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New Relic (NYSE:NEWR) Q3 2019 Earnings Conference CallFeb. 6, 2019 5:00 p.m. ET
Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:Operator
Good afternoon. My name is Christina, and I will be your conference operator today. At this time, I would like to welcome everyone to the New Relic third-quarter fiscal 2019 earnings conference call. [Operator instructions] Thank you. New Relic's Investor Relations Tony Righetti, you may begin your conference.
Tony Righetti -- Investor Relations
Thank you. Good afternoon, and welcome to New Relic's third-quarter fiscal-year 2019 earnings conference call. Joining me today are New Relic's founder and CEO Lewis Cirne, and CFO 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 and subsequent filings with the SEC. 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 or 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, supplemental materials that accompany our earnings release, periodic FTC reports, a webcast replay of today's call or to learn more about New Relic. With that, let me turn the call over to Lew.
Lewis Cirne -- Chief Executive Officer
Thanks, Tony, and good to afternoon everyone joining today's call to review New Relic's third-quarter fiscal 2019 financial results. I'd like to start by announcing that New Relic has acquired SignifAI to address a significant widespread problem that we see our customers struggle with on a daily basis. Later, I will provide more detail on this fantastic company and why I'm so excited at the prospect of bringing their exciting technology to our customers and to the broader market. But first, let's talk about our third quarter.
Results exceeded our guidance on both the top and bottom lines, with revenue of $124 million and non-GAAP operating income of $7.8 million. It was one year ago this quarter that we reported our first quarter of non-GAAP profitability, which I am very pleased to see that we have sustained. At the same time, we have invested to enhance our platform and scale the business to an annual revenue run rate of nearly $500 million. While we have made great progress toward our $1 billion revenue run rate target, I feel we are just getting started.
Our sites are set on being the dominant DevOps platform for monitoring, managing and operating digital systems for what is a large, fast-growing, multi-billion dollar market that sits at the crossroads of what we view as the most impactful and important technology trends of the last 10 years: cloud computing, digital transformation and DevOps. We see a tremendous underserved opportunity in large, mid-market and enterprise accounts, particularly with those that have not standardized on a single platform to manage the performance of their critical digital initiatives. Across every industry, nearly every company is being challenged by digital transformations today. DevOps teams are under pressure to deliver high-quality, highly available digital experiences to their customers.
And we exist to serve the DevOps teams that value technology as a growth driver. I call this playing offense with software, using software to grow revenue, increase productivity and enhance brand value. Tracking the business impact of live running software from the customer experience through the application and to the underlying infrastructure is critical to gauging success and sustaining any business's competitive advantage with their software. New Relic uniquely offers an integrated platform to manage digital performance.
We enabled DevOps teams to systematically operationalize the data that drives their business. And then they can use that information to reduce risk, react quickly when risk issues arise and accelerate their development process and decision making. One New Relic customer playing offense with software is Canada's largest corporation, Manulife. As a global insurance and financial services provider with millions of customers in Canada, the United States and Asia, individuals and organizations around the world look to Manulife for help with their most important financial decisions.
This company is undergoing a digital transformation as they invest in strengthening direct relationships with their customers through digital channels. But as software becomes increasingly critical to the success of their global business, Manulife has found that they were spending too much time managing multiple on-premise monitoring solutions. They needed a single, highly integrated, high-velocity DevOps platform to succeed. That's why Manulife standardized on New Relic globally to make it as easy as possible to build, deploy and operate their mission-critical applications using our cloud-native DevOps platform.
We're empowering Manulife teams with real-time data that they need to innovate at scale. Our most successful customers leverage modern technologies such as microservices, serverless, Kubernetes, containers, cloud computing. All of these are in service of providing their DevOps teams with more autonomy and to empower them to scale their infrastructure and deliver their products to customers more rapidly so that they can deliver flawless customer experiences. The product development team at New Relic leverages these technologies in a similar fashion, which helps drive our product roadmap and understand our customer's problems.
A key benefit to the modern vision that we have is that it aligns to our target market, and therefore positions us as a strategic platform partner rather than a feature provider. Recently, we have added depth to our platform to help customers tackle the complexity of modern software, such as our Kubernetes Cluster Explorer and APM support for Amazon Web Services Lambda, which is their serverless offering. Turning to the SignifAI acquisition that I mentioned at the beginning of my comments. In fiscal '20, we plan to expand our platform offerings by offering the technology from the innovative team at SignifAI.
This team has been focused on solving a very important problem for all software engineering and DevOps teams. These teams frequently have fragmented monitoring tools. And when something goes wrong in production, they receive multiple alerts from each of these tools. Our customers often call it an alert storm.
You can imagine how overwhelming this is, especially for complex environments. What results is what our customers call alert fatigue. Enterprises are inundated with alerts, so they know that something's wrong but they don't exactly know where to look to solve the problem. What I love about SignifAI is that their technology sits above these monitoring tools, ingests the alert data and then applies intelligence to it, telling you where to look to solve the problem.
We believe this AI technology aligns nicely with our current platform and the New Relic Alerts offerings, and is complementary with learning provider partners such as PagerDuty. This technology complements our existing platform and helps drive, land and expand opportunities that are much larger than a single product category. Driving expansions at a deliberate pace underpins our strategy. In fact, we achieved a paid business account milestone in Q3, with an expansion deal that led to our first $10 million ARR account.
