Application monitoring company New Relic Inc. saw 18% of its value wiped out in after-hours trading today after including an earnings warning in its latest financial report.

The company reported fiscal first-quarter earnings before certain costs such as stock compensation of 15 cents per share on revenue of $163 million. That was better than expected, with Wall Street having forecast a profit of just 3 cents per share on revenue of $159.5 million.

But New Relic told investors that its current quarter would take a big hit from a combination of factors that make it difficult for it to provide accurate expectations. The company cited “uncertainty regarding, and the potential variability of, reconciling items such as stock-based compensation expense, lawsuit litigation cost and other expense, employer payroll taxes on equity incentive plans and gain or loss from lease modification.”

It warned that these factors could hurt its next quarterly results when computed in accordance with generally accepted accounting principles.

The warning comes just days after New Relic announced a major revamp of its product suite and pricing structure. The company sells cloud-based software that enables organizations to analyze and detect problems with their applications. It essentially makes modern software and the infrastructure it runs on more observable, so its customers can understand performance issues and find and fix problems faster.

New Relic said last week it was repackaging what had become an increasingly complex product suite into just three categories in order to make its tools easier to deploy and use. It also announced a new pricing scheme for its products, including a new, free tier, saying this would significantly reduce costs for most of its customers.

“Last week, we delivered the latest iteration of New Relic One, simplifying our full observability platform into three powerful products that will help our customers increase developer productivity by removing cost as a barrier to observability,” New Relic founder and Chief Executive Lew Cirne (pictured) said in a statement.

But that’s going to cost the company at least in the short term. In a conference call with analysts, New Relic Chief Financial Officer Mark Sachleben said the company’s second quarter outlook assumes “basically flat annual recurring revenue,” which is a result of it being “generous with the new offering.” He said more customers will opt for the free tier at first, and that this will cause a $15 million to $20 million hit to New Relic’s ARR that will most likely come during the next quarter.

“That’s going to cause a near-term headwind to our results,” Sachleben said, though he insisted the company would ultimately add more customers as a result of the revamp.

Constellation Research Inc. analyst Holger Mueller told SiliconANGLE that he thinks New Relic is trying to transform its business with the objective of capturing a larger share of the CI/CD and DevOps market, under the banner of application observability.

“This required a change in licensing, notably a simplification of things,” Mueller said. “That can create confusion and concern for investors in the short term. But as long as New Relic keeps executing, good things should happen in conjunction with the new product offering and pricing.”

For the second quarter, New Relic said it expects revenue of $163 million to $164 million, the midpoint of which is just ahead of Wall Street’s forecast of $163 million.

New Relic also cited a lack of focus by the sales team in the four months spent repackaging the company’s offerings for the shortfall in the first quarter. Today it announced it’s hiring John Siebert as its new executive vice president of sales for the Americas region. Siebert has more than 20 years of experience leading sales organizations and most recently served as vice president of the Americas at Forter Inc., an ecommerce fraud protection firm. Before that, he served as senior vice president of east sales at MongoDB Inc., and held a variety of sales leadership positions at CA Technologies Inc.

With reporting from Robert Hof

Photo: SiliconANGLE