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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 September 30, 2022
or
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 classTrading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.001 per shareNEWR 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 October 31, 2022, there were 68,338,083 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
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

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 impact of natural disasters and actual or threatened public health emergencies, such as the COVID-19 pandemic;
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;
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;
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-
2


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:
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 continue to decline over time, and as our costs increase, we may not be able to generate sufficient revenue to achieve and sustain profitability.
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.
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.
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


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.
4


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NEW RELIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
 September 30, 2022March 31, 2022
Assets
Current assets:
Cash and cash equivalents$471,064 $268,695 
Short-term investments362,264 559,984 
Accounts receivable, net of allowances of $2,562 and $3,073, respectively
112,612 226,182 
Prepaid expenses and other current assets25,172 29,447 
Deferred contract acquisition costs18,587 24,058 
Total current assets989,699 1,108,366 
Property and equipment, net62,183 68,368 
Restricted cash5,779 5,775 
Goodwill172,298 163,677 
Intangible assets, net18,453 15,636 
Deferred contract acquisition costs, non-current5,732 10,463 
Lease right-of-use assets44,599 50,465 
Other assets, non-current6,135 4,916 
Total assets$1,304,878 $1,427,666 
Liabilities, redeemable non-controlling interest and stockholders’ equity
Current liabilities:
Accounts payable$34,459 $32,545 
Accrued compensation and benefits36,520 37,023 
Other current liabilities35,125 36,098 
Convertible senior notes, current 498,851  
Deferred revenue284,130 398,754 
Lease liabilities11,025 11,103 
Total current liabilities900,110 515,523 
Convertible senior notes, net 497,663 
Lease liabilities, non-current42,842 49,809 
Deferred revenue, non-current1,156 108 
Other liabilities, non-current18,863 20,173 
Total liabilities962,971 1,083,276 
Commitments and contingencies (Note 10)
Redeemable non-controlling interest 18,942 21,686 
Stockholders’ equity:
Common stock, $0.001 par value; 100,000 shares authorized at September 30, 2022 and March 31, 2022; 68,568 shares and 66,988 shares issued at September 30, 2022 and March 31, 2022, respectively; and 68,308 shares and 66,728 shares outstanding at September 30, 2022 and March 31, 2022, respectively
68 66 
Treasury stock - at cost (260 shares)
(263)(263)
Additional paid-in capital1,215,315 1,114,221 
Accumulated other comprehensive loss(11,833)(8,012)
Accumulated deficit(880,322)(783,308)
Total stockholders’ equity322,965 322,704 
Total liabilities, redeemable non-controlling interest and stockholders’ equity$1,304,878 $1,427,666 
See notes to condensed consolidated financial statements.
5


NEW RELIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 Three Months Ended September 30,Six Months Ended September 30,
 2022202120222021
Revenue$226,912 $195,694 $443,371 $376,178 
Cost of revenue64,783 64,262 128,676 123,526 
Gross profit162,129 131,432 314,695 252,652 
Operating expenses:
Research and development68,730 51,368 133,499 100,098 
Sales and marketing96,203 93,067 200,623 195,880 
General and administrative42,483 34,014 81,513 77,579 
Total operating expenses207,416 178,449 415,635 373,557 
Loss from operations(45,287)(47,017)(100,940)(120,905)
Other income (expense):
Interest income2,425 724 3,535 1,662 
Interest expense(1,233)(1,228)(2,465)(2,454)
Other income (expense)207 (43)(2)(379)
Loss before income taxes(43,888)(47,564)(99,872)(122,076)
Income tax provision (benefit)(381)506 (114)53 
Net loss$(43,507)$(48,070)$(99,758)$(122,129)
Net loss and adjustment attributable to redeemable non-controlling interest(3,268)(5,699)2,744 (10,054)
Net loss attributable to New Relic$(46,775)$(53,769)$(97,014)$(132,183)
Net loss attributable to New Relic per share, basic and diluted$(0.70)$(0.84)$(1.45)$(2.07)
Weighted-average shares used to compute net loss per share, basic and diluted67,207 64,277 66,816 63,811 
See notes to condensed consolidated financial statements.

6


NEW RELIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
 Three Months Ended September 30,Six Months Ended September 30,
 2022202120222021
Net loss attributable to New Relic$(46,775)$(53,769)$(97,014)$(132,183)
Other comprehensive loss:
Unrealized loss on available-for-sale securities(1,885)(358)(3,821)(1,189)
Comprehensive loss attributable to New Relic$(48,660)$(54,127)$(100,835)$(133,372)
See notes to condensed consolidated financial statements.

