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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 December 31, 2020
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 January 29, 2021, there were 63,066,141 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 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.
2


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.
The ongoing global coronavirus (COVID-19) pandemic could harm our business and results of operations.
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, which makes it difficult to evaluate our current business and future prospects and increases the risk of your investment.
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 investments in data center hosting facilities and expenditures on cloud hosting 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.
Changes in privacy and security laws, regulations, and standards may cause our business to suffer.
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.
3


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NEW RELIC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
 December 31, 2020March 31, 2020
Assets
Current assets:
Cash and cash equivalents$211,145 $292,523 
Short-term investments573,472 512,574 
Accounts receivable, net of allowances of $2,376 and $3,636, respectively
143,775 147,361 
Prepaid expenses and other current assets16,236 15,979 
Deferred contract acquisition costs34,738 32,016 
Total current assets979,366 1,000,453 
Property and equipment, net93,011 100,294 
Restricted cash5,662 5,641 
Goodwill144,253 45,112 
Intangible assets, net14,662 13,691 
Deferred contract acquisition costs, non-current30,295 28,141 
Lease right-of-use assets59,475 57,777 
Other assets, non-current6,785 7,325 
Total assets$1,333,509 $1,258,434 
Liabilities, redeemable non-controlling interest and stockholders’ equity
Current liabilities:
Accounts payable$22,034 $12,565 
Accrued compensation and benefits39,416 29,054 
Other current liabilities15,838 13,120 
Deferred revenue301,750 313,161 
Lease liabilities5,600 8,682 
Total current liabilities384,638 376,582 
Convertible senior notes, net443,676 427,044 
Lease liabilities, non-current62,849 57,394 
Deferred revenue, non-current1,681 3,166 
Other liabilities, non-current8,092 1,940 
Total liabilities900,936 866,126 
Commitments and contingencies (Note 10)
Redeemable non-controlling interest 610 1,669 
Stockholders’ equity:
Common stock, $0.001 par value; 100,000 shares authorized at December 31, 2020 and March 31, 2020; 63,311 shares and 60,098 shares issued at December 31, 2020 and March 31, 2020; and 63,051 shares and 59,838 shares outstanding at December 31, 2020 and March 31, 2020
63 60 
Treasury stock - at cost (260 shares)
(263)(263)
Additional paid-in capital956,670 780,479 
Accumulated other comprehensive income932 4,869 
Accumulated deficit(525,439)(394,506)
Total stockholders’ equity431,963 390,639 
Total liabilities, redeemable non-controlling interest and stockholders’ equity$1,333,509 $1,258,434 
See notes to condensed consolidated financial statements.
4


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,
 2020201920202019
Revenue$166,340 $153,028 $494,979 $439,853 
Cost of revenue45,968 26,402 124,439 75,164 
Gross profit120,372 126,626 370,540 364,689 
Operating expenses:
Research and development45,773 38,387 131,245 106,858 
Sales and marketing92,392 87,704 266,906 244,711 
General and administrative30,249 24,751 89,481 71,129 
Total operating expenses168,414 150,842 487,632 422,698 
Loss from operations(48,042)(24,216)(117,092)(58,009)
Other income (expense):
Interest income1,734 3,793 6,735 11,944 
Interest expense(6,229)(5,953)(18,549)(17,660)
Other income (expense), net(811)(465)(1,810)2,828 
Loss before income taxes(53,348)(26,841)(130,716)(60,897)
Income tax provision564 894 1,276 1,518 
Net loss$(53,912)$(27,735)$(131,992)$(62,415)
Net loss attributable to redeemable non-controlling interest 286 540 1,059 1,437 
Net loss attributable to New Relic$(53,626)$(27,195)$(130,933)$(60,978)
Net loss attributable to New Relic per share, basic and diluted$(0.88)$(0.46)$(2.16)$(1.05)
Weighted-average shares used to compute net loss per share, basic and diluted61,209 58,733 60,562 58,352 
See notes to condensed consolidated financial statements.

5


NEW RELIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)

 Three Months Ended December 31,Nine Months Ended December 31,
 2020201920202019
Net loss attributable to New Relic$(53,626)$(27,195)$(130,933)$(60,978)
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities, net of tax(1,467)(48)(3,937)1,262 
Comprehensive loss$(55,093)$(27,243)$(134,870)$(59,716)
See notes to condensed consolidated financial statements.

