Q1 2021 New Relic Inc Earnings Call
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Now I turn the conference over to Peter Goldmacher, Vice President of Investor Relations. Please go ahead.
Thanks, Brandon good afternoon, everyone and thanks for joining you Alex Q1 fiscal 21 earnings call.
Joining us today are CEO lose journey, President and COO My Christiansen.
Perfect Officer.
We publish the letter on our Investor Relations website about an hour ago and hope all do you had a chance to read the letter along with today's earnings press release.
Because of the level of detail we provided during this call will make forward looking statements, including about our business outlook in strategy, which we based on our predictions and expectations as of today.
Actual results could differ materially do do number of risk. The FCC also during this call we will discuss certain non-GAAP financial measures.
We reconcile does to the most directly directly comparable GAAP financial measures.
And 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 being webcast from our Investor Relations website, an audio replay will be available there in a few hours and with that I'd like to turn the call over to live.
Thank you all for joining I hope you all are staying safe and particularly on the East Coast I hope you're managing the weather.
Especially you can.
Which reflected expectations around.
Headwinds, including covert 19, and a seasonally soft first quarter.
Although we.
Sure in fact much of what I talk about during today's prepared remarks.
Quite our strategy to improve new relic its growth rate over the long term and help the world deliver more perfect software.
When you ROIC was founded back in 2008, we firmly believe that applications would become the center of daily lives.
Health and performance of these crucial application ensuring that their customers had a great experience every time they quick.
Scroll to persuade.
Data showed us the green application experiences whether in the browser or increasing.
We on a mobile device drove customer adoption conversion and affinity.
Some company to pull away from competitors as customer expectations, where reset higher and higher.
You really was at the forefront of this inflection point.
New relic established market leadership.
And revolutionize both the time to value even performance by designing.
Okay little multi tenant architecture.
The very same architecture that is late.
The foundation for our next chapter.
Since then the way software against changed as Mark a tradition.
No monolithic applications have been redesigned according to cloud native Microservices architecture.
Components to be monitored has exploded into hundreds or even <unk> per application.
Added.
This complexity if the emergence of desktop software changes are now happening faster than frequently you said hundreds and thousands a day in some organizations.
As applications have become more complex the market has evolved into a variety of monitoring tools to address discrete problems and log management infrastructure monitoring ATM and others.
Jason categories Accordingly vendors in these categories.
With an array of and chase.
And overlapping and get disconnected tools each of these tools employs a different user interface and fundamental architecture, and he's probably promises visibility proactive.
The section and a mythical single pane of glass sure, which teams can allegedly see the entirety of their application infrastructure footprint.
Meanwhile, the here.
And difficult to predict in an eight.
It also correlates very.
Sure.
C. P M tools a teams have to.
Number of differing in obscure.
Page views mobile users.
Resulting in a friction filled provisioning process that often forces sub optimal usage in north.
Her to keep focusing in line with budget current monitoring pricing models Creek.
Financial disincentive for teach the instrument all of their applications and infrastructure.
[laughter] fundamentally undermining the holistic visibility these teams strive to consider when these solutions for into first place.
Furthermore, customers, who adopt your or infrastructure to scale back costs further restrict.
During offerings.
To cope customers Unstopables alongside commercial tools, sometimes augmenting and sometimes overlapping functionality.
It gets trapped in silo databases, creating the acute blind spot set of cripple the team's ability to deliver and operate soft.
Average organization can end up with dozens of tools to monitor different parts of their stack, forcing engineers to scrambling to switch between these disconnected and often expensive tool to investigate issues swaps precious time passes in which end.
Users are stuck and disgruntled.
We believe this model no longer works.
Engineers deserve better.
End users dessert.
Better.
Customers.
No monitoring technique no longer.
Fishing to provide visibility into modern systems complex punitive pricing from monitoring vendors flies in the faces a mission to deliver critical operational approach one predicated on a can.
Net did real few of the entire he's given organizations operational day in one central store.
This approach month.
Two questions. One did you don't even know they needed to ask or even cool.
Yeah.
This approach must do more than just notify can you just when an issue occurs but also ILLUMENATE what caused the issue and.
Hi.
This approach must be kind of ice scale with.
Pricing that encourages team the instrument all of their applications and infrastructure and like all other operational data into one central store in near real time.
As a lines cross border between infrastructure in applications, it's more critical than effort to be able to see across your entire software system and get trace ability through your entire stack.
You really to find this approach is observer bill.
Somebody.
Observe ability described how well the your team can understand the behavior of a complex digital system. If monitory tells you when something is wrong observer ability lets you asked why I'm sort of ability is predicated upon your software it infrastructure being able to the ultimate answer.
For ship from traditional monitoring to observe ability to happen our experience shows the customers require the following four things one a single source the truth for all your operational data metrics event logs and traces not only coming from a vendors agents, but from any source of data.