While we strive to be the standard for all of our customers, we see this particular transaction as evidence that we are just getting started with the value that we can provide our customers and to the market as a whole. I'll now turn the call over to Mark to provide more color on the financials.
Mark Sachleben -- Chief Financial Officer
Thanks, Lew. During today's call, fiscal-year 2019 financial results are presented under ASC 606. A reconciliation table to prior-year's results under ASC 605 is available in the earnings press release accompanying this call. Now turning to the financials.
Revenue was $124 million for the third quarter, up 35% year over year. We ended Q3 with 816 paid business accounts with ARR over 100,000 per year, up 30% compared to a year ago. This growth represents both new logos landed, as well as install base expansions derived from increased usage, expanded application coverage and the cross sale of additional products. Our annualized dollar-based net expansion rate in Q3 was 122%, compared with 125% from the year-ago period.
We drove larger upsells in absolute dollars during this quarter, but the install base is much larger than the comparable period, which had a moderating effect on this metric. At the end of Q3, enterprise business was approximately 56% of ARR, up from around 52% as of the same period last year. Non-APM bookings during the quarter exceeded 40% of new ARR, with contributions from New Relic Insights of over 10% and New Relic infrastructure at just below 10%. Our total paid business accounts remained over 17,000 and has been relatively flat during fiscal '19.
This is primarily due to our emphasis on the upmarket opportunities with greater expansion potential. Turning to our geographic split, U.S. revenue of $84.7 million for the quarter was up 35% year over year, while non-U.S. revenue for the quarter grew to $39.3 million, up 36% year over year.
Non-U.S. revenue represented 32% of revenue in the quarter. Non-GAAP gross margin was 85%. For the full fiscal year, we now expect non-GAAP gross margin to be 85%.
We continue to hire aggressively during the quarter and added 108 employees across the organization as we pursue the significant market opportunity for the New Relic platform. Each quarter of fiscal '19 has been robust, and we plan to continue the hiring trend in Q4, which we expect to be a record. Non-GAAP operating income was $7.8 million, or 6% of revenue, compared to $2.7 million, or 3% of revenue, in the same quarter last year. The outperformance to our third-quarter expectations was primarily the result of revenue upside.
Overall, our non-GAAP net income attributable to New Relic per diluted share was $0.19, compared to $0.05 in the same quarter last year. Turning to our balance sheet, we ended the third quarter with approximately $722 million of cash, cash equivalents and short-term investments, down from last quarter's $731 million total. Also on the balance sheet, our total deferred revenue ended the quarter at $207 million, up 53% year over year and 8% quarter over quarter. As we look into Q4, we anticipate deferred revenue to increase in the low 20s on a percentage basis from Q3.
Please note that, as discussed in our call last May, deferred revenue in Q4 fiscal '18 included a benefit of approximately $10 million from early renewals and annual invoice conversions. Turning to cash flow, cash from operations was $8.7 million. Free cash flow, defined as cash from operations minus capital expenditures and capitalized software, was a $7.5-million outflow. For all of fiscal '19 We continue to expect cash from operations to be between $70 million and $80 million, and free cash flow to be between $30 million and $40 million.
Now I will turn to our outlook for the fourth-quarter and full-year fiscal 2019. For the fourth fiscal quarter ending March 31st, we expect revenue to range from $126.5 million to $128.5 million. We expect non-GAAP operating income of $0.5 million to $1.5 million. This would lead to non-GAAP net income attributable to New Relic per diluted share in the range of $0.04 to $0.06 cents.
For the full fiscal-year 2019, we now expect revenue to range from $473.6 million to $475.6 million, an increase in our prior guidance of between $466.5 million to $469.5 million. We expect non-GAAP operating income of $26.7 million to $27.7 million, an improvement from our prior guidance of between $22 million to $24 million. This would lead to non-GAAP net income attributable to New Relic per diluted share in the range of $0.58 to $0.60, an improvement from prior guidance of between $0.42 to $0.48 . And with that, I would like to open the call for questions.
Operator, please go ahead at this time.
Questions and Answers:Operator
[Operator instructions] Our first question comes from Rob Oliver from Baird. Your line is open.
Rob Oliver -- Baird -- Analyst
Great, good evening. Thank you guys for taking my question. Lew, I want for you to start, and I have a very quick follow up for Mark. I wanted to just dive in a little bit on the eight-figure ARR account, your first one.
If you could talk a little bit about some of the different products that that customer had taken beyond APM. And I know you mentioned as a full platform provider and maybe talk a little bit about some of the use cases that have percolated there. And then I have a quick follow up. Thank you.
Lewis Cirne -- Chief Executive Officer
Sure. So as you can imagine, this is a long-standing customer. I think we've done well over 100 individual transactions with his customer over the course of our relationship. They have all of the products in our platform and have had for some time.
And I'd say one thing that was a nice catalyst to accelerate their investment was our introduction of an EDP structure. And what that is, it allowed the customer to have some flexibility on how they allocated across the products. They knew they wanted to consume more, but it was taking a fair bit of effort to estimate precisely how much APM they would want, precisely how much Insights they would want. And the same for mobile and browser and synthetics.
So they knew they wanted to grow all of them and so we gave them the flexibility to do that and that gave them comfort in stepping up to the $10-million level per year. And we intend for this to be a fruitful partnership, and we believe that there is more growth ahead in that particular account. And it's emblematic of what we hope to do with many other customers like this one.
