UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________________

FORM 10-Q

_________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December~~June 3130, ~~2022~~2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36766

_________________________________________________

New Relic, Inc.

(Exact name of registrant as specified in its charter)

_________________________________________________


Delaware						26-2017431
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

188 Spear Street, Suite 1000

San Francisco, California 94105

(Address of principal executive offices, including zip code)

(650) 777-7600

(Registrant’s telephone number, including area code)

__________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

NEWR

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~January~~July 3124, 2023, there were 6870,~~883~~225,~~490~~487 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

NEW RELIC, INC.

Form 10-Q Quarterly Report

TABLE OF CONTENTS

		Page
Special Note Regarding Forward-Looking Statements		2
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	5
	Condensed Consolidated Balance Sheets as of December 31, 2022 and March 31, 2022	5
	Condensed Consolidated Balance Sheets as of June 30, 2023 and March 31, 2023	5
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 2022 and 2021	6
	Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2023 and 2022	6
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended December 31, 2022 and 2021	7
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended June 30, 2023 and 2022	7
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended December 31, 2022 and 2021	8
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended June 30, 2023 and 2022	8
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2022 and 2021	9
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2023 and 2022	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2620
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4134
Item 4.	Controls and Procedures	4234
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	4336
Item 1A.	Risk Factors	4336
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6962
Item 3.	Defaults Upon Senior Securities	6962
Item 4.	Mine Safety Disclosures	6962
Item 5.	Other Information	6962
Item 6.	Exhibits	7063
	Signatures	7164

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “New Relic,” “we,” “Company,” “us,” and “our” refer to New Relic, Inc. and its subsidiaries. “New Relic,” the New Relic logo, and other trademarks or service marks of New Relic that may appear in this Quarterly Report on Form 10-Q are the property of the Company. This Quarterly Report on Form 10-Q contains additional trade names, trademarks, and service marks of other companies. The Company does not intend its use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of the Company by, these other companies, and all such third-party trade names, trademarks, and service marks are the property of their respective owners.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “would,” “shall,” “might,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

•~~the~~our ~~impact~~pending acquisition by affiliates of ~~natural~~by ~~disasters~~Francisco ~~and~~Partners ~~actual~~Management, orL.P. ~~threatened~~and ~~public~~TPG ~~health~~Capital ~~emergencies~~Management, ~~such~~L.P., asincluding the ~~COVID-19~~anticipated ~~pandemic~~timing thereof;

•our future financial performance, including our revenue, cost of revenue, gross profit, gross margin, operating expenses, ability to generate positive cash flow, and ability to achieve and maintain GAAP (as defined below) and non-GAAP profitability;

•our key operating metrics;

•use and limitations of non-GAAP financial measures;

•the sufficiency of our cash and cash equivalents to meet our working capital, capital expenditure, and liquidity needs;

•worldwide economic conditions, including inflation, increases in interest rates, and volatility in foreign exchange rates, and their impact on spending;

•the impact of natural disasters and actual or threatened public health emergencies, such as the COVID-19 pandemic;

•our ability to attract and retain customers to use our products, to optimize the pricing for our products, to expand our sales to our customers, and to convince our existing customers to remain on our platform and increase their spend with us;

•our product and pricing strategies and their anticipated impacts on our business and results of operations;

•our growth strategy, including increasing usage within our installed base, addition of new customers, penetration of international markets, and expansion of our platform and capabilities;

•the evolution of technologies affecting our products and markets;

•our ability to innovate and provide a superior user experience and our intentions and strategy with respect thereto;

•our ability to successfully expand in our existing markets and into new markets, including international markets;

•the attraction and retention of key personnel;

•our ability to effectively manage our growth and future expenses;

•our ability to maintain, protect, and enhance our intellectual property rights; and

•worldwide economic conditions, including inflation and increases in interest rates, and their impact on spending; and

•our ability to comply with modified or new laws and regulations applying to our business, including privacy and data security regulations.

We caution you that the foregoing list does not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, and other factors described in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-

looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

SELECTED RISKS AFFECTING OUR BUSINESS

Investing in our common stock involves a high degree of risk because we are subject to numerous risks and uncertainties that could negatively impact our business, financial condition and results of operations, as more fully described below. These risks and uncertainties include, but are not limited to, the following:

•Failure to complete, or delays in completing, the Merger (as defined below) announced on July 31, 2023 and disruptions in our business caused by the potential Merger could materially and adversely affect our business, financial condition, and results of operations.

•We cannot be sure if or when the Merger will be completed, and the pendency of the Merger could adversely affect our business, financial condition, and results of operations

•We have a limited operating history with our current business model, which makes it difficult to evaluate our current business and future prospects and increases the risk of your investment.

•We have limited experience with respect to determining the optimal prices and pricing strategies for our products.

•We have a history of losses and our revenue growth rate could decline over time, and as our costs increase, we may not be able to generate sufficient revenue to achieve and sustain profitability or maintain positive operating cash flows.

•Weakened global economic conditions, including market volatility, a downturn or recession, rising inflation and interest rates, and the economic and other impacts of geopolitical conflicts, may harm our industry, business, and results of operations.

•Unfavorable movements in foreign exchange rates may harm our business and results of operations.

•The ongoing global coronavirus (“COVID-19”) pandemic could harm our business and results of operations.

•If we are not able to manage our growth and expansion, or if our business does not grow as we expect, our operating results may suffer.

•Our business depends on our customers remaining on our platform and increasing their spend with us.

•If we are not able to develop enhancements to our products, increase adoption and usage of our products, and introduce new products that achieve market acceptance, our business could be harmed.

•If customers do not expand their use of our products beyond the current predominant use cases, our ability to grow our business and operating results may be adversely affected.

•Our quarterly results may fluctuate, and if we fail to meet the expectations of analysts or investors, our stock price and the value of your investment could decline substantially.

•If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, and changing customer needs, requirements, or preferences, our products may become less competitive.

•The markets in which we participate are intensely competitive, and if we do not compete effectively, our operating results could be harmed.

•Interruptions or performance problems associated with our technology and infrastructure may adversely affect our business and operating results.

•Our ongoing and planned expenditures on cloud hosting providers and expenditures on transitioning our services and customers from our data center hosting facilities to public cloud providers are expensive and complex, may result in a negative impact on our cash flows, and may negatively impact our financial results.

•Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.

•Our reliance upon open source software could negatively affect our ability to sell our products and subject us to possible litigation.

•If we lose key members of our management team or are unable to attract and retain executives and employees we need to support our operations and growth, our business may be harmed.

•Any issues with properly managing the use of artificial intelligence in our products could adversely affect our business.

•If we cannot continue to maintain and develop our corporate culture as we grow, we could lose the innovation, teamwork, passion, and focus on execution that we believe contribute to our success.

•Our failure or perceived failure to comply with existing or future laws, regulations, contracts, self-regulatory schemes, standards, and other obligations related to data privacy and security (including security incidents) could harm our business. Compliance or the actual or perceived failure to comply with such obligations could increase the costs of our products, limit their use or adoption, and otherwise negatively affect our operating results and business.

3•The current macro-economic environment coupled with our operating performance may decrease our ability to access liquidity either through capital markets or lending institutions.

•We have incurred substantial indebtedness that may decrease our business flexibility, access to capital, and/or increase our borrowing costs.

•Because our long-term growth strategy involves further expansion of our sales to customers outside the United States, our business will be susceptible to risks associated with international operations.

•We are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we violate these controls.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NEW RELIC, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)

	December 31, 2022		March 31, 2022
	June 30, 2023		March 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	~~506~~240,~~815~~699	$	~~268~~625,~~695~~727
Short-term investments	~~293~~216,~~356~~285		~~559~~254,~~984~~085
Accounts receivable, net of allowances of $2,547 and $3,073, respectively	197,926		226,182
Accounts receivable, net of allowances of $2,576 and $3,121, respectively	132,002		234,287
Prepaid expenses and other current assets	2119,~~433~~678		2917,~~447~~747
Deferred contract acquisition costs	1613,~~805~~203		2414,~~058~~962
Total current assets	1621,~~036,335~~867		1,~~108~~146,~~366~~808
Property and equipment, net	5448,~~114~~141		6848,~~368~~509
Restricted cash	5,~~786~~805		5,~~775~~795
Goodwill	172,298		~~163~~172,~~677~~298
Intangible assets, net	1310,~~986~~128		1511,~~636~~603
Deferred contract acquisition costs, non-current	610,~~691~~831		108,~~463~~558
Lease right-of-use assets	4016,~~304~~641		5019,~~465~~678
Other assets, non-current	5,~~657~~573		45,~~916~~759
Total assets	$	1891,~~335,171~~284	$	1,~~427~~419,~~666~~008
Liabilities, redeemable non-controlling interest and stockholders’ equity
Current liabilities:
Accounts payable	$	2939,~~261~~356	$	3229,~~545~~452
Accrued compensation and benefits	4043,~~446~~970		37,~~023~~552
Other current liabilities	2633,~~472~~076		3639,~~098~~424
Convertible senior notes, current	~~499,486~~—		—500,044
Deferred revenue	~~294~~313,~~759~~139		~~398~~370,~~754~~987
Lease liabilities	118,~~233~~992		1110,~~103~~928
Total current liabilities	~~901~~438,~~657~~533		~~515~~988,~~523~~387
Convertible senior notes, net	—		497,663
Lease liabilities, non-current	35,846		38,384
Lease liabilities, non-current	40,983		49,809
Deferred revenue, non-current	6,374		3,800
Deferred revenue, non-current	7,243		108
Other liabilities, non-current	30,430		24,897
Other liabilities, non-current	24,856		20,173
Total liabilities	511,183		1,055,468
Total liabilities	974,739		1,083,276
Commitments and contingencies (Note 7)
Commitments and contingencies (Note 10)
Redeemable non-controlling interest	27,214		23,105
Redeemable non-controlling interest	18,335		21,686
Stockholders’ equity:
Common stock, $0.001 par value; 100,000 shares authorized at December 31, 2022 and March 31, 2022; 69,118 shares and 66,988 shares issued at December 31, 2022 and March 31, 2022, respectively; and 68,857 shares and 66,728 shares outstanding at December 31, 2022 and March 31, 2022, respectively	68		66
Common stock, $0.001 par value; 100,000 shares authorized at June 30, 2023 and March 31, 2023; 70,483 shares and 69,786 shares issued at June 30, 2023 and March 31, 2023, respectively; and 70,223 shares and 69,526 shares outstanding at June 30, 2023 and March 31, 2023, respectively	70		69
Treasury stock - at cost (260 shares)	(263)		(263)
Additional paid-in capital	1,~~258~~360,~~562~~656		1,~~114~~311,~~221~~615
Accumulated other comprehensive loss	(96,~~943~~591)		(87,~~012~~432)
Accumulated deficit	(~~906~~1,~~327~~000,985)		(~~783~~963,~~308~~554)
Total stockholders’ equity	~~342~~352,~~097~~887		~~322~~340,~~704~~435
Total liabilities, redeemable non-controlling interest and stockholders’ equity	$	1891,~~335,171~~284	$	1,~~427~~419,~~666~~008

See notes to condensed consolidated financial statements.

NEW RELIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

2022

2021

2022

2021

2023

2022

Revenue

~~239~~242,~~763~~628

~~203~~216,~~591~~459

~~683,134~~

~~579,769~~

Cost of revenue

6154,~~316~~440

6863,~~793~~893

~~189,992~~

~~192,319~~

Gross profit

~~178~~188,~~447~~188

~~134~~152,~~798~~566

~~493,142~~

~~387,450~~

Operating expenses:

Research and development

6980,~~261~~310

5364,~~362~~769

~~202,760~~

~~153,460~~

Sales and marketing

9594,~~477~~019

97104,~~723~~420

~~296,100~~

~~293,603~~

General and administrative

4246,~~799~~849

3539,~~614~~030

~~124,312~~

~~113,193~~

Total operating expenses

~~207~~221,~~537~~178

~~186~~208,~~699~~219

~~623,172~~

~~560,256~~

Loss from operations

(2932,~~090~~990)

(5155,~~901~~653)

~~(130,030)~~

~~(172,806)~~

Other income (expense):

Interest income

4,~~685~~593

~~575~~1,110

~~8,220~~

~~2,237~~

Interest expense

(~~1,283~~429)

(1,~~228~~232)

~~(3,748)~~

~~(3,682)~~

Other income (expense)

192

(268)

190

(647)

Other expense, net

(1,666)

(209)

Loss before income taxes

(2530,~~496~~492)

(5255,~~822~~984)

~~(125,368)~~

~~(174,898)~~

Income tax provision

12,~~116~~830

~~763~~267

~~1,002~~

~~816~~

Net loss

(2633,~~612~~322)

(5356,~~585~~251)

~~(126,370)~~

~~(175,714)~~

Net loss and adjustment attributable to redeemable non-controlling interest

~~607~~(4,109)

(96,~~121)~~012

~~3,351~~

~~(19,175)~~

Net loss attributable to New Relic

(2637,~~005~~431)

(6250,~~706~~239)

~~(123,019)~~

~~(194,889)~~

Net loss attributable to New Relic per share, basic and diluted

(0.3854)

(0.9676)

~~(1.83)~~

~~(3.04)~~

Weighted-average shares used to compute net loss per share, basic and diluted

6869,~~050~~546

6466,~~983~~421

~~67,229~~

~~64,203~~

See notes to condensed consolidated financial statements.

NEW RELIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

	Three Months Ended December 31,				Nine Months Ended December 31,
	Three Months Ended June 30,
	2022		2021		2022		2021
	2023		2022
Net loss attributable to New Relic	$	(2637,~~005~~431)	$	(6250,~~706~~239)	$	~~(123,019)~~	$	~~(194,889)~~
Other comprehensive loss:
Unrealized gain (loss) on available-for-sale securities	~~1,890~~841		(1,~~749~~936)		~~(1,931)~~		~~(2,938)~~
Comprehensive loss attributable to New Relic	$	(2436,~~115~~590)	$	(6452,~~455~~175)	$	~~(124,950)~~	$	~~(197,827)~~

See notes to condensed consolidated financial statements.

NEW RELIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

	Three Months Ended December 31, 2022														Three Months Ended December 31, 2021
	Three Months Ended June 30, 2023														Three Months Ended June 30, 2022
	Common Stock			AdditionalPaid-InCapital		Treasury Stock			AccumulatedOtherComprehensive Income (Loss)		AccumulatedDeficit		TotalStockholders’Equity		Common Stock			AdditionalPaid-InCapital		Treasury Stock			AccumulatedOtherComprehensiveLoss		AccumulatedDeficit		TotalStockholders’Equity
	Shares	Amount				Shares	Amount								Shares	Amount				Shares	Amount
Balance at beginning of period	6869,~~568~~786	$	6869	$	1,~~215~~311,~~315~~615	260	$	(263)	$	(117,~~833~~432)	$	(~~880~~963,~~322~~554)	$	~~322~~340,~~965~~435	6566,~~639~~988	$	6566	$	1,~~008~~114,~~363~~221	260	$	(263)	$	(18,~~208~~012)	$	(~~665~~783,~~089~~308)	$	~~341~~322,~~868~~704
Issuance of common stock upon exercise of stock options	~~100~~44	—		12,~~932~~802		—	—		—		—		12,~~932~~802		~~412~~96	1—		211,~~550~~725		—	—		—		—		211,~~551~~725
Issuance of common stock for vested restricted stock units	450	—		—		—	—		—		—		—		345	—		—		—	—		—		—		—
Issuance of common stock for vested restricted and performance stock units	653	1		(1)		—	—		—		—		—		458	1		(1)		—	—		—		—		—
Stock-based compensation expense	—	—		4146,~~315~~240		—	—		—		—		4146,~~315~~240		—	—		3836,~~384~~668		—	—		—		—		3836,~~384~~668
Other comprehensive income (loss), net	—	—		—		—	—		~~1,890~~841		—		~~1,890~~841		—	—		—		—	—		(1,~~749~~936)		—		(1,~~749~~936)
Net loss attributable to New Relic	—	—		—		—	—		—		(2637,~~005~~431)		(2637,~~005~~431)		—	—		—		—	—		—		(6250,~~706~~239)		(6250,~~706~~239)
Balance at end of period	6970,~~118~~483	$	6870	$	1,~~258~~360,~~562~~656	260	$	(263)	$	(96,~~943~~591)	$	(~~906~~1,~~327~~000,985)	$	~~342~~352,~~097~~887	6667,~~396~~542	$	6667	$	1,~~068~~152,~~297~~613	260	$	(263)	$	(29,~~957~~948)	$	(~~727~~833,~~795~~547)	$	~~337~~308,~~348~~922

	Nine Months Ended December 31, 2022														Nine Months Ended December 31, 2021
	Common Stock			AdditionalPaid-InCapital		Treasury Stock			AccumulatedOtherComprehensiveLoss		AccumulatedDeficit		TotalStockholders’Equity		Common Stock			AdditionalPaid-InCapital		Treasury Stock			AccumulatedOtherComprehensiveLoss		AccumulatedDeficit		TotalStockholders’Equity
	Shares	Amount				Shares	Amount								Shares	Amount				Shares	Amount
Balance at beginning of period	66,988	$	66	$	1,114,221	260	$	(263)	$	(8,012)	$	(783,308)	$	322,704	64,019	$	64	$	1,001,309	260	$	(263)	$	(19)	$	(587,116)	$	413,975
Effect of adoption of ASU 2020-06	—	—		—		—	—		—		—		—		—	—		(100,136)		—	—		—		54,210		(45,926)
Issuance of common stock upon exercise of stock options	369	—		8,434		—	—		—		—		8,434		727	1		29,164		—	—		—		—		29,165
Issuance of common stock for vested restricted stock units	1,388	2		(2)		—	—		—		—		—		1,149	1		(1)		—	—		—		—		—
Issuance of common stock related to employee stock purchase plan	103	—		6,062		—	—		—		—		6,062		100	—		5,417		—	—		—		—		5,417
Issuance of common stock related to acquisition of business	270	—		12,112		—	—		—		—		12,112		401	—		13,487		—	—		—		—		13,487
Stock-based compensation expense	—	—		117,735		—	—		—		—		117,735		—	—		119,057		—	—		—		—		119,057
Other comprehensive loss, net	—	—		—		—	—		(1,931)		—		(1,931)		—	—		—		—	—		(2,938)		—		(2,938)
Net loss attributable to New Relic	—	—		—		—	—		—		(123,019)		(123,019)		—	—		—		—	—		—		(194,889)		(194,889)
Balance at end of period	69,118	$	68	$	1,258,562	260	$	(263)	$	(9,943)	$	(906,327)	$	342,097	66,396	$	66	$	1,068,297	260	$	(263)	$	(2,957)	$	(727,795)	$	337,348

See notes to condensed consolidated financial statements.

NEW RELIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended December 31,
	Three Months Ended June 30,
	2022		2021
	2023		2022
Cash flows from operating activities:
Net loss attributable to New Relic	$	(~~123~~37,~~019~~431)	$	(~~194~~50,~~889~~239)
Net loss and adjustment attributable to redeemable non-controlling interest (Note 3)	(3,351)		19,175
Net loss and adjustment attributable to redeemable non-controlling interest (Note 2)	4,109		(6,012)
Net loss:	$	(~~126~~33,~~370~~322)	$	(~~175~~56,~~714~~251)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	506,~~989~~727		6610,~~787~~644
Stock-based compensation expense	115,413		117,549
Amortization of deferred contract acquisition costs	5,190		7,224
Amortization of debt discount and issuance costs	1,823		1,766
Stock-based compensation expense	46,437		34,882
Loss on facilities exit	10,840		—
Amortization of debt discount and issuance costs	206		593
Other	2,008		(204)
Non-cash charges related to restructuring activities	3,167		—
Other	829		(352)
Changes in operating assets and liabilities, net of acquisition of business:
Accounts receivable, net	27102,~~999~~285		(3116,~~053)~~545
Prepaid expenses and other assets	5(2,~~277~~984)		(~~2,990~~147)
Deferred contract acquisition costs	(85,~~711~~704)		(~~1,668~~416)
Lease right-of-use assets	71,~~919~~629		62,~~743~~562
Accounts payable	(310,~~808)~~124		2,~~922~~650
Accrued compensation and benefits and other liabilities	~~2,911~~(191)		14(4,~~650~~562)
Lease liabilities	(~~8,696~~810)		(54,~~888~~457)
Deferred revenue	(9655,~~859~~274)		(6765,~~228~~906)
Net cash used in operating activities	(19,265)		(46,328)
Net cash provided by operating activities	78,309		43,009
Cash flows from investing activities:
Purchases of property and equipment	(~~2,774~~515)		(31,~~177~~294)
Proceeds from sale of property and equipment	~~1,773~~415		—943
Cash paid for acquisition, net of cash acquired	(7,507)		(7,192)
Purchases of short-term investments	—		(50,373)
Purchases of short-term investments	(50,373)		(175,668)
Proceeds from sale and maturity of short-term investments	38,500		44,175
Proceeds from sale and maturity of short-term investments	313,975		212,328
Capitalized software development costs	(4,279)		(3,387)
Capitalized software development costs	(12,194)		(9,406)
Net cash provided by (used in) investing activities	34,121		(9,936)
Net cash provided by investing activities	242,900		16,885
Cash flows from financing activities:
Proceeds from employee stock purchase plan	6,062		5,417
Payment of convertible senior notes	(500,250)		—
Proceeds from exercise of employee stock options	82,~~434~~802		291,~~165~~725
Net cash provided by financing activities	14,496		34,582
Net cash provided by (used in) financing activities	(497,448)		1,725
Net increase in cash, cash equivalents and restricted cash	238,131		5,139
Net increase (decrease) in cash, cash equivalents and restricted cash	(385,018)		34,798
Cash, cash equivalents and restricted cash at beginning of period	~~274~~631,~~470~~522		~~246~~274,~~463~~470
Cash, cash equivalents and restricted cash at end of period	$	~~512~~246,~~601~~504	$	~~251~~309,~~602~~268
Reconciliation of cash, cash equivalents and restricted cash to condensed consolidated balance sheets:
Cash and cash equivalents	$	~~506~~240,~~815~~699	$	~~245~~303,~~827~~493
Restricted cash	5,~~786~~805		5,775
Total cash, cash equivalents and restricted cash	$	~~512~~246,~~601~~504	$	~~251~~309,~~602~~268
Supplemental disclosure of cash flow information:
Cash paid for interest and income taxes	$	3,694	$	4,448
Noncash investing and financing activities:
Property and equipment purchased but not yet paid	$	194	$	3
Issuance of common stock for the acquisition of business	$	12,112	$	13,487
Acquisition holdback	$	3,300	$	7,250

See notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Description of Business and Summary of Significant Accounting Policies

Business—New Relic, Inc. (the “Company” or “New Relic”) was incorporated in Delaware on February 20, 2008, when it converted from a Delaware limited liability company called New Relic Software, LLC, which was formed in Delaware in September 2007. The Company ~~delivers~~provides aan ~~software~~“all-in-one” observability platform ~~for~~that enables its customers to ~~land~~plan, ~~all~~build, deploy, and operate their ~~telemetry~~critical digital infrastructure by harnessing the power of data. inThe ~~one~~Company’s ~~place~~observability ~~and~~platform ~~derive~~combines ~~actionable~~metrics, ~~insights~~events, ~~from~~logs, ~~that~~traces, and other telemetry data inwith aour ~~unified~~proprietary ~~front~~stack of analytical tools to rapidly generate actionable, fact-~~end~~based ~~application~~insights. The Company’s customers use the New Relic platform ~~provides~~to ~~users~~improve ~~with~~uptime, areliability, ~~consistent~~ and ~~comprehensive~~operational ~~view~~efficiency, ofin ~~their~~order ~~digital~~to ~~environment~~optimize ~~allowing~~the ~~them~~digital toexperience ~~observe~~for ~~and~~their ~~operate~~customers ~~all~~as ~~the~~well ~~components~~as ofwithin their ~~digital infrastructure~~organizations.

Fiscal Year—The Company’s fiscal year ends on March 31. References to fiscal ~~2023~~2024 refer to the fiscal year ~~ended~~ending March 31, ~~2023~~2024.

Basis of Presentation—The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries, wholly owned or otherwise, and have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior-period amounts have been reclassified to conform with current-period presentation. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, ~~2022~~2023, as filed with the SEC on May 1723, ~~2022~~2023 (the “Annual Report”).

In the opinion of management, the unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss, stockholders’ equity and cash flows for the interim period, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year ending March 31, ~~2023~~2024. The condensed consolidated balance sheet as of March 31, ~~2022~~2023 included herein was derived from the audited financial statements as of that date.

Use of Estimates—The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Significant items subject to such estimates and assumptions include the fair value of share-based awards, fair value of purchased intangible assets and goodwill, variable consideration included in the transaction price for our customer contracts, useful lives of purchased intangible assets, unrecognized tax benefits, incremental borrowing rate used for operating lease liabilities, and the capitalization and estimated useful life of the Company’s software development costs.

These estimates are based on information available as of the date of the consolidated financial statements; therefore, actual results could differ from management’s estimates.

~~Concentration~~Summary of ~~Credit~~Significant ~~Risk~~Accounting Policies—~~Financial~~There ~~instruments~~have ~~that~~been ~~potentially~~no ~~subject~~material ~~the~~changes ~~Company~~ to ~~concentrations~~our ofsignificant ~~credit~~accounting ~~risk~~policies ~~consist~~as ~~primarily~~ of ~~cash~~ and ~~cash~~for equivalents, restricted cash, and accounts receivable. The Company maintains its cash balances at financial institutions that management believes are high-credit, quality financial institutions, where deposits, at times, exceed the ~~Federal~~three ~~Deposit~~months ~~Insurance~~ended ~~Corporation~~June ~~(“FDIC”) limits. As of December 31~~30, ~~2022 and March 31~~2023, ~~2022,~~as ~~97%~~compared ~~and 96%, respectively, of cash, cash equivalents, and restricted cash were concentrated in the United States. The Company has not experienced any losses on cash and cash equivalents~~ to ~~date. The Company does not believe that it is subject to unusual credit risk beyond~~ the ~~normal~~significant ~~credit~~accounting ~~risk~~policies ~~associated~~described ~~with~~in ~~typical~~our ~~commercial~~Annual ~~banking relationships~~Report. For the purpose of assessing concentrations of credit risk and customer significance, a group of customers under common control or customers that are affiliates of each other are regarded as a single customer. There was no customer that represented more than 10% of the Company’s accounts receivable balance as of December 31, 2022 or March 31, 2022. There was no customer that individually exceeded 10% of the Company’s revenue during the three or nine months ended December 31, 2022 or 2021.

2. Joint Venture

All of the common stock held by the Investors may be callable by the Company or puttable by the Investors upon certain contingent events. Should the call or put option be exercised, the redemption value would be determined based on a prescribed formula derived from the discrete revenues of New Relic K.K. and the Company and may be settled, at the Company’s discretion, with Company stock or cash. As a result of the put right available to the redeemable non-controlling interest holders in the future, the redeemable non-controlling interest in New Relic K.K. is classified outside of permanent equity in the Company’s consolidated balance sheet as of June 30, 2023, and the balance is reported at the greater of the initial

~~Significant~~carrying ~~Accounting~~amount ~~Policies~~adjusted for the redeemable non-controlling interest’s share of earnings or losses, or its estimated redemption value. Accordingly, the Company adjusted the redeemable non-controlling interest by $4.2 million at June 30, 2023.

~~Revenue Recognition—~~The ~~Company~~following ~~generates~~table ~~revenue~~summarizes ~~from consumption-based and subscription-based agreements that allow customers to access its products and/or platform over~~ the ~~internet~~activity asin ~~a service. The Company typically sells (1) a subscription-based agreement for a committed contractual amount that is apportioned ratably over~~ the ~~term~~redeemable ~~of the subscription period, (2) a consumption~~non-~~based~~controlling ~~agreement~~interest for ~~a committed contractual amount where~~ the ~~committed~~periods ~~contractual~~indicated ~~amount~~below ~~is drawn down as usage occurs and may or may not include a usage overage component, and~~ (3)in ~~a consumption-based arrangement that is billed based on usage (“Pay as You Go”~~thousands).:

The Company determines revenue recognition through the following steps:


	Three Months Ended June 30,
	2023		2022
Balance, beginning of period	$	23,105	$	21,686

Net loss attributable to redeemable non-controlling interest	(109)		(146)
Adjustment to redeemable non-controlling interest	4,218		(5,866)
Balance, end of period	$	27,214	$	15,674

~~•identification~~3. Fair ofValue ~~the contract, or contracts with a customer;~~Measurements

The Company reports assets and liabilities recorded at fair value on the Company’s consolidated balance sheets based upon the level of judgment associated with inputs used to measure their fair value. The following tables present information about the Company’s financial assets measured at fair value on a recurring basis as of June 30, 2023 and March 31, 2023 based on the three-tier fair value hierarchy (in thousands):

•identification of the performance obligations in the contract;


	Fair Value Measurements as of June 30, 2023
	Quoted prices in active markets for identical assets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Cash and cash equivalents:
Money market funds	$	173,445	$	—	$	—	$	173,445



Short-term investments:
Certificates of deposit	—		5,998		—		5,998

Corporate notes and bonds	—		65,596		—		65,596
U.S. treasury securities	144,691		—		—		144,691

Total short-term investments	144,691		71,594		—		216,285
Restricted cash:
Money market funds	5,805		—		—		5,805
Total assets measured at fair value	$	323,941	$	71,594	$	—	$	395,535




	Fair Value Measurements as of March 31, 2023
	Quoted prices in active markets for identical assets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Cash and cash equivalents:
Money market funds	$	532,173	$	—	$	—	$	532,173



Short-term investments:
Certificates of deposit	—		5,961		—		5,961
Commercial paper	—		2,990		—		2,990
Corporate notes and bonds	—		65,378		—		65,378
U.S. treasury securities	179,756		—		—		179,756

Total short-term investments	179,756		74,329		—		254,085
Restricted cash:
Money market funds	5,795		—		—		5,795
Total assets measured at fair value	$	717,724	$	74,329	$	—	$	792,053

~~•determination~~There ofwere no transfers between fair value measurement levels during the ~~transaction~~three ~~price;~~months ended June 30, 2023 and 2022.

•allocation of the transaction price to the performance obligations in the contract; and

•recognition of revenue, when, or as, the Company satisfies a performance obligation.

Usage above the commitment for consumption-based agreements is either recognized as revenue as the usage is incurred or as revenue as part of an estimate of total usage above the commitment. Total usage above the commitment is estimated by surveying usage in previous months along with other factors and projecting usage for the remaining term of the contract. The estimated usage-based revenues are constrained to the amount the Company expects to be entitled to receive in exchange for providing access to its platform. Revenue from subscription-based agreements is recognized on a ratable basis over the contractual subscription period of the agreement.

Recently Issued Accounting Pronouncements Not Yet Adopted

In October 2021, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2021-08, Business Combinations - Accounting for Contract Liabilities from Contracts with Customers (Topic 805), which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities from acquired contracts using the revenue recognition guidance under ASC 606 as if the entity had originated the contracts. The guidance is effective for fiscal years beginning after April 1, 2023, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this guidance.

2. Business Combinations

K2 Cyber Security Inc.

On September 14, 2022, the Company acquired all of the equity interests in K2 Cyber Security Inc. (“K2”), a company that provides a differentiated, signatureless approach to vulnerability and hack detection. The aggregate purchase price of $16.6 million consisted of approximately (i) $4.5 million in cash (of which the Company held back approximately $3.3 million for 18 months after the transaction closing date for indemnification purposes, which has been accrued as a long-term liability) and (ii) 202,752 shares of the Company’s common stock with an aggregate fair value of approximately $12.1 million, after taking into account the holdback arrangement with the K2 founders, as described below. The fair value of the consideration transferred was determined based on a $59.74 per share price of the Company’s common stock on the closing date of the acquisition.

The total purchase price was allocated to the developed technology acquired with an estimated useful life of three years and net assets assumed. Deferred tax related to the developed technology was deemed immaterial. The excess purchase price was recorded as goodwill, as set forth below. Goodwill generated from the acquisition was attributable to expected synergies from future growth and was not deductible for tax purposes.

The following table presents the Company’s available-for-sale securities as of June 30, 2023 (in thousands):

The following table presents the preliminary purchase price allocation related to the acquisition (in thousands):


	Available-for-sale Investments as of June 30, 2023
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value



Short-term investments:
Certificates of deposit	$	6,000	$	—	$	(2)	$	5,998

Corporate notes and bonds	67,394		—		(1,798)		65,596
U.S. treasury securities	147,774		—		(3,083)		144,691

Total available-for-sale investments	$	221,168	$	—	$	(4,883)	$	216,285

The following table presents the Company’s available-for-sale securities as of March 31, 2023 (in thousands):

Cash consideration	$	4,497
	Available-for-sale Investments as of March 31, 2023
Fair value of common shares	16,132
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Total consideration	20,629
Short-term investments:
Post-business combination compensation expense	(4,019)
Certificates of deposit	$	6,000	$	—	$	(39)	$	5,961
Total purchase price	16,610
Commercial paper	2,994		—		(4)		2,990
Net assets assumed	(589)
Corporate notes and bonds	67,571		—		(2,193)		65,378
Developed technology acquired	(7,400)
U.S. treasury securities	183,244		—		(3,488)		179,756
Goodwill	$	8,621
Total available-for-sale investments	$	259,809	$	—	$	(5,724)	$	254,085

The ~~acquisition~~Company ~~was~~reviews ~~accounted~~its ~~for~~debt securities classified as short-term investments on a ~~business~~regular ~~combination~~basis for impairment. For debt securities in ~~accordance~~unrealized ~~with~~loss ~~ASC~~positions, ~~805.~~the ~~The~~Company ~~estimated~~determines whether any portion of the decline in fair value ofbelow ~~developed~~the ~~technology~~amortized ~~acquired~~cost ofbasis ~~$7.4 million~~is ~~was~~due ~~determined~~to ~~through~~credit-related factors where the ~~use~~Company ofneither aintends ~~third-party~~to ~~valuation~~sell ~~firm~~nor ~~using~~anticipates ~~cost~~that ~~approach~~it ~~methodology~~is more likely than not that it will be required to sell prior to recovery of the amortized cost basis. The ~~direct~~Company ~~transaction~~considers ~~costs~~factors such as the extent to which the market value has been less than the cost, any noted failure of the ~~acquisition~~issuer ~~were~~to ~~accounted~~make ~~for~~scheduled ~~separately~~payments, ~~from~~changes to the ~~business~~rating ~~combination~~of the security, and ~~expensed~~other asrelevant ~~incurred.~~credit-related ~~The~~factors ~~business~~in ~~combination~~determining ~~did~~whether or not ~~have~~ a ~~material~~credit ~~impact~~loss onexists. During the ~~condensed~~three ~~consolidated~~months ~~financial~~ended ~~statements~~June 30, 2023 and ~~therefore~~the ~~historical~~twelve ~~and~~months ~~pro~~ended ~~forma~~March ~~disclosures~~31, ~~have~~2023, the Company did not ~~been~~recognize ~~presented~~an allowance for credit-related losses on any of its investments.

~~The~~As ~~acquisition~~of ~~also~~June ~~included~~30, a2023 ~~holdback~~and ~~arrangement~~March ~~with~~31, ~~the~~2023, ~~two~~securities ~~founders~~that ofwere ~~K2,~~in ~~totaling~~an ~~approximately~~unrealized 67loss position for more than 12 months were $4.9 million and $4.6 million,~~278~~ ~~shares~~respectively. The unrealized losses were caused by changes in market interest rates or the widening of market spreads subsequent to the ~~Company’s~~initial ~~common~~purchase ~~stock~~of these securities, ~~contingent~~and ~~upon~~not ~~their~~related ~~continued~~to ~~employment~~the ~~with~~underlying credit of the ~~Company~~issuers or the underlying collateral. The ~~fair~~unrealized ~~value~~losses ofon these ~~awards~~investments are not considered an other-than-temporary impairment, ~~which~~because ~~are~~the ~~subject~~decline in fair value is not attributable to credit quality and because the ~~recipients’~~Company ~~continued~~does ~~service~~not intend, ~~was~~and ~~$4.0 million~~it ~~and~~is ~~was~~not ~~excluded~~likely ~~from~~that ~~the~~it ~~aggregate~~will ~~purchase~~be ~~price.~~required, ~~These~~to ~~awards~~sell ~~are~~these ~~recognized~~securities asbefore ~~stock-based~~recovery ~~compensation~~of ~~expenses~~their ~~over~~amortized ~~the~~cost ~~vesting~~basis. ~~period~~As a result, ~~which~~the isCompany 24did ~~and~~not 36consider ~~months~~any of its available-for-sale ~~the~~securities ~~two~~to ~~founders~~be impaired as of June 30, ~~respectively~~2023 and March 31, 2023.