To comprehensive visibility across the software stack in one unified user experience three AI and machine learning driven capabilities to detect anomalies and extract insights in real time and ahead of ice scale and for program ability, so that customer and third party developers can.
Below the applications and connectors to add functionality, creating an ecosystem of developers and.
Partners.
Furthermore, observe ability requires pricing and technical enablement, such the teams can readily instrument all of their applications and infrastructure then collect that data. These are the design principles behind new relic one.
When we first announced new relic one last year, we began a journey to reimagine, what we offer our customers from the ground up.
Starting with the user experience and extending to how customers do business with US simplicity is key to our strategy across packaging pricing adoption and the user experience.
Unlike other commercial monitoring tools are related open source project, we see new relic is well positioned to offer the convenience of SAS with industries at scale and performance at the data platform layer extensibility and full integration for open source project to help engineers Unbilled and troubleshoot faster.
Which brings us to today.
July 2020, but perhaps the most important moment and you were like 13 year history with the possible exception of our initial launch in June 2008.
In the last two weeks alone we have made five major announcements.
The first announcement was our commitment to open source release of all of our agents for ATM mobile browser infrastructure and all of our infrastructure integrations.
Our second announcement was the dramatic simplification of the new relic product portfolio from I'll, let him skews to just three powerful comprehensive product in one unified platform.
Three we announced a new customer friendly pricing model that we because if we believe will define how companies will prefer to consume observe ability platforms going forward.
Before we announced a complete transition of all of our product features and capabilities into new relic wine with 100% of our customers transition to over to the new relic one user interface.
And five we announced a new powerful perpetual free tier of the new relic one observer Billy platform that we believe effectively compete with solutions that could cost in the range of $10000 per year.
You were like one is how we deliver observe ability to the market in a way that is unique from any other commercial vendor are open source stack.
As I mentioned earlier, new relic, one now includes three and only three products. The first product is telemetry data platform.
Turning to data platform Ingests Visualizes alerts on all your metrics event Lawson trace is from any source that could include our agent or to conclude third party sources of instrumentation or telemetry data. It doesn't have a penny bio pedra by scale and pennies per gigabyte.
Our second product full stack observe ability.
Correlates that data from the ATM blogs infrastructure monitoring client side monitoring and distributed Tracy all the way into a single integrated user interface and product.
That is easy to analyze and troubleshoot your entire stack in one connected curated experience.
Unlike anybody else in our space, we price this product per seat.
Our third product applied intelligence detect resolve incidence faster than with machine learning models trained using the entirety of a customer's operational data infantry data platform as is the case with other AI platform. The more underlying data there is to work the better the AI.
I encourage you to really really invest letter, we published today as well as our web sites learn more about each of our three amazing products.
During Q1, we conducted a many pilots where we made proposals to a wide variety of customers and prospects using our new simplified model overwhelmingly customers demonstrated strong preference for our new pricing model and this resulted in a higher left with our previous model in one or.
Two cases customers, who had been planning to leave new relic for competitive solution decided to doing about phase.
Putting our entire customer base and while we're very excited about what this.
Note that it will take time for the back.
Actual results.
Talk about just one more tenants our strategy, which is our renewed.
At a grassroots level we.
Decision makers by providing a robust.
[noise] free tier to encourage usage and adoption of our entire platform as well as going all in to support key open source projects like for me Tias for fauna and open telemetry.
License to increase the pace of the innovation and quality in our products by engaging the broader developer community.
He is.
It is with this community that new relic was born in a in English new routes is born.
First came to prominence and it will be with his team to do that new relic a sense of the next chapter of our company.
In summary, we are incredibly excited and proud of the product packaging pricing and strategy work, we've just completed and announced.
We have reimagine, the new relic one platform in order to return new relic to the head of the pack in its fast growing pains space.
Software I have to do their job.
Many disparate tools and data.
Stores.
We believe that neither costs nor functional.
He's a complete their observe ability.
Mission any longer.
The ability to collect search visualize an alert on all operational data by the telemetry data platform at masses.
Data initiation price point freely.
Because the unimaginable in this market.
Sac observe ability delivers hyperconnected curated views on that data to speed insight and its price per user iray of Byzantine in pricing meters that our competitors come.
Can you to use.
The.
Collection and analysis of all of our customers data enables new relic, one to deliver AI and ml driven value like anomaly detection and alerts suppression via applied intelligence, making the day in day out work of engineers more efficient and have higher value.
In short with new relic, one we have now simplified what else.
But our competitors can either copy.
Nor beat.
So that.
Concludes my prepared remarks, and before we jump into it to questions from all of you question to our new chief product off.
Concern because this is one that.
We've already heard from from an analyst has been so bill.
Since what specifically is changed.
What's new today.
So you covered a great deal with it but maybe I can add a few details wells.
