies like Salesforce and other companies, they staff their own teams to build their own observability and monitoring capabilities, not because they wanted to be in that business, but because they had bespoke requirements, right, that no vendor could provide off the shelf. They wanted the platform capabilities that we're providing now in New Relic One.

And so we think for these high-end customers, particularly if we can nail the pricing and the solution presentation correctly, we're the only platform that can really deliver on -- to the demands of the highest-end customers. And it's because of the programmability.

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Operator [46]

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Your next question comes from the line of Keith Bachman from BMO.

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Keith Frances Bachman, BMO Capital Markets Equity Research - MD & Senior Research Analyst [47]

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I wanted to start with my first question and come back to Michael's question he asked previously, but I'm going to ask it in different dimensions. But in terms of -- for FY '20, you're lowering your operating income at the midpoint by $3 million. And yet at the midpoint, you're lowering cash flow guidance by $27 million. And yet DR growth was in line with quarterly expectations. And frankly, it seems pretty healthy for Q4, and CapEx is the same. So it's quite a, I would say, weak cash flow guidance.

And I want to try to ask it in a different way. Mark, could you speak to how investors, at least directionally should be thinking about the next fiscal year in terms of both margins and free cash flow? In other words, is this the bottom that investors should be thinking about? And if we look year-over-year, should the next fiscal year, which would be FY '21, should operating margins and free cash flow improve over what you expect to report at this juncture? Because otherwise, it just looks like profitless growth. And then I have a follow-on question.

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Mark Sachleben, New Relic, Inc. - CFO & Corporate Secretary [48]

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Sure. So as we've talked about, we are in investment mode. And we are prioritizing now and as we go into next year, we will be prioritizing acceleration of ARR and revenue over profitability. And so we've talked about the -- giving ARR metric at the end of this year, in March 31, the $635 million number, we've talked about accelerating our growth by at least 200 basis points in our ARR for fiscal '21. Obviously, you can work that through into the revenue as revenue trails ARR. So we do expect to be investing.

At the same time, when we look out into fiscal '23, at the $1 billion revenue target, we want to maximize our ability to hit that, not only hit that number but hit that number and really surge through it. And so to do that, we're going to be investing in the near term. At the same time, we are comfortable with the margin profile that we put out for fiscal '23 that we laid out at Investor Day.

In terms of cash flow, we do feel like cash flow will be increasing in fiscal '21 on the path toward, again, the -- it's not going to be a linear path, but we are comfortable with the cash flow profile that we laid out at Investor Day as well.

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Keith Frances Bachman, BMO Capital Markets Equity Research - MD & Senior Research Analyst [49]

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Okay. So you can't say whether...

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Michael J. Christenson, New Relic, Inc. - President, COO & Director [50]

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Keith, it's Mike. I just want to add one thing to that. We're selling a sophisticated observability platform with a broad set of capabilities, including programmability, in a subscription model. And we don't think about that in any scenario as profitless growth. We look at the long-term value of that growing subscription stream on that platform as an incredibly valuable asset.

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Keith Frances Bachman, BMO Capital Markets Equity Research - MD & Senior Research Analyst [51]

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Okay. I understand the platform context. But Mark, it sounds like free cash flow improved but not willing to say whether operating margins will be up, down or neutral with what we expect to happen at the end of this year.

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Mark Sachleben, New Relic, Inc. - CFO & Corporate Secretary [52]

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That's correct. We'll give more guidance around that in our May call that are planned for next year. But I would reiterate that we are looking at accelerating our top line, and that is our priority. And that is the clear objective, to grow revenue and ARR over profitability.

We have shown over the last few years -- we went from negative 50 to positive, and we've been positive the last few years. I think we've shown we have discipline. The model does work. And so now we want to make sure we invest to take advantage of the opportunity and to grow the top line.

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Keith Frances Bachman, BMO Capital Markets Equity Research - MD & Senior Research Analyst [53]

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Okay. Well, my follow-up, sorry to ask such a long-winded question, is just on the net retention rate. Just to be clear, has the attrition rate within that changed at all? And when you talked about improving into Q4, is there any mentions -- dimensions rather, that you could give around that? I assume it will be up sequentially, but can it be in the teens, do you think? Or any color around that. And that's it for me.

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Mark Sachleben, New Relic, Inc. - CFO & Corporate Secretary [54]

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We expect it to be the best quarter of the year, which implies that it's above 112%. And so that number is impacted by 2 things, right, the amount of expansion business we do and the amount of downgrades or churn that we have. Q4 is our highest renewal period. So like most companies, Q4, we do a lot of business there, right? So we've got, by far and away, the largest number of renewals this quarter.

