New Relic Inc (NEWR) 2018 Q4 法說會逐字稿

Good afternoon. My name is Jaclyn, and I will be your conference operator today. At this time, I would like to welcome everyone to the New Relic's Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. (Operator Instructions) Thank you. Jon Parker, you may begin your conference.

Thank you. Good afternoon, and welcome to New Relic's Fourth Quarter and Full Fiscal Year 2018 Earnings Conference Call. Joining me today are New Relic's Founder and CEO, Lew Cirne; and Chief Financial Officer, Mark Sachleben.

Today's conference call contains forward-looking statements. Any statement that refers to expectations, projections or other characterizations of future events, including financial projections and future market conditions, is a forward-looking statement. Actual results may differ materially from those expressed in these forward-looking statements. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to our earnings release issued today as well as the risks described in our most recent Form 10-Q filed with the SEC, particularly in the section titled Risk Factors.

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 release issued today.

At times, we may offer incremental metrics to provide greater insight into our business results. 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 the Investor Relations section of New Relic's website to access our earnings release issued today, a presentation that accompanies our earnings 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. We finished an outstanding fiscal year '18 with Q4 financial results above the high end of our guidance ranges. I'm very pleased to report revenue of $98.4 million and non-GAAP operating income of $4.8 million for the quarter. For the full fiscal year, revenue was $355.1 million, up 35% and our non-GAAP operating loss narrowed to $1.5 million. These results were fueled by continued go-to-market success, which we believe stems from our relentless focus on helping customers move faster with confidence.

We ended the year with our Enterprise business representing a record 54% of ARR and brought our total number of Enterprise Business Accounts to more than 2,100. At the same time, our SMB business had another record quarter for new ARR. Overall, across all segments, we saw a record number of 6 and 7-figure transactions, which results in more than 40 paid business accounts now paying at least $1 million annually, greater than 70% increase from last year.

We believe that we are only at the beginning of a seismic shift in how companies build and deliver software, which we expect will result in long-term tailwinds for our business. Industry research firm, IDC, predicted that by 2021 at least 50% of all global GDP will be digitized. Think about that for a second. Digital transformation is driving companies to be more productive and efficient with how they build and operate modern software, particularly customer facing applications. For more and more companies, the digital customer experience is the primary brand experience, which is why it is critical to have insights into the performance and health of their digital business.

In addition, the demands of becoming a software-driven business are putting significant pressure on development and operations teams to move quickly and deploy new products and features to customers more frequently. This pressure, combined with the accelerating pace of technology change, has led organizations to rapidly adopt modern software development technologies and practices, including DevOps, Micro Services, service computing, containers and, of course, cloud computing. But introducing frequent changes to mission-critical software in highly complex environments can create tremendous risk of interruptions and even outages to companies' customer-facing apps. New Relic gives modern technology teams visibility into the real-time performance of their software, infrastructure and customer experience, which then helps empower them to succeed with their digital initiatives. We allow companies to instrument every aspect of their modern architecture so they can deliver an incredible digital experience to each and every customer.

Today, our advanced customers don't view New Relic as an APM tool. Instead, they trust New Relic as a strategic platform for managing the success of their modern digital initiative. According to a commission study conducted by Forrester Consulting, the typical enterprise has approximately 12 monitoring tools. But many of these are single-purpose tools that fail to deliver on a unified view of one's entire digital environment. We believe that we are redefining the market category as a platform for customer facing projects and that our true competition continues to be nonconsumption.

In March, Gartner estimated that only 5% of application workflows were monitored by APM, a figure that we expect to quadruple by 2021. Which means we have significant runway to help every enterprise instrument their entire environment. We continue to see a fragmented, underserved and expanding multibillion market opportunity for the New Relic platform.

We started fiscal '18 with a goal to win the cloud, setting out a vision to be the de facto standard for monitoring the performance of application workflows running in the cloud as well as the underlying cloud infrastructure itself. From talking to CIOs across the globe, it is clear that nearly every company today has a cloud strategy, whether it is public, private or hybrid. And we believe New Relic is uniquely positioned to help companies accelerate their adoption of the cloud as well as optimize their cloud workflows.

