New Relic Inc (NEWR) 2015 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the New Relic third quarter fiscal 2015 earnings conference call and webcast. 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)

Thank you. I would now like to turn the call over to Mr. Jon Parker, Director of Strategic Finance and Investor Relations. Please go ahead, sir.

Thank you. Good afternoon, and welcome to New Relic's third quarter fiscal 2015 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 third quarter fiscal 2015 performance in addition to our financial outlook for our fourth quarter and full fiscal year 2015.

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 filings with the Securities and Exchange Commission, including our filed prospectus dated December 11, 2014.

Our commentary today will include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our earnings press release. Non-GAAP financial measures exclude the impact of stock-based compensation, amortization of stock-based compensation capitalized in software development costs, litigation expense, acquisition expenses, and amortization of purchased intangibles.

At times in our prepared comments, or in response 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 this 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 website at ir.newrelic.com to access our third quarter press release, periodic SEC reports, a webcast replay of today's call, or to learn more about New Relic. And with that, let me turn the call over to Lew.

Thanks, Jon. And good afternoon to everyone joining us on New Relic's first earnings call as a public company. Today is a really exciting day for New Relic, and I want to start by thanking all of our customers, our partners and employees for their passion, trust and support over the past seven incredible years.

Our IPO was a major milestone for the company, but it was just another step in our evolution. We've only just begun to deliver on our software analytics vision, and we remain passionate about building incredible products that our customers love to use.

I'm pleased to report that we delivered a strong third quarter. We believe the marketplace is gravitating towards our vision. We're pursuing an incredible opportunity, and we believe our results for the quarter, and the momentum we're seeing in the business, are validation that we are driving tremendous value for our customers.

Since this is our first earnings call, I'd like to go into some detail about what gets me so excited about New Relic's opportunity, and then I'll go into the highlights of our third fiscal quarter.

I'm sure you've heard the concept that software is eating the world. Across every industry software is rapidly transforming the way customers engage with businesses, and as a result every business is becoming a software business. For example, think about how we interact with our bank today. We no longer just walk into a bank branch. Instead the customer's engagement with a bank has expanded across multiple points, by an app on the phone or the web browser, and all those interactions are managed through software. In this new world brand reputation, customer satisfaction, and revenue are increasingly dependent on software applications to manage customer engagements.

At the same time, the customer's tolerance for a poor user experience is rapidly declining. In a world where your competitors are just a Google search away, every company needs to deliver a world class experience to their customers through their software every time. Companies need to know not only that their software is up and running, but also how their customers are engaging with their brand online. They need to be able to answer fundamental questions about what is going on with their business.

This is what we at New Relic are passionate about, helping companies understand the story that their software is telling them. New Relic has pioneered a new market, called software analytics, to help enterprises unlock the value of the data flowing through their application to improve performance, and gain previously untapped insight into their customers and their business.

Traditional approaches to measurement and monitoring have been expensive, inflexible and difficult to use. By offering beautiful, easy to use product delivered by our integrated cloud-based platform, we believe we have unlocked a much larger opportunity to serve users across the enterprise, from small developers and IT operations, to business users and knowledge workers. By delivering actionable insight to this broader set of users, New Relic helps companies power their innovative digital initiatives, which are strategic and at the core of their growth plans.

We deliver value for customers in three key areas: collecting the data from live software; storing it in our enterprise grade and proprietary data cloud; and analyzing the data in real time through a beautiful UI. All three layers are purpose built for this task and fully integrated, providing a powerful and seamless experience for our customers.

Furthermore, we offer these pillars while being 100% committed to the cloud, and our multi-tenant architecture provides a significant fundamental advantage, not just in our ability to innovate quickly, but also in the financial structure of our business that Mark will describe in a moment. Overall we believe this combination is unique and a strength that we will look to extend as we move forward.

So how do we accomplish this? It starts with our customers inserting our software agents directly into their underlying software application. We have built agents for all of the major programming languages, each one carefully designed to gather data while minimizing the impact on the underlying application. Through this vantage point, we can see everything that is going on within the application itself, from the performance data to the user experience. We collect hundreds of billions of data points and growing on a daily basis.

