Good afternoon. My name is Hannah, and I will be your conference operator today. At this time, I would like to welcome everyone to the New Relic fourth quarter fiscal year 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, press star two. Thank you. It is now my pleasure to introduce to our host, Ingo Friedrichowitz, Senior Vice President of Investor Relations and Corporate Finance. Thank you. You may begin. Good afternoon, and welcome to our fourth quarter and fiscal year 2023 earnings call. On the call with me are Bill Staples, our Chief Executive Officer, and David Barter, our Chief Financial Officer. On our investor relations website, you can find the earnings press release and investor summary slide deck, which is intended to supplement our prepared remarks during today's call. An audio replay of this call will be available on our website ir.newrelic.com in a few hours. During today's call, we will make forward-looking statements, including about our business outlook and strategies, which we base our predictions and expectations on as of today. Our actual results could differ materially due to a number of risks and uncertainties, including the risk factors in our fiscal year 2023 Form 10-K on file with the SEC. During this call, we will discuss certain non-GAAP financial measures. Unless otherwise noted, all of the expense and profitability metrics discussed on today's call are non-GAAP results. 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. With that, I'd like to turn it over to Bill. Thank you, Ingo. I'm pleased with our fourth quarter results and execution, ending our fiscal year 2023 on a strong note. 2022 tested nearly every company's agility and focus amidst economic uncertainty, inflation, and market volatility. Thousands of Relics around the world rose to the occasion and delivered consistent YoY revenue growth at the same 18% levels as prior year. We also made steady progress against our strategy to pioneer our category's first true consumption business model. In Q4, over 80% of our revenue came from our consumption business, growing at 55% YoY in total and over 30% YoY, excluding the benefit of migrations. This demonstrates just how competitive our new platform and business model is in the market today. The product team defined the year through innovation, delivering many market-leading launches, including Data Plus, our premium data SKU, a major user experience upgrade, and vulnerability management, just to name a few. They also got a quick start to this fiscal year with a brand new unified APM infra and logs experience, and we're first to market with an OpenAI monitoring solution and observability's first generative AI assistant, which is already defining the modern observability experience for the next decade. To be able to deliver that breadth of innovation while simultaneously driving an eight-point growth margin improvement over the course of the year is astounding and illustrates New Relic's world-class engineering. The whole company executed an impressive shift toward profitable growth, delivering durable double-digit operating income this quarter, ending the year at a new high watermark for the company with $26 million of operating income in Q4. Consistent YoY revenue growth, first to market innovation, increased margins and profitability. With so much distraction in the world today, there are not many companies who are closing the year on such a positive note. I'm very grateful for such terrific customers and all the hard work across the company, which made FY 2023 a terrific year. Let's now dive into how our go-to-market execution unfolded this quarter. We once again saw strong new logo growth in the fourth quarter, adding more than 800 net new paid platform customers, a rate which is significantly ahead of many other competitors in our category. As you know, New Relic's success in growing new paying customers is a result of our unique and efficient product-led growth motion, which starts with a perpetual free tier that allows customers to use the product and fall in love with it at their own pace, and then pay with a credit card as they begin to scale usage. We naturally offer them additional discounts under contracts as they decide to commit annual or multi-year budgets to New Relic. Our free tier now reflects more than 41,000 active customers, and it includes engineers and teams and organizations of all sizes, including government, large enterprise, digital natives, and entrepreneurs in every segment and vertical. These free tier customers, together with our 16,000 paid customers, constitute a customer base of more than 57,000 actively engaged organizations, making New Relic the most ubiquitously adopted observability platform. Let me share a couple of examples of large new logo lands where we've grown head-to-head wins versus leading competitors. First, we closed an agreement with a leading telecommunications provider to standardize on New Relic. This customer was using a host-based pricing model competitor and experienced overages which constrained them from getting all the capabilities needed to achieve full stack observability. Second, a leading Wall Street rating agency signed a six-figure savings plan with New Relic after their prior observability vendor was not able to achieve the customer's uptime and reliability targets even after spending 5x more than originally planned. With New Relic, this customer now has access to more than 30 capabilities in one platform with better cost scaling to enable the agency to achieve their business goals. We are winning new customers through our growth engine at industry-leading rates, as well as new strategic logos who are standardizing on New Relic. These wins also reflect the economic reality that expenses matter, and customers are increasingly focused on getting the best ROI for their observability investments, making New Relic a leading choice. Let's turn to our customer base. It's important to remember that we tend to land small through our efficient PLG sales motion and then expand in the ensuing quarters. As a result of this motion, the majority of our growth in any given quarter comes from our customer base. In the past few quarters, we've been focused on helping customers expand their contracts in situations where their consumption exceeds their contractual commitment. Equally, given economic pressures, we've been helping customers consolidate their tools and provide support to assist their cloud and digital transformation initiatives as each continues to be a top CIO priority even in the current environment. Let me share just a few examples of how our customers are expanding with us. First, a leading North American retail store chain almost doubled their annual commitment this quarter with New Relic. They have been a long time customer and decided with this renewal to replace their log solution with New Relic logs as the retailer is rolling out additional instrumentation at their point of sales. Second, a global cloud-based communications leader has materially increased their already large commitment to an eight-figure multi-year commitment. A key driver for this expansion has been the customer's standardization on OpenTelemetry, which makes it easier for them to ingest more data from different systems. New Relic was the natural choice for them, given their commitment to OpenTelemetry standard and being a leading contributor in the category. Third, a leading financial services company increased its commitment to New Relic by more than seven times. As this financial services company is going through a digital transformation of their front office, they needed to consolidate their various monitoring tools to gain comprehensive insights to ensure high uptime and reliability. New Relic's platform does exactly that. Fourth, a global business application provider more than doubled its commitment with New Relic upon