In Q4, we secured deals with organizations like Blue Cross Blue Shield, Expedia, Porsche AG and SAP Concur to help them accelerate their adoption of the cloud. Our pure SaaS architecture delivers a natural advantage over on-premise solutions that can't scale for modern cloud and hybrid environments. We also delivered more than 1 dozen new out-of-the-box integrations for New Relic Infrastructure with major cloud vendors making it easier for our customers to see all of their performance data in one integrated platform.

Many companies today are embracing cloud strategies across multiple cloud vendors, using the right cloud for the right workload. We can act as an independent third-party, an honest broker, single platform to integrate all of their performance data coming from across cloud as well as their on-premise workloads. We've talked about the importance of our partners to help bring our message to companies undergoing significant transformation.

As part of this, we've recently kicked off a world tour in parallel with Amazon Web Services Summit, designed to reach customers and prospects in more than 17 cities around the globe. In addition, at IBM's Think Conference in March, CEO Ginnie Rometty announced our new partnership whereby IBM will resell New Relic platform to its global customer base and internally leverage our platform for many of its critical workloads. New Relic is proud to help IBM's global customers accelerate their adoption of IBM Cloud, just as we do for all of the major cloud for vendors customers.

On the product front, our engineering organization has continued to innovate at an incredible pace. Customers are responding to our new offerings in the market, allowing us to deliver 40% of ARR from non-APM products in Q4.

In particular, I want to call out both New Relic Infrastructure which completed its first full year in the market and New Relic Insights, our analytics platform. Each delivered more than 10% of new ARR for the full fiscal year. These products were critical in helping us deliver a net expansion rate of 141% in the fourth quarter. And overall, non-APM products now account for 28% of our total ARR. This result helps showcase how our customers are continuing to expand their investment in New Relic. It also reflects early success with some of our recent go-to-market investments, which aims to accelerate the rate at which our customers expand and standardize on our platform.

More broadly, we delivered several new features across the platform in fiscal '18, including New Relic Applied Intelligence, which uses machine learning to help customers identify patterns, trends and errors and delivers both predictive analytics and prescriptive advice for quick error resolution. And New Relic Health Map, which provides a high density view of all your applications and the underlying infrastructure in a single pane of glass so our customers can quickly pinpoint and resolve problems and see the relationship between their application and their infrastructure.

That's the power of our cloud delivery, enabling us to regularly strengthen our overall platform for our customers.

In fiscal 2019, we plan to double down on our winning the cloud strategy and maintain our focus on becoming the dominant DevOps platform that companies use to monitor, manage and operate their digital systems. To accomplish this, we expect to accelerate our pace of R&D investment in fiscal '19 to help capture significant opportunities we have seen in the market.

Our increased R&D efforts are centered on a single goal, to make it a no-brainer for our customers to put New Relic everywhere in every modern application environment. We see our current product [rev set] giving us ample runway for us achieving our $1 billion run rate target exiting fiscal '22. We also see a much greater long-term opportunity. In our view, every company needs to instrument their entire environment in order to be able to compete in the digital economy and we will continue to broaden our platform to provide deep visibility for them as they look to transform their businesses.

Today, customers struggle to make sense of their performance via a collection of tactical tools. We see customers demonstrating a strong need for a unified platform in a single pane of glass from a strategic partner like New Relic. We are early on our journey here, but we are already seeing early signs of our success with our non-APM product adoption. We believe that a new category is emerging and we aim to become the dominant platform of choice.

Finally, I want to call attention to our 2 promotions in the go-to-market organization, designed to drive our continued growth and customer success. Our EVP of Global Sales, Erica Schultz, has recently been promoted to Chief Revenue Officer and is now responsible for our entire go-to-market strategy and organization. In addition, our Senior Vice President of Technical Sales, Services and Support, Roger Scott, was also promoted to EVP and our first-ever Chief Customer Officer. As part of this move, we are expanding the role of our technical sales organization with the aim of delivering more value to our customers faster.

I want to congratulate both Erica and Roger who are committed to our customers' success.