Rob Oliver -- Baird -- Analyst
Great, thank you. And then Mark, I know you've talked in the past, you mentioned the hires and you've talked a little bit about adding some more hires on the technical side, and I'm just wondering to what extent you're on track there and how that might play into landing a larger ARR deal like this and some of the incremental enterprise deals? Thank you guys.
Mark Sachleben -- Chief Financial Officer
Sure. So we are, as we mentioned, we had a strong quarter hiring wise. We expect another strong quarter this quarter. And of course we're hiring new capacity, new reps, but I have talked now for quite a while about our emphasis on hiring technical sales people to go into the account, pre-sales, post-sales, the technical services folks that can help grow the accounts.
And so we are going to continue to invest there. And what we're seeing is the more people we put on an account, the higher the expansion rates. And when you look at our customer base and you segment it, our seven-figure accounts are the ones that have the highest dollar base and expansion rate, and I think that's driven by, in large part, by the fact that we've got people working with those accounts. And what we want to do is continue to invest in that area so that we can have more presence in the accounts that pass 100K to 1 million, or even potentially below 100K.
And we think that is an area that we will continue to invest in.
Rob Oliver -- Baird -- Analyst
Thanks again guys.
Operator
Your next question comes from Sterling Auty from JP Morgan. Your line is open.
Sterling Auty -- J.P. Morgan -- Analyst
Yeah, thanks. Hi guys. So Lew, I'm kind of curious. Software, or I should say digital transformations is such a popular project now across so many different industries.
Where in the process of these digital transformations is New Relic actually getting brought in? Are you getting brought in earlier and earlier? And what does that look like? So in other words, why?
Lewis Cirne -- Chief Executive Officer
Sure. So we are being brought in fairly early, in particular for companies or individuals who have had success with us previously and recognize the impact we can have on driving a more successful digital transformation. And how do we do that? Well, in order to be successful with digital, you must be continually using data to understand what's the customer experience, what is the performance, what is the health of the system, and how do I [Inaudible] continually making changes to that production software in order to continually make [Inaudible]. Digital projects don't succeed if you can only update them once a quarter.
And so in order to introduce that level of change, you must be watching it with precision second by second. And so where often more mature shops that have some understanding of dev practices like DevOps, understand that they need to be thinking about real-time visibility well [Inaudible] and they often bring us into these project well before launch date. And then, so we watch the successful launch and then we continually inform our customers on how to make it better.
Sterling Auty -- J.P. Morgan -- Analyst
Got it. And then, Mark, one follow up for you. The expansion rate, the 122%, you gave some caveats there in terms of the year-over-year comparison given the base. How should we think about that metric moving forward? What's a comfortable level for that metric for you to continue to deliver the growth expectations?
Mark Sachleben -- Chief Financial Officer
So if you look at the way we calculate that metric, just remind everyone that we do that on a quarterly basis and then we annualize it, which is a bit more granular than most peers do. So on a pure apples-to-apples basis, we would look at the trailing 12 months. And when you look at that, it's been in the 127 range, I believe. And now it's around 126 following this quarter.
Obviously, with the larger and larger base, it's tough to maintain that number. That number is going to moderate over time. But we feel comfortable with it with where it is and with the pace at which it's moving right now.
Sterling Auty -- J.P. Morgan -- Analyst
Great, thank you.
Operator
Your next question comes from Ittai Kidron from Oppenheimer. Your line is open.
Ittai Kidron -- Oppenheimer -- Analyst
Thanks, and congrats guys. Great quarter and great acquisition. I guess I'm trying to understand the grammar. Am I to understand the deal is closed already, right? Just to clarify.
Lewis Cirne -- Chief Executive Officer
Yes, it is closed.
Ittai Kidron -- Oppenheimer -- Analyst
OK, good. Well then, Lew, why don't you talk about the differentiation of SignifAI relative to Bigpanda or Moogsoft. And also, does this create some conflicts going, I mean, SignifAI had to maintain a lot of integrations with third-party APM tools like yours. Why would they want to still integrate with SignifAI? How would that work?
Lewis Cirne -- Chief Executive Officer
Great questions, and I'm glad you have some familiarity with the broader space. We did survey the space and concluded SignifAI had by far the best technology, particularly their A.I. capabilities so that with the minimum amount of configuration, or zero configuration, their artificial intelligence can correlate alerts the best. Now I should set some context for those less familiar with the space.
What SignifAI does is they take input, alerts or alarms coming from any monitoring product. And imagine, it's kind of analogous to your phone when a notification goes ring and bing. And if it happens over and over and over again, it'll drive you nuts, right? And so that's what our customers are dealing with today. When something goes wrong in production, it won't be just one alert they receive.
They might receive 10, 20, 30 alerts. And they don't know how to make sense of it all. It's too much. And SignifAI is the best at correlating these alerts into one cohesive logical outcome that is actionable.
And you do raise a good point, that includes alerts from any monitoring product, including on-premise APM products or other products that some of our unfortunate customers might be struggling with today. And so we believe by offering something that allows them to consume alerts from all sorts of tools, that'll just buy more goodwill from the customer or engage our customer in a new way, and they'll value that. And over time, they'll consume our platform more rapidly.
Ittai Kidron -- Oppenheimer -- Analyst
Yes, but maybe you can fine tune the competitive differentiation. Like technology-wise, what's different? And again, do you see conflicts? Do you see all these integration partners willing to maintain those integrations or abandon them? How do I think about that?
