NEW RELIC, INC. (Form: 10-Q, Received: 11/08/2017 06:08:11)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

_________________________________________________

FORM 10-Q

_________________________________________________



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

For the quarterly period ended September 30, 2017



¨	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 1200

San Francisco, California 94105

(Address of principal executive offices, including zip code)

(650) 777-7600

(Registrant’s telephone number, including area code)

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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý 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	☐ (Do not check if a small reporting company)	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 ý

As of October 30, 2017 , there were 55,062,420 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

NEW RELIC, INC.

Form 10-Q Quarterly Report

TABLE OF CONTENTS



		Page
Special Note Regarding Forward-Looking Statements		2
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets as of September 30, 2017 and March 31, 2017	3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended September 30, 2017 and 2016	4

	Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended September 30, 2017 and 2016	5

	Condensed Consolidated Statements of Cash Flows for the Six Months ended September 30, 2017 and 2016	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	26

Item 4.	Controls and Procedures	27

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	45

Item 4.	Mine Safety Disclosures	46

Item 5.	Other Information	46

Item 6.	Exhibits	46

	Signatures	47

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 wholly owned 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:


•	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 profitability;


•	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 renew subscriptions;


•	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 penetrate enterprise markets;


•	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;


•	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 section titled “Risk Factors” 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.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NEW RELIC, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

(Unaudited)



	September 30,			March 31,
	2017			2017
Assets
Current assets:
Cash and cash equivalents	$	110,716		$	88,305
Short-term investments	116,743			118,101
Accounts receivable, net of allowance for doubtful accounts of $1,004 and $1,117, respectively	39,510			62,032
Prepaid expenses and other current assets	10,857			8,169
Total current assets	277,826			276,607
Property and equipment, net	53,528			50,728
Restricted cash	8,024			8,115
Goodwill	11,828			11,828
Intangible assets, net	1,705			2,499
Other assets	5,531			2,492
Total assets	$	358,442		$	352,269
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	4,830		$	6,522
Accrued compensation and benefits	17,131			15,935
Other current liabilities	8,510			7,607
Deferred revenue	122,373			125,269
Total current liabilities	152,844			155,333
Deferred rent, non-current	7,685			8,272
Deferred revenue, non-current	578			1,135
Other liabilities, non-current	721			685
Total liabilities	161,828			165,425
Commitments and contingencies (Note 5)
Stockholders’ equity:
Common stock, $0.001 par value; 100,000 shares authorized at September 30, 2017 and March 31, 2017; 55,259 shares and 53,539 shares issued at September 30, 2017 and March 31, 2017, respectively; and 54,999 shares and 53,279 shares outstanding at September 30, 2017 and March 31, 2017, respectively	55			53
Treasury stock - at cost (260 shares)	(263		)	(263		)
Additional paid-in capital	487,705			447,314
Accumulated other comprehensive loss	(94		)	(96		)
Accumulated deficit	(290,789		)	(260,164		)
Total stockholders’ equity	196,614			186,844
Total liabilities and stockholders’ equity	$	358,442		$	352,269

See notes to condensed consolidated financial statements.

NEW RELIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)



	Three Months Ended September 30,						Six Months Ended September 30,
	2017			2016			2017			2016
Revenue	$	84,685		$	63,440		$	164,783		$	122,047
Cost of revenue	15,694			11,778			30,671			23,433
Gross profit	68,991			51,662			134,112			98,614
Operating expenses:
Research and development	18,266			14,741			36,532			30,710
Sales and marketing	51,261			40,382			100,622			79,168
General and administrative	14,305			10,833			28,247			21,069
Total operating expenses	83,832			65,956			165,401			130,947
Loss from operations	(14,841		)	(14,294		)	(31,289		)	(32,333		)
Other income (expense):
Interest income	512			250			969			471
Interest expense	(21		)	(21		)	(43		)	(42		)
Other income (expense), net	(152		)	(126		)	162			(237		)
Loss before income taxes	(14,502		)	(14,191		)	(30,201		)	(32,141		)
Income tax provision (benefit)	189			(61		)	424			60
Net loss	$	(14,691	)	$	(14,130	)	$	(30,625	)	$	(32,201	)
Net loss per share, basic and diluted	$	(0.27	)	$	(0.28	)	$	(0.57	)	$	(0.63	)
Weighted-average shares used to compute net loss per share, basic and diluted	54,699			51,328			54,201			50,779

See notes to condensed consolidated financial statements.

