Good evening. I'm Erik Suppiger with JMP Securities. I'm the Infrastructure Analyst here. Thank you all for joining. Great to see a good crowd here. With us for this session is Bill Staples, CEO of New Relic. I will start it off, but I do want to encourage all of you to please feel free to ask questions. The object here is to give you an opportunity to take care of any questions and concerns. Please feel free to raise your hand at any time, and I'll be more than glad to call on you. Bill, let me first just ask, I think you've been with New Relic for about three years. I think you've been CEO for about a year and a half. Talk a little bit about what situation you came into and what some of the strategic changes that you've made since you've been there. Sounds good. Hello, everybody. Thanks for your interest in New Relic. It's great to be here today. I joined New Relic on Valentine's Day of 2020, so just passed my three-year milestone, as you mentioned. The company was founded in 2008, had its IPO, I think, December of 2014, really established its presence in this category as a leading APM vendor, Application Performance Management. Over the years following the IPO, however, this space became very crowded with a number of vendors, each coming at it with their own sort of beachhead, if you will. For New Relic, that was APM. For those, it was logging or infrastructure. All competitors added overlapping capabilities. When I joined the company, we were in a very challenging environment, of course, as a result of that, and customer count, paid customer count and revenues had been declining. Lew Cirne, our Founder, and I partnered together on a new strategy for the company. We effectively, on the product side, began a transformation that brought all of our data, all of our customers' data across all data types and all data sources into one underlying platform. This is a technical moat for New Relic. It's a very exceptional service that now runs at very exceptional gross margin, all in the cloud now, and provides customers the lowest cost platform for all of their Telemetry data. We also brought all of the front-end experiences, so engineers logging into New Relic, can access 30+ capabilities in one experience. They can look at their applications, they can look at their infrastructure, their logs, their mobile applications, all of the capabilities of New Relic in one place. That was the product transformation. The second transformation we began is a different packaging and pricing model for our customers. When I joined, we looked like every competitor still looks today. We had a dozen-plus SKUs, and you had to budget and plan for New Relic adoption by the SKU. We shifted to an all-in-one platform packaging and pricing model, where we only have effectively two price meters, two SKUs, users and data. All data types and all data sources, as I mentioned, for one low price to bring the data in, and then a per user price to access the insights of the platform. The benefits to the customer of that is just simplicity. It's so much easier to plan and budget for. It's also much easier for them to consolidate their observability spend and standardize on New Relic as a platform because there are no packaging, no pricing barriers to expanding and using all of New Relic. The third transformation, and final one was a shift from subscription, cloud subscription contracts, like many of our competitors, to a consumption business model. This means that we only recognize revenue based on actual usage of our customers. It aligns our values as a company to increase revenues and profitability and shareholder value as a result of that with our customers' desire to get value from their observability investment. That changed everything for New Relic. It means our product organization, instead of just shipping features, is really focused on creating value that translates to the customers in increased usage of users and data. It means our go-to-market organization, rather than selling invoices and trying to drive for commitments, is really focused on customer usage and helping the customer get value from our platform so that they're willing to continue to increase consumption over time. Those are really the three major product transformation, repackaging and pricing our platform, and then shift to consumption to align our value with customers. Okay. You've also made some changes in the management and the executive leadership since you've been there. Can you talk a little bit about the type of leadership that you've assembled since you've been in place? Yeah. I, so as you noted, I joined as the Chief Product Officer in 2020 and really led the Products and then product and marketing organizations as we made those product packaging and pricing shifts. About 18 months ago, I was named as the CEO successor for Lew as, and took on the CEO role. I began looking over go-to-market, HR, G&A organizations, and took a couple of quarters to really assess those teams, their leaders, and the systems and processes they have in place. Earlier in 2020, began recruiting and hiring a new CFO, David Barter, here is in the audience with us, as well as a new product leadership. Siva Padisetty came to us from AWS, as well as Mark Dodds also came to us from AWS to run our go-to-market organization. The leadership qualities that I'm