Lewis Cirne -- Chief Executive Officer
No, we don't. I mean, basically it's customer driven. So our analysis of SignifAI show that their A.I. capabilities with zero config show the least amount of effort and friction to get the most value and signal noise from those alerts.
OK? So it's the most mature A.I. technology we've seen when you show real alert data at their system. And any monitoring product can throw off alerts. And by definition, those alerts can go to any destination, including SignifAI.
So we don't see a conflict in technical integrations that they have.
Ittai Kidron -- Oppenheimer -- Analyst
That's great. All right. Congrats guys, good luck.
Lewis Cirne -- Chief Executive Officer
Thanks.
Operator
Your next question comes from Sanjit Singh from Morgan Stanley. Your line is open.
Sanjit Singh -- Morgan Stanley -- Analyst
Hi, thank you for taking the question. I wanted to talk a little bit about a customer sort of consolidating capabilities with New Relic. So if a hypothetical customer is using New Relic for APM, then intelligence with another vendor and maybe say infrastructure monitoring with another vendor, I was wondering if you could sort of directly address what the benefit is to the customer by consolidating those capabilities on the New Relic platform.
Lewis Cirne -- Chief Executive Officer
Sure. It's a great question, and I was talking, I think one of the customers I met with late in Q3 had a perfect articulation of it. When there is a production issue, seconds matter. If you're having an outage, heaven forbid, or a really slow performance problem, every moment you spend on fixing that problem has enormous impact.
And when you're in that heat of battle as trying to triage a problem, there's an enormous cost in switching tools. That cost is loss of concentration and context. So if you have to say leave New Relic APM, which might show you that the application's having a problem but you want to understand if that problem is infrastructure related, to leave APM to go to another infrastructure product you need to reset the whole context. What was the point of time that I was looking at? What were the set of infrastructure hosts that were running, that were related to this application? And when you reset all of that, you're losing your concentration, you're restarting the problem-solving mindset and workflow.
And that has real hard dollar costs to our customers. And then of course there's the other even more tangible dollar cost of just managing multiple vendors and multiple contracts and multiple offers and multiple sales cycles. And so there's the obvious cause benefit on the tools consolidation argument. But the real, the most value comes from the capability to resolve problems faster because it's all in one place.
Sanjit Singh -- Morgan Stanley -- Analyst
That makes a lot of sense. And maybe for my follow up, Lew, as we go into Q4, could you give us a sense of how the profile of users of New Relic has changed or expanded in terms of the types of users actually using the various products. How does that look today versus let's say maybe last year or two years ago? Has that pool of users started to expand? Anything you could do to describe that that would be super helpful.
Lewis Cirne -- Chief Executive Officer
So it's been an evolution, not a dramatic change. But I'd characterize our end users as, first of all, we've always been a tool that developers love because developers often get, their primary job is to write and build software but often they get pulled into situations where you need to detect and resolve problems that are related to the code that they built. And they love how easy it is for New Relic to provide them the information to fix problems faster so they can go back to building software. Right, so developers have always been champions of us, and they're often thought leaders in the tool selection and platform selection.
But then of course you've got the operations people, and more recently DevOps professionals who really want to bring a mindset of automation and engineering to running production in a more efficient way so that if you double the size of your application environment, you certainly don't want to have to double the headcount associated with running it. And so those folks also are big users of our software and big believers in the power of the New Relic platform. I'd say the new kind of persona that we're starting to see more of, is as we go into these large accounts, for example these multimillion-dollar customers, there are centralized centers of excellence whose job it is to empower teams of developers to be more productive and effective and adopt a DevOps culture within the company. So these are internal thought leaders and centers of excellence that provide New Relic and some other tools as a standard suite that enables these software teams to move faster.
And they have their own requirements that we are keenly aware of and focus on, which is a little different. They're not doing the troubleshooting but they make sure that teams are able to troubleshoot themselves. What that third constituency loves and values about us that they see as highly differentiated is ease of use. So what I often hear is that for competitive tools, particularly APM tools, it's almost like you need a PhD in that tool to use it.
And so if you're trying to federate responsibility for these tools throughout a large organization, it's too hard to do because the tools are too hard to use. And that impacts our ability to move faster. So they love New Relic for its ease of use and TCO of course.
Sanjit Singh -- Morgan Stanley -- Analyst
Wonderful. Thank you, Lew.
Operator
Your next question comes from Jennifer Lowe from UBS. Your line is open.
Jennifer Lowe -- UBS -- Analyst
Great, thank you. Maybe just a first question. So on SignifAI or A.I. SignifAI, just from what's available out there, it looks like it's still a pretty young company from sort of the discussion today.
It certainly sounds like there's some exciting capabilities there that would have pretty direct value for your customers. So as we think about what the rollout and what sort of the timeline would be to actually have a product in market, what's the maturity of the technology today versus some of your very large customers out there? Is it sort of at that scale yet? Or should we expect this to be sort of a more gradual product rollout as you take the time to invest in the business and build it up to more of an enterprise scale?
Lewis Cirne -- Chief Executive Officer
I mean, I love how you phrase that question because you're thinking about the way we like to think about it. There's no doubt in my mind, they uniquely address a problem that's very pervasive across our customer base. And so we believe that when the SKU is ready for market, it has the potential to attach very well to [Inaudible] more value. And so we're excited to add this as our seventh SKU when it's ready.
