Q3 2022 New Relic Inc Earnings Call

Good day and welcome to the new relic third quarter 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.

Speaker 1: Good day and welcome to the New Relic Third Quarter 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.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone.

Speaker 1: To ask a question, you may press star then one on a touch tone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Peter Goldmacher, Vice President of Investor Relations. Please go ahead.

To withdraw your question. Please press Star then two.

Please note that this event is being recorded I would now like to turn the conference over to Peter Peter Goldmacher, Vice President of Investor Relations. Please go ahead.

Hi, everyone and thanks for joining our fiscal 'twenty two earnings call.

Speaker 1: Hi everyone and thanks for joining our FAQ fiscal 22 earnings call. We published a letter on our investor relations website about an hour ago and we hope everyone's 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.

We published a letter on our Investor Relations website about an hour ago and I hope everyone's 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 strategy.

Speaker 1: During this call, we will make forward-looking statements, including about our business outlook and strategy, which we base on our predictions and expectations as of today.

Based 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 patent you Didnt filed with the SEC.

Speaker 1: 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 release. These non-GAAP measures are not intended to be a substitute for our GAAP results.

Also during this call we will discuss certain non-GAAP financial measures, we have reconciled those to the most directly comparable GAAP financial measure in our earnings release.

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 with that I'd like to turn it over to bill.

Speaker 1: 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. With that, I'd like to turn it over to Bill.

Thank you Peter and good afternoon, everyone. Thanks for taking the time to join us on our third quarter earnings call.

Speaker 2: Thank you, Peter. And good afternoon, everyone. Thanks for taking the time to join us on our third quarter earnings call.

I want to share with you three things before I hand, it over to Mark for an update on the financials first a summary of the quarter and year to date.

Speaker 2: I want to share with you three things before I hand it over to Mark for an update on the financials. First, a summary of the quarter and year to date. Second, an update on our five priorities. And third, my outlook on the road ahead and the key themes going into our FY23 plan.

An update on our five priorities and third my outlook on the road ahead and the key themes going into our FY 'twenty three plan.

First I'm pleased to share that we beat the revenue expectations, we set last quarter.

Speaker 2: First, I'm pleased to share that we beat the revenue expectations we set last quarter. Our revenue growth is a reflection of our improving ability to nurture increased commitments and consumption and both improved in the quarter.

Our revenue growth is a reflection of our improving ability to nurture increase commitments and consumption in both improved in the quarter.

We increased the amount of committed revenue in the consumption model in Q3 exceeding our 80% target for the year a quarter earlier than planned.

Speaker 2: We increased the amount of committed revenue in the consumption model in Q3, exceeding our 80% target for the year, a quarter earlier than planned.

We now have the vast majority of the business and the consumption model.

Speaker 2: We now have the vast majority of the business in the consumption model.

We also improved the level of commitment for customers, who renewed in the quarter and particularly those who are consuming above their previous commitment significantly increasing their commitments.

Speaker 2: We also improved the level of commitment for customers who renewed in the quarter, in particular those who are consuming above their previous commitment, significantly increasing their commitment.

We saw continued improvement in overall consumption as our product and customer adoption practices grow.

Speaker 2: We saw continued improvement in overall consumption. As our product and customer adoption practices grow, consumption continues to steadily increase with customers, adding both more users and more data.

Assumption continues to steadily increase with customers, adding both more users and more data.

Data ingest in particular continues to perform better than expected and although it puts short term pressure on gross margins. We view this as a very strong indicator of future growth and users.

Speaker 2: Data ingest in particular continues to perform better than expected. And although it puts short-term pressure on gross margins, we view this as a very strong indicator of future growth in users.

And left our marketing efforts to drive account and revenue growth are working.

Speaker 2: And last, our marketing efforts to drive account and revenue growth are working. All paying accounts.

Total paying accounts grew by 300.

And they count that started as pay go consuming at the 25 K plus annual run rate grew from 119 customers in to Q2 172 customers in Q3 and 15 of those accounts are the 100 K plus annual run rate up from just six accounts at the end of the second.

Speaker 2: And accounts that started as pay go, consuming at the 25 K plus annual run rate, grew from 109 customers in 2Q to 172 customers in Q3. And 15 of those accounts are at 100 K plus annual run rate up from just six accounts at the end of the second quarter.

Quarter.

It is important to reflect on how the fiscal year started versus where we are today.

Speaker 2: It is impression to reflect on how the fiscal year started, versus where we are today.

We entered the year eight successive quarters of revenue acceleration.

Speaker 2: We entered the year after eight successive quarters of revenue growth defibrillation and guided to 709 to 711, May 11th, and 6% year-over-year growth.

So 709 to 711 million revenue and six.

6% year over year growth.

If we execute the Q4 plan according to updated guidance.

Speaker 2: If we execute the two-four plan according to outdated guidance, you will have added about 75 million revenue above our original guide. And taking the company from the 6% guide over 17% year-old year-old year-old revenue goal.

Have added about 75 million in revenue above all else.

Original guide and taking the company.

And the 6% guide over 17% year over year revenue growth.

Oh My bad.

Speaker 2: not only that, but even verdict the study decline of paying customers. And we're on the growth path.

Converted the steady decline as paying customers were on the go.

Both patents.

These results are a reflection not only of our strategy playing out as expected and even faster progress on execution than we had hoped it's testament to the hard work of thousands of dollars.

Speaker 2: These results are a flexion not only of our strategy trying out as expected, but you can faster progress on execution than we hope, as testament to the hard work of thousands of elements. Next, I'll provide a brief up.

Next I'll provide a brief update on our five priorities.

Our top priority is to return our revenue growth to market growth rates and I'm pleased to share that for the third quarter in a row, we've reaccelerate revenue growth over last quarter and last year.

Speaker 2: Our top priority is to return our revenue growth to market growth rates, and I'm pleased to share that for the third quarter in a row, we've re-accelerated revenue growth over last quarter and last year.

Revenue was 204 million this quarter compared to $166 million in the third quarter of last fiscal year.

Speaker 2: Revenue was 204 million this quarter compared to 166 million in the third quarter of last fiscal year.

Representing growth of 22% year over year.

Speaker 2: representing growth of 22% year over year, up from 18% last quarter, and 9% in the third quarter of last fiscal year.

Up from 18% last quarter and 9% in the third quarter of last fiscal year.

It's exciting to see continued and accelerating revenue growth. This is the highest year over year growth rate new relic has posted in two years and validation that we've moved past the turnaround and are making progress toward the approximate 25% market growth rate, we shared that's a priority at the beginning.

Speaker 2: It's exciting to see continued and accelerating revenue growth. This is the highest year-over-year growth rate New Relic has posted in two years. In validation that we've moved past the turnaround and are making progress toward the approximate 25% market growth rate. We shared as a priority at the beginning of the fiscal year.

The fiscal year.

Our second priority for this fiscal year was to migrate more than 80% of our business by the end of the fiscal year.

Speaker 2: Our second priority for this fiscal year was to migrate more than 80% of our business by the end of the fiscal year.

As I highlighted in my opening remarks, I'm pleased to share that as of Q3, we've already exceeded this goal one quarter ahead of schedule.

Speaker 2: As I highlighted in my opening remarks and pleased to share that as of Q3, we've already exceeded this goal one quarter ahead of schedule. We are now at 81% of the business in the consumption model.

We're now at 81% of the business in the consumption model.

Our third priority is to grow the number of paying customers and as mentioned we increased the number of active customer accounts to 14600.

Speaker 2: Our third priority is to grow the number of paying customers. And as mentioned, we increase the number of active customer accounts to 14,600.

The primary way we are driving this growth is through 100% self service product led growth funnel, starting with our new relic one free tier.

Speaker 2: The primary way we are driving this growth is through 100% self-service product-led growth funnel, starting with our new Ellic-1 free tier.

Since introducing the offer one year ago.

Speaker 2: Since introducing the offer one year ago, thousands of developers have signed up for NewElec 1, and over 6,400 have already entered credit cards, an increase of more than 1,500 since we reported last quarter.

Are developers have signed up for new relic, one and over 6400 have already entered credit cards, an increase of more than 1500 since we reported last quarter.

These customers provide an excellent qualified customer funnel for our direct sales team and partners to nurture to higher levels of growth.

Speaker 2: These customers provide an excellent, qualified customer funnel for our direct sales team and partners to nurture the higher levels of growth.

Our fourth priority is to methodically deliver platform innovation and greater value to our customers.

Speaker 2: Our fourth priority is to methodically deliver platform innovation and greater value to our company.

This quarter was another hallmark of innovation from our product organization.

Speaker 2: This quarter was another hallmark of innovation from our product organization.

We introduced new relic I O code stream, a brand new infrastructure monitoring product and MLR for marquee releases in a single quarter, along with thousands of other smaller improvements.

Speaker 2: We introduced New Relic I-O, CodeStream, a brand new infrastructure-minded product, and MLOPS, four marquee releases in a single quarter, along with thousands of other smaller improvements.

We've spoken a bit about code stream and the I O released last earnings call. So let me share a little bit more about the other releases.

Speaker 2: We've spoken a bit about code stream and the I-O release last earnings call. So let me share a little bit more about the other release.

Coinciding with the code stream lunch and to assist in monetizing this new cohort of users along with other capabilities from the platform.

Speaker 2: coinciding with the code stream launch and to assist in monetizing this new cohort of users, along with other capabilities in the platform, we also announced a new core user type, a lower priced offer, specifically crafted for code focused developers who have not yet embraced observability or are only occasionally pulled into code related incidents and don't already have a paid user life.

We also announced a new core user type a lower priced offer specifically crafted for code focus developers, who have not yet embraced observe ability.

Or are only occasionally pulled into code related incidents and don't already have a paid user license.

This new user type is now available for purchase as of January .

Speaker 2: This new user type is now available for purchase as of January .

The core user serves as an onramp to observe ability and will lead to new full platform users over time.

Speaker 2: The core user serves as an on-ramp to observe ability and will lead to new full platform users over time.

We debuted a brand new infrastructure monitoring solution at AWS re invent and plan to G. Again, this quarter with a world class experience for monitoring public private and hybrid cloud infrastructure at scale.

Speaker 2: We debuted a brand new infrastructure monitoring solution at AWS re-invent and planned to GA at this quarter with a real-class experience for monitoring public, private and hybrid cloud infrastructure at scale.

In early preview customers are saying they loved the modernized experience, including the ability to select and compare individual entities across multiple golden metrics view entities and their relationships and the topology and graph.