shifting from a subscription contract to a consumption contract. This shift delivered more value to the customer by unlocking the entire all-in-one platform. While we're pleased with our customer base expansions, we are not immune to cloud optimization trends, which for us takes the form of user and data optimization. In the fourth quarter, beyond the expected seasonal pattern which we anticipated and guided toward this quarter, we saw optimization happening in two specific cohorts. First, while we have made steady progress at reducing the gap between consumption and commitment, we continue to see optimization most often occurring when customers are consuming far ahead of their commitment. Second, while we saw steady consumption growth across all spend cohorts, optimization tends to be more pronounced this quarter with our largest spend customers where the largest budgets are set. For example, we were proud to be part of supporting one of the largest online entertainment companies who had a seasonal high over the holidays, reaching nearly $30 million in annualized consumption run rate, but then scaled down usage and drove optimization closer to $10 million annualized consumption during the quarter. They remain a healthy, happy customer of New Relic and appreciate their ability to scale usage on demand and pay only for what they use and avoid peak rate penalty billing, which is standard practice by our competitors. We work with our customers during such optimizations as we believe this deepens the partnership and allows us to grow faster as customers emerge from their optimization efforts. As seen in our strong RPO growth over the last several quarters, customers have opened up room to expand their consumption as their business is ready. We view the current climate as an excellent time to serve customers well and win increased market share. Next, I'd like to highlight some of the recent hallmark innovations on our all-in-one platform. We've strengthened our technical moat in multiple areas. First, in generative AI, as I mentioned earlier, we were first to market with our announcement of New Relic Grok, the industry's first observability assistant, which will dramatically simplify users' access and ability to derive insights from telemetry data. We were also first to market in our category with MLOps and first to introduce support for monitoring OpenAI GPT, allowing customers to simultaneously track performance and cost metrics in real time. Second, our infrastructure capability has become even more competitive with deep integration to our market-leading APM capabilities so that engineers can truly achieve full stack visibility at one-third the cost of competitors. Third, we are reaching more developers with launching New Relic CodeStream for all core coding languages. CodeStream delivers insights into software performance in line with code inside leading developer tools like VS Code, Visual Studio, and IntelliJ, empowering more developers to quickly identify issues before they hit production and accelerate engineering velocity. We're excited to share more about our platform advantages and future innovation roadmap at Analyst Day this Thursday. Let's now shift to the road ahead. We're operating in a segment with persistent secular tailwinds, digital transformation, cloud migration, as well as increased technical complexity, now including generative AI, which is driving an explosion of new applications that also need observability. In the short term, cloud optimizations remain a fact of life. In the medium to long term, I'm confident observability will continue to grow and our consumption business model, which is rooted in customer success and the promise of paying only for what you use, will continue to strengthen as Gartner already recognizes, becoming the leading customer preferred way of doing business. In FY 2023, we successfully grew our consumption business from 56%-76% of total revenue and exited Q4 at more than 80%. We consider a customer part of our consumption business when they adopt not only our user and data pricing, but also sign up for one of our modern consumption buying programs with incremental usage billed automatically and revenue recognized on usage. We've been very successful with these migrations and now plan to accelerate our completion of the migration in the next four-six quarters. Completing the migration of our subscription base will have two benefits to the business. First, it unlocks growth potential with customers, as indicated in the example I provided earlier. Second, it also means that at the end of that shift, we only have one business model, consumption, which will cost less to operate and helps us focus and reduce complexity in the business. We're excited to share more about this plan and additional metrics to help you understand and model the consumption business going forward. We hope to see many of you in person at the event this Thursday, and welcome everyone who can't join in person to tune into the live stream. Before turning it over to Dave, I would like to share a few thoughts on growth and our medium to long-term prospects. I'm incredibly excited about our business. Bookings and consumption growth in Q3 were quite strong. In Q4, we saw booking strength and many customers increase their consumption in line with prior quarters. We also saw increased optimization by large and hot customers who are naturally focused on efficiency and thereby offsetting otherwise healthy growth. Consumption growth came back in March. The optimization trends limited the rebound through April. We are continuing to focus on what we control and be prudent as we enter the new fiscal year. We will continue to book deals with new and existing customers and close the gap between consumption and commitments. As with other consumption businesses, we empower customers to decide the timing of their usage, and we must work hard every day to deliver value in order to recognize the revenue they committed to us over the lifetime of their annual or multi-year contract. We also control our pace of innovation and our operational excellence and continue to raise the standards of excellence. We will simplify our business and lower costs by accelerating the exit of our legacy subscription contracts over the next four-six quarters. This is faster than we contemplated at the start of the calendar year. This is because we see the opportunity to end this year a meaningfully more efficient and profitable company poised for accelerating growth with the subscription business largely shed. We will continue to define our market with leading innovation. Generative AI is a tremendous opportunity for us to dramatically simplify observability and achieve our goal of making the practice ubiquitous for every engineer and team. Our continued investments in delivering a unique and fully integrated APM and logs and infrastructure experience build on our simple all-in-one platform message. During these economic times, there's no better way for customers to achieve the efficiency efforts they seek while also increasing their top line and improving the productivity of their engineers. I believe our business was designed to perform in tough times. While we may not always see it immediately in our revenue, I believe we're well positioned to take market share and position our company for meaningful growth and profitability. Dave, with that, I'll turn it over to you. Thank you, Bill. We exceeded the top end of our guidance for revenue and operating income. Our revenue was $242.5 million, an increase of 18% from a year ago. Operating income was $26.1 million, representing a margin of 10.7%. This excludes the restructuring charge booked in the quarter to write off our excess real estate. Our earnings per share was $0.42 on a diluted share count of 70.2 million. Consumption represented more than 80% of our revenue in the