NEW RELIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)



	Three Months Ended September 30,						Six Months Ended September 30,
	2017			2016			2017			2016
Net loss	$	(14,691	)	$	(14,130	)	$	(30,625	)	$	(32,201	)
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities, net of tax	19			(11		)	2			(1		)
Comprehensive loss	$	(14,672	)	$	(14,141	)	$	(30,623	)	$	(32,202	)

See notes to condensed consolidated financial statements.

NEW RELIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Six Months Ended September 30,
	2017			2016
Cash flows from operating activities:
Net loss:	$	(30,625	)	$	(32,201	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	11,553			8,533
Stock-based compensation expense	19,845			15,601
Other	384			508
Changes in operating assets and liabilities:
Accounts receivable	22,522			5,492
Prepaid expenses and other assets	(5,450		)	(2,758		)
Accounts payable	(530		)	757
Accrued compensation and benefits and other liabilities	2,786			(743		)
Deferred revenue	(3,453		)	5,654
Deferred rent	(431		)	2,994
Net cash provided by operating activities	16,601			3,837
Cash flows from investing activities:
Purchases of property and equipment	(14,394		)	(8,490		)
Decrease in restricted cash	91			—
Purchases of short-term investments	(55,126		)	(65,404		)
Proceeds from sale and maturity of short-term investments	56,432			87,415
Capitalized software development costs	(1,486		)	(1,733		)
Net cash provided by (used in) investing activities	(14,483		)	11,788
Cash flows from financing activities:
Proceeds from employee stock purchase plan	3,029			2,504
Proceeds from exercise of employee stock options	17,264			9,902
Net cash provided by financing activities	20,293			12,406
Net increase in cash and cash equivalents	22,411			28,031
Cash and cash equivalents, beginning of period	88,305			65,914
Cash and cash equivalents, end of period	$	110,716		$	93,945
Supplemental disclosure of cash flow information:
Cash paid for interest and income taxes	$	193		$	102
Noncash investing and financing activities:
Property and equipment purchased but not yet paid	$	1,042		$	5,808

See notes to condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business and Summary of Significant Accounting Policies

Description of Business —New Relic, Inc. (the “Company” or “New Relic”) was founded in 2007 and incorporated in Delaware on February 20, 2008 . The Company is a software-as-a-service provider of digital intelligence products that allow users to monitor software and infrastructure performance and measure end-user activities across desktop and mobile devices with applications deployed in the cloud or in a data center. New Relic’s digital intelligence products and platform capabilities enable software developers, IT operations, and business users to better understand their digital business.

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, 2017, as filed with the SEC on May 18, 2017 (the “Annual Report”). There have been no changes to the Company’s significant accounting policies described in the Annual Report that have had a material impact on its condensed consolidated financial statements and related notes.

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 and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year ending March 31, 2018. The condensed consolidated balance sheet as of March 31, 2017 included herein was derived from the audited financial statements as of that date.

Use of Estimates —The preparation of the Company’s condensed 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 condensed 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 condensed consolidated financial statements; therefore, actual results could differ from management’s estimates.

Concentration of Risk —There were no customers that represented more than 10% of the Company’s accounts receivable balance as of September 30, 2017 . One customer represented 12% of the Company’s accounts receivable balance as of March 31, 2017 . There were no customers that individually exceeded 10% of the Company’s revenue during the three and six months ended September 30, 2017 or 2016 .

Short-term Investments —Short-term investments consist of commercial paper, certificates of deposit, U.S. treasury securities, U.S. agency securities, and corporate debt securities and are classified as available-for-sale securities. The Company has classified its investments as current based on the nature of the investments and their availability for use in current operations. Available-for-sale securities are carried at fair value with unrealized gains and losses reported as a component of accumulated other comprehensive income, while realized gains and losses are reported within the statement of operations. The Company reviews its debt securities classified as short-term investments on a regular basis to evaluate whether or not any security has experienced an other-than-temporary decline in fair value. The Company considers factors such as the length of time and extent to which the market value has been less than the cost, the financial position and near-term prospects of the issuer, and the Company’s intent to sell, or whether it is more likely than not the Company will be required to sell the investment before recovery of the investment’s amortized-cost basis. If the Company determines that an other-than-temporary decline exists in one of these securities, the respective investment would be written down to fair value. For debt securities, the portion of the write-down related to credit loss would be recognized as other income, net in the condensed consolidated statement of operations. Any portion not related to credit loss would be included in accumulated other comprehensive income (loss). The Company did not identify any investments as other-than-temporarily impaired as of September 30, 2017 and March 31, 2017 .