Speaker 2: In early preview, customers are saying they love the modernized experience, including the ability to select and compare individual entities across multiple golden metrics, view entities and their relationships in the topology and graph view, and even go back in time to watch performance and cascading impacts of incidents over time. No one does it.

And even go back in time to watch performance and cascading impacts of incidence overtime.

No one does it like new relic one.

We also were first to market with an M. L ops monitoring solution that brings the power of telemetry platform to data scientists and engineers as they collaborate with to build them with each other to build modern services Inc.

Speaker 2: We also were first to market with an ML ops monitoring solution that brings the power of telemetry platform to data scientists and engineers as they collaborate with to build, with each other to build modern service.

Including partnerships with key partners in this space, including AWS stage maker data robot.

Speaker 2: including partnerships with key partners in this space, including AWS SageMaker, Data Robot, Aporia, Superwise, Comment, GagsHub, Mona, and TrueAra.

Korea supervised comment daggs hub, Mona and true era.

In our first few months more than 40 customers have already adopted the solution and we're seeing both new users and new events flowing into the platform.

Speaker 2: In our first few months, more than 40 customers have already adopted the solution, and we're seeing both new users and new events flowing into the plan.

This solution is new and an early adoption and we're proud to be first in the market with this capability in our category.

Speaker 2: This solution is new and an early adoption. And we're proud to be first in the market with its capability in our category.

Our fifth and final priority is to improve our internal execution efficiency and cost structure.

Speaker 2: Our fifth and final priority is to improve our internal execution, efficiency and cost structure.

Fundamental to everything we do is having a team of strong motivated talent and we continue to make recruiting retaining and developing our talented employees a top focus this past quarter.

Speaker 2: Fundamental to everything we do is having a team of strong, motivated talent. And we continue to make recruiting, retaining, and developing our talented employees a top-focused this past quarter.

We were able to continue lowering attrition rates, both sequentially and year over year and.

Speaker 2: We were able to continue lowering the Christian rates both sequentially and year over year. And we also enjoyed another strong hiring quarter.

And we also enjoyed another strong hiring quarter.

Our internal engagement survey shows an improvement in employee morale and we remain focused on fostering a strong internal culture.

Speaker 2: Our Internal Engagement Survey shows improvement in ploy and morale, and we remain focused on fostering a strong internal culture.

On the financial efficiency front, we're balancing cost discipline with investments that will drive long term profitable profitable growth and value creation.

Speaker 2: on the financial efficiency front, rebalancing cost discipline with investments that will drive long-term profitable growth and value creation.

This quarter, we continued to prioritize data growth and customer satisfaction initiatives, which resulted in lower gross margins, but we believe enhances our long term prospects.

Speaker 2: This quarter we continue to prioritize data growth and customer satisfaction initiatives, which resulted in lower gross margins, but we believe enhances our long-term price.

Similar to last quarter, our data ingest was higher than expected, which we view as a significant long term positive.

Speaker 2: Similar to last quarter, our data ingest was higher than expected, which we view as a significant long-term pausing.

I do believe gross margins should bottom out from here.

Speaker 2: I do believe gross margins should bottom-up help from here.

Let me now close with a few thoughts on new relic and the road ahead.

Speaker 2: Let me now close with a few socks on New Relic and the road ahead.

It has been an honor to serve as CEO for two full quarters now and feed the strategy. We work so hard to put in place six quarters ago continued to pay off for our customers and the business.

Speaker 2: It has been an honor to serve as CEO for two full quarters now. And see the strategy, we worked so hard to put in place six quarters ago, continue to pay off for our customers and the business.

As I reflect on the journey I'm filled with immense gratitude and respect for how bold our employees have been pursuing our strategy and how fast we've been able to make progress.

Speaker 2: As I reflect on the jury, I'm filled with immense gratitude and respect for how bold our employees have been pursuing our strategy and how fast we've been able to make progress.

Relic employees truly live our values and demonstrate every day, how as a company we can do amazing things with a customer centric strategy and relentless focus.

Speaker 2: New Relic employees truly live our values and then straight every day, how as a company we can do amazing things with a customer-centric strategy and relentless folks.

As I look to our future this year and beyond we plan to continue to build on these successes in the past few quarters to continue our momentum.

Speaker 2: As I look to our future, this year and beyond, we plan to continue to build on these successes and the past few quarters to continue our momentum.

Were now a month into Q4, and we're working hard to land the biggest quarter book of business at the year and simultaneously locking our FY 'twenty three plan and targets.

Speaker 2: We're now a month into Q4 and we're working hard to land the biggest quarter book of business of the year. And simultaneously, locking our FY23 plan in target.

There are three primary themes I'm focusing the team on as part of that plan, which I thought would be of interest to you.

Speaker 2: There are three primary themes on focusing the team on as part of that plan, which I thought would be of interest to you. First, driving...

First driving operational excellence.

The strategy is sound.

Speaker 2: The strategy is sound. Our business model is settling in, and our overall rhythms are established.

Our business model is settling in and our overall rhythms are established.

But we must continue to sharpen our focus on execution, eliminating every inefficiency and friction point we uncover.

Speaker 2: But we must continue to sharpen our focus on execution, eliminating every inefficiency and friction point we uncover, and building a highly disciplined and systematic engine to drive higher consumption growth. Our bar is nothing short.

And building a highly disciplined and systematic engine to drive higher consumption growth.

Our bar is nothing short of operational excellence.

Second increasing our focus across sales and marketing and research and development unimproved and consumption rates.

Speaker 2: Second, increasing our focus across sales and marketing and research and development on improving consumption rates.

We are reaching the final stages of the migration of our business to the new model and the challenges in variability associated with that conversion process are going away.

Speaker 2: We're reaching the final stages of the migration of our business to the new model. And the challenges and variability associated with that conversion process are going away, leaving us with a more normalized growth rate that we can apply all of our R&D and sales and marketing capacity to increase and automatically capture revenue.

Leaving us with a more normalized growth rate that we can apply all of our R&D and sales and marketing capacity increase and automatically capture revenue.

FY 'twenty two required much of our go to market organization to help customers understand and embrace the consumption model.

Speaker 2: FY22 required much of our go-to-market organization to help customers understand and embrace the consumption model. But now that that heavy lift is done, more capacity will be available to nurture value recognition through consumption.

But now that that heavy lifting is done.

More capacity will be available to nurture value recognition through consumption.

Our research and development team was heavily focused on lunch lunching, new innovation across a large number of new initiatives. This year seeding the ground for future growth.

Speaker 2: Our research and development team was heavily focused on launching new innovation across a large number of new initiatives this year, seeding the ground for future growth.

We will continue to innovate and introduce new products to market in FY 'twenty three a greater portion of the team will be focusing on unlocking adoption and consumption growth against the many opportunities we already have underway.

Speaker 2: While we will continue to innovate and introduce new products to market in FY 23, a greater portion of the team will be focusing on unlocking adoption and consumption growth against the many opportunities we already have underway.

Third.

Speaker 2: Third, we're focusing on continuing revenue acceleration and improving margin.

We're focusing on continuing revenue acceleration and improving margins.

I look forward to sharing with you in our next earnings call not only how we did against our guidance, but our new fiscal year plan.

Speaker 2: I look forward to sharing with you in our next earnings call, not only how we did against our guidance, but a new fiscal year plan.

We're building a plan that should support our top objective of continued acceleration of full year revenue growth in FY 'twenty, three as well as achieving modest profitability.

Speaker 2: We're building a plan that should support our top objective of continued acceleration of full-year revenue growth in FY 23, as well as achieving modest profitability.

I'll also take the opportunity to lay out the next set of key priorities and metrics that we will strive for in the next fiscal year ahead, as we continue to raise the bar at new relic.

Speaker 2: I'll also take the opportunity to lay out the next set of key priorities and metrics that we will strive for in the next fiscal year ahead, as we continue to raise the bar at New Relo.

We're still in the early days of observer ability and we're playing the long game.

Speaker 2: We're still in the early days of observability, and we're playing the long game.

You can expect us to continue to strive to exceed our guidance each quarter as we pursue our mission with the same passion and boldness you saw in 2020 one.

Speaker 2: You can expect us to continue to strive to exceed our guidance each quarter as we pursue our mission with the same passion and boldness you saw in 2021. Thanks for being part of the journey. All right.

Thanks for being part of the journey.

All right over to you Mark.

Thanks, Bill and good afternoon, and good evening to everyone on the call.

Speaker 1: Thanks Bill, and good afternoon and good evening to everyone on the call. I'd like to briefly recap our financial results and then spend some time discussing the business.

I'd like to briefly recap our financial results and then spend some time discussing the business.

For our third quarter of fiscal year 'twenty, two we reported revenue of $204 million ahead of the guidance. We set in two Q4 between 198 and $202 million gap.

Speaker 1: For our third quarter of fiscal year 22, reported revenue of $204 million. Ahead of the guidance we sat in QQ for between $198 and $202 million.

GAAP loss from operations was 52 million and non-GAAP loss from operations was $11 million in line with the guidance, we provided for a loss of between 10 and $12 million.

Speaker 1: Gap loss of operations with 52 million and non-gap loss of operations was 11 million. In line with the guidance we provided for a loss of between 10 and 12 million.

GAAP EPS was a loss of 96 cents and non-GAAP EPS was a loss of 18 cents at the low end of our guidance for a loss of between 15 and 18 cents.

Speaker 1: Gap EPS was a loss of 96 cents, and non-Gap EPS was a loss of 18 cents at the low end of our guidance for a loss of between 15 and 18 cents.

We are pleased with our results this quarter once again, beating our topline guidance and we're excited to see another quarter of acceleration in year over year revenue growth.

Speaker 1: We are pleased to have results this quarter, once again, beating our top-line guidance. And we are excited to see another quarter of acceleration in your every year revenue growth.

Our number one priority continues to be to get back to 25% growth rates in the intermediate term and Q3 was a continuation of a trend that we expect to get us there.

Speaker 1: Our number one priority continues to be to get back to 25% growth rates in the intermediate term. And Q3 was a continuation of a trend that we expect to get us there.

We will provide more specific guidance for fiscal 'twenty three on our four key call in may but as you model. The business from here is it reasonable to expect full year fiscal 'twenty three to show accelerating revenue growth.

Speaker 1: We will provide more specific guidance for fiscal 23 on our 4Q call in May. But as you model the business from here, it is reasonable to expect full-year fiscal 23 to show accelerating revenue growth for a full-year fiscal 22 and modest non-gap profitability on a full-year basis.

Full year fiscal 'twenty, two and modest non-GAAP profitability on a full year basis.

Our top line result was burdened by both strong renewals and by customers consuming in excess of their commitments.

