New Relic, Inc.

Good afternoon. Thank you for attending the New Relic for QFY 2022 earnings call. My name is Tamia and I will be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Peter Goldmacher, Vice President of Investor Relations.

Hi, everyone, and thanks for joining our Q4 fiscal 22 earnings call. We published a letter on our investor relations website about an hour ago and hope everyone 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-Q and upcoming 10-K 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 release. 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 welcome to the call, everyone. New Relic is in a stronger position now than it was a year ago when I was announced as CEO's successor. Let me share with you five key accomplishments of FY22. First, we accelerated our total revenue growth rate from 11% in FY21 to 18% in FY22 by adding almost $120 million to the top line this year. Underneath this, our net revenue retention rate, or NRR, grew for each of the reported cohorts and on an aggregate basis. This was driven by strong market acceptance of our products and our new pricing model, and importantly, We were able to achieve this growth while keeping sales and marketing spend essentially flat, excluding the amortized commission expense we discussed in detail last quarter. Second, we migrated 87% of our business to the new consumption business model. The speed and boldness of this cannot be overstated. I can't think of another company our size that has successfully transitioned from a legacy business model to a new business model so quickly. Customers see the New Relic model as a clear differentiator, helping them maximize the value of their budget by avoiding the shelfware and overage penalties associated with many of our competitors. Having the migration largely complete allows us to be single-minded in growing the consumption business going forward versus managing both our legacy and new businesses simultaneously. Third, our total paid customer base is growing again, after many quarters of declines. This increases the pool of customers we can nurture to higher levels of value through both in-product and sales-assisted efforts. Fourth, we're exiting the year with non-GAAP growth margins in the low 70s after four straight quarters of non-GAAP growth margins in the 60s, another early indicator of the progress we expect to see towards healthier margins in the quarters to come. Fifth and finally, our platform has never been stronger our data-centric approach to observability allows us to release waves of new innovation in fy22 which further differentiated us from competitors and laid a foundation for increased adoption across our nearly 15 000 customers going forward we not only extended our lead with apm by introducing new capabilities like air's inbox and code stream but we also revamped major platform capabilities like logs and infrastructure monitoring while extending our differentiation with brand new capabilities like Explorer, Pixie, and NPM. Historically, customers came to New Relic primarily for APM, but our all-in-one platform approach is broadening the appeal of our offering. Almost 26% of our customers use all four of our top capabilities, APM, infrastructure, logs and browser, and that number moves to almost 50% of our largest consumption customers, a significant increase from one year ago. While FY22 was a transformative year, there is a lot of work remaining. I've had the opportunity to talk with many investors over the past few quarters since becoming CEO, and I've been listening to your questions and concerns. I've identified four priorities for FY23. Our top priority remains the same as FY22, to return our revenue growth to market growth rates, which we've stated as 25% in the intermediate term. We learned a lot about the unique aspects of a consumption model this year and exited the year with a better understanding of seasonality and how customers' consumption can fluctuate for a variety of reasons. We factored this into our plan for FY23 in an effort to provide greater visibility into the business. To give you a better sense of how our business performed in FY22, we have supplemented the discussion about revenue in our investor letter with a metric called consumption run rate, or CRR, which is a more real-time view of actual platform usage. We report our monthly CRR for the past 13 months in the investor letter And you can see steady growth in consumption throughout FY22, an indication of increasing platform usage and business help, with exception of the seasonal dip we reported last earnings call, which Mark will expand on in just a moment. Following the dip, we've seen a steady rebound in consumption run rate with a strong March and April. While FY23 is only our second year in the model and our first with a majority of the business in it, We believe this will be a helpful baseline for understanding our potential growth looking forward. Our second priority is to continue to improve our non-GAAP growth margins and return to non-GAAP profitability exiting the year. For FY23, we'd like to exit the year with non-GAAP growth margins in the mid-70s. The three main things that will drive this result are top-line growth, offering customers a broader menu of functionality and price points, and fully exiting our data centers by the end of FY23. We also intend to improve operating margins and are targeting to exit the year with modest profitability on a non-GAAP basis.