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. 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. Hi, everyone, and thanks for joining our 3Q fiscal 2022 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. 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. Our actual results could differ materially due to a number of risks and uncertainties, including the risk factors in our most recent Form 10-K and upcoming Form 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. 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. I wanna 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. Third, my outlook on the road ahead and the key themes going into our FY 2023 plan. 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. 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 in the consumption model. 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 commitments. 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. Data ingest, in particular, continues to perform better than expected. Although it puts short-term pressure on growth margins, we view this as a very strong indicator of future growth in users. Last, our marketing efforts to drive account and revenue growth are working. Total paying accounts grew by 300, and accounts that started as pay go, consuming at the $25,000+ annual run rate grew from 109 customers in 2Q to 172 customers in Q3. Fifteen of those accounts are at a $100,000+ annual run rate, up from just six accounts at the end of the second quarter. It is impressive to reflect on how the fiscal year started versus where we are today. We ended the year after eight successive quarters of revenue growth acceleration and guided to $709 million-$711 million revenue and 6% year-over-year growth. If we execute the Q4 plan according to updated guidance, we will have added about $75 million in revenue above our original guide and taken the company from the 6% guide to over 17% year-over-year revenue growth. Not only that, but we've inverted the steady decline of paying customers, and we're on the growth path again. These results are a reflection not only of our strategy playing out as expected, but even faster progress on execution than we had hoped, a testament to the hard work of thousands of Relics. 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 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, representing growth of 22% year-over-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, 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. 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. We are now at 81% of the business in the consumption model. Our third priority is to grow the number of paying customers. As mentioned, we increased the number of active customer accounts to 14,600. The primary way we are driving this growth is through a 100% self-service product-led growth funnel, starting with our New Relic One free tier. Since introducing the offer one year ago, thousands of developers have signed up for New Relic One and over 6,400 have already entered credit cards, an increase of more than 1,500 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. Our fourth priority is to methodically deliver platform innovation and greater value to our customers. This quarter was another hallmark of innovation from our product organization. We introduced New Relic I/O, CodeStream, a brand new infrastructure monitoring product and MLOps, four marquee releases in a single quarter, along with thousands of other smaller improvements. We've spoken a bit about CodeStream and the I/O release last earnings call. Let me share a little bit more about the other releases. Coinciding with the CodeStream 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 license. This new user type is now available for purchase as of January. The core user serves as an on-ramp to observability 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 GA it this quarter with a world-class experience for monitoring public, private, and hybrid cloud infrastructure at scale. 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 a topology and graph view, and even go back in time to watch performance and cascading impacts of incidents over time. No one does it like New Relic One. We also were first to market with an MLOps monitoring solution that brings the power of telemetry platform to data scientists and engineers as they collaborate with each other to build modern services, including partnerships with key partners in this space, including AWS SageMaker, DataRobot, Aporia, Superwise, Comet, DagsHub, Mona, and Truera. 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. This solution is new and in early adoption, and we're proud to be first in the market with this capability in our category. 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. We were able to continue lowering attrition rates both sequentially and year- over- year, and we also enjoyed another strong hiring quarter. Our internal engagement survey shows improvement in employee 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 growth and value creation. This quarter, we continued to prioritize data growth and customer satisfaction initiatives, which resulted in lower growth margins, but we believe enhances our long-term prospects. Similar to last quarter, our data ingest was higher than expected, which we view as a significant long-term positive. I do believe growth margins should bottom out from here. Let me now close with a few thoughts on New Relic and the road ahead. 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. New 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. 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. 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 FY 2023 plan and targets. 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. First, driving operational excellence. The strategy is sound. Our business model is settling in and our overall rhythms are established. 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 of operational excellence. Second, increasing our focus across sales and marketing and research and development on improving consumption rates. 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. FY 2022 required much of our go-to-market organization to help customers understand and embrace the consumption model. Now that that heavy lift is done, more capacity will be available to nurture value recognition through consumption. 