Speaker 1: Our offline result was given by both stronger noodles and by customers consuming and excess of their commitment.

As the residual effects of the business transition continues to diminish.

Speaker 1: As the residual effects of the business transition continue to diminish, metrics such as deferred revenue will likely start to behave in a more normalized pattern, meaning we expect to see generally stronger growth in Q3 and Q4, our bigger renewal quarters, and more moderate changes in Q1 and Q2. Also, as we start to add diversity renewals on the new model, we are starting to see customers that consumed the excess of their commitment for new at higher levels.

Such as deferred revenue will likely start to behave in a more normalized pattern.

Meaning we expect to see generally stronger growth in Q3, and Q4 are bigger renewal quarters and more moderate changes in Q1 and Q2.

Also as we start to anniversary of renewables on the new model, we are starting to see customers that consume the excess of their commitments renew at higher levels.

We'll get another meaningful data point on this trend in Q4, but one of them implication of this potential trend is it more balanced growth between revenue coming from commitments and revenue coming from overconsumption.

Speaker 1: We'll get another meaningful data point on this trend in Q4. But one implication of this potential trend is a more balanced growth between revenue coming from commitments and revenue coming from overconsumption.

We view this as a model settling in and while it may cause a few million dollars in revenue variability each quarter the longer term trend is encouraging.

Speaker 1: We view this as the model settle in. And while it may cause a few million dollars in revenue variability each quarter, the longer term trend he's encouraging.

GAAP gross margin was 66, 2% and non-GAAP gross margin was 68%. This is down slightly from Q2 due to larger than expected growth in data ingest a great indicator that customers are deriving value from the platform.

Speaker 1: Gap gross margin was 66% and non-gap gross margin was 68%. This is down slightly from Q2 due to larger than expected growth in data and gests. A great indicator that customers are deriving value from the platform.

Additionally, we made specific investments in a number of customer satisfaction initiatives and acceleration of our move to the public cloud.

Speaker 1: Additionally, we made specific investments in a number of customer satisfaction initiatives and acceleration of our move to the public cloud.

We believe that these trends and investments will contribute to drive improved profitable growth over the long term.

Speaker 1: We believe that these trends and investments will contribute to drive improved profitable growth over the long term.

We believe that non-GAAP gross margins have bottomed this quarter and we expect them to be in the low seventies and Q4.

Speaker 1: We believe that non-GAP gross margins have bottomed this quarter and we expect them to be in the low 70s and Q4.

We are confident in our ability to improve gross margins as we complete our worldwide moved to the cloud over the next couple of years. So investors should expect high 70% non-GAAP gross margins in the intermediate term with a long term goal in the high 70, low 80% range.

Speaker 1: We are confident in our ability to improve gross margins as we complete a worldwide move to the cloud over the next couple of years. So investors should expect high 70% non-gap gross margins in the intermediate term with a long-term goal in the high 70 low 80% range.

In terms of our operating margin, we are focused on improving efficiency across the organization.

Speaker 1: In terms of our operating margin, we are focused on improving efficiency across the organization.

But over the near term, we can trick continue to prioritize topline growth over Bottomline results.

Speaker 1: But over the near term, we can trick continue to prioritize top line growth over bottom line results.

The impact near term costs and expenses, but we believe this approach will result in more attractive long term profitable growth and value creation.

Speaker 1: This may impact near-term costs and expenses, but we believe this approach will result in more attractive long-term profitable goals and value creation.

I'm very proud of our team's ability to reaccelerate top line growth, while keeping a watchful eye on operating expenses, we have made significant strides in expense discipline and our total operating expenses generally and sales and marketing expenses specifically.

Speaker 1: I'm very proud of our team's ability to re-accelerate top line growth while keeping a watchful eye on operating expense.

Speaker 1: We have made significant strides in expense discipline in our total operating expenses generally, and sales and marketing expenses specifically.

Revenue in the quarter grew 8 million sequentially, while opex is flat quarter over quarter pro forma for approximately 8 million of noncash commission expense related to our prior business model, which we detail in the Investor letter.

Speaker 1: Revenue in the quarter grew 8 million sequentially while op-ex is flat quarter-requarter. Proformer for approximately 8 million of non-cash commission expenses related to our prior business model, which we detail in the investor letter.

I also want to point out that sales and marketing expenses in the quarter declined by over 2 million if you back out.

Speaker 1: I also want to point out that sales and market expenses in the quarter declined by over 2 million if you back out this prior model commission expense.

Fire model Commission expense.

As we turn our expense discipline to cost of goods going forward.

Speaker 1: As we turn our expense disciplines at cost of goods going forward, investors can expect steady improvements in profitability going forward.

That's just can expect steady improvement and profitability going forward.

Now that we're reaching the final stages of migrating our business to view model some of the variability of our transition, including initial headwinds and subsequent tailwind of that conversion process or going away.

Speaker 1: Now that we're reaching the final stages of migrating our business to new model, some of the variability of our transition, including initial headwinds and subsequent tailwinds of that conversion process are going away.

There still be some modest fluctuations in the near term as we anniversary our 'twenty two comps, but where you are heading toward a more normalized growth rate.

Speaker 1: There are still some modest fluctuations in the near term as the anniversary are 22 calms, but we are heading toward a more normalized growth rate.

Now that our sales team is mostly through the heavy lift of the migration process and product was initiated many new innovations for customers to adopt in fiscal 'twenty three.

Speaker 1: Now that our sales team is mostly through the heavy lift of the migration process, and product has initiated many new innovations for customers to adopt in fiscal 23. We continue to feel good about our ability to grow the business. Now I'd like to share our four.

We continue to feel good about our ability to grow the business.

Now I'd like to share our work you in fiscal 'twenty two guidance.

For the fourth quarter fiscal year 2022 we expect revenue between 204 and $206 million representing year over year growth of between 18 and 19% respectively.

Speaker 1: For the fourth quarter fiscal year 2022, we expect revenue between 204 and 206 million, representing year-to-year growth of between 18 and 19% respect.

We expect our non-GAAP loss from operations of between 12 and $14 million.

Speaker 1: We expect a non-gap loss of operations of between 12 and 14 million.

We expect a non-GAAP net loss attributable to new relic per diluted share between 19 and 22 cents.

Speaker 1: We expect a non-GAF net loss attributable to new relic per diluted chair between 19 and 22 cents.

For the full fiscal year 2022 we expect revenue between 784 and $786 million representing year over year growth of between 17 and 18%.

Speaker 1: For the full fiscal year 2022, we expect revenue between 784 and 786 million, representing year-to-year growth of between 17 and 18 percent.

We expect a non-GAAP loss from operations between 45 and $47 million and.

Speaker 1: We expect an on-cathed loss from operations between 45 and 47 million.

And we expect non-GAAP net loss attributable to new relic per diluted share between 72 and 75 cents.

Speaker 1: and respect non-gavel net loss attributable to new relic for deluded chair between seventy two and seventy five cents

Before I turn it over to the operator for your questions I'd like to let everyone on the call know that we intend to have an investor day on may 18th in conjunction with our future stack user conference in Las Vegas.

Speaker 1: Before I turn it over to the operator for your questions, I'd like to let everyone on the call know that we intend to have an investor day on May 15th in conjunction with our future stack user conference in Las Vegas. Operator, peace.

Operator, Please go ahead and open it up.

Thank you.

We will now begin the question and answer session.

Speaker 3: We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the key.

I ask a question you May press Star then one on your Touchtone phone.

If you are using a speakerphone please pick up your handset before pressing the keys.

If at any time your question that's been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Speaker 3: If at any time your question has been addressed and you would like to withdraw your question, please press star them too. At this time, we will pause them on materially to assemble our roster.

Yeah.

Uh huh.

Our first question will come from Kingsley Crane with Bahrenburg. Please go ahead.

Speaker 3: Our first question will come from Kingsley Crane with Baron Burke. Please go ahead.

Hi, Thanks, I appreciated your comments so far on fiscal 'twenty three with April fast approaching can you dig a bit more about what you expect that year and how you plan to achieve it.

Speaker 4: Hi, thanks. Appreciate your comments so far on fiscal 23 with April Fast Approaching. Can you speak a bit more about what you expect so that you're in how you plan to achieve it?

Yeah. Thanks, Kimberly I'll go ahead and take that this is bill of course and.

Speaker 2: Yeah, thanks, Kingsley. I'll go ahead and take that. This is Bill, of course. And...

I'm really excited as I look forward to the new fiscal year ahead as I mentioned in my.

Speaker 2: I'm really excited as I look forward to the new fiscal year ahead. As I mentioned in my opening remarks, there's a lot to look forward to.

Opening remark.

There's a lot to look forward to.

I've given the team essentially three sort of themes to focus on as we create our plan I touched on them a little bit earlier, let me give you a little bit more of a double click the first real theme that you can expect from US is operational excellence.

Speaker 2: I've given the team essentially three scenes to focus on as we create our plan. I touched on a little bit earlier, let me give you a little bit more of a double click. The first real theme that you can expect from us is operational excellence.

In a consumption business model efficiency really really matters.

Speaker 2: In a consumption business model, efficiency really really matters.

You see the aggregation of marginal gains across hundreds or even thousands of initiatives that span the whole company from our cost efficiency to our product led growth initiatives through our nurturing that happens in sales and marketing.

Speaker 2: You see the aggregation of marginal gains across hundreds or even thousands of initiatives that span the whole company from our cost efficiency to our products that growth initiatives to our nurturing that happens in sales and marketing and I use the words methodical systematic disciplines over and over you probably heard that from me a few times in past earnings calls. I use those words internally as well because

I use the word methodical systematic disciplined over and over and you probably have heard that from me a few times in past earnings calls I used those words internally as well because.

Our ability to execute is super important and it goes it factors heavily into where we're investing in FY 'twenty three in order to get that continued revenue growth.

Speaker 2: Our ability to execute is super important and it goes, it factors heavily into where we're investing in FY 23 in order to get that continued revenue growth.

The second real theme and it's an important thing to understand about how we're shifting resources in the go forward here is we're shifting from a business in transition where most of our go to market organization last year was focused on helping customers understand the new business model migrate to it and embrace the full platform.

Speaker 2: The second real theme, and it's an important thing to understand about how we're shifting resources in the Go Forward year, is we're shifting from a business and transition, where most of our GoToMarket organization last year was focused on helping customers understand the new business model migrate to it and embrace the full platform.

And most of our product teams are focused on launching new initiatives, new innovation and seeding the market with new capability.

Speaker 2: And most of our product teams were focused on launching new initiatives, new innovation, seeding the market with new capabilities.