In closing, I want to thank my entire team and every Relic for delivering an outstanding fiscal '18. It was a banner year for our company, focused on helping solve our customers biggest problem and capping off our first decade in existence. I look forward to seeing you at our Analyst and Investor Day on June 4 in San Francisco.

Now over to Mark who will update you on the numbers.

Thanks, Lew. As a preliminary matter, I wanted to remind you that in Q1 2019, we adopted Accounting Standards Codification 606 using the modified retrospective method. During my portion of the call, the financial results for the fourth quarter and full fiscal year 2018 are presented under the pre-606 revenue recognition standard. However, our financial guidance for Q1 '19 and the full fiscal year 2019 has been issued according to the new 606 standard.

With that said, our fourth quarter revenue was $98.4 million, up 34% year-over-year. As has been customary on past end of year calls, I'll provide some additional color today around how we ended the year. Overall, we ended the quarter with more than 17,000 total paid business accounts with the number paying more than $100,000 in annual recurring revenue rising past 700, up 74 from last quarter. Our strongest ever quarterly increase. The growth of this figure comes from a combination of new logos plus customers within our install base expanding their spend, underscored by a 60% year-over-year increase in six-figure transactions in Q4, as Lew referenced earlier.

Our Enterprise business, defined as Paid Business Accounts of more than 1,000 employees, ended the year at approximately 54% of annualized recurring revenue, up from around 46% at the end of fiscal year 2017. Our dollar-based net expansion rate in the quarter was 141%, up from 133% in the year ago period and the highest figure we've reported as a public company. Given the expansion of our ARR install base over the past year, we are particularly pleased with this metric. But, as we've mentioned before, we do expect it to moderate and fluctuate over time.

Turning to our geographic split. U.S. and non-U. S. revenue each grew 34% year-over-year in the quarter with non-U. S. revenue representing 32% of revenue in the quarter.

Before moving to profit and loss items, I'd like to point out that unless otherwise specified, all the expense and profitability metrics I will be discussing going forward are non-GAAP results. Full reconciliation between historical GAAP and non-GAAP results can be found in our earnings release issued today and available on our website.

Our gross margin came in stronger than expected for the quarter at 85%, up from 83% in the year-ago period. We expect gross margins to be moderately lower in fiscal '19 due to a catch up in CapEx. It's still among the best-in-class at around 83%.

With regard to operating expenses. Sales and marketing costs were $49.8 million compared to $42 million in the same quarter last year. R&D expenses were $16.2 million compared to $13.3 million in the same quarter last year. G&A expenses were $12.5 million, up from $11.1 million in the same quarter last year. Overall, our expense in the quarter produced non-GAAP operating income of [$4.8] million or 5% of revenue, compared to an operating loss of $5.8 million or negative 8% of revenue in the same quarter last year. Overall, net income per diluted share was $0.09 compared to a net loss per basic share of $0.11 in the same quarter last year.

Quickly running through our financials for the year. Revenue was $355.1 million, up 35% over last year. Gross margin was 84%, up from 82% in fiscal 2017. Operating loss was $1.5 million or nearly breakeven as a percent of revenue compared to a loss of $25.4 million or negative 10% of revenue in fiscal '17. Net income per fully diluted share was essentially breakeven compared to a net loss per share of $0.49 in fiscal '17.

Turning to our balance sheet. We ended the year with approximately $248 million of cash, cash equivalents and short-term investments, up from approximately $233 million last quarter. Elsewhere on the balance sheet, our total deferred revenue ended the quarter at $190 million, up 51% year-over-year and 41% quarter-over-quarter compared to our guidance for a mid-20% increase. As of last Q4, there were a number of moving pieces that accounted for about half of the favorability relative to our expectations, representing a $10 million tailwind. This benefit was due to a combination of a few renewals that pulled forward from Q1 as well as several customers converting from monthly or quarterly to annual invoicing durations. The latter helped contribute to our installed base ending the year with an 8.1 month average invoice duration, up from 7.2 months a year ago.