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. While we will continue to innovate and introduce new products to market in FY 2023, a greater portion of the team will be focusing on unlocking adoption and consumption growth against the many opportunities we already have underway. Third, 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 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 2023, 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. 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 2021. 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. I'd like to briefly recap our financial results and then spend some time discussing the business. For our third quarter of fiscal year 2022, we reported revenue of $204 million, ahead of the guidance we set in 2Q for between $198 million 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 million and $12 million. GAAP EPS was a loss of $0.96, and non-GAAP EPS was a loss of $0.18 at the low end of our guidance for a loss of between $0.15 and $0.18. We are pleased with our results this quarter, once again beating our top line guidance, and we are excited to see another quarter of acceleration in year-over-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. We will provide more specific guidance for fiscal 2023 on our 4Q call in May. As you model the business from here, it is reasonable to expect full year fiscal 2023 to show accelerating revenue growth versus full year fiscal 2022 and modest non-GAAP profitability on a full year basis. Our top line result was driven by both strong renewals and by customers consuming in excess of their commitments. 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 anniversary renewals on the new model, we are starting to see customers that consumed in excess of their commitments renew at higher levels. We'll get another meaningful data point on this trend in Q4. 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 the model settling in, and while it may cause a few million dollars in revenue variability each quarter, the longer term trend is encouraging. GAAP gross margin was 66% 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. 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. We believe that non-GAAP gross margins have bottomed this quarter, and we expect them to be in the low 70s in Q4. We are confident in our ability to improve gross margins as we complete our worldwide move to the cloud over the next couple of years. 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. In terms of our operating margin, we are focused on improving efficiency across the organization. Over the near term, we continue to prioritize top line growth over bottom line results. This may impact near-term costs and expenses, but we believe this approach will result in more attractive long-term profitable growth and value creation. I'm very proud of our team's ability to re-accelerate top line growth while keeping a watchful eye on operating expenses. 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 was flat quarter- to- quarter, pro forma for approximately $8 million of non-cash commission expense 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 this prior model commission expense. As we turn our expense discipline to cost of goods going forward, investors can expect steady improvements in profitability going forward. Now that we're reaching the final stages of migrating our business to the new model, some of the variability of our transition, including initial headwinds and subsequent tailwinds of that conversion process, are going away. There will still be some modest fluctuations in the near term as we anniversary our 2022 comps, 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 has initiated many new innovations for customers to adopt in fiscal 2023, we continue to feel good about our ability to grow the business. Now I'd like to share our Q4 and fiscal 2022 guidance. For the fourth quarter fiscal year 2022, we expect revenue between $204 million and $206 million, representing year-over-year growth of between 18% and 19% respectively. We expect a non-GAAP loss from operations of between $12 million-$14 million. We expect a non-GAAP net loss attributable to New Relic per diluted share between $0.19-$0.22. For the full fiscal year 2022, we expect revenue between $784 million-$786 million, representing year-over-year growth of between 17%-18%. We expect a non-GAAP loss from operations between $45 million-$47 million, and we expect non-GAAP net loss attributable to New Relic per diluted share between $0.72-$0.75. 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 FutureStack user conference in Las Vegas. Operator, please go ahead and open it up. Thank you. We will now begin the question and answer session. To 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 has 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. Our first question will come from Kingsley Crane with Berenberg. Please go ahead. Hi, thanks. I appreciated your comments so far on fiscal 2023. With April fast approaching, can you speak a bit more about what you expect for that year and how you plan to achieve it? Yeah, thanks, Kingsley. I'll go ahead and take that. This is Bill, of course. 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. 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. 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 to our nurturing that happens in sales and marketing. I use the word methodical, systematic discipline over and over. You probably have heard that from me a few times in past earnings calls. I use those words internally as well because our ability to execute is super important, and it factors heavily into where we're investing in FY 2023 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 year, 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. Most of our product teams were focused on launching new initiatives, new innovation, seeding the market with new capabilities towards a model in FY 2023, where we are all focused on nurturing consumption, helping customers realize the full value of the platform. 