www.sec.gov<\/a>.\n<\/p>\n\nAll information provided in this press release and in the earnings call is as of the date hereof and New Relic assumes no obligation and does not intend to update these forward-looking statements, except as required by law.\n<\/p>\n
Non-GAAP Financial Measures<\/b><\/p>\n
\nNew Relic discloses the following non-GAAP financial measures in this press release and the earnings call referencing this press release: non-GAAP income (loss) from operations, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses (sales and marketing, research and development, general and administrative), non-GAAP operating margin, non-GAAP net income (loss) attributable to New Relic, non-GAAP net income (loss) attributable to New Relic per diluted share, non-GAAP net income (loss) attributable to New Relic per basic share and free cash flow. New Relic uses each of these non-GAAP financial measures internally to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, and to evaluate New Relic\u2019s financial performance. In addition, New Relic\u2019s bonus plan for eligible employees and executives is based in part on non-GAAP income (loss) from operations. New Relic believes these non-GAAP financial measures are useful to investors, as a supplement to GAAP measures, in evaluating its operational performance, as further discussed below. New Relic\u2019s non-GAAP financial measures may not provide information that is directly comparable to that provided by other companies in its industry, as other companies in its industry may calculate non-GAAP financial results differently, particularly related to non-recurring and unusual items. In addition, there are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies and exclude expenses that may have a material impact on New Relic\u2019s reported financial results.\n<\/p>\n
\nNon-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. A reconciliation of the historical non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release.\n<\/p>\n
\nNew Relic defines non-GAAP income (loss) from operations, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses (sales and marketing, research and development, general and administrative), non-GAAP operating margin, non-GAAP net income (loss) attributable to New Relic, non-GAAP net income (loss) attributable to New Relic per diluted share and non-GAAP net income (loss) attributable to New Relic per basic share as the respective GAAP balances, adjusted for, as applicable: (1) stock-based compensation expense, (2) lease exit costs and accelerated depreciation, (3) amortization of stock-based compensation capitalized in software development costs, (4) the amortization of purchased intangibles, (5) employer payroll tax expense on equity incentive plans, (6) amortization of debt discount and issuance costs, and in certain periods (7) the transaction costs related to acquisitions, (8) lawsuit litigation cost and other expense and (9) gain or loss from lease modification. Non-GAAP net income (loss) per basic and diluted share is calculated as non-GAAP net income (loss) attributable to New Relic divided by weighted-average shares used to compute net income (loss) attributable to New Relic per share, basic and diluted, with the number of weighted-average shares decreased to reflect the anti-dilutive impact of the capped call transactions entered into in connection with the 0.50% Convertible Senior Notes due 2023 issued in May 2018. New Relic defines free cash flow as GAAP cash from operations, minus capital expenditures and minus capitalized software. Investors are encouraged to review the reconciliation of these historical non-GAAP financial measures to their most directly comparable GAAP financial measures.\n<\/p>\n
\nManagement believes these non-GAAP financial measures are useful to investors and others in assessing New Relic\u2019s operating performance due to the following factors:\n<\/p>\n
Stock-based compensation expense and amortization of stock-based compensation capitalized in software development costs.<\/i> New Relic utilizes share-based compensation to attract and retain employees. It is principally aimed at aligning their interests with those of its stockholders and at long-term retention, rather than to address operational performance for any particular period. As a result, share-based compensation expenses vary for reasons that are generally unrelated to financial and operational performance in any particular period.\n<\/p>\n
Lease exit costs and accelerated depreciation.<\/i> In fiscal year 2020, New Relic entered into an agreement to exit the lease of its 123 Mission premises in San Francisco, California. In connection with this agreement and subsequent relocation, New Relic accelerated depreciation and other expenses associated with the remaining lease term. New Relic believes it is useful to exclude this depreciation and these other expenses because it does not consider such amounts to be part of the ongoing operation of its business.\n<\/p>\n
Amortization of purchased intangibles and transaction costs related to acquisitions. <\/i>New Relic views amortization of purchased intangible assets as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are evaluated for impairment regularly, amortization of the cost of purchased intangibles is an expense that is not typically affected by operations during any particular period. Similarly, New Relic views acquisition-related expenses as events that are not necessarily reflective of operational performance during a period.\n<\/p>\n