Business Combinations —The Company recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair value. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, its estimates are inherently uncertain and subject to refinement. As a result, during the

measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill to the extent that the Company identifies adjustments to the preliminary purchase price allocation. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s condensed consolidated statements of operations. There has been no such adjustment as of September 30, 2017 .

Goodwill —Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets. Goodwill is evaluated for impairment annually in the third quarter of the Company’s fiscal year, and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. Triggering events that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of goodwill or a significant decrease in expected cash flows. Since inception through September 30, 2017 , the Company has not had any goodwill impairment.

Intangible Assets —Intangible assets consist of identifiable intangible assets, primarily developed technology, resulting from the Company’s acquisitions. Acquired intangible assets are recorded at cost, net of accumulated amortization. Intangible assets are amortized on a straight-line basis over their estimated useful lives.

Recent Accounting Pronouncements —In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The new guidance provides principles for recognizing revenue to which an entity expects to be entitled for the transfer of promised goods or services to customers. The new guidance will be effective for the Company in its fiscal year beginning April 1, 2018. The guidance may be applied retrospectively to each prior period presented (full retrospective method), or with the cumulative effect recognized as of the date of initial adoption (modified retrospective method). The Company currently intends to adopt Topic 606 using the modified retrospective approach in the first quarter of fiscal year 2019. As the Company continues to assess the new standard along with industry trends and internal progress, the Company may adjust its implementation plan accordingly.

The Company anticipates that the significant impacts of adopting Topic 606 will include the deferral of incremental commission costs of obtaining contracts and additional disclosure requirements. Currently, the Company records commissions as sales and marketing expenses as incurred. Under the new standard, the Company will capitalize incremental commissions related to initial contracts over the expected period of benefit. The Company has not yet concluded the amortization period of these capitalized costs, which will affect the classification and magnitude of the deferred costs at each reporting period. The Company will continue to quantify the effects of adopting Topic 606 on its condensed consolidated financial statements, including the impact on its revenue as well as the changes discussed above.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) , which requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The new standard will be effective for the Company in the fiscal year beginning April 1, 2019; early adoption is permitted. The amendments require a modified retrospective approach with optional practical expedients. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements.

In March 2016, the FASB Issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . The updated guidance changes how companies account for certain aspects of share-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted this standard in the first quarter of fiscal year 2018. Upon adoption, the Company recognized all of the previously unrecognized excess tax benefits related to stock awards using the modified retrospective transition method. These excess tax benefits, recognized upon adoption, were recorded as a deferred tax asset, which was then fully offset by the U.S. federal and state deferred tax asset valuation allowance resulting in no impact to the accumulated deficit. Without the valuation allowance, the Company’s deferred tax asset would have increased by $39.5 million . All future excess tax benefits resulting from the settlement of stock awards will be recorded to the income tax provision.

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 updated guidance requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down. The measurement of credit losses for newly recognized financial assets and subsequent changes in the allowance for credit losses are recorded in the statement of income. The update to the standard will be effective for the Company in the fiscal year beginning April 1, 2020; early adoption is permitted in the fiscal

year beginning April 1, 2019. The Company is currently evaluating the effect the standard will have on its condensed consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. The new guidance will be effective for the Company in its fiscal year beginning April 1, 2018. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements.

2. Fair Value Measurements

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis as of September 30, 2017 and March 31, 2017 based on the three-tier fair value hierarchy (in thousands):



	Fair Value Measurements as of September 30, 2017
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Money market funds	$	40,666	$	—	$	—	$	40,666
Commercial paper	—		5,743		—		5,743
Short-term investments:
Certificates of deposit	—		22,559		—		22,559
Commercial paper	—		19,905		—		19,905
Corporate notes and bonds	—		13,987		—		13,987
U.S. treasury securities	21,148		—		—		21,148
U.S. government agencies	—		39,144		—		39,144
Restricted cash:
Money market funds	8,024		—		—		8,024
Total	$	69,838	$	101,338	$	—	$	171,176
Included in cash and cash equivalents							$	46,409
Included in short-term investments							$	116,743
Included in restricted cash							$	8,024