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. I believe Mark mentioned this as well. Our expectation in FY 2023 is that we'll be able to continue revenue growth acceleration. We're guiding to about 17.5% if we meet our Q4 guide, and 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 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 that we've heard today. Okay. Thanks, Bill. That's really helpful. Just as a quick follow-up. How should investors square your enthusiasm for next year with the 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, and you may wonder what to make of that. 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 whole year. The reason for this is every quarter presents us with a unique set of 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 effect as we entered the new calendar year. 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? 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 improvement. Last year, we delivered 8% year-over-year growth at $173 million. We're guiding this year to $204 million-$206 million, a growth rate of 18%-19%. That's a substantial growth rate increase over last year and reflects the strength of our relative position with customers and as a business. For an even better view of how the business is performing, consider how we entered the year versus how we're forecasting we'll exit it. We entered the year with a guide of $709 million-$711 million, and 6% year-over-year growth. Over the course of the year, we've seen steady improvements that help the business. If we exit as we've guided, we'll have added more than $75 million above the original guide and delivered on full year-over-year revenue growth of 17%. Beyond that, as I said, we feel confident enough with that momentum to believe going into FY 2023, 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 more profitability. All signs are pointing towards a healthy business that's growing. Thanks. That's great context. Congrats on the continued success. Our next question will come from Shrenik Kothari with Baird. Please go ahead. Hey, yeah, this is Shrenik standing in for Rob today. You mentioned about the multiyear seven-figure deal with CDK, which is an existing customer in the investor letter, and the paid business accounts greater than 100,000 also accelerating pretty well. When you look at the outperformance relative to your target of 80% in the consumption model by year-end, that would suggest some competitive strength here. Can you talk a little bit about trends for competitive wins, both like greenfield, as well as win backs? Yeah. Excellent question. We do see the bulk of our opportunity as greenfield, although lately tool consolidation plays have started to become more prominent. You mentioned the CDK example that's in the investor letter. By the way, I recommend all investors read that. It's got tons of great data and stories to familiarize yourself with. It's no doubt that our competitive position is strengthening. That's demonstrated not only in competitive win 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. 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 a multiyear seven-figure deal 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 New Relic One platform. 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, drive their business forward. This is a great example of just one customer, but what we believe all customers ultimately want, which is a standard practice around observability and a platform that gives them all-in-one access to everything in their digital state. Thanks. Just one follow-up here. You mentioned about the sequentially flat guide related to some seasonality and renewal kind of dynamics. So you mentioned about the conservative approach to modeling the consumption in excess of commitments. As some more data points are coming in, just wanted to get your sense about the degree of conservatism now, like is it trending lower, same levels? Yeah, thank you. Yeah, it's a good question. You know, we strive to be as accurate as we can with our guidance, but we also, you know, don't wanna get ahead of ourselves, and we wanna 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. It's an interesting trend we saw right at the very end of 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 effect into January. If you think about 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. You know, those last two weeks of December, you might think, would be strong, but actually, by the time the holiday season get into swing with that week of Christmas or New Year, a lot of digital business slows down. Employees are on holiday, not engaging in work unless it's absolutely critical, and we think that's reflective 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. That's part of what we're seeing in terms of the overall seasonality trend, but relatively minor impact to the overall financials. All right. Thanks a lot, Bill. Our next question will come from Sterling Auty with JP Morgan. Please go ahead. Yeah, thanks. Hi, guys. I'm just gonna ask one question. I just wanna go back to the comments about 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 overconsumption. 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. As that balance kind of comes in, does that mean you grow faster, you grow slower? What's the implications on it? Yeah, good question. 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. 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 a brand-new platform, brand-new pricing model, and this new consumption business model to market. Customers, even those who'd 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. 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 relatively large renewal quarter of customers who had began the migration last Q3. What we saw with this increased commitment is a lot more understanding of the platform and how it works and how they're gonna consume it, especially for those who were consuming at or above their previous commitment level, increasing their commitments in a considerable way. 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. 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. With our improving ability to nurture consumption in the products and in the go-to-market organization, we expect to see consumption continue to increase as companies embrace more data-driven approaches to engineering. The short answer is our ability to drive increased commitments is improving, and we believe consumption will continue to increase. Understood. Thank you. Our next question will come from Adam Tindle with Raymond James. Please go ahead. Good afternoon. I wanted to start on the fiscal 2023 profitability metric, where you're expecting to reach modest profitability on a non-GAAP operating basis margin. 