Looking ahead to Q1, we expect deferred revenue to be down mid-to-high single digits percentage-wise from Q4, primarily due to the early renewals and billing activity previously discussed, which overall act as a roughly $6 million headwind to our Q1 deferred revenue.

For the remainder of fiscal 2019, we expect deferred revenue to generally follow a similar seasonal pattern that it did throughout fiscal 2018, including a slight sequential decline in Q2 and a moderate increase in Q3 before a more substantial uptick in Q4. For the full fiscal year, we expect calculated billings, which we define as revenue plus the change in quarterly deferred revenue, of at least $525 million.

Turning to cash flow. We generate cash from operations of $12 million. Free cash flow, defined as cash from operations minus purchase of capital expenditures minus capitalized software, was also positive at roughly $6 million. As we look into fiscal 2019, we expect cash from operations between $70 million and $80 million and physical capital expenditures of $35 million to $40 million, reflecting some delayed data center spending from fiscal 2018 as well as numerous office expansions.

For the year, we also expect capitalized software to be at similar levels to last year. Overall, we expect to generate between $30 million and $40 million of free cash flow for fiscal 2019, with seasonal patterns similar to those in fiscal '18, including Q1 representing the seasonally strongest period for free cash flow generation given our significant billing activity in Q4.

Now I will turn to our outlook for the first fiscal quarter 2019 and the fiscal year as a whole, which are calculated based on ASC 606 standards which we are adopting on a modified retrospective basis beginning this first fiscal quarter of 2019. As a reminder, we believe the revenue impact of the new standard will be immaterial while the expense benefit will be more pronounced as we previously discussed.

For the first fiscal quarter ending June 30, we expect revenue to range from $104.5 million to $106.5 million, reflecting growth of 30% to 32% year-over-year. We expect non-GAAP operating income of $5.5 million to $6.5 million. This would lead to non-GAAP net income per diluted share in the range of $0.10 to $0.12 based upon a weighted average fully diluted share count of 59.3 million for the quarter.

Our Q1 guidance incorporates a roughly $1 million expense benefit primarily due to the 3-year amortization period for commission expenses under ASC 606. Previously, all commissions were expensed in the period in which they were incurred. For the full fiscal year 2019, we expect revenue to range from $452 million to $458 million, or growth of 27% to 29% year-over-year. We expect non-GAAP operating income of $15 million to $20 million. This will lead to non-GAAP net income per diluted share in the range of $0.29 to $0.37 based upon a weighted average share count of 60.2 million.

I'd note that we currently expect Q2 to represent the low point of profitability for the year given significant hiring activity we are expecting in Q1, along with annual merit adjustments which this fiscal year moved to Q2, having previously occurred in Q1. Full fiscal year 2019 guidance includes a roughly $10 million benefit due to the deferred -- deferral of certain expenses under ASC 606, primarily sales commissions. And with that, I'll quickly turn it back to Jon.

Thanks, Mark. Before we jump in the Q&A, I just wanted to highlight that we'll be having an Analyst and Investor Day on Monday, June 4, here in San Francisco. If you did not receive a Save the Date and are interested in attending, please e-mail us at ir@newrelic.com. Additionally, I just want to quickly let you know that we are responding to your questions today from 2 different offices due to a family health situation. So just please bear with us in case there are any lags between responding to your questions.

With that, I'll turn it over to the operator to provide the queuing instructions.

(Operator Instructions) Your first question comes from Michael Turits from Raymond James.

This is actually Robert [Magic] in for Michael today. I was just hoping you could just walk us through where you're investing in both in R&D and the go to market given that margins is actually decelerating in fiscal '19? And then furthermore, are you still sales capacity constrained in your ability to grow the business?