quarter. We're pleased with the continued growth of new customers, customer base expansions, and the shift of customers from cloud subscriptions to consumption. We now have approximately 12,000 customers on our consumption business model, up more than 35% from a year ago. Cloud optimization and the seasonal pattern of consumption did impact our Q4 results. As expected, consumption did decline seasonally below the peak realized in December. While consumption did expand in March, it was not until April that we climbed back to the December peak. In the end, the depth of the pullback in consumption and the time it took to return was longer than we expected when we provided our prior guidance. The counterpoint to this trend was the level of customer commitments. During Q4, RPO increased by 14% YoY, driven by a healthy number of customer-based expansions. We're pleased with the growth in contractual commitments. We remain encouraged about future growth, knowing how many customers who expanded with us in December and March quarters are not yet consuming in line with their contractual commitments. Furthermore, customers who had been consuming at elevated levels have come down to healthier levels. We believe these two factors position the company for growth in the coming year. Turning to profitability, we're pleased with the company's progress. Gross margin climbed to 79%, up 1.4 points over last quarter and 8 points compared to last year. This reflects our own cloud optimization initiatives and architectural enhancements. Our cost of revenue continues to decline while we grow our business and invest to expand on Microsoft Azure and to retire data centers. Our engineering team is not finished with their optimization. They expect to capture more efficiency in the coming year while expanding our cloud footprint to new hyperscalers and regions. During the fourth quarter, we also took steps towards ensuring we could produce durable double-digit margins. As we communicated in March, we eliminated via restructuring charge our excess real estate. Over 65% of this charge was non-cash in nature. During the quarter, we also planned our product investment and our sales investment for the coming year. We expect that we will continue investing approximately 25% of revenue in R&D, including the portion we're required to capitalize. We're excited for the upcoming product releases. The new platform investments in generative AI, logs, and infrastructure will provide significant value to our consumption customers. We believe our product-led growth model, combined with graduating customers to a sales-led motion, will enable us to scale the company with greater efficiency. Overall, we believe that increased growth margin, combined with sales and G&A efficiency, will lead to a meaningful improvement in profitability in durable double-digit margins. Let's shift to the balance sheet. We ended the fourth quarter with $880 million in cash equivalents, and investments. As we indicated on our last earnings call, we used $500 million of our cash on hand to repay the convertible note that came due on May first. As of last week, we now have more than $425 million of cash equivalents, and investments. We believe the company is in a strong cash position. We are not currently interested in or pursuing additional financing at this time that would dilute our shareholders. We believe the business will continue to generate improving levels of free cash flow. It's our expectation we will generate free cash flow of approximately $150 million and end the fiscal year with approximately $500 million or more of cash equivalents, and investments. While still in the early days, profitability and cash flow are starting to become a clear strength of our business. We believe both measures will continue to step up. With that, let's move on to the guidance for Q1 and full fiscal year 2024. As we develop the guidance for the coming year, two factors influenced our thinking. First, there is uncertainty in things outside of our control. It's not immediately clear to us how the macro climate will unfold. It's not clear when cloud optimization activity is fully in the rearview mirror. These factors compel us to be prudent. Second, as Bill highlighted, New Relic is at an exciting inflection point. We are operating a very successful consumption business with approximately 12,000 customers and $700 million of revenue. We efficiently acquire new customers and expand customer relationships. Consumption revenue has been growing in excess of 30% without the benefit of migrations and over 50% including migrations. We believe now is the time to press and complete the transition after three years of hard work. It will likely introduce more churn in the coming year, but we will be a better business for doing this. It unlocks profitability. We expect operating margin in the second half of fiscal year 2024 will be approximately two times compared to our profitability in the second half of fiscal year 2023. We believe this shift unlocks growth. Our innovation pipeline is strong. Under a consumption contract, our customers will be able to benefit from our generative AI and expanded infrastructure and logs capabilities. We're excited for the coming year. We're confident we will exit the coming year poised to deliver meaningful levels of growth and profitability. Factoring in these points, for the first quarter of fiscal year 2024, we expect consumption revenue to grow approximately 38%, which will be offset by the contraction of our subscription revenue. As a result, we expect total revenue between $238 million and $240 million, representing growth of approximately 10%-11%. We expect non-GAAP income from operations between $26 million and $28 million. For the full year fiscal 2024, we expect consumption revenue to grow approximately 30%, which will be offset by the contraction of our subscription revenue. We expect total revenue between $1.02 billion and $1.03 billion, representing growth of approximately 10%-11%. We expect non-GAAP income from operations between $145 million and $155 million. To conclude, I am pleased with our financial model and the substantial improvement. Consumption revenue has been growing at a healthy rate. We are delivering enhanced levels of profitability and cash flow. I believe we're offering shareholders and customers a measurably better business. With the shift to consumption largely behind us in the next 12 months, we expect to deliver to shareholders levels of growth and profitability in line with market leaders. We will be holding our Analyst Day this Thursday afternoon, May 25th at the New York Stock Exchange. I encourage you to attend or listen to the webcast. We're greatly looking forward to sharing new insights on our strategy, innovation pipeline, go-to-market, and financial model. There also will be a customer panel. I'm sure you'll enjoy hearing their perspective on observability and the emerging trends. With that, let's open up the call for questions. Operator? To ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question is from the line of Rob Oliver with Baird. You may proceed. Great. Hi, thank you guys for taking my questions, Bill and David. David, this first one's for you. I appreciate the color you gave around how you contemplated that top-line guidance for 2024, but I'd like to probe that a little bit, if I may. you know, number one, which would you say is more of a factor here? Is it sort of macro, which clearly there's some uncertainties, or is it the latter point too, which you mentioned, which is, you know, sounds like there's going to be some churn. Is that churn factored in on the subscription side in addition to the normal migrations to consumption? The last part of it is, you know, are there anything in the coming product portfolio that is in the guide currently, or is that incremental? Rob, thanks so much for the question. I