6


NEW RELIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
(Unaudited)

Three Months Ended December 31, 2020Three Months Ended December 31, 2019
 Common StockAdditional
Paid-In
Capital
Treasury StockAccumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
Common StockAdditional
Paid-In
Capital
Treasury StockAccumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
 SharesAmountSharesAmountSharesAmountSharesAmount
Balance at beginning of period61,227 $61 $857,011 260 $(263)$2,399 $(471,813)$387,395 59,036 $59 $708,761 260 $(263)$1,955 $(339,352)$371,160 
Issuance of common stock upon exercise of stock options45 — 982 — — — — 982 146 — 3,719 — — — — 3,719 
Issuance of common stock for vested restricted stock units418 — — — — — — — 218 — — — — — — — 
Issuance of common stock related to employee stock purchase plan— — — — — — — — — — — — — — — — 
Issuance of common stock related to acquisition of business1,621 2 62,365 — — — — 62,367 — — — — — — — — 
Stock-based compensation expense— — 36,312 — — — — 36,312 — — 25,883 — — — — 25,883 
Other comprehensive loss, net— — — — — (1,467)— (1,467)— — — — — (48)— (48)
Net loss attributable to New Relic— — — — — — (53,626)(53,626)— — — — — — (27,195)(27,195)
Balance at end of period63,311 $63 $956,670 260 $(263)$932 $(525,439)$431,963 59,400 $59 $738,363 260 $(263)$1,907 $(366,547)$373,519 


Nine Months Ended December 31, 2020Nine Months Ended December 31, 2019
Common StockAdditional
Paid-In
Capital
Treasury StockAccumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
Common StockAdditional
Paid-In
Capital
Treasury StockAccumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmountSharesAmountSharesAmountSharesAmount
Balance at beginning of period60,098 $60 $780,479 260 $(263)$4,869 $(394,506)$390,639 58,366 $58 $654,759 260 $(263)$645 $(305,569)$349,630 
Issuance of common stock upon exercise of stock options332 — 3,632 — — — — 3,632 267 — 6,773 — — — — 6,773 
Issuance of common stock for vested restricted stock units1,123 1 (1)— — — — — 650 1 (1)— — — — — 
Issuance of common stock related to employee stock purchase plan137 — 6,494 — — — — 6,494 117 — 5,933 — — — — 5,933 
Issuance of common stock related to acquisition of business1,621 2 62,365 — — — — 62,367 — — — — — — — — 
Stock-based compensation expense— — 103,701 — — — — 103,701 — — 70,899 — — — — 70,899 
Other comprehensive income (loss), net— — — — — (3,937)— (3,937)— — — — — 1,262 — 1,262 
Net loss attributable to New Relic— — — — — — (130,933)(130,933)— — — — — — (60,978)(60,978)
Balance at end of period63,311 $63 $956,670 260 $(263)$932 $(525,439)$431,963 59,400 $59 $738,363 260 $(263)$1,907 $(366,547)$373,519 


See notes to condensed consolidated financial statements.
7


NEW RELIC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Nine Months Ended December 31,
 20202019
Cash flows from operating activities:
Net loss attributable to New Relic$(130,933)$(60,978)
Net loss attributable to redeemable non-controlling interest (Note 3)$(1,059)$(1,437)
Net loss:$(131,992)$(62,415)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization66,315 56,237 
Stock-based compensation expense103,044 70,496 
Amortization of debt discount and issuance costs16,632 15,718 
Gain on lease modification (3,006)
Other1,812 (2,919)
Changes in operating assets and liabilities, net of acquisition of business:
Accounts receivable, net3,586 10,015 
Prepaid expenses and other assets(999)(204)
Deferred contract acquisition costs(33,093)(25,786)
Lease right-of-use assets(1,338)19,539 
Accounts payable10,015 4,257 
Accrued compensation and benefits and other liabilities18,141 1,136 
Lease liabilities2,158 (16,812)
Deferred revenue(12,896)(34,590)
Net cash provided by operating activities41,385 31,666 
Cash flows from investing activities:
Purchases of property and equipment(15,799)(49,705)
Cash paid for acquisition, net of cash acquired(41,536)(4,250)
Purchases of short-term investments(293,844)(337,070)
Proceeds from sale and maturity of short-term investments228,050 292,409 
Capitalized software development costs(9,739)(4,463)
Net cash used in investing activities(132,868)(103,079)
Cash flows from financing activities:
Investment from redeemable non-controlling interest 978 
Proceeds from employee stock purchase plan 6,494 5,933 
Proceeds from exercise of employee stock options3,632 5,977 
Net cash provided by financing activities10,126 12,888 
Net decrease in cash, cash equivalents and restricted cash(81,357)(58,525)
Cash, cash equivalents and restricted cash at beginning of period298,164 243,161 
Cash, cash equivalents and restricted cash at end of period$216,807 $184,636 
Reconciliation of cash, cash equivalents and restricted cash to condensed consolidated balance sheets:
Cash and cash equivalents$211,145 $178,997 
Restricted cash5,662 5,639 
Total cash, cash equivalents and restricted cash$216,807 $184,636 
Supplemental disclosure of cash flow information:
Cash paid for interest and income taxes$3,772 $3,868 
Noncash investing and financing activities:
Property and equipment purchased but not yet paid$1,399 $7,797 
Issuance of common stock for the acquisition of business$62,365 $ 
Acquisition holdback$ $850 
See notes to condensed consolidated financial statements.
8