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 guidance, it kind of implies more of that same trend. I guess the question would be what changes in fiscal 2023 to enable incremental growth to come in more profitably? Maybe you could double click on commission expense or data center costs, some of the key buckets. Thanks. Sure. I think the big improvement is going to come from our COGS improvement. As we talked about, we've seen stronger data growth than we had forecast, and that's a good thing in the long term, right? Customers are taking advantage of the platform. We made some other incremental customer sat investments. Gross margin definitely had some pressure on it this quarter, and will be continued to next quarter as we continue the migration to the cloud, or not finish up, but continue those investments. We've given some guidance around gross margin. We feel like it is bottoming out this quarter, up into the low 70s next quarter, and then improving from there into next year. I think a large part of our improvement in the bottom line will come from the gross margin line that'll go down. When you look at operating expenses, we still have work to do there, no doubt. We will continue to strive for more efficiencies, and Bill talked about that as in his summary of our 2023 plans. Even before that, when you look at the past couple quarters, we have this quarter, we laid out in the investor letter and encourage folks to take a look at 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. If you pro forma out the $8 million that we took in Q3, our sales and marketing expense actually went down year- over- year. Our sales and marketing expense went down, and yet we were able to re-accelerate revenue. We're also able to turn around the customer count, where we had our best customer add quarter in quite a number of quarters in Q3. I think we've demonstrated that, you know, this focus on operational efficiency and improvements can have an impact. We've had some success there already. We wanna continue that on the expense line. Now we wanna make sure we turn that discipline to the COGS line. Between the two, you know, we feel confident we'll be able to achieve modest profitability and then build from there. 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. I guess the question would really be what you saw in the business to go out with that metric now at this point. As I kind of think about the key drivers, you know, from a new accounts perspective to drive incremental growth, I think you noted in the letter that conversion efficiency did see some modest declines this quarter. You know, what would help improve new account conversion to drive incremental growth? On the expansion point, the other kind of driver I think about for incremental improvement and growth, you've got, you know, most of the customers move over to 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. You know, most of our incremental revenue gains in a quarter come from our existing customers. We're very pleased with our new account performance. We wanna continue to build on that. You know, the new accounts that we've added the last couple of quarters are certainly gonna help us grow, you know, next year and beyond. Given that we start most new accounts at a relatively low dollar amount, the vast majority of our growth comes from our existing accounts. You know, ultimately, what drives our revenue growth is a combination of upticks in commitments and then consumption over commit. Really, fundamentally, consumption growth translates to revenue growth when you look over, you know, a three or four quarter period of time. You know, what we see, we now have a number of quarters by which we can look at the behavior of our customers and how their consumption is changing. 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. 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 eloquently than I can about all the different initiatives we have to grow consumption in our accounts. I'll let him do that in a minute. I would also say that at this point, when we first transitioned into the model, customers moved over, and it was a little bit of a leap of faith about how much 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, you know, I think a. They're more comfortable with their estimates and forecasts and, you know, commitments as they go forward. Our next question will come from Sanjit Singh with Morgan Stanley. Please go ahead. Thank you for taking the question, and congrats on the accelerating revenue growth in the past couple of quarters. My question though strikes along the lines of similar things that we've been talking about on this call. Really wanted to focus on our cohorts again. If you looked at the December cohort that came up for renewal, if you'd give us any additional color on the magnitude of expansion that you saw, relative to their prior contracts or maybe even relative to their run rate, heading into the December quarter. Then as we look into the March quarter, that cohort coming up for renewal, big Q4, what are the underlying assumptions you have about that cohort when they come up for renewal in 90 days? Yeah, I'll take the first crack at 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. We've been watching their consumption over the past year since they entered in the new model. As we've shared, their consumption in aggregate continues to accelerate, continues to exceed their original commitment. 