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New Relic's Business Is Booming

By Brian Feroldi – Nov 7, 2018 at 2:37PM

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Revenue growth soars as existing customers continue to spend more on the company's application performance management platform.

New Relic (NEWR -0.22%) reported its fiscal second-quarter 2019 results on Nov. 6. Last quarter, management predicted that the company's growth rate would remain strong thanks to increased spending by its customers. The results showed that management was able to outperform its high expectations again thanks to a dollar-based net expansion rate of 124% within its existing customer base.

New Relic fiscal Q2 results: The raw numbers

Metric

Q2 2019

Q2 2018

Year-Over-Year Change

Revenue

$114.9 million 

$84.7 million

36%

Non-GAAP operating income

$9.7 million

($3.5 million)

N/A

Non-GAAP net income

$11.8 million

($3.3 million)

N/A

Non-GAAP EPS

$0.20

($0.06)

N/A

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

What happened with New Relic this quarter?

  • Revenue exceeded the top end of management's guidance range by more than $2 million.
  • There are 786 customers who now spend more than $100,000 per year on the company's platform. This figure is up 34% year over year.
  • Customer count held steady at 17,000. Management said that this number will fluctuate from period to period as the company shifts its focus toward upselling its install base.
  • The dollar-based net expansion rate of 124% was the highest rate in five years.
  • International sales held steady at 32% of sales.
  • Non-GAAP net income exceeded operating income because of the recent adoption of the new accounting standard ASC 606. This accounting change boosted non-GAAP net income by more than $4.2 million.
  • Non-GAAP operating income and non-GAAP EPS both came in significantly ahead of management's guidance range.
A man in a suit is in front of data on screen pointing to it.

Image source: Getty Images.

What management had to say

CEO and founder Lew Cirne credited the strong results to "another quarter of steady sequential growth in enterprise ARR [annual recurring revenue] and accounts paying more than $100,000." These gains were made possible by investments that were made to expand the company's product suite.

On the call with analysts, Cirne said the company's strong competitive position and rapidly expanding market position the company well for continued growth.

"Our application-centric strategy positions us favorably within the technology value chain to continue moving up market and capturing an outsized share of the growing multibillion-dollar market for monitoring, managing and operating digital systems," Cirne said.

Looking forward

CFO Mark Sachleben shared the following guidance with investors for the upcoming fiscal third quarter:

Metric Guidance Range Implied Change
at Midpoint
Revenue $118.5 million to $120.5  million 30%
Non-GAAP operating income $3.5 million to $4.5 million 48%
Non-GAAP EPS $0.12 to $0.13 150%

Data source: New Relic.

Another strong quarter of growth enabled management to boost its financial guidance for the full fiscal year:

Metric New Guidance Range
Old Guidance Range
Revenue $466.5 million to $469.5 million $457.5 million to $462.5 million
Non-GAAP operating income $22 million to $24 million $18 million to $22 million
Non-GAAP EPS $0.42 to $0.48 $0.39 to $0.46

Data source: New Relic.

Sachleben also said that spending on headcount and capital expenditures will continue to ramp up in the back half of the fiscal year as the company continues to invest for growth.

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

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