Once collected, this data is sent to New Relic's highly specialized storage system, designed from the ground up for the cloud, secure, reliable, and capable of handling the massive scale involved in not only storing all this data, but enabling high performance analytics based on these events.

The final piece of our integrated stack is the analytics portion, deriving business value from all of this data. At New Relic we pride ourselves on delivering beautiful software products that are easy to use. We've designed our product suite to not only deliver lightning fast answers to important business questions, but also an intuitive form that is easy to consume and used by the entire spectrum of users within an organization. This drives both high levels of adoption and tangible results for our users across the globe.

Today we offer a broad suite of software analytics products designed to help companies drive value from their software applications and power their digital initiatives. APM, or application performance management, is our heritage, and we continue to innovate in this area. We now have six variants of our core APM product covering languages like Java, .NET, Python, Ruby, PHP and Node.js.

We also offer New Relic servers, which monitors the servers that the applications are running on. The entire suite is also extensible through our platform marketplace which allowed partners and customers to build additional connections into our APM offering. In addition, we offer New Relic Browser and New Relic Mobile to help our customers measure and improve the end user experience across multiple devices, and New Relic Synthetics to help test the performance in websites around the world. All of these products are currently generally available and delivering incredible value to our customers.

The last product I'd like to talk about is New Relic Insights, which we delivered last year. Insights goes beyond measuring the health and performance of software to actually understanding the business activity flowing through the software. I mentioned earlier that because of our vantage point within the application itself, we are collecting all the data flowing through the application. By providing access to this treasure trove of data in a simple and beautiful interface, we're providing business users with real time access into performance of the business itself, and we do it with blazing fast query response time.

Let me just take a second to provide you with some metrics to show you just how powerful the proprietary Insights database technology is. In Q3 New Relic Insights collected 9.2 trillion events from software in real time, and our customers queried an aggregate of 2.8 trillion events. The median query returned in just 10 milliseconds, and 99% of all queries took well less than a second to run.

Our passion for building these innovative, beautiful and powerful products has fueled a loyal customer base of more than 11,000 paid business accounts at the end of Q3. And while our products are installed in companies large and small, we have been dedicating more resources to attract and penetrate larger accounts over the last year. This has enabled us to grow both our account base and our average revenue per account quite nicely.

So with that as a backdrop, let me transition to talk about a few of the business highlights from the past quarter. Our revenue for the quarter was $29 million, up 69% versus the year ago period. I was pleased not only with the headline number, but the underlying drivers as well. We saw success across our entire product suite and customer base.

Over the course of the last 12 months, we've gone from two product SKUs to five in our overall product suite, launching New Relic Insights last March, and both New Relic Browser and New Relic Synthetics in Q3. These offerings are quickly driving a growing portion of our revenue. Overall our sales team has increasingly demonstrated the ability to sell the broader software analytics product suite across our entire base, from the smallest to the largest of companies.

While these newly introduced products are still less than 10% of our revenue, they represented more than 10% of incremental MRR in the third quarter. In addition, we saw early signs of success from our enterprise sales efforts. We had a record number of $100K plus ARR deals in the quarter. That large deal success was clearly visible in the enterprise, but also in our SMB business as our broadened offering increasingly drove strategic conversations across every customer segment.

Overall we saw strength in both new and existing customer transactions during the quarter. We deepened relationships with many of our existing customers, including Citrix, Conde Nast, E*TRADE, Nordstrom HauteLook, Lending Club, Manheim, Scholastic and Zendesk. And we welcomed Capital One, Hootsuite, Interactive Intelligence, Liazon and Walgreens, among many other new customers.

I wanted to share a couple examples from the quarter of how our customers are driving value from the New Relic software analytics suite. One of the more interesting deals in Q3 was with a large global media conglomerate who decided to adopt our entire software analytic suite in a meaningful upsell. This company has long been a New Relic customer, using our APM product in three divisions, including an international subsidiary. This company was embarking on an initiative to standardize performance monitoring across all of its business units into unified dashboards.

