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New Relic Raises Guidance After Another Solid Quarter

Brian Feroldi, The Motley Fool

New Relic (NYSE: NEWR), a technology company focused on application performance management software, reported its fiscal third-quarter 2019 results on Wednesday. The results exceeded the high end of management's guidance range across the board. The broad-based prosperity allowed the company to boost its full-year guidance for the third time in a row.

New Relic fiscal Q3 results: The raw numbers

Metric

Q3 2019

Q3 2018

Year-Over-Year Change

Revenue

$124 million 

$91.8 million

35%

Non-GAAP operating income

$7.8 million

$2.7 million

189%

Non-GAAP net income

$11.2 million

$2.9 million

286%

Non-GAAP EPS

$0.19

$0.05

280%

Data source: New Relic. GAAP = generally accepted accounting principles. Non-GAAP = adjusted. EPS = earnings per share.

What happened with New Relic this quarter?

  • Revenue growth of 35% was much faster than the 30% that had been forecast.
  • The number of customers who now spend more than $100,000 per year with New Relic jumped 30% year over year to 816. 
  • The dollar-based net expansion rate dipped 200 basis points sequentially to 122%. 
  • Customer count remained flat at "over 17,000" at the end of the quarter. CFO Mark Sachleben said that the flat number is "primarily due to our emphasis on the upmarket opportunities with greater expansion potential."
  • International sales comprised 32% of total revenue. The company opened a new office in Paris and a new data center in Germany, and is making investments in Japan to drive this number higher.
  • Non-GAAP operating income and non-GAAP EPS both exceeded guidance. Management credited the strong bottom-line performance to the outperformance on the top line.

In a separate news release, New Relic stated that it acquired Isreal-based artificial intelligence company SignifAI. The terms of the transaction were not disclosed.

Woman sitting in front of computer screens

Image source: Getty Images.

What management had to say

Lew Cirne, New Relic's CEO and founder, commented: "As enterprises continue to invest in strategic software projects to drive top-line growth, they are increasingly turning to New Relic's platform for monitoring, managing and operating their digital business."

On the conference call with analysts, Cirne expounded on the company's decision to purchase SignifAI:

We believe this AI technology aligns nicely with our current platform and the New Relic Alerts offerings, and is complementary with learning provider partners such as PagerDuty. This technology complements our existing platform and helps drive, land, and expand opportunities that are much larger than a single product category. Driving expansions at a deliberate pace underpins our strategy. 

Looking forward

New Relic CFO Mark Sachleben shared guidance with investors for the current quarter that suggests that the strong top-line growth will continue. However, the SignifAI acquisition, international investments, and plan to accelerate hiring in the upcoming quarter are expected to take a toll on adjusted profits.

Metric Guidance Range Implied Change
at Midpoint
(Year Over Year)
Revenue $126.5 million to $128.5 million 29%
Non-GAAP operating income $0.5 million to $1.5 million (79%)
Non-GAAP EPS $0.04 to $0.06 (44%)

Data source: New Relic.

On the plus side, management was able to boost its financial guidance for the full fiscal year across the board even with the elevated level of spending.

Metric New Guidance Range
Old Guidance Range
Revenue $473.6 million to $475.6 million $466.5 million to $469.5 million
Non-GAAP operating income $26.7 million to $27.7 million $22 million to $24 million
Non-GAAP EPS $0.58 to $0.60 $0.42 to $0.48

Data source: New Relic.

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Brian Feroldi owns shares of New Relic. The Motley Fool recommends New Relic. The Motley Fool has a disclosure policy.