The following table classifies the Company’s available-for-sale short-term investments by contractual maturities as of June 30, 2023 and March 31, 2023 (in thousands):

CodeStream Inc.


	June 30, 2023		March 31, 2023
Due within one year	$	179,676	$	165,143
Due after one year and within three years	36,609		88,942
Total	$	216,285	$	254,085

OnFor ~~June~~certain 8,other ~~2021~~financial instruments, ~~the~~including ~~Company~~accounts ~~acquired all of the equity interests in CodeStream Inc. (“CodeStream”)~~receivable, aaccounts ~~company~~payable that provides an integrated developer collaboration platform. The aggregate purchase price of $28.6 million consisted of approximately $15.1 million in cash (of which the Company held back approximately $7.3 million from the aggregate purchase price for 18 months after the transaction closing date, and ~~all~~other ofcurrent ~~which was subsequently paid out in December 2022 in accordance with the holdback term) and 202~~liabilities,~~561~~ ~~shares of~~ the ~~Company’s~~carrying ~~common~~amounts ~~stock~~approximate ~~with~~their ~~an aggregate~~ fair value ofdue approximately $13.5 million. The fair value of the consideration transferred was determined based on a $66.58 per share price of the Company’s common stock on the closing date of the acquisition. The total purchase price was allocated to the ~~developed~~relatively ~~technology~~short ~~acquired~~maturity ~~with an estimated useful life~~ of ~~three~~these ~~years, net assets assumed, and a deferred tax liability related to the developed technology~~balances. The excess purchase price was recorded as goodwill. The acquisition was accounted for as a business combination in accordance with ASC 805. The estimated fair value of developed technology acquired of $10.3 million was determined through the use of a third-party valuation firm using cost approach methodology. The business combination did not have a material impact on the condensed consolidated financial statements and therefore historical and proforma disclosures have not been presented.

~~The~~Convertible ~~acquisition~~Senior also included a holdback arrangement with certain employees of CodeStream, totaling approximately 199,492 shares of the Company’s common stock, contingent upon their continued employment with the Company. The fair value of these awards, which are subject to the recipients’ continued service, was $13.3 million and was excluded from the aggregate purchase price. These awards are being recognized as stock-based compensation expense over the vesting period, which is 42 months.Notes

3The Company’s 0. ~~Joint~~50% ~~Venture~~convertible senior notes due 2023 (the “Notes”) matured and were repaid in cash on May 1, 2023. No amount remains outstanding on the Notes as of June 30, 2023. As of March 31, 2023, the fair value of the Notes were $449.4 million. The fair value was determined based on the quoted price of the Notes in an inactive market on the last trading day of the reporting period and has been classified as Level 2 in the fair value hierarchy.

On July 13, 2018, the Company entered into an agreement with Japan Cloud Computing L.P. and M30 LLC (collectively, the “Investors”) to engage in the investment, organization, management and operation of New Relic K.K., a Japanese subsidiary of the Company that is focused on the sale of the Company’s products and services in Japan. On August 21, 2018, the investors initially contributed approximately $3.6 million (396 million Japanese Yen) in exchange for 40% of the outstanding common stock of New Relic K.K. On August 21, 2019, the Company and Investors additionally contributed approximately $1.5 million (156 million Japanese Yen) and approximately $1.0 million (104 million Japanese Yen), respectively, to subscribe to additional shares. As of December 31, 2022, the Company owned approximately 60% of the outstanding common stock in New Relic K.K.

All of the common stock held by the Investors may be callable by the Company or puttable by the Investors upon certain contingent events. Should the call or put option be exercised, the redemption value would be determined based on a prescribed formula derived from the discrete revenues of New Relic K.K. and the Company and may be settled, at the Company’s discretion, with Company stock or cash. As a result of the put right available to the redeemable non-controlling interest holders in the future, the redeemable non-controlling interest in New Relic K.K. is classified outside of permanent equity in the Company’s consolidated balance sheet as of December 31, 2022, and the balance is reported at the greater of the initial carrying amount adjusted for the redeemable non-controlling interest’s share of earnings or losses, or its estimated redemption value. Accordingly, the Company adjusted the redeemable non-controlling interest by $3.4 ~~million at December 31, 2022~~. Revenue

~~The~~Disaggregation ~~following~~of ~~table summarizes the activity in the redeemable non-controlling interest for the periods indicated below (in thousands):~~Revenue

	Nine Months Ended December 31,
	2022		2021
Balance, beginning of period	$	21,686	$	3,389
Net loss attributable to redeemable non-controlling interest	(348)		(275)
Adjustment to redeemable non-controlling interest	(3,003)		19,450
Balance, end of period	$	18,335	$	22,564

The following table presents revenue by category (in thousands):

4. Fair Value Measurements


	Three Months Ended June 30,
	2023		2022
Subscription	$	28,720	$	63,080
Consumption	213,908		153,379
Total revenue	$	242,628	$	216,459

The ~~Company~~following ~~classifies~~table ~~time~~shows ~~deposits~~the ~~and~~Company’s ~~other~~revenue ~~investments~~by ~~that~~geographic ~~are~~areas, ~~highly~~as ~~liquid~~determined ~~and~~based ~~have~~on ~~maturities of three months or less at~~ the ~~date~~billing address of ~~purchase~~its ascustomers ~~cash~~(in ~~equivalents.~~thousands):

The Company’s restricted cash consists of compensating balances that must be maintained at a financial institution as collateral for the Company’s standby letters of credit relating to its property leases.


	Three Months Ended June 30,
	2023		2022
United States	$	151,171	$	143,460
Europe, the Middle East, and Africa (“EMEA”)	44,000		34,716
Asia Pacific and Japan (“APAC”)	28,897		23,126
Other	18,560		15,157
Total revenue	$	242,628	$	216,459

~~The~~Deferred ~~Company~~Revenue ~~invests in certificates of deposit, commercial paper, corporate debt securities, U.S. treasury securities,~~ and ~~U.S.~~Performance ~~agency~~Obligations ~~securities, which are classified as available-for-sale securities.~~

Deferred revenue consists of billings or payments received in advance of revenue being recognized. For the three months ended June 30, 2023 and 2022, the majority of revenue recognized was from the deferred revenue balances at the beginning of each period. For the three months ended June 30, 2023 and 2022, the Company recognized $1.5 million and $6.8 million, respectively, in revenue from performance obligations satisfied in prior periods.

The aggregate unrecognized transaction price of the Company’s remaining performance obligations as of June 30, 2023 was $738.9 million. The Company expects approximately 70% to be recognized as revenue in the 12 months following June 30, 2023, 91% of the balance as revenue in the 24 months following June 30, 2023, and the remainder thereafter based on historical customer consumption patterns. However, the amount and timing of revenue recognition are generally dependent upon customers’ future consumption, which is inherently variable at customers’ discretion and can extend beyond the original contract term in cases where customers are permitted to roll over unused capacity to future periods, generally on the purchase of additional capacity at renewal.

5. Property and Equipment

Property and equipment, net, consisted of the following (in thousands):


	June 30, 2023		March 31, 2023
Computers, software, and equipment	$	13,117	$	13,301
Site operation equipment	49,119		52,672
Furniture and fixtures	2,588		2,589
Leasehold improvements	21,885		21,877
Capitalized software development costs	94,556		90,075
Total property and equipment	181,265		180,514
Less: accumulated depreciation and amortization	(133,124)		(132,005)
Total property and equipment, net	$	48,141	$	48,509

Depreciation and amortization expense related to property and equipment was $4.8 million and $8.0 million for the three months ended June 30, 2023 and 2022, respectively.

	Fair Value Measurements as of December 31, 2022
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Money market funds	$	420,517	$	—	$	—	$	420,517
Short-term investments:
Certificates of deposit	—		29,386		—		29,386
Commercial paper	—		2,954		—		2,954
Corporate notes and bonds	—		83,018		—		83,018
U.S. treasury securities	177,998		—		—		177,998
Restricted cash:
Money market funds	5,786		—		—		5,786
Total	$	604,301	$	115,358	$	—	$	719,659
Included in cash and cash equivalents							$	420,517
Included in short-term investments							$	293,356
Included in restricted cash							$	5,786
	Fair Value Measurements as of March 31, 2022
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Money market funds	$	109,327	$	—	$	—	$	109,327
Short-term investments:
Certificates of deposit	—		126,885		—		126,885
Commercial paper	—		27,861		—		27,861
Corporate notes and bonds	—		85,065		—		85,065
U.S. treasury securities	320,173		—		—		320,173
Restricted cash:
Money market funds	5,775		—		—		5,775
Total	$	435,275	$	239,811	$	—	$	675,086
Included in cash and cash equivalents							$	109,327
Included in short-term investments							$	559,984
Included in restricted cash							$	5,775

6. 0.5% Convertible Senior Notes and Capped Call

~~There~~In May 2018, the Company issued $500.25 million in aggregate principal amount of the Notes in a private offering, including $65.25 million in aggregate principal amount of Notes pursuant to the exercise in full of the initial purchasers’ option to purchase additional Notes. The Notes were nothe ~~transfers~~Company’s ~~between~~senior ~~fair~~unsecured ~~value~~obligations ~~measurement~~and ~~levels~~bore ~~during~~interest at a fixed rate of 0.5% per annum, payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2018. Each $1,000 principal amount of the ~~nine~~Notes ~~months~~was ~~ended~~initially ~~December~~convertible 31into 9.0244 shares of the Company’s common stock (the “Conversion Option”), ~~2022~~which was equivalent to an initial conversion price of approximately $110.81 per share. The Notes matured and ~~2021~~were repaid in cash on May 1, 2023.

The net carrying amount of the Notes was as follows (in thousands):


	June 30, 2023		March 31, 2023
Principal	$	—	$	500,250

Unamortized issuance costs	—		(206)
Net carrying amount	$	—	$	500,044

For the three months ended June 30, 2023 and 2022, the effective interest rate for the Notes was 0.98%. Interest expense related to the Notes was as follows (in thousands):


	Three Months Ended June 30,
	2023		2022

Amortization of issuance costs	$	206	$	593
Contractual interest expense	215		624
Total interest expense	$	421	$	1,217

In connection with the offering of the Notes, the Company entered into privately negotiated capped call transactions with certain financial institutions (the “Capped Calls”). The Capped Calls each had an initial strike price of approximately $110.81 per share, subject to certain adjustments, which corresponded to the initial conversion price of the Notes. The Capped Calls had initial cap prices of $173.82 per share, subject to certain adjustments. The Capped Calls covered, subject to anti-dilution adjustments, approximately 4.5 million shares of the Company’s common stock. The cost of $63.2 million incurred in connection with the Capped Calls was recorded as a reduction to additional paid-in capital. The Capped Calls expired upon the maturity of the Notes on May 1, 2023.

7. Commitments and Contingencies

Purchase Commitments—As of June 30, 2023 and March 31, 2023, the Company had purchase commitments of $489.1 million and $518.3 million, respectively, primarily related to data center, cloud and hosting services.

Other Contingencies—In the normal course of business, the Company may agree to indemnify third parties with whom it enters into contractual relationships, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed, under certain conditions, to hold these third parties harmless against specified losses, such as those arising from a breach of representations or covenants, other third-party claims that the Company’s products when used for their intended purposes infringe the intellectual property rights of such other third parties, or other claims made against certain parties. To date, the Company has not incurred any costs as a result of such obligations and has not accrued any liabilities related to such obligations in the consolidated financial statements. In addition, the Company indemnifies its officers, directors, and certain key employees while they are serving in good faith in their respective capacities. The Company does not currently believe there is a reasonable possibility that a loss may have been incurred under these indemnification obligations. To date, there have been no claims under any such indemnification provisions.

Legal Reserves and Typical Proceedings—The Company is involved from time to time in various claims and legal actions arising in the ordinary course of business. The Company makes a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Unless otherwise specifically disclosed in this note, the Company has determined that no provision for liability nor disclosure is required related to any claim against the Company because: (a) there is not a reasonable possibility that a loss exceeding amounts already recognized (if any) may be incurred with respect to such claim; (b)

	Available-for-sale Investments as of December 31, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Short-term investments:
Certificates of deposit	$	29,500	$	—	$	(114)	$	29,386
Commercial paper	2,974		—		(20)		2,954
Corporate notes and bonds	85,907		—		(2,889)		83,018
U.S. treasury securities	183,211		—		(5,213)		177,998
Total available-for-sale investments	$	301,592	$	—	$	(8,236)	$	293,356

a reasonably possible loss or range of loss cannot be estimated; or (c) such estimate is immaterial. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that none of its current legal proceedings will have a material adverse effect on its financial position, results of operations, or cash flows.

	Available-for-sale Investments as of March 31, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Short-term investments:
Certificates of deposit	$	127,500	$	—	$	(615)	$	126,885
Commercial paper	27,946		—		(85)		27,861
Corporate notes and bonds	87,259		—		(2,194)		85,065
U.S. treasury securities	323,584		79		(3,490)		320,173
Total available-for-sale investments	$	566,289	$	79	$	(6,384)	$	559,984

401(k) Plan—The Company sponsors a 401(k) defined contribution plan covering all eligible U.S. employees. The Company is responsible for the administrative costs of the 401(k) plan and beginning on January 1, 2021, the Company has been making matching contributions to the 401(k) plan, up to a certain limit. Contributions to the 401(k) plan are discretionary. For the three months ended June 30, 2023 and 2022, the Company incurred expense of $2.7 million and $2.4 million, respectively, for matching contributions.

~~The Company reviews its debt securities classified as short-term investments on a regular basis for impairment~~8. Common ~~For~~Stock debt securities in unrealized loss positions, the Company determines whether any portion of the decline in fair value below the amortized cost basis is due to credit-related factors where the Company neither intends to sell nor anticipates that it is more likely than not that it will be required to sell prior to recovery of the amortized cost basis. The Company consider factors such as the extent to which the market value has been less than the cost, any noted failure of the issuer to make scheduled payments, changes to the rating of the security, and ~~other~~Stockholders’ relevant credit-related factors in determining whether or not a credit loss exists. During the nine months ended December 31, 2022 and the twelve months ended March 31, 2022, the Company did not recognize an allowance for credit-related losses on any of its investments.Equity

The following table summarizes the Company’s stock option, restricted stock unit (“RSU”), and performance-based restricted stock unit (“PSU”) award activities for the three months ended June 30, 2023 (in thousands, except exercise price, contractual term and fair value information):

As of December 31, 2022 and March 31, 2022, securities that were in an unrealized loss position for more than 12 months were $5.5 million and $1.3 million, respectively. The unrealized losses were caused by changes in market interest rates or the widening of market spreads subsequent to the initial purchase of these securities, and not related to the underlying credit of the issuers or the underlying collateral. The unrealized losses on these investments are not considered other-than-temporary impairment, because the decline in fair value is not attributable to credit quality and because the Company does not intend, and it is not likely that it will be required, to sell these securities before recovery of their amortized cost basis. As a result, the Company did not consider any available-for-sale securities to be impaired as of December 31, 2022 and March 31, 2022.


	Options Outstanding						RSUs Outstanding						PSUs Outstanding
	Number of Shares	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value		Number of Shares	Weighted- Average Grant Date Fair Value		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value		Number of Shares	Weighted- Average Grant Date Fair Value		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding - April 1, 2023	1,126	$	64.43	5.2	$	19,983	3,747	$	60.46	2.2	$	282,148	1,449	$	49.43	1.8	$	109,125
Granted	—	—					626	71.82					233	90.28
Exercised/vested	(44)	61.96			586		(434)	60.97					(219)	83.71
Canceled/forfeited	(12)	78.26					(422)	62.68					(12)	82.89
Outstanding - June 30, 2023	1,070	$	64.37	4.2	$	11,804	3,517	$	62.15	2.1	$	230,156	1,451	$	50.54	1.7	$	94,970

	December 31, 2022		March 31, 2022
Due within one year	$	165,992	$	354,774
Due after one year and within three years	127,364		205,210
Total	$	293,356	$	559,984

PSUs are contingent upon the achievement of pre-determined market and service conditions. The number of shares of common stock to be issued at vesting will range from 0% to 200% of the target number based on the Company’s total shareholder return (“TSR”) relative to the performance of peer companies for each measurement period, over a one-year, two-year cumulative, and three-year cumulative period. In February 2023, the Company made a one-time grant to certain of its named executive officers and certain other key executives of PSUs, which have a target achievement at a $100 stock price hurdle within two years of the grant date. The award has a minimum stock price hurdle of $85 to vest any award shares. Beyond the target vesting tranche at $100 per share, two further vesting tranches are possible at the achievement of $115 and $135 stock price hurdles, respectively. If these market conditions are not met but service conditions are met, the PSUs will not vest; however, any stock-based compensation expense recognized to date will not be reversed. The Company uses a Monte Carlo simulation model to determine the fair value of its PSUs and recognizes expense using the accelerated attribution method over the requisite service period. The PSUs presented in the table above were calculated based on 100% expected achievement.

Employee Stock Purchase Plan— Offering periods under the Company’s 2014 Employee Stock Purchase Plan (the “ESPP”) are generally six months long and begin on February 15th and August 15th of each year. For ~~certain~~the ~~other~~three ~~financial~~months ~~instruments~~ended June 30, ~~including~~2023 ~~accounts~~and ~~receivable~~2022, ~~accounts~~no ~~payable~~shares ~~and~~of ~~other~~common ~~current~~stock ~~liabilities,~~were ~~the~~purchased ~~carrying~~under ~~amounts~~the ~~approximate~~ESPP. ~~their~~Stock-based ~~fair~~compensation ~~value~~expense ~~due~~recognized related to the ~~relatively~~ESPP ~~short~~was ~~maturity~~$0.9 ofmillion ~~these~~and ~~balances~~$1.3 million for the three months ended June 30, 2023 and 2022, respectively.

Convertible Senior Notes

As of December 31, 2022, the fair value of the Notes was $443.7 million. The fair value was determined based on the quoted price of the Notes in an inactive market on the last trading day of the reporting period and has been classified as Level 2 in the fair value hierarchy.

~~5. Revenue~~Stock-Based Compensation Expense—Total stock-based compensation expense included in cost of revenue, research and development, sales and marketing, and general and administrative expenses for the three months ended June 30, 2023 and 2022 were as follows (in thousands):

Accounts Receivable and Contract Assets


	Three Months Ended June 30,
	2023		2022
Cost of revenue	$	1,201	$	1,344
Research and development (1)	21,265		13,286
Sales and marketing	11,928		10,583
General and administrative	12,043		9,669
Total stock-based compensation expense	$	46,437	$	34,882

~~The~~(1) ~~Company~~These ~~performed~~expenses ~~procedures~~include to$4.6 million ~~evaluate the creditworthiness~~ of ~~its~~accelerated ~~customers~~vesting ~~and~~resulting ~~assess~~from ~~collectability of accounts. Using a current expected credit loss model,~~ the ~~Company~~restructuring ~~determined~~activities ~~that,~~discussed ~~while there may be a delay~~ in ~~collections~~Note ~~due~~11 ~~to the downturn in economic activity, there has not been a material impact to the risk of credit loss on accounts receivables as of December 31, 2022~~below.

~~The~~As ~~Company~~of ~~receives~~June ~~payments~~30, ~~from~~2023, ~~customers~~unrecognized stock-based ~~upon~~compensation ~~billing~~cost ~~cycles.~~related Asto ~~the~~outstanding ~~Company~~unvested ~~performs~~stock ~~under~~options ~~customer~~was ~~contracts~~$1.7 million, ~~its~~which ~~right to consideration that~~ is ~~unconditional~~expected ~~is considered~~ to be ~~accounts~~recognized ~~receivable.~~over ~~If the Company’s right to consideration for such performance is contingent upon~~ a ~~future~~weighted-average ~~event~~period ~~or satisfaction~~ of ~~additional~~approximately ~~performance~~0.7 ~~obligations,~~years. ~~the~~As ~~amount~~ of ~~revenues~~June ~~the~~30, ~~Company~~2023, ~~has~~unrecognized ~~recognized~~stock-based incompensation ~~excess~~cost ofrelated ~~the~~to ~~amount~~outstanding itunvested ~~has~~RSUs ~~billed~~was to$212.4 ~~the~~million, ~~customer~~which is ~~considered~~expected to be arecognized ~~contract~~over ~~asset.~~a ~~Contract~~weighted-average ~~assets~~period ~~were~~of $approximately 2.80 ~~million and $1~~years.~~5 million~~ asAs of ~~December~~June 3130, ~~2022~~2023, ~~and~~unrecognized ~~March~~stock-based ~~31,~~compensation ~~2022,~~cost ~~respectively.~~related ~~The~~to ~~Company~~PSUs ~~has~~was no$54.8 ~~asset~~million, ~~impairment~~which ~~charges~~is ~~related~~expected to ~~contract~~be ~~assets~~recognized ~~for~~over ~~the~~a ~~periods~~weighted-average ~~presented~~period of approximately 1.7 years.

~~Deferred~~9. Income ~~Revenue and Performance Obligations~~Taxes

	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
Deferred revenue, beginning of period	$	285,286	$	272,246	$	398,862	$	375,268
Contributions from contract asset	(1,381)		(1,022)		1,293		618
Billings	257,860		240,407		584,981		511,923
Revenue recognized	(239,763)		(203,591)		(683,134)		(579,769)
Deferred revenue, end of period	$	302,002	$	308,040	$	302,002	$	308,040

The Company is subject to income tax in the United States as well as other tax jurisdictions in which it conducts business. Earnings from non-U.S. activities are subject to local country income tax. The Company does not provide for federal income taxes on the undistributed earnings of its foreign subsidiaries as such earnings are indefinitely reinvested.

~~For~~The ~~the~~Company ~~three~~recorded ~~and~~income ~~nine~~tax ~~months~~expense ~~ended~~of ~~December~~$2.8 ~~31,~~million ~~2022~~ and ~~2021,~~$0.3 ~~the~~million ~~majority~~for ~~of revenue recognized was from~~ the ~~deferred revenue balances at the beginning of each period. For the~~ three ~~and nine~~ months ended ~~December~~June 3130, ~~2022,~~2023 ~~the Company recognized $7.5 million~~ and ~~$11.1 million~~2022, respectively,. inThe ~~revenue~~income ~~from~~tax ~~performance~~expense ~~obligations~~for ~~satisfied in prior periods. For~~ the three ~~and nine~~ months ended ~~December~~June 3130, ~~2021,~~2023 ~~the Company recognized $8.6 million~~ and ~~$9.7~~2022 ~~million,~~is ~~respectively,~~primarily inrelated ~~revenue~~to ~~from~~foreign ~~performance~~and ~~obligations~~U.S. ~~satisfied~~state ~~in prior periods~~taxes.

~~The~~Based ~~aggregate~~on ~~unrecognized~~the ~~transaction~~available ~~price~~evidence ofduring the ~~Company’s~~three ~~remaining~~months ~~performance~~ended ~~obligations~~June as30, ~~of December 31~~2023, ~~2022 and~~the ~~2021~~Company ~~was~~believes ~~$726.1~~it ~~million~~is ~~and~~not ~~$609.9 million,~~more-likely-than-not ~~respectively.~~to ~~The~~realize ~~Company~~tax ~~expects~~benefits ~~approximately~~of ~~75%~~U.S. toand beJapan ~~recognized~~losses asincurred ~~revenue~~during in the 12three months ~~ending~~ended ~~December~~June 3130, 2023,. ~~93%~~The ofprimary ~~the~~difference ~~balance~~between ~~as revenue in~~ the 24effective ~~months~~tax ~~following~~rate ~~December 31, 2022,~~ and the ~~remainder~~statutory ~~thereafter~~tax ~~based~~rate onrelates ~~historical~~to ~~customer~~the ~~consumption~~valuation ~~patterns.~~allowance ~~However,~~on the ~~amount~~U.S. and ~~timing~~Japan ~~of revenue recognition are generally dependent upon customers’ future consumption~~losses, ~~which~~foreign istax ~~inherently~~rate ~~variable~~differences ~~at customers’ discretion~~ and ~~can~~state ~~extend~~income ~~beyond the original contract term in cases where customers are permitted to roll over unused capacity to future periods, generally on the purchase of additional capacity at renewal~~taxes.

~~The~~10. Net ~~aggregate~~Loss ~~balance~~Per of remaining performance obligations represents contracted revenue that has not yet been recognized and does not include contract amounts which are cancellable by the customer and amounts associated with optional renewal periods.Share

~~Capitalized~~Basic ~~Contract~~net ~~Costs~~loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, less shares subject to repurchase, and excludes any dilutive effects of employee share-based awards and warrants. Diluted net loss per share is computed giving effect to all potential dilutive common shares, including issuances of common stock upon exercise of stock options, purchases of shares under the Employee Stock Purchase Plan, and the vesting of restricted stock units and performance stock units. As the Company had net losses for each of the three months ended June 30, 2023 and 2022, all potential common shares were determined to be anti-dilutive, resulting in basic and diluted net loss per share being equal.

The Company capitalizes certain contract acquisition costs primarily consisting of commissions, if the Company expects the benefit of the contact acquisition costs to be greater than one year. The balances of deferred costs to obtain customer contracts were $23.5 million and $34.5 million as of December 31, 2022 and March 31, 2022, respectively. In the three months ended December 31, 2022 and 2021, amortization from amounts capitalized was $6.0 million and $8.8 million, respectively. In the nine months ended December 31, 2022 and 2021, amortization from amounts capitalized was $19.7 million and $28.6 million, respectively. In the three months ended December 31, 2022 and 2021, amounts expensed as incurred were $14.7 million and $17.0 million, respectively. In the nine months ended December 31, 2022 and 2021, amounts expensed as incurred were $43.2 million and $46.5 million, respectively.

The following table sets forth the computation of net loss per share, basic and diluted (in thousands, except per share amounts):

6. Property and Equipment


	Three Months Ended June 30,
	2023		2022
Numerator:
Net loss attributable to New Relic	$	(37,431)	$	(50,239)
Denominator:
Weighted average shares used to compute net loss per share, basic and diluted	69,546		66,421
Net loss attributable to New Relic per share—basic and diluted	$	(0.54)	$	(0.76)

The following outstanding options, unvested RSUs, unvested PSUs, and ESPP shares were excluded (as common stock equivalents) from the computation of diluted net loss per common share for the periods presented as their effect would have been antidilutive (in thousands):

	December 31, 2022		March 31, 2022
	As of June 30,
Computers, software, and equipment	$	14,595	$	13,854
	2023		2022
Site operation equipment	56,966		67,726
Options to purchase common stock	1,070		1,523
Furniture and fixtures	4,783		5,772
RSUs	3,517		4,502
Leasehold improvements	34,795		49,756
PSUs	1,451		368
Capitalized software development costs	85,548		79,808
ESPP shares	95		128
Total property and equipment	196,687		216,916
Total	6,133		6,521
Less: accumulated depreciation and amortization	(142,573)		(148,548)
Total property and equipment, net	$	54,114	$	68,368

~~Depreciation and amortization expense related to property and equipment was $10~~11.0 Restructuring ~~million and $10.3 million for the three months ended December 31, 2022 and 2021, respectively, and $25.2 million and $31.9 million for the nine months ended December 31, 2022 and 2021, respectively.~~

7In the first fiscal quarter of 2024, the Company initiated a restructuring plan focused on realigning resources with the Company’s business needs in driving the growth of its consumption business, completion of its transition to a consumption business model, and improving business efficiency. 0 The restructuring plan primarily consisted of a reduction of global workforce.5% ~~Convertible~~During ~~Senior~~the ~~Notes~~three months ended June 30, 2023, the Company incurred restructuring costs of $21.7 million, including $18.4 million related to employee wages and ~~Capped~~termination ~~Call~~benefits, and $3.3 million in lease exit costs in connection with the March 2023 restructuring plan described below. There were no restructuring costs incurred during the three months ended June 30, 2022.

In ~~May~~August ~~2018~~2022, ~~the Company issued $500.25 million in aggregate principal amount of Notes in~~ a ~~private~~restructuring ~~offering,~~plan ~~including~~was ~~$65.25~~implemented ~~million in aggregate principal amount of Notes pursuant~~ to ~~the~~realign ~~exercise in full of~~ the ~~initial purchasers’ option to purchase additional Notes. The Notes are the~~ Company’s ~~senior~~cost ~~unsecured~~structure ~~obligations~~with ~~and~~its ~~bear~~business ~~interest~~needs atto arefocus ~~fixed~~on ~~rate~~top ~~of 0.5% per annum~~priorities, ~~payable~~and ~~semi-annually~~ in ~~arrears~~March ~~on May 1 and November 1 of each year, commencing on November 1, 2018. The Notes will mature on May 1,~~ 2023, ~~unless earlier converted or repurchased. Each $1,000 principal amount of~~ the ~~Notes~~Company ~~will~~implemented ~~initially~~another berestructuring ~~convertible~~plan ~~into 9.0244 shares~~to ofreduce the Company’s ~~common~~global ~~stock~~real ~~(the~~estate ~~“Conversion~~footprint ~~Option”),~~in ~~which~~line iswith ~~equivalent~~its toFlex anFirst ~~initial conversion price of approximately $110~~philosophy.~~81 per~~ ~~share.~~As ~~The~~a ~~conversion~~result ~~rate is subject to adjustment under certain circumstances in accordance with the terms~~ of the ~~indenture~~March ~~governing~~2023 ~~the Notes. In addition~~restructuring, ~~following certain corporate events that occur prior to~~ the ~~maturity date, the~~ Company ~~will~~accrued ~~increase~~$17.9 million ~~the conversion rate,~~ in ~~certain~~lease ~~circumstances,~~liabilities ~~for~~and a$7.1 million ~~holder who elects to convert its Notes~~ in ~~connection~~restructuring ~~with~~reserves ~~such~~for aother ~~corporate~~lease ~~event.~~exit ~~The~~costs ~~Notes~~as ~~became convertible at the option~~ of ~~their~~March ~~holders on November 1~~31, ~~2022~~2023.

~~Until~~The ~~the~~following ~~close~~table ofshows ~~business on~~ the ~~second~~Company’s ~~scheduled~~restructuring ~~trading~~charges ~~day~~for ~~immediately preceding~~ the ~~maturity~~three ~~date,~~months ~~holders~~ended ~~may~~June ~~convert all or any portion of their Notes~~30, 2023 (in multiples of $1,000 principal amount, at the option of the holder. On November 1, 2022, the Company was deemed to have elected to settle all conversions on or after November 1, 2022, with cash up to the principal amount of the Notes and shares for any excess conversion value.thousands):

In accounting for the transaction, the Notes were separated into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated conversion feature. The carrying amount of the equity component representing the Conversion Option was $102.5 million and was determined by deducting the fair value of the liability component from the proceeds received upon issuance of the Notes. The equity component was recorded in additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the Notes over the liability component (the “Debt Discount”) and the debt issuance costs were amortized to interest expense over the contractual term of the Notes at an effective interest rate of 5.74%. This rate is inclusive of the issuance costs.


	Three Months Ended June 30,
	2023
	Severance and other employee costs		Lease exit costs and accelerated depreciation		Total
Cost of Revenue	$	423	$	637	$	1,060
Research and Development	8,709		112		8,821
Sales and Marketing	7,212		573		7,785
General and administrative	2,054		1,937		3,991
Total	$	18,398	$	3,259	$	21,657

In accounting for the debt issuance costs of $11.6 million related to the Notes, the Company allocated the total amount incurred to the liability and equity components using the same proportions as the proceeds of the Notes. Issuance costs attributable to the liability component were $9.2 million and were amortized to interest expense using the effective interest method over the contractual term of the Notes. Issuance costs attributable to the equity component were $2.4 million and netted with the equity component in additional paid-in capital.

~~dilution~~Restructuring adjustments, approximately 4.5 million shares of the Company’s common stock. Conditions that cause adjustments to the initial strike price of the Capped Calls mirror conditions that result in corresponding adjustments for the Notes. The Capped Calls are generally intended to reduce potential dilution to holders of the Company’s common stock upon any conversion of the Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset, as the case may be, subject to a cap based on the cap price. For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the Notes. As these transactions meet certain accounting criteria, the Capped Calls are recorded in stockholders’ equity and are not accounted for as derivatives. The cost of $63.2 million incurred in connection with the Capped Calls was recorded as a reduction to additional paid-in capital. The net impact related to stockholders’ equity has been included in additional paid-in capital and was a result of the issuance costs of $2.4 million and the purchase of Capped Calls noted above in the amount of $63.2 million.accrual

InThe ~~the~~following ~~first~~tables ~~quarter~~shows ~~of fiscal 2022,~~ the ~~Company~~activity ~~adopted~~in ~~ASU~~our ~~No.~~restructuring ~~2020-06,~~accrual ~~Accounting~~ for ~~Convertible Instruments and Contract on an Entity’s Own Equity. As a result of~~ the ~~adoption,~~three ~~the~~months ~~Conversion~~ended ~~Option~~June ~~of $102.5 million and issuance costs of $2.4 million previously attributable to the equity component are no longer presented in equity. Similarly~~30, ~~the~~2023 debt discount, which was equal to the carrying value of the embedded conversion feature upon issuance, is no longer amortized into income as interest expense over the life of the instrument. As a result, the Company recorded a $54.2 million decrease to the opening balance of accumulated deficit, a $100.1 million decrease to the opening balance of additional paid-(in ~~capital, and a $45.9 million increase to the opening balance of the Notes, net on the consolidated balance sheet.~~thousands):

The Notes became current and were reclassified to short-term effective in the first quarter of fiscal year 2023. For the three months ended December 31, 2022, the effective interest rate for the Notes was 0.98%. The net carrying amount of the liability component of the Notes was as follows (in thousands):


	Total
Accrued balance as of March 31, 2023	$	7,067
Restructuring expenses related to severance (1)	13,808
Restructuring expenses related to other lease exit costs (2)	2,127
Payments of severance and other lease exit costs	(3,523)
Accrued balance as of June 30, 2023	$	19,479
Included in other current liabilities	$	12,598
Included in other liabilities, non-current	$	6,881

	December 31, 2022		March 31, 2022
Principal	$	500,250	$	500,250
Unamortized issuance costs	(764)		(2,587)
Net carrying amount	$	499,486	$	497,663

(1) These expenses exclude $4.6 million of accelerated vesting related to the restructuring plan approved in the first fiscal quarter of 2024.

~~Interest~~(2) ~~expense~~These ~~related~~expenses toexclude the ~~Notes~~$1.9 million ~~was~~non-cash write-off of lease right of use assets and leasehold improvements, as ~~follows~~well (as a $0.7 million gain from the assignment of a lease related to the restructuring plan approved in ~~thousands):~~March 2023.

	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
Amortization of issuance costs	$	635	$	590	1,823		1,766
Contractual interest expense	625		624		1,872		1,872
Total interest expense	$	1,260	$	1,214	$	3,695	$	3,638

12. Subsequent Events

8On July 30, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Crewline Buyer, Inc. ~~Goodwill~~, a Delaware corporation (“Parent”), and ~~Purchased~~Crewline ~~Intangibles~~Merger ~~Assets~~Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”), pursuant to which, subject to the satisfaction or waiver of the conditions set forth therein, Merger Sub will be merged with and into the Company, with the Company surviving the merger as a wholly-owned subsidiary of Parent (the “Merger”). Parent and Merger Sub are subsidiaries of investment funds advised by Francisco Partners Management, L.P. (“FP”) and TPG Capital Management, L.P. (“TPG”), US-based private equity firms.