This customer recognized our depth of language support, and our rapid pace of innovation, with Insights in particular helping drive the transaction. In turn, the company committed to a broadened relationship and significant expansion of their footprint. Overall they augmented their core APM subscription but they also added Insights, Mobile, Browser and Synthetics, resulting in a multi-year, mid-six figure ARR partnership, with over half of the new business coming from outside of APM.

Another interesting transaction in the quarter was with a leading enterprise technology and solutions provider for the education industry. This customer is currently consolidating 23 data centers into 7, while moving legacy applications to the cloud with a modern Node.js frontend. After conducting a thorough competitive review, this customer recognized the unmatched breadth of our suite, which combined with multi-language support and true multi-tenant SaaS architecture, drove its decision to standardize on New Relic. They are now working with our entire software analytics suite to assist with the cloud migration and provide performance visibility for all of their production applications to ensure it is meeting its contractual SLA commitments.

During the third quarter we saw incredible momentum and support for our software analytics vision. Industry analyst firm Gartner placed New Relic in the leader quadrant of their APM Magic Quadrant for the third straight year, with the highest position for ability to execute. In October we hosted an amazing lineup of speakers for our annual user conference, FutureStack, including executives from Adobe, Airbnb, Bleacher Report, GoPro, Lending Club, Trulia and Twitter. We had more than 1,200 developers and customers join us to learn about software analytics.

At FutureStack we also announced another milestone, our first acquisition, Ducksboard. Based in Barcelona, Ducksboard helps customers visualize and monitor data in real time from multiple cloud data sources, and will add significant functionality to our software analytics platform.

In summary, we were very pleased with our performance in the third quarter. We remain enthusiastic about our market opportunity in the software analytics market as businesses of all sizes are dedicating more resources and attention to software applications in an effort to drive their strategic growth initiatives. These companies are shifting spending to support their entire application ecosystem from IT through to the end user's customer experience.

New Relic is uniquely positioned to be able to support this full spectrum of users with its suite of fully integrated cloud-based products. We believe that we are in a very early inning of a multi-billion dollar market opportunity. And now let me turn the call over to Mark for more detail on our financials.

Thanks Lew, and again, welcome everyone to our first earnings call as a public company. As this is our first call, I'd like to take a moment to describe our financial model in more detail before walking you through the quarter and our guidance for Q4 and the full 2015 fiscal year.

New Relic is a SaaS company with 100% subscription revenue today. We are product driven and passionate about customer success. This focus has helped drive our strong historical revenue and customer growth, and has contributed to key financial benefits, including our strong historical gross margins.

To bring our products to market, we employ a land and expand strategy designed to help [seat] accounts and then grow with those accounts as they expand their uses of our software. We acquire new customers through our marketing programs, inside sales teams, and increasingly our direct sales efforts. We grow our business with existing customers primarily in three ways, growing along with a specific initiative within our customers, selling additional products to the account, or expanding in an account across the visions and/or geographies.

Historically our new business has been fairly balanced between both new and existing customers, a remarkable feat given our size and growth rate. This is also a testament the untapped opportunity in this market.

New Relic initially focused on acquiring customers in the SMB segment through a low touch, high velocity sales model. However, as word of mouth has spread among the developer community, we have been increasingly pulled into larger companies. Coming to this fiscal year, roughly 75% of our customer base is comprised of SMBs with 100 or fewer employees. However, the other 25% of our customers in the mid-market, which we define a those with 100 to 1,000 employees, and enterprise, those with 1,000 or more employees, accounted for roughly half of our revenue.

We have recently increased our focus on the enterprise for several reasons. First and foremost, we are getting pulled deeper into these organizations as customers want us to address more and more of their requirements. Larger companies have more complex environments and a greater need for the insights our software analytics suite can provide. These larger engagements also offer more long-term expansion opportunity.

Over the past year we have been significantly building out the enterprise team, and this past quarter we put our first feet on the street internationally adding reps in the UK. We have seen improving productivity as our reps ramp, and we expect a growing portion of our business to come from the enterprise over the coming years.