Towards the model in FY 'twenty, three where we are all focused on nurturing consumption, helping customers realize the full value of the platform.

Speaker 2: Towards the model in FY23, where we are all focused on nurturing consumption, helping customers realize the full value of the plan.

And that shift in resources and focus I believe will help us to continue to accelerate growth, which is the third theme that I've given the team as we create the new plan.

Speaker 2: And that shift in resources and focus, I believe will help us to continue to accelerate growth, which is the third thing that I've given the team as we create the new plan.

I believe Mark mentioned this as well.

Speaker 2: I believe Mark mentioned this as well. Our expectation in FY23 is that we'll be able to continue revenue growth acceleration. We're guiding to about 17 and a half percent if we need our Q4 guide, and we feel confident enough to believe that we can improve on that and achieve modest profitability in the year ahead.

Our expectation in FY 'twenty three.

Is that we'll be able to continue our revenue growth acceleration, we're guiding to about 17, 5%. If we meet our Q4 guide.

We feel confident enough to believe that we can improve on that and achieve modest profitability in the year ahead.

We have our sights really set on returning to that 25% year over year growth rate in the quarters ahead, and we'll continue to pursue it until we achieve it which we said is in the intermediate term or within the next two years I don't have a crystal ball for exactly when that will happen, but it will still.

Speaker 2: We have our sites really set on returning to that 25% year of year growth rate in the quarters ahead and we'll continue to pursue it until we achieve it, which we said is in the intermediate term or within the next two years. I don't have a crystal ball for exactly when that will happen, but it will still be our number one priority and we're striving toward it. And all signs are showing that we're making solid progress, including our Q3 results are important today.

Be our number one priority and we're striving toward it and all signs are showing that we're making solid progress, including our Q3 results we reported today.

Okay. Thanks, that's really helpful and so just as a quick follow up so how should investors square your enthusiasm for next year with a flat sequential guide for Q4. Thanks.

Speaker 4: Okay, thanks Bill, that's really helpful. And so just as a quick follow up, how should investors square your enthusiasm for next year with a flat sequential guide for Q4? Thanks.

Good question, Yeah. If you look carefully at our guide for Q4, you'll note that the sequential revenue growth rate is not above what we just reported in Q3 may wonder what to make it that.

Speaker 2: Good question. If you look carefully in our guide for Q4, you'll note that the sequential revenue growth rate is not above what we just reported in Q3, may wonder what to make in fact. It is always nice to see quarter to quarter sequential revenue growth rate increases as we've enjoyed this fiscal year. But I believe the best measure of the strength of the business is really to look at that year over year growth for the same quarter and for the full year.

It is always nice to see quarter to quarter sequential revenue growth rate increases as we've enjoyed this fiscal year.

I believe the best measure of the strength of the business is really to look at that year over year growth for the same quarter and for the full year.

And the reason for this is every quarter presents us with a unique set of customers who come up for annual renewal.

Speaker 2: And the reason for this is every quarter presents us with a unique Fedic customers who come up for annual renewal, as well as other seasonal patterns that tends to be annual in nature, including some of the seasonality that we saw over the holidays in Q3 with some hangover effects as we entered the new calendar year.

As well as other seasonal patterns that tends to be annual in nature, including some of the seasonality that we saw over the holidays in Q3 with some hangover effects as we entered the new calendar year.

But really the most important question is are we getting better each year and delivering value to these customers and incentivizing them to grow their consumption and renew their commitments at a higher level.

Speaker 2: But really the most important question is, are we getting better each year at delivering value to these customers and incentivizing them to grow their consumption and renew their commitments at a higher level? And are we getting better at managing the overall business? If you look at...

And are we getting better at managing the overall business.

If you look at what we're guiding for in Q4.

Versus last year, you see a pretty incredible.

Speaker 2: versus last year, you see a pretty incredible improvement. Last year we delivered 8% Euro be your growth at $173 million. And we're guiding this year to 204 to 206, a growth rate of 18 to 19.

Incredible improvement last year, we delivered 8% year over year growth of $173 million.

And you're guiding this year to 204 to 206 growth rate of 18% to 19%.

A substantial growth rate increase over last year and reflects the strength of our relative positioning with customers and as a business.

Speaker 2: That's a substantial growth rate increase over last year and reflects the strength of our relative position with customers and as a business.

Or even better view of how the business is performing consider how we entered the year versus how we're forecasting low exited.

Speaker 2: And for even better view of how the business is performing, consider how we entered the year versus how we're forecasting will exit it. We entered the year with a guide of 709 to 711 and 6% year-of-year growth. And over the course of the year, we've seen steady improvements to the health of the business. And if we exit as we've guided, we'll have added more than 75 million above the original guide and delivered on full year-of-year revenue growth of 17%.

We ended the year with a guidance of 709 to 711, 6% year over year growth.

And over the course of the year and we've seen steady improvements to help the business.

And if we exit as we guided we have added more than $75 million above the original guide.

<unk> delivered on full year over year revenue growth of 17%.

Speaker 2: And beyond that, as I said, we feel confident that with that momentum, so believe going into FY23, and we'll share more about this in the next earnings call, that we can improve on the 17% year-over-year growth that we expect for this fiscal year, and achieve my best possibility. So all signs are pointing towards the healthy business that's growing.

And beyond that as I said, we feel confident enough with that momentum. So I believe going into FY 'twenty three and share more about this in the next earnings call that we can improve on the 17% year over year growth that we expect for this fiscal year and achieve modest profitability.

All signs are pointing towards a healthy business that's growing.

Thanks, that's great context, congrats on the continued success.

Speaker 4: Thanks for your time, Tex. Congrats and we'll continue to class.

Our next question will come from shred it cost sorry with Baird. Please go ahead.

Speaker 3: Our next question will come from Shrennick Cuffari with Beard. Please go ahead.

Hey, Yeah. This chronic standing in for Rob today. So you mentioned about the multiyear a seven figure deal with C. D care, which is an existing customer and then less the letter and the paid business accounts greater than 100000 also accelerated pretty well. So when you look at the Oh.

Speaker 5: Hey, this is Shrenek, standing in for a rock today. So you mentioned about the multi year old seven forget deal with CDK, which is an existing customer in the investor letter. And the paid business accounts greater than 100,000 also accelerate and produce well. So.

Speaker 5: When you look at the outperformance relative to your target of 80% in the consumption model by your end, that would suggest some competitive strength here. So again, we talked a little bit about trends for competitive wins, both like Greenfield as well as Windbacks.

Performance relative to our target of 80%.

Consumption model around that.

That would suggest some competitive strides here. So again, we'll talk a little bit about kranz far competent events, both like green food as well as win backs.

Yes excellent question.

We do see the bulk of our opportunity is greenfield, although lately tools consolidation plays had started to become more prominent and you mentioned the CDK example that in the Investor letter by the way I recommend all investors read that got tons of great data and story to familiarize yourself with it.

Speaker 2: We do see the bulk of our opportunity as greenfield, although lately, tools consolidation plays have started to become more prominent. And you mentioned the CDK example that's in the investor letter. By the way, I recommend all investors read that got tons of great data and stories to familiarize yourself with that. But it's no doubt that competitive, our competitive position is strengthened.

But it's no doubt.

That competitive our competitive position is strengthened.

That's demonstrated not only in competitive win rates and also improving churn.

Speaker 2: That's demonstrated not only in competitive wind rates and also improving churn.

But also in tool consolidation deals like the CDK example, for those who haven't had a chance to read the investor letter I'll highlight it really quick.

Speaker 2: but also in tool consolidation deals like the CDK example. For those who haven't had a chance to read the investor letter, I'll highlight it real quick. The CDK is an existing customer in the automotive space. They've been a customer for a while and when they saw the full value of our platform, they increased their commitment to us significantly. We just closed them multi-year, seven-figure deal.

They see Takeda is an existing customer in the automotive space.

They've been a customer for a while and when they saw the full value of our platform.

They increased their commitment to us significantly we just closed a multi year seven figure deal.

With them and their strategy is to partner with us to consolidate almost a dozen different tools and other vendors as well as open source.

Speaker 2: with them and their strategy is to partner with us to consolidate almost a dozen different tools from other vendors as well as open source, to standardize on the Neuralic One-Pot.

The standardized on the new relic one platform.

And that helps them achieve their goal of really owning the customer experience, they want and deliver driving their business outcome, increasing their employee productivity and operational efficiency.

Speaker 2: And that helps them achieve their goals of really owning the customer experience they want to deliver, driving their business outcomes, increasing their employee productivity and operational efficiency, and together with us, drives their business.

And together with our.

Drive their business forward.

This is a great example.

Speaker 2: This is a great example of just one customer, but what we believe all customers ultimately want, which is a standard practice around availability and the platform that gives them all in one access to everything in their digital state.

Just one customer, but what we believe all customers ultimately won which is standard practice around the variability and the platform that gives them all in one access to everything in their digital estate.

Okay.

Just one follow up here you mentioned about the sequentially flat guide are related to some seasonality and renewal kind of dynamics, though and you mentioned about the Pennsylvania approach to modeling of consumption in excess of comic months.

Speaker 5: Thanks, just one follow up here. You mentioned about the sequentially flat guide related to some seasonality and annual kind of dynamics. And you mentioned about the conservative approach to modeling the consumption and excessive commitments. So as some more data points are coming in, just wanted to get your sense about the degree of conservatism now, like the trending lower stream levels. Yeah, thank you.

So that's some more data points are coming in are just wanted to get your sense about the degree of conservatism now like is it trending lower same levels. Thank you.

Yeah, It's a good question.

Speaker 2: Yeah, it's a good question. We strive to be as accurate as we can with our guides, but we also don't want to get ahead of ourselves, and we want to make sure that we can meet or exceed the expectations that we set each quarter. So you mentioned the seasonality that I brought up earlier.

We strive to be as.

Accurate as we can with our guide, but we also you know.

Don't want to get ahead of ourselves and we wanted to make sure that we can meet or exceed the expectations that we set each quarter.

So you mentioned the seasonality that I brought up earlier.

Interesting.

Speaker 2: It's an interesting...

A trend we saw right at the very end of Q3 Q3, as we closed out the holiday season. It was a very strong quarter for data growth as you can see in the overall numbers of the last two weeks of December we saw a pretty significant decrease in <unk> and data ingest and use.

Speaker 2: Trend we saw right at the very end of Q3, Q3 as we closed out the holiday season. It was a very strong quarter for data growth as you can see in the overall numbers. But the last two weeks of December , we saw a pretty significant decrease in data ingest and user engagement as well with some hangover effects.