So if we have the same renewal rate, it still means the absolute dollars of churn that we will have in Q4 will be higher than any other quarter. We expect that. That's not unusual. We also expect a large number of expansion business to more than offset that. So we are looking at that being in the teens in this quarter.

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Operator [55]

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Your next question comes from the line of Mohit Gogia from Barclays.

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Mohit Gogia, Barclays Bank PLC, Research Division - Research Analyst [56]

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Mark, I just wanted to dig into the new ARR and the new logo performance this quarter. So great to see you guys confirming the $635 million guide for ARR for fiscal '20. But wondering how the new ARR performed and new logo performance was this quarter given that you also discussed the renewal yields are dropping a bit this quarter. And I have a question for you after this.

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Mark Sachleben, New Relic, Inc. - CFO & Corporate Secretary [57]

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Yes. So we're not yet breaking that out. We'll start that with the March quarter. But you can take it as a good sign that we've confirmed the $635 million. In terms of numbers, we did report the number of $100,000 customers. And while we're pleased that grew, we obviously have objectives that are much greater than that. And Mike talked about that and answered that question earlier. So it's something we certainly are focused on and want to see and have lofty ambitions for how many $100,000 customers we'll be adding going forward.

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Mohit Gogia, Barclays Bank PLC, Research Division - Research Analyst [58]

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Understood. What I was trying to -- maybe I should have phrased that question a bit differently. What I was trying to get at is, obviously, you will start to disclose the ARR numbers next fiscal year. But is it fair to say just based on that, you've reiterated your fiscal '20 guide that the new ARR performance this quarter came better than expectations given that the renewal yield, which is another component of ARR, ticked down?

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Mark Sachleben, New Relic, Inc. - CFO & Corporate Secretary [59]

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Well, I think we're not saying individual components of the ARR. We're not disclosing those at this point. We feel good about the quarter. And I think you can see it from the guidance that we feel good about continuing to see improvement as we head into Q4.

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Mohit Gogia, Barclays Bank PLC, Research Division - Research Analyst [60]

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Understood. Lew, a follow-up question. So at the Analyst Day, you mentioned that sometime in early 2020, you will start to sort of like have the New Relic One as the default UI, default landing page for all customers. Just wondering if you can give us some more color there? Are you still sort of like planning to do that? Is there any more concrete time line as to when that's going to be rolled out? Yes, any more color there would be helpful. That's it from my end, guys.

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Lewis Cirne, New Relic, Inc. - Founder, CEO & Director [61]

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Yes. Great. So I've done a review of that. We are -- that is on track to happen this quarter. We still want to give our customers the choice. If they really prefer the old landing page, then they can make that selection. But we want the default experience to be New Relic One. It's certainly far superior, and yet we respect that our enterprise customers may have specific requirements that we want to give them some choice in going back to the old UI.

As a reminder, our customers need to -- don't need to install anything new or do anything different to get the benefits of New Relic One. It's simply a new and far improved user interface on the very same data and the very same telemetry that they've been gathering in our products and into our platform to date. So this is a very easy product for them to adopt. And we're on track and to some extent, ahead of track on migrating other capabilities natively into New Relic One.

So by the week and month, there are even more and more reasons to just standardize on -- [all your] experience in New Relic One. And so I'm pleased with how that's going. After Bill gets up to speed, I think that will continue to show even more strength.

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Operator [62]

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Your next question comes from the line of Chris Merwin from Goldman Sachs.

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Christopher David Merwin, Goldman Sachs Group Inc., Research Division - Research Analyst [63]

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I just wanted to go back to the log deals that you mentioned earlier, in particular, the 2, I think, $1 million plus log deals. In terms of how you won for those deals specifically, because I imagine those customers probably had more complex like hybrid environments, like were you displacing anyone in particular there? Or were there complementary products they already had installed? Just curious how should we think about this log product and its potential traction in the enterprise.

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Lewis Cirne, New Relic, Inc. - Founder, CEO & Director [64]

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Sure. So as you know, it's a -- there's a lot of players in the logging market. Some of them are more cloud-centric, more open source-centric or more proprietary or traditional enterprise. In both of these cases, these were customers that had very high volumes of logs that were struggling to -- or spending too much time and energy managing their open-source logging tools to keep up with that volume. And then they also were -- wanted to see those logs in context. So to get more value out of the log data we're collecting.

And so we think that's a good chunk of the market right there. We've got a lot of customers who love our APM product and want to see logs in context, particularly for the troubleshooting and mean time to repair use case, right? So this is all about troubleshooting faster with the log data in context. And so for that use case, that's -- there's a number of other log players that we might displace in order to deliver that capability for our customers.

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Operator [65]

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Your next question comes from the line of Steve Koenig from Wedbush Securities.

