New Relic, Inc.
Q1 2016 Earnings Call Transcript

Published: 8 Aug 2015

[Operator:]

Good afternoon. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the New Relic Q1 Fiscal 2016 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Jon Parker, Director of Strategic Finance and Investor Relations. You may begin your conference.

[Jonathan Parker:]

Thank you. Good afternoon and welcome to New Relic's first quarter fiscal year 2016 earnings conference call. Joining me today are Lew Cirne, New Relic's Founder and CEO, and Mark Sachleben, New Relic's Chief Financial Officer. The primary purpose of today's call is to provide you with information regarding our first quarter fiscal 2016 performance in addition to our financial outlook for our second quarter and full fiscal year 2016. Some of our discussion and responses to your questions may contain forward-looking statements including, but not limited to, statements regarding our future financial performance including our financial outlook, our market opportunity and market trends, customer adoption of our products, our momentum, and our ability to execute on our vision. These statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. Information concerning such risks and uncertainties and assumptions related to our business is contained in our earnings press release issued today as well as the risks described in our filings with the Securities and Exchange Commission from time to time, particularly under the captions Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations. Our commentary today will include non-GAAP financial measures. We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends. But note that these measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our earnings press release issued today, a copy of which can be found on our Web-site. At times in our prepared comments or in responses to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that the additional detail may be one-time in nature and we may or may not provide an update in the future on these metrics. I encourage you to visit our Investor Relations Web-site ir.newrelic.com to access our earnings press release issued today, periodic SEC reports, a Webcast replay of today's call, or to learn more about New Relic. With that, let me turn the call over to Lew.

[Lew Cirne:]