7


NEW RELIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)
Three Months Ended September 30, 2022Three Months Ended September 30, 2021
 Common StockAdditional
Paid-In
Capital
Treasury StockAccumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
Common StockAdditional
Paid-In
Capital
Treasury StockAccumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
 SharesAmountSharesAmountSharesAmountSharesAmount
Balance at beginning of period67,542 $67 $1,152,613 260 $(263)$(9,948)$(833,547)$308,922 64,966 $64 $962,512 260 $(263)$(850)$(611,320)$350,143 
Issuance of common stock upon exercise of stock options173  4,777 — — — — 4,777 123 — 2,782 — — — — 2,782 
Issuance of common stock for vested restricted stock units480 1 (1)— — — — — 450 1 (1)— — — — — 
Issuance of common stock related to employee stock purchase plan103 — 6,062 — — — — 6,062 100 — 5,417 — — — — 5,417 
Issuance of common stock related to acquisition of business270 — 12,112 — — — — 12,112    — — — —  
Stock-based compensation expense— — 39,752 — — — — 39,752 — — 37,653 — — — — 37,653 
Other comprehensive loss, net— — — — — (1,885)— (1,885)— — — — — (358)— (358)
Net loss attributable to New Relic— — — — — — (46,775)(46,775)— — — — — — (53,769)(53,769)
Balance at end of period68,568 $68 $1,215,315 260 $(263)$(11,833)$(880,322)$322,965 65,639 $65 $1,008,363 260 $(263)$(1,208)$(665,089)$341,868 
Six Months Ended September 30, 2022Six Months Ended September 30, 2021
Common StockAdditional
Paid-In
Capital
Treasury StockAccumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
Common StockAdditional
Paid-In
Capital
Treasury StockAccumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at beginning of period66,988 $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 options269  6,502 — — — — 6,502 315 — 7,614 — — — — 7,614 
Issuance of common stock for vested restricted stock units938 2 (2)— — — —  804 1 (1)— — — —  
Issuance of common stock related to employee stock purchase plan103 — 6,062 — — — — 6,062 100 — 5,417 — — — — 5,417 
Issuance of common stock related to acquisition of business270 — 12,112 — — — — 12,112 401  13,487 — — — — 13,487 
Stock-based compensation expense— — 76,420 — — — — 76,420 — — 80,673 — — — — 80,673 
Other comprehensive loss, net— — — — — (3,821)— (3,821)— — — — — (1,189)— (1,189)
Net loss attributable to New Relic— — — — — — (97,014)(97,014)— — — — — — (132,183)(132,183)
Balance at end of period68,568 $68 $1,215,315 260 $(263)$(11,833)$(880,322)$322,965 65,639 $65 $1,008,363 260 $(263)$(1,208)$(665,089)$341,868 

See notes to condensed consolidated financial statements.
8


NEW RELIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months Ended September 30,
 20222021
Cash flows from operating activities:
Net loss attributable to New Relic$(97,014)$(132,183)
Net loss and adjustment attributable to redeemable non-controlling interest (Note 3)(2,744)10,054 
Net loss:$(99,758)$(122,129)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization34,298 45,426 
Stock-based compensation expense74,734 79,758 
Amortization of debt discount and issuance costs1,188 1,176 
Loss on facilities exit 2,717  
Other(588)(124)
Changes in operating assets and liabilities, net of acquisition of business:
Accounts receivable, net113,570 70,924 
Prepaid expenses and other assets2,075 (2,362)
Deferred contract acquisition costs(3,489)(758)
Lease right-of-use assets5,411 5,077 
Accounts payable1,544 15,191 
Accrued compensation and benefits and other liabilities(5,519)(12,111)
Lease liabilities(7,045)(4,177)
Deferred revenue(113,575)(103,022)
Net cash provided by (used in) operating activities5,563 (27,131)
Cash flows from investing activities:
Purchases of property and equipment(2,416)(2,826)
Proceeds from sale of property and equipment1,724  
Cash paid for acquisition, net of cash acquired(257)(7,192)
Purchases of short-term investments(50,373)(134,350)
Proceeds from sale and maturity of short-term investments243,475 155,613 
Capitalized software development costs(7,907)(6,047)
Net cash provided by investing activities184,246 5,198 
Cash flows from financing activities:
Proceeds from employee stock purchase plan 6,062 5,417 
Proceeds from exercise of employee stock options6,502 7,614 
Net cash provided by financing activities12,564 13,031 
Net increase (decrease) in cash, cash equivalents and restricted cash202,373 (8,902)
Cash, cash equivalents and restricted cash at beginning of period274,470 246,463 
Cash, cash equivalents and restricted cash at end of period$476,843 $237,561 
Reconciliation of cash, cash equivalents and restricted cash to condensed consolidated balance sheets:
Cash and cash equivalents$471,064 $231,918 
Restricted cash5,779 5,643 
Total cash, cash equivalents and restricted cash$476,843 $237,561 
Supplemental disclosure of cash flow information:
Cash paid for interest and income taxes$2,196 $131 
Noncash investing and financing activities:
Property and equipment purchased but not yet paid$93 $77 
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.
9