Their engagement as well with some hangover effect.

Into January and if you think about it it totally makes sense.

Speaker 2: into January . And do you think about it? It totally makes sense. And speaks to the strength actually in the value proposition for our customers because in the consumption model, they pay for what they use. And if they don't need it, they don't have to pay for it.

And speaks to the strength actually in the value proposition for our customers because in the consumption model they pay for what they use and if they don't need it they don't have to pay for it.

And those last two weeks of December you might think.

Speaker 2: And, you know, those last two weeks of December , you might think would be strong, but actually, by the time the holiday seasons get into swing with that week of Christmas, the new year, a lot of digital business blows down and poise are on holiday, not engaging in work, unless it's absolutely critical. And we think that's reflected in some of the seasonality that we saw. We saw a little bit of it last year, even more now that we've got 80% of the business in the consumption mall.

Would be strong but actually.

By the time, the holiday seasons get into swing with that weaker Christmas and new year, a lot of digital business slowed down employees are on holiday not engaging in work unless it's absolutely critical and we think that's reflected in some of the seasonality that we saw we saw a little bit of it last year, even more now that we've got 80% of the business.

In the consumption model.

And.

That's a.

Speaker 2: And that's part of what we're seeing in terms of the overall seasonality trends, but relatively minor impact to the overall financials.

Part of what we're seeing in terms of the overall seasonality trend, but a relatively minor impact to the overall financials.

Alright, Thanks, a lot bill.

Our next question will come from Sterling Auty with J P. Morgan. Please go ahead.

Speaker 3: Our next question will come from Stirling Odie with JP Morgan. Please go ahead.

Yeah. Thanks, Hi, guys. So I'm just going to ask one question I just wanted to go back to the comments about the the guide as well as the comments in the letter talking about renewals coming in higher and getting a better balance between those higher renewals and the AUM.

Speaker 2: Yeah, thanks. Hi guys. So I'm just going to ask one question. I just want to go back to the comments about the the guide as well as the comments in the letter talking about

Speaker 2: Renewals coming in higher and getting a better balance between those higher renewals and the over-consumption. And specifically, I think there's confusion, at least I'm confused about what does that mean for revenue growth, especially when you look at it quarter to quarter. So as that balance kind of comes in,

<unk> consumption and specifically I think there's confusion at least I'm confused about what does that mean for revenue growth, especially when you look at it quarter to quarter. So as that balance kind of comes in does that mean, you grow faster you grow slower what's the implication.

Speaker 2: Is that mean you grow faster? You grow slower? What's the implication?

Got it.

Yeah.

Yeah. Good question and let me remind everyone revenue for US wherever you report is made up of two components first.

Speaker 2: Yeah, good question. And let me remind everyone, revenue for us, the revenue report is made up of two components. First, the commitments, the customers make us in terms of their annual or multi-year commitment, and then the consumption over the commitment that we report on top of that commitment each quarter.

<unk> the customers make us in terms of their annual or multi year commitment and then the consumption over the commitment that.

That we report on top of that commitment each quarter.

As you noted we.

Speaker 2: As you noted, we saw a considerable uptick in both in Q3. On the commitment side, if you think back to last year, we introduced the brand new platform, brand new pricing model, and this new consumption business model to market.

We saw.

<unk> uptick in both in Q3 on the commitment side. If you think back to last year, we introduced the brand new platform brand new pricing model and this new consumption business models a market test.

<unk>, even those who had been with us for a while.

Speaker 2: Customers, even those who've been with us for a while, didn't know how that would work, how that would play out, how they might use the whole platform. And so they were relatively conservative in their commitment. And we reported on some of that conservatism throughout the year.

Didn't know how that would work how that would play out how they might use the whole platform and so they were relatively conservative in their commitments.

And we reported on some of that conservatism throughout the year.

This year with Q3, we had our first.

Speaker 2: This year with Q3, we had our first relatively large renewal quarter of customers who had began the migration last Q3. And what we saw with this increased commitment is a lot more understanding of the platform and how it works and how they're going to consume it, especially for those who are consuming at or above their previous commitment level, increasing their commitments in a considerable way.

Relatively large renewal quarter of customers, who have began the migration last Q3.

And what we saw with its increased commitments is a lot more understanding of the platform and how it works and how theyre going to consume it, especially for those who are consuming at or above the previous commitment level.

Increasing their commitments in a considerable way.

On top of that consumption also continues to increase we think about the opportunity with driving consumption.

Speaker 2: On top of that, consumption also continues to increase. When we think about the opportunity with driving consumption, we reflect on the overall opportunity in this space. Observability is a new and emerging practice.

Reflect on the overall opportunity in this space.

Durability is a new and emerging practice.

We believe most teams are just getting started with their use of telemetry data to help them make more data driven decision.

Speaker 2: We believe most teams are just getting started with their use of telemetry data to help them make more data driven decisions. We see that reflected in the user base of observability versus the total engineering population. And so...

See that reflected in the user.

The user base of observed ability versus the total engineering population.

And so.

With our improving ability to nurture consumption in the product and the go to market organization.

Speaker 2: With our improving ability to nurture consumption in the product and in the product and in the product and in the market organization, we expect to see consumption continues to increase as companies embrace more updated driven approaches to engine.

Back to see consumption continue to increase as companies embrace more data driven approach to engineering.

So the short answer is our ability to drive increased commitments is improving and we believe consumption will continue to increase.

Speaker 2: The short answer is our ability to drive increased commitment is improving and we believe consumption will continue to increase.

Understood. Thank you.

Yeah.

Our next question will come from Adam Tindle with Raymond James. Please go ahead.

Speaker 3: Our next question will come from Adam Tindle with Raymond James. Please go ahead.

Okay. Thanks, Good afternoon, I wanted to start on the fiscal 'twenty, three our profitability metric, where you're expecting to reach modest profitability on a non-GAAP operating basis, Mark I'm, if I zoom in near term. This quarter did have sequential revenue growth, but the operating loss worsened sequentially. If I look at your Q4.

Speaker 3: Okay, thanks, good afternoon. I wanted to start on the fiscal 23 profitability metric where you're expecting to reach modest profitability on an on-gap operating basis mark.

Speaker 2: If I zoom in near term, this quarter did have sequential revenue growth, but the operating loss worsens sequentially. And if I look at your Q4 guidance, it kind of implies more of that same trend. So I guess the question would be what changes in fiscal 23 to enable incremental growth to come over more profitably. And maybe you could double click on Commission Expense or Data Center costs, some of the key buckets. Thanks.

Guidance it kind of implies more of that same trend. So I guess the question would be what changes in fiscal 'twenty three to enable incremental growth to come over more profitably and maybe you could double click on commission expense or data center costs some of the key buckets. Thanks.

Sure. So I think that the big the big improvement is going to come from our Cogs improvement as we talked about we need some we've seen stronger data growth.

Speaker 1: I think the big improvement is going to come from our college improvement as we talked about. We've seen stronger data growth.

And we had forecast and that's that's a good thing in a long term customers are taking advantage of the platform and made some other incremental customer sat investments. So gross margin definitely had some pressure on it this quarter.

Speaker 1: Then we had forecasts and that's a good thing in a long term. Our customers are taking advantage of the platform. We made some other incremental customer-sat investments. So, of course, Margin definitely had some pressure on it this quarter and we'll be continued to next quarter as we continue the migration to the cloud, finish up, but continue those investments. And so, we've given some guidance around gross margin. We feel like it is bottoming out this quarter.

And we'll be continue next quarter as we continued in migration to the cloud finish up or not finish up but continue those investments and so we've given some guidance around around gross margin you feel like it is bottoming out this quarter.

Up into the low seventies next quarter, and then improving from there into next year. So I think a large part of our improvement in our bottom line will come from the gross margin line that'll slow down when you look at operating expenses.

Speaker 1: up into the low 70s, next quarter, and then improving from there into next year. So I think a large part of our improvement in the bottom line will come from the gross margin line that'll flow down. When you look at operating expenses,

We still have work to do there no doubt will continue we will continue to strive for for more efficiencies and bill talked about that as an issue.

Speaker 1: We still have work to do there. No doubt we'll continue to strive for more efficiencies and build talked about that as in the summary of our 23 plans.

Our 23 plan.

But but even before that when you look at the past couple of quarters, we have this quarter and we laid out in the investor letter encourage folks to take a look that we have this commission expense that is a hangover from our model transition, but we're amortizing commissions debt that we incurred in prior years, and if you pro forma out the $8 million.

Speaker 1: But even before that, when you look at the past couple quarters.

Speaker 1: We have this corridor, we laid out the investor letter and purchased for us to go to that. We have this commission expense that is a hangover from a model transition, where we're amortizing commissions that we incurred in prior years.

Speaker 1: And if you pro forma out the $8 million that we took in Q3, our sales and marketing spend actually went down year over year.

That we took in Q3.

Our sales and marketing expense actually went down year over year, and our sales and marketing expense went down and yet we were able to reaccelerate revenue.

Speaker 1: And it our self-marked with spent went down and yet we were able to re-accelerate revenue.

Also can you turn around the customer count, where we had our best customer add quarter in quite in quite a number of quarters in Q3. So I think we're we them.

Speaker 1: And we're also to turn around the customer count where we had our best customer ad quarter and quite a number of quarters in Q3.

Speaker 1: So I think we've demonstrated that the focus on operational efficiency and improvements can have an impact where we've had some success there already. We want to continue that on the expense line. Now we want to turn, make sure we turn that discipline to the to the college line and between the two, you know, we feel confident we'll be able to achieve modest profitability and build from there.

Demonstrated that this focus on operational efficiency and improvement.

Can have an impact where we've been we've had some success there already we want to continue that on the expense line now we want to term make sure we turn that discipline to the to the pods line and between the two.

We feel confident we'll be able to achieve a modest profitability and then build from there.

Okay.

And on the other side of the go on accelerating growth.

Speaker 2: Okay, and on the other side of the goal on accelerating growth.

I think if I did the math right it needs to be north of $10 million incremental quarterly revenue to get this acceleration, which is above the run rate that you've been posting here more recently and I guess the question would really be what you saw in the business to go out with that metric now at this point and as I kind of think about the key drivers you know from our new accounts for.

Speaker 2: I think if I did the math right, it needs to be north of 10 million incremental, quarterly revenue to get this acceleration, which is above the run rate that you've been posting here more recently. And I guess the question would really be...