Thanks, Jon, and good afternoon to everyone joining us today to review New Relic's first quarter fiscal 2016 financial results. We had a fantastic start to our year as strong demand by companies of all sizes for New Relic's Software Analytics Cloud helped us exceed our guidance on both the top and bottom lines. Moreover, we sustained strong revenue growth while at the same time generating substantial margin improvements, and as a result are pleased to announce a meaningful increase to our full-year revenue guidance. In short, we believe these results show we are successfully executing on our vision to be the leading software analytics cloud vendor. Mark will review our financials and guidance in detail, but let me share a few highlights and milestones from the quarter that give us increasing confidence that our strategic initiatives are resonating with companies of all sizes. We believe that software is more important than even to business success, and that therefore every business must become a software business. One only needs to look back a few weeks when two high-profile service interruptions in the travel and financial services industry transpired on the very same day. We think it is very clear, every company's software is their business, is their brand and is their reputation. As users of software, we are all just a tweet away from sharing our joy or our frustration using the software that permeates our lives. Therefore, software availability, performance and usability are not optional. They are imperatives for businesses of all sizes to be successful. We believe it is for this reason that New Relic's Software Analytics Cloud is experiencing accelerated adoption. We are building upon our early success and leadership in the application performance management market by expanding the number of products across our cloud offering, and the proof is in the pudding. In Q1, revenue from our products outside of New Relic APM exceeded 10% of quarterly revenue for the first time. Given the ratable nature of our business and the size of our APM installed base, reaching this milestone, even though Insights, Browser and Synthetics only just came into the market in fiscal 2015, this is absolutely incredible. I believe it underscores our real measurable traction as well as the significant need in the market for an integrated cloud platform that can help companies both optimize their software performance and capitalize on the data flowing through their software, and we're seeing this need play out in a growing number of companies willing to make sizable multi-year commitments to New Relic. The New Relic Software Analytics Cloud is designed to enable companies to leverage their software as a strategic asset. Today I want to dig a bit deeper into a couple of examples of how we saw this materialize in some great wins in the past quarter. The first story I'd like to share is that of News Corp., a global leader in news and media with almost 30,000 employees around the world. Our relationship began in 2013 with the Dow Jones organization using New Relic APM in a traditional monitoring use case. News Corp. mandates that each of its media properties deliver a pristine customer experience across all channels, regardless of country or time zone. Early success of our solution proliferated by a word of mouth across many other News Corp. properties, such as Move.com, Amplify and REA Group. As a result of this initial success, News Corp.'s CTO, Paul Cheesbrough, and his team began an evaluation of the full capabilities offered by New Relic's Software Analytics Cloud early this year. After a complete strategic review, News Corp. made a significant multi-year commitment to our full platform this quarter. By committing to New Relic APM, Insights, Browser, Mobile and Synthetics, News Corp. views New Relic as a strategic partner to help them exceed performance SLAs, deliver a flawless customer experience, and as a result drive exceptional business results in all strategic digital initiatives across the entire company. Last month, we were honored to host senior executives from News Corp. in our offices, including its Founder and Executive Chairman, Rupert Murdoch. They reiterated to me their excitement of not only about what we've been doing for them already, but the possibilities of how Insights in particular could drive enhanced visibility into their business such as helping their editors figure out the customer engagement with a particular content in real-time, enabling them to make changes on-the-fly. Next up is Shutterstock, which has created one of the largest and most vibrant online marketplaces for creative professionals to license content, including images, videos and music, as well as innovative tools to power the creative process. To support both sides of the marketplace, Shutterstock needed a solution that could give them end-to-end application performance visibility across their Web and mobile applications. They needed to quickly identify performance issues without sacrificing the ability to scale in their complex environment. This past quarter, they identified our Software Analytics Cloud as the clear winner, providing them a platform that provides a single pane of glass view into an application's health, performance and data analytics. Specifically, they expect New Relic Insights will help them understand their key performance data points that will in turn drive meaningful business decisions. We're thrilled to welcome them to our family. Lastly, I wanted to talk briefly about Hearst Corporation, the well-known multinational media and information provider and a company undergoing a significant digital transformation. Hearst is focused on building high-quality products and services for its audiences, and believes it is absolutely critical to obtain a holistic performance overview in addition to a detailed understanding of an individual application's performance. Hearst started as an APM customer back in 2011, and since its first deployment has expanded usage to more than 15 divisions. In Q1, we expanded our partnership, with the company now leveraging our complete Software Analytics Cloud throughout their entire