Having spent the past two decades as Mike.
In many things, but one in particular is key to building a success.
Like strategy on creating customer value and great things will happen.
And stuff.
As our chief product Officer, I feel like that's my number one focus to create value for customers.
The Reimagine new relic, one platform that we announced last year has a very different value proposition than what we announced just this week.
When I say value proposition I mean, the value exchange customers perceived by adopting the platform.
As experience through a combination of innovation.
Packaging.
Each in turn and why I believe.
Yes. This is an important milestone not only for new relic, but for our industry as a whole.
First on the innovation dimension.
Execution towards this new plant.
We are compelling work in a short period of time.
First.
Our customers have been telling us Cincinnati Bell they love, the new look and feel like what.
They needed to see convergence of all our applications and capabilities into a single player.
Experienced an <unk> full platform adoption.
And as you said, we've achieved that milestone.
These are now available in new relic, one and we have migrated 100% of our users to the new relic one experience.
By the first time user experience.
Then build into the product and reduce complexity in adopting more of the platform with guidance.
The experiences.
We all feedback channel from users.
Directly to our engineering team and their feedback.
Pepper.
And since launch turning around fixes to bugs and mix.
Orders.
This is a massive achievement and as you can imagine.
Okay and migrating hundreds of thousands of users is now for the.
Sure, it's gone very smoothly and were less than one half of 1% of our users registry.
You know a complaint door opening a support ticket with us in the days since launch.
The cloud foundations open telemetry probably.
Okay and open first approach to all of our instrumentation, we open source in decades of IP with our own.
Embracing all of the most popular open source tools on the planet as data sources for the telemetry data platform.
Got it started to see the community respond mentally with enthusiasm, but our first fully implemented pull the craft.
Or code contribution from outside new relic came to us within just hours Andy.
Our embrace of open source is our announcement.
For support for from easier. It's one of the fills popular open source metric solution. The kubernetes and has enjoyed what.
I expect adoption last week, we announced out of Buck support for ingesting for me these metrics with justice the problems with scale retention and security concerns and opening up our omni channel of data that's completely separate and independent from our own applications. This is just one example.
Will empower opening up the platform to all kinds of data including metrics.
Open source and while there comes a personal systems.
Another powerful example of how we're delivering a true platform approach.
Our support for pharma one of them a source dash boarding tools on the mark to market.
Customers can that.
Order Fatah for all the data.
There is I've spoken with since this announcement.
How does your leg or pharma is super popular for a lot of companies.
So second on the value proposition is the packaging side and here too as you mentioned, we've made some dramatic changes.
You got like one last year was an application first business. We took the same approach as many of our competitors and sold our customers more than a dozen different applications, which collected analyzed and help and troubleshooter applications.
Well, new relic warm today is a data first.
Business.
We believe a problem and with last week's release, we took one of the most impressive technical note I've seen in my career.
Well do that Youve quietly nurtured for over a decade to support our own there.
Locations.
And we promoted to be a first class standalone platform for engineers to consume as a service.
We believe telemetry data platform is the world only pedals Rightskill Multitenant store for all kinds of operational data and we're really proud to offer as a platform service with incredible economics.
With built in digitalization program ability and best in class support for Dashboards, we're moving all technical and economic barriers to instrument everything and provide a single source of truth for all operational data.
We also heard from our customers with the complexity of our own tooling together with the array of open source of commercial tools, they need to adopt to achieve full stack visibility is impinging on their efficiency.
Engineering teams and driving up cost.
As the company, who created in the ATM category, we're going to be the ones who ended we took ATM off of our product.
Along with all of our other independent products and as you mentioned, we now offer only three products.
The.
Full stack of visibility product being a combination of ATM infrastructure logging.
And all the digital experience monitoring solutions that we provide the past.
Making it the easiest platform to standardize on across your engineering organization.
And last price I've seen some speculation that we're discounting price to help drive adoption of the platform and I want to be absolutely clear we are not discounting price.
With our new packaging, we've aligned pricing with the way customers tell us they want to consume observed ability going forward.
We are unlocking their ability to instrument everything thanks to the pennies per gigabyte cost of goods telemetry data platform.
And making observe ability costs more predictable with our per user pricing on full stack observe ability.
We're proud to be the first major player in this industry to offer full stack of visibility with a single per user practice.
We've tested this model as you mentioned and customers have given us tremendously positive feedback and their willingness in many cases to spend more on new relic, one not less because it increases and unlock more value that answers the question.
Okay. Thank you failing.
We've done quite a bit.
I think now is a good tying to take our first question from an analyst So Peter why aren't you.
So to your first question comes from.
Operator.
Absolutely.
We will now begin the question answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before personally keys to withdraw your question. Please press star them too.
To assemble a roster.
Our first question comes from Rishi Jaluria with D.A. Davidson. Please go ahead.