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 provides a strategic observability platform that enables users to collect, store and analyze vast quantities of telemetry data flowing from applications and infrastructure to monitor, troubleshoot, and optimize their software.
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, 2020, as filed with the SEC on May 14, 2020 (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, 2021. The condensed consolidated balance sheet as of March 31, 2020 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, fair value of debt and equity components related to the 0.5% convertible senior notes due 2023 (the “Notes”), useful lives of purchased intangible assets, unrecognized tax benefits, expected benefit period for deferred commissions, 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 worldwide spread of COVID-19 has resulted in a global slowdown of economic activity that is expected to continue and which is likely to decrease demand for a broad variety of goods and services, while also disrupting sales channels and marketing activities for an unknown period of time until the disease is contained. The Company’s revenue and deferred revenue have been negatively impacted by the slowdown in activity associated with the COVID-19 pandemic for the fiscal year ending March 31, 2021, but at this point, the extent of the 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, and as of the date of issuance of these financial statements, management is not aware of any specific event or circumstance that would require an update to estimates and judgments or revising the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information is obtained, and will be recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the financial statements.
Concentration of Risk—There was no customer that represented more than 10% of the Company’s accounts receivable balance as of December 31, 2020 or March 31, 2020. There was no customer that individually exceeded 10% of the Company’s revenue during the three or nine months ended December 31, 2020 or 2019.
9


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 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.
Revenue from subscription-based arrangements is recognized on a ratable basis over the contractual subscription period of the arrangement beginning when or as control of the promised goods or services is transferred to the customer.
Beginning in the second quarter of fiscal 2021, the Company started offering usage-based pricing to its customers. Customers have the option to be charged upon their incurred usage in arrears (“Pay as You Go”), or they may commit to a minimum spend over their contracted period (“Annual Pool of Funds”). Revenue related to Pay as You Go contracts are recognized based on the customers’ actual usage. Revenue related to Annual Pool of Funds contracts are recognized on a ratable basis over the contract period including an estimate of the usage above the minimum commitment. 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 August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. This will result in more convertible debt instruments being accounted for as a single liability instrument and more convertible preferred stock being accounted for as a single equity instrument with no separate accounting for embedded conversion features. The ASU also simplifies the diluted earnings per share (“EPS”) calculation in certain areas. This standard will be effective for the Company in the fiscal year beginning April 1, 2022; early adoption is permitted in the fiscal year beginning April 1, 2021. The Company has not yet adopted this new standard and is currently evaluating the effect the standard will have on its condensed consolidated financial statements.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available-for-sale debt securities. The Company adopted this new standard on April 1, 2020. The adoption of this standard did not have a material impact on its condensed consolidated financial statements.
Under the new standard, the Company assesses credit losses on accounts receivable by taking into consideration past collection experience, credit quality of the customer, age of the receivable balance, current economic conditions, and forecasts that affect the collectability of the reported amount.
With respect to available-for-sale debt securities, the updated guidance requires that credit losses be presented as an allowance rather than as a write-down. Allowance for credit losses is recorded in other income (expense), net on the condensed consolidated statements of operations, limited by the amount that fair value is less than the amortized cost basis. Non-credit related impairment losses are reported as a separate component on the condensed consolidated statements of comprehensive loss.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test. The Company adopted this standard on April 1, 2020. The adoption of this standard did not have a material impact on its condensed consolidated financial statements or disclosures.
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which amends ASC 820, Fair Value Measurement. ASU 2018-13 modifies the
10


disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The Company adopted this standard on April 1, 2020. The adoption of this standard did not have a material impact on its condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The Company adopted this standard on April 1, 2020. The adoption of this standard did not have a material impact on its condensed consolidated financial statements.