think churn is certainly contemplated, and I'll even go a step beyond that to say churn is contemplated at levels above what we've seen before. I think we're at that point where we know the residual customers pretty well. I think we have an idea of how it will unfold. We think the migrations will be kind of clustered, if you will, in Q2, Q3 in the latter part of March. I think we got an idea of how this will unfold, that certainly weighs on my mind, having been involved with business model transitions before. That's kind of the first thing that certainly influenced my thinking. Of course, certainly, in being in the consumption model, which is over 80% of our revenue, we look at consumption on a day-by-day basis. We know we kinda looked very carefully at how we exited March, how we began April. Again, we've planned, I think, pretty carefully with our go-to-market team, around how we expect consumption to work, in the current environment, knowing the cloud optimizations that have taken place, and then our thesis on the cloud optimizations that could occur in the future. In regards to the second part. Yep. Sorry. How about I pause, Rob? Yep, sorry. I think there was a second question around product. Yes. Before I go into that, did I answer the first part of your question? You did. Yep. Thank you. I appreciate that. Okay. In terms of the second part, I think maybe what you're alluding to would be generative AI or maybe some of the enhancements that have come out on infrastructure or logs. Let me say it this way. We're excited about what those represent for customers, but we haven't specifically modeled them in terms of what they could specifically contribute to our consumption revenue. Got it. Thanks. If I may, just one quick follow-up for Bill. Thanks, David. Bill, just, you know, you guys, obviously ton of progress that you've made since you arrived. You know, I was looking at the slide, you know, percentage of customers now with four-plus capabilities, you know, getting towards 90%. Clearly people, you know, taking more of the full New Relic platform. You mentioned how, you know, you guys tend to land small. Can you talk about that move from land to increase usage? How, you know, how does this typically play out, you know, given the strength you guys have had in sort of enterprise expansions? Is there usually a lag period where, you know, we sort of see that consumption start to pick up as people get more comfortable with the solution? Thank you. Yeah, good question, Rob. This is one of the topics we're gonna unpack more on Thursday at our Analyst Day. We've been talking about this event since I think the November earnings call, so long in the making, we've got both our product and go-to-market leaders that will talk specifically about how we land and expand. In short, I'll share, it's really been exciting to see not only have we transitioned the business from subscription to consumption, unified our platform back end and front end, but we've really grown a new and vibrant, healthy, deeply engaged customer base over the last couple of years. You can see in the investor supplemental just how quickly new customers are coming into the platform. As you mentioned, they start small with us as they come through the free tier and then add their credit card. Really the pace at which they grow is nurtured through two things. First, through product-led growth motions. In the product, we nurture experiences which naturally lead to them instrumenting more and sending us more data, as well as adding more users. The rate at which they do that is obviously dependent on their business needs. Some go faster than others. We pick up signals from the product usage itself to then connect them with humans in the form of ISRs, who can help them get a contract that then secures additional discounts and maybe an annual budget for them to work off of, or actually accelerate into our enterprise sales teams where they can get additional technical services and attention from our enterprise sellers, depending again on their total addressable spend or the total opportunity within their company or organization. We're feeding off those product signals. We're as soon as we see opportunities there, connecting them with humans and then accelerating the growth into larger customers over time. We see in terms of timing, we see that can happen sometimes within one to two quarters. Other times it takes customers a few quarters, to fully mature into a sales-led organization for us. Thank you guys. See you Thursday. Thank you, Mr. Oliver. The next question is from the line of Kingsley Crane with Canaccord. You may proceed. Good afternoon. Thanks for taking my question. One for Bill, one for Dave. Bill, appreciate the comment on being first to market with generative AI with Grok. How should we think about the business impact of Grok in the near term? Is this improving customer experience? What is the pathway for this to drive consumption? Yeah. Exciting topic. I'm sure your news feeds, like mine, are filled with lots of excitement about what generative AI holds for each of us collectively, you know, and individually. I believe New Relic's really set ourselves up well for the emergence of generative AI, which thrives on large data sets. As you know, we talk about it all the time. We're the only observability platform to truly have a unified platform where all data types and data sources can be ingested and stored and accessed with one API and one query language. In the short term, the opportunity for customers who wanna take advantage of this technology is to bring us more data. That increases data consumption, obviously, and can help them then unlock those insights more quickly as we build out our generative AI capabilities. One of the reasons we've been able to be first to market is this unified data platform and all-in-one model that we've been innovating the last couple of years. It allowed us to be first to market with an MLOps solution, the first to support OpenAI GPT monitoring, and the first to introduce a generative AI assistant with New Relic Grok, which will dramatically simplify how to get insights out of telemetry data. We're excited to share more with that, in fact, potentially a live demo here on Thursday at the analyst event. I'd encourage you to tune in for that. On the business model side and how it's gonna help our business grow, it's really also uniquely aligned with the business model we put in place. Remember three years ago when we pivoted from product-specific packaging and pricing to the platform model with users and data, we intentionally shifted the cost of data to be as low as possible to allow engineers to instrument more systems and make it easier to standardize on New Relic, offsetting less efficient and higher priced competitors. New Relic Grok then represents a large opportunity to increase user engagement on top of that data over time by dramatically simplifying the ability to scan and get insights from the data using natural language. We believe our business model actually helps us capture that expansion better than competitors who are still priced on effectively host-based models that are really expensive data ingest meters. Bill, that's really helpful context and certainly exciting. For Dave, you know, when we look at the numbers, it looks like most of the consumption growth in excess of guided total revenue growth is being driven by conversions in this next year. How should we think about a conversion rate from non-consumption to consumption embedded in that guidance? Yeah, that's. I'll have to figure out how we lay it out better in future slides. I think maybe the best way to think about it is when we think about the exit rate of subscription, it exited around $38 million and change. It will progressively step down quarter over quarter, and what you'll see is that consumption will step up quarter over