Hey, this is still a big beyond her Richie deloria. Thanks for taking your questions I have a couple of on the announcement open source in your agents. So first as the open source community and products start to build out could that potentially free up some of your engineering talent on the agent side.
And so curious where in your platform to be looking to shift those resources to plays out.
And then and then just on the open source can you.
Your square, what you're doing or plan to do to build and maintain a community around open source projects. Thanks.
Sure I'll, let bill take it take those questions.
Yeah happy too.
So first question around whether this will free up engineering resources.
I do believe you know.
Agents immigrations to good data into.
Like one platform and that is a lot of could lead to maintain and the pace of innovation in each of those areas whether its languages are public cloud ERP eyes or.
And if it is difficult and costly for us to keep up with the pace of that innovation our commitment to it remains the same however, I do see the opportunity to innovate and create more value through an open source approach and as I mentioned customers been validating that all the study with their own poll request.
To the extent it does allow our engineers to move into other places as the platform.
To deliver increased innovation, I think where we would it be able to apply.
More of that engineering capacity would be on the analysis and visualization front as well as our AI capabilities.
Increasingly we believe the future of instrumentation has opened that's why we're a top contributor and number three contributor to open telemetry.
And does the need for standardization, London Drummond station side is just.
I give and so to the extent, we can bet on and make open telemetry. The first class instrumentation path for all applications that will allow us to then shift resources onto you know the things that make new relic really unique which is our incredible analytics capabilities and increasingly Ari I layer.
To the question around embracing supporting the community when we announced open source, we didnt just throw the code over the wall and publishing I've just house, we announced we are embracing an open.
Standard an open approach for building a community and operating this project. So for example, all of the issues will be tracks publicly in the community. We will publish roadmaps in the community and as I mentioned take polar class, which we've already begun do it so it's a.
True open source model that we have engineers committed to full time to support in addition to be open telemetry project in the cloud Foundation.
Well that answers your question.
Yeah, but that's great. Thank you very much and then a look like dollar base, let retention dipped a little bit in the quarter can you.
Just to give us some thoughts on how you're thinking about that going forward.
Sure Mark you can take that one.
Sure I can take that so so Q1 is the is a seasonally weak or the core of our expansion right and in Q1, we had several factors that impacted it in terms of expansions are non U.S. business grew year over year, but Ah Ah, but North America underperformed and this is due to a combination of issues around.
Moving Nike <unk> economy, along with our own execution issues as you can imagine given the magnitude of or announcement last week over the past four months, there's been a broad effort throughout the company working toward this this launch. These include a lot of testing discussions with customers and prospects as all those blue and Bill mentioned.
While this helped define as erection and provided more confidence or long term success at that strategy. It didn't take away. Some of the focus of the team on Q1 results. In addition, we had a leadership transition during the quarter and we're excited to have a new North America had a false who recently signed I think he just said about announcement out that this afternoon.
We'll be starting later this month.
And we're very excited about that John seaberg, coming over whose whose work that might come up milestone has great great experiences of both status now those companies and hydro organizations.
On the other side of the equation customers a decent no span any corridor that number was also up we had $5 million to $6 million went down rates that were colgate or a macro related if we exclude those transactions our renewal rate was up slightly year over year.
Well as he said previously we see all renewal rate should be she'd be higher again, we are and we want to drive to higher numbers than we've been in achieving and when you look at our customer base. What are the dynamics, we see customers, who adopt and use the full platform home to expand their spend customers you use one.
Product, usually ATM only a more likely to say flat or reduce their stan. So this is one of them. Many factors that drove our new pricing and packaging, making easier for customers consume the full platform by removing this perception around deployment usage, we're confident customers will see the value of new relic, one and expand their spend over time.
Now you talked about going forward.
You can see from our guidance that we're looking at roughly flat and ARR in this current quarter in Q2, and that's driven by the fact that we are being incredibly generous with or with the offering that we've just good out there.
We have the free tier so for low end customers. Many of these who would have churned out overtime or you know they come and go we're saying you know what you'd have reuse of entirely held platform and and so we expect a fair amount of our low end customers to convert a freak here users.
And we expect over the rest of fiscal 21 to take a $15 million to $20 million <unk> in our our customers that are going to migrating to our free tier a much of that will happen. We believe in near term and front end loaded. So we believe all the whole going in.
Packed on this call.
And that will that will offset much of the that you know the increase in air we see the anything we've done as he's entitled our entire user base for the full platform and we thank you think that sets us up for great long term success, we want people to adopt it so they expand on it but that's lets me think going to cause.
Near term near term headwinds to our results, but set ourselves up for success in the second half and accelerate growth as we get into next year.
Very helpful. Thank you.
Our next question comes from Sanjit Singh with Morgan Stanley. Please go ahead.
