NEW RELIC, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q) – marketscreener.com

 The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our 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.                                     Overview New Relic delivers a software platform for customers to land all of their telemetry data quickly and affordably in one place and derive actionable insights from that data in a unified front-end application. This category of software products is generally referred to as observability. Our customers use our software platform, New Relic One, to ensure that they can observe and operate all of the components of their digital infrastructure and provide a quality digital experience for their customers. With a unified front end, purpose built on top of the world's most powerful telemetry data platform, New Relic One helps our users get a comprehensive and consistent view of their digital estate. At present, most observability software is targeted at a small subset of the developer community that works in the "operate" phase of the developer lifecycle. These engineers are primarily concerned with the availability of the applications and infrastructure that are the primary components of a customer's digital environment. However, a key component of our multi-year strategy is to help all software developers realize the largely dormant value of telemetry data. We fundamentally believe that telemetry data is valuable in all of the phases of the developer lifecycle: plan, build, deploy and operate. To deliver on this strategy, we make data ingest so affordable that customers have no reservations about populating our data platform with their growing amounts of telemetry data. We believe that engineers are attracted to very large data sets, and over time we intend to introduce ways for engineers in the plan, build and deploy phases of the developer lifecycle to realize significant value from that data. We believe we offer the lowest prices for data ingest in the industry; we can do this because we've built a massively scalable proprietary telemetry data platform, which is a unique competitive advantage and we are able to leverage that scale to offer more cost-effective solutions. Our unified front end and data-centric approach to observability gives our users a consistent and comprehensive view of their digital environment. This is in contrast to most other vendors we compete against that take an application-centric approach that forces users to toggle between a variety of stand-alone applications on top of purpose-built databases, effectively creating silos of data. 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 New Relic One on a consumption model; customers on this pricing model only 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 "Pay as You Go" contracts where they are charged for usage in arrears, or "Annual Pool of Funds" contracts where they commit to a minimum spend over their contracted period in exchange for a discount on their usage pricing. The majority of our Annual Pool of Funds contracts are one year in duration and are invoiced upfront. When a customer consumes either data or users in excess of their aggregate commitment, they are charged the same rate they negotiated in the commitment, and are invoiced for incremental charges when their consumption exceeds their commitment. When we enter into multi-year Annual Pool of Funds contracts, we typically invoice the customer on an annual basis. We offer a free tier of New Relic One. As a result, our direct sales prospects are often 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 more value from our products in the form of free, downloadable applications, or engagement with a knowledgeable member of our sales team for a bespoke discussion.                                        22 --------------------------------------------------------------------------------  We also generate revenue from services, which consist primarily of fees associated with consulting and training services. Revenue from services accounts for a de minimis amount of our total revenue. We expect to continue to invest in our product and go-to-market organizations as we believe both the self-serve nature of our products, and the customer specific attention from our technologists, play an important role in accelerating our customers' realization of the benefits of our platform, which helps drive customer retention and expansion. Our revenue for the three months ended December 31, 2021 and 2020 was $203.6 million and $166.3 million, respectively, representing year-over-year growth of 22%. For the nine months ended December 31, 2021 and 2020, our revenue was $579.8 million and $495.0 million, respectively, representing year-over-year growth of 17%. We continue to make significant expenditures and investments, including in personnel-related costs, sales and marketing, infrastructure and operations, and have incurred net losses in each period since our inception, including net losses attributable to New Relic of $62.7 million and $53.6 million for the three months ended December 31, 2021 and 2020, respectively, and $194.9 million and $130.9 million for the nine months ended December 31, 2021 and 2020, respectively. Our accumulated deficit as of December 31, 2021 was $727.8 million. Internationally, we currently offer our products in Europe, the Middle East, and Africa, ("EMEA"); Asia-Pacific, ("APAC"); and other non-U.S. locations, as determined based on the billing address of our customers, and our revenue from those regions constituted 16%, 10%, and 8%, respectively, of our revenue for the three months ended December 31, 2021, and 16%, 9%, and 6%, respectively, of our revenue for the three months ended December 31, 2020. Our revenue from those regions constituted 16%, 10%, and 7%, respectively, of our revenue for the nine months ended December 31, 2021, and 16%, 9%, and 6%, respectively, of our revenue for the nine months ended December 31, 2020. We believe there is an opportunity to increase our international revenue overall and as a proportion of our revenue, and we are increasingly investing in our international operations and intend to invest in further expanding our footprint in international markets.                     