	Fair Value Measurements as of March 31, 2017
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Money market funds	$	36,180	$	—	$	—	$	36,180
Commercial paper	—		5,441		—		5,441
U.S. government agencies	—		2,600		—		2,600
Short-term investments:
Certificates of deposit	—		28,210		—		28,210
Commercial paper	—		10,549		—		10,549
Corporate notes and bonds	—		17,378		—		17,378
U.S. treasury securities	11,276		—		—		11,276
U.S. government agencies	—		50,688		—		50,688
Restricted cash:
Money market funds	8,115		—		—		8,115
Total	$	55,571	$	114,866	$	—	$	170,437
Included in cash and cash equivalents							$	44,221
Included in short-term investments							$	118,101
Included in restricted cash							$	8,115

There were no transfers between fair value measurement levels during the six months ended September 30, 2017 and 2016 .

Gross unrealized gains or losses for cash equivalents and short-term investments as of September 30, 2017 and March 31, 2017 were not significant. As of September 30, 2017 and March 31, 2017 , there were no securities that were in an unrealized loss position for more than 12 months.

The following table classifies the Company’s available-for-sale short-term investments by contractual maturities as of September 30, 2017 and March 31, 2017 (in thousands):



	September 30, 2017		March 31, 2017
Due within one year	$	86,155	$	92,874
Due in one to two years	30,588		25,227
Total	$	116,743	$	118,101

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.

3. Property and Equipment

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



	September 30, 2017			March 31, 2017
Computers, software, and equipment	$	7,859		$	7,060
Site operation equipment	35,520			25,874
Furniture and fixtures	1,838			1,770
Leasehold improvements	31,140			30,586
Capitalized software development costs	34,370			32,618
Total property and equipment	110,727			97,908
Less: accumulated depreciation and amortization	(57,199		)	(47,180		)
Total property and equipment, net	$	53,528		$	50,728

Depreciation and amortization expense related to property and equipment was $5.5 million and $4.0 million for the three months ended September 30, 2017 and 2016 , respectively, and $10.8 million and $8.0 million for the six months ended September 30, 2017 and 2016 , respectively.

4. Goodwill and Purchased Intangibles Assets

There were no changes to the carrying amount of goodwill for the six months ended September 30, 2017 .

Purchased intangible assets subject to amortization as of September 30, 2017 consist of the following (in thousands):



	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technology	$	4,900	$	(3,195	)	$	1,705

Purchased intangible assets subject to amortization as of March 31, 2017 consist of the following (in thousands):



	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technology	$	4,900	$	(2,401	)	$	2,499

Amortization expense of purchased intangible assets was $0.4 million and $0.3 million for the three months ended September 30, 2017 and 2016 , respectively, and $0.8 million and $0.5 million for the six months ended September 30, 2017 and 2016 , respectively.

Estimated future amortization expense as of September 30, 2017 is as follows (in thousands):



Fiscal Years Ending March 31,	Estimated Future Amortization Expense
2018 (remaining 6 months)	393
2019	787
2020	525
	$	1,705

5. Commitments and Contingencies

Leases —The Company leases office space under non-cancelable operating lease agreements, which expire from 2017 through 2027 .

Deferred Rent —Certain of the Company’s operating leases contain rent holidays, allowances, and rent escalation provisions. For these leases, the Company recognizes the related rental expense on a straight-line basis over the life of the lease from the date the Company takes possession of the office and records the difference between amounts charged to operations and amounts paid as deferred rent. These rent holidays, allowances, and rent escalations are considered in determining the straight-line expense to be recorded over the lease term. As of September 30, 2017 and March 31, 2017 , $8.8 million and $9.2 million was recorded as deferred rent, respectively.

Rent expense, net of sublease income, for operating leases was $2.7 million and $2.5 million for the three months ended September 30, 2017 and 2016 , respectively, and $5.3 million and $4.9 million for the six months ended September 30, 2017 and 2016 , respectively.

Future minimum lease payments under non-cancelable operating leases as of September 30, 2017 were as follows (in thousands):




Fiscal Years Ending March 31,	Operating Leases
2018 (remaining 6 months)	$	5,648
2019	11,775
2020	12,972
2021	9,856
2022	8,321
Thereafter	22,280
Total minimum future lease payments	$	70,852

Purchase Commitments —As of September 30, 2017 and March 31, 2017 , the Company had purchase commitments of $25.7 million and $29.9 million , respectively, primarily related to hosting services.

Legal Proceedings —From time to time, the Company may become involved in various legal proceedings in the ordinary course of its business, and may be subject to third-party infringement claims.