Thank you for taking the questions. It congrats on the on the major product launch I wanted to go back to the announcement and sort of make sure that I'm thinking about this right. There's a bit along components here the ones that sort of stepped up to me is on the pricing and packaging side and it seems like the focus here is just drive.
These two major consumption of.
Of all the new innovation that you guys had put out in the last year essentially ahead of monetization. It sounds like hard that's that that sort of what you're alluding to so if you had an existing customer for example, but that that spending a million dollars in and at our today as they migrate that migrate.
He said and the new pricing as a new packaging platform, what sort of the impact for that customer in the near term chicken in sort of here in year one.
I assume they will expand.
Even more vigorously over time, but as we go through this transition how should we think about the impacts on the other customer base.
I'll take a stab at it and then I'll have Mike kind of follow through.
On how we designed the model, let's take a typical million dollar value customer there. Many many versions of that but many of them might be.
Million dollars almost entirely on ATM and [noise].
In in all likelihood they have not done 0.8, P.M. everywhere they would like to.
Right.
And that's because you know like like all of US all of our competitors, but we've historically priced by the host on ATM.
So now with this new model, where the bulk of a typical new relic bill will actually be per user, which is more predictable and better correlates or value that customer will have more incentive to not only deploying more a P.M. because the marginal cost to add more houses low at that per gigabyte pricing.
On the times you data platform, but also very cost effective to add logs and there's no new products are by no new procurement cycle. So why not add logs why not add synthetics why not add more data into the same place to get better correlation better value, particularly if the economics are so attractive on the data side and that's why bill.
Describes his data driven product strategy.
So we believe.
There's no reason to expect that all of our customers will suddenly reduced or spend in the short term some might but many will increase their spend but he is certainly we expect at this model will.
You know in center customers to standardize on one places a single source countries all their telemetry data that will drive more users, which will also create a flywheel effect.
Right that made that makes total sense and then a question for Michael.
If you go back at the analyst day, omni sort of laid out the framework in terms of the timeline for acceleration obviously the world has changed right and you know it's changed with with as these major product thousand that so what's stays the same with that framework and what changes with that framework given not only coded but let's go.
Yes, it announced over the last couple of weeks.
It's a great question I think that you know the purpose of the framework was to basically break the front end.
Of our goal to get to a billion dollars of revenue.
Into two segments of three quarters.
Where we would do a series of adjustments.
In the organization and it's live with a lot of focus on the on the go to market organization and we break it into two three quarter pieces. So we've.
Gone through all the details of what we adjusted in.
Three Q4 to you in one Q.
Just recently and now we're in the next three quarter segment.
Obviously this.
Change in the bread sin and capabilities of our product for portfolio is a huge help.
And if the transaction model will create a number of other opportunities to drive productivity in our sales force. So I wouldn't say that that second three of further refinement of our go to market motion, how we approach or customers that transaction model.
We can I think we can stick to that that timetable. So that we go through.
The remainder of this quarter and then Threeq. She went for Q really proving out the the value of this model and this positioning of the product and then go into F. why 22 with some real momentum.
So I I think that yes, obviously that where there's more change than we had anticipated, but I believe it still fits within that framework.
Understood My in my guess.
If I can just if I can just add to that Mike Rahm, one one known around that.
Given the given that compound in nature of air our and remember a year or headwinds given you don't coded as well as the general probably the general product offering that we're doing today to be as developers yeah. It no longer reasonable to expect us to achieve the 1 billion dollar revenue goal in fiscal 2003 that we forecast.
At our analyst day in 2019.
Let me to do what we're doing is we have a we have you know I would say we are taking a temporary disruption short terms are set ourselves up for accelerated growth in the back half and then particularly as we head into fiscal 22, and 23 on our path toward getting back toward market rate market rate.
Growth rates.
Understood. Thanks, Mike.
Our next question comes from Sterling Auty with JP Morgan. Please go ahead.
Yeah, Thanks, Hi, guys.
Additionally, observe ability this space has been a best of breed approach, a p. logging infrastructure and a lot of what we herbin. This announcement is kind of driving a platform adoption across that.
I guess the question is in order for you to succeed do you have to have pulled platform adoption by your customers, meaning it's a little bit of all or nothing or is there a way to still play nicely within the context, the customer might want to use data Dodd Frank.
Infrastructure in Splunk for logging.
Yeah. He leaves we certainly can so in that case, where it lets say a customer prefers best of breed wins that that's true first you know some quite a few of our customers, where we coexist with some of our competitors and where as you might expect the standard for ATM, but in those cases, even in some of our largest customers.
Many of them have withheld deployment of ATM to everywhere they'd like to use it because of the nature of our pricing model and so in that case, we believe that this this new this new strategy, we put together will increase broader adoption of our flagship product and it'll just reduce the friction involving customers try.