application lifecycle. In the process, we're helping them define detailed performance analytics on each application, achieve goals like scaling on Amazon Web Services, and utilizing Docker, and also uncover best development practices among Hearst's different businesses. In addition to these examples, we saw many other great success stories this quarter. Our enterprise business is cranking. We continue to see increased traction which we believe is a function of our highly differentiated cloud offering and strong go-to-market execution. In our short time with a field presence, we have already begun to see excellent ROI, developing deeper, more strategic relationships with executives at all levels of the organization, and as a result we are seeing increased user engagement and product adoption. Overall for the quarter, we saw diverse companies like Advisory Board, Ryanair, Univision and Urban Outfitters commit to our platform. Not to be outdone by the enterprise team, we believe our SMB business had continued to fire on all cylinders. We have a pretty competitive group of sales leaders, and just as our enterprise team has stepped up their game, SMB has raised it even further, and vice versa. I'd like to congratulate our entire team for the incredible quarter they delivered. Our SMB team closed business with some great companies this quarter, including fantastic brands like Buongiorno, Charles Tyrwhitt, Nextdoor, MultiPlus and One Kings Lane. From a product perspective, we continued to see strong progress across the board. It's incredible to me that New Relic Insights already celebrated its first anniversary of general availability less than a month ago. We still believe that this unique and powerful product presents a substantial growth opportunity for New Relic. We continue to learn more about its full potential every day as we engage with business leaders and are strategically building capabilities, such as data applications, to deliver on the promise of this incredibly powerful technology. Moreover, we're delighted to see how engaged our Insights customers are on the entire platform. In fact, on average, our paying Insights customers have roughly 40% more New Relic users today than they did 12 months ago, before Insights was released. We believe Insights and its underlying proprietary database technology is a game-changer for all of our customers. With Insights, professionals can measure and analyze customer experience and activity in real-time, helping them to make better technical and business decisions. Insights has made an important direct impact on our growth, but its indirect contribution to the conversations we're having in the C-suite can't be understated either. While Insights is not the only new product contributor, we think it is the one that clearly changes the conversation with forward-thinking companies. We believe companies across all industries are committing to New Relic, in part because of our differentiated 100% SaaS delivery model. In fact, a recent IDC report published last month named us the third largest vendor in the entire systems management SaaS landscape, behind only ServiceNow and just shy of IBM. We think our architecture gives New Relic a unique competitive advantage in the market. Our customers can deploy New Relic quickly, in part because there's no complicated hardware or software to install. Often within minutes, our customers can access real-time visibility into the performance of their software that powers their business. Finally, we believe our commitment to the cloud allows us to innovate and evolve at an incredibly rapid clip, in order to meet the constantly changing needs of our clients. For instance, as the use of Docker containers has gained prominence in only two short years, we have quickly incorporated what we believe to be incredibly unique container monitoring capabilities into APM and this past quarter announced the general availability of our Docker monitoring solution. You'll recall how on Q4's call we discussed how our SaaS architecture allowed us to seamlessly deliver our new Synthetics product as a tab in all of our user screens the moment it became generally available. Again, here with our new Docker monitoring capability, every New Relic user was able to immediately benefit from our enhanced functionality which is weaved into our application and server monitoring experience. In fact, during a short beta in early Q1, we saw hundreds of customers participate collectively reporting more than 2 million containers to our cloud, and now in GA, we are seeing more than 100,000 containers report to our cloud every day. Finally, last quarter we discussed how we would be increasing our focus on our ecosystem of partners in fiscal 2016. We think we've made great progress here in Q1 as we were invited to take part in some highly strategic partnerships. For instance, we teamed up with cloud computing pioneer Salesforce and now think that New Relic has joined the Salesforce Analytics Cloud Partner Ecosystem. We also joined the Cloud Foundry Foundation with a goal of easing the development of applications on Cloud Foundry and enabling the success of these applications without dedicated monitoring infrastructure. To wrap up, we believe our first quarter results illustrate how New Relic continues to leverage our 100% SaaS platform to deliver great products to a growing number of businesses globally. In fiscal 2015, we set out to move upmarket, extend our lead in SMB, and evolve into a multi-product software analytics platform. We achieved each of those goals last year, and as our Q1 results demonstrate, we are now building upon that success in fiscal 2016. This is an enormous opportunity and we believe New Relic is uniquely positioned to help our customers transform their software into a competitive advantage. We'd love for you to see the impact we are having on our customers for yourselves. We'll be hosting an investor event on November 12 during our FutureStack Conference in San Francisco and I hope you will mark your calendars and carve out time to see this incredible work we are doing with our amazing customers. With that, let me turn the call over to Mark.