It's early days, so it's hard to predict exactly what quarter it will be ready to take out to our entire customer base. But we expect it'll be sometime in fiscal '20 that we'll be ready to do that, and we of course want to make sure it's ready, ready for prime time when we do.
Jennifer Lowe -- UBS -- Analyst
Great. And then just one for Mark. Looking at the enterprise ARR mix, and obviously that moves around quite a bit, but it sounds like you've been investing a lot in the sales motion there, certainly some great uptake. But that metric is maybe, it looks like it was flat quarter over quarter and sort of flattish year to date.
So could you just sort of give me a little color there on why that enterprise ARR mix number hasn't been growing faster just given some of the commentary around the success you're seeing in the enterprise?
Mark Sachleben -- Chief Financial Officer
Sure. Well, I mean obviously as that number gets to be a greater percentage of the business, it's harder to have it increase at the pace at which -- a couple of years ago it was 25%, it was a lot easier to have that number go up. But no, we continue to see strength in the enterprise, and it's been growing nicely. But what we're also seeing is strength in the commercial and the high end of the commercial market.
These customers that are maybe not quite 1,000 employees yet so they technically fit into the commercial space, but they are fast growing, they have similar demands and requirements as the enterprise customers. And I think our commercial team has been more focused on addressing that segment of market, and we're seeing some good success in that segment of the market. So I think enterprise is doing well, but we're also seeing some strength, some strength over the last couple quarters I would say in the high end of the commercial market as well.
Jennifer Lowe -- UBS -- Analyst
Thank you.
Operator
Your next question comes from Michael Turits from Raymond James. Your line is open.
Michael Turits -- Raymond James -- Analyst
Hey guys, thanks for taking my question. It seems as if there are a number of different players that are expanding their silos, if you will. And there's more of an attempt to sell APM plus logs plus infrastructure, and even in some cases, network. So how are you seeing that play out competitively? Do you find that that actually is the way customers want to buy? And are you competing in deals where people are looking for those multiple silos?
Lewis Cirne -- Chief Executive Officer
Great question, Michael. So we're certainly seeing a lot of noise around it. And in part because like, we've done very well we think, and we're growing quite well as you can see. And so that's going to attract all sorts of people to talk about our space at a minimum.
When the rubber meets the road, we feel like -- and the customers that we talk to like our approach, which is we are an application centric cloud hosted platform that covers the application, the end user experience and the infrastructure all in one place. OK, now there are other broad platforms that collect a lot of data. I kind of think of them as a bag of metrics where like anything that can throw off a metric, they'll collect. But because it lacks that application centricity that, thinking of the application as the center of the project where the business logic lies, it's really hard to put appropriate context to all those metrics and it makes them hard to use on large-scale environments with lots of people.
And so that's why there's plenty of room for our differentiation. But we do recognize, because our APM business is so strong and because it's recognized as an important category, that there will be many companies talking about this space. But what we see in the market is, in particular our APM product is very strong, and it's plenty of room for differentiation and it's not an easy technology to replicate.
Michael Turits -- Raymond James -- Analyst
Thanks, Lew. And just if I go to another technology product follow up, containers and [Inaudible] if I could juts throw it in the bucket, maybe serverless as well, you launched a lot of the capability last summer and then also made an acquisition in that area. There are some start-ups out there that are focusing specifically on those types of new architectures. How do you feel that level of competition is playing out? And are you winning in those spaces, or do you feel like you still have more product development to go?
Lewis Cirne -- Chief Executive Officer
Well I think in that space, what we just talked about in the prepared remarks about our Kubernetes Explorer is a great example of market-leading capabilities that no one else can provide, that shows into the most modern of environments, Kubernetes environments, rapidly being adopted by enterprises and small businesses alike. And we've got this beautiful user interface that's easy to visualize and easy to understand how this complex cloud environment is working. And of course we showed in context with the applications, the end user experience and the rest the infrastructure. So we feel like we're innovating as well as we ever have in areas like this, and that customers love it.
There are always going to be point players trying to make an entry in an area of expertise. But when I talk to enterprise customers, they've got too many tools. In fact, a recent Gartner study shows that large enterprises typically have more than 30 monitoring tools. None of them like that.
They want to consolidate it in one platform, as I spoke to earlier on to the reasons why they want this all in one place. And so we believe that that's the way that the market's going to shake out certainly on an aggregate spending level and that we're excited to remain an innovative leader in modern environments.
Michael Turits -- Raymond James -- Analyst
Thanks, Lew. Nice quarter, guys.
Operator
Your next question comes from Jack Andrews from Needham. Your line is open.
Jack Andrews -- Needham & Company -- Analyst
Thanks, good afternoon. Lew, I just wondered if you could talk about what your view is regarding the state of core mission-critical workloads specifically moving to the cloud? Where are we in this journey for those types of workloads overall? And I'm just wondering if there's any different parameters or requirements involved in competing for monitoring these types of mission-critical workloads, either from a sales-process perspective or from technical requirements that perhaps might be different from your experience with other cloud-based applications.
Lewis Cirne -- Chief Executive Officer
Great questions. And good news is, like we've been monitoring workloads that have been definitive of our customer's businesses since the early phase, the companies. So let's take for example one of our earliest customers, Airbnb. When they joined us, we were both tiny companies.
I think they had maybe 25 employees when they first signed up for a New Relic environment. But now, if you think about a mission-critical workload running in the cloud, that's pretty darn mission critical, right? And that company has a market cap that's in the neighborhood or larger than most the other major hotel providers. So it's hard not to consider that workload mission critical. But you can also look at enterprise customers too as they move more of legacy applications to the cloud.