looking for here at New Relic are first, leaders who have led businesses at scale larger than New Relic. It's really hard to transform a company and scale it to beyond $1 billion in revenue if you've never done it before. Second, I'm looking for leaders who have experience in cloud and consumption-based businesses. They just fundamentally are different than subscription and ARR-focused businesses. Looked for that as a quality. Third, transformations are tough. We're in a very competitive environment. I want leaders with grit, with focus on performance and outcomes, and really help evolve the company to become once again, a market leader in our category and, you know, outperforming our peers over time. Those are the main qualities I look for in my leadership team. All right. Taking a step back, from a macro perspective, we've certainly seen some slowing in tech spending. Describe where you think we are in the macro economy right now and where we are in terms of customers scrutinizing, their spending. Yeah. It's, I guess the best word I can describe the economic environment is uncertain. I'm not an economist. You read, you know, but I read all the things that I'm sure you all read, and I think it's really an uncertain time, much like 2008, 2009, which, Dave and I remember, fondly or not so fondly, but remember well. It's an uncertain period. The way that looks at New Relic is just like every business, we are not immune to the macro. We're not immune to customers looking at their New Relic spend and asking, "Am I getting value for every dollar?" In fact, we lean into that. As a consumption company, I just told you that we only recognize revenue when customers consume. We optimize to be the most value-oriented platform in this category. We see customers optimizing. We embrace that. We want long-term healthy relationships with them. We're not trying to shore up our revenues in every contact, in every engagement. We want them to have great relationships, great long-term value. So the result of that, I guess, is until the economic situation, you know, starts to inflect and we see growth again in the market, I think we're gonna see revenue ebb and flow. We're gonna see, you know, puts and takes quarter-to-quarter. What I'm also cognizant of is the work we've done over the last few years to be value-aligned, to have an all-in-one platform, actually sets us up over time to help our customers standardize their observability practice and actually save money in the process and help their engineers be more productive. I see this play out every quarter, including this quarter, where we engage with customers and I'll take a prototypical scenario. I've got a New Relic customer who loves New Relic for APM. They've used APM from New Relic for maybe a decade, right? Now they're on the all-in-one platform. They have access to infra, to logs, to mobile, all these things that they haven't used. In this economic environment, they have to rationalize their spend. Well, they've got a logging vendor over here that's charging, let's say, $0.50 a gigabyte. New Relic, without any packaging or pricing barriers, offers that same logging capability for $0.30 a gigabyte. It's a no-brainer. Why would you not move that log volume from the other vendor into New Relic? Not only do you save money, but your engineers are more productive 'cause they're not swiveling between multiple tools to get the job done. That's a benefit of our all-in-one model and pricing strategy that we've laid out for a couple of years now. Now, the opportunity is ours to accelerate that standardization. It's not just logs, it's all capabilities to help our customers save money and standardize on the platform. That is the basic play that we are executing every quarter. I will say, though, even though that opportunity is obvious and right in front of us and we do see success with it, majority of our growth is still in customers expanding their applications, expanding their infrastructure, and starting to mature their observability practice. This category is really in its early days. If you think about observability as a standard practice for engineers, I would estimate 1%, 2% of engineers are actually experts in observability and use it every day. Over the coming decade, we're gonna see every engineer embrace data as a way to make decisions, and we are primed to offer the best insights across your environment at the lowest price. All right. Please again, feel free to raise your hand, if you have any questions. Let me ask. Your pricing strategy, we understand you price differently with the consumption-based model. How do you think of your overall price relative to your competitors? Are you generally gonna be a lower cost, or does that dynamic change over time? Great question. I get this question a lot. Because of the confusion between the pricing models. The first thing I wanna kind of, myth I wanna dispel is that I wouldn't think of New Relic as cheaper. I just told you, for example, the logging scenario. Competitors may charge $0.50+ per gigabyte, we charge $0.30. You look at that on the face of that and you think, oh, less expensive, cheaper. If you look at this category, what you find though is customers often are price constrained, meaning the prices are so high that they hit their max budget and they're sampling, they're deciding