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 commitment increase relatively proportionate to their overconsumption. Those who were consuming at or above were much more likely to increase their commitment at or above what their consumption rate was. That's what we had hoped to see and in fact what we saw in Q3. We'll get another look at this in Q4, our biggest quarter in terms of cohort of customers that entered into the new consumption model. We anticipate, you know, we'll continue to have success in getting that new increased commitment given the familiarity with the model that customers now have a year into the business. That's super helpful. Just as a follow-up, in terms of thinking about, I guess, two factors, seasonality, how seasonality is going to trend this quarter or sorry, this year, and then also variable consideration, which is a theme from the from last quarter's earnings call. How do you feel about the ability to, you know, forecast that or get comfortable about that when it comes to guiding for a forward quarter along those two dimensions and taking account seasonality and variable consideration? On the seasonality front, we're still certainly learning as we go through this, and you know, we'll get every quarter and, you know, every year we get better data on that. You know, we think seasonality itself will be fairly modest. You know, with a large cohort of customers when some are driving consumption hard, others may be on the off season, things like that. I think the macro seasonality will be fairly modest. At the same time, you know, quarter- to- quarter, $2 million could go from one quarter to another depending on, you know, consumption trends and things like that. You know, I don't think we're looking at growth being, you know, completely linear. There will be some fluctuations in that. In terms of VC, I just want to take a step back and level set on variable consideration. It's a complicated accounting topic, but in very simple terms, I would encourage you to think of VC as 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 customer's exceeded their commitment. To do this, it's like a complicated process. 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 models now for a number of quarters. At this point, we feel like our models are in good shape, and we don't expect significant fluctuations going forward due to model changes. This means our growth in revenue should more closely approximate growth in consumption. When we look more at the multi-quarter trends, as we mentioned, in actual consumption, we're pleased with the progress we've made, and that's what gives us the confidence as we talk about the growth in 2023 and beyond. Super helpful, Mark. Thank you so much. Our next question will come from Rishi Jaluria 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 NRR. You know, nice to see the continued improvement and, you know, reading between the lines of the shareholder letter that that number should continue to improve. How should we be thinking about NRR going forward? And, you know, as you think about your target of getting back to market growth rates of 25% and above, what is your kind of target for NRR? Where should we see that as you continue to execute better, settle up? Yeah. You know, as you know, NRR is a backward-looking metric. It generally lags revenue by a couple quarters. It's a latest twelve-month number. You know, we talked about there, you know, as our revenue growth bottomed down and started to accelerate, we said NRR we expect would be, you know, inflecting a couple of quarters later, and we're starting to see that. I think that number will generally trail and follow, but trail revenue growth as we go forward. When you think of our overall top line growth, it's driven by existing customer expansion and new customers. You know, earlier I mentioned, we mentioned a couple of times that the contribution we get from new customers is relatively modest because most of our new customers come in at low dollar numbers. You know, the first $5,000 we get from a customer is new. The next million is million plus is the whole expansion. Most of how we grow is from expansion. Over time, I would think, you know, that the NRR number would pretty closely follow the revenue number and but just trailing it by a couple of quarters. Okay. Got it. That's really helpful. And then maybe I wanted to think about the metric you shared with us of the large customers that have started on pay-as-you-go accounts. You talked about 171 that are paying $25,000 and above and 15 that are on $100,000 and above. Can you maybe talk about, especially with your customers that started under the new model, so they're 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? You know, is it just a function of more data ingest? Is it a function of getting more on 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. What we see with customers who come in to New Relic through this self-service channel is that they're looking for that all-in-one observability platform experience from the start. 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. That accounts for the rapid growth we're seeing in expanding those customers from, you know, free tier to putting their credit card. As you mentioned, 172 in the last year that started out with free tier are now in excess of the $25,000 annual run rate, and 15 customers already above that $100,000 annual run rate. I'll also point you at our key operating metrics, which show overall, though, our ability to nurture active customers above that $100,000 threshold is improving. I think in the press release, in the investor letter as well, you can see the last two quarters alone, we've grown 100 customers into that $100,000 and above pool. That's coming both from that self-service new customer base as well as our existing customer base expanding to a $100,000 and above, with 100 new customers in that pool just the last two quarters, which is a pretty significant increase versus previous quarters. All right. Wonderful. Thank you so much. Our next question will come from Erik Suppiger 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 2023? We haven't guided beyond this year. We laid out in the investor letter the, you know, the charge that we're getting that's amortizing from prior periods this year. I think we put that in a letter through Q4 fiscal 2022. Mm-hmm. We did not guide. Yeah Beyond that. Generally speaking, though, you know, that's an amortization of an expense that was incurred, you know, in prior years. You can, you know, take those numbers and probably get a pretty good estimate of how it's going to trail off over the next couple of years. The letter says it was nine in Q2, eight in Q3, seven in Q4. Might we assume that it comes down $1 million per quarter through fiscal 2023? Is that a reasonable assumption? Well, that's probably not bad, although I think of it more as commission expense is on an annual basis. We historically in our old model, amortize commissions over three years. 