I'd say one of the key things that they love about our platform is our APM product is so strong, we've got so many customers on it so it's bulletproof, it's well-proven in many environments. And then when they want to, for mission-critical workloads, goad that extra level of customization that's so specific to their application, Insights really shines. And you saw, Mark mentioned, we had another very strong quarter for Insights. We see that Insights consumption highly correlates to customers with really serious applications and application requirements, and it's where our differentiation strengthens.
And it's often where our customers really grow their investment in New Relic post first transaction.
Jack Andrews -- Needham & Company -- Analyst
Great, I appreciate your perspective. As a quick follow up, could I just ask, is there any update in terms of early indications of how your efforts are going in Japan?
Lewis Cirne -- Chief Executive Officer
It's very early. We're very excited about it. I'm looking forward to going to Japan next month for the first New Relic Futures Stock Tokyo. So we're super excited about the opportunities.
It's a great, market great market opportunity for us. We're so thrilled we already have customers there, so we're being pulled into the market. But it's too early to give any quantitative data around it.
Jack Andrews -- Needham & Company -- Analyst
Great, thank you for taking my questions.
Operator
Your next question comes from Rishi Jaluria from D.A. Davidson. Your line is open.
Rishi Jaluria -- D.A. Davidson -- Analyst
Hey, guys, thanks for taking my questions. Let me start out on the SignifAI acquisition. Is there some potential to take, if their ML technology is unique on this and to kind of take some of what they've built out on the SignifAI product and maybe use that to bolster what we have on Insights or any other parts of the business as opposed to what what's Insight is doing as a stand-alone product. And then I've got a follow up for Mark.
Lewis Cirne -- Chief Executive Officer
The only reason for my pause is I'm wondering how much I should share at this point in time. We see a lot of potential synergy with what they have today and what that team and these brilliant A.I. experts in Sunnyvale and in Tel Aviv have the capability to do when they have access to, where are we at now? 12 million events per second I think coming into, in our VB. So we collect an enormous amount of data off applications infrastructure.
Every time a mobile application for one of our customers, if someone presses the buy button inside that application, that's an event that comes into our database that's ripe for A.I. analysis to answer all sorts of questions. I'm just seeing some data here. We're collecting 2.3 billion events and metrics per minute into our cloud, and and we believe that that has potential to solve all sorts of problems when we apply more A.I.
to the data.
Rishi Jaluria -- D.A. Davidson -- Analyst
OK, got it. Thanks, that's helpful. And Mark, on the topic of deferred revenue and billings, I know we've gotten endless amounts of caveats on this metric but can you just help us understand your deferred revenue guidance for next quarter? Because at low 20s, sequential increase in total DR tells us that billings is going to desell the 12%. Or even if we control for the $10 million early in 4Q last year, that's still 20% from from 35% this quarter.
So without getting, placing undue emphasis on the metric, maybe just help us understand some of the puts and takes on the metric and what sort of moving parts might be baked into it. Thanks.
Mark Sachleben -- Chief Financial Officer
No, I appreciate you giving all the caveats in advance. I don't have to do that about billings and deferred in our business. But we're coming off a strong Q4 last year, and we look at the year-over-year growth in billings last year. I think if you control for the $10 million that we talked about in the call and last May, that was sort of one-time in nature.
I think the growth last year was 43% or so. And then you look at our guide now and we're looking at 40% roughly year-over-year growth in deferred, we feel like that's an indication of the strength of our business and we do feel good about it. As we look out into Q4, we've got good pipelines, and I think based on the guidance we've given, it gives some confidence in that.
Rishi Jaluria -- D.A. Davidson -- Analyst
OK, great. Thank you guys.
Operator
Your next question comes from Derrick Wood from Cowen & Company. Your line is open.
Derrick Wood -- Cowen and Company -- Analyst
Thanks. Mark, just to stay on the, if I go back to the enterprise metric, another one that's been a little bit volatile is the number of new 100K accounts. It's normally a little bit seasonally stronger in December [Inaudible] that was down. Any [Inaudible] down sequentially this quarter, any color as to why that would have been or was the -- you talked about more emphasis maybe on upper commercial.
Is that something that's maybe contributing to some noise in that number? Any color would be helpful.
Mark Sachleben -- Chief Financial Officer
Sure. I think we talked a little bit about where we're devoting our technical, the investment we're making in technical resources is obviously where you would imagine. It goes to higher earnings accounts first. And we had a good quarter in terms of large deals.
I think what we saw was a lot of the large deals were in accounts that were already paying us more than 100K. So they didn't cross that threshold and add to that number, but obviously we've talked about the first $10-million customer. I think that that's an indication of the strength we're having with our larger accounts. And so I think that number is volatile.
It's going to bounce around a bit, and so I think we happened to see this past quarter strength in large deals, but they happened to be in our larger accounts. And I think some of the investments we're making, continued investments we're making in the technical services and sales team is to make sure we can drive that penetration and that coverage down to the lower accounts, not only keep it for the very largest of our accounts.
Derrick Wood -- Cowen and Company -- Analyst
Got it. All right, that makes a lot of sense. And I'll just [Inaudible] obviously you guys have been [Inaudible] marching up market, building more of a direct sales force. I feel like I've heard a whole lot of color of domestic efforts versus international efforts.