Thanks, great questions. On the R&D side, the philosophy behind it is if you recall, about 1 year ago in the earnings call, I talked about how I was going to increase my time in the field, spending more direct time with our customers over the course of fiscal '18 and that was terrific. And along the way, I learned a lot about what our customers love about our products and some opportunities to do better. And that's feeding one of our R&D investment for this year. The short version is our customers love our products and want to make it even easier to consume even more and deploy it even more broadly. As I mentioned in the prepared statements, Gartner says that only 5% of application workloads running today have APM. And so we want to dramatically move the needle on that number. We believe we have already moved the needle on that number for the industry. Prior to New Relic, it was a specialist tool used by a small number of companies for a small number of applications. But we want to leapfrog ourselves and do even more, not only with APM but our entire platform. And so that's going to drive our R&D strategy and we are very excited about the progress we're making. But it's a little too early to give you more details on that right now. On the go-to-market side, we are very pleased with how that's been growing. We've seen excellent growth and particularly on the enterprise side but also on the commercial side of our business and we see the opportunity to increase our growth with more capacity. And at the same time, we are pleased with the efficiency gains we are seeing, the productivity gains we're seeing as well. So we are going to continue to invest in that. We feel like we are certainly not constrained by market opportunity or by our products' competitiveness. And we are thinking not only how do we sustain growth in the short-term but also set ourselves up for sustained growth over the long-term.

That's helpful. And just one more from me. Can you give us an update on the infrastructure product, on the overall competitive environment there? And who your closest competitors are right now?

Sure. So very happy with the infrastructure product for it to be -- delivered 10% of net new ARR in its first year in the market and just a 1-year-old product, that's terrific. It shows not only the strength of the product but also it backs up our belief in our statement that the market is really thirsty for a single platform to integrate infrastructure visibility with application and customer experience visibility. So we love our win rate. We see a variety of competitors depending on the nature of the environment and it's a pretty long list. But where we win is when customers want to -- particularly when they are running in a modern or cloud environment and especially when they want to see it all in one place. We believe, and I believe the market believes, that really, the most important starting point is the application and, of course, that's our strength and our hallmark is application visibility. And so our competitors tend to be infrastructure centric and struggle to deliver a satisfactory application level visibility product.

Your next question comes from Rob Oliver from Baird.

This is Matt Lemenager on for Rob today. Lew, the paid business accounts accelerated a bit to more than 700 -- the paid business accounts over $100,000 accelerated to more than 700 this quarter. But it still feels like early days just given that's less than 5% of the 17,000 total paid accounts that you have. What are the main things that need to happen to drive those greater than $100,000 accounts? Is it [multi-product] or wider adoption of APM or what do you think will drive that going forward?

Well, we believe many of them are already in the customer base. It's amazing to me that even though our enterprise business is 54% of ARR today, that's a relatively new development. Erica, our Chief Revenue Officer, joined us to build the enterprise piece from scratch just 4 years ago. And so our average spend in the enterprise base is $100,000. And as you can imagine, that's not a bell curve. That looks more like a long tail. So we've got a lot of enterprise customers in the base today that are just starting out on their New Relic journey. And if you look at our dollar rate expansion rate last quarter being particularly strong, that's really driven by particularly Enterprise segment. But adopting more New Relic products as they've had success with it. So we think we've got the right machine in place, the right recipe in place to acquire customers, maybe not at the $100k level. But as we demonstrate success with them, they grow rapidly in that $100k and beyond base. And on the high end, we see a really nice uptick also on our $1 million-plus customer segment.

That's helpful. And just one more follow-up. On the -- you spent a lot more time in the field over the last year. What were the biggest learnings you had and maybe what changes do you think -- the biggest changes will come out of that year spent in the field?

Well, first of all, there's nothing as energizing as visiting customers who rely on your products to do excellent and challenging work every day. And I saw some incredibly capable but highly overworked and busy people like trying to -- achieving incredibly aggressive goals for the company. It's not easy to run these complex systems. And they rely on New Relic's data to make sure they deliver a flawless customer experience. But they want more from us. They want us to be a no-brainer to put absolutely everywhere. And so, as I say, we're the best on achieving ubiquity within a customer and one of the ways to look at that is how many people use our products, whereas our competitors' products might be used by 5 or 10 people in a company. We might be used by hundreds or in some cases, thousands of people within the company. So by making our products even easier to use, even easier to deploy, even more cost-effectively to run, that makes us a truly ubiquitous solution for our customers. And that makes us a strategic partner to them.