On November 5, 2012, CA, Inc. filed suit against the Company in the United States District Court, Eastern District of New York for alleged patent infringement. CA, Inc.’s complaint against the Company claims that certain aspects of the Company’s products infringe certain patents held by CA, Inc. Discovery is complete in the case, and the court has ruled on summary judgment motions filed by both parties. A trial date has not been set as of September 30, 2017 . The Company cannot at this time predict the likely outcome of this proceeding or estimate the amount or range of loss or possible loss that may arise from it. The Company has not accrued any loss related to the outcome of this case as of September 30, 2017 .

In the normal course of business, the Company may agree to indemnify third parties with whom it enters into contractual relationships, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed, under certain conditions, to hold these third parties harmless against specified losses, such as those arising from a breach of representations or covenants, other third-party claims that the Company’s products when used for their intended purposes infringe the intellectual property rights of such other third parties, or other claims made against certain parties. To date, the Company has not incurred any costs as a result of such obligations and has not accrued any

liabilities related to such obligations in the condensed consolidated financial statements. In addition, the Company indemnifies its officers, directors, and certain key employees while they are serving in good faith in their respective capacities. The Company does not currently believe there is a reasonable possibility that a loss may have been incurred under these indemnification obligations. To date, there have been no claims under any such indemnification provisions.

6. Common Stock and Stockholders’ Equity

Employee Stock Purchase Plan —The Company’s board of directors adopted, and the Company’s stockholders approved, the Company’s 2014 Employee Stock Purchase Plan (the “ESPP”), which became effective in December 2014. The ESPP initially reserved and authorized the issuance of up to 1,000,000 shares of common stock. The ESPP provides that the number of shares reserved and available for issuance under the ESPP automatically increases each April, beginning on April 1, 2015, by the lesser of 500,000 shares, 1% of the number of the Company’s common stock shares issued and outstanding on the immediately preceding March 31, or such lesser number of shares as determined by the Company’s board of directors. For each of the three and six months ended September 30, 2017 , 101,493 shares of common stock were purchased under the ESPP. For each of the three and six months ended September 30, 2016 , 118,658 shares of common stock were purchased under the ESPP. Stock-based compensation expense recognized related to the ESPP was $0.6 million and $0.4 million for the three months ended September 30, 2017 and 2016 , respectively, and $1 million and $0.9 million for the six months ended September 30, 2017 and 2016 , respectively. As of September 30, 2017 , there were 2,046,251 shares available for issuance under the ESPP.

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

2014 Equity Incentive Plan —The Company’s board of directors adopted, and the Company’s stockholders approved, the Company’s 2014 Equity Incentive Plan (the “2014 Plan”), which became effective in December 2014. The 2014 Plan serves as the successor to the Company’s 2008 Plan. The 2014 Plan initially reserved and authorized the issuance of 5,000,000 shares of the Company’s common stock. Additionally, shares not issued or subject to outstanding grants under the 2008 Plan upon its termination became available under the 2014 Plan, resulting in a total of 5,184,878 available shares under the 2014 Plan as of the effective date of the 2014 Plan. Pursuant to the terms of the 2014 Plan, any shares subject to outstanding stock options or other stock awards under the 2008 Plan that (i) expire or terminate for any reason prior to exercise or settlement, (ii) are forfeited because of the failure to meet a contingency or condition required to vest such shares or otherwise return to the Company or (iii) are reacquired, withheld (or not issued) to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award will become available for issuance pursuant to awards granted under the 2014 Plan. The 2014 Plan provides that the number of shares reserved and available for issuance under the plan automatically increases each April 1, beginning on April 1, 2015, by 5% of the outstanding number of shares of the Company’s common stock shares issued and outstanding on the immediately preceding March 31, or such lesser number of shares as determined by the Company's board of directors. As of September 30, 2017 , there were 9,889,781 shares available for issuance under the 2014 Plan.