And I noticed in your press release you talked about opening a new Germany office and a France office. So maybe you could give us some color as to where you are with your international efforts, what the demand environment looks out there with respect on the enterprise side.
Lewis Cirne -- Chief Executive Officer
Sure. So we have been investing internationally, and we feel like that is a very good market for us going forward. We've talked about it, $1 billion. When you look at $1 billion, our expected breakout is meaningfully more than the 32% that we see today coming from international markets.
So I think that we do expect that to grow faster than the domestic market. Those investments have been, they were delayed relative to the North American investments. What we try and do is invest here domestically, learn and then take those learnings overseas. Many of them do translate.
Obviously you've got to tweak it for certain places. You saw us open the German data center. We announced an office in France. We've got the Japan investment.
So I think we are making investments there. It will take time for those to pay off, but we see a good opportunity, and we're going to continue to invest fairly aggressively internationally. That said, we have been deliberate, purposely deliberate in terms of how many countries we officially open, like set up an office, have people on the ground, etc., just because we feel like that's a prudent way to go, is still be relatively focused as we're in the international markets.
Derrick Wood -- Cowen and Company -- Analyst
OK, great. Thanks.
Operator
Your next question comes from Keith Bachman from BMO. Your line is open.
Keith Bachman -- BMO Capital Markets -- Analyst
Hi. Thank you. I'd like to ask two questions if I could. The first is on the competitive landscape.
I wanted to follow on a question that was asked earlier, but really focus on infrastructure. And that's an important driver to get to your 10, $1 billion target, excuse me. And I just want to hear a little bit about how the dynamics are going there, particularly Datadog seems to have a strong position there. And it's not that you're not doing -- you're doing obviously very well in APM, but you need I think both APM and the infrastructure piece to work toward that $1 billion metric.
So if you could just talk a little bit about your expansion into the infrastructure growth trajectory that you're experiencing now. Thank you. And then I have a follow up.
Lewis Cirne -- Chief Executive Officer
Sure. So our infrastructure product is attaching very well. I'm universally seeing customer desire to get APM and infrastructure in one place. They like that.
They like New Relic's application-centric approach to it for reasons that I discussed earlier. So our infrastructure product is doing very well, growing very nicely. It meaningfully contributes every quarter, and we expect it to continue to grow very well, adding things like our Kubernetes Explorer for example. That's the kind of thing that nobody else has that our customers really value.
And so yes, this is important. And we believe that it's -- well, that it's more straightforward for an application-centric company to add infrastructure than vice versa. For example, a host exposes four or six important metrics. CPU, disk, I/O, network.
An application is this living thing that you need to watch tens of thousands of metrics and data points in real time. So it's a much harder problem to solve the application problem than to monitor a host or monitor the other things, cloud services that you ought to see in one place. And so that's why we believe that an infrastructure company is going to have an uphill battle doing the kind of job they need to do to really deliver the application visibility that customers want, whereas our infrastructure product is delivering on the [Inaudible] to market, which is why it's growing so nicely.
Keith Bachman -- BMO Capital Markets -- Analyst
Ok, let me ask my second question. I also want to return to the DR. Even if we normalize for last year, the sequential growth is meaningfully different from say the March quarter of '17 or the March quarter of '18. And I'm still confused on why, even if we normalize for the extra $10 million or $11 million, why there's such a meaningful deceleration, particularly if we look sequentially, which tends to normalize for the year over year.
Is there just a lower pipeline? It seems like there should be more of an explanation.
Lewis Cirne -- Chief Executive Officer
No, I talked about that a little bit. We feel good about our pipelines. I think we've given the guidance for, the revenue guidance this quarter and we feel good about it. Those numbers are, as the base gets bigger and bigger, those numbers are going to, like everything, those numbers drift downward.
So I don't think there's anything unusual or no more insights I can give other than we feel like we have good pipeline and we feel good about our business as we head into our Q4.
Keith Bachman -- BMO Capital Markets -- Analyst
OK, all right, thank you.
Operator
Your next question comes from Erik Suppiger from JMP. Your line is open.
Erik Suppiger -- JMP Securities -- Analyst
yes, thanks for taking the question. On the SignifAI, one, can you give us any metrics maybe about headcount or just how far along they were with with product development? And then on the integrations you talked about, the press release said they had 60 integrations. Can you give us a sense for what portion of the market that represents? Is that something that's going to expand significantly? Or how significant of an ecosystem has this already developed?
Lewis Cirne -- Chief Executive Officer
Good questions. I'd say we're not going to disclose a ton of detail. There will be some supplemental information we are publishing that speaks to how we, the economic value of the transaction, etc. So I encourage you to look at those materials that we have published or about to publish shortly.
And as regards to the number of integrations, etc., we believe that it's reached critical mass in terms of consuming alerts from the right type of products that our customers use to monitor production. And let me remind you, those customers would love to reduce the number of tools they have. And over time, they will. But they've got this problem today.
So we can go into any customer, including customers that might have competitive products and say send your New Relic alerts and other alerts all into this one place to take those 300 notifications down to one actionable event that makes sense. And that's a value prop that our customers are eager to adopt.
Erik Suppiger -- JMP Securities -- Analyst
Can you comment in terms of types of additional partners that you would like to expand integrations with?
Lewis Cirne -- Chief Executive Officer
I think it's a pretty complete set. Whatever, if there's anything missing from our customers, we haven't heard anything yet. And it's an easy, it's a straightforward integration. Anything that alerts.