Impact of the Ongoing COVID-19 Pandemic The COVID-19 pandemic continues to affect the U.S. and the world and has resulted in authorities implementing numerous and changing measures to contain the virus. The extent of the impact of the COVID-19 pandemic on our operational and financial performance will continue to depend on certain developments, including the duration of the pandemic, the successful rollout of vaccines and the efficacy and durability of such vaccines, especially in light of the emergence of new variant strains; impact on our customers and our sales cycles; impact on our customer, employee, and industry events; impact on our employee recruitment and attrition; and effect on our vendors, all of which remain uncertain and cannot be predicted at this time. Since July 1, 2021, a number of our offices in certain locations were re-opened in limited capacities. As our offices reopen, we expect to incur incremental expenses as we resume onsite services and related in-office costs. While certain travel bans and other restrictions that were implemented by federal, state, or local authorities at the beginning of the pandemic were relaxed earlier in the year, recently, due to the proliferation of the Omicron variant, among other developments, some of these restrictions have been re-imposed, and new restrictions may be implemented. We are continuing to actively monitor the situation and have taken and may take further actions that alter our business operations as may be required or recommended by federal, state, or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers, and stockholders. As the development, distribution and public acceptance of treatments and vaccines progress, we continue to evaluate and refine our operational strategies. Our revenue and deferred revenue have been, in part, negatively impacted by the slowdown in activity associated with the COVID-19 pandemic, but at this point, the extent of any continuing impact to our financial condition or results of operations, including cash flows, is uncertain, particularly as the COVID-19 pandemic continues to persist for an extended period of time. Other factors affecting our performance are discussed below, although we caution you that the COVID-19 pandemic may also further impact these factors.                        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. With the shift in our pricing strategy, which now relies primarily upon a per-user license fee                                        23 --------------------------------------------------------------------------------  and payment based on the quantity of data ingested, we have more closely tied our revenue to the usage of our platform. Together with this pricing strategy, we also launched a new, robust free tier and improved self-service capabilities, which we expect to result in a material increase in our ability to attract and convert free users into new paying customers. 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 we improve our existing products and platform capabilities and introduce new products, we believe that the demand for our products will generally grow. We also believe that there is a significant opportunity for us to increase our revenue from sales to our current customers as they become more familiar with our products and adopt our products to address additional business use cases. In addition, we believe the shift in our pricing strategy will allow sales resources to focus energy on helping customers increase their data ingestion and the number of users and use cases.                              Key Operating Metrics The pricing changes announced in the second quarter of fiscal 2021 have shifted our business model away from subscription-based revenue to consumption-based revenue. As such, beginning with the first quarter of fiscal 2022, we retired annual recurring revenue ("ARR") and all of our traditional subscription-based key operating metrics that rely upon ARR. In place of ARR and ARR-derived metrics, we are providing metrics that we believe provide better insight into our business now that we are entering into contracts that rely primarily upon consumption-based revenue. We believe the change in methodology and focus on consumption-based metrics provide improved disclosures for our investors by better aligning our key operating metrics with our financial statements and will provide a better representation of these important components of our operating model and business performance as we continue to grow our business. 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 that 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. 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 31, 2021, we had 14,600 Active Customer Accounts, which is up from 13,900 Active Customer Accounts for the three-month period ended December 31, 2020 and is up sequentially from 14,300 Active Customer Accounts for the three-month period ended September 30, 2021. 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 31, 2021, we had 1,064 Active Customer Accounts with trailing 12-month revenue over $100,000, which was a 16% increase compared to 913 for the three-month period ended as of December 31, 2020 and a 5% increase compared to 1,011 for the three-month period ended September 30, 2021. 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.                                        24 --------------------------------------------------------------------------------  Our percentage of revenue from Active Customers with trailing 12-month revenue greater than $100,000 was 81% for the three-month period ended December 31, 2021, compared to 78% for the three-month period ended December 31, 2020 and 81% for the three-month period ended September 30, 2021. Net Revenue Retention Rate. We believe the growth in use 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 remained relatively flat year-over-year at 116% for the period ended December 31, 2021 compared to 115% for the period ended December 31, 2020 and increased quarter-over-quarter from 112% for the period ended September 30, 2021.                     Key Components of Results of Operations