where they can deploy this valuable technology to get the mission critical, you know, the most mission critical work done. They cannot get the value they would like because the cost per unit is so high. An example of how this plays out would be, in every pricing model in our competitors, they charge per host. This is just like the old days of Windows and Microsoft, where you had to buy a number of licenses for the hosts within your environment. In fact, our competitors charge sometimes at the 99th percentile of your infrastructure count, host count. You all know the cloud world is dynamically scaling all the time. As you have a product launch, as you have a marketing play, you scale your infrastructure up for a few days during that launch, and then you scale it down. Well, in the competitive pricing model, you pay at the 99th percentile peak rate for the entire month. With New Relic, we don't charge based on peak rate of hosts, we charge on gigabytes. As your infrastructure scales up, the gigabytes coming off of those hosts scales up, you're paying for that usage. As it scales down, automatically, the gigabytes scale down and you're saving money. That's a pricing difference that is just structurally better for competitors. They're still gonna spend what they're gonna spend, but now they can instrument more of their infrastructure more efficiently to get the insights they need to run their business. That's a, that's a real, you know, again, Pricing Structural advantage that New Relic has. It's, it's effectively what disrupted the infrastructure world when AWS brought consumption pricing to data centers and infrastructure, and companies moved and, you know, still moving en masse to the public cloud to get those efficiencies. That is what New Relic is doing for observability. Let me ask. Do we have a question? Here we go. Yep. Yeah. Can you speak a little bit to the relationship with Azure and how you work together and how you hope to get the, you know... Yeah. We have a strategic partnership with Microsoft. It's a, it's a fun one for me personally, because I spent almost 20 years at Microsoft, the last five of which was getting Azure off the ground with Scott Guthrie, who was my manager and now runs all of the cloud and AI business at Microsoft, and Satya, who is skip level. Both those gentlemen I had the pleasure to work with, it's so fun to come back into the partnership with them. We're definitely investing in it as a vector for our growth as well. What we announced last year at our FutureStack event, and then we brought to market in January, is New Relic as a native Azure service. This means the millions of customers of Azure can now discover New Relic just like any other Azure service that Microsoft builds. They can subscribe to it or add it to their subscription, and they can automatically consume it, users and data, pay for it on their Azure agreement. The user experience is phenomenal as well. You can go into any of your applications, any of your infrastructure within Azure, and with a single click, you can send all the logs, all of the metrics, all of the Telemetry data to New Relic as your default provider of choice. Without having to separately deploy and configure New Relic, you can do it all within the Azure environment. That benefits customers, it benefits New Relic in terms of new customer acquisition. There are millions of engineers in Azure every day. They now have direct access to New Relic without having to leave it. It benefits our existing customers and new customers in that it's really easy to configure and consume New Relic within Azure experience. Third, it benefits our customers in that they can now transact using their existing Microsoft Azure commitments. Some of our large customers commit 100s of millions, some even billions of dollars to Microsoft in multi-year agreements. They can now draw down on those to pay for New Relic along with the rest of their cloud spend, which is an easy way to pay for an observability vendor. Yeah. You know, if you're in a sales cycle and it's a big deal, so you're actually in there, right? What do you, what do you tell the CIO about why they should use New Relic over Datadog? I do have those conversations every quarter. Depending on their level of understanding of observability, what I start with is I tell them, "Look, we help you as a business save money and make money." On the save money front, what we often do as a company, we actually present to the customer at the time of their renewal, what we call a value plan. It's basically our assessment of the ROI that they're getting from their spend on New Relic. We do that in conjunction with their engineers, it shows them things that we do that save you money. As an example, we help some of our customers with fraud detection. We help some of our customers with security, you know, attacks and, identifying and mitigating those. We help some of our customers identify where they have idle infrastructure or applications that are not being used, so they can reclaim that infrastructure and deprecate those applications or move them into a modern environment. Those are all examples of saving money. On the making money front, we help them reduce downtime. Every hour of downtime, according to Gartner, costs 100s of 1,000s of dollars. Depending on the business, it costs millions