Your next question comes from Adam Holt from MoffettNathanson.

This is Ray McDonough on for Adam. My question surrounds New Relic Infrastructure. To what extent has infrastructure acted as a landing point in your accounts? And if it has, what type of initial deal sizes are you seeing there, particularly in the enterprise?

I would say that we are seeing some cases where New Relic Infrastructure is a land product. It's certainly much more common for New Relic APM to be the land product. We've been doing it for a longer time and it often is a product that's adopted earlier in the lifecycle because our APM product can be used before an application goes live to identify problems while it's under development. But still there are some times when we do see people land with infrastructure or more and more often, they land with both products or 3 products as our platform value proposition continues to resonate. As for deal sizes, I'd like Mark to answer that one because I'm a little -- I think he'll be clearer on the numbers there.

Right. It depends a little bit on the segment we are talking about. In the SMB, those deal sizes tend to be relatively small. That -- the price point of that product lends itself to getting in -- at a pretty low monthly spend. For the enterprise, they tend to be a little bit larger. But as Lew said, primarily we are getting in with APM or APM's included. More and more often, enterprises are adopting infrastructure and APM to start because they realize how valuable that is in them helping them run their business. So I think that's the trend we are seeing. I think longer-term, we will see where we go. We've talked in the past about having infrastructure being more of a leading product. But I think we are still not quite there yet.

That's helpful. And then if I could, just a quick follow-up for Mark. Is there any reason to think that durations can now move past the 8.1 months we are at now? I seem to remember I think 8 to 9 months was where you might have thought it would stable out?

Yes, I think you can see that the curve's slowing. We went from 3.6 to 6 then 6 to 7.2, 7.2 to 8. So we're asymptotically heading toward some number that's probably in the 8 to 9 range. So I think there -- as our business mix continues to shift, it could go up a bit more. I mean, generally, enterprises are paying us annually. They still have that phenomenon. And SMB, commercial tend to pay us more monthly. So as that shift, mix shifts, we can head a little bit higher. But I don't think too much greater than the current 8.1.

Your next question comes from Derrick Wood from Cowen and Company.

This is Nick Altmann on for Derrick. Just going back to the strength on the Infrastructure tool. Can you give us an idea of what kind of attach rates you're seeing there? And then I guess are there any notable trends you're seeing in terms of what types of companies are driving the most demand for the Infrastructure tool?

Sure. I don't think we're disclosing attach rates for any of our products today. But we may take that as a follow-up potentially for our Analyst Day. But the types of companies that are adopting it, particularly, companies and/or, I would say, mindset or team mindset is people who are adopting modern environments, typically cloud computing, containerization technology and highly dynamic environments where the infrastructure is constantly moving. And because of that, it's very hard for more traditional tools to not only watch that infrastructure, but even more importantly, show the relationship between the application and the dynamic infrastructure that runs it. The thing is that we are seeing more and more enterprises in every vertical have teams and projects that are running in these environments. We believe it's going to drive the bulk of the growth in our market segment is these types of technology environments which is why we are focusing our R&D efforts at being the best at managing and monitoring these modern technology environments. And so that, I think, gives us an opportunity to differentiate, again because we start from the application point of view, which is, without question, the most complex part of the problem and it's where all the logic is and where all the business value is. And then we roll in the application or the infrastructure and the customer experience data alongside all in one place so that our customers can really see the whole picture.

Got it. Okay, that's helpful. And then can you guys just talk about how growth is trending in the SMB market? And then what sort of investments you guys are making there to sustain that growth?

I'll let Mark...

Sure. So we've announced a couple of real strong quarters in that segment. And so we are pleased with the way that is growing. It continues to be profitable for us. It has been for quite a while now. And so I think that's performing well. What we've done there is we've tried to focus a bit more on the high end of the SMB market, the commercial market, we call them that 100 to 1,000 segment and devote a little bit more investment to that segment, which I think in certain ways, behaves like an enterprise in terms of how they buy and more buying characteristics. And so you can get good sized transactions in that area. And so that's helped drive the growth of our SMB business overall. We continue to be expanding that business in terms of our investment. So it certainly is very healthy for us. But that said, the real growth we expect going forward is going to be driven by the enterprise.