Revenue

 For the periods presented, we offered access to our products and/or platform under subscription and consumption-based plans that include service and support for one or more of our products. For our paying customers, we offer a variety of pricing plans based on the particular product purchased. Our Annual Pool of Funds plans typically have terms of one year, although some of our customers commit for shorter or longer periods; our Pay as You Go plans do not have a commitment. Most of our revenue comes from contracts that are non-cancellable over the contract term. Our shift to a consumption-based model allows our customers to choose lower up-front commitments and to instead pay for their consumption in excess of their commitments. Meanwhile, if consumption by our users exceeds their up-front commitments, we would see an increase in the amount of revenue that we recognize from those customers. Additionally, because our sales representatives are now compensated based on customers' level of consumption, there is less incentive for them to obtain early renewals in order to increase non-cancellable revenue commitments. We have and may continue to experience volatility for our remaining performance obligations and deferred revenue as a result of our shift to our consumption pricing model. We had remaining performance obligations in the amount of $609.9 million and $726.8 million as of December 31, 2021 and March 31, 2021, 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 mix of subscription 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. Historically, in our legacy subscription-based model, the first two quarters of each fiscal year have generally had lower or potentially negative sequential deferred revenue growth than the third and fourth fiscal quarters, during which we generally benefit from a larger renewal pool and opportunity to upsell existing customers. During the conversion to our consumption-based model, many of the factors that affected these trends are less pronounced as customers that move to our consumption-based model make commitments that are below their actual spend with us. As such, period over period comparisons for deferred revenue are less relevant when considering future revenue trends and our historical patterns should not be considered indicative of our future sales activity or performance. 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 growth of our customer adoption and the number of products we offer, as customer usage continues to grow. Additionally, we are continuing to build out services and functionality in the public cloud with a view to migrating our entire platform over time from third-party data center hosting                                        25 --------------------------------------------------------------------------------  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 hosting facilities as we transition to greater dependence on cloud hosting providers. This public cloud migration has resulted and will continue to result in significant increased costs in the short term as we are incurring cloud migration costs as well as costs to maintain our data center operations. Gross Profit and Margin Gross profit is 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 we expect our gross margin to fluctuate from period to period as a result of these factors, our recent public cloud migration and, to a lesser extent, our pricing transition, have contributed to lower gross margins. Operating Expenses Personnel 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 costs and an allocation of our general overhead expenses. We continue to focus our research and development efforts on adding new features and products, and increasing the functionality and 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. As 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 expenses. Sales and Marketing. Sales and marketing expenses consist of personnel costs for our sales, marketing, and business development employees and executives. With our shift to a consumption model pricing strategy, a significant majority of commissions are no longer capitalized and will instead mostly be expensed as incurred. Previously commissions attributable to acquiring new customer contracts were capitalized and amortized on a straight-line basis over the anticipated period of benefit. Therefore, commission expenses will be larger until we have fully recognized the remaining capitalized commissions expenses from prior periods under our subscription model. Sales and marketing expenses also include the costs of our marketing and brand awareness programs, including our free tier offering. We expect that go-to-market operations in our consumption-based business model will be more efficient, and require less investment, than in our former more traditional subscription model. In furtherance of this strategy shift, we have reallocated some spending from sales and marketing to increase our investment on 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. General and Administrative. General and administrative expenses consist primarily of personnel costs for our administrative, legal, human resources, information technology, finance and accounting employees, and executives. Also included are non-personnel 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. As a result, we expect our general and administrative expenses to continue to increase in absolute dollars for the foreseeable future. However, we expect our general and administrative expenses to remain flat or decrease modestly as a percentage of our revenue over the long term, although our general and administrative expense, as a percentage of our revenue, may fluctuate from period to period depending on the timing and extent of our general and administrative expenses, such as litigation or accounting costs. Other Income (Expense) Other income (expense) consists primarily of interest income, interest expense, foreign exchange gains and losses, and gains on lease modifications.                                         26 --------------------------------------------------------------------------------                               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,                                                           2021                2020                  2021                   2020                                                                           (in thousands, except per share amounts) Revenue                                               $  203,591          $ 166,340          $        579,769          $  494,979 Cost of revenue (1)                                       68,793             45,968                   192,319             124,439 Gross profit                                             134,798            120,372                   387,450             370,540 Operating expenses: Research and development (1)                              53,362             45,773                   153,460             131,245 Sales and marketing (1)                                   97,723             92,392                   293,603             266,906 General and administrative (1)                            35,614             30,249                   113,193              89,481 Total operating expenses                                 186,699            168,414                   560,256             487,632 Loss from operations                                     (51,901)           (48,042)                 (172,806)           (117,092) Other income (expense): Interest income                                              575              1,734                     2,237               6,735 Interest expense                                          (1,228)            (6,229)                   (3,682)            (18,549) Other expense                                               (268)              (811)                     (647)             (1,810) Loss before income taxes                                 (52,822)          
(53,348)                 (174,898)           (130,716) Income tax provision                                         763                564                       816               1,276 Net loss                                              $  (53,585)         $

(53,912) $ (175,714) $ (131,992) Net loss and adjustment attributable to redeemable non-controlling interest

