New Relic, Inc.

Good day, and welcome to the New Relic first quarter and fiscal year 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Peter Goldmacher, VP of Investor Relations. Please go ahead.

Hi, everyone, and thanks for joining our Q1 fiscal 22 earnings call. We published a letter on our investor relations website about an hour ago and hope you all have had a chance to read our letter together with today's earnings press release. Today's call will begin with prepared comments from Bill and Mark, and then we'll open up the line for your questions. During this call, we will make forward-looking statements, including about our business outlook and strategies, which we base on our predictions and expectations as of today. Our actual results could differ materially due to a number of risks and uncertainties, including the risk factors in our most recent 10-K and upcoming 10-Q to be filed with the SEC. Also, during this call, we will discuss certain non-GAAP financial measures. We have reconciled those to the most directly comparable GAAP financial measures in our earnings room. These non-GAAP measures are not intended to be a substitute for our GAAP results. And finally, this call in its entirety is being webcast from our investor relations website, and an audio replay will be available there in a few hours. And with that, I'd like to turn it over to Bill.

Thanks, Peter. And thanks to everyone for joining our Q1 FY22 earnings call. We had a strong start in the first quarter of our fiscal year, delivering just over $180 million revenue, beating the 172 to 174 million guidance that we provided last quarter and growing the business 11% year over year. Before we dive into the numbers and then answer your questions, I want to take this opportunity, my first earnings call in my new role as CEO, to step back and paint my view of the market, our strategy, and our priorities going forward. A year ago, last July 30th, 2020, we introduced the New Relic One platform and consumption business model to the world. It was a bold but necessary move to serve our customers better and lay a new foundation of growth for the business. As you know, the past year of COVID has only accelerated the move to digital experiences. nearly every company in the world no matter the size or segment employs digital experiences to serve their customers partners and employees these digital experiences are built by highly skilled software developers and engineers and there simply are not enough of them to satisfy the demand the pressure on them to innovate faster is growing more intense and the complexity and toil of the software systems they create and maintain continues to increase They spend a disproportionate amount of time planning, architecting, building, fixing, and deploying software only to find once it's in production and begins impacting customers that something somewhere went terribly wrong. Observability vendors today use telemetry data to help production engineers reactively monitor and troubleshoot systems that are unhealthy. But that's too late, too reactive. Too much focus on symptoms and not enough on the root cause and prevention. It doesn't help engineers spend more time doing what they really love, which is building cool stuff. Our vision is much broader, and we believe our potential much higher. At New Relic, we aspire to help millions of developers and engineers build more perfect software by making observability a daily data-driven approach to engineering across the software lifecycle. To get there, we're obsessed with helping our customers master telemetry data to get past the what and uncover the why. There are three fundamental things about our vision of observability that are unique and whose impact on the business I believe will grow over time. First, New Relic offers a purpose-built, all-in-one telemetry data platform. Our customers are already ingesting petabytes of telemetry data from many sources, including our own agents, open standards, APIs, or an ecosystem of hundreds of integrations, thereby eliminating data silos and unlocking insights across their entire digital estate. Customers trust New Relic with their telemetry data because we've taken a strong regulatory posture in security, privacy, and compliance with SOC 2, GDPR, FedRAMP, and as of last week, we're now the industry's first HIPAA-compliant observability solution across all data types. We use advanced data science techniques, employing AI and ML throughout the platform to help our customers sift through the data and more easily find signals from the noise, making AIOps more accessible than ever. And we operate this telemetry platform at massive cloud scale, actively ingesting, storing, and analyzing in real time many petabytes of metrics, events, logs, and traces with blazing performance. This is fundamentally a different approach than most of our competitors and is foundational to our strategy, allowing us to provide a secure, single source of truth for telemetry data for even the largest of enterprise customers with incredible economics. Second, NewELEC provides developers and engineers with integrated and powerful analysis tools on top of this data, the full platform experience in one place and for one price. Competitors offer a bundle of SKUs, each with disparate user experiences, data stores, and price points, all targeting those same production engineers focused on resolving incidents, and they call that observability. New Relic is thinking much more broadly about the users of observability, considering not just the needs of IT operations, site reliability engineers, and cloud engineers, by taking a developer-first approach and bringing the power of telemetry data into the flow of tools developers already use every day, ultimately reaching the estimated 28 million professional developers who build the software to begin with. Many of these potential users have yet to experience how observability can help them because they're focused on delighting customers through innovation and code, not troubleshooting production environments. Third, New Relic offers all of this value with a unique consumption-based pricing model that is more predictable, affordable, and scales with value. Our platform is consumed in just two dimensions, data ingest and user access. First, our unified telemetry data platform allows customers to ingest, store, and query the data for an unprecedented value at just 25 cents a gigabyte ingested. Competitors' prices can be several multiples higher than this for data, forcing engineering teams to sample what they instrument in order to contain costs, which only leads to more blind spots and incidents. Second, We have integrated all of our tools and provide full platform access for one price per user, giving buyers incredibly consistent, predictable pricing that scales with usage and therefore value received instead of infrastructure. This unique consumption model allows more users to observe more data and systems all in one place, enhancing collaboration and increasing productivity across the engineering organizations. We are passionate and committed to this multi-year vision and grateful for the ongoing focus and support of our relics, investors and stockholders, as we work towards this audacious yet achievable goal. You may wonder, with such an audacious long-term vision, how are we prioritizing the work and how