Your next question comes from Sanjit Singh from Morgan Stanley.

This is Josh [Barron] on for Sanjit. Lew, you briefly mentioned serverless computing in your prepared remarks. I was just hoping you could expand on your longer-term view of how serverless should impact the need for distributed monitoring? And as a follow-up, how would pricing models change when compute is (technical difficulty)on a triggered event basis?

I love getting this technical. Thank you, Josh, this is great. So we are seeing an uptick in adoption of serverless compute technology. We think it's very rare and we don't think it's going to be the case for the bulk of the market to be 100% serverless in an application architecture. It's going to be -- but it's going to be an important portion of how significant pieces of functionality work in digital applications. So it's an important visibility point that we are going to invest more on. And it does beg the question, given there is no server to monitor and historically, when we started out, we priced per server. How do you charge for this? And all I can say is we're having conversations with customers internally. We are hard at work on figuring out the right way to do it. Our goal with pricing is always to be simple, fair, easy to understand and easy -- again, a frictionless way for customers to want to adopt more, want to be larger customers. And so we are going to approach our serverless visibility with that mindset when we -- as we evolve our pricing. We are always running experiments in our pricing, by the way, with customers. And as we learn more, we make adjustments along the way that I think play a part in why we are growing the way we are. But the net of it is, I think serverless is important. But it's again, another reason why you need one platform to see it all including your serverless activity.

Your next question comes from Jennifer Lowe from UBS.

Good afternoon. This is Fatima Boolani on for Jen. Lew, maybe a question for you. Just kind of around this notion of the increasing, I guess, dynamism of computing environment. You talked a lot in your prepared remarks about increasing the ubiquity of the New Relic platform. I'm wondering, what levers do you feel you have to be able to increase that ubiquity? Is it pricing? Is it better go-to-market? Is it more partner and channel distribution?

It's a combination of all of those. It's always ease-of-use. I think if you talk to New Relic customers, one of the most uniform things customers will say that they love about New Relic is that it's the easiest to use product in the market. And yet, that's never good enough for us. So we take pride in the fact that we have customers with thousands of active users where our competitors might have 10 active users and then another part of the same customer. And that speaks to, do people use and want to use our products. We believe that the more time people spend in New Relic products, the more value they get out of it. The easier it is to drive larger deal sizes and more ubiquitous deployments. So we think of this in a way kind of similar to -- with a similar mindset to a great consumer-oriented technology company, where of course they obsess on the customer experience. And then that delivers revenue downstream in the consumer case, through -- obviously through advertising. But in our case, it's -- we just want people using New Relic products continually and that will drive more ubiquitous deployments over time.

That's very helpful. And may be a follow-up for Mark. Mark, you mentioned the IBM relationship that you struck from a retail standpoint. I'm wondering if you can sort of qualitatively talk to economics there and how you've incorporated upside from that into your guidance and maybe why the growth should decelerate in the back half of the year as implied by the guidance?

So we are excited about the IBM relationship. I think they bring us -- they have relationship with companies internationally and companies that may not be as aggressive in becoming sort of modern environments. And so I think they could provide an attractive source for us to get involved with companies like that. We, in terms of impact on our guidance for this year, no customer is greater than a couple of percent of our total revenue base. We've got a very broad array of customers. And so we don't look at any individual relationship as being core to having a material impact on guidance for the year. In terms of the second part of that question, we are seeing more seasonality. As we saw this past year, we continue to see more seasonality as the enterprise becomes a larger and larger portion of our business towards our strong Q3 and then particularly strong Q4. Billings numbers, obviously, we want to set ourselves up for success for the year in terms of the guidance we're giving out. And that later on billings numbers, obviously, those have an impact on our -- the Q4 billings next year have an impact on the following year's revenue. So we are trying to make sure we plan appropriately. And as I said, set ourselves up for success for the full year.

Your next question comes from Steven Koenig from Wedbush Securities.