                                  (9,121)               286                   (19,175)              1,059 Net loss attributable to New Relic                    $  (62,706)         $ 

(53,626) $ (194,889) $ (130,933) Net loss attributable to New Relic per share, basic and diluted

                                           $    (0.96)         $ 

(0.88) $ (3.04) $ (2.16) Weighted-average shares used to compute net loss per 64,983

             61,209                    64,203              60,562 

share, basic and diluted

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

                                                      Three Months Ended December                                                                  31,                      Nine Months Ended December 31,                                                         2021              2020               2021                2020                                                                                 (in thousands) Cost of revenue                                     $   1,382          $  1,472          $    3,757          $   4,596 Research and development                               13,117            10,960              36,228             30,214 Sales and marketing                                    12,537            15,115              37,619             42,960 General and administrative (2)                         10,755             8,922              39,945             25,274 

Total stock-based compensation expense (3) $ 37,791 $ 36,469 $ 117,549 $ 103,044

   (2) Includes $9.6 million acceleration of share-based payment expense for the nine months ended December 31, 2021 for one of our executives due to his departure at the end of June 2021. There was no corresponding expense for the three-month period. (3) Includes $0.5 million 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 three-month period. Refer to Note 16. Restructuring for more information.                                        27 --------------------------------------------------------------------------------
                                                         Three Months Ended December 31,             Nine Months Ended December 31,                                                            2021                  2020                  2021                  2020                                                                                 (as a percentage of revenue) Revenue                                                        100  %               100  %                 100  %               100  % Cost of revenue (1)                                             34                   28                     33                   25 Gross profit                                                    66                   72                     67                   75 Operating expenses: Research and development (1)                                    26                   27                     26                   26 Sales and marketing (1)                                         49                   56                     51                   54 General and administrative (1)                                  17                   18                     20                   18 Total operating expenses                                        92                  101                     97                   98 Loss from operations                                           (26)                 (29)                   (30)                 (23) Other income (expense): Interest income                                                  -                    1                      -                    1 Interest expense                                                (1)                  (4)                    (1)                  (4) Other income (expense), net                                      -                    -                      -                    - Loss before income taxes                                       (27)                 (32)                   (31)                 (26) Income tax provision                                             -                    -                      -                    - Net loss                                                       (27) %               (32) %                 (31) %               (26) %

Net loss and adjustment attributable to redeemable non-controlling interest

                                        (4)                   -                     (3)                   - Net loss attributable to New Relic                             (31) %               (32) %                 (34) %               (26) %   

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

                                                      Three Months Ended December 31,             Nine Months Ended December 31,                                                           2021                 2020                  2021                 2020                                                                               (as a percentage of revenue) Cost of revenue                                                 1  %                1  %                   1  %                1  % Research and development                                        6                   7                      6                   6 Sales and marketing                                             6                   9                      6                   9 General and administrative                                      5                   5                      7                   5 Total stock-based compensation expense                         18  %               22  %                  20  %               21  %   Revenue                         Three Months Ended December 31,                 Change                  Nine Months Ended December 31,                 Change                             2021                2020             Amount             %              2021                2020             Amount             %                                                                                  (dollars in thousands) United States           $  134,687          $ 114,102          $ 20,585            18  %       $  391,127          $ 341,458          $ 49,669            15  % EMEA                        31,714             26,459             5,255            20              89,920             77,903            12,017            15 APAC                        21,354             16,013             5,341            33              57,852             46,276            11,576            25 Other                       15,836              9,766             6,070            62              40,870             29,342            11,528            39 Total revenue           $  203,591          $ 166,340          $ 37,251            22  %       $  579,769          $ 494,979          $ 84,790            17  %   Total revenue increased $37.3 million, or 22%, in the three months ended December 31, 2021 compared to the same period of 2020. Our revenue from the United States increased $20.6 million, or 18%, our revenue from EMEA increased $5.3 million, or 20%, our revenue from APAC increased $5.3 million, or 33%, and our revenue from other regions increased $6.1 million, or 62% in the three months ended December 31, 2021 compared to the same period of 2020, primarily as a result of growth in our customer base and increase in consumption in addition to revenue recognized from variable consideration.                                        28 --------------------------------------------------------------------------------  Total revenue increased $84.8 million, or 17%, in the nine months ended December 31, 2021 compared to the same period of 2020. Our revenue from the United States increased $49.7 million, or 15%. Our revenue from EMEA increased $12.0 million, or 15%, our revenue from APAC increased $11.6 million, or 25%, and our revenue from other regions increased $11.5 million or 39% in the nine months ended December 31, 2021 compared to the same period of 2020, primarily as a result of growth in our customer base and increase in consumption in addition to revenue recognized from variable consideration. Cost of Revenue                          Three Months Ended December                                      31,                              Change                  Nine Months Ended December 31,                 Change                             2021              2020             Amount             %              2021                2020             Amount             %                                                                                 (dollars in thousands) Cost of revenue         $  68,793          $ 45,968          $ 22,825            50  %       $  192,319          $ 124,439          $ 67,880            55  %   Cost of revenue increased $22.8 million, or 50%, in the three months ended December 31, 2021 compared to the same period of 2020. The increase was primarily due to a $22.7 million increase in hosting-related costs as a result of the additional expenses incurred in connection with our public cloud migration. The remaining increase was due to a $0.7 million increase in personnel-related costs, driven by an increase in headcount and merit-based compensation and a $0.3 million increase in travel expense which was partially offset by a $0.8 million decrease in depreciation and amortization expense. Cost of revenue increased $67.9 million, or 55%, in the nine months ended December 31, 2021 compared to the same period of 2020. The increase was primarily a result of a $69.2 million increase in hosting-related costs as a result of the additional expenses incurred in connection with our public cloud migration and a $1.0 million increase in travel expenses. The increase was partially offset by a $1.5 million decrease in personnel-related costs and a $0.6 million decrease in depreciation and amortization expense. Research and Development                             Three Months Ended December                                         31,                              Change                 Nine Months Ended December 31,                 Change                                2021              2020             Amount            %              2021                2020             Amount             %                                                                                    (dollars in thousands) Research and development   $  53,362          $ 45,773          $ 7,589     