Now let me turn to some highlights from the third fiscal quarter. Revenue came in at $29 million, up 69% year-over-year. We ended the quarter with 11,270 paid business accounts, up 34% from the end of Q3 last year. Dissecting our customer base a bit further, we ended the quarter with over 1,000 enterprise accounts for the first time. Our success closing larger deals drove a strong increase in our annualized average revenue per paid business account, which crossed through $10,000 this quarter, ending at close to $10,600, up 24% year-over-year and 7% quarter-over-quarter.

One of the key metrics we employ to measure the success of our land and expand strategy is our dollar-base net expansion rate. This metric calculates the net growth in our installed base. We've consistently seen strong results over the last several years, coming at 110% or better every quarter, an indication of the expansion opportunity in our customer base. During our third quarter, we saw a dollar-base net expansion rate of 132%. This performance was the strongest in the last six quarters, and reflects success across all three growth vectors previously discussed.

While we are certainly pleased with this quarter's result, it is important to note that we had two new product releases in the quarter that we believe benefited from strong pent up demand, and we would expect this rate to moderate in Q4.

Despite the fact that most of our sales resources are in the US today, we have a global business and customer base. In the third quarter our revenue split was approximately 66% domestic and 34% international, and we continue to see good investment opportunities overseas.

Before moving on to the profit and loss items, I would like to point out that I will be discussing non-GAAP results going forward. A full reconciliation between historical GAAP and non-GAAP results can be found in our earnings press release.

Non-GAAP gross margin for the quarter was 81%, compared to 83% for Q3 of last year and unchanged sequentially. We are continuing to invest aggressively in our world class infrastructure to support recent product releases. We expect these investments to pay long-term dividends, but these investments will also keep gross margins near or below current levels.

In terms of our non-GAAP operating expenses, sales and marketing expenses were $24 million, compared to $16.5 million for the year ago period, and $18 million in the second quarter of this year. This growth largely reflects the continued build out of our sales and marketing organizations, particularly our enterprise sales team. Also of note was the additional expense associated with our annual FutureStack user conference that fell in the third quarter.

Research and development expenses were $5.7 million, compared to $4.3 million for Q3 of last year, and $5.1 million for Q2 of this year. This reflects continued investment in our product portfolio.

G&A expenses were $5.6 million, compared to $2.1 million last year, and $3.8 million in Q2, largely reflecting increased head count and cost associated with operating as a public company and employee training expenses. This produced a non-GAAP operating loss of $11.8 million, compared to $8.5 million for Q3 of last year, and $6.4 million for Q2.

We plan to remain in investment mode as we have a leadership position in what we believe is a large and growing market. However, we have seen operating margin leverage in our business on a year-over-year basis from prior investments. From a long-term perspective, our goal is that our business model generate healthy non-GAAP operating margins of 20% to 25%.

Our non-GAAP net loss per share for Q3 was $0.28, based upon a pro forma weighted average share count of 42.3 million. This compares to a non-GAAP net loss per share of $0.23 based on a pro forma weighted average share count of 37.9 million in Q3 of last year, which assumes the conversion of preferred stock.

We ended the third quarter with $205 million of cash, cash equivalents and short-term investments, up from $92 million at the end of the previous quarter. We generated $120 million in net proceeds from our initial public offering in December.

Elsewhere on the balance sheet, our deferred revenue balance grew to $23.5 million, up from $9.4 million in Q3 of last year, and compared to $15.7 million in Q2. Our contracts typically have terms of one year, although some are longer and some are shorter. Given our heritage in SMB, more than two-thirds of our customers pay us monthly. However, this ratio has been steadily declining, driven both by greater discipline in our sales organization, and by an increasing success with enterprise customers, who often prefer quarterly or annual payments.

As we continue to penetrate the enterprise segment, we expect deferred revenue to grow faster than revenue for at least the next year, but we believe that it will be some time before this becomes a meaningful indicator of our business in any particular period.

Now let me turn to our outlook for our fourth fiscal quarter and the resulting figures for fiscal 2015 as a whole. We are [initiating] our outlook as follows. For the fourth fiscal quarter ending March 31st, we expect revenue to range from $30 million to $30.5 million, or growth of 51% to 54% year-over-year. We expect a non-GAAP operating loss of $11 million to $12 million as we continue to invest for future growth. This would lead to a non-GAAP net loss per share in the range of $0.23 to $0.25, based upon a weighted average share count of 47.2 million.