If it alerts, it kicks out an email or kicks out a notification. That's something that can be easily integrated into SignifAI.
Erik Suppiger -- JMP Securities -- Analyst
Very good. Thank you.
Operator
Your next question comes from Steve Koenig from Wedbush Securities. Your line is open.
Steve Koenig -- Wedbush Securities -- Analyst
Hi guys. Hey, thanks for taking my questions. It's kind of a multipart question here, and then I have a quick follow up. So our data suggests that New Relic has a big lead in cloud application projects in the largest companies.
And competitors, yearly, the legacy players and other players are trying to catch up. How does New Relic maintain the lead there? And is the shift to cloud stuffs, that that by itself can propel New Relic to be the overall market leader, and/or how important is it that New Relic does more on-prem projects as well? So soften that market dynamic is what I'm interested in.
Lewis Cirne -- Chief Executive Officer
That's great. Well, it's great that what you're seeing is what we also see and believe. We think of the cloud as home field advantage, right? So if there's a workload running in the cloud, we want to be the natural selection. Now we'll win small [Inaudible] too.
If the workload is running on-premise, we'll take down some of those opportunities because we're certainly capable of doing a great job monitoring them. But what we want to always be the best at is monitoring workloads running in the cloud because that's most certainly the future. I was just at one of the largest brands and companies in the world and I asked them how they were doing in their cloud journey, expecting them to be in the early days because of the size and magnitude of this company, and they said no, we're all done. We're out of data centers completely.
That's the future for so many industries. And now let's be clear. If you're a multi-cloud, if you're hybrid cloud, you still want one place to go to for visibility. But if cloud is at all important, New Relic is the natural solution.
And then we'll cover your on-prem stuff too.
Steve Koenig -- Wedbush Securities -- Analyst
OK, great. Thanks, Lew. If I may, I just have a quick follow up which is maybe a little color on how you're engaging with SIs and particularly major SIs, and any color on untapped opportunity with them.
Lewis Cirne -- Chief Executive Officer
I'd say it's still early days in part because our product is so easy to use and install. Unlike traditional large enterprise applications, particularly big on-premise sample applications of the '90s and early 2000s, that could drive a huge SI engagement that could be lots of consultants for many months. I'm always delighted when I go into a customer prospect and say, how's your evaluation going? They say, well I wanted to put it on one application. It was so easy, I put it in on 10.
So as customers get more sophisticated with our platform, there may be opportunities to go deeper that do require a more consultative engagement model that goes beyond our capacity to service. So that might be something that happens in the future. But right now, our ease of use and adoption means that it's not necessarily a natural fit for big systems integrator projects.
Steve Koenig -- Wedbush Securities -- Analyst
Got it. OK, thank you very much.
Operator
And your next question comes from Greg Powell from Deutsche Bank. Your line is open.
Greg Powell -- Deutsche Bank -- Analyst
Oh great, thanks for working me in. I know it's getting late in the call so I'll keep it quick. So it sounds like demand for Insights has really improved over the last few quarters. Just given that that's one of the more mature products, what do you think is driving the recent interest?
Lewis Cirne -- Chief Executive Officer
It's the kind of product that -- it reminds me of APM in 2004. People weren't quite sure what to make of it because there was nothing like APM. As background, I founded a company called Wily that created the first APM product before there was a category called APM. In the early days, 2002, 2003, people were trying to figure out what it was.
And then after some experience with it, they realized they couldn't live without it. And so that's been happening with Insights. We just kind of have a history of creating products and categories. And Insights is a product that there's nothing like it.
It gives you real-time visibility onto everything flowing through your software to answer questions you didn't even anticipate you were going to have and you didn't imagine were answerable in real time. And it's kind of one of those things that sounds a bit abstract, but to customers who have Insights and use it and understand it, they recognize they can't live life without it.
Greg Powell -- Deutsche Bank -- Analyst
Got it. All right, that's very helpful. Thank you.
Operator
There are no further questions at this time. I turn the call back over to management.
Lewis Cirne -- Chief Executive Officer
Well hey, I want to thank you all for joining the call, for your great questions. I want to thank the 1,600-plus Relics for the amazing work you're doing and welcome team SignifAI to New Relic. I've never been more excited about this great company and this opportunity, and it's just a pleasure to work with our amazing customers and help them all be successful with digital. Thanks, and we'll look forward to speaking again in the May call.
Operator
[Operator signoff]
Duration: 58 minutes
Call Participants:Tony Righetti -- Investor Relations
Lewis Cirne -- Chief Executive Officer
Mark Sachleben -- Chief Financial Officer
Rob Oliver -- Baird -- Analyst
Sterling Auty -- J.P. Morgan -- Analyst
Ittai Kidron -- Oppenheimer -- Analyst
Sanjit Singh -- Morgan Stanley -- Analyst
Jennifer Lowe -- UBS -- Analyst
Michael Turits -- Raymond James -- Analyst
Jack Andrews -- Needham & Company -- Analyst
Rishi Jaluria -- D.A. Davidson -- Analyst
Derrick Wood -- Cowen and Company -- Analyst
Keith Bachman -- BMO Capital Markets -- Analyst
Erik Suppiger -- JMP Securities -- Analyst
Steve Koenig -- Wedbush Securities -- Analyst
Greg Powell -- Deutsche Bank -- Analyst
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