17 % $ 153,460 $ 131,245 $ 22,215

17 %

   Research and development expenses increased $7.6 million, or 17%, in the three months ended December 31, 2021 compared to the same period of 2020. The increase was primarily a result of an increase in personnel-related costs of $6.9 million, driven by an increase in headcount and merit-based compensation, a $0.9 million increase in allocated costs, including facilities and depreciation, and a $0.4 million increase in travel expenses. The increase was partially offset by a $0.9 million decrease in software subscription and consulting expenses as well as a hosting service credit. Research and development expenses increased $22.2 million, or 17%, in the nine months ended December 31, 2021 compared to the same period of 2020. The increase was primarily the result of an increase in personnel-related costs of $20.4 million, driven by an increase in headcount and merit-based compensation, a $3.2 million increase in allocated costs, including facilities and depreciation, and a $0.5 million increase in travel expenses. The increase was partially offset by a $2.1 million decrease in software subscription and consulting expenses as well as a hosting service credit. Sales and Marketing                           Three Months Ended December                                       31,                             Change                 Nine Months Ended December 31,                 Change                              2021              2020             Amount           %              2021                2020             Amount             %                                                                                 (dollars in thousands) Sales and marketing      $  97,723          $ 92,392          $ 5,331            6  %       $  293,603          $ 266,906          $ 26,697           

10 %

   Sales and marketing expenses increased $5.3 million, or 6%, in the three months ended December 31, 2021 compared to the same period of 2020. The increase was primarily a result of a $2.3 million increase in marketing programs, a $1.5 million increase in travel expenses, a $1.4 million increase in software subscription and consulting expenses, and a $1.1 million increase in personnel-related costs. The increase in personnel-related costs was primarily driven by an increase in sales commissions expense as a result of our shift to a consumption-business model, where the majority of commissions are expensed as incurred, in addition to historical amortization expense for commissions paid under our subscription-business model.                                        29 --------------------------------------------------------------------------------  The increase was partially offset by a $1.2 million decrease in allocated costs, including facilities and depreciation. Sales and marketing expenses increased $26.7 million, or 10%, in the nine months ended December 31, 2021 compared to the same period of 2020. Although headcount decreased due to the restructuring activities commenced in the first quarter of fiscal 2022, personnel-related costs increased $15.3 million. The increase in personnel-related costs was primarily driven by an increase in sales commissions expense as a result of our shift to a consumption-business model, where the majority of commissions are expensed as incurred, in addition to historical amortization expense for commissions paid under our subscription-business model. The remaining increase was due to a $4.2 million increase in marketing programs, a $3.6 million increase in software subscription and consulting expenses, and a $2.4 million increase in travel expenses. General and Administrative                                 Three Months Ended December                                             31,                              Change                Nine Months Ended December 31,                 Change                                    2021              2020             Amount            %              2021               2020             Amount             %                                                                                       (dollars in thousands) General and administrative     $  35,614          $ 30,249          $ 5,365            18  %       $  113,193          $ 89,481          $ 23,712       