Accordingly, for the fiscal year 2015, we expect revenue to range from $107 million to $107.5 million, or growth of 69% to 70% year-over-year. We expect a non-GAAP operating loss of $37 million to $38 million. This would lead to a non-GAAP net loss per share in the range of $0.90 to $0.92 based upon a weighted average share count of 41.3 million.

In summary, we are pleased with both the results from the quarter and the positive momentum we have seen in our business. Our go to market strategy is working across multiple products and customer segments. Overall we are at the early stages of what we believe is a large and growing opportunity for software analytics, and we believe we are well positioned for future success in this market. And with that, we'll now open the floor for your questions.

(Operator introductions). Your first question comes from the line of Keith Weiss with Morgan Stanley. Your line is now open.

Excellent. Thank you guys for taking the question, and a very nice quarter out of the gate. I think we probably didn't -- I mean a lot of impressive numbers in the quarter. Probably the number that's most impressive is that 132% net dollar expansion rate. And you mentioned a couple of vectors, but sort of the new products being one of them. So two questions, maybe one for Lew and one for Mark.

Lew, I guess the question for you would be, how are you guys seeing like the progress in a product like Insights actually getting you from just into the developers into sort of more of a business analytics use case? Has that sort of progressed? Is that progress happening yet? And then the follow-up question for Mark would be, you mentioned some pent up demand in the quarter for some of the new products. How should we think about those new products ramping I guess in Q4, but more so over the next -- probably into FY 2016?

Thanks very much, Keith, great questions, and this is Lew. Obviously we're very excited about our opportunity with Insights because it opens up so many avenues of use cases that really address the needs of a business beyond performance availability. But we recognize that's going to take some time to get to its full potential, and we're excited about that because we've got a very healthy and growing business in our core APM and related other products.

So I'd say that Insights is contributing very well to the company's growth in a variety of ways. One, just customers love the software analytics vision, and they think that Insights differentiates the whole offering. So when I talked about that media conglomerate increasing their investment where APM was less than half of the total deal, you know Insights participate in that deal, but it was also the vision behind Insights, and they can see the possibilities.

We do have some examples of customers using Insights, such as a neat company called AppFolio, which uses us to look at their user behavior and feature adoption and address like the questions of what features are working and translating into better business results.

But closer to home with our current user, we see a lot of adoption for just advanced performance analytics to get precise views into what's going on in the production environment. And so in that kind of example, thetrainline, which is the fifth largest ecommerce company in the UK, they sell train tickets online, their CTO in a public article that came across my desk a week or two ago, he said the first app he launches every morning is New Relic Insights.

So we're thrilled that it's got that kind of appeal to our customers, the way we think all New Relic products do. But I got to say, this was a success across the whole product line. Mobile was fantastic. Synthetics was very well received. And Browser in particular, very strong. And of course our APM product we think is best in class.

And Keith, in terms of the new products last quarter, Browser and Synthetics, as Lew mentioned, we were very excited with the performance of both. And I think there was some pent up demand, you know primarily from our beta customers. You know a fair number of customers had tried the product and were aware of it coming out, and once it was released they jumped to buy. On the other hand, I don't think we pulled any business forward necessarily from future quarters. So we do expect to see continued growth in those products as we go forward.

Excellent. Thank you, guys.

Your next question comes from the line of Sterling Auty with JPMorgan. Your line is now open.

Yes, thanks. Hi, guys. Want to explore, you mentioned the increase in the average revenue per paid business account going over $10,000. Can you give us a sense of how much of that is being driven by upsell to existing customers versus actual larger new customer deals?

Sure. Thanks, Sterling. It's really a combination of the two. We are seeing growth in the initial transaction size across all segments, and that's driven both by the customer environment as well as deals that are coming in with multiple products. In addition, we are also seeing good uptake of the new products, and we're seeing, particularly at the high end, expansion deals grow. And so it's a combination of the two, both new deals that come in and existing customers.