Lawsuit litigation cost and other expense. <\/i>New Relic may from time to time incur charges or benefits related to litigation that are outside of the ordinary course of New Relic\u2019s business. New Relic believes it is useful to exclude such charges or benefits because it does not consider such amounts to be part of the ongoing operation of New Relic\u2019s business and because of the singular nature of the claims underlying the matter.\n<\/p>\n
Employer payroll tax expense on equity incentive plans. <\/i>New Relic excludes employer payroll tax expense on equity incentive plans as these expenses are tied to the exercise or vesting of underlying equity awards and the price of New Relic\u2019s common stock at the time of vesting or exercise. As a result, these taxes may vary in any particular period independent of the financial and operating performance of New Relic\u2019s business.\n<\/p>\n
Amortization of debt discount and issuance costs. <\/i>In May 2018, New Relic issued $500.25 million of convertible senior notes due in 2023, which bear interest at an annual fixed rate of 0.50%. The effective interest rate of the convertible senior notes was approximately 5.74%. This is a result of the debt discount recorded for the conversion feature that is required to be separately accounted for as equity, and debt issuance costs, which reduce the carrying value of the convertible debt instrument. The debt discount is amortized as interest expense together with the issuance costs of the debt. The expense for the amortization of debt discount and debt issuance costs is a non-cash item, and we believe the exclusion of this interest expense will provide for a more useful comparison of our operational performance in different periods.\n<\/p>\n
Gain or loss from lease modification. <\/i>New Relic may incur a gain or loss from modification related to lease agreements. New Relic believes it is useful to exclude such charges or benefits because it does not consider such amounts to be part of the ongoing operation of New Relic\u2019s business and because of the singular nature of benefit or charge from such events.\n<\/p>\n
Anti-dilutive impact of capped call transactions<\/i>. In connection with the issuance of its convertible senior notes due in 2023, New Relic entered into capped call transactions to offset potential dilution from the embedded conversion feature in the notes. Although New Relic cannot reflect the anti-dilutive impact of the capped call transactions under GAAP, New Relic does reflect the anti-dilutive impact of the capped call transactions in non-GAAP net income (loss) attributable to New Relic per share, basic and diluted, to provide investors with useful information in evaluating the financial performance of the company on a per share basis.\n<\/p>\n
\nAdditionally, New Relic\u2019s management believes that the non-GAAP financial measure free cash flow is meaningful to investors because management reviews cash flows generated from operations after taking into consideration capital expenditures and the capitalization of software development costs due to the fact that these expenditures are considered to be a necessary component of ongoing operations.\n<\/p>\n
Operating Metrics<\/b><\/p>\n
\nNew Relic defines the number of paid business accounts at the end of any particular period as the number of accounts at the end of the period as identified by a unique account identifier for which New Relic has recognized revenue on the last day of the period indicated. A single organization or customer may have multiple paid business accounts for separate divisions, segments, or subsidiaries.\n<\/p>\n
\nNew Relic\u2019s monthly recurring revenue represents the revenue that New Relic would contractually expect to receive from those customers over the following month, including partner revenue or revenue from support subscriptions, without any increase or reduction in any of their subscriptions.\n<\/p>\n
\nSimilarly, annual recurring revenue (\u201cARR\u201d) represents the revenue New Relic would contractually expect to receive from those customers over the following 12-month period, including partner revenue or revenue from support subscriptions, without any increase or reduction in any of their contractual commitments. The net change New Relic reports in ARR reflects any increase in ARR from existing customers and new customers, which is referred to as \u201cnew ARR,\u201d as well as any reduction in ARR from customers who reduced their spend or terminated their relationship with New Relic, which is referred to as \u201clost ARR.\u201d\n<\/p>\n
\nFor contracts entered into under the new pricing model announced on July 30, 2020, New Relic only recognizes as ARR the committed contractual amount for customers under the Annual Pool of Funds model; therefore, the definition of ARR would not include contracts under the Pay as You Go model. Meanwhile, ARR for contracts under Annual Pool of Funds is calculated as the original dollar commitment for the annual contract period, plus any incremental additional dollar commitments added during the term of the period. ARR is measured without reference or adjustments for historic data usage, and therefore excludes assumptions related to overage spend or expected or received overages above committed amounts.\n<\/p>\n
\nNew Relic\u2019s dollar-based net expansion rate compares its recurring revenue from customers from one period to the next. It is increased when customers increase their contractual spend amounts in order to increase their use of New Relic\u2019s products or use additional products. New Relic\u2019s dollar-based net expansion rate is reduced when customers decrease or terminate their contractual spend amounts in order to decrease or cease use of New Relic\u2019s products or use fewer products.\n<\/p>\n
\nNew Relic is a registered trademark of New Relic, Inc.\n<\/p>\n
\nAll product and company names herein may be trademarks of their registered owners.\n<\/p>\n