Observability company New Relic Inc. made impressive gains today, its stock rising more than 18% in after-hours trading today after beating Wall Street’s targets and posting strong guidance in its latest financial results.

The company reported a second-quarter loss before certain costs such as stock compensation of 10 cents per share on revenue of $196 million, up 18% from the same period one year ago.

That was better than expected, with analysts modeling a bigger loss of 13 cents per share on lower sales of $182.2 million.

New Relic Chief Executive Bill Staples (pictured), who joined the company earlier this year, said the quarter marks the completion of its business turnaround and the start of a new chapter of growth.

“We recently laid out five strategic priorities to guide our company forward and we are pleased with the progress we’ve already made in advancing these objectives,” Staples said. “Today, New Relic has a strong foundation for the future, as we continue our work to help millions of developers and engineers build better software by making observability a daily part of a data-driven engineering approach, across the entire software.”

New Relic sells application and DevOps monitoring tools. The platform is popular with software developers because it makes it easier for them to spot problems with their applications and find an easy fix.

Regarding New Relic’s business turnaround, Staples was talking about the company’s recent transition to the cloud. That transformation included a major revamp of its product pricing that ensured many of its customers were actually paying less than before. The idea was to sign customers up on long subscriptions and sacrifice a bit of near-term profit for longer term stability and growth.

It’s a move that appears to be paying off, as New Relic reported sequential growth in its net revenue retention rate, rising to 112%, up from 111% in the previous quarter, reversing a downward trend over the last year. NRR measures the percentage of recurring revenue retained from existing customers over a given time period.

New Relic also saw growth in its number of active customer accounts with greater than $100,000 in revenue, rising to 1,011 at the end of the quarter, up from 964 three months ago and 894 in the same period last year.

Holger Mueller, an analyst with Constellation Research Inc., told SiliconANGLE he agreed with Staples’ assessment of the company and that it appears to have turned the corner following a troublesome recent chapter. However, he pointed to a number of challenges New Relic’s management will have to address if it’s to be able to accelerate its growth and reach profitability.

“While 18% revenue growth is encouraging, the challenge is it only did so while growing its business costs at more than double that rate, at over 40%,” Mueller said. “That leaves New Relic with only a slightly better gross profit for the quarter and practically no progress in regard to its full year profit. With modest modest increases in its research and development, sales and marketing and general and administrative expenses, New Relic’s future annual profit statement looks like it’s going to be even more in the red than it was a year ago. So the management must either reduce those service costs or find savings at a higher level in its profit and loss statement if it’s to turn the corner on profits.”

During the quarter the company had some big product announcements, including the debut of an open-source ecosystem of “quickstarts,” officially called New Relic Instant Observability. That simplifies integration of the company’s platform with various open-source tools and software-as-a-service products. The company also launched a new product called CodeStream, which allows developers to fix issues they discover using New Relic’s tools through a single interface, as opposed to working with multiple tabs.

For the current quarter, New Relic is feeling confident. The company offered a forecast of $198 million to $202 million in sales, way ahead of Wall Street’s forecast of $183.2 million. For the full year, New Relic expects revenue of $778 million to $782 million, which comfortably beats the consensus estimate of $736.8 million.

Photo: New Relic/YouTube