quarter. There won't be a dollar for dollar. What will happen in this case is our expectation is that as people shift from subscription to consumption, there will be an initial optimization before growth occurs. I'd say net-net, we're actually not looking at the shift from subscription to consumption as a near-term catalyst, but probably a longer-term catalyst as people adopt more and more capabilities. Our thesis around the core drivers, and I think we put this in the investor supplemental last year, if you were to exclude the effect of migrations, consumption was growing just over 30% in Q4. Our thesis is this year, what you'll see in consumption is that, excluding migrations, it ends up growing around 20% ± a few points. I think that is probably the better way to think about it is that YoY, we were, you know, last year growing kind of in the thirties. This year, we'll grow around 20 again, ± a few. Hopefully that kind of helps you set up the model, both in terms of the SEC geography, also in terms of the core drivers and trends. Makes perfect sense. Thank you. Okay, super. Thank you, Mr. Crane. Our next question is from Mike Cikos with Needham. You may proceed. Hey, guys. This is Matt Calitri for Mike. Thanks for taking our question. Bill, start with you. We've picked up in the field that New Relic is specifically building momentum and credibility around OpenTelemetry use cases with developers. Can you talk to the importance of OpenTelemetry to your customers and also, why other competitors aren't being more proactive in leaning into, OpenTelemetry? Yeah. Thank you. OpenTelemetry has been something that we've been excited about for three years, actually. When I first joined, it was emerging as a cloud computing, Cloud Native Computing Foundation project and something that I recognized as an emerging standard that would be important to our category going forward. We've been investing deeply in it. In fact, we're one of the top contributors to this standard, which is effectively a data standard for telemetry data. Defines a data model and a way of sending and capturing that data, which can be vendor neutral. We believe it's incredibly important because every piece of hardware, every operating system, every language, every cloud service, every device in the future will emit telemetry data, often by default or one config switch away. That allows engineers to then capture the telemetry data coming off of all of those systems, all of those technologies. The winning observability platform will be the platform that can capture that data at scale in a very efficient way and then deliver insights on that data. That is what we've been focused on, not only nurturing that standard, but building the data platform that makes it possible to unlock the value of that open standard. I think that that's starting to get recognized by customers. Many customers want to embrace standards as a way of not only making it easier to adopt instrumentation and unlock it without having to go get proprietary agents and configure it separate from the technology choices they make, but also to allow them more flexibility in picking the vendor of choice that's gonna give them the most efficiency, especially in this economy, and the best insights and experience. That's exactly what New Relic's been focusing on, and I think it's starting to get recognition for. Awesome. That's very helpful. Thank you. David, can you help investors think about the anticipated pricing benefit incorporated in the guidance? More specifically, what's the implied benefit from adoption of New Relic's Data Plus bundle? Yeah, it's a great question. I think overall, if you recall, the December renewal cohort was probably our first big cohort that started getting the benefit of the price. We saw that again in March. We've certainly factored in a structural tailwind associated with continuing to capture price this year. Data Plus, I'd say is, Bill, I think we'd still say it's, you know, kind of early days for Data Plus, and I think we're all very pleased with the adoption. Customers are certainly getting the benefit, whether it's through vulnerability management, some of the additional features like FedRAMP, HIPAA. I think overall, the Data Plus adoption is well on its way. Again, it's one of those elements that will give us probably a structural tailwind around both price and mix over time. I would say we're kind of well on our way in that area. Okay, great. Thank you, guys. Thanks for your question. Thank you. Our next question is from Fred Lee with Credit Suisse. You may proceed. Hi, this is Tim on for Fred. Bill, the first question is for you. You recently launched a new deeply integrated infrastructure monitoring and APM solution. Could you give us concrete examples on how it is differentiated in the marketplace, especially relative to some competitors which have been marketing itself as a single pane of glass historically, and how do you expect it to impact your competitive win rates? Great question. We're really excited about the new infrastructure experience that we launched. Thanks for calling that out. It was just last week. You know, it's been a journey for us. We first introduced infrastructure monitoring a few years ago through an acquisition. We've been improving the experience as we move to the all-in-one platform, but this, for us, was a chance to really take it to another level. Really the theme to think about is infrastructure monitoring in a silo can only get you so far. What's really valuable for engineers is understanding how that infrastructure connects to the applications and services that run on that infrastructure, and then the users and the devices that may be connecting to those applications, and the total experience from, you know, from that infrastructure all the way up to the end user. That is what we've been striving to deliver in this experience that's so unique and differentiated. There's now one spot that engineers can go to see infrastructure and applications and services connected and correlated. You can see both within the APM experience that New Relic's known for and is world-class, the infrastructure underneath the apps and services, and the health of those correlated. You can also see, from the infrastructure experience, the set of applications and services running on them and the correlation between those things. It's also a goal of ours to deliver through this experience, the ability to understand when something goes wrong in any layer of the stack, whether it's in your infrastructure or in the application, what tends to happen is engineers from all teams join the call to try to tease apart where the failures are happening. With this new experience, you can now see, you know, pinpoint where the issue is, as well as the blast radius or the impact of the result, and its cascading impacts on other systems that are dependent on it. Last I'd say one of the other major differentiation points is just the incremental cost and total TCO is so much better. With New Relic, the incremental cost to add infrastructure monitoring per host can be 2 to 4 times less expensive with New Relic. For any customer that's got APM already and may be using an alternative infrastructure monitoring solution, it's a no-brainer to add that telemetry to New Relic now to get that deeply connected experience and save money in the process. Thank you. Then Dave, if we look at the numbers you gave us on consumption and subscription revenue lines over the past two years and cut them, it seems like the revenue that you lost from subscription had roughly a 5% uplift as that converted into consumption. Then on a go-forward basis, if we assume the 20% growth excluding migrations, it would imply that for next year, roughly the $120 million in revenue that you're guiding to losing in subscription revenue only converts to roughly $70 million in consumption revenue. A much