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.Description of Business and Summary of Significant Accounting Policies
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 a software platform for customers to land all their telemetry data in one place and derive actionable insights from that data in a unified front-end application. The New Relic platform provides users with a consistent and comprehensive view of their digital environment allowing them to observe and operate all the components of their digital infrastructure.
Basis of Presentation —These unaudited condensed consolidated financial statements 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. 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, as filed with the SEC on May 17, 2022 (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. The condensed consolidated balance sheet as of March 31, 2022 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.
COVID-19—The COVID-19 pandemic has resulted in a global slowdown of economic activity that is expected to continue. The extent of any continuing impact to the Company’s financial condition or results of operations is uncertain, particularly as the COVID-19 pandemic continues to persist for an extended period of time.
Concentration of Risk—There was no customer that represented more than 10% of the Company’s accounts receivable balance as of September 30, 2022 or March 31, 2022. There was no customer that individually exceeded 10% of the Company’s revenue during the three or six months ended September 30, 2022 or 2021.
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Revenue Recognition—The Company generates revenue from subscription-based arrangements and usage-based arrangements that allow customers to access its products and/or platform. The Company typically sells (1) a subscription agreement for a committed contractual amount that is apportioned ratably on a monthly basis over the term of the subscription period, which may or may not include a usage overage component, (2) a subscription agreement for a committed contractual amount where usage is drawn down as utilized, and (3) a usage-based arrangement that is billed based on usage (“Pay as You Go”).
The Company determines revenue recognition through the following steps:
identification of the contract, or contracts with a customer;
identification of the performance obligations in the contract;
determination of the transaction price;
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.
Depending on the nature of the contract, revenue from subscription-based arrangements is recognized on a ratable basis over the contractual subscription period of the arrangement or recognized as usage is incurred.
Usage above the commitment is either recognized as incurred or as an estimate of usage above the minimum commitment. Usage above the minimum commitment is estimated by looking at usage in previous months and other factors and projecting out for the rest 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.
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.
Recently Adopted Accounting Pronouncements
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses an issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. The Company adopted this new standard on April 1, 2022. The adoption of this standard did not have an impact on its condensed consolidated financial statements.

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 is attributable to expected synergies from future growth and is not deductible for tax purposes.
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The following table presents the preliminary purchase price allocation related to the acquisition (in thousands):
Cash consideration$4,497 
Fair value of common shares$16,132 
Total consideration$20,629 
Post-business combination compensation expense$(4,019)
Total purchase price$16,610 
Net assets assumed$(589)
Developed technology acquired$(7,400)
Goodwill$8,621 
The acquisition has been accounted for as a business combination in accordance with ASC 805. The estimated fair value of developed technology acquired of $7.4 million was determined through the use of a third-party valuation firm using cost approach methodology. The direct transaction costs of the acquisition have been accounted for separately from the business combination and expensed as incurred. Total direct transaction costs incurred by the Company were $0.9 million, which were included in general and administrative expenses in the Company’s condensed consolidated statement of operations for the three months ended September 30, 2022. The Company paid approximately $0.6 million in acquisition-related expenses incurred by K2 for its advisors which were included as part of the purchase consideration. The business combination did not have a material impact on the condensed consolidated financial statements and therefore historical and pro forma disclosures have not been presented.
The acquisition also included a holdback arrangement with the two founders of K2, totaling approximately 67,278 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 $4.0 million and was excluded from the aggregate purchase price. These awards will be recognized as stock-based compensation expenses over the vesting period, which is 24 and 36 months for the two founders, respectively.
CodeStream Inc.
On June 8, 2021, the Company acquired all of the equity interests in CodeStream Inc. (“CodeStream”), a company 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 which has been accrued as a long-term liability) and 202,561 shares of the Company’s common stock with an aggregate fair value of 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 technology acquired with an estimated useful life of three years, net assets assumed, and a deferred tax liability related to the developed technology. 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 acquisition 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.