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 RPO. The deferred revenue had pretty good growth, but the RPO had slower growth than 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? The biggest change there, I think, is, you know, those two generally go in sync, but RPO accounts for multi-year deals. At this point, you know, 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 customers look at a one-year commitment time horizon with a consumption model. Did you have customers shifting to one year in light of the consumption model? We have seen some of that. You know, we look at that as customer friendly. Frankly, from our standpoint, assuming we can grow consumption, 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. They may, you know, be a good deal in year one, but by year three, you know, assuming the customer is getting a lot of value, they could actually be getting an incredible deal. You know, we're in the business of continuously providing value. Assuming we can do that, you know, and our customers can recognize that, then I think shorter term, you know, one-year commitments is actually, you know, 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. Great. Thanks for taking my question. Yeah, I guess, sorry to belabor the point, but wanted to go back on the variables of Q3 revenue, 'cause I think people are just trying to understand the outperformance not being as strong as the last few quarters, you know, knowing that Q2 was certainly an anomaly. The way I'm hearing it is that there could be kind of three variables that have some impact on near-term revenue. One would be the catch-up in rev rec really kind of coming to an end from those early cohorts. Two would be the higher commits on renewals resulting in less overage. Three is just the kind of more seasonality and consumption around the holiday periods. I mean, are those the right variables to be thinking of? How would you rank those in the quarter? Yeah, I think those are the three variables. In terms of ranking them, you know, tough to say. You know, they all contributed some amount, but you know, we don't have an explicit breakout of each one. So I just can't give you you know, firm guidance on you know, that was good for standard, et cetera. Yeah. Okay. Well, glad I'm thinking about it right. Bill, and for you, a question on the focus on new enterprise customers. I mean, 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. 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 2023? Yeah, good question. Continuing to grow new accounts is obviously strategic to our long-term business. 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, you know, product-led funnel that we launched last year. As we look forward to FY 2023, there's sort of two increasing investments we're making in addition to that, which is first in terms of partners as a channel. We want to start to build out more capability there, more efficiency there. That will factor into our FY 2023 plan. The second is a portion of our sales go-to-market who can also help accelerate new account acquisition. 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. Great. Thank you. Our next question will come from Mike Cikos with Needham & Company. Please go ahead. 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 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 now that we have six weeks under our belt in the quarter? I'm just curious how what you're seeing on the consumption front as it relates to the seasonality we're talking about. Yeah. I'll do my best to describe it. On 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. Similar with user engagement, less pronounced in terms of the you know the downward trend of provisioned users, but slowly again rebounding throughout the month. It's you know we did see a little bit of that last year, so it wasn't a complete surprise this year, although the difference between, say, 30% of our business in the consumption model last year versus 80%, and you can think about from the customer perspective, more customers now taking advantage of that consumption pricing model to optimize their spend, you know, did have some effect. We see that as an overall, you know, value proposition of the consumption model and works in the customer's benefit and our long-term, you know, a strategic benefit in terms of differentiation of value to customers. Thanks for that. Just two quick questions, if I could, to clean up, and then I'll leave you guys. The first, real quick on the churn for those pay-as-you-go accounts. I think typically you guys had been disclosing the churn for those accounts was in the 1%-2% zip code. Maybe I missed that in the letter, but can you provide an update on the churn for those pay-as-you-go accounts? Then the second thing, more broad strokes here, just wanted to see if I could get a better framework for the growth algorithm to you guys driving that 25% top line growth you're looking at. Is it fair to assume that we're in this maybe 18%-20% year-to-year growth, maybe 21% with the accounts that you currently have, and then as these newer accounts you guys layered in over the course of this year grow and 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? Yeah. The way, I think as we said before, most of our revenue does come from our existing customer base. 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 us nothing, and then they add a credit card, and mature from there. 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 contribute the majority of revenue and revenue acceleration. 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. 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 experiences that they're familiar with from past days. Great. Thanks. Any confirmation on the pay as you-. Yeah. The churn for those pay-as-you-go accounts. Thank you. Yes. Thanks for reminding me. The churn on the pay-go has not changed. It's still in the 1%-2% range as we've 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 Staples, Chief Executive Officer, for any closing remarks. Hey, thank you everyone for joining the call today and for all your questions. We hope you take some time to read the investor letter to familiarize yourself with more details and 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.