InPursuant ~~September~~to ~~2022~~the Merger Agreement, at the ~~Company~~effective ~~acquired~~time ~~all~~of the Merger (the “Effective Time”), and as a result of the ~~equity~~Merger, ~~interests~~each inshare K2of common stock, par value $0.001 Asper share, of the ~~closing~~Company of(“Company Common Stock”) that is outstanding immediately prior to the ~~acquisition,~~Effective Time other than shares (i) held by the ~~estimated~~Company ~~fair~~as ~~value~~treasury stock, (ii) owned by Parent or Merger Sub, (iii) owned by any direct or indirect wholly owned subsidiary of Parent or Merger Sub, (iv) that are Rollover Shares (as defined in the ~~acquired~~Merger ~~developed~~Agreement), ~~technology~~or ~~and~~(v) ~~goodwill~~as ~~was~~to ~~$7.4 million~~which statutory rights of appraisal have been properly and ~~$8.6~~validly ~~million~~exercised, ~~respectively.~~will ~~Refer~~be cancelled and extinguished and automatically converted into the right to ~~Note~~receive 2cash —in ~~Business~~an ~~Combinations~~amount ~~for~~equal ~~more~~to ~~information~~$87.00, without interest thereon, subject to any required withholding of taxes.

The ~~changes~~board of directors of the Company (the “Board”), with Lew Cirne (together with certain of his affiliates, (the “Rollover Stockholder”) recusing himself, has unanimously approved and declared to be in the ~~carrying~~best ~~amount~~interest of ~~goodwill~~the ~~for~~Company and its stockholders, the ~~nine~~Merger ~~months~~Agreement ~~ended~~and ~~December~~the 31transactions contemplated thereby, ~~2022~~including ~~consisted~~the Merger, and resolved to recommend that the stockholders of the ~~following~~Company ~~(in~~adopt ~~thousands):~~the Merger Agreement.

Goodwill as of March 31, 2022	$	163,677
Goodwill acquired	8,621
Goodwill as of December 31, 2022	$	172,298

Assuming the satisfaction of the conditions set forth in the Merger Agreement, the Company expects the transactions contemplated thereby to close in late calendar year 2023 or early calendar year 2024.

The stockholders of the Company will be asked to vote on the adoption of the Merger Agreement and the Merger at a special stockholder meeting that will be held on a date to be announced as promptly as reasonably practicable following the customary SEC review process.

Consummation of the Merger is not subject to a financing condition, but is subject to customary closing conditions, including (i) approval of the Company’s stockholders, (ii) the expiration or earlier termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other approvals, clearances or expirations of waiting periods under other antitrust laws, (iii) approvals, clearances or expirations of waiting periods under foreign investment screening laws, (iv) absence of any order or injunction prohibiting the consummation of the Merger, (v) subject to customary materiality qualifiers, the accuracy of the representations and warranties contained in the Merger Agreement and compliance with the covenants contained in the Merger Agreement and (vi) no Company Material Adverse Effect (as defined in the Merger Agreement) having occurred since the date of the Merger Agreement that is continuing.

~~During~~The ~~the~~Merger ~~three~~Agreement ~~months~~contains ~~ended~~customary ~~December~~representations, 31warranties and covenants, ~~2022~~including, among others, covenants by the Company ~~impaired~~to ~~certain~~conduct ~~intangible~~its ~~assets~~businesses ~~acquired~~in asthe ~~part~~ordinary course between the execution and completion of ~~historical~~the ~~acquisitions~~Merger Agreement, ~~resulting~~not to engage in certain kinds of transactions during such period (including the payment of dividends), to convene and hold a ~~write-down~~meeting of its stockholders to consider and vote upon the ~~full~~Merger, ~~book~~to ~~value~~cooperate with Parent in connection with obtaining financing for the transaction, to obtain regulatory consents, and, subject to certain customary exceptions, for its board of $6directors to recommend that its stockholders approve and adopt the Merger Agreement.~~3 million~~ The Merger Agreement also contains customary representations, ~~net~~warranties and covenants of ~~accumulated~~Parent ~~amortization~~and ofMerger $4Sub, including a covenant to use reasonable best efforts to obtain the financing described below.~~6 million.~~ The ~~impairment~~Merger ~~expense~~Agreement contains a 45-day “go-shop” provision that allows the Company to, among other things, solicit, initiate, propose, induce, encourage or facilitate the making, submission or announcement of, or knowingly encourage, facilitate or assist, any proposal or Inquiry (as defined in the Merger Agreement) that constitutes, could constitute or is ~~included~~reasonably expected to lead to an Acquisition Proposal (as defined in ~~cost~~the Merger Agreement). At the end of ~~revenue~~the ongo-shop period, the ~~Condensed~~Company ~~Consolidated~~will ~~Statements~~cease ofsuch ~~Operations~~activities, and is subject to a customary “no-shop” provision that restricts the Company’s ability to, among other things, solicit Acquisition Proposals from third parties and to provide non-public information to, and engage in discussions or negotiations with, third parties regarding Acquisition Proposals after the go-shop period. The “no-shop” provision also allows the Company, under certain circumstances and in compliance with certain obligations set forth in the Merger Agreement, to provide non-public information to any person and its representatives that has made, renewed or delivered a bona fide Acquisition Proposal that either constitutes a Superior Proposal (as defined in the Merger Agreement) or is reasonably likely to lead to a Superior Proposal.

			Gross CarryingAmount						AccumulatedAmortization						Net CarryingAmount
Developed technology			$	28,600					$	(14,614)					$	13,986

Parent and Merger Sub have secured committed financing, consisting of a combination of equity financing to be provided by investment funds affiliated with FP and TPG on the terms and subject to the conditions set forth in equity commitment letters provided by such funds, Rollover Shares (as defined in the Merger Agreement) from the Rollover Stockholder and debt financing to be provided by certain lenders (collectively, the “Lenders”) on the terms and subject to the conditions set forth in a debt commitment letter. The obligations of the Lenders to provide debt financing under the debt commitment letter are subject to a number of customary conditions.

			Gross CarryingAmount						AccumulatedAmortization						Net CarryingAmount
Developed technology			$	27,500					$	(11,864)					$	15,636

The Merger Agreement contains certain termination rights for both the Company and Parent. If the Merger Agreement is terminated in connection with the Company entering into an alternative acquisition agreement in respect of a Superior Proposal entered into during the “go-shop” period, the termination fee payable by the Company to Parent will be $98 million. Upon termination of the Merger Agreement under specified circumstances, including with respect to the Company’s entry into an agreement with respect to a Superior Proposal other than described in the preceding sentence, the Board changing its recommendation or if the Company breaches its representations, warranties or covenants in a manner that would cause the related closing conditions to not be met, the Company will be required to pay Parent a termination fee of $196 million. A termination fee in the amount of $524 million will become payable by Parent in the event it fails to consummate the Merger after all conditions are met, if Parent breaches its representations, warranties or covenants in a manner that would cause the related closing conditions to not be met, or if either party terminates the Merger Agreement because the Merger has not been consummated by the Termination Date (described below), and at the time of such termination, the Company was otherwise entitled to terminate the Merger Agreement for either of the above reasons. Investment funds affiliated with FP and TPG have provided limited guarantees with respect to the payment of the termination fee payable by Parent in the event such termination fee becomes payable, as well as certain reimbursement obligations that may be owed by Parent pursuant to the Merger Agreement, subject to the terms and conditions set forth in the Merger Agreement and such limited guarantees. The Merger Agreement also provides that either party may specifically enforce the other party’s obligations under the Merger Agreement, provided that the Company may only cause Parent to close the transaction if certain conditions are satisfied, including the funding or availability of the debt financing.

~~Amortization~~In ~~expense~~addition ofto ~~purchased~~the ~~intangible~~foregoing ~~assets~~termination ~~was~~rights, ~~$4.4~~and ~~million~~subject ~~and~~to ~~$2.0~~certain ~~million~~limitations, ~~for~~the Company or Parent may terminate the ~~three~~Merger ~~months~~Agreement ~~ended~~if ~~December~~the 31Merger is not consummated by 11:59 p.m., ~~2022~~Pacific ~~and~~Time, ~~2021~~on January 30, ~~respectively~~2024 (the “Termination Date”), ~~and~~provided ~~$9.0~~that ~~million~~(x) ~~and~~if ~~$5.4~~all ~~million~~of ~~for~~the conditions to closing other than the ~~nine~~obtainment ~~months~~of ~~ended~~the ~~December~~applicable 31approvals under Antitrust Laws or Required Investment Screening Laws (each as defined in the Merger Agreement) are satisfied on or prior to the Termination Date, ~~2022~~then ~~and~~the ~~2021~~Termination Date shall automatically be extended to 11:59 p.m., ~~respectively~~Pacific time, on April 30, 2024 and is(y) ~~included~~if inas ~~cost~~of the Termination Date as extended by the foregoing clause (x) all of ~~revenue~~the onconditions to closing of the ~~Company’s~~Merger ~~condensed~~other ~~consolidated~~than ~~statements~~the obtainment of ~~operations~~the applicable approvals under Antitrust Laws or Required Investment Screening Laws are satisfied, then the Termination Date shall automatically be extended to 11:59 p.m., Pacific time, on July 30, 2024.

Fiscal Years Ending March 31,	Estimated Total Future Amortization Expense
2023 (remaining three months)	$	2,383
2024	5,900
2025	4,470
Thereafter	1,233
	$	13,986

If the Merger is consummated, the Company Common Stock will be delisted from the New York Stock Exchange and deregistered under the Securities Exchange Act of 1934.

9In connection with the Merger, the Company expects to incur significant expenses, such as transaction, professional services, and other costs. ~~Leases~~ An estimate of these expenses cannot be made at this time.

The Company leases office space under non-cancelable operating leases, which expire from 2023 to 2031. All of its office leases are classified as operating leases with lease expense recognized on a straight-line basis over the lease term.

Lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As these leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company considers information including, but not limited to, the lease term, the Company's credit rating and interest rates of similar debt instruments with comparable credit ratings. The lease right-of-use assets are also increased by any lease prepayments made and reduced by any lease incentives such as tenant improvement allowances. Options to extend the lease term are included in the lease term when it is reasonably certain that the Company will exercise the extension option.

The Company’s operating leases typically include nonlease components such as common-area maintenance costs. The Company has elected to include nonlease components with lease payments for the purpose of calculating lease right-of-use assets and liabilities, to the extent that they are fixed. Nonlease components that are not fixed are expensed as incurred as variable lease payments.

Leases with a term of one year or less are not recognized on the Company’s condensed consolidated balance sheet.

The Company continues to evaluate its real estate portfolio and adjust certain of its right-of-use assets and other lease-related assets including leasehold improvements, furniture and fixtures, and computer equipment for impairment. For the three months ended December 31, 2022, the Company incurred lease exit costs of $8.1 million, including $3.1 million for the impairment, $2.4 million for accelerated depreciation of leasehold improvements for certain facilities, and $2.6 million for accelerated depreciation of right-of-use assets where the Company has ceased the use of the space or the closing process has commenced. For the nine months ended December 31, 2022, the Company incurred lease exit costs of $10.8 million, including $4.7 million for the impairment, $2.4 million for accelerated depreciation of leasehold improvements for certain facilities, and $3.7 million for accelerated depreciation of right-of-use assets where the Company has ceased the use of the space or the closing process has commenced.

The following table presents information about leases on the condensed consolidated balance sheet (in thousands):

	December 31, 2022		March 31, 2022
Assets
Lease right-of-use-assets	$	40,304	$	50,465
Liabilities
Lease liabilities	$	11,233	$	11,103
Lease liabilities, non-current	40,983		49,809
Total operating lease liabilities	$	52,216	$	60,912

As of December 31, 2022, the weighted average remaining lease term was 4.7 years and the weighted average discount rate was 6.9%.

	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
Operating lease expense	$	3,097	$	3,418	$	9,970	$	10,372
Short-term lease expense	169		164		620		467
Variable lease expense	829		736		2,327		2,099

The following table presents supplemental cash flow information about the Company’s leases (in thousands):

	Nine Months Ended December 31,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities	$	11,403	$	11,120
Operating lease assets obtained in exchange for new lease liabilities (1)	748		1,414

(1) Includes the impact of new leases as well as remeasurements and modifications to existing leases.

As of December 31, 2022, remaining maturities of lease liabilities were as follows (in thousands):

Fiscal Years Ending March 31,	Operating Leases
2023 (remaining three months)	$	3,303
2024	14,340
2025	11,493
2026	11,699
2027	12,278
2028	6,281
Thereafter	2,014
Total operating lease payments	$	61,408
Less imputed interest	(9,192)
Total operating lease liabilities	$	52,216

10. Commitments and Contingencies

Purchase Commitments—As of December 31, 2022 and March 31, 2022, the Company had purchase commitments of $550.3 million and $549.4 million, respectively, primarily related to data center, cloud and hosting services.

specified losses, such as those arising from a breach of representations or covenants, other third-party claims that the Company’s products when used for their intended purposes infringe the intellectual property rights of such other third parties, or other claims made against certain parties. To date, the Company has not incurred any costs as a result of such obligations and has not accrued any liabilities related to such obligations in the consolidated financial statements. In addition, the Company indemnifies its officers, directors, and certain key employees while they are serving in good faith in their respective capacities. The Company does not currently believe there is a reasonable possibility that a loss may have been incurred under these indemnification obligations. To date, there have been no claims under any such indemnification provisions.

401(k) Plan—The Company sponsors a 401(k) defined contribution plan covering all eligible U.S. employees. The Company is responsible for the administrative costs of the 401(k) plan and beginning on January 1, 2021, the Company has been making matching contributions to the 401(k) plan, up to a certain limit. Contributions to the 401(k) plan are discretionary. For the three months ended December 31, 2022 and 2021, the Company incurred expense of $1.1 million and $0.9 million, respectively, for matching contributions. For the nine months ended December 31, 2022 and 2021, the Company incurred expense of $5.0 million and $3.7 million, respectively, for matching contributions.

11. Common Stock and Stockholders’ Equity

Employee Stock Purchase Plan—The Company’s board of directors adopted, and the Company’s stockholders approved, the Company’s 2014 Employee Stock Purchase Plan (the “ESPP”), which became effective in December 2014. The ESPP initially reserved and authorized the issuance of up to 1,000,000 shares of common stock. The ESPP provides that the number of shares reserved and available for issuance under the ESPP automatically increases each April, beginning on April 1, 2015, by the lesser of 500,000 shares, 1% of the number of the Company’s common stock shares issued and outstanding on the immediately preceding March 31, or such lesser number of shares as determined by the Company’s board of directors. Offering periods are generally six months long and begin on February 15th and August 15th of each year. For the nine months ended December 31, 2022, 102,750 shares of common stock were purchased under the ESPP at an average price of $59.00. For the nine months ended December 31, 2021, 100,309 shares of common stock were purchased under the ESPP at an average price of $54.00. The intrinsic value of shares purchased during the nine months ended December 31, 2022 and 2021 was $0.9 million and $2.6 million, respectively. The intrinsic value is calculated as the difference between the market value on the date of purchase and the purchase price of the shares. Stock-based compensation expense recognized related to the ESPP was $1.4 million and $1.1 million for the three months ended December 31, 2022 and 2021, respectively, and $4.2 million and $3.0 million for the nine months ended December 31, 2022 and 2021, respectively. As of December 31, 2022, 3,384,792 shares of common stock were available for issuance under the ESPP.

2008 Equity Incentive Plan—The Company’s board of directors adopted, and the Company’s stockholders approved, the 2008 Equity Incentive Plan, or the 2008 Plan, in February 2008. The 2008 Plan was terminated in connection with the Company’s initial public offering (“IPO”), and accordingly, no shares are available for future issuance under this plan. The 2008 Plan continues to govern outstanding awards granted thereunder.

2014 Equity Incentive Plan—The Company’s board of directors adopted, and the Company’s stockholders approved, the Company’s 2014 Equity Incentive Plan (the “2014 Plan”), which became effective in December 2014. The 2014 Plan serves as the successor to the Company’s 2008 Plan. The 2014 Plan initially reserved and authorized the issuance of 5,000,000 shares of the Company’s common stock. Additionally, shares not issued or subject to outstanding grants under the 2008 Plan upon its termination became available under the 2014 Plan, resulting in a total of 5,184,878 available shares under the 2014 Plan as of the effective date of the 2014 Plan. Pursuant to the terms of the 2014 Plan, any shares subject to outstanding stock options or other stock awards under the 2008 Plan that (i) expire or terminate for any reason prior to exercise or settlement, (ii) are forfeited because of the failure to meet a contingency or condition required to vest such shares or otherwise return to the Company or (iii) are reacquired, withheld (or not issued) to satisfy a tax withholding obligation in connection with an award or

to satisfy the purchase price or exercise price of a stock award will become available for issuance pursuant to awards granted under the 2014 Plan. The 2014 Plan provides that the number of shares reserved and available for issuance under the plan automatically increases each April 1, beginning on April 1, 2015, by 5% of the outstanding number of shares of the Company’s common stock shares issued and outstanding on the immediately preceding March 31, or such lesser number of shares as determined by the Company’s board of directors. As of December 31, 2022, there were 14,980,528 shares available for issuance under the 2014 Plan.

	Options Outstanding						RSUs Outstanding						PSUs Outstanding
	Number of Shares	Weighted- Average Exercise Price		Weighted-AverageRemainingContractualTerm(in years)	Aggregate Intrinsic Value		Number of Shares	Weighted- Average Grant Date Fair Value		Weighted-AverageRemainingContractualTerm(in years)	Aggregate Intrinsic Value		Number of Shares	Weighted- Average Grant Date Fair Value		Weighted-AverageRemainingContractualTerm(in years)	Aggregate Intrinsic Value
Outstanding - April 1, 2022	1,663	$	54.66	5.6	$	31,436	3,351	$	70.04	2.6	$	224,096	320	$	86.88	1.8	$	21,430
Granted	—	—					2,932	51.32					307	72.05
Exercised/vested	(369)	22.83			13,494		(1,258)	65.56					(130)	89.05
Canceled/forfeited	(93)	70.00					(860)	61.26					(26)	71.07
Outstanding - December 31, 2022	1,201	$	63.26	5.5	$	8,839	4,165	$	60.02	2.3	$	235,110	471	$	77.49	1.8	$	26,625

PSUs granted under the 2014 Plan are contingent upon the achievement of pre-determined market and service conditions. The number of shares of common stock to be issued at vesting will range from 0% to 200% of the target number based on the Company’s total shareholder return (“TSR”) relative to the performance of peer companies for each measurement period, over a one-year, two-year cumulative, and three-year cumulative period. If these market conditions are not met but service conditions are met, the PSUs will not vest; however, any stock-based compensation expense recognized to date will not be reversed. The Company uses a Monte Carlo simulation model to determine the fair value of its PSUs and recognizes expense using the accelerated attribution method over the requisite service period. The PSUs presented in the table above were calculated based on 100% expected achievement.

Stock-Based Compensation Expense—Total stock-based compensation expense included in cost of revenue, research and development, sales and marketing, and general and administrative expenses for the three and nine months ended December 31, 2022 and 2021 were as follows (in thousands):

	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
Cost of revenue	$	1,174	$	1,382	$	4,051	$	3,757
Research and development	14,977		13,117		42,705		36,228
Sales and marketing	12,556		12,537		36,013		37,619
General and administrative (1)	11,972		10,755		32,644		39,945
Total stock-based compensation expense (2)	$	40,679	$	37,791	$	115,413	$	117,549

(1) Includes $9.6 million acceleration of share-based payment expense for the nine months ended December 31 2021, for one of the Company’s executives due to his departure at the end of June 2021. There was no corresponding expense for the nine months ended December 31, 2022.

(2) Includes $0.5 million stock-based compensation expense for the nine months ended December 31, 2021, due to the restructuring activities commenced in the first quarter of fiscal 2022. There was no corresponding expense for the nine months ended December 31, 2022. Refer to Note 15 — Restructuring for more information.

As of December 31, 2022, unrecognized stock-based compensation cost related to outstanding unvested stock options was $4.1 million, which is expected to be recognized over a weighted-average period of approximately 1.1 years. As of December 31, 2022, unrecognized stock-based compensation cost related to outstanding unvested RSUs was $256.8 million, which is expected to be recognized over a weighted-average period of approximately 2.2 years. As of December 31, 2022, unrecognized stock-based compensation cost related to PSUs was $19.1 million, which is expected to be recognized over a weighted-average period of approximately 1.8 years.

12. Income Taxes

The Company recorded income tax expense of $1.1 million and $0.8 million for the three months ended December 31, 2022 and 2021, respectively. The Company recorded income tax expense of $1.0 million and $0.8 million for the nine months ended December 31, 2022 and 2021, respectively. The income tax expense for the three and nine months ended December 31, 2022 is primarily related to foreign and U.S. state taxes. The income tax expense for the three and nine months ended December 31, 2021 is primarily related to foreign and U.S. state taxes partially offset by the release of the valuation allowance from the acquisition of CodeStream.

Based on the available evidence during the three and nine months ended December 31, 2022, the Company believes it is not more-likely-than-not to realize tax benefits of U.S. and Japan losses incurred during the three and nine months ended December 31, 2022. The primary difference between the effective tax rate and the statutory tax rate relates to the valuation allowance on the U.S. and Japan losses, foreign tax rate differences and state income taxes.

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (the Inflation Act) into law. The Inflation Act contains certain tax measures, including a corporate alternative minimum tax of 15% on some large corporations. The Company is currently evaluating the various provisions of the Inflation Act, but does not anticipate it will have a material effect on the condensed consolidated financial statements.

13. Net Loss Per Share

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, less shares subject to repurchase, and excludes any dilutive effects of employee share-based awards and warrants. Diluted net loss per share is computed giving effect to all potential dilutive common shares, including issuances of common stock upon exercise of stock options, purchases of shares under the Employee Stock Purchase Plan, and the vesting of restricted stock units and performance stock units. As the Company had net losses for each of the three and nine months ended December 31, 2022 and 2021, all potential common shares were determined to be anti-dilutive, resulting in basic and diluted net loss per share being equal. Additionally, the 4.5 million shares underlying the Conversion Option in the Notes were not considered in the calculation of diluted net loss per share as the effect would be anti-dilutive. The Notes were not convertible as of December 31, 2022.

	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
Numerator:
Net loss attributable to New Relic	$	(26,005)	$	(62,706)	$	(123,019)	$	(194,889)
Denominator:
Weighted average shares used to compute net loss per share, basic and diluted	68,050		64,983		67,229		64,203
Net loss attributable to New Relic per share—basic and diluted	$	(0.38)	$	(0.96)	$	(1.83)	$	(3.04)

	As of December 31,
	2022	2021
Options to purchase common stock	1,201	1,804
RSUs	4,165	3,617
PSUs	471	320
ESPP shares	134	87
	5,971	5,828

14. Revenue by Geographic Location

The following table shows the Company’s revenue by geographic areas, as determined based on the billing address of its customers (in thousands):

	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
United States	$	152,518	$	134,687	$	443,691	$	391,127
EMEA	43,937		31,714		116,949		89,920
APAC	26,091		21,354		73,745		57,852
Other	17,217		15,836		48,749		40,870
Total revenue	$	239,763	$	203,591	$	683,134	$	579,769

Substantially all of the Company’s long-lived assets were attributable to operations in the United States as of December 31, 2022 and March 31, 2022.

15. Restructuring

There were no restructuring charges incurred for the three months ended December 31, 2022 and 2021.

On August 17, 2022, the Company announced the adoption of a new restructuring plan to better align the Company’s organizational structure and operations with its strategic initiatives, resulting in a global workforce reduction and other cost saving initiatives. For the nine months ended December 31, 2022, the Company incurred restructuring costs of approximately $7.2 million in employee wages, termination benefits, and certain asset impairments directly attributable to the restructuring activities. The restructuring plan was completed in the second quarter of fiscal 2023.

	Nine Months Ended December 31,
	2022		2021
	Severance and other employee costs		Asset impairment		Total		Severance and other employee costs		Stock-based compensation		Asset impairment		Total
Cost of Revenue	$	404	$	3	$	407	$	—	$	—	$	—	$	—
Research and Development	1,414		21		1,435		—		—		—		—
Sales and Marketing	3,725		33		3,758		10,819		406		104		11,329
General and administrative	1,592		18		1,610		1,170		87		26		1,283
Total	$	7,135	$	75	$	7,210	$	11,989	$	493	$	130	$	12,612

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risks and uncertainties described in Part II, Item 1A “Risk Factors” included elsewhere in this report. These risks and uncertainties could cause actual results to differ materially from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operations. See the section titled “Special Note Regarding Forward-Looking Statements” in this report. These statements, like all statements in this report, speak only as of their date (unless another date is indicated), and we undertake no obligation to update or revise these statements in light of future developments, except as required by law.

In addition to our results determined in accordance with U.S. generally accepted accounting principles (GAAP), ~~Non-GAAP~~certain ~~Loss from Operations, a~~ non-GAAP financial ~~measure,~~measures isare included in the section titled “Non-GAAP Financial Measures.” ~~This~~These non-GAAP financial ~~measure~~measures isare not meant to be considered in isolation from or as a substitute for, or superior to, comparable GAAP financial measures and should be read only in conjunction with our unaudited condensed consolidated financial statements prepared in accordance with GAAP. Our presentation of ~~this~~these non-GAAP financial ~~measure~~measures may not be comparable to similar measures used by other companies. We encourage investors to carefully consider our results under GAAP, as well as our supplemental non-GAAP information and the GAAP-to-non-GAAP ~~reconciliation~~reconciliations included in the section titled “Non-GAAP Financial Measures,” to more fully understand our business.

Overview

New Relic ~~delivers~~is aan ~~software~~“all-in-one” observability platform ~~for~~that enables our customers to ~~land~~plan, ~~all~~build, ofdeploy, and operate their ~~telemetry~~critical ~~data~~digital ~~quickly~~infrastructure ~~and~~by ~~affordably~~harnessing inthe ~~one~~power ~~place~~of ~~and~~data. ~~derive~~Our ~~actionable~~observability ~~insights~~platform ~~from~~combines ~~that~~metrics, ~~data~~events, inlogs, atraces, ~~unified~~and ~~front-end~~other ~~application.~~telemetry ~~This~~data ~~category~~with ofour ~~software~~proprietary ~~products~~stack isof ~~generally~~analytical ~~referred~~tools to asrapidly ~~observability~~generate actionable, fact-based insights. Our customers use our ~~software~~ platform to ~~ensure~~improve ~~that~~uptime, ~~they~~reliability, ~~can observe~~ and ~~operate~~operational ~~all~~efficiency, ofin ~~the~~order ~~components~~to ofoptimize ~~their~~the digital ~~infrastructure~~experience ~~and~~for ~~provide~~their acustomers ~~quality~~as ~~digital~~well ~~experience~~as ~~for~~within their ~~customers~~organizations. ~~With~~Our agoal ~~unified~~is ~~front~~to ~~end,~~enable ~~purpose~~our ~~built~~customers onto ~~top~~leverage of the ~~world’s~~power ~~most~~of ~~powerful~~data-driven ~~telemetry~~analytics ~~data~~to ~~platform~~monitor, ~~the~~debug, ~~New~~and ~~Relic~~improve ~~platform~~the ~~helps~~performance ~~our users get a comprehensive~~ and ~~consistent~~security ~~view~~ of all their digital ~~estate~~infrastructure across the organization.

AtWhile ~~present,~~ most observability software is targeted attoward a small subset of ~~the~~developers ~~developer community~~ that ~~works~~focuses inon the “operate” phase, ofwe ~~the~~believe ~~developer~~that ~~lifecycle.~~telemetry ~~These~~data ~~engineers~~is ~~are~~also ~~primarily~~critical ~~concerned~~to ~~with~~ the ~~availability~~rest of the ~~applications~~software ~~and~~lifecycle, ~~infrastructure~~including ~~that are~~ the ~~primary~~planning, ~~components~~building, ofand adeployment ~~customer’s~~phases. ~~digital~~The ~~environment.~~New ~~However,~~Relic aplatform ~~key~~differentiates ~~component~~itself ofby ~~our~~targeting ~~multi-year~~the ~~strategy~~broader issoftware todevelopment ~~help~~productivity ~~all~~market, ~~software~~helping ~~developers~~them realize the ~~largely dormant~~ value of largely dormant telemetry data. Wethat ~~fundamentally~~is ~~believe~~wasted ~~that~~if ~~telemetry~~not ~~data~~cultivated isand ~~valuable~~analyzed in context. Our all-in-one ofobservability ~~the~~platform ~~phases~~helps ofremove the ~~developer~~silos ~~lifecycle:~~that ~~plan~~plague organizations, ~~build~~empowering them to better understand their entire digital infrastructures in order to improve speed of innovation, ~~deploy~~operational excellence, system reliability, and ~~operate.~~cost management.

ToWe ~~deliver~~host onour ~~this~~applications ~~strategy,~~and weserve ~~make~~all ~~data~~our ~~ingest~~customers sothrough ~~affordable~~a ~~that~~combination ~~customers~~of ~~have~~cloud noservice ~~reservations~~providers ~~about~~and ~~populating~~to a lesser extent our data ~~platform~~centers whose infrastructure is managed by third parties. We continue to build out services and functionality in the public cloud with ~~their~~a ~~growing~~goal ~~amounts~~to migrate our entire platform to the public cloud by the end of ~~telemetry~~fiscal year 2024. As of June 30, 2023, we have migrated the majority of our platform and 100% of our customer data ingest to the public cloud. We ~~believe~~expect ~~engineers~~this ~~are~~migration ~~attracted~~to reduce our cost of revenue due to ~~very~~the ~~large~~reduction ~~data~~in ~~sets~~hosting-related costs. Additionally, ~~and~~this ~~over~~strategy ~~time~~provides weus ~~intend~~flexibility to ~~introduce~~service ~~ways~~customers ~~for~~in ~~engineers~~new inand emerging regions and scale our deployment capabilities. We maintain a formal and comprehensive security program designed to ensure the ~~plan~~security and integrity of our data, ~~build~~protect against security threats or data breaches, and ~~deploy~~prevent ~~phases~~unauthorized ofaccess to the ~~developer~~data ~~lifecycle~~of our customers. Our technology uses multi-tenant architecture, enabling all our customers to ~~realize~~share ~~significant~~the ~~value~~same ~~from~~version ~~that~~of our products and platform capabilities while securely partitioning their data.

WeHistorically, ~~have~~our ~~built~~platform was sold on a ~~massively~~subscription-based ~~scalable~~model. ~~proprietary~~Since ~~telemetry~~fiscal ~~data~~year ~~platform~~2021, ~~which~~we ishave abeen ~~unique~~focused ~~competitive~~on ~~advantage~~shifting to a consumption-based model, and weour revenues are ~~able~~now tolargely ~~leverage~~derived from consumption-based plans. We primarily sell our platform on a consumption-based model that ~~scale~~directly relates the value our customers receive from our platform to ~~offer~~what ~~more~~they ~~cost-effective~~pay ~~solutions.~~for ~~Our~~it ~~unified~~in ~~front~~a ~~end~~manner that is highly intuitive and predictable for them. Customers on this pricing model pay for data~~-centric~~ ~~approach~~ingest toand ~~observability~~provisioned ~~gives~~users. For the three months ended June 30, 2023, 60% of our ~~users~~consumption-based arevenues ~~consistent~~were derived from fees paid for data ingest and ~~comprehensive~~40% ~~view~~were ofderived ~~their~~from ~~digital~~fees ~~environment~~paid for provisioned users. ~~This~~We isengage inwith ~~contrast~~prospects toand ~~most~~customers ~~other~~directly ~~vendors~~through weour ~~compete~~in-house ~~against~~sales ~~that~~teams ~~take~~and anon ~~application-centric~~our ~~approach~~website, ~~that~~as ~~forces~~well ~~users~~as toindirectly ~~toggle~~through ~~between~~channel apartners. ~~variety~~Approximately 35% of ~~stand-alone~~our ~~applications~~customers are on ~~top~~commitment contracts where they commit to an amount of ~~purpose-built~~spend ~~databases~~over their contracted period in exchange for a discount on their usage pricing, ~~effectively~~and ~~creating~~approximately ~~silos~~65% of ~~data.~~our customers are on “Pay as You Go” contracts

Our customers span the continuum from startups to the world’s largest corporations; the common thread among all of the users of our products is a desire to offer their constituents a top-tier digital experience. We primarily sell our platform on a consumption model; customers on this pricing model pay for data ingest and provisioned users. We engage with prospects and customers directly through our field, inside sales teams and on our website, as well as indirectly through channel partners. The majority of our customers are on either commitment contracts where they commit to an amount of spend over their contracted period in exchange for a discount on their usage pricing or “Pay as You Go” contracts where they are charged for usage in arrears. Our contracts are typically annual or multi-year in term length and are either billed upfront or in arrears. Usage in excess of the commitment is generally invoiced in arrears.20

Wewhere ~~offer~~they aare ~~free~~charged ~~tier~~for ofusage ~~our~~in ~~New~~arrears. ~~Relic~~Customers ~~platform.~~on Ascommitted acontracts ~~result,~~represent more than 88% of our ~~direct~~total ~~sales~~first ~~prospects~~quarter ~~may~~revenue. beOur ~~familiar~~contracts ~~with~~are ~~our~~typically ~~platform~~annual or multi-year in term length and ~~may~~are ~~already~~either bebilled ~~using~~upfront itor in aarrears. ~~limited~~Our ~~fashion~~average contract term length is one year. AUsage ~~core~~in ~~component~~excess of ~~our~~the ~~growth~~commitment ~~strategy~~ is generally invoiced in arrears. Some customers still contract under subscription-based plans. We expect to ~~provide~~phase aout ~~friction~~most subscription-~~free~~based plans as contract periods end and those contracts renew onto one of our consumption-based plans.

26We offer a free tier of our New Relic platform as part of our go-to-market strategy to encourage users to try our services and create a pipeline for paid customers. As a result, our direct sales prospects may be familiar with our platform and may already be using it in a limited fashion. A core component of our growth strategy is to provide a friction-free environment for developers to familiarize themselves with our solutions, and then offer incremental opportunities to derive additional value from our products either by in-product support, or engaging with our technically oriented customer adoption team.

~~environment~~Our revenue for ~~developers~~the three tomonths ~~familiarize~~ended ~~themselves~~June ~~with~~30, ~~our~~2023 ~~solutions~~and 2022 was $242.6 million and $216.5 million, respectively, representing year-over-year growth of 12%. Our gross margin for the three months ended June 30, 2023 and ~~then~~2022 ~~offer~~was ~~incremental~~78% ~~opportunities~~and to71%, ~~derive~~respectively, ~~more~~primarily ~~value~~driven ~~from~~by the transition of our ~~products~~platform ~~either~~from bylocal data centers to public cloud hosting providers. We continue to make significant expenditures and investments, including in personnel-~~product~~related ~~support~~costs, orsales ~~engaging~~and ~~with~~marketing, infrastructure and operations, and have incurred net losses in each period since our ~~technically~~inception, ~~oriented~~including ~~customer~~net ~~adoption~~losses ~~team~~attributable to New Relic of $37.4 million and $50.2 million for the three months ended June 30, 2023 and 2022, respectively. Our accumulated deficit as of June 30, 2023 was $1,001.0 million.