more meaningful haircut. I'm wondering, relative to the customers that were migrating off of subscription last year, the cohort of customers that will migrate over the next six to eight quarters, is there something fundamentally and structurally different about that customer cohort that has you expect higher churn rates? Yeah, it's a great question. Think of it as a probably as a pyramid, and there is a top cohort, and I'd say traditionally out of the top cohort in any given quarter, we've had a couple of them churn. We kind of have a middle cohort, and it tends to be 5-figure contracts, and then I have a bottom cohort. I think they're out of the top cohort, I think my churn will be higher, and those are some more material contracts. I think as I press down, in my middle cohort, it'll probably be in line with the average. I think the challenge that I'll also run into, Tim, is at my very bottom cohort, I actually have a number of people who qualify for the free tier. You know, what I, what I should have called out earlier is, there is, I guess that bottom cohort is about 2,000 customers, and I think about 1,000 of those customers could potentially just use the free tier to accomplish what they want. I think I will have some customer count pressure as well as some ACR pressure, as I ultimately kind of press over the next 4-6 quarters to complete the migration. I guess it's not a, it's not a huge surprise from the standpoint we've been at this for a little over 3 years. You kind of get to that point in any transition where you have a little bit more work to do. I think this last wave will behave a little bit different than the prior waves, which obviously were the earlier adopters and the people that moved quickly. Thank you. That's the reason, Tim, for being a little bit more conservative or a little bit more cautious where these could have different performance characteristics. That makes sense. Thank you very much. Thanks so much, Tim, for the question. Thank you. Our next question is from the line of Rishi Jaluria with RBC. You may proceed. Wonderful. Thanks, guys, so much for taking my question. Appreciate all the detail on the slide deck. It's almost like a mini analyst day of its own, which is really helpful ahead of Thursday, which we're really looking forward to. I wanted to start by asking another generative AI question, maybe thinking about it a little bit you know, on the secular tailwind side, right? You know, right here at Microsoft at their user conference is talking about 45% developer, you know, improvement in developer productivity with, you know, some of the generative AI tooling out there. 46% of new code being written by generative AI. Feels like this is gonna just drive up the number of applications almost exponentially. Can you talk about how you're thinking about that as a potential secular driver, and what sort of, you know, kind of investments you wanna make to be able to capitalize that and have a right to win for a good share of those workloads? Then I've got a quick follow-up. Yeah, great question, Rishi. As I mentioned earlier, we're very excited about generative AI, both because as you mentioned, it's potentially a new secular tailwind. We talk about the three already, one being, you know, cloud migration and the growth of public cloud. Another being digital transformation, and the third being technical complexity. You know, one way to think about generative AI is it's another new technology layer to adapt and incorporate into applications. You could also think about it, like you said, as a fourth driver because it's driving a wave of not only enhanced applications, but new applications that engineers need observability on. It's why we wanted to be first to market to provide monitoring for generative AI-based applications with OpenAI's GPT. You know, we were first to provide the ability to look at performance of those applications and the cost associated with them. We're setting ourselves up there because, you know, ultimately we believe the transformative impact of generative AI will be across you know, all industries, all segments. We wanna be best in class there. Like I said, though, the other really key part is incorporating generative AI into the observability experience where our business model is actually uniquely aligned. Where other competitors in the observability category monetize really on data ingest with high-priced host-based SKUs, we monetize both on data ingest, which has been growing really well, really successfully, but also on user engagement. We believe the power of generative AI for the observability category itself can dramatically simplify access and speed to insight, and that's why we were also first to launch New Relic Grok. We're increasingly in innovating there to unlock that vision we have of making observability ubiquitous and reaching every engineer. All right. Great. Thanks. That's, that's really helpful. In the slide deck on slide 28, you talk about full platform adoption and usage of multiple capabilities across New Relic, versus a competitor with very subtle color coding. Wanted to get a sense maybe if you could help us understand how are you measuring that, and what sort of, you know, efforts have you made to just drive greater usage of, you know, multiple capabilities across the platform? Thanks. Yeah. Good question. You know, it's a chart in particular that I think reflects the strength of our all-in-one platform model. Three years ago, we foresaw this moment happening, which is the need for every enterprise to be more efficient to drive standardization of their observability practice. We wanted to remove all the packaging and pricing barriers which would prevent them from standardizing on New Relic. You can see through that chart how I think we're the number one leading vendor in terms of platform adoption because more customers use more capabilities on New Relic than anyone else I'm aware of. The way we've done that is not only remove the packaging and pricing barriers, which makes it very easy. It's product-led growth motion for an engineer who maybe came to New Relic for APM, but now with the new integrated experience, can see inside their APM experience that the infrastructure is not yet connected, and it's one click away to connect it. They can see the logs are not yet flowing into the application. Again, it's one click away to bring those logs in. That makes then the expansion of customers once they come into the platform so much more quick and allows them to get more value and for us to grow our revenues. The last thing I'll say about the expansion is we also then take the signals of how customers are using the product and engaging with it and feed it into our sales organization so that they know where customers are engaging and interested and can start human conversations again to more quickly train and enable or unlock budgets for our customers at scale. All right. Wonderful. That's really helpful. Thank you so much. Thank you, Mr. Jaluria. The next question is from the line of Erik Suppiger with JMP Securities. You may proceed. Yeah. Thanks for taking the question. First off, I'm just curious, obviously there's been rumors of private equity interest in New Relic. I'm curious if there are any comments that you have to respond to that. Secondly, can you talk a little bit about? You had mentioned your objectively grow at market rate. I think you suggested that's 25%. Was there any comments that you were making about timing of when you intend to reach the market rate growth? Yeah. Why don't I take the first one, and David, you can talk about the second one. Of course, we also have more on that coming up on Thursday. With the first part of your question regarding the rumors, I assume you're speaking about the. It was a The Wall Street Journal article about rumors of. Yeah ... a transaction. Yeah. There are always rumors in the