[Mark Sachleben:]

Thanks, Lew, and again, welcome everyone to the call today. We had a good start to the year as revenue for the first quarter was $38.1 million, up 69% year over year and up 14% sequentially. We remain pleased with both the growth we are seeing across all go-to-market segments and our product cross-sell, which we think is evident in the fact that revenue outside of New Relic APM was more than 10% of total revenue in the quarter. We ended the first quarter with 12,440 paid business accounts, up 27% year over year. Our annualized revenue per average paid business account continued to grow and is now more than $12,500, up 31% year-over-year and up 9% sequentially. While the level of net new customers was lower than past quarters and the year-ago result, it was in line with our expectations and reflects an intentional decision related to our shifting investment profile as we continue to succeed in the enterprise. Given the moving pieces underlying that figure, we wanted to provide some additional information today to help provide some more context for our shifting account base. Our total number of paid business accounts spending at least $5,000 per year reached 4,875 at the end of Q1 fiscal 2016. This is up from 4,500 at the end of fiscal 2015 and up approximately 45% year-over-year. This increase of 375 net new $5,000 per year customers represented roughly 70% of the total number of net paid customer adds in the quarter. To give more context to that number, a year ago, in Q1 of fiscal 2015, we added approximately 300 net new $5,000 per year customers, and this represented approximately 48% of the net customer adds. As these figures illustrate, while our overall number of net new customers has come down in recent periods from the prior years, we have been accelerating the net adds of our customers on whom we are more actively focusing our investments. It's also worth pointing out that while we are investing more aggressively in the mid-market and enterprise space, we are still seeing meaningful transaction size growth in all segments of the market. Our dollar-based net expansion rate was 130% in the first quarter, generally in line with the prior two quarters. By Q4, this rate was better than expected, due to both continued cross-sell and APM expansion within accounts. We believe that the combination of value being delivered to customers and the power of our land-and-expand sales model are key contributing factors to this result. We continued to see success internationally in the quarter, as our non-U.S. revenue grew to $12.8 million, up 74% year-over-year, and non-U.S. revenue accounted for 34% of revenue in the quarter. Within Europe, we continued to invest aggressively in our Dublin team and our U.K. field sales operations. In addition, we have been increasingly pulled into Australia over the past year and we now have our first local sales resources there as well. Before moving to profit and loss items, I would like to point out that unless otherwise specified, all of the expense and profitability metrics I will be discussing going forward are non-GAAP results. A full reconciliation between historical GAAP and non-GAAP results can be found in our earnings press release issued today. Gross margin for the quarter was 81% compared to 83% last year, and unchanged versus last quarter. While we continue to expect our gross margin to moderate somewhat in the near term, we now expect to be around 80% for the year versus our prior range of 79% to 80%. With regard to operating expenses, we continue to invest in our go-to-market teams across all segments of the business. Our sales and marketing costs were $26.7 million, compared to $17.8 million for the year-ago period and $24.3 million in the fourth quarter of last year. We are pleased with the talent we are attracting and expect to continue these aggressive investments throughout fiscal 2016. Having said that, we started to realize meaningful leverage and on a year-over-year basis we expect further improvements in sales and marketing expenses as a percent of revenue throughout the year. R&D expenses were $7.7 million in the quarter, compared to $4.7 million in the year ago period and $6.5 million last quarter. As Lew and I frequently mention, we are a product-driven company and we remain firmly committed to continuous improvement of the platform to support breadth and depth of current and future offerings, and we expect to maintain high levels of investment in R&D for the foreseeable future. G&A costs were $6.5 million in the quarter, up from $4.1 million in the year ago period and unchanged from $6.5 million last quarter. The year-over-year growth is a function of increased expenses associated with being a publicly traded company, along with increased headcount. Overall, our expenses in the quarter produced an operating loss of $10.1 million, compared to a loss of $7.9 million for Q1 of last year and $10.2 million for Q4. This resulted in a negative operating margin of 27% in the quarter, versus 35% a year ago and 31% in the fourth quarter. Our net loss per share for Q1 was $0.21, based upon a weighted average share count of 47.2 million. This compares to a net loss in Q1 of last year of $0.19 per share, based upon a pro forma weighted average share count of 40.6 million, a share count that assumes the conversion of preferred stock. Turning to our balance sheet, we ended the first quarter with $195 million of cash, cash equivalents, and short-term investments, down from $201 million at the end of the fourth quarter. Elsewhere on the balance sheet, our deferred revenue balance grew to $38.5 million, up nearly 200% year-over-year. This growth continues to be a function of both our traction in the enterprise where we more often drive annual billing terms, and also SMB where we have started to migrate some of our customers from monthly to quarterly or annual invoicing. Overall, we expect growth in our deferred revenue to continue to meaningfully outpace revenue growth throughout fiscal 2016. However, as discussed previously, we do not consider deferred revenue to be a reliable indicator of our underlying business momentum, and accordingly we do not currently view it as a key metric. Now, let me turn to our outlook for the second quarter of fiscal 2016 and the year as a whole. We are initiating our outlook as follows. For the second fiscal quarter ending September 30, we expect revenue to range from $40.2 million to $41.2 million, a growth of 59% to 62% year-over-year. We expect a non-GAAP operating loss of $10.5 million to $11.5 million. This would lead to a non-GAAP net loss per share in the range of $0.22 to $0.24, based upon a weighted average share count of 48.1 million. For the fiscal year 2016, we now expect revenue to range from $168 million to $171 million, or a growth of 52% to 55% year-over-year. This is up from our previous guidance of $155 million to $159 million for the full year. We expect a non-GAAP operating loss of $44.5 million to $47.5 million, compared to our previous guidance for a loss of $46 million to $50 million. This would lead to a non-GAAP net loss per share in the range of $0.91 to $0.97, based upon a weighted average share count of 49 million. This compares to our previous guidance for a loss of $0.95 to $1.03 per share. When modeling our expenses from a seasonality perspective, please remember that our annual FutureStack Conference is scheduled to occur in our third fiscal quarter again this year. In summary, we are pleased with the progress we are making across our product portfolio and our go-to-market efforts. However, as Lew mentioned earlier, we believe we are just scratching the surface of a very large and growing opportunity for software analytics, and our vision is increasingly gaining traction in the marketplace and helping to drive our momentum. With that, I'll now open the floor for your questions.