I want to maybe ping you on your journey to grow your average spend and become a standard across your enterprise customers. Any thoughts on how your go-to-market will evolve over, say, the next, I don't know, let's say, 18 to 24 months and how it will change over that time as you grow your spend and accelerate that sort of metric?

Great question. And I feel like in order to understand it really, we kind of deepen out to some of our customers and recognize that our most advanced customers who spend the most with us, they tend to grow faster than the average customer. And so first off, it's recognizing where our customers are in their digital journey and then knowing which of them to invest more in from a services perspective, from a customer's success perspective. This is why our promotion of Roger Scott to Chief Customer Officer is so important. He now has the entire services organization that has a 360-degree view of customer success. And so we are going disproportionately invest in the most highest potential customers to accelerate their growth path. And that funds our ability to continue to do that with an even larger group of customers in future quarters and years.

Your next question comes from Stephen -- sorry, Keith Bachman from Bank of Montréal. (Operator Instructions) Your next question comes from Jesse Hulsing from Goldman Sachs.

This is Kevin on for Jesse. Lew, regarding newer products like Infrastructure and Insights, are you seeing adoption skew more towards either the enterprise or SMB? And are you seeing any changes in the competitive environment in the SMB space?

As far as adoption, we are seeing nice adoption across the spectrum, SMB and enterprise. We are seeing, as you'd expect, larger deal sizes in the enterprise, larger land, larger expanse. So we are doing well in pretty much all of the segments. No substantial change in the competitive mix in the SMB or commercial segment. And so we feel comfortable with how we are doing there and how to win deals. We have some various competitors in that space and I think the same can be said for our enterprise competitors, too.

Your next question comes from Keith Bachman from Bank of Montréal.

Sorry about that. I wanted to ask a couple of questions. Number 1 is the billings number was exceptionally strong this quarter even over a robust last quarter. So there's an acceleration of billings. And yet if you look at the guidance for the year, you actually are projecting a deceleration. And I'm just wondering, was there -- is there -- you didn't call this out in the previous -- is duration issues that we should be aware of that may cause a deceleration in revenue? It just doesn't seem to jive with the revenue outlook that you've given for the year, if you could speak to that. Then I have a follow-up.

Sure. While the -- so there -- we did talk in the prepared remarks about a $10 million tailwind that came from both earlier renewals and duration increases. So that is something that helped us out obviously in Q4. But then had an impact on next year. So that's certainly one of the factors that's playing in there.

Yes. Last year you had an $8 million tailwind, right, in Q4 as well, as I recall from some similar circumstances. And yet you were able to deliver, call it, 35% revenue growth this year. So it's just -- it perhaps is just an element of conservatism and there's also some of the underlying messages as well.

Yes, I think we are -- we certainly want to make sure, we as I said, set ourselves up for success. We feel like there -- that the business is getting more seasonal. And so more and more enterprise is coming to Q3, Q4 and we want to make sure that we can deliver on what we talk about.

Okay. Well, my follow-up question -- thanks for that -- is philosophical is, let's say for argument's sake, you end up doing just a round number, 30% revenue growth for this coming fiscal year. Given the mix activities you are growing your enterprise, as well as generating more revenue per customer, should investors be thinking about durable growth that's, call it, that roughly 30% for the next couple of years in your journey to $1 billion? Just philosophically, how should we be thinking about kind of the journey to that $1 billion?

We have -- we put out our $1 billion target for end of fiscal '22. So March of '22. And that's what -- we put that out there. We feel like we do have great opportunity ahead of us to continue to grow at a nice healthy clip. And a lot of that's going to be driven by the enterprise, by the things we've been talking about, expanding in the customers we have now. We'll obviously be getting new customers. But the average spend we expect to continue to go up in our existing folks. And I think we saw some great metrics around that this past year. And so, we are not updating our $1 billion target at this point. But we think there is good durable growth heading to that target. We will have -- just -- we do have -- we will have some more updates on this at our Analyst Day in June.

There are no further questions. I'll turn the call back over to the presenters.

Thank you very much everyone and look forward to seeing you in a couple of weeks in San Francisco.

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