Buying or other products logging being very compelling, particularly at the price point that we're talking about him trench data platform.
But doing that in a way that isn't an all or nothing I'm kind of bad it's an easy experiment to run and then we think over time customers willing placed increasingly standardizing our platform that's not the only way in which we can grow within a given the customer.
And then the one follow up is talking about reducing friction I guess another way to look at it from a different angle is cheaper price and if that's the case what does this new approach in terms of a new pricing paradigm due to your total addressable market.
And what does it due to the margin structure of the business moving forward.
I'll, let mark take that one.
So.
We feel like that it actually expands the market.
As as Lou mentioned, we've got a lot of customers, who are not instrumenting not covering their full of state deposit book, but the owner was pricing will pump complex cost structure and.
Deductibility on monitoring and can't collecting all this data so we feel like by making it easier making that you know cheaper for them on a per unit basis allows them to achieve much better value and cover much more.
Our applications much more of their digital business and so we think it actually expands the overall market and I think when a lot of examples of those historically, where we're as price goes down. The you know the N. goes up by inviting greater percentage and the overall market expand in terms of.
Origins.
You know that Don that then telemetry data platform that.
We're off on that at a very.
Very attractive price to our customers, we can do that because of our architectural advantages talked about and but that margin is lower than our our you have right now most back again realty and other products that said we feel like.
As as as we continue to go through a migration to cloud overall gross margins will will remain in the 80% range 80 plus percent range over the long term once be once we get to resolve the cloud migration almost a couple of years and one from an operating standpoint, we feel like a you know that we will you slow.
We will have no negative impact on our on our long term operating margins.
Okay. Thank you.
Our next question comes from Robert much it with Raymond James. Please go ahead.
Okay, great to see that continued shift towards full stack observe ability under a single pane of glass that customers are looking for today. My question is as we look out five years Where's the hockey puck going to next in the competitive modern world and what are you doing a stay out front.
Well, we think we've done something that really does put us out because people have been talking about convergence for quite some time lots are converging by you know on their website, but certainly not on their their data architecture. We believe the convergence is not at the pane of glass it acts.
And we got this data layer.
Right, where the only company with a single database and single query language backend that can respond to queries about logs events metrics and traces for the only company with one at does that multi tenant and because it will depend architecture. We can you got to pennant might scale, we can do that and remarkably fast, but make no headaches of management.
Then it's truly designed to running the cloud there is no way that this could run on premise wasn't designed around premise and that means that it we can they operate at very compelling economics I believe that mark is gonna be trying to get there over the rest of my moved to do we try and get their of next five years, because it's one thing to claim you've got four products that cover the various components that you need to.
Literature ability, it's another thing to say all the data from one place. That's what you need to drive best of class, a high and best of class troubleshooting and conversion environment.
And just one follow up for me can you just help us understand how an average customers deploying it looks like in terms of how many monitoring silos that the typical customer deployed today and what that number may look like any are at your encouraging shift to like the whole platform adoption.
Sure there's actually if you look at the blog post.
That announced it that's it that's undermining.
There isn't it there's a graphic that in that graft and have been post that I've shown to about 15 sito's I'm over the last three months every one of them.
This really react as saying this is the world I live in and what that charge or picture shows is just.
Huge complex collection of a bunch of different sources of data going to a bunch of different database isn't a lack of unity.
We've seen customers spending.
Done observer ability tools alone across many many vendors customers routinely tell us they have 2030 plus tools all in.
Action, none of them designed to work together at least in a cohesive way and certainly not on a single data platform. So there's a lot of an answer.
You know say just described they many of them are saying and I am actively looking to unify all this into a single source the truth and before we made that presentation. They said there was nothing out there that can do that so I was actually thinking a building it myself and now they're having conversations about.
Okay.
Our next question comes from Jennifer Lowe with you'd be US great. Thank you I guess the first question is is a quick one so where are you at this point in terms of rolling out the new pricing to the customer base I know you mentioned the entire customer base.
Alan New relic, one but have like.
But on the new pricing model or is that something that will rolling over time.
Oh, Mike you can go ahead and take that one.
When the customers renew they will be put on the new pricing model. So their current whatever their current agreement is with new relic that'll continue until the renewal date or some other event.
Great and then just going back.
And just asked about you know if that's right.
New model and leading by example that you know hypothetical customer that was.
Predominantly ATM out, but there's a lot of different ways that customers can.
And get to you know a certain other is up sell which it sounds like some of those upsells will now be rolled into that.
The aspiration here that a customer that was 100000 dollar customer under the old model will be 100000 dollar pest.
Right under the new model, just maybe looking a little or could you see.
I did have customers all over.
Quite as they go ahead and take that one.
We are our goal.
That that customers become a larger customer and that might.
Happen at the time of lifting model at the time of renewal they.
<unk> funds customer and spend $100000 Nick you.