[Operator:]

[Operator Instructions] Your first question is from Greg McDowell with JMP Securities. Your line is open.

[Greg McDowell:]

Thank you very much and congratulations on another nice quarter. The new metric you provided, I thought it was really interesting, the number of net new accounts paying over $5,000 per year, and I just want to make sure I understand that. That number doesn't necessarily represent just enterprise customers, right, because I could imagine that there are some SMBs or mid-market customers who are adopting new products and happen to be paying over $5,000, correct, per year? So I just wanted to make sure I was correct in that understanding.

[Mark Sachleben:]

Yes, Greg, that is correct. That is any customer who pays us over $5,000, whether they are SMB or enterprise.

[Greg McDowell:]

And is it fair to think that since it represented 70% of net paid customer adds, is that 70% sort of a ceiling, I mean because you guys certainly aren't backing away from the SMB market, right? I just want to make sure investors sort of interpret that number correctly.

[Lew Cirne:]

We value all of our customers. This is Lew, Greg. But what I'd say is, we want to place particular focus on customers that exceed a certain threshold, they are not only obviously have better ROI just on how much they pay, but it also correlates to how likely they are to increase their spend over time. So while there isn't a customer that we don't like, we certainly like to make sure we're most efficient with our account acquisition investments and sales and marketing, and this is one way to show that we're happy with the trend.

[Greg McDowell:]

Great, thanks. And one quick follow-up, an Insights related question, and I feel like we're at the point where a lot of Insights customers that may have been in sort of an evaluation mode are starting to go into production, and you referenced 40% more users now than they had 12 months ago. Just maybe qualitatively, could you talk about the Insights pipeline and maybe average ASP or add-on ASP you're getting from Insights?

[Lew Cirne:]

What I'll share with you about Insights is how pleased I am with the stickiness of the product and how we're seeing a number of accounts that have a broad number of people using the product. I think this is a product that has the potential to be very broadly used within our customers, and if you've got a product that's broadly used, inevitably I think that that sets you up for a much healthier business relationship. So we look closely at monthly active users across all of our products, and I can tell you that Insights has a particularly nice trend. And we're also of course, we're happy with what we saw in the quarter and in general on ongoing business with how Insights is contributing nicely to the revenue of the business. But I think just having Insights in our quiver also changes the conversation and leads to more wins for our entire platform.

[Operator:]

The next question is from Sterling Auty with J.P. Morgan. Your line is open.

[Unidentified Analyst:]

This is [indiscernible] filling in for Sterling. Congrats on the quarter, and I was wondering if you could tell us how much of the annualized revenue per paid account growth is coming from enterprise sales bringing in bigger customers versus further penetration within existing customers?

[Lew Cirne:]

Sure. It's a combination of both, and I think both contribute nicely to that number. We're seeing enterprise customers come in and start at larger initial sales and then we're seeing existing customers expand nicely, but we are seeing account growth and ASP growth throughout all segments of our business.

[Unidentified Analyst:]

Okay. And then directionally, how should we think about the pace of new paid business account additions from here, is it stable, accelerating, decelerating?

[Mark Sachleben:]

As Lew talked about, we're particularly focused on the accounts that we think can continue to expand over time, and here we've given some metrics around the $5,000 accounts. We would like to see that number to continue to grow, and we're not going to put targets on it, but when we see that number growing, it grew 25% year-over-year, we think that's a nice healthy rate and we want to see that continue.