26 %

   General and administrative expenses increased $5.4 million, or 18%, in the three months ended December 31, 2021 compared to the same period of 2020. The increase was primarily a result of an increase in personnel-related costs of $3.8 million, driven by an increase in headcount and merit-based compensation. The remaining increase was due to a $0.7 million increase in allocated costs, including facilities and depreciation expenses, a $0.6 million increase in software subscription and consulting expenses, a $0.3 million increase in travel expenses, and a $1.0 million increase in other miscellaneous expenses. The increase was partially offset by a $1.0 million decrease in legal and accounting expenses. General and administrative expenses increased $23.7 million, or 26%, in the nine months ended December 31, 2021 compared to the same period of 2020. The increase was primarily a result of an increase in personnel-related costs of $19.7 million, driven by a $10.2 million stock-based compensation charge due to acceleration of share-based payment expense for one executive due to his departure in the first quarter of fiscal 2022, and an increase in headcount and merit-based compensation. The remaining increase was due to a $1.1 million increase in software subscription and consulting expenses, a $0.8 million increase in legal and accounting expenses, a $0.4 million increase in travel expenses, a $0.4 million increase in allocated costs, including facilities and depreciation expenses, and a $1.3 million increase in other miscellaneous expenses. Other Income (Expense)                          Three Months Ended December                                      31,                              Change                Nine Months Ended December 31,                 Change                             2021              2020             Amount            %              2021               2020             Amount             %                                                                                (dollars in thousands) Other expense           $    (921)         $ (5,306)         $ 4,385            83  %       $  (2,092)         $ (13,624)         $ 11,532            85  %   Other expense decreased by $4.4 million, or 83% in the three months ended December 31, 2021 compared to the same period of 2020. The decrease was primarily due to a $5.0 million decrease in interest expense for our convertible debt due to the adoption of ASU 2020-06, Accounting for Convertible Instruments and Contract on an Entity's Own Equity ("ASU 2020-06") in the first quarter of fiscal 2022. This decrease was partially offset by a $0.6 million decrease in interest income. Other expense decreased by $11.5 million, or 85%, in the nine months ended December 31, 2021 compared to the same period of 2020, primarily due to a $14.9 million decrease in interest expense for our convertible debt due to the adoption of ASU 2020-06, which was partially offset by a $3.3 million decrease in interest income. Provision for (Benefit from) Income Tax                            Three Months Ended December                                        31,                             Change                       Nine Months Ended December 31,                       Change                               2021               2020           Amount            %                2021                          2020             Amount            %                                              (dollars in thousands) Income tax provision      $      763          $   564          $  199            35  %              816                           1,276          $ (460)           36  %                                          30
--------------------------------------------------------------------------------  We had an income tax expense of $0.8 million for the three months ended December 31, 2021 as compared to an income tax expense of $0.6 million for the same period of 2020. The change of $0.2 million, or 35%, was mostly related to a non-discrete item for foreign tax provision. We had an income tax expense of less than $0.8 million for the nine months ended December 31, 2021 as compared to an income tax expense of $1.3 million for the same period of 2020. The change of $0.5 million, or 36%, was mostly due to the non-discrete items for foreign tax provision which was partially offset by an income tax benefit recognized as a result of our CodeStream acquisition in the first quarter of fiscal 2022. Net Loss and Adjustment Attributable to Redeemable Non-controlling Interest                                  Three Months Ended December                                              31,                               Change                  Nine Months Ended December 31,                  Change                                     2021               2020            Amount              %               2021               2020             Amount              %                                                      (dollars in thousands) Net loss and adjustment attributable to redeemable non-controlling interest        $   (9,121)         $   286          $ (9,407)          3,289  %       $  (19,175)         $ 1,059          $ (20,234)          1,911  %   Net loss and adjustment attributable to redeemable non-controlling interest increased by $9.4 million or 3,289%, in the three months ended December 31, 2021 compared to the same period of 2020. The increase in loss and adjustment was related to the redeemable non-controlling interest's adjustment to estimated redemption value of our joint venture in New Relic K.K., partially offset by share of associated losses. Net loss and adjustment attributable to redeemable non-controlling interest increased by $20.2 million or 1,911%, in the nine months ended December 31, 2021 compared to the same period of 2020. The increase in loss and adjustment was related to the redeemable non-controlling interest's adjustment to estimated redemption value of our joint venture in New Relic K.K., partially offset by share of associated losses.                                        