They'll start to use the platform I realize that he is going to simplicity.
I have it they'll start to adopt it more and more and they'll burn through that pool quicker than expect.
Well at nine months, and we're talking to them about an upsell.
Part of the pilots we've run is that customers recognize that.
They're getting a much broader set of capabilities and they are willing to pay for that to the to the new pricing.
So 100000 customer, perhaps they say, okay I'm getting all this incredible value.
You, it's easier to manage its more simple I like it all go a bump off by 30, 40% or some number so I think it's a it's a combination of both but the important thing is that we believe over the longer term. This is going to line for them to either.
Three star span.
Okay.
Our next question comes from Jeff that Andrews with Needham and company. Please go ahead.
Good afternoon. Thanks, Richard.
Taking my question and congratulations on all the announcements.
I would ask on the go to market strategy I think Luis you mentioned that I'm. Your Salesforce is fully trained in there I'm focused on taking this.
To your customer base, but could you speak more broadly to how you're going to the strategy around broadening awareness of this new platform, and how and or whether partners, particularly some of the new technology partners may assist in your broader messaging our sales force.
Our son Huh.
To help customers understand the impacted this model and how.
To explore opportunities to expand our relationship with our customers as a as Lou indicated as Mark indicated one vector is obviously much broader adoption of application monitoring across there.
State but.
But they can also dramatically expand their usage of infrastructure monitoring log analytics and all of the other capabilities of the platform. So there's lots of ways to grow and we.
Trained our salesforce to help identify those opportunities for customers to solve more problems improved performance.
And expand their usage of the platform we do have.
A growing portion of our business that is called in collaboration with partners.
Public cloud providers and other or what are called distribution partners. So we would expect that to grow over time, but it's early days for us in that in that regard, but we're very optimistic about what the potential could be.
Great. Thanks, and then just as a follow up could you touch a little bit more on the prouder vision of attracting other I, it's fees to potentially create apps on top of of this new relic platform.
So why do you know I, just think one of the things out.
I Love. This strategy is that it really further unlock the potential program ability because the telemetry data platform with its economics is going to attract a much more data.
They're going to be more used cases, an opportunity to do interesting applications on top of that data I believe in general is gonna be look more like a forced dot com like platform or the applications built on it are going to be customer specific so that.
If there is a particular use case for the data that are out of the box experience or dashboards don't cover very well enough and that's an easy thing to write software to do and then and then in general there will be customer specific so I don't anticipate many I asked me building a business on top our platform in the short term, but that could develop over time as more and more customers start.
To do more interesting things on top our tonnage data platform.
Great. Thanks for taking my questions.
Our next question comes from Yun Kim with Rosenblatt Securities. Please go ahead.
Thank you so with a new pricing model in packaging I you guys still focused on your.
Try and go to market itself strategy around increasing monetization of your installed base, especially the ones.
No 100, okay to.
Get them to move up to your K plus and then also does this new pricing model and go to market Yeah, Scott as you kind of pick away from your.
Current capacity on in terms of content, because we have such a large paying customer base.
I would expect that.
For then for the near to enter to mid term.
The most of our new.
The way are probably 80% to 90% of our new way, our will come from existing paying customers.
We do.
It is very important for us to get new customers have all sizes.
And the free care that work that we're introducing here as part of this new model.
Is designed to dramatically expand the potential users of new relic and and we hope that all of them could eventually become.
Paying customers. So we are well while I think the reality is in the near term as I said, it'll be 80, or even 90% of new way are coming from existing we do want to grow.
New logos and new users at all at <unk> at all sizes.
Great and then just a one question on other question for me on Bill and New one aspect of the platform that is teeny teeny, well make up and as many others in the space. If that you guys employee on multi agent model because it.
Single agent model I'm now that you have consolidated from you know products into gifting categories and whatnot.
Is there any plans to change it looked like agent model. All you guys currently house.
Bill do you want to take that one or I could.
Go ahead.
[laughter].
Yeah, I'd say, there's no plans right now to do.
Do that you know we.
We're in this transition towards open telemetry as the.
Preferred instrumentation approach for.
For agents.
And we'll.
Provide an optimized package for the Opensymmetry.
System as well as connectors and visualization for that in the new relic, one platform, but no plans to consolidate agents.
So in that way.
Great. Thanks, so much.
Our next question comes from Derrick Wood with Cowen. Please go ahead.
Great that any change in that throughout the quarter any customers rebound there or.
Or and how does it vary by region.
You know not not too much of a change you know some some are starting to recover but I didn't say there still remains a great amount of uncertainty in their business prospects in general and so I think they're still being pretty cautious.
Yeah, I would say in in EMEA and APAC region is probably slightly a slightly ahead of where the U.S. is overall, but I still think theres and there's a fair amount of caution out there and as those verticals.