[Unidentified Analyst:]

Great, and congrats again on the quarter.

[Operator:]

Your next question is from Michael Turits from Raymond James.

[Michael Turits:]

Anything you can give us on the transition away from monthly billings towards quarterly and annual, and then I had a follow-up?

[Mark Sachleben:]

Sure. Overall, our customer base is migrating and that's driven both by the fact that we're getting more enterprise customers in, and on those initial transactions they are more likely to be annual billing. We're also seeing a migration of our existing account base. As they come up for renewals, they're going from monthly to quarterly or annual billing. So that's occurring as well. So we're shifting the existing customers as well as new customers. But there's a core component of our SMB business that will remain monthly payers going forward.

[Michael Turits:]

Okay. And then if I could just get the standard competitive landscape question in there, any chance from what we think is the legacy guys I think, CA is putting up some better growth numbers, I wonder whether that's primarily into their base, and anybody on the other end of things that is new and smaller that's interesting?

[Lew Cirne:]

I think we've got – not a lot has changed in who the players are or how we're doing, we're happy with our win rates. So what I'd say is, I have no doubt in my mind that we made the right bet on being a pure-play SaaS company and being all in on SaaS, and that the market is increasingly recognizing what we believe to be true, is that's a fundamental architectural advantage. Gartner presented on the APM space in June and it said, the average APM implementation is $828,000. That's the average implementation, the largest being $5 million. And you know what? The average APM implementation really is 3.2 daily active users. So all this money, a lot of it being spent for on-premise infrastructure and managing the management system, and we come into this market with this product, you can start with $200 a month, that's better and easier to use and delightful for our customers, we have a customer that has more than 500 monthly active users, so we're democratizing this category of software. And I feel like that is just something that I don't think incumbents truly understand, they don't even know how to measure how many people are using their products, much less do they drive their business around it, and I feel like if we think like a consumer company in terms of delighting our customers with great products, that turns into a competitive advantage that's really hard to beat.

[Operator:]

The next question is from Keith Weiss from Morgan Stanley.

[Keith Weiss:]

I'll echo the comments on a very nice quarter in sustaining growth. I was wondering if you can give some detail or some color on the efforts to expand out that enterprise sales force. Q1 tends to be a big hiring period. How well did you guys do in terms of sort of hitting targets and getting that enterprise focused quota carrying sales force ramped up in Q1? And if you could give us any kind of sense on sort of what the growth expectations are for that sales capacity for the broader FY '16, that would be great.

[Lew Cirne:]

Sure. So we had a good quarter hiring. We are pleased with the progress we are making in hiring our enterprise reps. We really started building out that team just about a year ago now, and we have been very comfortable and we've been hitting our targets in terms of ramps and both ramping new reps and productivity of existing reps and our hiring plans. So we expect to continue to be able to do that as we go forward. We are not giving any specific guidance around the numbers of reps in the field but we're seeing great demand out there and we're going to continue to invest aggressively.

[Keith Weiss:]

Got it. And last quarter you talked about, you gave out a figure around the number of multi-product customers, and I think you had talked about a four times increase in the number of multi-product customers. Given sort of the expansion and I think an acceleration in the expansion of revenue per account, I imagine you'll continue to see strong adoption of multiple products, but can you help us sort of suss out how much of that is from the expansion of customers on existing products, how much comes from your customers picking up or maybe acceleration in customers picking up additional products?

[Lew Cirne:]

It is both, and as Mark shared in his prepared remarks, now it's actually affecting 10% of revenues, more than 10% of revenues. Given the ratable nature of business, we think that's a pretty quick pace to that milestone. So I think it's very safe to say, we're a multi-product company, and I think that's a meaningful milestone. We see customers starting with – obviously many of our customers start with APM, that's our first product and still our biggest seller, but we have a lot of customers that start with a product like Browser and then expand from there. But I'm really thrilled with seeing, every quarter we see these new customers adopting the whole platform, bi-product deals where they are thinking strategically about, I need a partner to help me be successful with my digital initiatives, and New Relic is the right partner, especially if these companies are thinking about modern technology stacks like public cloud or modern programming languages. So that's going to I think be a big part of the growth story going forward.