~~Our~~Internationally, ~~revenue~~we ~~for~~currently ~~the three~~offer ~~months~~our ~~ended~~products ~~December~~in 31Europe, ~~2022~~the ~~and~~Middle ~~2021 was $239.8~~East, ~~million~~ and ~~$203.6~~ ~~million~~Africa, ~~respectively~~(“EMEA”); Asia-Pacific, ~~representing~~(“APAC”); ~~year-over-year~~and ~~growth~~other ~~of 18%~~non-U.S. ~~For~~locations, as determined based on the ~~nine~~billing ~~months~~address ~~ended~~of ~~December~~our 31customers, ~~2022~~and our revenue from those regions constituted 18%, 12%, and 8%, ~~2021~~respectively, of our revenue ~~was~~for ~~$683.1~~the ~~million~~three months ended June 30, 2023, and ~~$579.8~~16%, 11%, ~~million~~and 7%, respectively, ~~representing~~of ~~year-over-year~~our ~~growth~~revenue offor the ~~18%~~three months ended June 30, 2022. We ~~continue~~believe tothere ~~make~~is ~~significant~~an ~~expenditures~~opportunity ~~and~~to ~~investments,~~increase ~~including~~our ininternational ~~personnel-related~~revenue ~~costs,~~overall ~~sales~~ and ~~marketing,~~as ~~infrastructure~~a ~~and~~proportion ~~operations,~~of ~~and~~our ~~have~~total ~~incurred~~revenue. ~~net~~As ~~losses~~a inresult, ~~each~~we ~~period~~are ~~since~~increasingly ~~our~~investing ~~inception,~~in ~~including~~our ~~net~~international ~~losses~~operations ~~attributable~~and intend to ~~New~~further ~~Relic~~expand ofour ~~$26.0~~footprint ~~million~~in ~~and~~international ~~$62~~markets.7 ~~million~~We ~~for~~plan ~~the~~to ~~three~~leverage ~~months~~commercial ~~ended~~partnerships ~~December~~to ~~31,~~expand ~~2022~~our ~~and~~international ~~2021,~~footprint ~~respectively,~~ and ~~$123.0~~believe ~~million~~commercial ~~and~~partnerships ~~$194.9~~will ~~million~~be ~~for~~a ~~the~~highly ~~nine~~effective ~~months~~way ~~ended~~to ~~December~~accelerate ~~31,~~international ~~2022~~market penetration and ~~2021,~~lower ~~respectively.~~new ~~Our~~customer ~~accumulated~~acquisition ~~deficit~~costs asthan ~~of December~~had ~~31,~~we ~~2022~~pursued ~~was $906.3~~international ~~million~~expansion without these partnerships.

~~Internationally,~~Our weemployee ~~currently~~headcount ~~offer~~has ~~our~~increased ~~products~~to ~~in Europe~~2,592 ~~the~~employees ~~Middle East, and Africa (“EMEA”); Asia-Pacific, (“APAC”); and other non-U.S. locations,~~ as ~~determined based on the billing address~~ of ~~our~~June ~~customers~~30, ~~and~~2023 ~~our revenue~~ from ~~those regions constituted 18%~~2, ~~11%,~~336 ~~and 7%,~~as ~~respectively,~~ of ~~our~~June ~~revenue for the three months ended December 31~~30, 2022~~, and 16%, 10%, and 8%, respectively, of our revenue for the three months ended December 31, 2021~~. ~~Our~~The ~~revenue~~increase ~~from~~in ~~those~~employee ~~regions~~headcount ~~constituted~~was ~~17%,~~driven ~~11%,~~by ~~and 7%, respectively, of~~ our ~~revenue~~expansion ~~for~~plans ~~the~~where ~~nine~~we ~~months~~hired ~~ended~~additional ~~December~~team ~~31,~~members ~~2022,~~primarily ~~and~~in ~~16%,~~research ~~10%,~~ and ~~7%, respectively, of our revenue for the nine months ended December 31, 2021~~development. We ~~believe~~plan ~~there~~to iscontinue ~~an opportunity~~ to ~~increase~~invest ~~our~~aggressively ~~international~~in ~~revenue~~the ~~overall~~growth ~~and as a proportion~~ of our ~~revenue,~~business ~~and we are increasingly investing in our international operations and intend~~ to ~~invest~~take inadvantage ~~further~~of ~~expanding~~ our ~~footprint~~market ~~in international markets~~opportunity.

~~Impact~~Proposed ~~of the Ongoing COVID-19 Pandemic and Current Economic Conditions~~Merger

~~The~~On ~~continuing~~July ~~effects~~30, of2023, ~~the~~we ~~COVID-19~~entered ~~pandemic~~into ~~are~~an ~~highly~~Agreement ~~unpredictable~~ and ~~could~~Plan beof ~~significant,~~Merger ~~and~~ (the ~~duration~~“Merger ~~and~~Agreement”) ~~extent~~with toCrewline ~~which~~Buyer, ~~they~~Inc., ~~will~~a ~~impact~~Delaware ~~our~~corporation ~~future~~(“Parent”), ~~results of operations~~ and ~~overall~~Crewline ~~financial~~Merger ~~performance~~Sub, ~~remains uncertain~~Inc., ~~The~~a ~~extent~~Delaware ofcorporation ~~the~~and ~~impact~~a ofwholly ~~the~~owned ~~COVID-19~~subsidiary ~~pandemic~~of onParent ~~our~~(“Merger ~~operational~~Sub”), ~~and~~pursuant ~~financial~~to ~~performance~~which, ~~will~~subject ~~continue~~ to ~~depend~~the onsatisfaction ~~certain~~or ~~developments,~~waiver ~~including~~of the ~~duration~~conditions ofset ~~the~~forth ~~pandemic~~therein, ~~the~~Merger ~~successful~~Sub ~~rollout~~will ofbe ~~vaccines~~merged ~~and~~with ~~the efficacy~~ and ~~durability~~into ofNew ~~such vaccines~~Relic, ~~especially~~with inNew ~~light~~Relic ofsurviving the ~~emergence~~merger ofas ~~new~~a ~~variant~~wholly-owned ~~strains;~~subsidiary ~~impact~~of onParent ~~our~~(the ~~customers~~“Merger”). Parent and ~~our~~Merger ~~sales~~Sub ~~cycles;~~are ~~impact~~subsidiaries onof ~~our~~investment ~~customer,~~funds ~~employee,~~advised ~~and~~by ~~industry~~Francisco ~~events;~~Partners ~~impact~~Management, onL.P. ~~our employee recruitment~~ and ~~attrition;~~TPG ~~and~~Capital ~~effect~~Management, ~~on our vendors~~L.P., ~~all~~U.S.-based ofprivate ~~which~~equity ~~remain uncertain and cannot be predicted at this time~~firms.

WePursuant ~~currently allow most of our employees~~ to ~~continue~~the toMerger ~~work~~Agreement, ~~remotely~~at ifthe ~~they~~effective ~~prefer~~time ~~and~~of asthe ~~additional~~Merger ~~COVID-19~~(the ~~variants~~“Effective ~~emerge~~Time”), ~~we will continue to evaluate our workforce strategies~~ and ~~operations,~~as ~~taking~~a ~~into~~result ~~consideration~~of ~~factors~~the ~~such as treatments~~Merger, ~~vaccine~~each ~~progress,~~share ~~and~~of ~~public health recommendations. We also continue to evaluate~~ our ~~real~~common ~~estate~~stock ~~needs~~(subject ~~and have in the past made the decision~~ to ~~exit~~ certain ~~office space leases. As we continue to assess our return-to-office needs~~exceptions, weincluding ~~are~~shares ~~planning~~as to ~~exit additional office space leases~~ which ~~could~~statutory ~~result~~rights inof ~~further~~appraisal ~~losses~~have ~~associated~~been ~~with~~properly ~~our real estate lease assets. Our revenue~~ and ~~deferred~~validly ~~revenue have been~~exercised), inwill ~~part,~~be ~~negatively~~cancelled ~~impacted~~and byextinguished ~~the slowdown in activity~~ and ~~uncertainty~~automatically ~~associated~~converted ~~with~~into the ~~COVID-19~~right ~~pandemic~~to ~~and~~receive ~~the~~cash ~~current~~in ~~economic~~an ~~conditions~~amount ~~impacted~~equal byto ~~supply chain disruption~~$87.00, ~~market~~without ~~volatility, inflation, rising~~ interest ~~rates~~thereon, ~~fluctuating~~subject ~~currency~~to ~~exchange~~any ~~rates,~~required ~~and~~withholding ~~labor~~of ~~shortages,~~taxes. ~~but~~The attransaction ~~this~~is ~~point,~~expected ~~the~~to ~~extent~~close ofin ~~any~~late ~~continuing~~calendar ~~impact~~year to2023 ~~our financial condition~~ or ~~results~~early ofcalendar ~~operations~~year 2024, ~~including~~subject ~~cash~~to ~~flows,~~customary isclosing ~~uncertain~~conditions, ~~particularly~~including asapproval ~~the~~by ~~COVID-19~~our ~~pandemic~~stockholders and ~~the~~receipt ~~current economic uncertainty continue to persist for an extended period~~ of ~~time~~regulatory approvals. ~~With~~Upon ~~the~~closing ~~recent volatility~~ of ~~multiple major foreign currencies against~~ the ~~U.S. dollar~~transaction, weour ~~are~~common ~~seeing~~stock ~~more~~will ~~significant~~be ~~impact~~delisted from ~~exchange~~the ~~rates~~New onYork ~~our~~Stock ~~revenue~~Exchange ~~growth~~ and ~~expenses~~deregistered inunder ~~fiscal 2023 than in~~ the ~~previous~~Securities ~~fiscal~~Exchange ~~year,~~Act ~~and~~of we1934. ~~expect~~See ~~the~~Note ~~impact~~12 tocontained ~~be significant~~ in the ~~next~~“Notes ~~quarter if we continue~~ to ~~experience~~Condensed ~~similar~~Consolidated orFinancial ~~greater~~Statements” ~~foreign~~in ~~currencies~~Item ~~volatility~~1 ~~against~~of ~~the~~Part ~~U.S.~~I ~~dollar.~~of ~~Other~~this ~~factors~~Quarterly ~~affecting~~Report ~~our~~on ~~performance~~Form ~~are discussed below, although we caution you that the COVID~~10-19Q ~~pandemic~~for ~~and~~more ~~the current economic conditions may also further impact these factors~~information.

Impact of the Current Economic Conditions and Macroeconomic Events

Our results of operations, including future revenue growth, will continue to be materially impacted by unfavorable market conditions in the United States and abroad that historically have reduced or disrupted the timing of business investments and spending on information technology. These unfavorable conditions and events currently include the lingering uncertainty of COVID-19 and the slowdown in economic activity caused by supply chain disruption, increasing inflation and interest rates,

labor shortages, and Russia’s invasion of Ukraine. At this point, the extent of any continuing impact to our financial condition or results of operations, including cash flows, is uncertain, particularly as these current economic conditions continue to persist for an extended period of time. While there is some recent volatility in multiple major foreign currencies against the U.S. dollar, the impact of exchange rates on our operating results is not projected to be material. Other factors affecting our performance are discussed below, although we caution you that the current economic conditions and macroeconomic events may also further impact these factors.

We have committed to reducing our global real estate footprint as part of our Flex First philosophy that enables employees to operate in a flexible work environment. In March 2023, we approved a restructuring plan, consisting primarily of real estate lease termination and other associated costs. In the first fiscal quarter of 2024, we announced the adoption of a new restructuring plan focused on realigning resources with our business needs in driving the growth of our consumption business. As a result of this and previously announced restructuring plans, we incurred charges of approximately $21.7 million for three months ended June 30, 2023, which are described in further detail in the Notes to Condensed Consolidated Financial Statements. There were no restructuring charges incurred during the three months ended June 30, 2022.

Factors Affecting Our Performance

Market Adoption of Our Platform. Our success, including our rate of customer expansions and renewals, is dependent on the market adoption of our platform. With the introduction of new technologies, the evolution of our platform and new market entrants, competition has intensified, and we expect competition to further intensify in the future. We employ a land and expand business model centered around offering a platform that is open, connected, and programmable. We believe that we have built a highly differentiated platform and we intend to continue to invest in building additional offerings, features, and functionality that expand our capabilities and facilitate the extension of our platform to new use cases. We also intend to continue to evaluate strategic acquisitions and investments in businesses and technologies to drive product and market expansion. Our ability to improve market adoption of our platform will also depend on a number of other factors, including the competitiveness and pricing of our products, offerings of our competitors, success of international expansion, and effectiveness of our sales and marketing efforts. Our pricing strategy, which relies primarily upon a per-user license fee and payment based on the quantity of data ingested, our revenue is closely tied to the usage of our platform. Together with this pricing strategy, we

27Product-Led Innovation and Growth. We believe we have the most intuitive and powerful observability platform in the industry and have a proven track record of innovation in our industry. We intend to build upon that reputation by continuing to broaden the capabilities and features of our platform so more engineers can use it more often. In addition, we intend to drive significant product awareness, demand, adoption, and growth in new accounts by accelerating our self-service product marketing and sales initiatives. Our free tier of service encourages users to try our platform, and our product-led self-service model enables customers to increase the value they receive from the platform by adding additional data, users, and use cases. The easy-to-use, intuitive nature of our platform allows us to engage with these potential new customers in a more cost effective manner, which significantly reduces our customer acquisition costs.

~~also~~International ~~have~~Growth. International markets present a ~~robust~~significant ~~free~~opportunity ~~tier~~for ~~and~~us ~~improved~~to ~~self-service~~land ~~capabilities~~new customers for our platform. We believe that leveraging commercial partnerships is a highly effective way to acquire new customers at low acquisition costs, ~~which~~while weenabling ~~expect~~these customers to ~~continue~~realize value from our observability platform more rapidly. We intend to ~~result~~develop innew anrelationships ~~increase~~and inleverage our ~~ability~~existing torelationships ~~attract~~with distributors, resellers, service partners, hyperscalers, and ~~convert~~global ~~free~~system ~~users~~integrators ~~into~~to grow our sales pipeline and drive new ~~paying~~use ~~customers~~cases as more businesses around the world accelerate their cloud native journey. Our ability to successfully expand within international markets will have a significant impact on our future operating performance.

~~Retention~~Pricing ~~and Expansion~~Strategy. A ~~key~~Since ~~factor~~introducing our consumption-based model in fiscal year 2021, our ~~success~~customers ishave ~~the~~responded ~~retention~~favorably. ~~and~~With ~~expansion~~our ofconsumption-based model, our ~~platform~~customers ~~usage~~are ~~with~~charged ~~our~~based ~~existing~~on ~~customers.~~actual Inusage, ~~order~~and ~~for~~we usprice toall ~~continue~~telemetry tosources ~~grow~~at ~~our~~the ~~business,~~same itrate iswithout ~~important~~overage topenalties. ~~generate~~This ~~additional~~removes ~~revenue~~barriers ~~from~~to ~~our~~adoption ~~existing~~as ~~customers,~~it ~~and~~easily weallows ~~intend~~our customers to doplan ~~this~~usage inand ~~several~~forecast ~~ways~~spend. AsWe wealso ~~improve~~offer ~~our~~varying ~~existing~~commitment ~~products~~plans ~~and~~to ~~platform~~best ~~capabilities~~meet ~~and~~the ~~introduce~~needs ~~new~~of ~~products~~our customers, weirrespective ~~believe~~of ~~that~~size and maturity. As the ~~demand~~power ~~for~~of our ~~products~~platform ~~will~~continues ~~generally~~to grow. Weand ~~also~~we ~~believe~~help ~~that~~our ~~there~~customers issolve atheir ~~significant~~problems, ~~opportunity~~we ~~for~~believe usour tocustomers will increase ~~our~~the ~~revenue~~number ~~from~~of ~~sales~~users toand ~~our~~the ~~current~~amount ~~customers~~of asdata ~~they~~ingested ~~become~~into ~~more~~our ~~familiar~~platform. ~~with~~As ~~our~~such, ~~products~~we ~~and~~believe ~~adopt~~that our ~~products~~shift from a subscription-based pricing plan to ~~address~~a ~~additional~~consumption-based ~~business~~pricing ~~use~~plan ~~cases.~~will Inbetter ~~addition,~~meet wethe ~~believe~~needs of our ~~pricing~~customers ~~strategy~~and ~~allows~~increase ~~sales~~our ~~resources~~ability to ~~focus~~attract ~~energy~~and onconvert ~~helping~~free ~~customers~~users ~~increase~~into ~~their~~new ~~data~~paying ~~ingestion~~customers. ~~and~~For the ~~number~~three months ended June 30, 2023, approximately 88% of ~~users~~our ~~and~~revenues ~~use~~pertained ~~cases~~to consumption-based pricing plans.

Retention and Expansion. A key factor in our success is the retention and expansion of our platform usage with our existing customers. In order for us to continue to grow our business, it is important to generate additional revenue from our existing customers, and we intend to do this in several ways. As a customer ramps on our platform, we transition to a more traditional direct sales, or sales-led, model to help the customer expand the use of our platform and the value they receive. Our

existing customer base consists of more than 15,900 paid customers across multiple industry verticals and regions, providing us with a large market opportunity to grow our revenue by facilitating greater platform engagement and addressing new use cases. Our ability to retain existing customers and expand their usage of our platform will significantly impact our future revenues and revenue growth.

Cloud Optimization and Other Efficiency Initiatives. We have identified and are in the process of implementing several key initiatives for expanding our operating margin. For example, we have been optimizing our infrastructure by migrating from our own data centers to a significantly more efficient public cloud model to better match our growing demand and our operating costs. We have also begun leveraging the strengths of multiple cloud providers to gain efficiencies for our platform and our cost structure. As of June 30, 2023, we have migrated the majority of our platform to the public cloud, and we expect to complete this migration by the end of fiscal year 2024. Additionally, as we have continued to develop and expand our consumption-based model, we have gained critical insights into the varying components of the cost of the data, which has enabled us to better align our pricing and drive gross margins. Our ability to effectively identify and implement these efficiency initiatives will significantly impact our future operating expenses and gross margin.

Key Operating Metrics

We review the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make key strategic decisions. The calculation of the key operating metrics discussed below may differ from other similarly titled metrics used by other companies, securities analysts, or investors.

Number of Active Customer Accounts. We believe the number of Active Customer Accounts is an important indicator of the growth of our business, the market adoption of our platform, and future revenue trends. We define an Active Customer Account at the end of any period as an individual account, as identified by a unique account identifier, aggregated at the parent hierarchy level, for which we have recognized any revenue in the fiscal quarter. For clarity, one customer with several individual accounts at its subsidiary levels would be collectively recognized as one Active Customer Account. As our customers grow their businesses and extend the use of our platform, they sometimes create multiple customer accounts with us for operational or other reasons. As such, when we identify a parent organization that has created a new Active Customer Account, this new Active Customer Account is combined with, and revenue from this new Active Customer Account is included with, the original Active Customer Account. In addition, our Active Customer Accounts metric is subject to adjustments for acquisitions, consolidations, spin-offs, and other market activity. We round the number of Active Customer Accounts that we report as of a particular date down to the nearest hundred.

For the three-month period ended ~~December~~June 3130, ~~2022~~2023, we had 15,~~700~~900 Active Customer Accounts, which is up ~~1,100~~800 from 1415,~~600~~100 Active Customer Accounts for the three-month period ended ~~December~~June 3130, ~~2021~~2022 and is updown ~~400~~100 sequentially from 1516,~~300~~000 Active Customer Accounts for the three-month period ended ~~September~~March 3031, ~~2022~~2023.

Number of Active Customer Accounts with Revenue Greater than $100,000. Large customer relationships generally lead to scale and operating leverage in our business model. Compared with smaller customers, large customers present a greater opportunity for us to sell additional capacity because they often have larger budgets, a wider range of potential use cases, and greater potential for migrating new workloads to our platform over time. As a measure of our ability to scale with our customers and attract large enterprises to our platform, we count the number of Active Customer Accounts for which we have recognized greater than $100,000 in revenue in the trailing 12-months.

For the three-month period ended ~~December~~June 3130, ~~2022~~2023, we had 1,~~203~~241 Active Customer Accounts with trailing 12-month revenue greater than $100,000, which was a 139% increase compared to 1,~~064~~137 for the three-month period ended ~~December~~June 3130, ~~2021~~2022 and a 31% increase compared to 1,~~171~~229 for the three-month period ended ~~September~~March 3031, ~~2022~~2023.

Percentage of Revenue from Active Customer Accounts Greater than $100,000. In addition to the number of Active Customer Accounts with revenue greater than $100,000, we also look at our percentage of overall revenue we receive from those accounts in any given quarter as an indicator of our relative performance when selling to our large customer relationships compared to our smaller revenue accounts. An increase in the percentage of revenue reflects relative higher growth in our large customer relationships, whereas a decrease in the percentage reflects relative higher growth in our performance with smaller revenue customers.

The percentage of our total revenue from Active Customer Accounts with trailing 12-month revenue greater than $100,000 was 8485% for the three-month period ended ~~December~~June 3130, ~~2022~~2023, compared to 8183% for the three-month period ended ~~December~~June 3130, ~~2021~~2022 and 8385% for the three-month period ended ~~September~~March 3031, ~~2022~~2023.

Net Revenue Retention Rate. We believe the growth of our platform by our existing Active Customer Accounts is an important measure of the health of our business and our future growth prospects. We monitor our net revenue retention rate (“NRR”) to measure this growth. We expect our NRR to increase when Active Customer Accounts increase their usage of a product, extend their usage of a product to new applications, or adopt a new product. We expect our NRR to decrease when Active Customer Accounts cease or reduce their usage of a product.

To calculate NRR, we first identify the cohort of Active Customer Accounts that were Active Customer Accounts in the same quarter of the prior fiscal year. Next, we identify the measurement period as the 12-month period ending with the period reported and the prior comparison period as the corresponding period in the prior year. NRR is the quotient obtained by dividing the revenue generated from a cohort of Active Customer Accounts in the measurement period by the revenue generated from that same cohort in the prior comparison period.

Our NRR ~~increased~~decreased year-over-year to ~~118~~116% for the period ended ~~December~~June 3130, ~~2022~~2023, compared to ~~116~~120% for the period ended ~~December~~June 3130, ~~2021~~2022 and decreased quarter-over-quarter from ~~119~~118% for the period ended ~~September~~March 3031, ~~2022~~2023.

Key Components of Results of Operations

Revenue

~~For~~We ~~the~~primarily ~~periods~~contract ~~presented,~~with ~~we offered access to~~ our ~~platform~~customers under consumption-based ~~and~~plans. ~~subscription~~These consumption-based plans ~~that~~tightly ~~include~~align ~~service~~the ~~and~~value ~~support~~our ~~for~~customers ~~one~~receive orfrom ~~more~~our ofplatform with what our ~~products~~customers ultimately pay. ~~For~~Customers ~~our~~on ~~paying~~these ~~customers,~~consumption-based weplans ~~offer~~pay afor ~~variety~~data ofingest ~~pricing~~and ~~plans~~provisioned users. We have been contracting with our customers under consumption-based onplans ~~the~~since ~~particular~~fiscal ~~product~~year ~~purchased~~2021. Our ~~commitment~~current ~~plans~~revenues ~~typically~~are ~~have~~largely ~~terms~~derived offrom ~~one~~these plans. Prior to fiscal year 2021, ~~although~~we ~~some~~primarily contracted with our customers under subscription-based plans. The majority of our customers contract with us under committed spend contracts where they commit to an amount of spend over the contracted period in exchange for ~~shorter~~a discount on usage pricing or ~~longer~~contract ~~periods;~~with ~~our~~us under “Pay as You Go” ~~plans~~contracts dowhere ~~not~~they ~~have~~are acharged ~~commitment~~for usage in arrears. ~~Most~~Our ofcontracts ~~our~~are ~~revenue~~typically ~~comes~~annual ~~from~~or ~~contracts~~multi-year ~~that~~in term length and are ~~non-cancellable~~billed ~~over~~upfront or in arrears. Usage in excess of the commitment is generally invoiced in arrears. Some customers still contract ~~term~~under subscription-based plans. We expect to phase out most subscription-based plans as contract periods end and those contracts renew onto one of our consumption-based plans.

We have and may continue to experience volatility ~~for~~from our remaining performance obligations and deferred revenue as a result of our shift to ~~our~~a consumption-based ~~pricing~~ model. We had remaining performance obligations ~~in the amount~~ of $~~726~~738.19 million ~~and $706.1 million~~ as of ~~December~~June 3130, ~~2022 and March 31~~2023, ~~2022, respectively,~~ consisting of both billed and unbilled consideration. Deferred revenue consists of billings or payments received in advance of revenue being recognized, and can fluctuate with changes in billing frequency and other factors. As a result of these factors, as well as ~~our~~the mix of consumption-based and subscription-based plans and billing frequencies, we do not believe that changes in our remaining performance obligations and deferred revenue in a given period are directly correlated with our revenue growth in that period.

~~The~~Our ~~Company’s~~ remaining performance obligations were $~~726~~738.19 million as of ~~December~~June 3130, ~~2022~~2023, of which ~~the~~we ~~Company~~expect ~~expects~~ approximately 7570% and 91% to be recognized as revenue in the 12 months ~~ending~~and ~~December~~24 31months, respectively, following June 30, 2023 based on historical customer consumption patterns. However, the amount and timing of revenue ~~recognition~~recognized from our remaining performance obligations are generally dependent upon customers’ future consumption, which is inherently variable ~~at customers’ discretion~~ and can extend beyond the original contract term in cases where customers are permitted to roll over unused capacity to future periods, generally on the purchase of additional capacity at renewal.

Historically, we have received a higher volume of orders in the fourth fiscal quarter of each year, and to a lesser extent our third fiscal quarter of each year. As a result, we have historically seen higher cash collections in the first and fourth fiscal quarters of each year, and our sequential growth in remaining performance obligations has historically been highest in the fourth fiscal quarter of each year, and to a lesser extent our third fiscal quarter of each year. With our shift to a consumption -based ~~pricing~~ model, we expect over time that our revenue will more closely approximate our customer usage of our products and services, and thereby our revenue may experience seasonal fluctuations based upon our customer consumption patterns.

Cost of Revenue

Cost of revenue consists of expenses relating to hosting-related costs, salaries and benefits of operations and global customer support personnel, data center operations, depreciation and amortization, consulting costs, and payment processing fees. Personnel-related costs consist of salaries, benefits, bonuses, and stock-based compensation. We plan to continue increasing the capacity, capability, and reliability of our infrastructure to support the expected growth of our customer adoption and the number of products we offer, as customer usage is expected to continue to grow. Additionally, we are continuing to build out services and functionality in the public cloud, ~~with~~and ahave ~~view~~largely tomigrated ~~migrating~~ our ~~entire~~ platform ~~over time~~ from third-party data center hosting facilities to public cloud hosting providers. We are continuing to decrease the amount of capital expenditures on hosting equipment for use in our data center facilities as we transition to greater dependence on cloud hosting providers.

hosting facilities to public cloud hosting providers. While the transition to cloud hosting providers is largely complete, we are continuing to increase our efficiency regarding public cloud usage. We expect our transition to the public cloud to shift our hosting-related costs to a more variable cost structure rather than a fixed cost structure.

Gross Profit and Margin

Gross profit is equal to revenue less cost of revenue. Gross margin is gross profit expressed as a percentage of revenue. Our gross margin has been, and will continue to be, affected by a number of factors, including the timing and extent of our investments in our hosting-related costs, operations and global customer support personnel, and the amortization of capitalized software. ~~Although~~As we ~~expect~~have largely transitioned our platform to the public cloud, gross margin tohas ~~fluctuate~~increased ~~from~~during ~~period~~the tothree ~~period~~months asended aJune ~~result~~30, of2023. ~~these~~We ~~factors,~~expect ~~our~~additional ~~recent~~efficiency ~~public~~in our cloud ~~migration~~usage and, tofor agross ~~lesser~~margin ~~extent,~~to ~~our~~continue ~~pricing~~increasing ~~transition,~~as ~~have~~we ~~contributed~~continue to ~~lower~~close ~~gross~~legacy ~~margins~~data centers and scale our public cloud usage to reduce costs.

Operating Expenses

Personnel-related costs, which consist of salaries, benefits, bonuses, stock-based compensation and, with regard to sales and marketing expenses, sales commissions, are the most significant component of our operating expenses.

Research and Development. Research and development expenses consist primarily of personnel-related costs and an allocation of our general overhead expenses. We continue to focus our research and development efforts on ~~adding~~increasing ~~new~~our ~~features~~platform’s ~~and~~functionality ~~products,~~by ~~and~~adding ~~increasing~~new ~~the~~products ~~functionality~~ and features while enhancing the ease of use of our existing products. We capitalize the portion of our software development costs that meets the criteria for capitalization.

We plan to continue to hire employees for our engineering, product management, and design teams to support our research and development efforts. AsAlthough ~~a result, we expect~~ our research and development expenses ~~to continue to increase in absolute dollars for the foreseeable future, although our research and development expenses~~ may fluctuate from period to period depending on fluctuations in our revenue and the timing and extent of our research and development activities, we expect our research and development expenses to continue to increase in absolute dollars for the foreseeable future.

Sales and Marketing. Sales and marketing expenses consist of personnel-related costs for our sales, marketing, and business development employees and executives. A significant majority of sales commissions are currently expensed as incurred. Previously, sales commissions attributable to acquiring new customer contracts were capitalized and amortized on a straight-line basis over the anticipated period of benefit. Therefore, sales commission expenses ~~will~~are expected to be ~~larger~~greater ~~until~~than wesales ~~have~~commission ~~fully~~payouts ~~recognized~~until the remaining capitalized ~~commissions~~amounts ~~expenses~~ from prior periods ~~under~~have ~~our~~been ~~subscription~~fully ~~model~~expensed. Sales and marketing expenses also include the costs of our marketing and brand awareness programs, including our free tier offering.

WeIn ~~expect~~our ~~that~~transition ~~go-~~to~~-market~~ ~~operations~~the ~~in our~~ consumption-based ~~business~~ model, ~~will~~our bego-to-market operations have become more efficient, and ~~require~~have required less investment, than in our former more traditional subscription-based model. As we continue to transition our business to the consumption-based model, we are focusing on further sales efficiency. In furtherance of this strategy shift, we have ~~reallocated~~reduced ~~some~~our spending ~~from~~in sales and marketing and reallocated those funds to increase our investment onin research and development. While we expect our sales and marketing expenses to decrease as a percentage of our revenue over the long term, our sales and marketing expenses, both in absolute dollars and as a percentage of our revenue, may fluctuate from period to period depending on fluctuations in our revenue and the timing and extent of our sales and marketing ~~expenses~~initiatives.

General and Administrative. General and administrative expenses consist primarily of personnel-related costs for our administrative, legal, human resources, information technology, finance, ~~and accounting~~ employees, and executives. Also included are non-personnel-related costs, such as legal and other professional fees.

We plan to continue to expand our business both domestically and internationally, and we expect to increase the size of our general and administrative function to support the growth of our business. AsAlthough ~~a result,~~ we expect our general and administrative expenses to ~~continue~~remain toflat ~~increase~~or indecrease ~~absolute~~modestly ~~dollars~~as ~~for~~a ~~the~~percentage ~~foreseeable~~of ~~future.~~our ~~However~~revenue over the long term, we expect our general and administrative expenses to ~~remain~~continue ~~flat~~to orincrease ~~decrease~~in ~~modestly~~absolute asdollars afor ~~percentage~~the ofimmediate ~~our~~future ~~revenue~~as ~~over~~we ~~the~~continue ~~long~~to ~~term,~~scale ~~although~~ our ~~general~~business. General and administrative expense, as a percentage of our revenue, may fluctuate from period to period depending on ~~the~~how ~~timing~~rapidly ~~and~~we ~~extent~~decide ofto scale our ~~general and administrative expenses, such as litigation or accounting costs~~business.

Other Income (Expense)

Other income (expense), consists ~~primarily~~ of interest income, ~~interest~~primarily ~~expense,~~due to income earned on money market funds and ~~foreign~~short-term ~~exchange~~investments, offset by interest expense and gains and losses from transactions denominated in a currency other than the functional currency.

3025

Results of Operations

The following tables summarize our consolidated statements of operations data for the periods presented and as a percentage of our revenue for those periods.

Three Months Ended December 31,

Nine Months Ended December 31,

Three Months Ended June 30,

2022

2021

2022

2021

2023

2022

Amount

% of revenue

Amount

% of revenue

(in thousands, except per share amounts)

Revenue

~~239~~242,~~763~~628

$100

~~203,591~~

~~683~~216,~~134~~459

$100

~~579,769~~

Cost of revenue (1)

6154,~~316~~440

~~68,793~~22

~~189~~63,~~992~~893

~~192,319~~30

Gross profit

~~178~~188,~~447~~188

~~134,798~~78

~~493~~152,~~142~~566

~~387,450~~70

Operating expenses:

Research and development (1)

6980,~~261~~310

~~53,362~~33

~~202~~64,~~760~~769

~~153,460~~30

Sales and marketing (1)

9594,~~477~~019

~~97,723~~39

~~296~~104,~~100~~420

~~293,603~~48

General and administrative (1)

4246,~~799~~849

~~35,614~~19

~~124~~39,~~312~~030

~~113,193~~18

Total operating expenses

~~207~~221,~~537~~178

~~186,699~~91

~~623~~208,~~172~~219

~~560,256~~96

Loss from operations

(2932,~~090~~990)

(~~51,901~~13)

(~~130~~55,~~030~~653)

(~~172,806~~26)

Other income (expense):

Interest income

4,~~685~~593

~~575~~2

81,~~220~~110

~~2,237~~1

Interest expense

(~~1,283~~429)

~~(1,228)~~—

(31,~~748~~232)

(~~3,682~~1)

Other income (expense)

192

(268)

190

(647)

Other expense, net

(1,666)

(1)

(209)

—

Loss before income taxes

(2530,~~496~~492)

(~~52,822~~12)

(~~125~~55,~~368~~984)

(~~174,898~~26)

Income tax provision

12,~~116~~830

~~763~~1

~~1,002~~267

~~816~~—

Net loss

(2633,~~612~~322)

$(13)

~~(53,585)~~

(~~126~~56,~~370~~251)

$(26)

~~(175,714)~~

Net loss and adjustment attributable to redeemable non-controlling interest

~~607~~(4,109)

(~~9,121~~2)

36,~~351~~012

~~(19,175)~~3

Net loss attributable to New Relic

(2637,~~005~~431)

$(15)

~~(62,706)~~

(~~123~~50,~~019~~239)

$(23)

~~(194,889)~~

Net loss attributable to New Relic per share, basic and diluted

(0.3854)

~~(0.96)~~

(10.8376)

~~(3.04)~~

Weighted-average shares used to compute net loss per share, basic and diluted

6869,~~050~~546

~~64,983~~

6766,~~229~~421

~~64,203~~

(1) Includes stock-based compensation expense as follows:

	Three Months Ended December 31,					Nine Months Ended December 31,
	Three Months Ended June 30,
	2022		2021			2022		2021
	2023					2022
	Amount		% of revenue			Amount		% of revenue
	(in thousands)
Cost of revenue	$	1,~~174~~201	$—	~~1,382~~	%	$	41,~~051~~344	$1	~~3,757~~	%
Research and development	14,977		13,117			42,705		36,228
Research and development (1)	21,265		9			13,286		6
Sales and marketing	1211,~~556~~928		~~12,537~~5			3610,~~013~~583		~~37,619~~5
General and administrative (2)	11,972		10,755			32,644		39,945
General and administrative	12,043		5			9,669		4
Total stock-based compensation expense (3)	$	40,679	$	37,791		$	115,413	$	117,549
Total stock-based compensation expense	$	46,437	19		%	$	34,882	16		%

(21) ~~Includes~~These expenses include $94.6 million ~~acceleration~~ of ~~share-based~~accelerated ~~payment~~vesting ~~expense~~resulting ~~for~~from ~~the~~restructuring ~~nine months ended December 31, 2021 for one of our executives due to his departure at the end of June 2021~~activities. ~~There was no corresponding expense for the nine months ended December 31, 2022.~~

(3) Includes $0.5 million stock-based compensation expense for the nine months ended December 31, 2021 due to the restructuring activities commenced in April 2021. There was no corresponding expense for the nine months ended December 31, 2022. Refer to Note 15 — Restructuring contained in the “Notes to Condensed Consolidated Financial Statements” in Item 1 of Part I of this Quarterly Report on Form 10-Q for more information.26

	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
	(as a percentage of revenue)
Revenue	100	%	100	%	100	%	100	%
Cost of revenue (1)	26		34		28		33
Gross profit	74		66		72		67
Operating expenses:
Research and development (1)	28		26		29		26
Sales and marketing (1)	40		49		43		51
General and administrative (1)	18		17		18		20
Total operating expenses	86		92		90		97
Loss from operations	(12)		(26)		(18)		(30)
Other income (expense):
Interest income	2		—		1		—
Interest expense	(1)		(1)		(1)		(1)
Other income (expense), net	—		—		—		—
Loss before income taxes	(11)		(27)		(18)		(31)
Income tax provision (benefit)	—		—		—		—
Net loss	(11)	%	(27)	%	(18)	%	(31)	%
Net loss and adjustment attributable to redeemable non-controlling interest	—		(4)		—		(3)
Net loss attributable to New Relic	(11)	%	(31)	%	(18)	%	(34)	%

	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
	(as a percentage of revenue)
Cost of revenue	—	%	1	%	1	%	1	%
Research and development	6		6		6		6
Sales and marketing	6		6		5		6
General and administrative	5		5		5		7
Total stock-based compensation expense	17	%	18	%	17	%	20	%

Revenue

	Three Months Ended December 31,				Change				Nine Months Ended December 31,				Change
	2022		2021		Amount		%		2022		2021		Amount		%
	(dollars in thousands)
United States	$	152,518	$	134,687	$	17,831	13	%	$	443,691	$	391,127	$	52,564	13	%
EMEA	43,937		31,714		12,223		39		116,949		89,920		27,029		30
APAC	26,091		21,354		4,737		22		73,745		57,852		15,893		27
Other	17,217		15,836		1,381		9		48,749		40,870		7,879		19
Total revenue	$	239,763	$	203,591	$	36,172	18	%	$	683,134	$	579,769	$	103,365	18	%

Revenue by category

Total revenue increased $36.2 million, or 18%, in the three months ended December 31, 2022 compared to the same period of 2021. Our revenue from the United States increased $17.8 million, or 13%, our revenue from EMEA increased $12.2 million, or 39%, our revenue from APAC increased $4.7 million, or 22%, and our revenue from other regions increased $1.4 million, or 9% in the three months ended December 31, 2022, compared to the same period of 2021, primarily as a result of growth in our customer base and increase in consumption.