31 --------------------------------------------------------------------------------                            Non-GAAP Financial Measures Non-GAAP Loss From Operations To supplement our consolidated financial statements presented in accordance with GAAP, we provide investors with certain non-GAAP financial measures, including non-GAAP loss from operations and non-GAAP net loss attributable to New Relic. We define non-GAAP loss from operations and non-GAAP net loss attributable to New Relic as the respective GAAP balance, adjusted for, as applicable: (1) stock-based compensation expense, (2) amortization of stock-based compensation capitalized in software development costs, (3) the amortization of purchased intangibles, (4) employer payroll tax expense on equity incentive plans, (5) amortization of debt discount and issuance costs, (6) the transaction costs related to acquisitions, (7) lawsuit litigation cost and other expense, (8) gain or loss from lease modification, and (9) adjustment to redeemable non-controlling interest. We use non-GAAP financial measures, including non-GAAP loss from operations and non-GAAP net 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 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 loss from operations to non-GAAP loss from operations and a reconciliation of GAAP net loss attributable to New Relic to non-GAAP net loss attributable to New Relic. We believe non-GAAP loss from operations and non-GAAP net loss attributable to New Relic are useful to investors and others in assessing our operating performance due to the following factors: Stock-based compensation expense and amortization of stock-based compensation capitalized in software development costs. 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. 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. Employer payroll tax expense on equity incentive plans. We 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 debt discount and issuance costs. In May 2018, we issued $500.25 million of our 0.50% convertible senior notes due 2023 (the "Notes"), which bear interest at an annual fixed rate of 0.5%. The effective interest rate of the Notes was 5.74%. Effective April 1, 2021 the Company adopted ASU No. 2020-06, Accounting for Convertible Instruments and Contract on an Entity's Own Equity. As a result of the adoption, the debt conversion option and debt issuance costs previously attributable to the equity component are no longer presented in equity. Similarly, the 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. This resulted in 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. 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. Transaction costs related to acquisitions. We may from time to time incur direct transaction costs related to acquisitions. We believe it is useful to exclude such charges because it does not consider such amounts to be part of the ongoing operation of our business. Lawsuit litigation cost and other expense. We may from time to time incur charges or benefits related to litigation that are outside of the ordinary course of our business. We believe it is useful to exclude such charges or benefits because we do not consider such amounts to be part of the ongoing operation of our business and because of the singular nature of the claims underlying the matter.                                        32 --------------------------------------------------------------------------------  Gain or loss from lease modification. We may incur a gain or loss from modification related to lease agreements. We believe it is useful to exclude such charges or benefits because we do not consider such amounts to be part of the ongoing operation of our business and because of the singular nature of benefit or charge from such events. Adjustment to redeemable non-controlling interest. We adjust the value of redeemable non-controlling interest in connection with our joint venture in New Relic K.K. We believe it is useful to exclude the adjustment to redeemable non-controlling interest because it may not be indicative of our future operating results and that investors benefit from an understanding of our operating results without giving effect to this adjustment. 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 past 12 months. As a result of the restructuring plan, we incurred charges of approximately $12.6 million for employee terminations and other costs associated with the restructuring plan. Most of these charges consisted of cash expenditures and stock-based compensation expense and were recognized in the first quarter of fiscal 2022. We believe it is appropriate to exclude the restructuring charges because they are not indicative of our future operating results. 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. The following tables present our non-GAAP loss from operations and our non-GAAP net loss attributable to New Relic and reconcile our GAAP loss from operations to non-GAAP loss from operations and our GAAP net loss attributable to New Relic to our non-GAAP net loss attributable to New Relic for the three and nine months ended December 31, 2021 and 2020 (in thousands):                                                    Three Months Ended December 31,            Nine Months Ended December 31,                                                        2021                2020                  2021                   2020 GAAP loss from operations                          $  (51,901)         $ 