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Steven Richard Koenig, Wedbush Securities Inc., Research Division - MD [66]

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One quick question and one quick follow-up. Mark, for you, are you -- did your view of year-end deferred revenue and full year dollar-based net expansion change? And/or are you being more cautious in these assumptions in your cash flow guide?

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Mark Sachleben, New Relic, Inc. - CFO & Corporate Secretary [67]

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We've been through 3 quarters now instead of 2 quarters. So we've got better visibility, less uncertainty as we get closer to the time period. So I think at this point, we're always more informed than we were 3 months ago. But -- so from that standpoint, I would say, it's likely to be a better estimate. But the methodology with which we went about it is comparable.

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Steven Richard Koenig, Wedbush Securities Inc., Research Division - MD [68]

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And so the methodology is comparable, is your -- have your expectations come in a little bit just due to the Q3 retention?

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Mark Sachleben, New Relic, Inc. - CFO & Corporate Secretary [69]

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We factored the historical performance in of Q3, we -- of Q2. We look at a lot of factors as we assess that. We're getting better at looking out in the quarter. So the beginning of the quarter, we know what renewals are coming in that or due that quarter. We're getting a better sense of which ones are looking to expand, which ones are looking to renew, which ones we may have to work on. And we're not done with that. We should be doing that 6 months in advance, not 3 months. But I think we are getting better at that. And so I think going forward, we're hoping to have a better sense of renewal rates as we enter the quarter.

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Steven Richard Koenig, Wedbush Securities Inc., Research Division - MD [70]

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Okay. Okay. Great. And for you, Lew, on the 100 log deals. Maybe as you look across them and try to generalize a little bit, to what extent are you seeing standardization as it relates to the cloud infrastructure versus kind of incremental or auxiliary log solution being added? And also kind of greenfield versus replacement, what -- kind of what's the mix there? And maybe some color on the size of the accounts.

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Lewis Cirne, New Relic, Inc. - Founder, CEO & Director [71]

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Early days. Let's not read too much into those 2 7-digit deals. It's great to show that we can do those, but it's too early to claim that we've figured out how to be a standard, an enterprise standard for logs. The market is obviously very large in that segment. We're seeing a lot of smaller companies adopting our logs who love our platform, and again, just love logs in context. And yet we're also seeing -- I'm delighted with some of the logos that are also using our logs particularly when they are using New Relic in a cloud environment plus they're already moving to the cloud with an application, they're already adopting Kubernetes, that's another trend that we're doing very well in, right? So if you're running in Kubernetes and you want to see your logs in context and your application in a Kubernetes context, that's a great -- we've got the best platform for that environment, we believe.

And so I think that, that is a very standard motion that virtually every enterprise is going through. And so we're seeing traction in that segment as well. So it applies pretty broadly, but it's not yet at a point where we can say we're winning standardization deals nor do we need to, to do substantial business with our logging product.

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Operator [72]

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Your next question comes from the line of Rustam Kanga from JMP Securities.

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Rustam Kanga, JMP Securities LLC, Research Division - Equity Research Associate [73]

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This is Russ on for Erik Suppiger. Just taking more of a macro angle. This might be a bit of a stretch. But would you say that the Iowa caucus failure would be beneficial for the broader APM market, in particular, in terms of just raising awareness?

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Lewis Cirne, New Relic, Inc. - Founder, CEO & Director [74]

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In 2012, when we -- New Relic was the software that saved HealthCare.gov, in moments like this, just to bring it to the forefront how important software is to the very fabric of how we exist as a society. And it's kind of like the ground we stand on, right? And when software is working, you don't notice the ground you're standing on. But if there's a problem, then all of a sudden, it feels like quicksand.

And so the work that our customers do to keep software systems running, it's hard work. And there are so many ways in which these complicated applications can fail. That's why they need a single platform to bring it all in one place and why they need to troubleshoot faster, all with context, with application context.

So we do believe that our observability platform is not optional. If your software matters, you need an observability platform. We believe we have the best one. That's why we're investing. That's why we're so excited about this opportunity. That's why I'm so excited about the team. And so yes, moments like yesterday, we -- I wish they didn't happen. But that's why there's a need for an observability platform like New Relic.

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Operator [75]

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I would now like to turn the call over to CEO, Lew Cirne, for closing comments.

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Lewis Cirne, New Relic, Inc. - Founder, CEO & Director [76]

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Thank you very much. Not the first time my last name has been mispronounced, but thank you very much, in particular, for those who had any problems with the phone quality. We apologize for that. Follow up with our IR team if there's any content you missed, and we'll be able to provide you with the content that we presented today. And we appreciate you spending time with us, and we're very excited about our opportunity ahead. Thank you all.

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Operator [77]

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That concludes today's conference call. You may now disconnect.