	Three Months Ended June 30,				Change
	2023		2022		Amount		%

	(dollars in thousands)
Subscription	$	28,720	$	63,080	$	(34,360)	(54)	%
Consumption	213,908		153,379		60,529		39
Total revenue	$	242,628	$	216,459	$	26,169	12	%

32Subscription revenue decreased $34.4 million, or 54%, while consumption revenue increased $60.5 million, or 39%, in the three months ended June 30, 2023, compared to the same period of 2022. The increase in consumption over subscription revenue aligns with the Company’s transition to a consumption-based model.

~~Total~~Revenue ~~revenue~~by ~~increased~~geographic $103.4 million, or 18%, in the nine months ended December 31, 2022 compared to the same period of 2021. Our revenue from the United States increased $52.6 million, or 13%, our revenue from EMEA increased $27.0 million, or 30%, our revenue from APAC increased $15.9 million, or 27%, and our revenue from other regions increased $7.9 million, or 19% in the nine months ended December 31, 2022, compared to the same period of 2021, primarily as a result of growth in our customer base and increase in consumption in addition to revenue recognized from variable consideration.areas


	Three Months Ended June 30,				Change
	2023		2022		Amount		%

	(dollars in thousands)
United States	$	151,171	$	143,460	$	7,711	5	%
Europe, the Middle East, and Africa (“EMEA”)	44,000		34,716		9,284		27
Asia Pacific and Japan (“APAC”)	28,897		23,126		5,771		25
Other	18,560		15,157		3,403		22
Total revenue	$	242,628	$	216,459	$	26,169	12	%

Our revenue from the United States increased $7.7 million, or 5%, our revenue from EMEA increased $9.3 million, or 27%, our revenue from APAC increased $5.8 million, or 25%, and our revenue from other regions increased $3.4 million, or 22% in the three months ended June 30, 2023, compared to the same period of 2022, primarily as a result of growth in our customer base and increase in consumption.

Cost of Revenue

	Three Months Ended December 31,				Change				Nine Months Ended December 31,				Change
	Three Months Ended June 30,				Change
	2022		2021		Amount		%		2022		2021		Amount		%
	2023		2022		Amount		%
	(dollars in thousands)
Cost of revenue	$	6154,~~316~~440	$	6863,~~793~~893	$	(79,~~477~~453)	(1115)	%	$	~~189,992~~	$	~~192,319~~	$	~~(2,327)~~	~~(1)~~	%

Cost of revenue decreased $79.5 million, or 1115%, in the three months ended ~~December~~June 3130, ~~2022~~2023, compared to the same period of ~~2021~~2022. The decrease was primarily due to a $146.95 million decrease in hosting-related costs, ~~consulting,~~ and ~~software expenses and~~ a $12.57 million decrease in ~~personnel-related~~depreciation ~~costs.~~expense ~~The~~as ~~decrease~~the ~~was~~Company ~~partially~~continues ~~offset~~its bytransitions aout ~~$9.3~~of ~~million~~legacy ~~increase~~data incenters ~~allocated~~and ~~costs,~~into ~~including~~a ~~facilities,~~more ~~depreciation,~~efficient ~~facilities~~public ~~exit~~cloud ~~costs,~~hosting ~~and the impairment of certain acquired technologies~~environment.

~~Cost~~Gross ofProfit revenue decreased $2.3 million, or 1%, in the nine months ended December 31, 2022, compared to the same period of 2021. The decrease was primarily due to a $9.0 million decrease in hosting-related costs, consulting, and software expenses and a $0.5 million decrease in travel expenses. The decrease was partially offset by a $4.2 million increase in allocated costs, including facilities, depreciation, facilities exit costs, the impairment of certain acquired technologies, a $2.4 million increase in personnel-related costs, and a $0.5 million increase in other miscellaneous expenses.Margin


	Three Months Ended June 30,						Change
	2023			2022			Amount		%

	(dollars in thousands)
Gross profit	$	188,188		$	152,566		$	35,622	23	%
Gross margin %	78		%	71		%

Gross profit increased $35.6 million, or 23%, in the three months ended June 30, 2023 compared to the same period of 2022. The increase was primarily attributable to an increase in our revenues driven by growth in our customer base and increase

in customer consumption, and a reduction in our cost of revenue driven by scaling our business via public cloud hosting providers.

Research and Development

	Three Months Ended December 31,				Change				Nine Months Ended December 31,				Change
	Three Months Ended June 30,				Change
	2022		2021		Amount		%		2022		2021		Amount		%
	2023		2022		Amount		%
	(dollars in thousands)
Research and development	$	6980,~~261~~310	$	5364,~~362~~769	$	15,~~899~~541	3024	%	$	~~202,760~~	$	~~153,460~~	$	~~49,300~~	32	%

Research and development expenses increased $15.95 million, or 3024%, in the three months ended ~~December~~June 3130, ~~2022~~2023 compared to the same period of ~~2021~~2022. The increase was primarily adue ~~result~~to of an increase in personnel-related costs of $1217.13 million, ~~driven~~as ~~by an increase in headcount, salary and equity-based compensation,~~ a ~~$3.6~~result ~~million~~of ~~increase~~the inrestructuring ~~allocated~~plans ~~costs,~~aiming ~~including~~to ~~facilities,~~realign ~~depreciation,~~the ~~and~~Company’s ~~facilities~~resources ~~exit~~towards ~~costs, and~~ a ~~$2.2~~consumption ~~million increase in consulting and software expenses~~business-model. The increase was partially offset by a $21.08 million decrease in depreciation, consulting, travel, and other ~~miscellaneous~~ expenses driven by initiatives to improve business efficiency.

Research and development expenses increased $49.3 million, or 32%, in the nine months ended December 31, 2022 compared to the same period of 2021. The increase was primarily a result of an increase in personnel-related costs of $38.0 million, driven by an increase in headcount, salary and equity-based compensation, a $7.5 million increase in allocated costs, including facilities, depreciation, and facilities exit costs, a $2.4 million increase in consulting and software expenses, and a $1.7 million increase in travel and other miscellaneous expenses. The increase was partially offset by a $0.3 million decrease in hosting service credits.

Sales and Marketing

	Three Months Ended December 31,				Change				Nine Months Ended December 31,				Change
	Three Months Ended June 30,				Change
	2022		2021		Amount		%		2022		2021		Amount		%
	2023		2022		Amount		%
	(dollars in thousands)
Sales and marketing	$	9594,~~477~~019	$	97104,~~723~~420	$	(210,~~246~~401)	(210)	%	$	~~296,100~~	$	~~293,603~~	$	~~2,497~~	1	%

Sales and marketing expenses decreased $210.24 million, or 210%, in the three months ended ~~December~~June 3130, ~~2022~~2023 compared to the same period of ~~2021~~2022. The decrease was primarily a result of a $35.41 million decrease in ~~personnel-related~~travel ~~cost~~expenses, a $24.31 million net decrease in ~~travel~~personnel-related ~~expenses,~~costs ~~and~~offset aby ~~$0.9~~an ~~million~~increase ~~decrease~~ in ~~allocated~~personnel-related costs, ~~including~~incurred ~~facilities~~to ~~and~~realign ~~depreciation.~~the ~~The~~Company’s ~~decrease~~resources ~~was~~towards ~~partially~~a ~~offset~~consumption bybusiness-model, and a $1.91 million ~~increase~~decrease in marketing programs, aaligning ~~$1.0~~with ~~million~~our ~~increase~~initiatives into ~~consulting~~improve ~~and~~business efficiency.

software expenses, and a $1.5 million increase in other miscellaneous expenses. The decrease in personnel-related costs was due to the impact of higher commission amortization expenses in the same period last year when we first shifted to a consumption-business model from our subscription-business model.

Sales and marketing expenses increased $2.5 million, or 1%, in the nine months ended December 31, 2022 compared to the same period of 2021. The increase was primarily a result of a $8.4 million increase in marketing program expenses, a $6.1 million increase in travel expenses, and a $2.4 million increase in other miscellaneous expenses. The increase was partially offset by a $7.0 million decrease in personnel-related costs and a $6.9 million decrease in allocated costs, including facilities and depreciation. The decrease in personnel-related costs was due to the impact of higher restructuring costs that were incurred in the same period last year.

General and Administrative

	Three Months Ended December 31,				Change				Nine Months Ended December 31,				Change
	Three Months Ended June 30,				Change
	2022		2021		Amount		%		2022		2021		Amount		%
	2023		2022		Amount		%
	(dollars in thousands)
General and administrative	$	4246,~~799~~849	$	3539,~~614~~030	$	7,~~185~~819	20	%	$	~~124,312~~	$	~~113,193~~	$	~~11,119~~	10	%

General and administrative expenses increased $7.28 million, or 20%, in the three months ended ~~December~~June 3130, ~~2022~~2023 compared to the same period of ~~2021~~2022. The increase was ~~primarily~~due ato ~~result of~~ an increase in personnel-related costs of $45.4 million, partially driven by an increase in ~~headcount, salary and equity~~stock-based compensation~~, a $2~~.5 ~~million~~The increase in ~~allocated~~personnel-related costs, ~~including~~also ~~facilities,~~includes ~~depreciation~~increased ~~and~~compensation ~~lease~~costs ~~exit~~due ~~expenses,~~to athe ~~$0.7~~restructuring ~~million~~plans ~~increase~~aimed into ~~travel~~realign ~~expenses,~~the ~~and~~Company’s aresources ~~$0.5~~towards ~~million~~a ~~increase~~consumption ~~in consulting and software~~business-model. The increase was ~~partially~~also ~~offset~~attributable byto a $12.01 million ~~decrease~~increase in ~~other~~consulting ~~miscellaneous~~service ~~expenses~~fees.

General and administrative expenses increased $11.1 million, or 10%, in the nine months ended December 31, 2022 compared to the same period of 2021. The increase was primarily a result of a $5.2 million increase in personnel-related costs driven by an increase in headcount, salary and equity-based compensation, a $3.7 million increase in travel expenses, a $1.6 million increase in allocated costs, including facilities, depreciation, and lease exit expenses, and a $0.6 million increase in consulting, software, and other miscellaneous expenses.

Other Income (Expense)

	Three Months Ended December 31,				Change				Nine Months Ended December 31,				Change
	Three Months Ended June 30,				Change
	2022		2021		Amount		%		2022		2021		Amount		%
	2023		2022		Amount		%
	(dollars in thousands)
Other income (expense)	$	32,~~594~~498	$	(~~921~~331)	$	42,~~515~~829	~~490~~NM	%	$	~~4,662~~	$	~~(2,092)~~	$	~~6,754~~	~~323~~	%

~~Other~~NM ~~income~~indicates ~~increased~~not ~~by $4~~meaningful.5 million, or 490%, in the three months ended December 31, 2022 compared to the same period of 2021. The increase was primarily a result of a $4.1 million increase in interest income and a $0.4 million decrease in other expenses.

Other income increased by $62.8 million, ~~or 323%,~~ in the ~~nine~~three months ended ~~December~~June 3130, ~~2022~~2023 compared to the same period of ~~2021~~2022. The increase was primarily a result of a $63.05 million increase in interest income ~~and~~offset by a $01.84 million decrease in other expenses. The increase in interest income is primarily due to the current interest rate environment.

3428

Provision for ~~(Benefit from)~~ Income Tax

	Three Months Ended December 31,						Change				Nine Months Ended December 31,						Change
	Three Months Ended June 30,						Change
	2022			2021			Amount		%		2022			2021			Amount		%
	2023			2022			Amount		%
	(dollars in thousands)
Loss before income taxes	$	(2530,~~496~~492)		$	(5255,~~822~~984)		$	2725,~~326~~492	5246	%	$	~~(125,368)~~		$	~~(174,898)~~		$	~~49,530~~	28	%
Effective tax rate	(49.3828)		%	(10.4448)		%					~~(0.80)~~		%	~~(0.47)~~		%
Income tax provision	$	12,~~116~~830		$	~~763~~267		$	~~353~~2,563	46960	%	$	~~1,002~~		$	~~816~~		$	~~186~~	23	%

We recognized an income tax expense of $12.18 million for the three months ended ~~December~~June 3130, ~~2022~~2023 as compared to an income tax expense of $0.83 million for the same period of ~~2021~~2022. The ~~change~~increase ~~of $0.4 million, or 46%,~~ was mostly related to an increase in foreign ~~taxes~~earnings as a result of catch-up on intercompany revenue on foreign lease restructuring expenses previously recognized under U.S. GAAP in fiscal year 2023.

We recognized an income tax expense of $1.0 million for the nine months ended December 31, 2022 as compared to an income tax expense of $0.8 million for the same period of 2021. The change of $0.2 million, or 23%, was mostly related to an increase in U.S. state taxes.

Net Loss and Adjustment Attributable to Redeemable Non-controlling Interest

	Three Months Ended December 31,				Change				Nine Months Ended December 31,				Change
	Three Months Ended June 30,				Change
	2022		2021		Amount		%		2022		2021		Amount		%
	2023		2022		Amount		%
	(dollars in thousands)
Net loss and adjustment attributable to redeemable non-controlling interest	$	~~607~~(4,109)	$	(96,~~121)~~012	$	9(10,~~728~~121)	~~107~~NM	%	$	~~3,351~~	$	~~(19,175)~~	$	~~22,526~~	~~117~~	%

~~Net~~NM ~~loss~~indicates ~~and~~not ~~adjustment attributable to redeemable non-controlling interest decreased by $9~~meaningful.7 million, or 107%, in the three months ended December 31, 2022, compared to the same period of 2021. The decrease was related to the redeemable non-controlling interest’s associated loss and adjustment to estimated redemption value of our joint venture in New Relic K.K.

Net loss and adjustment attributable to redeemable non-controlling interest decreased by $2210.51 million, ~~or 117%,~~ in the ~~nine~~three months ended ~~December~~June 3130, ~~2022~~2023, compared to the same period of ~~2021~~2022. The decrease was related to the redeemable non-controlling interest’s associated loss and adjustment to estimated redemption value of our joint venture in New Relic K.K.

3529

Non-GAAP Financial Measures

InThe ~~addition to our results determined in accordance with U.S. generally accepted accounting principles (GAAP), Non-GAAP Income (Loss) from Operations, a~~ non-GAAP financial ~~measure,~~measures isdiscussed ~~included~~below inare ~~the section titled “Non-GAAP Financial Measures.” This non-GAAP financial measure is~~ not meant to be considered in isolation from or as a substitute for, or superior to, comparable GAAP financial measures and should be read only in conjunction with our unaudited condensed consolidated financial statements prepared in accordance with GAAP. Our presentation of ~~this~~these non-GAAP financial ~~measure~~measures may not be comparable to similar measures used by other companies. We encourage investors to carefully consider our results under GAAP, as well as our supplemental non-GAAP information and the GAAP-to-non-GAAP ~~reconciliation~~reconciliations ~~included~~provided inbelow ~~the section titled “Non-GAAP Financial Measures,”~~ to more fully understand our business.

Non-GAAP Gross Margin, Non-GAAP Income (Loss) From Operations, and Non-GAAP Net Income (Loss)

To supplement our consolidated financial statements presented in accordance with GAAP, we provide investors with certain non-GAAP financial measures, including non-GAAP gross margin, non-GAAP income (loss) from operations and non-GAAP net income (loss) ~~attributable to New Relic~~. We define non-GAAP gross margin, non-GAAP income (loss) from operations and non-GAAP net income (loss) ~~attributable to New Relic~~ as the respective GAAP balance, adjusted for, as applicable: (1) stock-based compensation-related ~~expense~~expenses, (2) ~~amortization of stock-based compensation capitalized in software development costs, (3)~~ the amortization of purchased intangibles, (43) ~~employer payroll tax expense on equity incentive plans, (5)~~ amortization of debt discount and issuance costs, (64) ~~the transaction costs related to acquisitions, (7)~~ lawsuit litigation cost and other expense, (85) ~~net~~restructuring ~~loss and adjustment attributable to redeemable non-controlling interest~~charges, and (96) ~~restructuring~~non-GAAP ~~charges~~tax adjustment. We use non-GAAP financial measures, including non-GAAP gross margin, non-GAAP income (loss) from operations and non-GAAP net income (loss) ~~attributable to New Relic~~, internally to understand and compare operating results across accounting periods, for internal budgeting and forecasting purposes, for short- and long-term operating plans, and to evaluate our financial performance. In addition, our bonus opportunity for eligible employees and executives is based in part on non-GAAP income (loss) from operations.

We believe these measures are useful to investors, as a supplement to GAAP measures, in evaluating our operational performance. We have provided below a reconciliation of GAAP gross margin to non-GAAP gross margin, a reconciliation of GAAP income (loss) from operations to non-GAAP income (loss) from operations, and a reconciliation of GAAP net income (loss) ~~attributable~~ to ~~New Relic to~~ non-GAAP net income (loss) ~~attributable to New Relic~~. We believe non-GAAP gross margin, non-GAAP income (loss) from operations, and non-GAAP net income (loss) ~~attributable to New Relic~~ are useful to investors and others in assessing our operating performance due to the following factors:

Stock-based compensation-related ~~expense~~expenses. ~~and~~Our stock-based compensation-related expenses include stock-based compensation expense, amortization of stock-based compensation capitalized in software development costs and employer payroll tax expense on equity incentive plans. We utilize share-based compensation to attract and retain employees. It is principally aimed at aligning their interests with those of our stockholders and at long-term retention, rather than to address operational performance for any particular period. As a result, share-based compensation expenses vary for reasons that are generally unrelated to financial and operational performance in any particular period. We further exclude employer payroll tax expense on equity incentive plans as these expenses are tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of vesting or exercise. As a result, these taxes may vary in any particular period independent of the financial and operating performance of our business.

Amortization of purchased intangibles. We view amortization of purchased intangible assets as items arising from pre-acquisition activities determined at the time of an acquisition. While these intangible assets are evaluated for impairment regularly, amortization of the cost of purchased intangibles is an expense that is not typically affected by operations during any particular period. Amortization of purchased intangibles varies in amount and frequency and is significantly impacted by the timing and size of our acquisitions. We find it useful to exclude these non-cash charges from our operating expenses to assist in budgeting, planning, and forecasting future periods. The use of intangible assets contributed to our revenues during the periods presented and will also contribute to our revenues in future periods. Amortization of purchased intangible assets will recur in future periods.

~~Employer~~Amortization ~~payroll~~of ~~tax~~debt ~~expense~~discount onand ~~equity~~issuance ~~incentive plans~~costs. WeIn ~~exclude~~May ~~employer~~2018, ~~payroll~~we ~~tax~~issued ~~expense~~$500.25 onmillion ~~equity~~of ~~incentive~~our ~~plans~~0.50% asconvertible ~~these~~senior ~~expenses~~notes ~~are~~due ~~tied~~2023 to (the ~~exercise~~“Notes”), orwhich ~~vesting~~bore interest at an annual fixed rate of ~~underlying~~0.5%. ~~equity~~The ~~awards~~Notes matured and ~~the~~were ~~price~~repaid ofin ~~our~~cash ~~common~~on ~~stock~~May at1, 2023. The debt issuance costs were amortized as interest expense. The expense for the ~~time~~amortization of ~~vesting~~debt orissuance ~~exercise.~~costs Asis a ~~result~~non-cash item, ~~these~~and ~~taxes~~we ~~may~~believe ~~vary~~the inexclusion ~~any~~of ~~particular~~this ~~period~~interest ~~independent~~expense ofwill ~~the~~provide ~~financial~~for ~~and~~a ~~operating~~more ~~performance~~useful comparison of our ~~business~~operational performance in different periods.

~~Amortization~~Lawsuit oflitigation ~~debt~~cost ~~discount~~ and ~~issuance~~other ~~costs~~expense. InWe ~~May~~may ~~2018,~~from wetime ~~issued~~to ~~$500.25~~time ~~million~~incur ofcharges ~~our~~or ~~0.50%~~benefits ~~convertible~~related ~~senior~~to ~~notes~~litigation ~~due~~or ~~2023~~transactions ~~(the~~that ~~“Notes”),~~are ~~which~~outside ~~bear interest at an annual fixed rate~~ of ~~0.5%. The effective interest rate of~~ the ~~Notes~~ordinary ~~was~~course ~~5.74%. Effective April 1, 2021 we adopted ASU No. 2020-06, Accounting for Convertible Instruments and Contract on an Entity’s Own Equity. As a result~~ of ~~the~~our ~~adoption, the debt conversion option and debt issuance costs previously attributable to the equity component are no longer presented in equity~~business. ~~Similarly,~~We ~~the~~believe ~~debt~~it ~~discount,~~is ~~which~~useful ~~was equal~~ to ~~the~~exclude ~~carrying~~such ~~value~~charges ofor ~~the~~benefits ~~embedded~~because ~~conversion~~we ~~feature~~do ~~upon~~not ~~issuance,~~consider issuch noamounts ~~longer amortized into income as interest expense over the life of the instrument. This resulted in a $54.2 million decrease~~ to ~~the~~be ~~opening~~part ~~balance~~ of ~~accumulated deficit, a $100.1 million decrease to~~ the ~~opening~~ongoing ~~balance~~operation of ~~additional~~our ~~paid-in~~business ~~capital,~~ and abecause ~~$45.9 million~~of ~~increase to~~ the ~~opening~~singular ~~balance~~nature of the ~~Notes,~~claims ~~net~~underlying on the ~~consolidated balance sheet~~matter. The debt issuance costs were amortized as interest expense. The expense for the amortization of debt issuance costs is a non-cash item, and we believe the exclusion of this interest expense will provide for a more useful comparison of our operational performance in different periods.

3630

~~Transaction~~Restructuring ~~costs~~charges. ~~related~~In toAugust ~~acquisitions.~~2022, Wewe ~~may~~commenced ~~from~~a ~~time~~restructuring plan to ~~time~~realign ~~incur~~our ~~direct~~cost ~~transaction~~structure ~~costs~~with ~~related~~our business needs as we moved to ~~acquisitions~~focus our resources on top priorities, and in March 2023, we approved a new restructuring plan in connection with the reduction of our global real estate footprint in line with our Flex First philosophy. WeIn ~~believe~~the itfirst isfiscal ~~useful~~quarter toof ~~exclude~~2024, ~~such~~the ~~charges~~Company ~~because~~announced wethe doadoption ~~not~~of ~~consider~~a ~~such~~new ~~amounts~~restructuring toplan befocused ~~part~~on realigning resources with the Company’s business needs in driving the growth of its consumption business. As a result of this and previously announced restructuring plans, we incurred charges of approximately $21.7 million consisting of employee wages, termination benefits, and lease exit costs for the ~~ongoing~~three ~~operation~~months ended June 30, 2023. We believe it is appropriate to exclude the restructuring charges because they are not indicative of our ~~business~~future operating results.

~~Lawsuit~~Non-GAAP ~~litigation~~tax ~~cost~~adjustment. ~~and~~We ~~other~~used ~~expense.~~a Welong-term ~~may~~projected ~~from~~non-GAAP ~~time~~tax rate to ~~time~~provide ~~incur~~consistency ~~charges~~across orinterim ~~benefits~~reporting ~~related~~periods with non-GAAP net income. As we have forecasted to ~~litigation~~be ~~that~~non-GAAP ~~are~~profitable ~~outside~~on ofan annual basis starting in fiscal year 2024, we applied the ~~ordinary~~non-GAAP ~~course~~tax ofrate ~~our~~prospectively ~~business.~~in Wethe ~~believe~~first itfiscal isquarter ~~useful~~of to2024. ~~exclude~~In ~~such~~determining ~~charges~~our ornon-GAAP ~~benefits~~tax ~~because~~rate, we doexcluded ~~not~~the ~~consider~~impact ~~such~~of ~~amounts~~nonrecurring toitems beand ~~part~~made ofassumptions ~~the~~including ~~ongoing~~those ~~operation~~about oftax legislation and our ~~business~~tax ~~and~~positions. ~~because~~We ofprojected ~~the~~a ~~singular~~24.0% ~~nature~~non-GAAP oftax ~~the~~rate ~~claims~~based ~~underlying~~on non-GAAP financial projections and applied it to the ~~matter~~non-GAAP profit before tax.

~~Net~~Non-GAAP ~~loss~~financial ~~and~~measures ~~adjustment~~should tonot ~~redeemable~~be ~~non-controlling~~considered ~~interest.~~in Weisolation ~~allocate~~from, ~~the~~or ~~net~~as ~~loss~~a ~~and~~substitute ~~adjust~~for, ~~the~~or ~~value~~superior ofto, ~~redeemable~~financial ~~non-controlling~~information ~~interest~~prepared in ~~connection~~accordance with ~~our joint venture in New Relic K~~GAAP.K. ~~Starting~~In ~~from the period ended December 31~~addition, ~~2022,~~there weare ~~also~~limitations ~~include~~in ~~the~~using ~~net loss attributable to redeemable~~ non-~~controlling~~GAAP ~~interest~~financial asmeasures abecause the non-GAAP ~~item.~~financial Asmeasures ~~such,~~are ~~prior~~not ~~periods~~prepared ~~have~~in ~~been~~accordance ~~adjusted~~with toGAAP ~~reflect this change. We believe it is useful to exclude the net loss~~ and ~~adjustment~~may todiffer ~~redeemable~~from non-~~controlling~~GAAP ~~interest~~financial ~~because~~measures itused ~~may~~by ~~not~~other becompanies ~~indicative~~in of our ~~future~~industry ~~operating~~and ~~results~~exclude ~~and~~expenses that ~~investors~~may ~~benefit~~have ~~from~~a anmaterial ~~understanding~~impact ofon our ~~operating~~reported ~~results~~financial ~~without giving effect to this adjustment~~results.

The following tables present our non-GAAP gross margin, non-GAAP income (loss) from operations and our non-GAAP net income (loss) and reconcile our GAAP gross margin to non-GAAP gross margin, GAAP loss from operations to non-GAAP income (loss) from operations and our GAAP net loss to our non-GAAP net income (loss) for the three months ended June 30, 2023 and 2022 (in thousands):

Restructuring charges. In April 2021, we commenced a restructuring plan to realign our cost structure to better reflect significant product and business model innovation over the prior 12 months. In August 2022, we commenced a new restructuring plan to realign our cost structure with our business needs as we move to focus our resources on top priorities. As a result of each of these restructuring plans, we incurred charges of approximately $7.2 million and $12.6 million for the nine months ended December 31, 2022 and 2021, respectively, for employee terminations and other costs associated with the restructuring plans. We believe it is appropriate to exclude the restructuring charges because they are not indicative of our future operating results.


	Three Months Ended June 30,
	2023		2022
GAAP loss from operations	$	(32,990)	$	(55,653)
Plus: Stock-based compensation-related expenses	43,720		36,379

Plus: Amortization of purchased intangibles	1,475		2,291


Plus: Lawsuit litigation cost and other expense	2,573		(174)

Plus: Restructuring charges	21,657		—
Non-GAAP income (loss) from operations	$	36,435	$	(17,157)

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. In addition, there are limitations in using non-GAAP financial measures because the non-GAAP financial measures are not prepared in accordance with GAAP and may differ from non-GAAP financial measures used by other companies in our industry and exclude expenses that may have a material impact on our reported financial results.


	Three Months Ended June 30,
	2023		2022
GAAP net loss	$	(33,322)	$	(56,251)
Plus: Stock-based compensation-related expenses	43,720		36,379

Plus: Amortization of purchased intangibles	1,475		2,291


Plus: Lawsuit litigation cost and other expense	2,573		(174)

Plus: Amortization of debt discount and issuance costs	206		593
Plus: Restructuring charges	21,657		—
Less: Non-GAAP tax adjustment	(5,884)		—
Non-GAAP net income (loss)	$	30,425	$	(17,162)

37Non-GAAP income (loss) from operations and non-GAAP net income (loss) for the periods presented reflects the same trends discussed above in “Results of Operations.” Although we have generated non-GAAP income from operations and non-GAAP net income in the three months ended June 30, 2023, and although we expect that these numbers will improve over time with increased efficiencies, we have generated non-GAAP loss from operations and non-GAAP net loss in prior recent periods.

	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
GAAP loss from operations	$	(29,090)	$	(51,901)	$	(130,030)	$	(172,806)
Plus: Stock-based compensation expense	40,679		37,791		115,413		117,549
Plus: Amortization of purchased intangibles	4,467		2,006		9,050		5,358
Plus: Transaction costs related to acquisitions	—		—		929		361
Plus: Amortization of stock-based compensation capitalized in software development costs	2,024		640		3,517		1,680
Plus: Lawsuit litigation cost and other expense	—		59		88		59
Plus: Employer payroll tax on employee equity incentive plans	619		956		2,231		2,552
Plus: Restructuring charges (1)	—		(151)		7,210		12,119
Non-GAAP income (loss) from operations	$	18,699	$	(10,600)	$	8,408	$	(33,128)

	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
GAAP net loss attributable to New Relic	$	(26,005)	$	(62,706)	$	(123,019)	$	(194,889)
Plus: Stock-based compensation expense	40,679		37,791		115,413		117,549
Plus: Amortization of purchased intangibles	4,467		2,006		9,050		5,358
Plus: Transaction costs related to acquisitions	—		—		929		361
Plus: Amortization of stock-based compensation capitalized in software development costs	2,024		640		3,517		1,680
Plus: Lawsuit litigation cost and other expense	—		59		88		59
Plus: Employer payroll tax on employee equity incentive plans	619		956		2,231		2,552
Plus: Amortization of debt discount and issuance costs	636		590		1,823		1,766
Plus: Net loss and adjustment to redeemable non-controlling interest (2)	(607)		9,121		(3,351)		19,175
Plus: Restructuring charges (1)	—		(151)		7,210		12,119
Non-GAAP net income (loss) attributable to New Relic	$	21,813	$	(11,694)	$	13,891	$	(34,270)

(1) For the nine months ended December 31, 2021, restructuring related charge for the stock-based compensation expense of $0.5 million was included on its respective line items. There was no corresponding expense for the nine months ended December 31, 2022.

(2) Beginning from the period ended December 31, 2022, net loss attributable to redeemable non-controlling interest is included in the non-GAAP reconciliation. As such, reclassifications have been made to prior periods to conform with the current presentation.

Although we generated non-GAAP income from operations and non-GAAP net income attributable to New Relic in the three and nine months ended December 31, 2022, and although we expect that these numbers will improve over time with increased efficiencies, we have generated non-GAAP loss from operations and non-GAAP net loss attributable to New Relic in prior recent periods.

Free Cash Flow

We define free cash flow, a non-GAAP financial measure, as GAAP net cash provided by (used in) operating activities reduced by purchases of property and equipment and capitalized software development costs. We believe information regarding free cash flow provides useful supplemental information to investors.

The following table presents a reconciliation of free cash flow to net cash provided by operating activities, the most directly comparable financial measure calculated in accordance with GAAP, for the periods presented (in thousands):


	Three Months Ended June 30,
	2023		2022
Net cash provided by operating activities	$	78,309	$	43,009
Capital expenditures	(515)		(1,294)
Capitalized software development costs	(4,279)		(3,387)
Free cash flow (Non-GAAP)	$	73,515	$	38,328
Net cash provided by (used in) investing activities	$	34,121	$	(9,936)
Net cash provided by (used in) financing activities	$	(497,448)	$	1,725

	Three Months Ended December 31,				Nine Months Ended December 31,
	2022		2021		2022		2021
Net cash used in operating activities	$	(24,828)	$	(19,197)	$	(19,265)	$	(46,328)
Capital expenditures	(358)		(351)		(2,774)		(3,177)
Capitalized software development costs	(4,287)		(3,359)		(12,194)		(9,406)
Free cash flow (Non-GAAP)	$	(29,473)	$	(22,907)	$	(34,233)	$	(58,911)
Net cash provided by investing activities	$	58,654	$	11,687	$	242,900	$	16,885
Net cash provided by financing activities	$	1,932	$	21,551	$	14,496	$	34,582

Liquidity and Capital Resources


	Three Months Ended June 30,
	2023		2022

	(in thousands)
Cash provided by operating activities	$	78,309	$	43,009
Cash provided by (used in) investing activities	34,121		(9,936)
Cash provided by (used in) financing activities	(497,448)		1,725
Net increase (decrease) in cash, cash equivalents and restricted cash	$	(385,018)	$	34,798

	Nine Months Ended December 31,
	2022		2021
	(in thousands)
Cash used in operating activities	$	(19,265)	$	(46,328)
Cash provided by investing activities	242,900		16,885
Cash provided by financing activities	14,496		34,582
Net increase in cash, cash equivalents and restricted cash	$	238,131	$	5,139

Sources of Cash and Material Cash Requirements

To date, we have financed our operations primarily through the issuance of the Notes, private and public equity financings and customer payments. As disclosed in Note 76 — 0.5% Convertible Senior Notes and Capped Call, in ~~the~~May ~~“Notes~~2018, towe ~~Condensed~~issued $500.25 ~~Consolidated~~million ~~Financial Statements”~~ in ~~Item~~aggregate 1principal ofamount ~~Part I~~ of ~~this~~Notes ~~Quarterly~~in ~~Report~~a onprivate ~~Form 10-Q~~offering, ~~our~~including 0$65.5%25 ~~Convertible~~million ~~Senior~~in ~~Notes~~aggregate ~~and~~principal ~~Capped~~amount ~~Call~~of ~~will~~Notes ~~mature~~pursuant onto ~~May~~the 1,exercise ~~2023.~~in Wefull ~~may~~of ~~seek~~the toinitial ~~repurchase~~purchasers’ aoption ~~portion~~to ofpurchase ~~our~~additional 0Notes.5% ~~Convertible~~The ~~Senior~~ Notes ~~pursuant~~matured toand ~~open~~were ~~market~~repaid ~~purchases or privately negotiated transactions~~ in ~~advance~~cash ofon ~~their~~May 1, ~~maturity date~~2023. We believe that our existing cash, cash equivalents, and short-term investment balances, together with cash generated from operations, will be sufficient to meet our working capital, and capital expenditure requirements, ~~and debt retirement obligations~~ for at least the next 12 months.