2.    Business Combinations
Pixie Labs Inc.
On December 22, 2020, the Company acquired all of the equity interests in Pixie Labs Inc. (“Pixie Labs”), a company that provides a next-generation machine intelligence observability solution for developers using Kubernetes. The aggregate purchase price of $107.9 million consisted of approximately $45.6 million in cash (of which $15.0 million is being held in escrow for 12 months after the transaction closing date) and 884,269 shares of the Company’s common stock with an aggregate fair value of approximately $62.4 million. The fair value of the consideration transferred was determined based on a $70.53 per share price of the Company’s common stock.
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, as set forth below. Goodwill generated from the acquisition is attributable to expected synergies from future growth and is not deductible for tax purposes.
The following table presents the purchase price allocation related to the acquisition (in thousands):
Cash consideration paid$45,558 
Fair value of common shares62,367 
Total purchase price107,925 
Net assets assumed(4,099)
Deferred tax liabilities115 
Developed technology acquired(4,800)
Goodwill$99,141 
The acquisition has been accounted for as a business combination. 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 and nine months ended December 31, 2020. The Company paid $0.6 million in acquisition-related expenses incurred by Pixie Labs related to Pixie Labs’ 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 proforma disclosures have not been presented.
The acquisition also included a holdback arrangement with certain employees of Pixie Labs, totaling approximately 736,469 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 $51.9 million and was excluded from the aggregate purchase price. These awards will be recognized as stock-based compensation expense over the remaining vesting period which ranges from 18 months to 37 months.

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IOpipe, Inc.
On October 31, 2019, the Company acquired certain assets of IOpipe, Inc., a company that provides monitoring tools for serverless applications, for $5.1 million in cash. The Company held back approximately $0.9 million from the aggregate purchase price which has been accrued as a liability. Of the total purchase price, $1.5 million was allocated to acquired technology with an estimated useful life of three years with the excess $3.6 million of the purchase price over the fair value of the intangible assets acquired recorded as goodwill. The acquisition has been accounted for as a business combination under the acquisition method. Goodwill and other intangibles generated from the acquisition are attributable to expected synergies from future growth and potential future monetization opportunities, and are deductible for tax purposes. 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.

3.     Joint Venture
On July 13, 2018, the Company entered into an agreement with Japan Cloud Computing L.P. (“JCC”) 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 (396,000,000 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 (156,000,000 Japanese Yen) and approximately $1.0 million (104,000,000 Japanese Yen), respectively, to subscribe to additional shares. As of December 31, 2020, 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, 2020, 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. The resulting changes in the estimated redemption amount are recorded within retained earnings or, in the absence of retained earnings, additional paid-in-capital. The estimated redemption value of the call/put option embedded in the redeemable non-controlling interest was $0 at December 31, 2020.
The following table summarizes the activity in the redeemable non-controlling interest for the periods indicated below:
Nine Months Ended December 31,
20202019
Balance, beginning of period$1,669 $2,733 
Investment by redeemable non-controlling interest 978 
Net loss attributable to redeemable non-controlling interest (1,059)(1,437)
Balance, end of period$610 $2,274 

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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 December 31, 2020 and March 31, 2020 based on the three-tier fair value hierarchy (in thousands):
Fair Value Measurements as of December 31, 2020
 Level 1Level 2Level 3Total
Cash and cash equivalents:
Money market funds$104,397 $ $ $104,397 
Short-term investments:
Certificates of deposit 33,109  33,109 
Commercial paper 13,797  13,797 
Corporate notes and bonds 51,585  51,585 
U.S. treasury securities474,981   474,981 
Restricted cash:
Money market funds5,662   5,662 
Total$585,040 $98,491 $ $683,531 
Included in cash and cash equivalents$104,397 
Included in short-term investments$573,472 
Included in restricted cash$5,662 
 Fair Value Measurements as of March 31, 2020
 Level 1Level 2Level 3Total
Cash and cash equivalents:
Money market funds$107,663 $ $ $107,663 
U.S. treasury securities27,938   27,938 
U.S. government agencies 24,999  24,999 
Short-term investments:
Certificates of deposit 14,986  14,986 
Commercial paper 13,334  13,334 
Corporate notes and bonds 60,319  60,319 
U.S. treasury securities422,333   422,333 
U.S. government agencies 1,602  1,602 
Restricted cash:
Money market funds5,641   5,641 
Total$563,575 $115,240 $ $678,815 
Included in cash and cash equivalents$160,600 
Included in short-term investments$512,574 
Included in restricted cash$5,641 
There were no transfers between fair value measurement levels during the nine months ended December 31, 2020 and 2019.
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. The following table presents the Company’s available-for-sale securities as of December 31, 2020 (in thousands):
Amortized CostUnrealized GainsUnrealized LossesFair Value
Short-term investments:
Certificates of deposit$33,100 $9 $ $33,109 
Commercial paper13,795 2  13,797 
Corporate notes and bonds51,147 438  51,585 
U.S. treasury securities472,792 2,226 (37)474,981 
Total available-for-sale investments$570,834 $2,675 $(37)$573,472 
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The following table presents the Company’s available-for-sale securities as of March 31, 2020 (in thousands):
Amortized CostUnrealized GainsUnrealized LossesFair Value
Cash and cash equivalents:
U.S. treasury securities$27,923 $15 $ $27,938 
U.S. government agencies24,995 4  24,999 
Short-term investments:
Certificates of deposit15,000 20 (34)14,986 
Commercial paper13,318 16  13,334 
Corporate notes and bonds60,211 221 (113)60,319 
U.S. treasury securities415,889 6,444  422,333 
U.S. government agencies1,600 2  1,602 
Total available-for-sale investments$558,936 $6,722 $(147)$565,511 
As of December 31, 2020 and March 31, 2020, securities that were in an unrealized loss position for more than 12 months were not significant. In addition, the Company did not consider any available-for-sale securities to be impaired as of December 31, 2020 and March 31, 2020.
The following table classifies the Company’s available-for-sale short-term investments by contractual maturities as of December 31, 2020 and March 31, 2020 (in thousands):
December 31, 2020March 31, 2020
Due within one year$301,881 $320,582 
Due after one year and within three years271,591 191,992 
Total$573,472 $512,574 
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 December 31, 2020, the fair value of the 0.50% convertible senior notes due 2023 (the “Notes”) was $445.4 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.