Okay. And then you mentioned the enterprise sales, I'm kind of curious, you know you've been investing and growing the head count there. How is the ramping? In other words, how long or how would you kind of characterize the traction that the newer reps are getting?

You know we think they're ramping very well. It's still a learning experience for us. We've expanded the team pretty quickly over the last couple quarters. We've brought on Erica Schultz to run that team I guess it was in April or May timeframe, and we've been growing that team out. We've had some very good early success with the ability to get reps ramped quickly. But you know there's a long way to go in terms of really proving that out and making sure we can do that consistently.

Got it. Thank you.

Your next question comes from the line of Brent Thill with UBS. Your line is now open.

Good afternoon. Just wanted to follow-up on Insights, Lew, and maybe talk about the progression and the adoption and how you're seeing that play out through 2015. And are there any kind of critical milestones you feel you have to hit before that really starts to hit an inflection point in adoption among your customers?

We're happy with how it's developing in the market. We have hundreds of paid business accounts using Insights today, so it's clear that it's a strong and solid product. And given how young it is in the market, and how hard this is as a technical problem to solve, I'm particularly pleased with how solid the product is.

I'd say that the important thing for us to do is recognize that we're really creating a category of software here. Nobody's ever done this type of thing before from our vantage point. And so trying to ask a customer to digest all of the use cases in their first engagement is I think more than a typical customer can consume. So we're fine being iterative with it, starting out close to home with our existing user with advance performance analytics. We see that resonating and we see that driving interesting deal sizes.

But you know, I'll use New Relic as an example because I'm giving the company permission to reference ourselves. But we use Insights in sales, marketing, product management, finance, support and engineering. So every worker in New Relic, every knowledge worker uses New Relic Insights to make better data driven decisions. And it's our 10-year vision that we want to do that for all of our customers. Now it's a 10-year vision because that doesn't happen overnight, but we believe we've got the right fundamental technology and some significant fundamental advantages from being inside the software.

Great. Thank you.

Your next question comes from the line of Greg McDowell with JMP Securities. Your line is now open.

Great, thank you very much. Thanks for taking my question. My question is about moving up into the enterprise. It looks like all the enterprise metrics are moving in the right direction. You mentioned the $100K plus deals and obviously we see the 150% plus deferred revenue growth.

But what I wanted to ask is at the enterprise level, and in the deals you've won in the enterprise in the quarter, could you talk about the differentiation from the other players out there? And why you won those deals, whether it was a business model situation or an architectural, or could you just maybe review with us sort of the critical win factors with those enterprise deals? Thanks.

Sure, no problem. And just for some of you who may not know, this is my second run at this space. I was the founder of a company called Wily Technology that a lot of people credit as the first company to do application performance management. And so in getting a fresh look at it, we were pretty intentional about how we are going to differentiate.

It starts with -- what's different now from say 5 or 10 years ago when first generation tools came out was the size of the environment and the complexity of the environment is so much larger. People aren't managing 10 or 20 JVMs, they're managing 10s of thousands of JVMs running on thousands of servers and trying to make sense of this micro services environment. And so the cost of managing the management system is too high, particularly for on premise deployments. You want to be able to deploy any code or any application into production with confidence and not have to worry about how you're going to manage it.

And so that's the beauty of our approach. We have a very simple to use product that under the hood does a lot of complex things. That's like all the great products, they make things that are really hard to do very easy for the end user. And we do that we think better than anyone. So when you got a really large environment with lots and lots of services written in lots of languages, the software analytics vision really resonates.

The fact that we, from the ground up, built New Relic Browser on the same architecture as New Relic APM, on the same architecture as New Relic Mobile, all from one view, and we're doing it no matter what language you use, that really resonates with the modern enterprise. And so we see that accelerating and we think that it's really about the whole software analytics vision that, in particular when it's a modern digital initiative and time to market is everything, you don't want to be waiting around or dependent on learning how to use a complex tool that we think most of the competitive offerings are.

Great, thank you.

Your next question comes from the line of Michael Turits with Raymond James. Your line is now open.

Hey, guys, Michael Turits. Anything else you can give us in terms of sort of structural metrics in the change to enterprise? For example, any change in the move to annual versus monthly billing, anything else you can give us there? And then I have other questions also.