(48,042) $ (172,806) $ (117,092) Plus: Stock-based compensation expense

                 37,791             36,469                   117,549             103,044  Plus: Amortization of purchased intangibles             2,006              1,277                     5,358               3,829 Plus: Transaction costs related to acquisitions             -                885                       361                 885 Plus: Amortization of stock-based compensation capitalized in software development costs                 640                339                     1,680                 843 Plus: Lawsuit litigation cost and other expense            59                217                        59                 254 Plus: Employer payroll tax on employee equity incentive plans                                           956                461                     2,552               2,120 Plus: Restructuring charges (1)                          (151)                 -                    12,119                   - Non-GAAP loss from operations                      $  (10,600)         $  (8,394)         $        (33,128)         $   (6,117)                                                        Three Months Ended December 31,            Nine Months Ended December 31,                                                          2021                2020                  2021                   2020 GAAP net loss attributable to New Relic              $  (62,706)         $ 

(53,626) $ (194,889) $ (130,933) Plus: Stock-based compensation expense

                   37,791             36,469                   117,549             103,044  Plus: Amortization of purchased intangibles               2,006              1,277                     5,358               3,829 Plus: Transaction costs related to acquisitions               -                885                       361                 885 Plus: Amortization of stock-based compensation capitalized in software development costs                   640                339                     1,680                 843 Plus: Lawsuit litigation cost and other expense              59                217                        59                 254 Plus: Employer payroll tax on employee equity incentive plans                                             956                461                     2,552               2,120 Plus: Amortization of debt discount and issuance costs                                                       590              5,622                     1,766              16,632 Plus: Adjustment to redeemable non-controlling interest                                                  9,215                  -                    19,450                   - Plus: Restructuring charges (1)                            (151)                 -                    12,119                   -  

Non-GAAP net loss attributable to New Relic $ (11,600) $ (8,356) $ (33,995) $ (3,326)

(1) Restructuring related charge for the stock-based compensation expense of $0.5 million is included on its respective line items.

                                       33 --------------------------------------------------------------------------------  Non-GAAP loss from operations and non-GAAP net loss attributable to New Relic 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 attributable to New Relic in past quarters and while we expect with increased efficiencies for these numbers to improve, we expect to remain in a loss position in the near future as we continue to incur additional expenses during our public cloud migration and due to an increase in commission expense. In prior periods, commissions were mostly capitalized and amortized in future periods. With our shift to a consumption model and shift in pricing strategy, a significant majority of commissions will no longer be capitalized and will instead mostly be expensed as incurred.                                         34 --------------------------------------------------------------------------------                          Liquidity and Capital Resources

Nine Months Ended December 31,

                                                                             2021                   2020                                                                                  (in thousands) Cash provided by (used in) operating activities                      $        (46,328)         $   41,385 Cash provided by (used in) investing activities                                16,885            (132,868) Cash provided by financing activities                                          34,582              10,126 

Net increase (decrease) in cash, cash equivalents and restricted cash

                                                                 $      

5,139 $ (81,357)

   To date, we have financed our operations primarily through the issuance of the Notes, private and public equity financings and customer payments. 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 for at least the next 12 months. 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. Operating Activities 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. During the nine months ended December 31, 2020, cash provided by operating activities was $41.4 million as a result of a net loss of $132.0 million, adjusted by non-cash charges of $187.9 million and a change of $14.4 million in our operating assets and liabilities. The change in our operating assets and liabilities was primarily the result of a $33.1 million increase in deferred contract acquisition costs, a $12.9 million decrease in deferred revenue, a $1.3 million increase in lease right-of-use assets, and a $1.0 million increase in prepaid expenses and other assets. This was partially offset by a $18.1 million increase in accrued compensation and benefits and other liabilities, a $10.0 million increase in accounts payable, a $3.6 million decrease in accounts receivable, and a $2.2 million increase in lease liabilities. Investing Activities 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. Cash used in investing activities during the nine months ended December 31, 2020 was $132.9 million, primarily as a result of purchases of short-term investments of $293.8 million, cash paid for acquisition, net of cash acquired, of $41.5 million, purchases of property and equipment of $15.8 million, and increases in capitalization of software development costs of $9.7 million. This was partially offset by proceeds from the maturity and sale of short-term investments of $228.1 million.                                        35 --------------------------------------------------------------------------------  Financing Activities 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 $29.2 million and from the exercise of stock options of $5.4 million. Cash provided by financing activities during the nine months ended December 31, 2020 was $10.1 million, which was the result of proceeds from the exercise of stock options of $3.6 million and proceeds from the purchase of shares of common stock pursuant to our employee stock purchase plan of $6.5 million.                     Contractual Obligations and Commitments Our principal contractual commitments primarily consist of obligations under leases for office space and purchase commitments. Except as set forth in Note 9 - Leases and Note 10 - 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 in our commitments under contractual obligations, as disclosed in our audited consolidated financial statements for the fiscal year ended March 31, 2021 in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 (our "Annual Report"), as filed with the Securities and Exchange Commission, ("SEC"), on May 14, 2021.                          Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

                          Critical Accounting Policies 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. Except for the early adoption of ASU 2020-06, Accounting for Convertible Instruments and Contract on an Entity's Own Equity (Subtopic 815-40), there have been no significant changes in our critical accounting policies and estimates during the nine months ended December 31, 2021 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 Our subscription and usage-based agreements are primarily 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. To date, foreign currency transaction gains and losses have not been material to our financial statements, and 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.                                        36 --------------------------------------------------------------------------------  Interest Rate Risk We had cash and cash equivalents of $245.8 million as of December 31, 2021, 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 $534.0 million as of December 31, 2021, 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, 2021, 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 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.                                        37

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