can you measure our progress quarter after quarter? As our new CEO, I've identified five strategic priorities. The entire company is now aligned behind these objectives, and we've identified measurable success criteria for each to help us all gauge our progress. Each quarter, I'll provide an update on how we're doing against each of these five. Our top priority is to return our revenue to market growth rates. As a consumption business, this is the crowning metric, which measures our ability to innovate value that customers are willing to pay for and deliver it in an efficient manner. We measure our success with this priority through our quarterly revenue reports, and we aim to show revenue increases and year-over-year growth in the quarters ahead. We anticipate accelerating year-over-year revenue growth starting in Q3, and we've updated our guidance to help you gauge our progress. For eight quarters, revenue growth has decelerated while we've replatformed our product front end and back end, pivoted towards the new platform pricing model, and migrated existing customers' contracts to the consumption model as a foundation for the vision I described earlier. With that foundation laid, we are ready to bring that deceleration to an end, and we're focused on scaling the business starting in Q1. As I mentioned at the beginning of the call, we're pleased to report just over $180 million in revenue, 11% year-over-year growth compared to the first quarter of our last fiscal year, and a significant increase over the $172 to $174 million that we provided as guidance in our earnings press release last quarter. Our second priority is to complete the migration of our business to the new business model. Our goal is to migrate more than 80% of our committed revenue by the end of this fiscal year. After three and a half quarters in market, we've already successfully migrated 71% of committed revenue as of the end of the fiscal quarter, up from 60% the prior quarter, another strong indication of our momentum. This is a high priority because we aspire to create a growth engine for this business that will be disciplined, systematic, repeatable, and scalable. And by migrating the majority of our customers to our consumption model, they will automatically benefit from the innovation and full value of the platform, which we believe will lead to growth of their consumption and our revenue will follow suit. Our third priority is to grow the number of paying customers. The primary way in which we will deliver on this priority is through 100% self-service product-led growth funnel, starting with our New Relic One free tier. Since introducing the offer three and a half quarters ago, thousands of developers have signed up for New Relic One, and more than 3,300 pay-go accounts have entered credit cards through the end of the fiscal quarter, an increase of more than 1,300 since we reported last quarter. This priority is important for three reasons. First, we see our self-service funnel as strong validation of our product experience and product market fit. Without a great product, developers would simply not be willing to pay for the service. Second, as we grow the number of paying customers, we expand the pool we're able to nurture to higher and higher levels of service, including graduating them to sales-wide accounts. And third, the self-service experience also signals experimentation and early adoption within our sales letter accounts, further helping us identify new opportunities to nurture expansion. Our fourth priority is to methodically deliver platform innovation and value to customers. We will showcase how we're achieving our unique vision each quarter through industry-leading innovation, customer success, analyst reports, and rankings. This quarter was another hallmark of innovation from our product and marketing organizations. We held our annual FutureStack developer conference and enjoyed record attendance with many thousands more engineers viewing the sessions on demand following the conference. In this quarter, we were able to introduce the Pixie New Relic One integration, which unlocks what we believe is the world's best Kubernetes observability. enabling engineering teams to observe their environment and the services they deliver in it in just a few minutes with zero friction. Kubernetes is now mainstream, and adoption is widespread, so we see many engineers benefiting from this innovation. It's truly a magical experience that we see rivaling the early days of New Relic, which catapulted this company's success. We also introduced the New Relic Errors Inbox, Another first that enables engineering teams to triage and resolve errors across their entire stack, rather than firefighting them during incidents. Only NewELED provides this kind of platform-wide, proactive, aggregated errors experience, included free for every full-stack observability user. We were also excited to announce our partnership with Kentik, pulling network context into New Relic One and helping DevOps teams and NetOps teams collaborate more closely in the New Relic One experience. These, on top of AIOps, logging, New Relic Explorer, and many other platform innovations over the past few quarters, are delivering incredible value for customers, which we believe will fuel increased platform consumption for quarters to come. And that's just the start. Our fifth and final priority is to improve our internal execution and costs. You realize that in order to reach our potential and achieve competitive growth rates, all areas of the business will need to move faster with less friction, more alignment and efficiency. We are systematizing our planning, prioritization and execution rhythms across functions and better stitching together internal data across product, marketing, sales, and finance so that we can run the business in real time and better serve our customers in their moments consuming the platform. Every executive on my team has clear objectives and accountability with accelerating the overall company success as their overriding priority. We are driving reduction to our COGS and returning our gross margin to typical enterprise SaaS rates. And we're already getting traction on many of these fronts. As I shared a few weeks ago, we hired Anita Lynch, our new chief data officer and leader of our internal data systems. She's joining Christy Friedrich's team, our new chief operating officer, responsible for systematizing our internal execution across functions. Manav Khurana, GM and product owner of our burgeoning self-service business, was also promoted to chief growth officer. bringing all aspects of that self-service product experience together with the full marketing organization under his terrific leadership. This is an incredibly exciting time to be at New Relic. I'm humbled to serve as CEO and grateful for all the contributions from Relics around the world and especially for Lou Cerny, our founder and chairman. I've worked for some amazing companies and leaders But there really is something special about New Relic, a special group of people with the vision and skill to make a profound impact on the world through our technology. And I'm honored to be part of this company and excited to help it grow. With that, I'll turn it over to Mark Sackleben, our CFO, to walk us through the full set of financial results for the quarter. Over to you, Mark.