We believe we will meet longer-term expected future cash requirements and obligations through a combination of cash flows from operating activities, available cash balances, and issuance of equity or debt securities. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support research and development efforts, the timing of our public cloud migration and the related decreased spending on capital expenditures, the introduction of new and enhanced products, seasonality of our billing activities, the timing and extent of spending to support our growth strategy, the continued market acceptance of our products, and competitive pressures. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, technologies and intellectual property rights. We may need or choose to raise additional funds from equity or debt securities in order to meet those capital requirements. In the event that additional financing is required from outside sources, we may not be able to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition would be adversely affected.

Our material cash requirements consist of obligations under leases for office space and purchase commitments ~~and our 0~~.5% ~~Convertible Senior Notes.~~ Except as set forth in Note 96 —– ~~Leases~~0.5% Convertible Senior Notes and Capped Call and Note 107 — Commitments and Contingencies contained in the “Notes to Condensed Consolidated Financial Statements” in Item 1 of Part I of this Quarterly Report on Form 10-Q, there were no material changes to our material cash requirements, as disclosed in our audited consolidated financial statements for the fiscal year ended March 31, ~~2022~~2023 in our Annual Report ~~on Form 10-K for the fiscal year ended March 31, 2022 (our “Annual Report”), as filed with the Securities and Exchange Commission (“SEC”), on May 17, 2022~~.

Operating Activities

During the ~~nine~~three months ended ~~December~~June 3130, ~~2022~~2023, cash ~~used~~provided inby operating activities was $1978.3 million, aswhich awas ~~result~~an ofincrease ~~a net loss~~ of $~~126~~35.4 3 million, ~~adjusted~~compared byto ~~non-cash~~the ~~charges~~same ofperiod ~~$181.1 million and a change~~ of ~~$74~~2022.0 ~~million in our operating assets and liabilities.~~ The ~~change~~increase in ~~our~~cash ~~operating~~provided ~~assets~~by ~~and~~operating ~~liabilities~~activities ~~was~~is ~~the~~primarily ~~result~~due ofto aincreased ~~$96.9~~cash ~~million~~receipts ~~decrease~~related into ~~deferred~~the ~~revenue,~~Company’s acontinued ~~$8.7~~business ~~million increase in deferred contract acquisition and fulfillment costs~~growth, apartially ~~$8.7 million decrease in lease liabilities, and a $3.8 million decrease in accounts payable. The decrease was~~ offset by a ~~$28.0 million~~ decrease in ~~account~~cash ~~receivable,~~due ato ~~$7.9~~timing ~~million decrease in lease right-~~of~~-use~~ ~~assets, a $5~~payments.~~3 million decrease in prepaid and other assets, and a $2.9 million increase in accrued compensation and benefits and other liabilities.~~

During the nine months ended December 31, 2021, cash used in operating activities was $46.3 million as a result of a net loss of $175.7 million, adjusted by non-cash charges of $185.9 million and a change of $56.5 million in our operating assets and liabilities. The change in our operating assets and liabilities was primarily the result of a $67.2 million decrease in deferred revenue, a $5.9 million decrease in lease liabilities, a $3.1 million increase in accounts receivable, a $3.0 million increase in prepaid and other assets, and a $1.7 million increase in deferred contract acquisition and fulfillment costs. This was partially offset by a $14.7 million increase in accrued compensation and benefits and other liabilities, a $6.7 million decrease in lease right-of-use assets, and a $2.9 million increase in accounts payable.

Investing Activities

Cash provided by investing activities during the ~~nine~~three months ended ~~December~~June 3130, ~~2022~~2023 was $~~242~~34.91 million, ~~primarily~~an asincrease ~~a result~~ of ~~proceeds from the maturity and sale of short-term investments of~~ $~~314~~44.~~0 million and proceeds from sale of property and equipment of $~~1.8 million. ~~This~~compared ~~was~~to ~~partially offset by~~ the ~~purchase~~same ofperiod ~~short-term investments~~ of ~~$50~~2022.4 ~~million,~~The an increase inis ~~capitalization~~primarily ofdue ~~software~~to ~~development~~reduced ~~costs~~purchases of ~~$12.2 million~~investments, ~~purchases~~offset ofby ~~property~~reduced ~~and~~proceeds ~~equipment~~from ofsales ~~$2.8 million, and a net payment~~ of $7investments.~~5 million which was held back for an acquisition that occurred in the prior year.~~

Cash provided by investing activities during the nine months ended December 31, 2021 was $16.9 million, primarily as a result of proceeds from the maturity and sale of short-term investments of $212.3 million. This was partially offset by purchases of short-term investments of $175.7 million, cash paid for acquisition, net of cash acquired, of $7.2 million, purchases of property and equipment of $3.2 million, and increases in capitalization of software development costs of $9.4 million.

Financing Activities

Cash ~~provided~~used byin financing activities during the ~~nine~~three months ended ~~December~~June 3130, ~~2022~~2023 was $14497.54 million, ~~which~~an ~~was~~increase ~~the result~~ of ~~proceeds~~$499.2 million ~~received~~compared ~~from~~to the ~~purchase~~same ofperiod ~~shares~~ of ~~common~~2022. ~~stock~~The ~~pursuant~~increase towas ~~our~~primarily ~~employee~~due ~~stock~~to ~~purchase~~the ~~plan~~repayment of ~~$6.1 million and from~~ the ~~exercise~~Notes ofupon ~~stock options of $8~~maturity.~~4 million.~~

Cash provided by financing activities during the nine months ended December 31, 2021 was $34.6 million, which was the result of proceeds received from the purchase of shares of common stock pursuant to our employee stock purchase plan of $5.4 million and from the exercise of stock options of $29.2 million.33

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with United States generally accepted accounting principles, (“GAAP”). In the preparation of these consolidated financial statements, we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on information available as of the date of the consolidated financial statements; therefore, actual results could differ from our estimates. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates.

There have been no significant changes in our critical accounting policies and estimates during the ~~nine~~three months ended ~~December~~June 3130, ~~2022~~2023 as compared to the critical accounting policies and estimates described in our Annual Report.

Recent Accounting Pronouncements

See Note 1 — Description of Business and Summary of Significant Accounting Policies contained in the “Notes to Condensed Consolidated Financial Statements” in Item 1 of Part I of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Risk

The majority of our subscription and ~~usage~~consumption-based agreements are denominated in U.S. dollars. A portion of our operating expenses are incurred outside the United States and are denominated in foreign currencies and subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro and Japanese Yen. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statements of operations. As exchange rates may fluctuate significantly between periods, our non-U.S. dollar denominated revenue and operating expenses may also experience significant fluctuations between periods as we convert these to U.S. dollars. Volatile market conditions arising from the macro environment have and may in the future result in significant changes in exchange rates, and in particular a weakening of foreign currencies relative to the U.S. dollar has and may in the future negatively affect our revenue expressed in U.S. dollars. As the impact of foreign currency exchange rates are not projected to be material to our operating results, we have not engaged in any foreign currency hedging transactions. As our international operations grow, we will continue to reassess our approach to managing the risks relating to fluctuations in currency rates. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have had a material impact on our historical consolidated financial statements.

Interest Rate Risk

We had cash and cash equivalents of $~~506~~240.87 million as of ~~December~~June 3130, ~~2022~~2023, consisting of bank deposits and money market funds. These interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in our interest income have not been significant. We have an agreement to maintain cash balances at a financial institution of no less than $5.8 million as collateral for several letters of credit in favor of our landlords. The letters of credit carry a fixed interest rate of 1%.

We had short-term investments of $~~293~~216.43 million as of ~~December~~June 3130, ~~2022~~2023, consisting of certificates of deposit, commercial paper, corporate notes and bonds, and U.S. treasury securities. Our investments in marketable securities are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. Due to the short-term nature of these investments, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates.

A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements.

In March 2018, we issued $500.25 million aggregate principal amount of the Notes. The fair value of the Notes is subject to interest rate risk, market risk and other factors due to the conversion feature in the Notes. The fair value of the Notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines. The interest and market value changes affect the fair value of the Notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, we carry the Notes at face value less unamortized issuance on our balance sheet, and we present the fair value for required disclosure purposes only.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2022, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.34

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2023, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Limitations on the Effectiveness of Controls

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended ~~December~~June 3130, ~~2022~~2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

4235

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be subject to legal proceedings and claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition or cash flows. We have received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend ourselves, our partners and our customers by determining the scope, enforceability and validity of third-party proprietary rights, or to establish our proprietary rights. The results of any current or future litigation cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

Item 1A. Risk Factors

We have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition, or results of operations. This description includes any material changes to and supersedes the description of the risk factors disclosed in Part I, Item 1A of our Annual Report. We have marked with an asterisk (*) those risks described below that reflect substantive changes from the risks disclosed in Part I, Item 1A of our Annual Report.

The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations. Our business could be harmed by any of these risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. In assessing these risks, you should also refer to the other information contained in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and accompanying notes.

Risk Factors Related to the Merger Transaction

There may be unexpected delays in the completion of the Merger, or the Merger may not be completed at all. Delays or a failure to complete the Merger could have a material adverse effect on our stock price as well as on our business, financial condition and results of operations.*

On July 30, 2023, we entered into the Merger Agreement with Parent and Merger Sub. The Merger is expected to close in late calendar year 2023 or early calendar year 2024, assuming that all of the conditions in the Merger Agreement are satisfied or, if permitted, waived. There can be no assurance that the Merger will be consummated. The consummation of the Merger is subject to certain regulatory approvals and customary closing conditions. The obligation of each party to consummate the Merger is also conditioned upon the other party’s representations and warranties being true and correct to the extent specified in the Merger Agreement and the other party having performed in all material respects its obligations under the Merger Agreement. There can be no assurance that these and other conditions to closing will be satisfied in a timely manner or at all. Moreover, the Merger Agreement provides that either we or Parent may terminate the Merger Agreement in certain circumstances, including if the Merger has not occurred by 11:59 p.m., Pacific time, on January 30, 2024, subject to extensions if certain conditions set forth in the Merger Agreement are met. Certain events may delay the completion of the Merger or result in a termination of the Merger Agreement. Some of these events are outside the control of either party. In particular, the Merger must be approved by the affirmative vote of a majority of the outstanding shares of our Common Stock and is subject to the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

Further, certain risks may be exacerbated by a delay in the completion of the Merger, including, among others: our ability to attract, retain and motivate our employees, including key personnel; difficulties maintaining relationships with customers, service providers and partners; delays or deferments of certain business decisions by our customers, prospective customers, service providers and partners; the diversion of significant management time and resources towards the completion of the Merger; the inability to pursue alternative business opportunities or make appropriate changes to our business because the Merger Agreement requires us to use reasonable best efforts to conduct our business in the ordinary course of business and not engage in certain kinds of transactions prior to the completion of the Merger; litigation relating to the Merger and the costs related thereto; and the incurrence of significant costs, expenses, and fees for professional services and other transaction costs in connection with the Merger, in addition to significant transaction costs, including legal, financial advisory, accounting, and other costs we have already incurred. Delays in completing the Merger or the failure to complete the Merger at all could negatively affect our future business and financial results, and, in that event, the market price of our Common Stock may decline significantly, particularly to the extent that the current market price reflects a market assumption that the Merger will be

completed. Additionally, a failure to complete the Merger in a timely manner may result in a decline in investor confidence in us and our business, stockholder litigation could be brought against us, relationships with current and prospective customers, service providers, investors and other partners may be adversely impacted and we may be unable to retain key personnel. We can neither assure you that the conditions to the completion of the Merger will be satisfied or, if permitted, waived or that any adverse change, effect, event, circumstance, occurrence or state of facts that could give rise to the termination of the Merger Agreement will not occur, nor provide any assurances as to whether or when the Merger will be completed.

The pendency of the Merger could adversely affect our business, financial condition and results of operations.*

In connection with the pending Merger, some of our current or prospective customers, partners or service providers may delay or defer decisions to do business with us, which could negatively impact our revenues, earnings, cash flows and expenses, regardless of whether the Merger is completed. Moreover, some of our current or prospective customers may delay using our platform, or may engage with a competitor’s platform instead. Additionally, any disruptions to our business resulting from the announcement and pendency of the Merger, including adverse changes in our relationships with customers, partners, service providers or employees may continue or intensify in the event the Merger is not consummated or is significantly delayed. In addition, under the Merger Agreement, we are subject to certain restrictions on the conduct of our business prior to completing the Merger. These restrictions may prevent us from pursuing certain strategic transactions, undertaking certain capital projects, undertaking certain financing transactions and otherwise pursuing other actions that are not in the ordinary course of business, even if such actions could prove beneficial, and may cause us to forego certain opportunities we might otherwise pursue absent the Merger Agreement. Further, the pendency of the Merger may make it more difficult for us to effectively recruit, retain and incentivize employees and key personnel and may cause distractions from our strategy and day-to-day operations for our current employees and management, all of which could materially adversely affect our business, financial condition and results of operations.

Litigation may arise in connection with the Merger, which could be costly, prevent or seriously delay the consummation of the Merger, divert management’s attention and otherwise materially harm our business, financial condition and results of operations.*

We, as well as members of our board of directors, may be named as defendants in actions related to the Merger. Regardless of the outcome of any future litigation related to the Merger, such litigation may be time-consuming, expensive and may distract our management from day-to-day operations of our business. The cost of litigation and the diversion of management’s attention and resources to address the claims and counterclaims in any litigation related to the Merger may materially adversely affect our business, financial condition and results of operations. If the Merger is not consummated for any reason, litigation could be filed in connection with the failure to consummate the Merger. Any litigation related to the Merger may result in negative publicity or an unfavorable impression of us, which could adversely affect the price of our common stock, impair our ability to recruit or retain employees, damage our relationships with our customers, potential customers, service providers and partners, or otherwise materially harm our business, operations and financial condition. We cannot assure you as to the outcome of such litigation, including the amount of costs associated with defending such claims or any other liabilities that may be incurred in connection with the litigation of such claims. Whether or not plaintiffs in potential litigation are successful, the litigation may delay the completion of the Merger in the expected timeframe, or may prevent the Merger from being completed altogether.

Risks Related to Our Business and Our Industry

We have a limited operating history with our current business model, which makes it difficult to evaluate our current business and future prospects and increases the risk of your investment.

We were founded in 2007, launched our first commercial product in 2008, launched our New Relic platform in 2019, and introduced our updated ~~pricing~~consumption-based ~~strategy~~model in ~~2020~~fiscal year 2021. This limited operating history with our current business model limits our ability to forecast our future operating results and subjects us to a number of uncertainties, including our ability to plan for and model future growth. Our historical revenue growth, data ingest growth, and other metrics should not be considered indicative of our future performance. We have encountered and will encounter risks and uncertainties frequently experienced by growing companies in rapidly changing industries, such as determining appropriate investments of our limited resources, market adoption of our existing and future products and platform capabilities, competition from other companies, acquiring and retaining customers, transition of customers onto our new buying programs, hiring, integrating, training and retaining skilled personnel, developing new products and platform capabilities, determining prices and pricing structures for our products and platform capabilities, unforeseen expenses, and challenges in forecasting accuracy. If our assumptions regarding these risks and uncertainties, which we use to plan our business, are incorrect or change, or if we do not address these risks successfully, our operating and financial results and our business could suffer.

We have limited experience with respect to determining the optimal prices and pricing structures for our products and have employed evolving pricing models, which subject us to challenges that could make it difficult for us to derive value from our customers and may adversely affect our operating results.

We have evolved our pricing models over time and we expect that they will continue to evolve. For example, in fiscal 2021, we updated our pricing strategy to calculate customer spend based upon their consumption. Customers may be charged upon their usage in arrears, which we refer to as “Pay as You Go,” or they may commit to a minimum spend over their contracted period in exchange for a discount on their usage pricing. Consumption under this model is measured by number of users and data ingested into our system, thereby collapsing what had previously been a number of different products priced in individualized ways into a simplified strategy that is intended to drive consumption across our platform.

We have seen that the ~~pricing~~ transition to our consumption-based model has negatively impacted our revenue and deferred revenue for certain customers at the time of their renewal. For example, some customers have decided to take advantage of our consumption-based ~~pricing~~ model and choose smaller upfront commitments in favor of spending on actual consumption in excess of committed amounts. Whether our consumption ~~pricing~~ model will prove successful is subject to numerous uncertainties, including but not limited to: customer demand, renewal and expansion rates, our ability to further develop and scale infrastructure, the ability of our sales force to successfully execute new sales strategies, tax and accounting implications, pricing, our costs, and the product offerings and pricing models and strategies of our competitors. In addition, the metrics we use to gauge the status and success of our consumption pricing model may continue to evolve as significant trends emerge.

43We have seen indications of acceptance of our consumption-based model from our customers and the market in general; however, if our pricing model fails to gain continued or broader customer and market acceptance, our business and results of operations could be harmed. In addition, our evolving pricing models may allow competitors with different pricing models to attract customers unfamiliar or uncomfortable with our pricing models, which would cause us to lose business or modify our pricing models, both of which could adversely affect our revenues and operating margins.

~~limited~~We expect that we will continue to: ~~customer~~evolve ~~demand~~our pricing model, ~~renewal~~including ~~and~~as ~~expansion~~a ~~rates~~result of global economic conditions, reductions in our ~~ability~~customers’ tospending ~~further~~levels ~~develop~~generally, ~~and~~the ~~scale~~introduction ~~infrastructure~~of new products and services, the ~~ability~~evolution of ~~our~~existing ~~sales~~products ~~force~~and toservices, ~~successfully~~or ~~execute~~changes ~~new~~in ~~sales~~how ~~strategies,~~computing ~~tax~~infrastructure is broadly consumed. We have introduced and ~~accounting~~expect ~~implications,~~to continue to introduce variations to our pricing, models and other pricing programs that provide broader usage and cost predictability for our ~~costs~~customers. InAlthough ~~addition~~we may believe that these pricing changes will drive net new customers, ~~the~~increase ~~metrics~~customer weadoption, ~~use~~and support our transition to ~~gauge~~a ~~the~~consumption-based ~~status~~model, it is possible that they will not and ~~success~~may ofpotentially cause confusion with our ~~consumption~~customers, ~~pricing~~which ~~model~~could negatively impact our business, revenue, and other financial results. If we have difficulty determining the appropriate price structure for our products, we may ~~continue~~be required from time to ~~evolve~~time asto ~~significant~~further ~~trends~~revise ~~emerge~~our pricing structure, increase billing frequency, or reduce our prices, which could adversely affect our business.

We have seen indications of acceptance of our pricing model from our customers and the market in general, however, if our pricing model fails to gain continued or broader customer and market acceptance, our business and results of operations could be harmed. In addition, our evolving pricing models may allow competitors with different pricing models to attract customers unfamiliar or uncomfortable with our pricing models, which would cause us to lose business or modify our pricing models, both of which could adversely affect our revenues and operating margins.

We expect that we will continue to evolve our pricing model, including as a result of global economic conditions; reductions in our customers’ spending levels generally; the introduction of new products and services; the evolution of existing products and services; or changes in how computing infrastructure is broadly consumed. We have introduced and expect to continue to introduce variations to our pricing models and other pricing programs that provide broader usage and cost predictability for our customers. Although we may believe that these pricing changes will drive net new customers, increase customer adoption, and support our transition to a consumption-based model, it is possible that they will not and may potentially cause confusion with our customers, which could negatively impact our business, revenue, and other financial results. If we have difficulty determining the appropriate price structure for our products, we may be required from time to time to further revise our pricing structure, increase billing frequency, or reduce our prices, which could adversely affect our business.

We have a history of losses and our revenue growth rate could decline over time. As our costs increase, we may not be able to generate sufficient revenue to achieve and sustain profitability.*

We have incurred net losses in each fiscal period since our inception, including net loss attributable to New Relic of $~~123~~37.04 million and $~~194~~50.92 million in the ~~nine~~three months ended ~~December~~June 3130, ~~2022~~2023 and ~~2021~~2022, respectively. At ~~December~~June 3130, ~~2022~~2023, we had an accumulated deficit of $~~906~~1,001.30 million. We expect to continue to expend substantial financial and other resources on, among other things:

•investments in our research and development team, and the development of new platform offerings, capabilities, features, and functionality;

•expansion of our operations and infrastructure, both domestically and internationally;

•hiring of additional employees; and

•general administration, including legal, accounting, and other expenses related to our growing operations and infrastructure.

In addition, we are currently migrating our entire platform over time from third-party data center hosting facilities to public cloud hosting providers, and our costs and gross margins are significantly influenced by the prices we are able to negotiate with them, which in certain cases are also our competitors. These investments may not result in increased revenue or growth of our business. Our revenue growth rate experienced decline in previous periods and it could decline again over time. Accordingly, we may not be able to generate sufficient revenue to offset our expected cost increases and to achieve and sustain profitability. If we fail to achieve and sustain profitability, our operating results and business would be harmed.

Weakened global economic conditions, including market volatility, any downturn or recession, rising inflation and interest rates, and the economic and other impacts of geopolitical conflicts, may harm our industry, business, and results of operations.

Our overall performance depends in part on worldwide economic conditions. Global financial developments and downturns, even those seemingly unrelated to us or the information technology industry, may harm us. The United States and other key international economies are being impacted by supply chain disruption, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies, actual or perceived instability in the banking system, including due to recent bank failures, inflation, rising interest rates, labor shortages and overall uncertainty with respect to the economy. Businesses may look, and in many cases are looking, to rationalize their spending in response to such factors, which could impact our sales and renewal rates and negatively impact our business. Further, global events, such as Russia’s invasion of Ukraine, may lead to or continue to result in disruption, instability, deterioration and volatility in global markets and industries that could negatively impact our business, financial condition and results of operations.

Furthermore, the revenue growth and potential profitability of our business depends on demand for software applications and products generally, and ~~application~~APM ~~performance monitoring~~ and our other offerings specifically. In addition, our revenue is dependent on the number of users of our products and the degree of adoption of such users with respect to our products and platform capabilities. Historically, during economic downturns there have been reductions in spending on information technology systems as well as pressure for extended billing terms and other financial concessions, which would limit our ability to grow our business and negatively affect our operating results. These conditions affect the rate of information technology spending and could adversely affect our customers’ ability or willingness to purchase our products, delay prospective customers’ purchasing decisions, reduce the value or duration of their commitments or amount of their spend, or affect renewal rates, all of which could harm our operating results.

44We are exposed to foreign currency exchange rate fluctuations, which may harm our business and results of operations.

~~our~~While ~~revenue~~we ishave ~~dependent~~historically ontransacted ~~the~~in ~~number~~U.S. ofdollars ~~users~~with substantially all of our ~~products~~customers and ~~the~~vendors, ~~degree~~we ofhave ~~adoption~~transacted ofin ~~such~~foreign ~~users~~currencies ~~with~~and ~~respect~~will continue to ~~our~~transact ~~products~~in ~~and~~foreign ~~platform~~currencies ~~capabilities~~in the future. ~~Historically~~In addition, ~~during~~our ~~economic~~international ~~downturns~~subsidiaries ~~there~~may ~~have~~maintain ~~been~~net ~~reductions~~assets inthat ~~spending~~are ondenominated ~~information~~in ~~technology~~currencies ~~systems~~other asthan ~~well~~the asfunctional ~~pressure~~operating ~~for~~currencies ~~extended~~of ~~billing~~these ~~terms~~entities. ~~and~~Accordingly, ~~other~~changes ~~financial~~in ~~concessions,~~the ~~which~~value ~~would~~of ~~limit~~foreign ~~our~~currencies ~~ability~~relative to ~~grow~~the ~~our~~U.S. ~~business~~dollar ~~and~~can ~~negatively~~ affect our revenue and operating results as we convert these to U.S. ~~These~~dollars. Volatile market conditions ~~affect~~arising from the ~~rate~~macro ofenvironment ~~information~~have ~~technology~~and ~~spending~~may in the future result in significant changes in exchange rates, and ~~could~~with ~~adversely~~the ~~affect~~recent ~~our~~volatility ~~customers’~~of ~~ability~~multiple ormajor ~~willingness~~foreign tocurrencies ~~purchase~~against ~~our~~the ~~products~~U.S. dollar, ~~delay~~we ~~prospective~~have ~~customers’~~seen ~~purchasing~~more ~~decisions~~significant impact from exchange rates on our revenue growth and expenses in fiscal 2023 than in the previous fiscal year, ~~reduce~~and we expect the ~~value~~impact orto ~~duration~~be ofsignificant ~~their~~in ~~commitments~~fiscal or2024 ~~amount~~if ofwe ~~their~~continue ~~spend,~~to experience similar or ~~affect~~greater ~~renewal~~foreign ~~rates,~~currencies ~~all~~volatility against the U.S. dollar. As a result of ~~which~~such foreign currency exchange rate fluctuations, it could ~~harm~~be more difficult to detect underlying trends in our ~~operating~~business and results of operations.

We are exposed to foreign currency exchange rate fluctuations, which may harm our business and results of operations.*

While we have historically transacted in U.S. dollars with substantially all of our customers and vendors, we have transacted in foreign currencies and will continue to transact in foreign currencies in the future. In addition, our international subsidiaries may maintain net assets that are denominated in currencies other than the functional operating currencies of these entities. Accordingly, changes in the value of foreign currencies relative to the U.S. dollar can affect our revenue and operating results as we convert these to U.S. dollars. Volatile market conditions arising from the macro environment have and may in the future result in significant changes in exchange rates, and with the recent volatility of multiple major foreign currencies against the U.S. dollar, we are seeing more significant impact from exchange rates on our revenue growth and expenses in fiscal 2023 than in the previous fiscal year, and we expect the impact to be significant in the next quarter if we continue to experience similar or greater foreign currencies volatility against the U.S. dollar. As a result of such foreign currency exchange rate fluctuations, it could be more difficult to detect underlying trends in our business and results of operations.

In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our common stock could be adversely affected. We do not currently maintain a program to hedge transactional exposures in foreign currencies. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.

We have experienced significant growth in prior periods and our historical growth rates may not be indicative of our future growth. If we are not able to manage our growth and expansion, or if our business does not grow as we expect, our operating results may suffer.

We have experienced significant growth in our customer adoption and have expanded and ~~intend~~may to continue to significantly expand our operations, including our domestic and international employee headcount. This growth has placed, and will continue to place, significant demands on our management and our operational and financial infrastructure and we may not be able to sustain revenue growth consistent with prior periods, or at all.

To manage our growth effectively, we must continue to improve our operational, financial, and management systems and controls by, among other things:

•effectively attracting, training, integrating, and retaining a large number of new employees, particularly members of our research and development teams and employees and consultants in jurisdictions outside of the United States;

•further improving our key business systems, processes, and information technology infrastructure, including our cloud services, to support our business needs;

•enhancing our information, training, and communication systems to ensure that our employees are well-coordinated and can effectively communicate with each other and our customers; and

•improving our internal control over financial reporting and disclosure controls and procedures to ensure timely and accurate reporting of our operational and financial results.

If we fail to manage our expansion, implement and transition to our new systems, implement improvements, or maintain effective internal controls and procedures, our costs and expenses may increase more than we plan and we may lose the ability to increase our customer adoption, enhance our existing solutions, develop new solutions, satisfy our customers, respond to competitive pressures, or otherwise execute our business plan. If we are unable to manage our growth, our operating results likely will be harmed.

45Our business depends on our customers remaining on our platform and increasing their spend with us. Any decline in our customer expansions and renewals would harm our future operating results.

Our business depends on our customers remaining on our platform and increasing their spend with us. Any decline in our customer expansions and renewals would harm our future operating results.*

Our future success depends in part on our ability to retain and expand our platform usage with our current customers. If our customers do not remain on our platform or increase their spend with us, our revenue may decline, and our operating results may be harmed.

In addition, in order for us to maintain or improve our operating results, it is important that our customers renew their commitments or remain on our platform and increase their spend when the contract term expires. Many of our customers may start their accounts on a free tier and have no obligation to enter into a paid commitment or incur spend above the free tier. Our customers that enter into paid commitments have no obligation to renew after the expiration of the contractual term nor an obligation to remain on our platform and incur additional usage fees. Commitments are most often one year in length, and, our customers may renew for lower commitment amounts or instead use our Pay as You Go model, under which they are billed in arrears for their usage. To the extent we are not successful increasing customer budget available to spend on our products and services, whether through demonstrating our value or increasing their contractual commitment level in-line with their usage, there is no guarantee that our customers will grow their consumption with us. Also, in the past, some of our customers have elected not to renew their agreements with us, and we cannot accurately predict future net expansion rates. Moreover, certain legacy customers with annual subscriptions entered into prior to our consumption ~~pricing~~ model have the right to cancel their agreements prior to the termination of the subscription term. Additionally, some customers have decided to remain and may continue to remain within the limitations of our free-tier or lower-priced offerings.

Our customer expansions and renewals may decline or fluctuate as a result of a number of factors, including: customer usage, customer satisfaction with our products and platform capabilities and customer support, our prices, including as a result of changes to our pricing strategy, the prices of competing products, mergers and acquisitions affecting our customer base, consolidation of affiliates’ multiple accounts into a single account, the effects of uncertain global economic conditions, including as a result of the global COVID-19 pandemic and Russia’s invasion of Ukraine, or reductions in our customers’ spending levels generally.

If we are not able to develop enhancements to our products, increase adoption and usage of our products, and introduce new products and capabilities that achieve market acceptance, our business could be harmed.

Our ability to attract new customers and increase revenue from existing customers depends in large part on our ability to enhance and improve our existing products, increase adoption and usage of our products, and introduce new products and capabilities. The success of any enhancement or new products depends on several factors, including timely completion, competitive pricing, adequate quality testing, introduction, integration with existing technologies and our platform, and market acceptance. Any products that we develop may not be introduced in a timely or cost-effective manner, may contain errors or defects, or may not achieve the broad market acceptance necessary to generate sufficient revenue. If we are unable to successfully enhance our existing products to meet customer requirements, increase adoption and usage of our products, or develop new products, our business and operating results will be harmed.

If customers do not expand their use of our products beyond the current predominant use cases, our ability to grow our business and operating results may be adversely affected.

Most of our customers currently use our products to support application performance management functions, and the majority of our revenue to date has been from our application performance management products. Our ability to grow our business depends in part on our ability to persuade current and future customers to expand their use of our software to additional use cases across our entire platform. If we fail to achieve market acceptance of our software, or if a competitor establishes a more widely adopted solution, our ability to grow our business and financial results will be adversely affected. In addition, as the amount of data stored for a given customer grows, that customer may have to limit or decrease usage in order to stay within budgeted amounts or lower their cost. If their fees grow significantly, customers may react adversely to this pricing model, particularly if they perceive that the value of our software has become eclipsed by such fees or otherwise.

Failure to effectively align our marketing and sales capabilities with our consumption pricing structure and increase sales efficiency could harm our ability to increase our customer adoption and achieve broader market acceptance of our products.

Our ability to increase our customer adoption and achieve broader market acceptance of our products will depend to a significant extent on our ability to align our marketing and sales capabilities with our consumption pricing structure and increase sales efficiency.

The effectiveness of our marketing programs has varied over time and may vary in the future due to competition, and we are continuously making adjustments to increase our emphasis on overall product experience and reorient our sales organization around customer success. All of these efforts have required and will continue to require us to invest significant resources. If we are unable to hire, develop, and retain talented sales personnel, if our sales personnel are unable to achieve desired productivity levels in a reasonable period of time or unable to successfully execute sales strategies in connection with our pricing model changes, or if our sales and marketing programs are not effective, our ability to increase our customer adoption and achieve broader market acceptance of our products could be harmed.

46In particular, we may in the future need to further adjust our go-to-market cost structure and target metrics, particularly as they relate to how we structure, effect, and compensate our sales teams to become more efficient and effective at selling under the consumption-based model. Any adjustments in compensation structure could negatively affect the productivity of our sales teams, and there is no assurance that we will be able to successfully implement the adjustments in a timely or cost-effective manner, or that we will be able to realize all or any of the expected benefits from such adjustments.

organization around customer success. All of these efforts have required and will continue to require us to invest significant resources. If we are unable to hire, develop, and retain talented sales personnel, if our sales personnel are unable to achieve desired productivity levels in a reasonable period of time or unable to successfully execute sales strategies in connection with our pricing model changes, or if our sales and marketing programs are not effective, our ability to increase our customer adoption and achieve broader market acceptance of our products could be harmed.

In particular, we may in the future need to further adjust our go-to-market cost structure and target metrics, particularly as they relate to how we structure, effect, and compensate our sales teams to become more efficient and effective at selling under the consumption-based business model. Any adjustments in compensation structure could negatively affect the productivity of our sales teams, and there is no assurance that we will be able to successfully implement the adjustments in a timely or cost-effective manner, or that we will be able to realize all or any of the expected benefits from such adjustments.

If we are unable to develop and grow a broad base of high-spend customers, many of which we expect to be large enterprise customers, while mitigating the risks associated with serving such customers, our business, financial position, and results of operations may suffer.

Our growth strategy is dependent, in large part, upon developing and growing a broad base of high-spend customers, many of which we expect to be large enterprise customers. Sales to large customers involve risks that may not be present or that are present to a lesser extent with sales to smaller entities, such as longer sales cycles, more complex customer requirements, substantial upfront sales costs, and less predictability in completing some of our sales. For example, enterprise customers may require considerable time to evaluate and test our applications and those of our competitors prior to making a purchase decision and placing an order. A number of factors influence the length and variability of our sales cycle, including the need to educate potential customers about the uses and benefits of our applications, the discretionary nature of purchasing and budget cycles, and the competitive nature of evaluation and purchasing approval processes. As a result, the length of our sales cycle, from identification of the opportunity to deal closure, may vary significantly from customer to customer, with sales to large enterprises typically taking longer to complete. Moreover, large enterprise customers often begin to deploy our products on a limited basis, but nevertheless demand extensive configuration, integration services, and pricing negotiations, which increase our upfront investment in the sales effort with no guarantee that these customers will deploy our products widely enough across their organization to justify our substantial upfront investment.

In addition, our ability to improve our sales of products to large enterprises is dependent on us continuing to attract and retain sales personnel with experience in selling to large organizations. Also, because security breaches with respect to larger, high-profile enterprises are likely to be heavily publicized, there is increased reputational risk associated with serving such customers. If we are unable to continue to increase sales of our products to large enterprise customers while mitigating the risks associated with serving such customers, our business, financial position, and results of operations may suffer.

Our quarterly results may fluctuate and our recent operating results may not be a good indication of our future performance. If we fail to meet the expectations of analysts or investors, our stock price and the value of your investment could decline substantially.

Our quarterly financial results may fluctuate widely as a result of the risks and uncertainties described in this report, many of which are outside of our control. In addition, our pricing model may give rise to a number of risks reflected in risk factors titled “We have limited experience with respect to determining the optimal prices and pricing structures for our products and have employed evolving pricing models, which subject us to challenges that could make it difficult for us to derive value from our customers and may adversely affect our operating results” and “If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.” If our financial results fall below the expectations of investors or any securities analysts who follow our stock, the price of our common stock could decline substantially.

We believe that quarter-to-quarter comparisons of our revenue, operating results, and cash flows may not be meaningful and should not be relied upon as an indication of future performance. If our revenue or operating results fall below the expectations of investors or securities analysts in a particular quarter, or below any guidance we may provide, the price of our common stock could decline.