of dollars every hour of downtime. We can show how we've moved their mean time to resolution from hours to minutes, you know, from minutes to few minutes or seconds. That makes them more money. For some of our customers, we help them measure customer engagement, so measuring how many customers are clicking through into their products, adding things into their shopping carts, and then transacting and adding revenue and driving efficiency in that customer experience. All of those things come out in a, in a value plan for our customer. Now, if the CIO says to me, "Bill, I've got Datadog over here. I've got New Relic over here," they actually don't... If you listen to some of the competitive strategies, it is not about helping engineers make decisions with data at every stage of the lifecycle. That is our stated mission. What competitors are doing is actually helping specialty engineers with production-oriented scenarios. Coming back to the Datadog question, though, I'll just say Datadog has a great platform and strategy, but their pricing model and the way they go to market is fundamentally different. If you talk to New Relic customers, what they love about New Relic is our consumption model makes it much more efficient. They only pay for what they use. I mentioned the peak host rate vs the consumption rate earlier. They also love that with New Relic, our technical field is aligned and focused on helping them get value. We don't charge for our technical services teams. They're integrated in with the platform consumption model. They help our customers onboard, they give training, they help with migrations. They do all of that included with the software license itself. Datadog and other competitors don't do that. They charge for professional services effectively on top of the subscription business that they license. Is there a difference in the sales structure for New Relic vs a Datadog? Difference in the sales structure? In the organizational- Organizational Structure. I'm not a expert in Datadog. Yeah. You all asking me Datadog questions. I understand they're a strong competitor. Okay ... I don't know how they organize or, you know, effectively how they, how they go to market other than a very high level. Talk a little bit about log management. Talk about that market opportunity. You've given us other product discussions. How about that product? Yeah. Over the last couple of quarters, the product team has done a phenomenal job at really filling out all the gaps, establishing product market fit. For a majority of log management use cases for application and infrastructure logs, New Relic is a great solution. Now with the economic challenges our customers have, it's also a lower cost solution. With logging, just like with the host example I gave you earlier, logs are voluminous, very large. They're out of control. They're often very noisy. It's hard to know how much valuable information is in a given gigabyte of logs. Having a low-cost solution lets them send more of their logs and, you know, make sure they're getting the insights from them. What I shared on the last earnings call is that I'm seeing now across all, a large swath of our customers, them bringing that rationalization to bear, and we're taking out competitors across every log management vendor in the market right now. Seeing successful examples basically across all of them. I won't name all the competitor names. You can imagine who they are. Okay. We're down to our last minute. I'll take it unless somebody else has a, has a question. Let me ask, you've indicated the observability market is growing at 25%. What is it gonna take for New Relic to get to that level? That's a great question for me to tee up our May investor call, analyst day. I mentioned on the earnings call, I definitely encourage you all to attend. Final date, we're locking in right now with the venue, expect it in May. We talked about our path to Rule of 40 is one of the key topics, along with the metrics that you all need to chart our path there. I will say, you know, again, in the short term, we're seeing the economic, you know, variability in the market, the uncertainty we talked about first. What New Relic is focused on is our increasing profitability, even in that economic uncertain environment where revenues may ebb and flow quarter to quarter like the seasonal quarter we're in right now. We have a lot more control, and we're focused on profitable growth. You see the inflection point that we hit on gross margins, + 10% this last year. You saw the inflection on operating margin as well, up 8%. If adjusted for one-time expenses, 11% last quarter. We take it in 5% increments. Dave mentioned on the call, you know, that we feel like 10% operating margin is a sustainable pursuit, and we're continuing to unlock more profitable growth over the coming quarters. Revenue over time, I feel confident we can continue to achieve or pursue that 25% revenue growth rate year-over-year that we talked about last year. Whether it's, you know, in the next few quarters or more quarters out, depending on the economic environment, we'll see. Stay tuned for more in the May analyst day. All right. Well, we've gone over. I want to thank all of you. It's great to see a big crowd here. Bill, I want to thank you very much for your time. Thank you. Thank you, everyone.