3.     Joint Venture
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),
12


respectively, to subscribe to additional shares. As of September 30, 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 September 30, 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 $2.7 million at September 30, 2022.
The following table summarizes the activity in the redeemable non-controlling interest for the periods indicated below (in thousands):
Six Months Ended September 30,
20222021
Balance, beginning of period$21,686 $3,389 
Net loss attributable to redeemable non-controlling interest (74)(181)
Adjustment to redeemable non-controlling interest(2,670)10,235 
Balance, end of period$18,942 $13,443 

13


4.     Fair Value Measurements
The following tables present information about the Company’s financial assets measured at fair value on a recurring basis as of September 30, 2022 and March 31, 2022 based on the three-tier fair value hierarchy (in thousands):
Fair Value Measurements as of September 30, 2022
 Level 1Level 2Level 3Total
Cash and cash equivalents:
Money market funds$375,809 $ $ $375,809 
Short-term investments:
Certificates of deposit 51,646  51,646 
Commercial paper 2,926  2,926 
Corporate notes and bonds 82,735  82,735 
U.S. treasury securities224,957   224,957 
Restricted cash:
Money market funds5,779   5,779 
Total$606,545 $137,307 $ $743,852 
Included in cash and cash equivalents$375,809 
Included in short-term investments$362,264 
Included in restricted cash$5,779 
 Fair Value Measurements as of March 31, 2022
 Level 1Level 2Level 3Total
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 securities320,173   320,173 
Restricted cash:
Money market funds5,775   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 
There were no transfers between fair value measurement levels during the six months ended September 30, 2022 and 2021.
The Company invests in certificates of deposit, commercial paper, corporate debt securities, U.S. treasury securities, and U.S. agency securities, which are classified as available-for-sale securities.
14


The following table presents the Company’s available-for-sale securities as of September 30, 2022 (in thousands):
Available-for-sale Investments as of September 30, 2022
Amortized CostUnrealized GainsUnrealized LossesFair Value
Short-term investments:
Certificates of deposit$52,000 $ $(354)$51,646 
Commercial paper2,953  (27)2,926 
Corporate notes and bonds86,193  (3,458)82,735 
U.S. treasury securities231,243  (6,286)224,957 
Total available-for-sale investments$372,389 $ $(10,125)$362,264 
The following table presents the Company’s available-for-sale securities as of March 31, 2022 (in thousands):
Available-for-sale Investments as of March 31, 2022
Amortized CostUnrealized GainsUnrealized LossesFair Value
Short-term investments:
Certificates of deposit$127,500 $ $(615)$126,885 
Commercial paper27,946  (85)27,861 
Corporate notes and bonds87,259  (2,194)85,065 
U.S. treasury securities323,584 79 (3,490)320,173 
Total available-for-sale investments$566,289 $79 $(6,384)$559,984 
As of September 30, 2022 and March 31, 2022, securities that were in an unrealized loss position for more than 12 months were $5.3 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 September 30, 2022 and March 31, 2022.
The following table classifies the Company’s available-for-sale short-term investments by contractual maturities as of September 30, 2022 and March 31, 2022 (in thousands):
September 30, 2022March 31, 2022
Due within one year$230,113 $354,774 
Due after one year and within three years132,151 205,210 
Total$362,264 $559,984 
For certain other financial instruments, including accounts receivable, accounts payable and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these balances.
Convertible Senior Notes
As of September 30, 2022, the fair value of the Notes was $443.5 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.     Contract Acquisition Costs
The Company capitalizes certain contract acquisition costs primarily consisting of commissions. The balances of deferred costs to obtain customer contracts were $24.3 million and $34.5 million as of September 30, 2022 and March 31, 2022, respectively. In the three months ended September 30, 2022 and 2021, amortization from amounts capitalized was $6.5 million and $9.6 million, respectively. In the six months ended September 30, 2022 and 2021, amortization from amounts capitalized was $