market, as you can imagine. We don't comment directly on them. We're committed to acting in the best interest of our company and our shareholders as any public company would. For today's discussion, we're focused on our customers and continuing to execute our value creation strategy, and that's also what we'll be focused on on Thursday for all those who can attend. Encourage you to come out and listen in. Yep, Erik. Thank you. Yep. Erik, in regards to market growth, I think on Thursday you'll also receive an updated financial model. Just to be clear, our focus is on profitable growth, so we'll talk a lot about our roadmap and how we're gonna get to a Rule of 40-plus. I think through this guidance, certainly you're seeing a guide on profitability of 14%-15%, and I think as you heard in our prepared remarks, I think we know how to get to 15% and we're working on that pathway to 20%. That is, you know, something that we're pretty excited about as we complete the transition of all subscription customers into consumption. We believe that we're setting up next year to, you know, to be well on that path. Our view is that we are bringing the pieces together, and we're pretty excited to watch all the pieces come together, particularly as we look forward to operating one business model. More to. Great. Thank you Thank you ... more to come on that on Thursday afternoon. Thanks, Erik, for the question. Thank you, Mr. Suppiger. The next question is from the line of Derrick Wood with TD Cowen. You may proceed. Great. Thanks. It's Andrew in for Derrick. Dave, for you on the optimization, just wondering if you could give any more color on what you're assuming there in guidance for both of those two headwinds. How much de-risking have you done, how is that kind of factored into the 30% consumption guide? That's a great question. We carefully went through our customer cohorts. Obviously, I can't pledge to you that we got this perfect, but we really spent a lot of time going through the cohorts, how the optimization has taken place. I think you have our very best view looking at how we exited March, how we began April, and then how we think the game plays out. I think you have our closest to the pin view in terms of how this unfolds. Okay. Great. Q4, so it was a big renewal quarter. Sounds like it was a strong bookings quarter. Maybe just talk about how those commitments came in relative to what you expected. What is the growth you're seeing on average, apples to apples, on renewals? How do you kinda gain more budget share there? Yeah. We were real pleased with how it expanded. I think you saw that percolate through RPO both in terms of total as well as in terms of current. I guess the thing that I would highlight for you and just to keep in mind on consumption is even with an expanded commitment, we still have to wait for it to happen. You know, there is a little bit of a difference with our business model where if I were guiding on subscription, I'd be guiding up several points right now based on the bookings. It takes time, similar to, you know, some of our friends in consumption where you can take down a commitment, but it still takes time for the customer to implement and ultimately to garner value. Once they garner value, we generate revenue. I'm pleased December was a good quarter end. March was a good quarter end. Pleased with the commercial execution around taking expanded commitments and setting up the business for growth. Great. Thanks, guys. Thanks for the questions. Thank you, Mr. Wood. Our next question is from Sanjit Singh with Morgan Stanley. You may proceed. Great. Thank you. This is Theo Tune. I'm Sanjit. I just want to build on sort of the last question, and as we're kind of thinking about bridging the Q4 results to the Q1 guide and thinking about the kind of usage trends sort of in the quarter, you talked a little bit about March and April. Is there any way you could sort of contextualize that further and maybe expand that into what you see in May and sort of how that sets up with one month less in the quarter? Yeah. It's a great question. I think what we tried to share in our prepared remarks was that the seasonal component of peaking in the holidays and then coming down and hitting the trough in February, kind of the curve kind of unfolded as expected. It was certainly deeper because we did see the cloud optimization, and that was something that was outside the seasonal element. It came back through March, but we didn't hit our peak in March as we had planned. As I think we shared in our remarks, that peak actually happened in April. We're kind of tracking along a slightly different curvature, and that's what is really reflected in the remark where in Q4 and in prior year we were looking at excluding migrations growing about 30% or greater. That's why I think we shared the remarks that we think this year will probably be closer to around 20%, plus or minus a handful of points. I think that's what we're tracking right now. Again, we're gonna continue working very closely with our customers around migrating subscriptions over to consumption and just continue bringing the business model together to have one business model by the time we exit the year. Okay, great. Just a quick one. Are customers still reducing usage towards the end of their contracts to get more in line with their commitments? Is that still a dynamic you're seeing or something to think about on a go-forward basis? It is. The... We do see that pattern playing out and that's where our focus has been shifting to multiyear contracts and also renewing customers early to avoid that type of dynamic from kicking in. That is a, a focus area, and it will continue to be a focus area for the next couple of quarters. Got it. Great. Thank you. Thanks so much for the questions. Thank you. Our next question is from the line of Taz Koujalgi with Wedbush. You may proceed. Hey, guys. Thanks for taking my question. I have a two-part question. You've been migrating customers now from the subscription model to consumption for almost three years. Can you comment on when a customer moves initially from subscription to consumption, what is the initial drop in their spend? Is there a way to quantify what that drop looks like? How long does it take in terms of, I don't know, months or quarters for them to go back to their run rate that they had on the subscription arrangement? Any anecdotes or any color given what you've seen so far in the last few years? It's a great question, and I'm not sure if I have a fully satisfactory answer because the cohorts vary a lot. In general, what we'll see is that somebody has been using an extensive amount of logs, as one example, or maybe they are ingesting massive amounts of data for something for which it was a fixed price arrangement. I think as they think about, you know, really how to set up observability, I think that usually results in the pullback where there is an optimization and there's an implementation around using either our some of our technical advisors or a center of excellence to really instrument observability probably the right way. That's usually what results in the pullback from my perspective, at least as I've gauged accounts. As they identify that footprint and best practices that Recently, I saw a customer suddenly, start sending and going into Prometheus as an example, or I've seen people start to expand new capabilities and workloads. There is a rationalization process and I wish I had a better answer for you, where I could give you an exact amount of time it takes. It does vary, cohort by cohort. That unfortunately doesn't yield to a standard answer. Got it. Thanks. And then just a follow-up. It looks like you'll be migrating most of your base to consumption by next year, by fiscal 2024. Does that mean that this was the last year when that's a drag on your overall growth, and then fiscal 2025 