Speaker 2: What you saw in the business to go out with that metric now at this point, and as I kind of think about the key drivers, you know, from a new accounts perspective to drive incremental growth, I think it noted in the letter that conversion efficiency did see some modest declines this quarter. So, you know, what would it help improve new account conversion to drive incremental growth?

Active to drive incremental growth I think you noted in the letter that conversion efficiency did see some modest declines this quarter. So you know what would it help improve new account conversion to drive incremental growth and on the expansion point. The other kind of driver I think about for incremental improvement in growth you've got it.

Speaker 2: And on the expansion point, the other kind of driver I think about for incremental improvement at growth.

Most of the customers moved over to a consumption model what are the kind of key things that you can do to drive additional consumption over and above the run rates that you've been seeing thank you.

Speaker 2: You've got every, you know, most of the customers move over to the consumption model. You know, what are the kind of key things that you can do to drive additional consumption over and above the run rates that you've been seeing? Thank you.

Yeah. So you know most of our most of our incremental.

Speaker 1: Yeah, so most of our incremental revenue gains in a quarter come from our existing customers. We're very pleased with our new account performance. We want to continue to build on that. And the new accounts that we've added the last couple quarters are certainly going to help us grow next year and beyond. But given that we start most new accounts that are relatively low dollar amount, the vast majority of our growth comes from our resources.

Revenue gains in a quarter come from our existing customers.

We're very pleased with our new account performance, we want to continue to build on that and you know the new accounts that we've added the last couple of quarters are certainly going to help us grow next year and beyond but given that we start most new accounts at a relatively low dollar amount the vast majority of our growth comes from our existing accounts.

And.

Speaker 1: and ultimately what drives our revenue growth is a combination of upticks and commitments and then consumption over commit. And really fundamentally, consumption growth.

Ultimately what drives our revenue growth is a combination of upticks in commitments and upkeep and then consumption over commit and really fundamentally.

Assumption growth.

Translate to revenue growth over when you look over a three or four quarter period of time.

Speaker 1: Translates to revenue growth over when you look over a three or four quarter period of time and What we see we now have a you know a number of quarters by which we can look at The behavior of our customers and how their consumption is changing and we're looking at those patterns How their consumption is growing and that really lays the foundation for the confidence with which we can talk about next year

And what we see we now have.

Number of quarters by which we can look at the behavior of our customers and how their consumption is changing and we're looking at those patterns. How their consumption is growing and that really lays the foundation for the confidence with which we can talk about next year.

So that's that's kind of behind the numbers. There are a lot of things, we can do and bill can probably talk a lot more eloquently than I can about that all the different initiatives, we have to grow consumption in our accounts and let them do that in a minute, but I would also say that at this point when we first transitioned into the model.

Speaker 1: So, you know, that's kind of behind the numbers. You know, there are a lot of things we can do and Bill could probably talk a lot more locally and I can about all the different initiatives we have to grow consumption in our accounts and let them do that a minute. But I would also say that...

Speaker 1: At this point, when we first transitioned into the model, customers moved over and it was a little bit of a leap of faith.

Tumors moved over and it was a little bit of a leap of faith.

Am I going to use what am I going to do they didn't have a lot of historical data with which to do their analysis. At this point you know they've got a year of history on the model they understand the value and they can make I think they.

Speaker 1: Am I going to use what am I going to do? They didn't have a lot of historical data with which to do their analysis. At this point, they've got a year of history on the model, they understand the value, and they can make, I think they're more comfortable with their estimates and forecasts and commitments as they go forward.

They are more comfortable with their with their estimation forecast and commitment as they go forward.

Our next question will come from Sanjay Singh with Morgan Stanley . Please go ahead.

Speaker 3: Our next question will come from Stanget Singh with Morgan Stanley . Please go ahead.

Thank you for taking the questions and congrats on the accelerating revenue growth for the past couple of quarters. My question is on strike. So a lot of money into the civil or the things that we've been talking about on this call.

Speaker 6: Thank you for taking the questions and grats for the accelerating revenue growth of the past couple of quarters. My question to the strike cell, along the line, is for the similar themes that we've been talking about on this call.

Really wanted to focus on our show the cohorts again, if you look at the December cohort. They came up for renewal. If you can sort of give us any additional color on sort of the magnitude of expansion that you saw a relative to their prior contracts or maybe even.

Speaker 6: Really wanted to focus on our show the cohorts again. If you looked at the December cohort that came up for a new role, you'd sort of give us any additional color on the magnitude of expansion that you saw relative to the prior contracts or maybe even relative to their run rate heading into the December quarter. And then as we look into the March quarter, that cohort coming up for new, big Q4.

Relative to their run.

Run rate heading into the December quarter, and then as we look into the March quarter that cohort coming out for dual big Q4, what are sort of the underlying assumptions you have about that cohort when they when they come up her role in 90 days.

Speaker 6: What are sort of the underlying assumptions you have about that cohort when they come up in rural in 90 days?

Yeah, I'll take first crack at that and Mark can add any color as.

Speaker 2: Yeah, I'll take the first crack of that and Mark can add any color as you see fit. Each quarter we have a set of customers obviously coming up to their annual renewal. Most of our customers are under an annual contract and we've been watching their consumption.

As you see fit.

Each quarter, we have a set of customers, obviously coming up to their annual renewal.

Most of our customers are under an annual contract and we've been watching their consumption.

Over the past year since they entered in the new model and as we've shared their consumption in aggregate continues to accelerate continues to excel.

Speaker 2: over the past year since they entered in the new model. And as we've shared, their consumption in aggregate continues to accelerate, continues to exceed their original commitment.

Exceed their original commitment.

And as I said before in Q3 was the first quarter, where we came up in the third.

Speaker 2: And as I said before, Q3 was the first quarter where we came up in the first annual renewal in that consumption model. And we were pleased to see their commitments increase.

Annual renewal and that consumption model and we were pleased to see their commitments increase.

Uh huh.

Relatively proportionate to their overconsumption, so those who were consuming at or above we're much more likely to increase their commitment.

Speaker 2: relatively proportionate to their over-consumption. So those who were consuming at or above were much more likely to increase their commitment, add or above what their consumption rate was.

At or above what their consumption rate was.

And that's what we had hoped to see and in fact, what we saw in Q3 and we'll get another look at this in Q4 our biggest.

Speaker 2: And that's what we had hoped to see. And in fact, what we thought was Q3. And we'll get another look at this in Q4, our biggest quarter in terms of co-voted customers that entered into the new consumption model. And we anticipate, we'll continue to have success. And getting that new increased commitment, given the familiarity with the model that customers now have a year into the bid.

Quarter in terms of a cohort of customers that entered into the new consumption model.

And we anticipate we will continue to have success.

And getting that new.

Increased commitment given our familiarity with the model that customers now have a year into the business.

That's super helpful. And then just as a follow up in terms of thinking about I guess two factors.

Speaker 6: That's super helpful and it just has a follow up in terms of thinking about I guess two factors

As analogy how seasonality.

Speaker 6: Seasonality, how a seasonality is going to trend this quarter, ours right this year. And then also variable consideration, which was a theme from the last quarters, I'll call, how do you feel about the ability to forecast that, or get comfortable as a cult when it comes to guiding for a forward quarter, along those two dimensions, and taking account seasonality and variable consideration.

It's going to trend this quarter Oh, sorry. This year and then also variable consideration, which was a theme from the from last quarters earnings call.

How do you feel about the ability to you know forecast that we get comfortable about that as it comes.

When it comes to guiding for a fourth quarter along those two did that change from taking account seasonality and variable variable consideration.

Oh on the seasonality front.

Speaker 1: On the seasonality front, we're still certainly learning as we go through this and we'll get every quarter and every year we get better data on that. But we think seasonality itself will be fairly modest with a large cohort of customers when some are...

We're still certainly learning as we go through this anywhere.

We'll get it every quarter.

Every year, we get better data on that but we think seasonality itself will be fairly modest with a large cohort of customers when summer.

Driving consumption hard others, maybe beyond the off season and things like that so.

Speaker 1: driving consumption hard, others may be on the off season, things like that. So I think the macro seasonality will be fairly modest. At the same time, you know, quarter to quarter, a couple of million dollars could go from one quarter another depending on consumption trends and things like that. And so, you know, I don't think, you know, I don't think we're looking at growth being completely linear. There will be some fluctuations in that.

Think that the.

The macro seasonality will be fairly modest at the same time, you know quarter.

Quarter to quarter or a couple of million dollars could go from one quarter or another depending on on consumption trends and things like that and so you know I don't think you know I don't think we're looking at that growth being quite linear there will be some fluctuations in that.

In terms of VC I guess I just wanted to take a step back and level set on variable consideration, it's a complicated accounting topic.

Speaker 1: In terms of VC, I guess I just want to take a step back and level set on variable consideration. It's a complicated counting topic, but in very simple terms.

But in very simple terms.

I would encourage you to think of D. C is the method by which we bring consumption in excess of commitment onto the income statement approximately as it happens rather than as a lump sum after the customers exceeding their commitment.

Speaker 1: I would encourage you to think of DC as the message by which we bring consumption in excess of commitment on the income statement. Approximately as it happens, rather than as a lump sum after the customers exceeded their commitment.

To do this.

Speaker 1: To do this is to take the complicated process. Each month we have to evaluate every customer and forecast what we expect. There can something to be over the term of their contract.

Complicated profit each month, we have to evaluate every customer and forecast what we expect their consumption to be over the term of their contract.

We've been honing our forecasting all now for a number of quarters.

Speaker 1: We've been honing our forecasting models now for number quarters. And at this point, we feel like our models are in good shape and we don't expect significant fluctuations going forward due to model change.

And at this point, we feel like our models were in good shape, and we don't expect significant fluctuations going forward due to model changes.

This means that our growth in revenue should more probe should more.

Speaker 1: This means our growth and revenue should more closely approximate.

Closely approximate growth in consumption.

And when we look at more of a multi quarter trends you mentioned in actual consumption.

Speaker 1: And when we look at more than multi-quarter trends, as you mentioned in actual consumption, we're pleased with the progress we've made, and that's what gives us a confidence as we talk about the growth in 23 and beyond.

We're pleased with the progress we've made and that's what gives us confidence as we talk about the growth in 'twenty three and beyond.

It's a problem. Thank you so much.

Our next question will come from Rishi Galeria with RBC capital markets. Please go ahead.

Speaker 3: Our next question will come from Rishi Jalaria with RBC capital markets. Please go ahead.

Wonderful. Thanks, so much for taking my questions and nice to see continued acceleration on the growth side two questions from me Firstly I wanted to drill down on NR are nice to see the continued improvement in looking reading between the lines. The shareholder letter that that number should continue to improve how should we be thinking about and are are going.