~~Because~~If ~~users~~our ~~are~~information ~~able~~technology tosystems ~~configure~~or ~~our~~data, ~~platform~~or tothose ~~collect~~of ~~and~~third ~~store~~parties ~~confidential~~upon which we rely, ~~personal~~are or ~~proprietary~~were ~~information~~compromised, ~~security~~we ~~concerns~~ could ~~result~~experience inadverse ~~additional~~consequences ~~cost~~resulting ~~and~~from ~~liability~~such compromise, including but not limited to usregulatory investigations or ~~inhibit~~actions, ~~sales~~litigation, fines and penalties, disruptions of our ~~products~~business operations, reputational harm, loss of revenue or profits, loss of customers or sales, and other adverse consequences.*

~~Our~~In ~~operations~~the ~~and~~ordinary ~~those~~course of ~~service~~our ~~providers~~business, we and the third parties upon which we rely, ~~involve~~process, ~~protection~~collect, ofreceive, ~~our~~store, ~~intellectual~~process, ~~property~~generate, ~~along~~use, ~~with~~transfer, ~~the~~disclose, ~~storage~~make ~~and~~accessible, ~~transmission~~protect, ~~and~~secure, ~~processing~~dispose of, ~~our~~transmit, ~~customers’~~and share proprietary, ~~data~~confidential, ~~which~~and ~~customers~~sensitive ~~might~~data, ~~choose~~including topersonal ~~have~~data, ~~include~~intellectual ~~some~~property, ~~personally identifiable information. While we have developed systems~~ and ~~processes~~trade ~~to protect the integrity,~~ secrets.

47Cyber-attacks, malicious internet-based activity, online and offline fraud, and other similar activities threaten the confidentiality, integrity, and availability of proprietary, confidential, and sensitive data and information technology systems, and those of the third parties upon which we rely. Such threats are prevalent and continue to rise, are increasingly difficult to detect, and come from a variety of sources, including traditional computer “hackers,” threat actors, “hacktivists,” organized criminal threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors. Some actors now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. During times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of these attacks, including cyber-attacks that could materially disrupt our systems and operations, supply chain, and ability to produce, sell and distribute our goods and services.

~~confidentiality~~We and ~~security~~the ofthird ~~our~~parties ~~customers’~~upon ~~data,~~which ~~our~~we ~~security~~rely ~~measures~~are orsubject ~~those~~to a variety of ~~our~~evolving ~~third~~threats, including but not limited to social-~~party~~engineering ~~service~~attacks ~~providers~~(including ~~could~~through ~~fail~~phishing attacks), malicious code (such as viruses and worms), malware (including as a result inof ~~unauthorized~~advanced ~~access~~persistent tothreat intrusions), denial-of-service attacks (such as credential stuffing), credential harvesting, personnel misconduct or ~~disclosure~~error, ~~modification~~ransomware attacks, ~~misuse~~supply-chain attacks, ~~loss~~software bugs, server malfunctions, software or ~~destruction~~hardware offailures, ~~such~~loss of data ~~and~~or ~~there~~other ~~can~~information betechnology noassets, ~~assurance~~adware, ~~that~~telecommunications ~~these~~failures, ~~measures~~earthquakes, ~~will~~fires, befloods, ~~effective~~and other similar threats.

~~Further~~In particular, wesevere ~~may~~ransomware ~~experience~~attacks ~~delays~~are inbecoming ~~developing~~increasingly prevalent and ~~deploying~~can ~~remedial~~lead ~~measures designed~~ to ~~address~~significant ~~any~~interruptions ~~identified~~in ~~vulnerabilities.~~our ~~Any security breaches~~operations, ~~computer~~loss ~~malware (including as a result~~ of ~~advance~~data ~~threat intrusions), malicious code (such as viruses~~ and ~~worms)~~income, ~~software~~reputational ~~bugs~~harm, ~~ransomware,~~and ~~supply-chain~~diversions ~~attacks,~~of ~~server~~funds. ~~malfunctions,~~Extortion ~~software~~payments ormay ~~hardware~~alleviate ~~failures,~~the ~~computer~~negative ~~hacking,~~impact ~~cyber-attacks, ransomware, phishing attacks and other social engineering schemes, denial or degradation~~ of ~~service~~a ~~attacks,~~ransomware ~~credential harvesting~~attack, ~~internal~~but ~~and~~we ~~external~~may ~~personnel~~be ~~misconduct~~unwilling or ~~error,~~unable ~~unauthorized~~to ~~access~~make orsuch ~~use,~~payments. ~~device~~Remote ~~theft,~~work ~~loss~~has ofbecome ~~data~~more orcommon ~~information technology assets,~~ and ~~other~~has ~~types~~increased ofrisks ~~security~~to ~~incidents experienced by us or~~ our ~~third-party~~information ~~service~~technology ~~providers,~~systems ~~could~~and ~~expose us to a risk of loss of confidential~~data, ~~personal~~as ormore ~~proprietary information, loss~~ of ~~business,~~our ~~severe~~employees ~~reputational~~utilize ~~damage~~network ~~adversely affecting customer or investor confidence~~connections, ~~regulatory~~computers ~~investigations~~ and ~~orders,~~devices ~~litigation,~~outside ~~demands,~~our ~~indemnity~~premises ~~obligations, damages for contract breach, penalties for violation of applicable laws~~ or ~~regulations~~network, ~~and~~including ~~significant~~working ~~costs~~at ~~for investigation~~home, ~~remediation~~while ~~and incentives offered to customers or other business partners~~ in antransit ~~effort to maintain business relationships after a breach~~ and ~~other~~in ~~liabilities~~public locations.

~~Cyber~~We rely on third-~~attacks,~~party ~~intrusions~~service providers and ~~other~~technologies ~~malicious~~to ~~internet-based~~operate ~~activity~~critical ~~including~~business bysystems ~~threat~~to ~~actors~~process proprietary, ~~internal~~confidential, and ~~external~~sensitive ~~personnel~~information ~~(such~~in asa ~~through~~variety ~~theft~~of orcontexts, ~~misuse)~~including, ~~computer~~without ~~hackers~~limitation, ~~nation~~cloud-~~state-supported~~based ~~actors~~infrastructure, ~~foreign~~data ~~governments~~center facilities, encryption and ~~cyber~~authentication ~~terrorists~~technology, ~~continue~~employee toemail, ~~increase~~content ~~generally~~delivery asto ~~the number~~customers, ~~intensity~~ and ~~sophistication~~other offunctions. ~~attempted~~Our ~~attacks~~ability ~~and~~to ~~intrusions~~monitor ~~from~~these ~~around~~third ~~the~~parties’ ~~world~~information ~~have~~security ~~increased.~~practices ~~Such~~is ~~actors~~limited, ~~now engage~~ and ~~are~~these ~~expected~~third toparties ~~continue~~may tonot ~~engage~~have inadequate ~~cyber-attacks~~information ~~for~~security ~~geopolitical~~measures ~~reasons and~~ in ~~conjunction~~place. ~~with~~If ~~military~~our ~~conflicts~~third-party ~~and~~service ~~defense~~providers ~~activities.~~experience ~~During~~a ~~times~~security ofincident ~~war~~or ~~and~~ other ~~major conflicts~~interruption, we ~~and~~could ~~the~~experience ~~third~~adverse ~~parties~~consequences. ~~upon~~While ~~which~~ we ~~rely~~ may be ~~vulnerable~~entitled to adamages ~~heightened~~if ~~risk~~our ~~of these attacks, including cyber~~third-~~attacks~~party ~~that~~service ~~could~~providers ~~materially~~fail ~~disrupt~~to ~~our~~satisfy ~~systems~~their ~~and~~privacy ~~operations,~~or ~~supply~~security-related ~~chain,~~obligations ~~and ability~~ to ~~produce~~us, ~~sell~~any ~~and~~award ~~distribute~~may ~~our~~be ~~goods~~insufficient ~~and services. Ransomware attacks are becoming increasingly prevalent and severe and can lead~~ to ~~significant~~cover ~~interruptions in~~ our ~~operations~~damages, ~~loss~~or ~~of data and income, reputational harm, and diversions of funds. Extortion payments may alleviate the negative impact of a ransomware attack, but~~ we may be ~~unwilling or~~ unable to ~~make~~recover such ~~payments~~award. ~~Supply~~In addition, supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third parties and infrastructure in our supply chain or our third-party partners’ supply chains have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our information technology systems or the information technology systems of our third-party partners with whom we work. Future or past business transactions (such as acquisitions or integrations) could expose us to additional cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies.

The costs to us to investigate and mitigate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and while we have implemented security measures to protect our data security and information technology systems, our efforts to address these problems may not be successful, and these problems could result in unexpected interruptions, delays, cessation of service, negative publicity and other harm to our business and our competitive position. Certain data privacy and security obligations may require us to implement and maintain specific, industry-standard, or reasonable security measures to protect our information technology systems and information. If our products or security measures are perceived as weak or actually compromised as a result of third-party action, employee or customer error, malfeasance, stolen or fraudulently obtained log-in credentials, or otherwise, our customers may curtail or stop using our products, our reputation could be damaged, our business may be harmed, and we could incur significant liability. We may be unable to anticipate or prevent techniques used to obtain unauthorized access or to sabotage systems because they change frequently and generally are not detected until after an incident has occurred. As we increase our customer adoption and our brand becomes more widely known and recognized, we may become more of a target for third parties seeking to compromise our security systems or gain unauthorized access to our customers’ data. Additionally, with so many of our employees now working remotely due to the COVID-19 pandemic, we may face an increased risk of attempted security breaches and incidents. Moreover, if a high-profile security breach occurs with respect to another cloud platform provider, our customers and potential customers may lose trust in the security of cloud platforms generally, which could adversely impact our ability to retain existing customers or attract new ones. Additionally, future acquisitions could also expose us to additional cybersecurity risks and vulnerabilities from any newly acquired information technology infrastructure.42

~~Applicable~~cannot ~~data~~guarantee ~~privacy~~that third parties and ~~security~~infrastructure ~~obligations~~in ~~may~~our ~~require~~supply uschain toor ~~notify~~our ~~relevant~~third-party ~~stakeholders~~partners’ ofsupply ~~security~~chains ~~incidents.~~have ~~Such~~not ~~disclosures~~been ~~are~~compromised ~~costly,~~or ~~and~~that ~~the~~they ~~disclosure~~do not contain exploitable defects or ~~the~~bugs ~~failure~~that tocould ~~comply~~result ~~with~~in ~~such~~a ~~requirements~~breach ~~could~~of ~~lead~~or disruption to ~~adverse~~our ~~consequences.~~information Iftechnology wesystems (or athe ~~third~~information technology systems of our third-party ~~upon~~partners with whom we ~~rely)~~work. ~~experience~~Future aor ~~security~~past ~~incident~~business transactions (such as acquisitions or ~~are~~integrations) ~~perceived~~could expose us to ~~have~~additional ~~experienced~~cybersecurity arisks ~~security~~and ~~incident~~vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and technologies. Furthermore, we may ~~experience~~discover ~~adverse~~security ~~consequences~~issues that were not found during due diligence of such acquired or integrated entities, and it may be difficult to integrate companies into our information technology environment and security program.

IfAny weof ~~are~~the ~~not~~previously ~~able~~identified toor ~~detect~~similar ~~and~~threats ~~indicate~~could ~~activity~~cause ona ~~our~~security ~~platform~~incident ~~that~~or ~~might~~other beinterruption ~~nefarious~~that could result in ~~nature~~unauthorized, unlawful, or ~~design~~accidental ~~processes~~acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or ~~systems~~access to ~~reduce~~our ~~the~~proprietary, ~~impact~~confidential, ofand ~~similar~~sensitive ~~activity~~data ator aour ~~third-party~~information ~~service~~technology ~~provider~~systems, ~~our~~or ~~customers~~those ~~could~~of ~~suffer~~the ~~harm~~third parties upon whom we rely. InA ~~such~~security incident or other interruption could disrupt our ability (and that of third parties upon whom we rely) to provide our platform, products, and services.

48We may expend significant resources or modify our business activities to try to protect against security incidents. Certain data privacy and security obligations may require us to implement and maintain specific, industry-standard, or reasonable security measures to protect our information technology systems and proprietary, confidential, and sensitive data . While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures will be effective. We take steps to detect and remediate vulnerabilities, but we may not be able to detect and remediate all vulnerabilities because the threats and techniques used to exploit the vulnerability change frequently and are often sophisticated in nature. Therefore, such vulnerabilities could be exploited but may not be detected until after a security incident has occurred. These vulnerabilities pose material risks to our business. Further, we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities. As we increase our customer adoption and our brand becomes more widely known and recognized, we may become more of a target for third parties seeking to compromise our security systems or gain unauthorized access to our customers’ data. Additionally, with our transition to the flex-first model, we may face an increased risk of attempted security breaches and incidents. Moreover, if a high-profile security breach occurs with respect to another cloud platform provider, our customers and potential customers may lose trust in the security of cloud platforms generally, which could adversely impact our ability to retain existing customers or attract new ones.

~~cases,~~Applicable wedata ~~could~~privacy ~~face~~and ~~exposure~~security obligations may require us to ~~legal~~notify ~~claims~~relevant stakeholders of security incidents. Such disclosures are costly, ~~particularly~~and ifthe disclosure or the ~~customer~~failure ~~suffered~~to ~~actual~~comply ~~harm.~~with Wesuch ~~cannot~~requirements ~~assure~~could ~~you~~lead ~~that~~to ~~any~~adverse ~~limitations~~consequences. ofIf ~~liability~~we ~~provisions~~(or ina ~~our~~third ~~contracts~~party ~~for~~upon whom we rely) experience a security ~~lapse~~incident or ~~breach~~are ~~would~~perceived beto ~~enforceable~~have orexperienced ~~adequate~~a orsecurity ~~would~~incident, ~~otherwise~~we ~~protect~~may usexperience ~~from~~adverse ~~any~~consequences. ~~liabilities~~If we (or ~~damages~~a ~~with~~third ~~respect~~party upon whom we rely) experience a security incident or are perceived to ~~any~~have ~~particular~~experienced ~~claim.~~a Wesecurity ~~also~~incident, ~~cannot~~we bemay ~~sure~~experience ~~that~~adverse ~~our~~consequences, ~~existing~~such ~~insurance~~as ~~coverage~~government ~~will~~enforcement ~~continue~~actions to(for beexample, ~~available~~investigations, onfines, ~~acceptable~~penalties, ~~terms~~audits, and inspections), additional reporting requirements and/or ~~will~~oversight, berestrictions ~~available~~on inprocessing ~~sufficient~~sensitive ~~amounts~~information to(including ~~cover~~personal ~~one~~data), orlitigation ~~more~~(including ~~large~~class claims), ~~related~~indemnification toobligations, anegative ~~security~~publicity, ~~breach~~reputational harm, ormonetary ~~that~~fund ~~the~~diversions, ~~insurer~~interruptions ~~will~~in ~~not~~our ~~deny~~operations ~~coverage~~(including asavailability toof ~~any~~data), ~~future~~financial ~~claim~~loss, and other similar harms. ~~The~~Security ~~successful~~incidents ~~assertion~~and ofattendant ~~one~~consequences ormay ~~more~~cause ~~large~~customers ~~claims~~to ~~against~~stop ususing ~~that~~our ~~exceed~~platform, ~~available~~deter ~~insurance~~new ~~coverage~~customers from using our platform, orand ~~the~~negatively ~~occurrence~~impact ofour ~~changes~~ability into grow and operate our ~~insurance~~business. ~~policies,~~If ~~including~~we ~~premium~~are ~~increases~~not able to detect and indicate activity on our platform that might be nefarious in nature or design processes or systems to reduce the ~~imposition~~impact of ~~large~~similar ~~deductible~~activity orat coa third-~~insurance~~party ~~requirements~~service provider, our customers could ~~have~~suffer aharm. ~~material~~In ~~adverse~~such ~~effect~~cases, onwe ~~our~~could ~~business,~~face ~~including~~exposure ~~our~~to ~~expansion~~legal ~~rates~~claims, ~~financial~~particularly ~~condition,~~if ~~operating~~the ~~results,~~customer ~~and~~suffered ~~reputation~~actual harm.

Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations. We also cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims related to a security incident, or that the insurer will not deny coverage as to any future claim. The ~~ongoing~~successful ~~global~~assertion ~~coronavirus~~of ~~(“COVID~~one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-~~19”)~~insurance ~~pandemic~~requirements, could ~~harm~~have a material adverse effect on our business, ~~and~~including our expansion rates, financial condition, operating results, ofand ~~operations~~reputation.

~~The~~In ~~continuing~~addition ~~effects~~to ofexperiencing ~~the~~a ~~COVID-19~~security ~~pandemic~~incident, ~~are~~third ~~highly~~parties ~~unpredictable~~may ~~and~~gather, ~~could be significant~~collect, ~~and~~or ~~the~~infer ~~duration~~sensitive ~~and~~information ~~extent~~about tous ~~which~~from ~~they~~public ~~will~~sources, ~~impact~~data ~~our future results of operations and overall financial performance remains uncertain. While the rollout of COVID-19 vaccines is ongoing~~brokers, ~~the~~or ~~timing~~other ~~and~~means ~~speed~~that ofreveals ~~vaccination~~competitively ~~rollouts~~sensitive ~~and~~details ~~acceptance~~about ~~and~~our ~~the~~organization ~~lifting of occupancy limits~~ and ~~movement~~could ~~restrictions~~be ~~varies~~used ~~from location~~ to ~~location~~undermine isour ~~evolving,~~competitive ~~and~~advantage toor ~~varying~~market ~~degrees remains unknown~~position.

In light of the ongoing uncertainty relating to the COVID-19 pandemic, we have taken precautionary measures intended to minimize the risk of the virus to our employees, our customers, and the communities in which we operate, which could negatively impact our business. Although we have reopened all our offices and held in-person meetings and events in compliance with applicable government orders and guidelines, the majority of our employees continue to work remotely and in-person meetings remain limited. While the travel bans and other restrictions that were implemented by federal, state, or local authorities at the beginning of the pandemic have been lifted or relaxed generally, some of these restrictions have been re-imposed in some areas at different times due to the proliferation of new variants, among other developments, and new restrictions may be implemented. While we have a distributed workforce and our employees are accustomed to working remotely, our workforce is not normally fully remote and our employees travel frequently to establish and maintain relationships with one another and with our customers, partners, and investors. In addition, our management team has, and will likely continue, to spend significant time, attention and resources monitoring the COVID-19 pandemic and seeking to minimize the risk of the virus and manage its effects on our business and workforce. Furthermore, with most of our employees continuing to work remotely, we are at increased risk of cyber security-related breaches. We continue to take steps to monitor and enhance the security of our systems, IT infrastructure, networks, and data; however, the unprecedented scale of remote work may require additional personnel and resources, which nevertheless cannot be guaranteed to fully safeguard all systems, IT infrastructure networks, and data upon which we rely. The COVID-19 pandemic may also have long-term effects on the nature of the office environment and remote working, which has and may continue to bring changes to our real estate lease assets.43

The ~~extent~~reliability ofand ~~the~~continuous ~~impact~~availability of ~~the~~our ~~COVID-19~~platform ~~pandemic~~is oncritical to our ~~operational~~success. ~~and~~However, ~~financial~~software ~~performance~~such ~~will~~as ~~depend~~ours oncan ~~certain~~contain ~~developments~~errors, ~~including~~defects, ~~the~~security ~~duration~~vulnerabilities ofor ~~the~~software ~~pandemic~~bugs ~~and~~that ~~the~~are ~~successful~~difficult ~~rollout~~to ofdetect ~~vaccines~~ and ~~the~~correct, ~~efficacy~~particularly ~~and~~when ~~durability of~~ such ~~vaccines,~~vulnerabilities ~~especially~~are infirst ~~light~~introduced ofor ~~the~~when ~~emergence of~~ new ~~variant~~versions ~~strains;~~or ~~impact~~enhancements onof our ~~customers~~platform, service, and ~~our~~products ~~sales~~are ~~cycles;~~released. ~~impact on our customer~~Additionally, ~~employee,~~even ~~and~~if ~~industry~~we ~~events;~~are ~~impact~~able onto ~~our~~develop ~~employee~~a ~~recruitment~~patch ~~and~~or ~~attrition;~~other ~~and~~fix ~~effect~~to onaddress ~~our~~such ~~vendors~~vulnerabilities, ~~all~~such offix ~~which~~may ~~are uncertain and cannot~~ be ~~predicted~~difficult atto ~~this~~push ~~time.~~out ~~In addition, COVID-19 may continue~~ to ~~disrupt the operations of~~ our customers ~~and~~or ~~partners~~otherwise ~~for~~be andelayed. ~~indefinite period of time~~Additionally, ~~including~~our asbusiness adepends ~~result~~upon ofthe ~~travel~~appropriate ~~restrictions~~ and~~/or~~ ~~business~~successful ~~shutdowns,~~implementation ~~all~~ of ~~which~~our ~~could~~platform ~~negatively~~by ~~impact~~ our ~~business and results of operations, including cash flows~~customers. ~~Our~~If ~~revenue~~our ~~and~~customers ~~deferred~~fail ~~revenue~~to ~~have~~use ~~been~~our ~~negatively~~platform ~~impacted,~~according into ~~part,~~our ~~by the slowdown in activity associated with the COVID-19 pandemic~~specifications, ~~but~~our atcustomers ~~this~~may ~~point,~~suffer ~~the~~a ~~extent~~security ofincident ~~the~~on ~~impact~~their toown ~~our~~systems ~~financial~~or ~~condition~~other oradverse ~~results~~consequences. ofEven ~~operations,~~if ~~including~~such ~~cash~~an ~~flows,~~incident is ~~uncertain,~~unrelated ~~particularly as the COVID-19 pandemic continues~~ to ~~persist for an extended period of time. Meanwhile,~~ our ~~shift~~security ~~to consumption-based pricing contracts~~practices, ~~where~~it ~~the~~could ~~revenue~~result wein ~~receive~~our isincurring ~~tied~~significant toeconomic ~~our~~and ~~customers’~~operational ~~actual~~costs ~~usage~~in ofinvestigating, ~~our products~~remediating, ~~may~~and ~~further~~implementing ~~exacerbate~~additional ~~the~~measures ~~uncertainty with respect~~ to ~~the~~further ~~revenue~~protect ~~we receive from~~ our customers. Tofrom ~~the~~their ~~extent~~own ~~the~~vulnerabilities ~~COVID-19 pandemic adversely affects our business~~ and ~~financial~~could ~~results,~~result ~~it may also have the effect of heightening many of the other risks described~~ in ~~this~~reputational ~~‘‘Risk Factors’’ section~~harm.

If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, and changing customer needs, requirements, or preferences, our products may become less competitive.

The software industry is subject to rapid technological change, evolving industry standards and practices, and changing customer needs, requirements, and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes on a timely basis. If we are unable to develop and sell new products that satisfy our customers and provide enhancements and new features for our existing products and platform capabilities that keep pace with rapid technological and industry change, our revenue and operating results could be adversely affected. Further, the value of our platform to customers increases to the extent they are able to use it for all of their telemetry data. We need to continue to invest in technologies, services, and partnerships that increase the ease with which customers can ingest data into our platform. If new technologies emerge that are able to deliver competitive products and applications at lower prices, more efficiently, more conveniently, or more securely, such technologies could adversely impact our ability to compete.

in technologies, services, and partnerships that increase the ease with which customers can ingest data into our platform. If new technologies emerge that are able to deliver competitive products and applications at lower prices, more efficiently, more conveniently, or more securely, such technologies could adversely impact our ability to compete.

Our platform must also integrate with a variety of network, hardware, mobile, and software platforms and technologies, and we need to continuously modify and enhance our products and platform capabilities to adapt to changes and innovation in these technologies. If developers widely adopt new software platforms, we would have to develop new versions of our products and platform capabilities to work with those new platforms. This development effort may require significant engineering, marketing, and sales resources, all of which would affect our business and operating results. Any failure of our products and platform capabilities to operate effectively with future infrastructure platforms and technologies could reduce the demand for our products. If we are unable to respond to these changes in a cost-effective manner, our products may become less marketable and less competitive or obsolete, and our operating results may be negatively affected. Similarly, application stores such as those operated by Apple and Google, may change their technical requirements or policies in a manner that adversely impacts the way in which we or our partners or customers collect, use, and share data from users. If the use of our products does not comply with these requirements, customers may not be able to use our products for their intended purposes and our business could be harmed.

We are dependent upon lead generation strategies to drive our sales and revenue. If these marketing strategies fail to continue to generate sales opportunities, our ability to grow our revenue will be adversely affected.

We are dependent upon lead generation strategies, including our expanded free tier offering, to generate sales opportunities. These strategies may not be successful in continuing to generate sufficient sales opportunities necessary to increase our revenue. To the extent that we are unable to successfully attract and grow paying customers, we will not realize the intended benefits of these marketing strategies and our ability to grow our revenue will be adversely affected.

The markets in which we participate are intensely competitive, and if we do not compete effectively, our operating results could be harmed.

The markets in which we compete are rapidly evolving, significantly fragmented, and highly competitive. Our observability platform combines functionality from numerous traditional product categories, and hence we compete in each of these categories with home-grown and open-source technologies, as well as a number of different vendors.

With respect to ~~application~~our ~~performance~~unified ~~monitoring~~Observability platform, we compete with ~~providers~~vendors such as ~~Cisco Systems~~Datadog, Inc. and Dynatrace, Inc. Since our platform combines functionality from more than 30 traditional product categories, we compete in each of these categories with home-grown and open source technologies, as well as a number of different commercial vendors. For example, for APM, we compete with providers such as Cisco Systems, Inc. With respect to log management, we compete with Elastic NV and Splunk, Inc. With respect to infrastructure monitoring, we compete with diversified technology vendors such as International Business Machines Corporation, BMC Software, Inc. and CA, Inc. (a subsidiary of Broadcom, Inc.);, and with native solutions from cloud providers such as Amazon Web Services, Inc., Microsoft Corporation, and Google LLC~~; and with independent vendors such as Datadog, Inc~~. In addition, we may increasingly choose to allow third-party hosting providers to offer our solutions directly through their customer marketplaces. An increasing number of sales through cloud provider marketplaces could reduce both the number of customers with whom we have direct commercial relationships as well as our profit margins on sales made through such marketplaces.

customer marketplaces. An increasing number of sales through cloud provider marketplaces could reduce both the number of customers with whom we have direct commercial relationships as well as our profit margins on sales made through such marketplaces.

Some of our competitors and potential competitors are larger and have greater name recognition, longer operating histories, more established customer relationships, larger budgets, and significantly greater resources than we do, and have the operating flexibility to bundle competing products and services with other software offerings at little or no perceived incremental cost, including offering them at a lower price as part of a larger sale. As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or customer requirements. In addition, some competitors may offer products or services that address one or a limited number of functions at lower prices or with greater depth than our products. Our current and potential competitors may develop and market new technologies with comparable functionality to our products and platform capabilities, and this could lead to us having to decrease prices in order to remain competitive.

With the introduction of new technologies, the evolution of our products and platform capabilities and new market entrants, we expect competition to intensify in the future. Moreover, as we expand the scope of our solutions, we may face additional competition. Additionally, some potential customers, particularly large organizations, may elect to develop their own internal products. If one or more of our competitors were to merge or partner with another of our competitors or another large diversified technology company, the change in the competitive landscape could also adversely affect our ability to compete effectively. For example, in March 2017, Cisco Systems, Inc. completed its purchase of AppDynamics, Inc., in November 2018, Broadcom Inc. completed its acquisition of CA, Inc., ~~and,~~ in October 2019, Splunk Inc. completed its acquisition of SignalFX, Inc., in September 2021, Dynatrace, Inc. acquired SpectX, and in November 2022, Datadog, Inc. completed its acquisition of Cloudcraft. If we are unable to maintain our current pricing or fail to gain market acceptance of our updated pricing strategy due to the competitive pressures, our margins will be reduced, and our operating results will be negatively affected. In addition, pricing pressures and increased competition generally could result in reduced sales, reduced margins, losses, or the failure of our solutions to achieve or maintain more widespread market acceptance, any of which could harm our business.

50Due to differences between our legacy subscription-based model and our transition to a consumption-based model, we may not have visibility into our future financial position and results of operations.

~~pricing~~We ~~pressures~~have ~~and~~historically ~~increased~~employed ~~competition~~a ~~generally~~subscription-based ~~could~~model. As a result, infor ~~reduced~~contracts ~~sales,~~entered ~~reduced~~into ~~margins,~~prior ~~losses~~to our transition to a consumption-based model, orwe recognize revenue from customers ratably over the ~~failure~~terms of ~~our~~their ~~solutions~~subscriptions. A portion of the revenue we report in each quarter is derived from the recognition of revenue relating to ~~achieve~~subscriptions entered into during previous quarters. Consequently, a decline in new or ~~maintain~~renewed ~~more~~subscriptions ~~widespread~~in any single quarter may have a small impact on our revenue for that quarter. However, such a decline will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our solutions, ~~any~~and potential changes in our rate of ~~which~~renewals, ~~could~~may ~~harm~~not be fully reflected in our ~~business~~results of operations until future periods, such as the effects of the global COVID-19 pandemic on our results of operations in recent years.

~~Due~~Because toour ~~differences~~customers ~~between~~have ~~our~~flexibility ~~legacy~~in ~~subscription-based~~the ~~pricing~~timing ~~model~~of ~~and~~their ~~our~~consumption ~~transition~~under toour a consumption-based ~~pricing~~ model, we ~~may~~do not have the same visibility into the timing of revenue recognition as we did under the subscription-based model. There is a risk that customers will consume our ~~future~~platform ~~financial~~at ~~position~~a different pace than we expect, and our actual results ofmay ~~operations~~differ from our forecasts.

We have historically employed a subscription-based model and for contracts entered into prior to our consumption pricing model, we recognize revenue from customers ratably over the terms of their subscriptions. A portion of the revenue we report in each quarter is derived from the recognition of revenue relating to subscriptions entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any single quarter may have a small impact on our revenue for that quarter. However, such a decline will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our solutions, and potential changes in our rate of renewals, may not be fully reflected in our results of operations until future periods. As a result, due to this historical reliance on a subscription-based business model, the effects of the COVID-19 pandemic to date were not fully reflected in our results of operations until later periods.

Because our customers have flexibility in the timing of their consumption under our pricing model, we do not have the same visibility into the timing of revenue recognition as we did under the subscription-based model. There is a risk that customers will consume our platform at a different pace than we expect, and our actual results may differ from our forecasts.

Seasonality may cause fluctuations in our sales and operating results.*

We have experienced seasonality in our sales and operating results in the past, and we believe that we will continue to experience seasonality in the future. Historically, we have received a higher volume of orders in the fourth fiscal quarter of each year, driven largely by contract renewals, and to a lesser extent our third fiscal quarter of each year. As a result, we have historically seen higher cash collections in the first and fourth fiscal quarters of each year, and our sequential growth in remaining performance obligations has historically been highest in the fourth fiscal quarter of each year, and to a lesser extent our third fiscal quarter of each year. With our shift to a consumption -based ~~pricing~~ model ~~in fiscal 2022~~, we expect over time that our revenue will more closely approximate our customer usage of our products and services, and thereby our revenue may experience seasonal fluctuations based upon our customer consumption patterns. For example, in recent years, we have seen a seasonal decline in consumption usage on an aggregate basis around the Christmas holiday in mid-December that begins to recover in January as the users of our platform return to work. For customers under consumption -based ~~pricing~~ models that exhibit this seasonal pattern, we would have a corresponding revenue decrease for the impacted period of seasonally reduced usage. As we near completion of our transition to a consumption business model, the impacts of seasonality will be more pronounced on our results of operations.

If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not readily apparent from other sources.

Assumptions and estimates used in preparing our consolidated financial statements include those related to revenue recognition, which include variable consideration, stock-based compensation, and business combinations. For example, the calculations to derive variable consideration require a combination of quantitative and qualitative inputs, which include estimates of our customers’ future consumption and estimates regarding the collectability of consumption above committed amounts, that are based largely on an assessment of information (historical, current and forecasted) that is reasonably available to us at that time.

As a result, the timing of recognizing revenue in any given quarter, including the extent to which revenue from transactions in a given period may not be recognized until a future period, can be variable and difficult to predict and our results of operations may be adversely affected if such assumptions change or if actual circumstances differ from those in our assumptions. This could result in fluctuations in our revenue from period to period, which may make these comparisons less meaningful and make it difficult for us, securities analysts and investors to accurately forecast our revenue and operating results, which could cause our results of operations to differ from our financial outlook or the expectations of securities analysts and investors, potentially resulting in a decline in the market price of our common stock. In addition, our consumption-based ~~pricing~~model has only been in place since fiscal 2021 and we are continuing to refine our assumptions and estimates. As we continue to obtain more historical data, we expect that our ability to forecast and derive these estimates will improve over time.

51Interruptions or performance problems associated with our technology and infrastructure may adversely affect our business and operating results.

~~model~~Our ~~has~~continued ~~only~~growth ~~been~~depends in ~~place~~part ~~since~~on ~~fiscal~~the ~~2021~~ability of our existing and wepotential customers to access our products and platform capabilities at any time and within an acceptable amount of time. We have experienced, and may in the future experience, disruptions, outages, and other performance problems due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints due to an overwhelming number of users accessing our products and platform capabilities simultaneously, denial or degradation of service attacks, computer viruses, natural disasters, climate change and extreme weather-related events, terrorism, war, telecommunications and electrical failures, cyberattacks or other security-related incidents. It may become increasingly difficult to maintain and improve our performance, especially during peak usage times and as our products and platform capabilities become more complex and our user traffic increases. If our products and platform capabilities are ~~continuing~~unavailable or if our users are unable to ~~refine~~access our ~~assumptions~~products and ~~estimates~~platform capabilities within a reasonable amount of time or at all, our business would be negatively affected. As we ~~continue~~expand our business, our customers increasingly rely on our customer support personnel to ~~obtain~~realize ~~more~~the ~~historical~~full ~~data~~benefits that our platform provides, and if we ~~expect~~do ~~that~~not help our customers quickly resolve issues and provide effective ongoing support, our ability to ~~forecast~~maintain and ~~derive~~expand ~~these~~our ~~estimates~~platform ~~will~~usage ~~improve~~to ~~over~~existing ~~time~~and new customers could suffer, and our reputation with existing or potential customers could suffer. In addition, to the extent that we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be adversely affected.

~~Interruptions~~In addition, we currently serve our customers from third-party data centers and a combination of cloud hosting providers. The continuous availability of our products and platform capabilities depends on the operations of our data center facilities, on our cloud hosting providers, on a variety of network service providers, on third-party vendors, and on our own site operations staff. We depend on our third-party providers’ abilities to protect our data center facilities against damage or ~~performance~~interruption ~~problems~~from ~~associated~~natural disasters, power or telecommunications failures, criminal acts, and similar events. If there are any lapses of service, damage to the facilities, or prolonged cloud hosting provider service disruptions or downtime affecting our platform, we could experience lengthy interruptions in our products and platform capabilities as well as delays and additional expenses in arranging new facilities and services. In addition, we are in the process of migrating our entire platform over time from third-party data center hosting facilities to public cloud hosting providers. After we complete this migration, we will rely extensively on these public cloud providers to provide our clients and their users with fast and reliable access to our ~~technology~~products. Even with current and ~~infrastructure~~planned ~~may~~disaster ~~adversely~~recovery ~~affect~~arrangements, which, to date, have not been tested in an actual crisis, our business ~~and~~could ~~operating~~be ~~results~~harmed.* Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could further reduce our revenue, subject us to liability, and cause us

Our continued growth depends in part on the ability of our existing and potential customers to access our products and platform capabilities at any time and within an acceptable amount of time. We have experienced, and may in the future experience, disruptions, outages, and other performance problems due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints due to an overwhelming number of users accessing our products and platform capabilities simultaneously, denial or degradation of service attacks, computer viruses, natural disasters, climate change and extreme weather related events, terrorism, war, telecommunications and electrical failures, cyberattacks or other security-related incidents. It may become increasingly difficult to maintain and improve our performance, especially during peak usage times and as our products and platform capabilities become more complex and our user traffic increases. If our products and platform capabilities are unavailable or if our users are unable to access our products and platform capabilities within a reasonable amount of time or at all, our business would be negatively affected. As we expand our business, our customers increasingly rely on our customer support personnel to realize the full benefits that our platform provides, and if we do not help our customers quickly resolve issues and provide effective ongoing support, our ability to maintain and expand our platform usage to existing and new customers could suffer, and our reputation with existing or potential customers could suffer. In addition, to the extent that we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be adversely affected. 46

In addition, we currently serve our customers from third-party data centers and a combination of cloud hosting providers. The continuous availability of our products and platform capabilities depends on the operations of our data center facilities, on our cloud hosting providers, on a variety of network service providers, on third-party vendors, and on our own site operations staff. We depend on our third-party providers’ abilities to protect our data center facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts, and similar events. If there are any lapses of service, damage to the facilities, or prolonged cloud hosting provider service disruptions or downtime affecting our platform, we could experience lengthy interruptions in our products and platform capabilities as well as delays and additional expenses in arranging new facilities and services. In addition, we are in the process of migrating our entire platform over time from third-party data center hosting facilities to public cloud hosting providers. After we complete this migration, we will rely extensively on these public cloud providers to provide our clients and their users with fast and reliable access to our products. Even with current and planned disaster recovery arrangements, which, to date, have not been tested in an actual crisis, our business could be harmed. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could further reduce our revenue, subject us to liability, and cause us to issue credits or cause customers not to renew their commitments or increase their spend with us, any of which could harm our business.