[Operator:]

The next question is from Derrick Wood from Susquehanna.

[Derrick Wood:]

Congratulations guys on the quarter. I guess since you commented on a specific deal, News Corp., that went from the core APM to the entire portfolio, do you have any metrics you can share with what kind of ARR uplift you get when you have a customer that moves from one product to five products?

[Lew Cirne:]

We're not sharing explicit numbers around that, but we can tell you that it really varies. We look at APM as our core product to enter, and then once we get in, we're seeing pretty sizable uplifts for our new products. As I said, we're not going to give explicit metrics around that because it really does vary. Companies generally expand both the number of APM hosts they are covering as well as through additional products. We also expand through additional divisions. So we can expand on all three of those metrics.

[Derrick Wood:]

Okay. And you launched the GA of a Docker monitoring solution this quarter. That sounds like a pretty exciting opportunity. Docker is obviously seeing some explicit growth over the last year or two. I imagine customers were asking for this, but I'm just curious how you monetize this. It sounds like it's part of the core SKU. So is it just expanding on top of the infrastructure or any other way you are monetizing it?

[Lew Cirne:]

One of the nice things about our customers and our businesses, our customers tend to be the early adopters of emerging trends. That's why early on so many of our customers were the earliest adopters of public cloud technologies like Amazon or Rackspace or Azure. So, yes, we did find out early on that we saw a large number of our customers adopting Docker. And so, I personally believe in delivering more value in our core products every quarter so that our subscription gets more valuable to our customers, and so that they are delighted to be New Relic customers, right. And then on top of that, then when we introduce new products, they are delighted to buy those new products. So the Docker functionality is just our way of saying, look, we want to be relevant wherever you run your most important software, and more and more of your software is running in this exciting new technology called Docker, and so we're going to be there for you. And of course because of our SaaS delivery, that's immediately available to all our customers the day we launch it, and again, I just feel like that's a fundamental competitive advantage for us.

[Derrick Wood:]

Great. If I could squeeze one more in, Mark, do you have a metric in terms of the percentage of the sales force that is fully productive at this point?

[Mark Sachleben:]

No, we have it, but we are not disclosing it.

[Derrick Wood:]

Okay, alright. Nice job on the quarter. Thanks.

[Operator:]

The next question is from Brent Thill from UBS.

[Michael Turner:]

This is actually Michael Turner on for Brent. I wondered if you could talk a little bit more about some of the success you've seen internationally? You had some good fiscal year-end EMEA numbers and it sounds like you added to those in Q1. Can you talk a little bit about what's driving that and how to think about that opportunity going forward?

[Lew Cirne:]

I think one of the nice things about the space we're in is that our product applies to businesses in virtually any industry and in any geography. There isn't a part of the developed world that isn't depending on software, and the developing world for that matter. I mean it made my day four or five years ago when I saw somebody from East Africa tweeting about how he loved New Relic, right. And the other thing is, because the tech community tends to standardize on English, no matter what country you're in, we don't have the product challenges that a consumer product might have in finding product market fit in a remote geography. So that's why we're getting pulled into all these countries far ahead of local investment. Australia has always been an interesting country for us. I remember in the early days of New Relic, one of our first multi-$100,000 a year subscriptions came over the phone from Sydney. So we're seeing more and more adoption there and now is the right time to put some local presence there to accelerate the growth.

[Michael Turner:]

Great, that's helpful. Also you recently announced the appointment of Yvonne as your first CIO. Can you talk about some of the reasons for making that change and where you feel you are in the executive team build-out?

[Lew Cirne:]

New Relic employees hear me say all the time, I love my Mondays, and I do. And most of that is because of this amazing group of people I'm honored to work with. We got Yvonne to join us. Somehow we managed to convince her to come over to what was a much smaller company at the time. She was the Chief of Staff at VMware and a remarkably accomplished exec over there, and we knew that she had a long runway in front of her at New Relic. And now as you can imagine, now that we're a public company and we're a growing company, we need to get a lot more serious about our IT systems and as well as we obviously want to be a world-class data company given the business that we're in, and so Yvonne is leading that charge quite capably. I feel like I've got a remarkably strong team and it demands all of me to be their leader, but I'm honored to have a chance to work with people like Yvonne.