Speaker 3: Wonderful. Thanks so much for taking my questions. And nice to see continued acceleration on the growth side. Two questions from me. Firstly, I wanted to drill down on NRR. Nice to see the continued improvement and looking really into the line of the shareholder letter. That numbers should continue to improve. How should we be thinking about NRR going forward? And as you think about your target of getting back to market growth rates of 25% and above,

Ford and you know as you think about your target of getting back to market growth rates of 25% and above what what is your kind of target for NR or where should we see that as you continue to execute better.

Speaker 3: What is your kind of target for NRR? Where should we see that as you continue to execute better? Set a lot.

That a lot.

Yeah. So you know as you know <unk> is a backward looking metric and so.

Speaker 1: Yeah, so, you know, NRR is a backward looking metric. And so it generally lags revenue by a couple quarters in the latest 12 month number.

Generally lags revenue by a couple of quarters.

Latest 12 month number.

And.

Speaker 1: So, you know, we talked about their, you know, as our revenue growth bottom down and started to accelerate, we said NRR, we expect would be, you know, inflecting a couple quarters later and we're starting to see that. And so, I think that number will generally trail and follow but trail revenue growth as we go forward.

So we talked about there as our revenue grows bottomed down and starting to celebrate we said Enron, we expect wood would be.

A couple of quarters later, and we're starting to see that.

And so I think that number will generally.

Trail and follow the trail revenue growth as we go forward.

You think of our overall topline growth, it's driven by existing customer expansion.

Speaker 1: When you think of our overall top line row, it's driven by existing customer expansion.

And new customers.

And earlier I mentioned, and we've mentioned couple of times that the contribution we get from new customers is relatively modest because most of our customers come in at low dollar numbers. So you know the first $5000, we get from our customers knew the next million is.

Speaker 1: And, you know, earlier I mentioned, we mentioned a couple times that the contribution we get from new customers is relatively modest.

Speaker 1: because most of our customers come in at low dollar numbers. So, you know, the first $5,000 we'd get for my customers knew the next million is, you know, million plus is the whole expansion. And so most of what we, most of how we grow is from expansion. So over time, I would think, you know, that will, the NR number would pretty closely follow the revenue number and, but just trailing it by a couple of couple K So for industrial and many other. And it's that you do want for the real very specific

Plus as a whole the expansion and so most of what we most of how we grow with some expansion. So over time I would think that that will.

Our number would pretty closely follow the revenue number and but just trailing that by by a couple of quarters.

Okay got it that's that's really helpful.

Speaker 3: Okay, Donna, that's really helpful. And then maybe I wanted to think about the, the metric he shared with us of, you know, large customers that started on Pays ago accounts. So we talked about 171 on the 20, you know, that are paying 25K and above and 15 that are 100K and above.

And then maybe I wanted to think about that the metrics you've shared with us.

Large customers that have started on pay as you go accounts. So you talked about 171 on the 20 <unk> that are not paying 25, K and above and <unk>.

15 that are 100, K and above can you maybe talk about it.

Speaker 3: Can you maybe talk about, especially if you're customers that started under the new models, that are effectively net new customers versus converted? Can you maybe talk about what's leading to that dramatic growth on those large customers under the new model? Is it just a function of more data injustice? Is it a function of getting more out of the platform, consolidating other vendors onto the relic? Any color you can provide there would be helpful. Thank you.

You can hear our customers have started and are they new models that are there effectively net new customers versus converted can you maybe talk about what's leading to that dramatic growth on those large customers under the new model.

Just a function of more data ingest it like is it a function of getting more out of the platform consolidating other vendors onto new relic any color you can provide there would be helpful. Thank you.

You bet I'll take this one.

Speaker 2: I'll take this one. Yeah, what we see with customers who come in to New Relic through the Self Service Channel is that they're looking for that all in one observability platform experience from the start. And they tend to consume more and more quickly the breadth of capabilities in the platform versus say a traditional customer that came to New Relic a decade ago or five years ago, really just for APM.

Yeah, what we see with customers who come in to new relic through the self service channel.

They're looking for that all in one of their mobility platform experienced from the start.

And they tend to consume more and more quickly.

Breadth of capabilities in the platform versus say, a traditional customer that came to new relic, a decade ago or five years ago really just for ATM.

And.

That accounts for the rapid growth, we're seeing in expanding those customers from three tier to put in their credit card and then as you mentioned.

Speaker 2: That accounts for the rapid growth we're seeing in expanding those customers from three tiers to put in their credit card. And then as you mentioned, 172 in the last year that started out with three tiers are now in excess of the 25K annual run rate and 15 customers already above that 100K annual run rate. Also,

172 in the last year that started out with <unk> are now in excess of the 25 K annual run rate and 15 customers.

Already above that 100, K annual run rate.

I'll also.

Pointing you at our key operating metrics, which show.

Speaker 2: pointing that our key operating metrics, which show overall though, our ability to nurture active customers involves that 100K threshold is improving. I think in the press release and the investor letters while you can see the last two quarters alone, we've grown more 100 customers into that 100K and above pool.

Overall, though our ability to nurture active customers above the 100 K threshold is improving.

I think in the in the press release and the Investor letter as well you can see the last two quarters alone we've grown more 100 customers.

Into that 100 came about pool.

So that's coming both from the self service, new customer base as well as our existing customer base expanding to 100 case pending about.

Speaker 2: So that's coming both from that SELF service, new customer base, as well as our existing customer base expanding to 100K spending above, with 100 new customers in that pool, just the last two quarters, which is a pretty significant increase versus previous quarters.

With 100, new customers in that pool, just the last few quarters, which is a pretty significant increase versus previous quarters.

Alright wonderful thank you so much.

Okay.

Our next question will come from Erik <unk> with JMP Securities. Please go ahead.

Speaker 3: Our next question will come from Eric Sopiger with JMP Securities. Please go ahead.

Yeah. Thanks for taking my question.

I apologize if you've said this but what are you assuming for the non cash commission expense for fiscal 'twenty three.

Speaker 7: Apologize if you've said this, but what are you assuming for the non-tash commission expense for fiscal 23?

We haven't guided beyond this year, we laid out in the Investor letter the.

Speaker 1: We haven't guided beyond this year. We laid out in the investor letter, the charge that we're getting that's amortizing from prior periods this year. And I think we put that in a letter, through Q4 fiscal 22, but we did not guide beyond that.

The charge that we're getting that's amortizing from prior periods. This year and I think we've got we put that in the letter grew Q4 fiscal 'twenty two but we did not go out beyond that generally speaking, though that's an amortization of an expense that was incurred in.

Speaker 1: Generally speaking though, you know, that's an amortization of an expense that was incurred, you know, in prior years. So you can, you know, you can estimate, I think you can take those numbers and probably get a pretty good estimate of how it's going to share off of the next couple of years.

Prior year. So you can you can estimate I think you can take those numbers would probably get a pretty good estimate on how it's going to trail off over the next couple of years.

The the letter says it was nine in Q2 eight in Q3 seven in Q4, right. We assume that it comes down a million dollars per quarter through fiscal 'twenty three is that a reasonable assumption.

Speaker 7: The letters says it was 9 and Q2, 8 and Q3, 7 and Q4. Might we assume that it comes down a million per quarter through fiscal 23 is that a reasonable assumption?

Well I guess, that's probably not bad although I think of it more as commission expenses on an annual basis, we historically in our old model amortized commissions over three years.

Speaker 1: Well, that's probably not bad, although I think of it more as Commission Expans is on an annual basis. We historically, in our old model, amortized commissions over three years.

And so you know this year, you've got to amortize about a third of it each year.

Speaker 1: And so, you know, this year you've got to amortize about a third of it each year.

Okay.

I was just looking at the deferred revenue and RP O. The deferred revenue had pretty good growth, but the our appeal was slower and slower growth in the deferred.

Speaker 7: I was just looking at the deferred revenue and RPO. The deferred revenue had pretty good growth, but the RPO had slower growth and the deferred. I would have thought RPO would have good growth given that you've got customers that are taking up their commitments. Any reason why the RPO didn't grow at least consistently with the deferred revenue?

I would've thought RP O would have good growth given that you've got customers that are taking up their.

There there commitments any any reason why the RP O didnt grow at least consistently with the deferred revenue.

E D.

Biggest change there I think as you know.

Speaker 1: The biggest change there I think is, you know, those two generally go in sync, but RPO accounts for multi-year deals. And at this point, we're looking at annual contracts with fast and dry of our customers. We've got some longer term, but I would say most of our customers look at a one-year commitment, time horizon with the Commission, with the consumption model.

Those two generally in sync, but our P O accounts for multi year deals at.

And at this point.

We're looking at annual contracts with the vast majority of our customers. We've got some longer term, but I would say most of our you know most of our customers look at a one year commitment.

Horizon with the commission with a consumption model.

Did you have customers shifting to one year in light of the consumption model.

Speaker 7: Did you have customers shifting to one year in light of the consumption model?

We have seen some of that and we look at that as as customer friendly and frankly from our standpoint, assuming we can grow consumption.

Speaker 1: We have seen some of that and you know we look at that as as customer friendly and frankly from our standpoint, assuming we can grow consumption.

We're better off with with a shorter term you know the thing about three year commitment says you generally have to give up a fair amount to get them and so they may you know may be a good deal in year, one but by year three.

Speaker 1: You know, we're better off with a shorter term. You know, the thing about three-year commitments is you generally have to give up a fair amount to get them.

Speaker 1: And so they may be a good deal in year one, but by year three, assuming customers getting a lot of value, they could actually be getting an incredible deal. And so we're in the business of continuously providing value. And assuming we can do that, and our customers can recognize that, then I think sure term, one-year commitment is actually could be better for us in the long term.

Assume any customer is getting a lot of value they can actually be getting incredible deal and so we're in the business are continuously providing value and assuming we can do that you know and our customers can recognize that then I think I think short term one year commitment is actually could be better for us in the long term.

Very good thank you.

Our next question will come from Derrick Wood with Cowen and company. Please go ahead.

Speaker 3: Our next question will come from Derek Wood with Kalen & Company. Please go ahead.

Great. Thanks for taking my question.

Speaker 2: Great, thanks for taking my question. You know, I get started to belabor the point, but what are to go back on the variables of Q3 revenue? Because I think people are just trying to understand the outperformance, not being as strong as the last few quarters, knowing that Q2 was certainly an anomaly. But the way I'm hearing it is that there could be kind of three variables that have some impact on near term revenue one.

Yes, I guess, sorry to belabor the point, but what I wanted to go back on the variables of Q3 revenue.