onwards, your overall revenue growth should be in line with your consumption revenue growth? You shouldn't have any drag anymore? No. No. No. That's correct. ... from consumption lines? Correct. I think we called out four-six quarters, clearly, if we can wrap it all up in four quarters, that's really our preference. We'll be working hard to wrap it up this year so that as we go into fiscal 2025, that would be the first year where we wouldn't have that headwind. It could take more than four quarters, again, clearly we're motivated. Yeah. Got it. Thank you very much. Thanks so much for the question. Thank you, Mr. Koujalgi. The next question is from Michael Turits with KeyBanc. You may proceed. Michael Turits, and I'm sorry if this was covered before. You know, you have pretty stable growth and didn't seem to be seeing the effects of cloud optimization in as much in prior quarters, even though the big cloud guys were and one of your observability competitors was. Then in this quarter, certainly Microsoft talked about starting to lap optimization and a slower rate of de-sales, and your competitor also talked about usage growth rebounding. What's the difference in terms of your trajectory, which seemed to have been stable and this quarter got worse versus those other two who had been getting worse in the last quarter and arguably seemed to improve slightly at least from a second derivative perspective this quarter? Thanks, Michael. You know, as we thought about the guidance, and David laid this out earlier, let me take a crack at it. As we thought about the plan for FY 2024, there's really three ongoing trends that are useful to tease apart. The first is our consumption business has been growing very strongly, and it's a source of confidence for us both, from past quarters as well as our future long-term prospects for the business. That's not been visible to you in the past. It's now in our Form 10-K and in the investor supplemental, you know, we're excited to share that and unpack it more on Thursday as well. Second, though, and equally now visible, is the disaggregation of that from our subscription business, which has been offsetting the success we've been having with consumption and continues to drag on total company growth and profitability. That's why, you know, I understand so many of the questions have been, including the last one, have been around that subscription migration and the final chapter of driving that, including the prospects for increased churn. The third one, and the one that you're asking around, are the ongoing effects of the macro and optimization efforts. When we talk about cloud optimization, we're talking about not only the cloud optimization that customers may be doing with their Hyperscale provider Azure or AWS or GCP, also cloud optimization that applies to New Relic. Even though, we see that optimization in the long term being an opportunity for us because we've got the all-in-one model, we're the easiest for customers to standardize on, we can offset higher priced other competitors. It's also an opportunity for customers to look at are they getting value from every dollar of their New Relic spend. We see them, in some cases, optimizing the number of users they have in the platform or the amount of data they're sending us. That's independent, again, from their hyperscaler public cloud optimization that they may also be doing. As we looked at in our FY 2024 plan, we realized the right thing to do is to square these three trends with a strategy that accelerates New Relic's total company growth and profitability. For FY 2024, we're gonna accelerate the long-term growth of the consumption business by embracing those optimization efforts and helping customers choose New Relic as the standard. We're also gonna simplify and grow the consumption business by accelerating the transition of those subscription customers over to consumption at a rate that we previously hadn't anticipated so that we can have a higher growth rate, total company, higher total company growth rate, as well as increased profitability by having one business model to focus on and grow over time. That was probably a longer answer and broader perspective on the cloud optimization question, but hopefully gives you the color on how those three trends interplay in our strategy. That's very helpful. Thank you, Bill and Dave. Thank you, Mr. Turits. Our last question is from Mark Cash with Raymond James. You may proceed. All right. Thanks. Yeah, this is Mark, one for Adam. Thanks for the questions. Bill, maybe building off a couple of the questions you've gotten so far, there's strength in the platform adoption, while there's an extra taste for higher churn that you've alluded to a few times as customers move off subs and including the top cohort. Where are these customers going if churning, and are these customers typically buying fewer products from you? Yeah, good question. You know, in the disaggregation of the business, we talk about a total of 16,000 customers, 12,000 on consumption, about 4,000 in subscription. Dave talked about for those 4,000 kind of three cohorts, a small number of very large contracts, you know, a moderate number of medium-sized, say, five-figure contracts, and then 2,000 that are long-tail small customers. 1,000 of those customers probably belong in our free tier. They're not going anywhere. Let's start with those 1,000. They're staying on New Relic. They just qualify for our free tier going forward, and it saves them money, and we have an opportunity to continue to nurture them back into being paid customers, which we believe we will do over time. The other 1,000 of that long-tail customer base, frankly exhibit a lot of behaviors of low engagement. You know, they may have signed up for New Relic. They're still in the legacy model. They may have signed up five years ago, 10 years ago with a credit card. They don't even maybe realize they're still paying for New Relic. Those customers, once, you know, we nurture them into the consumption model, may choose to just cancel the subscription. They no longer need the service. For the medium and large size customers, as Dave said, we've had a lot of success moving those in the past. We'll continue, we believe, to have success. These are customers that have been in the subscription customer subscription model for 3 years despite previous opportunities to move. They've often got very favorable pricing terms, they've been reluctant to move because they know they've got a great, you know, great deal where they're at. Now that the time has come to move them, you know, there's increased pressure and, you know, more negotiation that we need to do to get them into the consumption model. Some may choose to go to competitors. Others we see choose to go back to open source and try the host-it-your-own route. Many will stay on New Relic. We believe the majority will stay on New Relic, but potentially with lower spend or a different pricing arrangement. That's what all has been factored into the guide for FY 2024. Very helpful. Thanks for all that information. David, if I could ask you one. I just see in your K you guys published that 73% of RPOs to be recognized within 12 months, but New Relic has typically provided CRPOs a 24-month number, besides those last two filings. Could you provide an update on the growth rate of 12-month CRPO or the value for a year ago period? Oh, for 12-month CRPO? Yes. See if I have that at my fingertips. If not, I'll find a way to roll it into one of our other mechanisms for reporting. I think it was up 10% roughly, but. Okay. Thank you. That's very helpful. I think we're looking at about $600 million for March 2023 compared to about $550 for March 2022. Great. Thanks so much. Yep. Thank you. That concludes today's question and answer session, as well as today's call. Thank you for your participation. You may now disconnect your lines.