Sure. You know we have had quite a bit of success in migrating folks to annual upfront payments. And that both, you know it's better discipline in our sales organization. As we move up the enterprise, enterprise customers are willing to do that. So we had good success last quarter migrating both existing customers who were up for renewal from a monthly to an annual upfront, as well as new customers that are coming in, we're getting better about just initiating the agreement with a one year term and an upfront payment. So that was very successful last quarter.

I think part of that was driven by the fact that it was December and a lot of people's budget year end. And I think that will continue to happen over the coming quarters. I think our deferred revenue will grow quicker than our topline. And as I mentioned earlier, I think it will be a while before that's a true indicator of future revenue.

Thanks, Mark. And then I just wanted to ask you guys the kind of standard competitive landscape question. Are you seeing any change, either at the high end from some of the legacy vendors, whether it's from CA or from Dynatrace, or at the low end from the multiple startups that are out there, some of whom are taking a different kind of technical tack than you are?

No substantial change at all. And you know we certainly welcome competition. We think that it's a large and growing market, and there's room for multiple players. But there's so much opportunity out there. You know the majority of the deals we see have no competitor. But when there is a competitor in there, we do well based on our software analytics vision and we feel like we are at a fundamental advantage, particularly with our cloud architecture.

Okay. Thanks very much.

Your next question comes from the line of Derrick Wood with Susquehanna International. Your line is now open.

Great, thanks. Lew, now that you've got this fresh injection of cash, could you just kind of talk about where the priorities are for accelerating investments in the business, maybe you know across products or geos or sales channels? Maybe a little color there.

Sure. So you know we see substantial growth and opportunity in front of us, and in particular that these are things that we said during our road show and they were being consistent, we see a particularly interesting opportunity in the enterprise, and we're prepared to invest ahead in building out a world class sales force to fully capture that opportunity. I believe we've got best in class leadership with Hilarie Koplow-McAdams leading the charge as our Chief Revenue Officer. So I'm confident in her ability to execute and be a good steward of that investment.

My philosophy, and this comes out of a board meeting recently, is compared to other companies, I like to invest in great product development, and I'm willing to invest ahead for great product development. And while we, you know we had a Ducksboard acquisition, we're certainly not adverse to doing acquisitions. Our preference is to build amazing products and we're willing to invest in doing that so that there's always something new and differentiating, exciting coming from New Relic that customers love. And so there will be continued investment in R&D.

And I believe we -- I think we've got a really strong brand that's been really nicely built up by Patrick Moran and his marketing team. And we're going to continue to invest in that market presence. The FutureStack conference was a real investment for us, but I think it was a wise one. And so that awareness of what New Relic does, and more importantly the movement that it represents I think turns into nice business results over the long term.

Great, thanks. And I guess Mark, two quick ones for you. Foreign currency, I know you guys have a lot of revenue internationally. Do you sell in US dollars or local currency? And is that something we should think about? And then if you could just remind us on kind of how seasonality works in your business. You've got a fiscal year ending March. Maybe with respect to kind of booking, how you typically see seasonality. Thanks.

Sure. In terms of foreign currency exchange, the vast majority of our revenue is dollar denominated, so the dollar strength is not really an issue for us in terms of an impact on the financials.

In terms of seasonality, you know December is always a strong quarter, you know particularly as we get more focused on the enterprise and the larger percentage comes from enterprise, I think we'll see more of that going forward. On the other hand, you know March is our fiscal year end and so that always helps in the March quarter. So there's a bit of seasonality toward that, I would say the December and March quarter, but not too much.

Okay. All right, thank you.

There are no further questions at this time. I turn the call back over to Mr. Parker.

Thanks, Tracy. And thanks to everyone for all your questions. We also look forward to seeing you at many of our upcoming investor events, including Susquehanna Financial Group's Semi, Storage & Technology Summit in New York on February 24th, the Morgan Stanley Technology Media & Telecom Conference in San Francisco on March 2nd, and the JMP Securities Technology Conference, also in San Francisco on March 3rd. Thank you very much.

Thank you for joining. This concludes today's conference call. You may now disconnect.