I think people are just trying to understand the outperformance not not being as strong as the last few quarters you know.

Knowing that that Q2 was certainly an anomaly, but the way I'm hearing it is that that there could be kind of three variables that have some impact on our near term revenue one would be the the catch up in Rev. Rack really kind of coming to an end from that from those early cohorts two would be the higher commits on renewals.

Speaker 2: would be the catch up and rev rack really kind of coming to an end from those early cohorts.

Speaker 2: two would be the higher commits on renewals, resulting in less overage and three is just kind of more seasonality and consumption around the holiday periods. I mean, are those the right variables to be thinking of and how would you rank those in the quarter?

And unless overage and three is just kind of more seasonality and consumption around the holiday periods. I mean are those the right variables to be thinking of in and how would you rank those in the quarter.

Oh, Yeah, I think those are those are the three variables.

Speaker 1: I think those are those are the three variables in terms of ranking them, you know.

In terms of ranking them.

Tough to say.

Speaker 1: Just to say, they often attributed some amount, but we don't have an explicit breakout of each one.

All contributed some amount, but we don't have an explicit breakout of each one.

So I just I can't give you can't give any firm guidance on that per center et cetera.

Speaker 1: So I just can't give you, can't give you, you know, from guidance on, you know, that was good for centered, et cetera.

Yeah.

Okay, well glad I'm thinking about it right.

Speaker 2: Okay, well, glad I'm thinking about it right. Bill, and for you, a question on focus on new enterprise customers, I mean, clearly you guys been focused on shifting the install base to the new platform.

And Ed for you a question on.

Focus on our new enterprise customers I mean quite clearly you guys have been focused on shifting the installed base to the new platform.

You built this new low touch customer acquisition funnel at the lower end of the market, but how are you thinking about the sales focus on new enterprise customers can this be done through the the low touch channel or would you be looking to invest more in high touch sales, especially as you look into fiscal 'twenty three.

Speaker 2: You've built this new low touch customer acquisition funnel at the lower end of the market, but how are you thinking about the sales focus on new enterprise customers? Can this be done through the low touch channel, or would you be looking to invest more in high touch sales, especially as you look into fiscal tools?

Yes, good question.

Speaker 2: Yeah, good question. Continuing to grow new accounts is obviously strategic to our long-term business. And I think about three real channels that we are investing to do that in. We're furthest ahead as is evidenced by the numbers with our self-service product-led funnel that we launched last year. As we look forward to FY23, there's sort of two.

Continuing to grow new accounts is obviously strategic to our long term business and I think about three real channels that we are investing to do that and we're furthest ahead as is evidenced by the numbers with our.

Self service product lead funnel that we launched last year.

As we look forward to FY 'twenty, three there's sort of two.

Increasing investments, we're making in addition to that which is first in terms of the partners of the channel we want to start to build out more capability there more efficiency there.

Speaker 2: Increasing investments we're making in addition to that, which is first in terms of partners of the channel We want to start to build out more capability there more efficiency there And so that will factor into our FY23 plan

And so that will factor into our FY 'twenty three plan.

And then second is.

Speaker 2: And the second is a portion of our sales go to market who can also help accelerate new account acquisition and think of that more as, you know, inside sales component as well as our existing sellers with some of their time and capacity landing new logos.

A portion of our sales go to market.

Who can also help.

Accelerate new account acquisition and think of that more as.

Inside sales.

Components.

As well as our existing sellers with some of their time and capacity landing new logos.

Alright, thank you.

Our next question will come from Mike Seacoast need him and company. Please go ahead.

Speaker 3: Our next question will come from Mike Seacos with Neat Hamming Company. Please go ahead.

Hey, Thanks, guys just wanted to come back to the seasonality.

Speaker 4: Hey, thanks guys. Just wanted to come back to the seasonality. I know that we're talking about this slowdown that you saw in the final two weeks or a couple of weeks in Q3 and this hangover effect we're talking to in Q4. Could you help us think about how this hangover effect for seasonality has played out and now that we have six weeks under our belt in the court? I'm just curious how what you're seeing on the consumption front as it relates to the seasonality we're talking about.

I know that we're talking about this slowdown that you saw in the final two weeks or a couple of weeks in Q3, and this hangover effect, we're talking to in Q4.

Could you help us think about how this hangover effect for seasonality has played out and we have six weeks under our belt in the quarter I'm just curious how.

What youre seeing on the consumption front as it relates to the seasonality we're talking about.

You bet I'll do my best to describe it.

Speaker 2: I'll do my best to describe it.

The data ingest side, we saw a pretty significant drop off those last two weeks of December as I mentioned, and then steady rebounding since then.

Speaker 2: The data ingest side, we saw a pretty significant drop off those last two weeks of December as I mentioned, and then study rebounding since then, similar with user engagement less pronounced in terms of the downward trend of provisioned users, but slowly again rebounding throughout the month.

Similar with user engagement less pronounced in terms of the.

You know the.

The downward trend of provisions users but.

Slowly again rebounding throughout the months.

It's.

We did see a little bit of that last year. So it wasn't a completely.

Speaker 2: It's, you know, we did see a little bit of that last year, so it wasn't a completely, a complete surprise this year, although the difference between say 30% of our business in the consumption model last year versus 80%.

A complete surprise this year, although the difference between say, 30% of our business and the consumption model last year versus 80%.

And you can you can say.

Speaker 2: And you can think about it from the customer perspective. More customers now taking advantage of that consumption price and model to optimize their spend did have some effect. And we see that as an overall value proposition as a consumption model and works in the customer's benefit and our long-term strategic benefits in terms of differentiation and value to customers.

Think about from a customer perspective more customers now taking advantage of that consumption pricing model to optimize their spend did have some effect and we see that as an overall value proposition of the consumption model and working the customers benefit and our long term.

Yeah, our strategic benefit is in terms of differentiation and value to the customers.

Thanks for that and just two quick questions if I could to clean up and then I'll leave you guys, but the first real quick on the churn for those pays you go counts I think typically you guys had been disclosing that churn for those accounts was in the 1% to 2% ZIP code maybe.

Speaker 4: Thanks for that. And just two quick questions if I could to clean up and then I'll leave you guys. But the first real quick on the churn for those pays you go counts. I think typically you guys have been disclosing that churn for those accounts was in the one to two percent zip code. Maybe I missed that in the letter, but can you?

Maybe I missed that and then in the letter but could you.

Provide an update on the churn for those pay as you go accounts and then the second thing.

Speaker 4: Providing update on the churn for those pages you go accounts and then the second thing More broad strokes here, but just wanted to see if I could get a better framework for this growth algorithm to you guys driving that 25% top line growth you're looking at if it's there to assume that

More broad strokes here, but just wanted to see if I could get a better framework for the growth algorithm to you guys driving that 25% topline growth youre looking at is it.

It fair to assume.

That were in this maybe 18% to 20% year to year growth, maybe 21% with the accounts that you currently have and then as these newer accounts you guys be layered in over the course of this year grow and become more sizable that's really what's going to be driving you up towards that 25% market growth target that you guys have out there.

Speaker 4: Maybe 18 to 20% year to year growth, maybe 21% with the accounts that you currently have. And then as these newer accounts you guys have layered in over the course of this year, growing become more sizable, that's really what's gonna be driving you up towards that 25% market growth target that you guys have out there. Is that a fair way to think about it?

Is that a fair way to think about it.

Yes, the way.

Speaker 2: Yeah, the way, I think as we said before, most of our revenue does come from our existing customer base. And while it's really critical to our long-term growth to win new customers, many enter in in the very low end of the spectrum, even the free tier paying, it's nothing. And then they add a credit card and mature from there.

I think as we've said before most of our revenue does come from our existing customer base and while it's really critical to our long term growth to win new customers. Many enter in at the very low end of the spectrum, even the free tier paying its nothing and then they had a credit card.

And mature from there.

So when we talk about expansion in reaching that 25% year over year growth rate. It is really based on mostly customers who have embraced the platform.

Speaker 2: So when we talk about expansion and reaching that 25% year over year growth rate, it is really based on mostly customers who have embraced the platform upwards of a year or so that contributes the majority of revenue and revenue acceleration. And

Upwards of a year or so that contributes the majority of revenue and revenue acceleration.

And.

That's again based on this all in one model previously customers, we'd have to buy individual applications or components. Now every user. They add has full access to the platform and can add any of the data types from any data source.

Speaker 2: You know, that's again, based on this all-in-one model, previously customers would have to buy individual applications or components. Now, every user they add has full access to the platform and can add any of the data types from any data source.

And that driving that horizontal expansion within an account is now friction free thanks to the all in one pricing model the platform experience that we built around it.

Speaker 2: And that driving that horizontal expansion within an account is now friction-free Thanks to the all-in-one pricing model and the platform experience that we've built around it

The way, we think about driving that growth is literally having all of our product teams and go to market teams really thinking about how to help customers expand horizontally and take advantage of the breadth of the platform versus maybe the one or two.

Speaker 2: And the way we think about driving that growth is literally having all of our product teams and go to market teams, really thinking about how to help customers expand horizontally and take advantage of the breadth of the platform versus maybe the one or two experiences that they're familiar with from past days.

Experiences that they're familiar with from past days.

Great Thanks, and any calculation on the pay as you yep.

Speaker 4: Great thanks and any confection on the page, yeah. There you are. A little page of gold cards.

You guys have at all times.

Thank you, yes. It makes a remind me the churn on the Peco has not changed it's still in the 1% to 2% range as we've reported before and continues to be a strong channel for new customer acquisition.

Speaker 2: Thank you, yes, that makes your mind. The turn on the pay go has not changed. It's still a 1 to 2% range as we reported before and continues to be a strong channel for new customer acquisition.

Thank you very much guys.

This concludes our question and answer session I would like to turn the conference back over to Bill staple Chicken Chief Executive officer for any closing remarks.

Speaker 3: This concludes our question and answer session. I would like to turn the conference back over to Bill Staples, Chief Executive Officer, for any closing remarks.

Hey, Thank you everyone for joining the call today and for all your questions.

Speaker 2: Hey, thank you everyone for joining the call today and for all your questions. We hope to take some time to read the investor letter to familiarize yourself with more details and trends in the business and look forward to engaging you with you throughout the quarter and seeing you at our investor conference coming later this spring. Thanks everybody. Have a good day.

Hope to take some time to read the investor letter to familiarize yourself with more details on trends in the business and look forward to engaging with you throughout the quarter.

And seeing you at our Investor Conference coming later this spring thanks, everybody have a good day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker 3: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.