Right and then for anyone who wants to take it you have some big customers in the gaming vertical that's the seeing a good amount of health.
How did you see that trend in the quarter and how sustainable do see this in the back after the year, but back to school and potential reopening.
I guess, what I would say is we have a number of.
ER customer profiles that have obviously benefited from.
The the.
Changes in the way.
We're living these days, but it tends it's it's at the extremes.
We have as Youve identified 10% that are hard hit travel.
And hospitality and things like that.
Across the broad.
Profile of our customer base.
It's it it.
It's a difficult environment.
Great. Thanks.
Our next question comes from Keith Bachman with Bank of Montreal. Please go ahead.
Hi, many thanks I wanted to ask two questions then I'll ask and concurrently. The first is on a are the second as I go to market.
The first on a our wasn't quite sure from the previous discussion when you anticipated returning to call it 15% to 20% Kinda Air our growth is that an f. why 22 that you get there or is there some rebound towards the end of this glycol at December.
Arch.
You guided to basically 10 per se.
That kinda air or growth I know, there's a lot of changes going on.
But the closest competitor that we have public information on is done and traces going you know a our by mid Thirtys call. It for round numbers and why you do have a lot of changes going on I'm, just surprised at the dichotomy or the variance so people have those changes.
You know that is it SMB related or is there any kind of characterization. Even if you go through this process about why there's such a difference and then I've a follow up if I could own go to market.
Okay. So.
You know I I, it's mark wants to comment on anything on timeframe I'm not going to comment on timeframe for when when we might expect to see certain changes that growth rate.
I would say we'd be spent the better part of the last time to talk about what we're doing too to grow faster.
And while we've been focusing on doing those things that is comedy expense has more expedient short term things that could have helped short term growth. We think we got a very competitive strategy that we think will.
Hi, this is positioned to being a in a leadership position over the long term and so.
Hey, you. The short version of it is we've done great strategic work that's come out to add some short term costs that were willing to take a trade off on.
Okay. Okay.
Mark any other comments from even worse my follow up on the go to Mark No I mean, where they're not going to put a timeframe on it but we you know we pulled the strategy in place.
So we feel good about it and our goal is to is to reaccelerate growth and get back to the market rate gross and as we get towards the end of this year and into fiscal 2002 in fiscal 2000 occurring.
Okay, Great and my follow up Loulo put that to you is just go to market and.
It would some of the things you're doing Nick a lot of sense.
Previously at the Analyst day I'm, the discussion was and intend to capture more you know the high higher into the market, whether it be large midsize companies or enterprise.
Organizations.
And typically when you're trying to do more of an all encompassing.
You know I think that's that makes it tougher to go to enterprise because enterprise up and historically more.
Best of breed.
And so I'm just wondering does the new strategy, where it is given the opportunity for users to leverage the entire platform.
How does that make you think about your opportunity set with with the the larger customers say.
And your currently serving or do frankly to grow your larger set of customers approach is a better way, saying it.
You know I see you know when I spoke to this.
The key you focus items seems to be taught you stuff that we introduced about in our Investor day at 100, K customers. So we do well I think with a million dollars plus customers not still a healthy and growing segment, but what we really want to do is growing the number of hundred K customers and.
And those are those the hurricane plus customers, obviously and most of them will be even large businesses. We think this strategy absolutely is well suited to accelerate the growth of that number.
Okay, Okay, well good luck gentlemen, thank you very much.
[noise]. Our next question comes from mobile.
Yeah from Barclays. Please go ahead.
[laughter] Thanks for taking my question.
One question on Florida, and the other question is on pricing. So on the product I was wondering to what changes have you made or maybe pointing you can make infill in in order to better align the R&D organization.
On the along those see skews way, so going from 11 different lines to treat the principally we like what are the changes you have made due to sort of like make sure.
You can do that Morphy shaky think bill.
Yeah actually will lead to find that strategy, we looked at the organization and realign the product organization directly against those three product.
Areas as well as two other platform areas that kind of span all three process.
The product.
Or excuse.
She is on the on the pricing and packaging. So I think it will only a mention.
It was around.
Moving on to finalize rewards when the new twice the ability for existing customers. That's way. So I was wondering in terms of just.
Better if they're going to says sports.
To have some of the conversation.
He said on renewals and the size of genius kicking in or to make sure that customers don't see like a big sort of like reduction in spring Akali grouping and then sort of like what are some of the communicate.
We don't see you soon.
Scenario, where all our customers has.
As a reduction in spend.
We think that Oh, expanding the capability the access to the full Cape.
Abilities as a platform.
Making it compelling to send us all your data.
You know we think that.
Everything we're doing here is to broaden access and adoption of the full set of capabilities and that is not the kind of scenario, where I would expect to see huge reductions in ER in per customer spend.
We're looking to grow per customer spend with this model.
Thanks, Chris.
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