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 $65.0 million and $60.2 million as of December 31, 2020 and March 31, 2020, respectively. In the three months ended December 31, 2020 and 2019, amortization from amounts capitalized was $9.7 million and $8.3 million, respectively. In the nine months ended December 31, 2020 and 2019, amortization from amounts capitalized was $28.2 million and $24.0 million, respectively. In the three months ended December 31, 2020 and 2019, amounts expensed as incurred were $4.4 million and $3.6 million, respectively. In the nine months ended December 31, 2020 and 2019, amounts expensed as incurred were $10.6 million and $8.2 million, respectively. The Company had no impairment loss in relation to costs capitalized.

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6.     Property and Equipment
Property and equipment, net, consisted of the following (in thousands):
December 31, 2020March 31, 2020
Computers, software, and equipment$14,528 $13,249 
Site operation equipment101,693 102,316 
Furniture and fixtures5,385 4,802 
Leasehold improvements46,763 39,081 
Capitalized software development costs60,884 50,440 
Total property and equipment229,253 209,888 
Less: accumulated depreciation and amortization(136,242)(109,594)
Total property and equipment, net$93,011 $100,294 
Depreciation and amortization expense related to property and equipment was $11.6 million and $10.2 million for the three months ended December 31, 2020 and 2019, respectively, and $33.4 million and $30.8 million for the nine months ended December 31, 2020 and 2019, respectively.

7.    0.5% Convertible Senior Notes and Capped Call
In May 2018, the Company issued $500.25 million in aggregate principal amount of Notes in a private offering, including an additional $65.25 million aggregate principal amount of such notes pursuant to the exercise in full of the initial purchasers’ over-allotment option. The Notes are the Company’s senior unsecured obligations and bear 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. The Notes will mature on May 1, 2023, unless earlier converted or repurchased. Each $1,000 principal amount of the Notes will initially be convertible into 9.02 shares of the Company’s common stock (the “Conversion Option”), which is equivalent to an initial conversion price of approximately $110.81 per share. The Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding November 1, 2022, only under the following circumstances: (1) during any fiscal quarter commencing after the fiscal quarter ending on September 30, 2018 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the indenture governing the Notes) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate for the Notes on each such trading day; or (3) upon the occurrence of specified corporate events as set forth in the indenture governing the Notes. On or after November 1, 2022 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances. Upon conversion, the Company may satisfy its conversion obligation by paying and/or delivering, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, in the manner and subject to the terms and conditions provided in the indenture governing the Notes. The conversion rate is subject to adjustment under certain circumstances in accordance with the terms of the indenture governing the Notes. In addition, following certain corporate events that occur prior to the maturity date, the Company will increase the conversion rate, in certain circumstances, for a holder who elects to convert its Notes in connection with such a corporate event. During the three and nine months ended December 31, 2020, the conditions allowing holders of the Notes to convert have not been met. The Notes were therefore not convertible during the three and nine months ended December 31, 2020 and were classified as long-term debt for such period.
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 are 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.
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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 will be 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.
The net carrying amount of the liability component of the Notes was as follows (in thousands):