[Operator:]

[Operator Instructions] The next question is from John Rizzuto from SunTrust.

[John Rizzuto:]

Lew, if you can characterize, now obviously you're still in this hyper growth phase and seeing real good business, of course this corresponds with lots of enterprises actually going out and doing development on a past platform in the cloud but there's also the on-premise aspect of it as well as mobility. If you look right now, is it new development on-premise, is it new development in the cloud, hybrid environments, where you're most likely, where the user is going to be, you're going to have the most capabilities to win, what's driving your business the most?

[Lew Cirne:]

So I'd say today – I don't want to say something I don't know 100% for certain, but we certainly have a significant amount of revenue coming from applications running in traditional data centers behind the firewall. So even though we're in the cloud, our customers don't have to be entirely in the cloud for us to service them. But unsurprisingly, when you look at something like Amazon is now like a $7 billion run rate business, that's growing fast empirically and it's certainly growing very fast for us as well, and we think we've just got such a strong I think unfair advantage. Like why on earth would you move to a modern environment like Amazon or Azure or Google Cloud and then use an on-premise product to watch it? I mean that doesn't make any sense at all. So it doesn't surprise me that so many of our customers use us in cloud environments, and then enterprises when they are considering moving to the cloud, even if they've got some workloads on premise, we're the perfect product to watch the software in both environments. So I think that the secular trends that we see towards public cloud are very favorable for us.

[John Rizzuto:]

Okay, great. So like in a way of the subtext of the question, but just to be clear, so clearly when people are going to the cloud, they are favoring a cloud-based solution, just to paraphrase?

[Lew Cirne:]

Absolutely.

[John Rizzuto:]

Okay, perfect. And how about the mobility, mobility was always a big play, it was always an important part of your business, is that still, I don't know how many, you would know better than I, how many enterprises are really focused on the mobility end as far as the traditional enterprises like the FOXes of the world, but is that still a big driver here?

[Lew Cirne:]

It's top of line at the C level. It's transforming companies in virtually every industry, obviously especially in media where content is increasingly consumed via mobile. So that involves all these new projects. That's often a reason why people are moving to the cloud, are these new projects around mobile and let's use the latest and best technologies for that. So we often see opportunities, not only when a new mobile initiative is engaged. Obviously our Mobile product, which is amazing, is a natural fit for that, but then marrying that visibility with what is on the server and seeing that end-to-end picture, that's an opportunity for us to sell the whole platform when a strategic mobile project is engaged in an enterprise.

[John Rizzuto:]

Great. Just one last question. For as much as you want to characterize it or can, what is the rate of existing older customers adopting new products, now after adopting the same starting out with APM, and versus the packaged sales for new customers? In other words, typically the new customer always comes in with two or three and we have some customers at one, so is this the level of attach rate to existing customers versus new deals?

[Lew Cirne:]

One way you can kind of get a sense of it is, for a ratable business like ours, a subscription business, as you could imagine, most of our revenues from last quarter came from the base and more than 10% of those revenues came from non-APM products. So I think that it's fair to say it's attaching quite well, and that must go beyond not just the customers that were acquired in Q4 of 2015 obviously. So we're pleased with it, but we're certainly not done. We've got more work to do and my guidance to the product team at the moment is, we've got five very strong SKUs that we offer our customers, I want to make those five SKUs stronger and deliver even better products for our customers, and that ought to drive more user adoption and with that comes healthier business relationships.

[Operator:]

There are no further questions at this time. I will turn the call back over to Jon Parker for closing remarks.

[Jonathan Parker:]

Thanks everyone for all of your questions and we also look forward to seeing many of you next week at the Pacific Crest Global Technology Leadership Forum on August 11. So I look forward to seeing many of you there. Thank you very much and look forward to seeing many of you soon. Bye-bye.

[Operator:]

This concludes today's conference call. You may now disconnect.