We depend and rely on SaaS technologies and related services from third parties in order to operate critical functions of our business and interruptions or performance problems with these technologies or services may adversely affect our business and operating results.

We depend and rely on software-as-a-service, or SaaS, technologies and related services from third parties in order to operate critical functions of our business, including billing and order management, financial accounting services, and customer relationship management services. If these services become unavailable due to extended outages or interruptions, security vulnerabilities, or cyber-attacks, because they are no longer available on commercially reasonable terms or prices, or due to other unforeseen circumstances, our expenses could increase, our ability to manage these critical functions could be interrupted, and our processes for and ability to manage sales of our products, recognize revenue, and support our customers could be impaired, all of which could adversely affect our business and operating results.

Defects or disruptions in our products and platform capabilities could diminish demand, harm our financial results, and subject us to liability.

Our customers use our products and platform capabilities for important aspects of their businesses, and any errors, defects, or disruptions to our products and platform capabilities or other performance problems with our products and platform capabilities could hurt our brand and reputation and may damage our customers’ businesses. We provide regular product updates, which may contain undetected errors when first introduced or released. In the past, we have discovered software errors, failures, vulnerabilities, and bugs in our products and platform capabilities after they have been released and new errors in our existing products and platform capabilities may be detected in the future. Real or perceived errors, failures, or bugs in our products and platform capabilities could result in negative publicity, loss of or delay in market acceptance of our products, loss of competitive position, delay of payment to us, lower renewal rates, or claims by customers for losses sustained by them. In such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help correct the problem. In addition, we may not carry insurance sufficient to compensate us for the losses that may result from claims arising from defects or disruptions in our products and platform capabilities. As a result, we could lose future sales and our reputation, and our brand could be harmed.

such an event, we may be required, or may choose, for customer relations or other reasons, to expend additional resources in order to help correct the problem. In addition, we may not carry insurance sufficient to compensate us for the losses that may result from claims arising from defects or disruptions in our products and platform capabilities. As a result, we could lose future sales and our reputation, and our brand could be harmed.

Our ongoing and planned investments in cloud hosting providers and expenditures on transitioning our services and customers from our data center hosting facilities to public cloud providers are expensive and complex, may result in a negative impact on our cash flows, and may negatively impact our financial results.

We have made and will continue to make substantial investments in our cloud hosting providers to support our growth and provide enhanced levels of products and platform capabilities to our customers. We have been continuing to decrease the amount of capital expenditures on hosting equipment for use in our data center hosting facilities as we transition to greater dependence on cloud hosting providers. If costs associated with cloud hosting services utilized to support our growth continue to be greater than originally expected or if we are required to make larger continuing investments in our data centers than we anticipated, the negative impact on our operating results would likely exceed our expectations. Furthermore, if we determine to no longer utilize our data centers and related property, and equipment sooner than planned, we may be forced to accelerate expense recognition as a result of the shorter estimated life of such assets. In addition, ongoing or future improvements to our cloud infrastructure may be more expensive than we anticipate, and may not yield the expected savings in operating costs or the expected performance benefits. We may not be able to maintain or achieve cost savings from our investments, which could harm our financial results.

We plan to continue to invest resources in connection with transitioning our customers and services to third-party cloud hosting providers and may encounter obstacles in completing the transition. Additionally, due to the difficulty in predicting usage of our cloud hosting providers related to customers recently migrated or customers to be migrated from our data centers, we may not be able to accurately forecast our expenditures on such cloud hosting services, which may increase the variability of our results of operations.

In addition, we may need to change our current operations infrastructure in order for us to achieve profitability and scale our operations efficiently, which makes our future prospects even more difficult to evaluate. For example, in order to grow our sales in a financially sustainable manner, we may need to further customize our offering and modify our go-to-market strategy to reduce our operating and customer acquisition costs. If we fail to implement these changes on a timely basis or are unable to implement them effectively, our business may suffer.

Because our long-term growth strategy involves further expansion of our sales to customers outside the United States, our business will be susceptible to risks associated with international operations.*

During the ~~nine~~three months ended ~~December~~June 3130, ~~2022~~2023, we derived approximately 3538% of our total revenue from customers outside the United States. A component of our growth strategy involves the further expansion of our operations and customer adoption internationally. Operating in international markets requires significant resources and management attention and subjects us to regulatory, economic, and political risks that are different from those in the United States. We have limited operating experience in international markets, and we cannot assure you that our expansion efforts into international markets will be successful. Our international expansion efforts may not be successful in creating further demand for our products outside of the United States or in effectively selling our products in the international markets we enter. Our current international operations and future initiatives involve a variety of risks, including:

•changes in a specific country’s or region’s political or economic conditions;

•unexpected changes in regulatory requirements, taxes, or trade laws;

•economic and political uncertainty around the world, including uncertainty regarding U.S foreign and domestic policies;

•regional data security and privacy laws and regulations and the unauthorized use of, or access to, commercial and personal information;

•differing labor regulations where labor laws are generally more advantageous to employees as compared to the United States, including deemed hourly wage and overtime regulations in these locations;

•challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits, and compliance programs;

•difficulties in managing a business in new markets with diverse cultures, languages, customs, legal systems, alternative dispute systems, and regulatory systems;

•significant reliance upon, and potential disputes with, local business partners;

•increased travel, real estate, infrastructure, and legal compliance costs associated with international operations;

•currency exchange rate fluctuations and the resulting effect on our revenue and expenses, and the cost and risk of entering into hedging transactions if we chose to do so in the future;

•limitations on our ability to repatriate earnings;

•the impact of public health epidemics on our employees, partners and customers, such as the coronavirus epidemic, ~~currently~~that ~~impacting~~has impacted various regions throughout the world in recent years;

•laws and business practices favoring local competitors, or general preferences for local vendors;

•limited or insufficient intellectual property protection;

•exposure to liabilities under anti-corruption, export controls and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act, and similar laws and regulations in other jurisdictions; and

•adverse tax burdens and foreign exchange controls that could make it difficult to repatriate earnings and cash or create other collection difficulties.

Our limited experience operating our business internationally increases the risk that recent and any potential future expansion efforts will not be successful. If substantial time and resources invested to expand our international operations do not result in a successful outcome, our operating results and business will suffer.

In addition, in February 2022, Russia launched a large-scale military attack on Ukraine. The invasion significantly amplified pre-existing geopolitical tensions. It is not possible to predict the full extent of the broader consequences of Russia’s ongoing invasion of Ukraine, including sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, currency exchange rates and financial markets. Our business, financial condition and results of operations may be materially adversely affected by any negative impact on the global economy and capital markets resulting from such conflict.

~~If we lose key members of our management team or are unable to attract and retain executives and employees we need to support our operations and growth, our business may be harmed.~~48

~~Our~~If ~~success~~we ~~and~~lose ~~future growth depend largely upon the continued services of our executive officers and other~~ key ~~employees~~members ~~in the areas~~ of ~~research and development, marketing, sales, services, and general administrative functions. From time to time, there may be changes in~~ our ~~executive~~ management team or ~~other~~are ~~key~~unable employees resulting from the hiring or departure of these personnel. For example, in fiscal 2022, Lew Cirne, our founder and former Chief Executive Officer, transitioned from his role as Chief Executive Officer to ~~Executive~~attract ~~Chairman of our Board of Directors~~ and ~~Williams~~retain ~~Staples,~~executives ~~our former President~~ and ~~Chief~~employees ~~Product~~we ~~Officer~~need ~~was promoted~~ to ~~Chief~~support ~~Executive Officer. In the first quarter of fiscal 2023, Mark Sachleben,~~ our ~~former~~operations ~~Chief Financial Officer, retired from the position~~ and ~~transitioned into an advisory role at the company and David Barter became our Chief Financial Officer. In addition~~growth, ~~Mark Dodds joined us as~~ our ~~Chief~~business ~~Revenue~~may ~~Officer~~be ~~in the second quarter of fiscal 2023~~harmed.*

Our success and future growth depend largely upon the continued services of our executive officers and other key employees in the areas of research and development, marketing, sales, services, and general administrative functions. From time to time, there may be changes in our executive management team or other key employees resulting from the hiring or departure of these personnel. For example, in the first quarter of fiscal 2024, we announced that Lew Cirne would be transitioning from Executive Chairman to non-executive Chair of the Board, and that Kristy Friedrichs resigned as our Chief Operating Officer, effective as of December 31, 2023. While we seek to manage these transitions carefully, including by establishing strong processes and procedures and succession planning, these and any other such changes may result in a loss of institutional knowledge and cause disruptions to our business.

Our executive officers and other key employees are employed on an at-will basis, which means that these personnel could terminate their employment with us at any time. Any changes in our senior management team in particular, even in the ordinary course of business, may be disruptive to our business. While we seek to manage these transitions carefully, including by establishing strong processes and procedures and succession planning, such changes may result in a loss of institutional knowledge and cause disruptions to our business. In addition, new executive hires may fail to achieve any anticipated benefits. If our senior management team fails to work together effectively or execute our plans and strategies on a timely basis as a result of management turnover or otherwise, our business could be harmed.

In addition, to execute our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel is intense, especially for engineers experienced in designing and developing software and SaaS, applications and experienced sales professionals. If we are unable to attract such personnel in locations where we are located, we may need to hire in other locations as well as consider alternative flexible work options, which may add to the complexity and costs of our business operations. Complexities in hiring and the need for flexible work arrangements have heightened during the COVID-19 pandemic. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications, especially during the current period of heightened employee attrition in the U.S. and other countries. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees

54Moreover, to realign resources with our business needs, we have undergone reductions in our workforce, including most recently in the first quarter of fiscal 2024, and may in the future implement other reductions in workforce or restructurings. Any reduction in workforce or restructuring may yield unintended consequences and costs, such as attrition beyond the intended reduction in workforce, delays in the development of critical technology or business optimization programs due to gaps in knowledge transfer and new employee ramp up time, the distraction of employees, and reduced employee morale, and could adversely affect our reputation as an employer, which could make it more difficult for us to hire new employees in the future and increase the risk that we may not achieve the anticipated benefits from the reduction in workforce.

We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications, especially during the period of heightened employee attrition in the U.S. and other countries in recent years. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached their legal obligations, resulting in a diversion of our time and resources. In addition, prospective and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity awards declines, or experiences significant volatility, it may adversely affect our ability to recruit and retain key employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be adversely affected.

We use artificial intelligence in our business, and challenges with properly managing its use could result in reputational harm, competitive harm, and legal liability, and adversely affect our results of operations.*

We have incorporated, and expect in the future we will continue to incorporate, artificial intelligence (“AI”) solutions into our product offerings, and these applications may become important in our operations over time. We use AI in our products to help customers faster troubleshoot issues in their technology stack. For example, we leverage large language models to help engineers create queries using our customer NRQL query language, navigate and understand data, and identify and fix errors in software code.

Our competitors or other third parties may incorporate AI into their products more quickly or more successfully than us, which could impair our ability to compete effectively and adversely affect our results of operations. Additionally, if the content, analyses, or recommendations that AI applications assist in producing are or are alleged to be deficient, inaccurate, or biased, our business, financial condition, and results of operations may be adversely affected.

The use of AI applications, including large language models, has resulted in, and may in the future result in, cybersecurity incidents that implicate the personal data of end users of such applications. Any such cybersecurity incidents related to our use of AI applications could adversely affect our reputation and results of operations. AI also presents emerging ethical issues and if our use of AI becomes controversial, we may experience brand or reputational harm, competitive harm, or legal liability. The continued rapid evolution of AI, including potential government regulation of AI, has required and will continue to require significant resources to develop, test and maintain our products and features to help us implement AI ethically in order to minimize unintended, harmful impact.

If we fail to enhance our brand, or to do so in a cost-effective manner, our ability to expand our customer adoption will be impaired and our financial condition may suffer.

We believe that our development of the New Relic brand is critical to achieving widespread awareness of our existing and future solutions, and, as a result, is important to attracting new customers and retaining existing customers. We also believe that the importance of brand recognition will increase as competition in our market increases. Successful promotion of our brand will depend largely on the effectiveness of our marketing efforts, including our ability to do so in a cost-effective manner, and on our ability to provide reliable and useful products at competitive prices. In the past, our efforts to build our brand have involved significant expenses, and we may have to expend significant resources again in the future in connection with brand promotion and marketing activities. Brand promotion and marketing activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brand.

If we cannot continue to maintain and develop our corporate culture as we grow, we could lose the innovation, teamwork, passion, and focus on execution that we believe contribute to our success, and our business may be harmed.

We believe that our corporate culture has been a critical component to our success. We have invested substantial time and resources in building our team. As we grow and mature as a public company, and as we continue to expand internationally and adopt more flexible work arrangements, we may find it difficult to continue to maintain and develop our corporate culture. There have been changes in our senior executive management team resulting from the hiring, promotion, or departure of these personnel, and we expect to also recruit and hire other senior executives in the future. Such management changes subject us to a number of risks, such as risks pertaining to the creation of new management systems and processes and differences in management style, any of which could adversely impact our corporate culture. In addition, we may need to continue to adapt our corporate culture and work environments to such changing circumstances. Any failure to preserve our culture could negatively affect our future success, including our ability to recruit and retain personnel and effectively focus on and pursue our corporate objectives.

Acquisitions, strategic investments, partnerships, or alliances could be difficult to identify, pose integration challenges, divert the attention of management, disrupt our business, dilute stockholder value, and adversely affect our operating results and financial condition.

We have in the past acquired or invested in, and may in the future seek to acquire or invest in businesses, joint ventures, products and platform capabilities, or technologies that we believe could complement or expand our products and platform capabilities, enhance our technical capabilities, or otherwise offer growth opportunities. For example, in the third quarter of fiscal 2021, we acquired Pixie Labs Inc., a company that provides a next generation machine intelligence observability solution for developers using Kubernetes, in the first quarter of fiscal 2022, we acquired CodeStream Inc., a company that provides an integrated developer collaboration platform, and in the second quarter of fiscal 2023, we acquired K2 Cyber Security Inc., a company that provides a differentiated, signatureless approach to vulnerability and hack detection. Any acquisition or investment may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable opportunities, whether or not the transactions are completed, and may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products and platform capabilities, personnel, or operations of the acquired companies, particularly if the key personnel of the acquired company choose not to work for us, their software is not easily adapted to work with our platform, or we have difficulty retaining the customers of any acquired business due to changes in ownership, management, or otherwise. These transactions may also disrupt our business, divert our resources, and require significant management attention that would otherwise be available for development of our existing business. Any such transactions that we are able to complete may not result in any synergies or other benefits we had expected to achieve, which could result in impairment charges that could be substantial. In addition, we may not be able to find and identify desirable acquisition targets or business opportunities or be successful in entering into an agreement with any particular strategic partner. These transactions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if the resulting business from such a transaction fails to meet our expectations, our operating results, business, and financial condition may suffer or we may be exposed to unknown risks or liabilities.

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We provide service level commitments under some of our customer contracts. If we fail to meet these contractual commitments, we could be obligated to provide credits or refunds for prepaid amounts related to unused portion of our contractual commitments or face contract terminations, which could adversely affect our revenue.

Some of our customer agreements provide service level commitments. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our products and platform capabilities, we may be contractually obligated to provide these customers with service credits or refunds for prepaid amounts related to unused portion of our contractual commitments, or we could face contract terminations. Our revenue could be significantly affected if we suffer unscheduled downtime that exceeds the allowed downtimes under our agreements with our customers. Any extended service outages could adversely affect our reputation, revenue, and operating results.

If third parties, such as customers, partners and third-party software developers fail to maintain interoperability, availability, or privacy compliance controls in the integrations and applications that they provide, our services that rely upon such integrations may have less value to customers, become less marketable, or less competitive, and our brand and financial performance could be harmed.

We provide software that enables customers, partners and third-party software developers to build integrations and applications with our products and extend the functionality of our platform capabilities. This presents certain risks to our business, including:

•customers, partners and third-party developers may not continue developing or supporting the integrations and applications that they provide or they may favor a competitor’s or their own competitive offerings over ours;

•we cannot provide any assurance that these integrations and applications meet the same quality standards that we apply to our own development efforts, and, to the extent they contain bugs, defects, or security risks, they may create disruptions in our customers’ use of our software or negatively affect our brand;

•we do not currently provide support or warranties related to the functionality, security, and integrity of the data transmission or processing for integrations and applications developed by customers, partners and third-party software developers, and users may seek warranties or be left without support and potentially cease using our products if the developers do not provide warranties or support for their integrations and applications; and

•these customers, partners and third-party software developers may not possess the appropriate intellectual property rights to develop and share their integrations and applications or the legal basis and privacy and security compliance measures to process or control personal information that flows through our systems.

While many of these risks are not within our control to prevent, our brand and financial performance could be harmed if these integrations and applications do not perform to our customers’ satisfaction and if that dissatisfaction is attributed to us.

Sales to government entities and highly regulated organizations are subject to a number of challenges and risks.

We may sell to U.S. federal, state, and local, as well as foreign, governmental agency customers, as well as to customers in highly regulated industries such as financial services, telecommunications and healthcare. Sales to such entities are subject to a number of challenges and risks. Selling to such entities can be highly competitive, expensive, and time-consuming, often requiring significant upfront time and expense without any assurance that these efforts will generate a sale. Government contracting requirements may change and in doing so restrict our ability to sell into the government sector until we have attained the revised certification. Government demand and payment for our products are affected by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our products.

Further, governmental and highly regulated entities may demand contract terms that differ from our standard arrangements and are less favorable than terms agreed with private sector customers. Such entities may have statutory, contractual, or other legal rights to terminate contracts with us or our partners for convenience or for other reasons. Any such termination may adversely affect our ability to contract with other government customers as well as our reputation, business, financial condition and results of operations.

We have incurred substantial indebtedness that may decrease our business flexibility, access to capital, and/or increase our borrowing costs, and we may still incur substantially more debt, which may adversely affect our operations and financial results.

As of December 31, 2022, we had $500.25 million (undiscounted) principal amount of indebtedness under our 0.50% convertible senior notes due 2023 (the “Notes”). Our indebtedness may:

•limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, or other general business purposes;

•limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions, or other general business purposes;

•require us to use a substantial portion of our cash flow from operations to make debt service payments, such as those at maturity of the Notes, which occurs on May 1, 2023;

•limit our flexibility to plan for, or react to, changes in our business and industry;

•place us at a competitive disadvantage compared to our less leveraged competitors; and

•increase our vulnerability to the impact of adverse economic and industry conditions.

Further, the indenture governing the Notes, or the indenture, does not restrict our ability to incur additional indebtedness and we and our subsidiaries may incur substantial additional indebtedness in the future, subject to the restrictions contained in any future debt instruments existing at the time, some of which may be secured indebtedness.

Servicing our debt will require a significant amount of cash. We may not have sufficient cash flow from our business to pay our substantial debt, and we may not have the ability to raise the funds necessary to settle conversions of the Notes in cash or to repurchase the Notes upon a fundamental change, which could adversely affect our business and results of operations.*

Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness, such as the amounts owed at maturity of the Notes on May 1, 2023, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our indebtedness and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, or obtaining additional equity or debt capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, particularly during times of market volatility and general economic instability, which could result in a default on our debt obligations.

Further, holders of the Notes will have the right to require us to repurchase all or a portion of their Notes upon the occurrence of a “fundamental change” (as defined in the indenture) before the maturity date of the Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. In addition, on November 1, 2022, we were deemed to have elected to settle all conversions on or after November 1, 2022, with cash up to the principal amount of the Notes and shares for any excess conversion value. Upon conversion of the Notes, we will be required to make cash payments in respect of the Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes being surrendered or pay cash with respect to Notes being converted.

The capped call transactions may affect the value of the Notes and our common stock.

In connection with the pricing of the Notes, we entered into capped call transactions with certain financial institutions (the “Capped Calls”). The Capped Call transactions are generally intended to reduce potential dilution to holders of our common stock upon any conversion of the Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset, as the case may be, subject to a cap.

In connection with establishing their initial hedges of the Capped Calls, these financial institutions or their respective affiliates likely purchased shares of our common stock and/or entered into various derivative transactions with respect to our common stock concurrently with or shortly after the pricing of the Notes. These financial institutions or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes (and are likely to do so during any observation period related to a

conversion of Notes). This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the Notes.

The potential effect, if any, of these transactions and activities on the price of our common stock or the Notes will depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect the value of our common stock.

Provisions in the indenture for the Notes may deter or prevent a business combination that may be favorable to our stockholders.

If a fundamental change occurs prior to the maturity date of the Notes, holders of the Notes will have the right, at their option, to require us to repurchase all or a portion of their Notes. In addition, if a “make-whole fundamental change” (as defined in the indenture) occurs prior to the maturity date, we will in some cases be required to increase the conversion rate of the Notes for a holder that elects to convert its Notes in connection with such make-whole fundamental change.

Furthermore, the indenture will prohibit us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the Notes. These and other provisions in the indenture could deter or prevent a third party from acquiring us even when the acquisition may be favorable to our stockholders.

Conversion of the Notes may dilute the ownership interest of existing stockholders, including holders who had previously converted their Notes, or may otherwise depress the price of our common stock.*

The conversion of some or all of the Notes may dilute the ownership interests of existing stockholders to the extent we deliver shares of our common stock upon conversion of any of the Notes and the potential dilution is not reduced or offset by the Capped Calls we entered into. On November 1, 2022, we were deemed to have elected to settle all conversions on or after November 1, 2022, with cash up to the principal amount of the Notes and shares for any excess conversion value. The Notes became convertible at the option of their holders on November 1, 2022. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our common stock could depress the price of our common stock.

Our ability to use our net operating loss carryforwards to offset future taxable income may be subject to certain limitations.

As of our fiscal year ended March 31, ~~2022~~2023, we had U.S. federal and state net operating losses of approximately $~~776~~650.7 million and $~~449~~423.34 million, respectively. Other than federal net operating losses arising in tax years beginning after December 31, 2017, the federal and state net operating loss carryforwards will begin to expire, if not utilized, beginning in ~~2028~~2035 and ~~2022~~2024, respectively. These net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under the 2017 federal income tax law, as modified by the federal tax law changes enacted in March 2020, federal net operating losses incurred in tax years beginning after December 31, 2017 may be carried forward indefinitely, but, for taxable years beginning after December 31, 2020, the deductibility of such federal net operating losses is limited. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If an ownership change occurs and our ability to use our net operating loss carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations. In addition, for state income tax purposes, there may be periods during which the use of net operating losses is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

for taxable years beginning after December 31, 2020, the deductibility of such federal net operating losses is limited. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If an ownership change occurs and our ability to use our net operating loss carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations. In addition, for state income tax purposes, there may be periods during which the use of net operating losses is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

Our effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of accrued amounts.

We are subject to taxation in numerous U.S. states and territories and in non-U.S. countries. As a result, our effective tax rate is derived from a combination of applicable tax rates in the various places that we operate. In preparing our financial statements, we estimate the amount of tax that will become payable in each of such places. Nevertheless, our effective tax rate may be different than experienced in the past due to numerous factors, including passage of federal income tax law changes, changes in the mix of our profitability from jurisdiction to jurisdiction, the results of examinations and audits of our tax filings, our inability to secure or sustain acceptable agreements with tax authorities, changes in accounting for income taxes and other changes in tax laws. Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations and may result in tax obligations in excess of amounts accrued in our financial statements.

Risks Related to Laws and Regulations

We are subject to stringent and rapidly changing U.S. and foreign laws, regulations, rules, industry standards, contractual obligations, policies, and other obligations relating to ~~privacy,~~ data ~~protection,~~privacy and ~~data~~ security. ~~The~~Our actual or perceived failure to comply with such obligations by us, our customers, or third parties with whom we work could ~~harm~~lead ~~our~~to ~~reputation,~~regulatory ~~subject~~investigations usor toactions, ~~significant~~litigation, fines and ~~liability~~penalties, disruptions of our business operations, reputational harm, loss of customers or ~~otherwise~~sales, ~~adversely~~and ~~affect~~other ~~our~~adverse business consequences.*

WeIn the ordinary course of business, ~~our~~we ~~customers~~process personal data and other proprietary, confidential, and sensitive data, including business data, trade secrets, intellectual property, and sensitive third-party ~~parties~~data. ~~who~~Our wedata ~~work~~processing ~~with~~activities ~~are~~may subject us to numerous ~~evolving~~data privacy and ~~increasingly~~security ~~stringent~~obligations, ~~domestic~~such ~~and~~as ~~foreign~~various laws, ~~and~~regulations, ~~other~~guidance, ~~obligations~~industry ~~relating~~standards, toexternal ~~privacy,~~and ~~data~~internal ~~protection,~~privacy and ~~data~~ security ~~that~~policies, ~~are~~contractual ~~increasing~~requirements, ~~the~~and ~~cost~~other ~~and~~obligations ~~complexity~~relating ofto ~~operating~~data ~~our~~privacy ~~business~~and security.

~~Foreign~~In ~~laws~~the ~~relating~~United toStates, federal, state, and local governments have enacted numerous data privacy and security laws, including data ~~protection~~breach notification laws, ~~and~~personal data ~~security~~privacy ~~are~~laws, ~~undergoing~~consumer aprotection ~~period~~laws (e.g., Section 5 of ~~rapid~~the ~~change~~Federal ~~and~~Trade ~~have~~Commission ~~become~~Act), ~~more~~and ~~stringent~~other insimilar ~~recent~~laws ~~years~~(e.g., wiretapping laws). For example, the ~~General~~federal ~~Data~~Health ~~Protection~~Insurance ~~Regulation~~Portability and Accountability Act of 1996 (“~~GDPR~~HIPAA”), ~~took~~as ~~effect~~amended inby the ~~European~~Health ~~Union~~Information Technology for Economic and Clinical Health Act (“EUHITECH”), inimposes ~~May~~specific ~~2018~~requirements relating to the data privacy, security, and ~~has~~transmission ~~also~~of ~~been~~individually ~~transposed~~identifiable ~~into~~health ~~national~~information. ~~law~~As inanother example, the ~~United~~Controlling ~~Kingdom~~the Assault of Non-Solicited Pornography and Marketing Act of 2003 ("CAN-SPAM”) and the Telephone Consumer Protection Act of 1991 (“UKTCPA”) impose specific requirements on communications with customers. ~~The~~For ~~GDPR~~example, the TCPA imposes ~~strict~~various consumer consent requirements ~~for~~and ~~processing~~other ~~personal~~restrictions ~~information,~~on certain telemarketing activity and ~~subjects~~other ~~noncompliant~~communications ~~companies~~with toconsumers by phone, fax or text message. TCPA violations can result in significant financial penalties, including penalties or criminal fines imposed by the Federal Communications Commission or fines of up to ~~the~~$1,500 ~~greater~~per ofviolation 20imposed ~~million~~through ~~Euros~~private litigation or 4%by ofstate ~~their~~authorities. ~~global~~As ~~annual~~another ~~revenues~~example, ~~restrictions~~the orCalifornia ~~prohibitions~~Consumer onPrivacy ~~processing~~Act of 2018 (“CCPA”) applies to personal ~~information~~data of consumers, business representatives, and ~~private~~employees, ~~litigation.~~and ~~Laws~~requires inbusinesses EUto ~~member~~provide ~~states~~specific disclosures in privacy notices and ~~the~~honor UKrequests ~~also~~of ~~impose~~California ~~restrictions~~residents onto ~~direct~~exercise ~~marketing~~certain ~~communications~~privacy ~~and~~rights. ~~the~~The ~~use~~CCPA ofprovides ~~cookies~~for ~~and~~civil ~~similar~~penalties ~~technologies~~of ~~online~~up to $7,500 per violation and aallows ~~new~~private ~~regulation~~litigants ~~proposed~~affected inby ~~the~~certain EUdata ~~called~~breaches to recover significant statutory damages. In addition, the e-California Privacy ~~Regulation~~Rights ~~may~~Act ~~make~~of ~~such~~2020 ~~restrictions~~(“CPRA”) ~~more~~expands ~~stringent.~~the ~~Furthermore~~CCPA’s requirements, inincluding ~~Europe,~~by ~~there~~adding isa new right for individuals to correct their personal data and establishing a ~~proposed~~new ~~regulation~~regulatory ~~related~~agency to ~~artificial~~implement ~~intelligence~~and ~~(“AI”)~~enforce ~~that~~the law. Other states, ifsuch ~~adopted~~as Virginia and Colorado, ~~could~~have ~~impose~~also ~~onerous~~passed ~~obligations~~comprehensive ~~related~~data toprivacy and security laws, and similar laws are being considered in several other states, as well as at the ~~use~~federal ofand ~~AI-related~~local ~~systems~~levels. WeThese ~~may~~developments ~~have~~further tocomplicate ~~change~~compliance ~~our~~efforts, ~~business~~and ~~practices~~increase tolegal ~~comply~~risk ~~with~~and ~~such~~compliance ~~obligations~~costs for us, the third parties upon whom we rely, and our customers.

~~Globally,~~Outside ~~certain jurisdictions have enacted data localization laws and have imposed requirements for cross-border transfers of personal information. For example,~~ the ~~GDPR and other European data protection laws generally prohibit the transfer of personal information to countries outside the European Economic Area (“EEA,”), such as the~~ United States, ~~that are not considered by the European Commission to provide~~ an ~~adequate~~increasing ~~level~~number of ~~data protection. Swiss and UK law contain similar data transfer restrictions as the GDPR. The European Commission recently released a set of Standard Contractual Clauses (“SCCs”)~~laws, ~~a mechanism to transfer data outside of the EEA~~regulations, which imposes additional obligations to carry out cross-border data transfers. Although there are currently valid mechanisms available to transfer data from these jurisdictions, there remains some uncertainty regarding the future of these cross-border data transfers. Countries outside of Europe have enacted or are considering similar cross-border data transfer restrictions and ~~laws~~industry ~~requiring~~standards ~~local~~govern data residency and restricting cross-border data transfers, which could increase the cost and complexity of doing business. If we elect to rely on the new SCCs for data transfers, we may be required to incur significant time and resources to update our contractual arrangements and to comply with new obligations. The new SCCs may increase the legal risks and liabilities under European privacy, ~~data protection,~~ and ~~data~~ security ~~laws~~. IfFor ~~we cannot implement a valid mechanism for cross-border personal information transfers~~example, ~~or if~~ the ~~requirements~~European ~~for~~Union’s aGeneral ~~legally-compliant~~Data ~~transfer~~Protection ~~are~~Regulation ~~too~~(“EU ~~onerous~~GDPR”), ~~we could face significant adverse consequences, including increased exposure to regulatory actions, penalties, data processing restrictions or bans, interruption or degradation of our operations,~~ the ~~inability~~United toKingdom’s ~~transfer~~GDPR data and work with third parties, and reduced demand for our services. Loss of our ability to import personal information from Europe and elsewhere may also require us to increase our data processing capabilities outside the U.S. at significant expense.

Other foreign jurisdictions are also passing and proposing more stringent privacy, data protection and data security laws. For example, Brazil’s General Data Protection Law (Lei Geral de Proteção de Dados Pessoais) (Law No. 13,709/2018) (“LGPD”), Australia Privacy Act of 1988, and Canada’s Personal Information Protection and Electronic Documents Act (“PIPEDA”) impose strict requirements for processing the personal information of individuals and may apply to our operations. We also have operations in Japan, Singapore, South Korea, and India and may be subject to new and emerging data privacy regimes in Asia, such as Japan’s Act on the Protection of Personal Information, Singapore’s Personal Data Protection Act, South Korea’s Personal Information Protection Act, and India’s proposed Digital Personal Data Protection Bill.52

In(“UK ~~the~~GDPR”), ~~United~~Brazil’s ~~States,~~General ~~federal,~~Data ~~state~~Protection ~~and~~Law ~~local~~(Lei ~~governments~~Geral ~~have~~de ~~enacted~~Proteção ~~numerous~~de ~~privacy~~Dados Pessoais, ~~data~~or ~~protection~~“LGPD”) (Law No. 13,709/2018), and ~~data~~China’s ~~security~~Personal ~~laws,~~Information ~~including~~Protection ~~data~~Law ~~breach~~(“PIPL”) ~~notification~~impose ~~laws,~~strict requirements for processing personal ~~information~~data. ~~privacy~~For ~~laws~~example, ~~health~~under ~~information~~the ~~privacy~~EU ~~laws~~GDPR, ~~consumer~~companies ~~protection~~may ~~laws~~face ~~(e.g.~~temporary or definitive bans on data processing and other corrective actions, ~~Section~~personal 5data, fines of up to the ~~Federal~~greater ~~Trade~~of ~~Commission~~20 ~~Act),~~million ~~and~~Euros ~~other~~or ~~similar~~4% ~~laws~~of ~~(e.g.~~their global annual revenues, ~~wiretapping~~whichever ~~laws)~~is great, or private litigation related to processing of personal data brought by classes of data subjects or consumer protection organizations authorized at law to represent their interests. ~~For~~In ~~example~~Canada, the ~~California~~Personal ~~Consumer~~Information ~~Privacy~~Protection and Electronic Documents Act (“~~CCPA~~PIPEDA”), ~~which~~and ~~took~~various ~~effect~~related onprovincial ~~January 1~~laws, ~~2020,~~as ~~gives~~well ~~California~~as ~~residents~~Canada’s ~~expanded~~Anti-Spam ~~rights~~Legislation (“CASL”), may apply to ~~access~~our operations and ~~delete~~our ~~their~~operations ~~personal~~in ~~information,~~Australia ~~opt-out~~may ofsubject ~~certain~~us ~~personal~~to ~~information~~Australia’s ~~sharing,~~Privacy ~~and~~Act ~~receive~~of ~~detailed~~1988. ~~information~~We ~~about~~also ~~how~~have ~~their~~operations ~~personal~~in ~~information~~Japan, isSingapore, ~~used.~~South ~~The~~Korea, ~~CCPA~~Israel, ~~provides~~and ~~for~~India ~~civil~~and ~~penalties~~may ~~for~~be ~~violations~~subject ~~(up~~ to ~~$7,500~~new ~~per~~and ~~violation)~~emerging data privacy regimes in Asia, such as ~~well~~Japan’s asAct aon ~~private~~the ~~right~~Protection of ~~action~~Personal ~~for~~Information, ~~data~~Singapore’s ~~breaches~~Personal ~~that~~Data isProtection ~~expected~~Act, toSouth ~~increase~~Korea’s ~~data~~Personal ~~breach~~Information ~~litigation.~~Protection ~~Additionally~~Act, ~~the~~Israel’s ~~California~~Protection of Privacy ~~Rights~~Law, ~~Act~~5741-1981, ofand ~~2020~~India’s ~~(“CPRA”)~~proposed ~~substantially~~Digital ~~expanded~~Personal ~~the~~Data ~~CCPA~~Protection Bill. Additionally, ~~including~~several ~~applying~~states and localities have enacted measures related to ~~personal~~the ~~information~~use of ~~business~~artificial ~~representatives~~intelligence and ~~employees~~machine learning in products and ~~establishing~~services. For example, in Europe, there is a ~~new~~proposed ~~regulatory~~regulation ~~agency~~related to ~~implement~~artificial ~~and~~intelligence ~~enforce~~(“AI”) that, if adopted, could impose onerous obligations related to the ~~law~~use of A

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