The following table summarizes the Company’s stock option and RSU award activities for the six months ended September 30, 2017 (in thousands, except per share information):



	Options Outstanding							RSUs Outstanding
	Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value		Number of Shares		Weighted- Average Grant Date Fair Value		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding - April 1, 2017	4,607		$	17.49	7.1	$	90,339	1,978		$	29.32	2.8	$	73,309
Stock options granted	449		44.69
RSUs granted								871		44.50
Stock options exercised	(1,232	)	13.99			36,669
RSUs vested								(387	)	30.19
Stock options canceled/forfeited	(230	)	26.01
RSUs canceled/forfeited								(282	)	30.95
Outstanding - September 30, 2017	3,594		$	21.54	7.0	$	101,558	2,180		$	35.01	2.8	$	108,585

Stock-Based Compensation Expense —Aggregate stock-based compensation expense for employees and nonemployees was $10.2 million and $8.3 million for the three months ended September 30, 2017 and 2016 , respectively, and $19.8 million and $15.6 million for the six months ended September 30, 2017 and 2016 , respectively. Cost of revenue, research and development, sales and marketing, and general and administrative expenses were as follows (in thousands):



	Three Months Ended September 30,				Six Months Ended September 30,
	2017		2016		2017		2016
Cost of revenue	$	603	$	513	$	1,129	$	894
Research and development	3,305		2,522		6,141		5,063
Sales and marketing	3,875		3,409		8,181		6,171
General and administrative	2,439		1,819		4,394		3,473
Total stock-based compensation expense	$	10,222	$	8,263	$	19,845	$	15,601

As of September 30, 2017 , unrecognized stock-based compensation cost related to outstanding unvested stock options was $19.0 million , which is expected to be recognized over a weighted-average period of approximately 2.1 years. As of September 30, 2017 , unrecognized stock-based compensation cost related to outstanding unvested stock units was $70.5 million , which is expected to be recognized over a weighted-average period of approximately 2.8 years.

7. Income Taxes

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

The Company recorded an income tax provision of $0.2 million and an income tax benefit $0.1 million for the three months ended September 30, 2017 and 2016 , respectively, and an income tax provision of $0.4 million and $0.1 million for the six months ended September 30, 2017 and 2016 , respectively, related to foreign income taxes and state minimum taxes. Based on the available objective evidence during the three and six months ended September 30, 2017 , the Company believes it is more likely than not that the tax benefits of the U.S. losses incurred during the three and six months ended September 30, 2017 may not be realized. Accordingly, the Company did not record the tax benefits of U.S. losses incurred during the three and six months ended September 30, 2017 . The primary difference between the effective tax rate and the local statutory tax rate relates to the valuation allowance on the Company’s U.S. losses, foreign tax rate differences, and amortization of a deferred charge associated with the intercompany transfer of intellectual property from prior periods.

8. Net Loss Per Share

Basic loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, less shares subject to repurchase, and excludes any dilutive effects of employee share-based awards and warrants. Diluted net loss per common share is computed giving effect to all potential dilutive common shares, including common stock issuable upon exercise of stock options and unvested restricted common stock. As the Company had net losses for each of the three and six months ended September 30, 2017 and 2016 , all potential common shares were determined to be anti-dilutive, resulting in basic and diluted net loss per share being equal.

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



	Three Months Ended September 30,						Six Months Ended September 30,
	2017			2016			2017			2016
Numerator:
Net loss	$	(14,691	)	$	(14,130	)	$	(30,625	)	$	(32,201	)
Denominator:
Weighted average shares used to compute net loss per share, basic and diluted	54,699			51,328			54,201			50,779
Net loss per share—basic and diluted	$	(0.27	)	$	(0.28	)	$	(0.57	)	$	(0.63	)

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



	As of September 30,
	2017	2016
Options to purchase common stock	3,594	5,491
Restricted stock units	2,180	2,159
Common stock reserved for issuance in connection with acquisition	43	90
ESPP shares	41	36
	5,858	7,776

9. Revenue by Geographic Location

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



	Three Months Ended September 30,				Six Months Ended September 30,
	2017		2016		2017		2016
United States	$	58,020	$	42,912	$	112,799	$	82,722
EMEA	15,625		12,078		30,493		23,007
APAC	6,213		4,823		12,107		9,363
Other	4,827		3,627		9,384		6,955
Total revenue	$	84,685	$	63,440	$	164,783	$	122,047

Substantially all of the Company’s long-lived assets were attributable to operations in the United States as of September 30, 2017 and March 31, 2017 .

10. Subsequent Events

On November 1, 2017, the Company entered into a lease amendment (the “Amendment”) with 188 Spear Street LLC, the landlord of the building which is located at 188 Spear Street, San Francisco, California, to renew early and extend the term of its current operating lease through July 2027. Under the Amendment, beginning November 1, 2017 the Company will pay monthly base rent, with aggregate annual amounts escalating over the term of the lease from approximately $480,000 to approximately $620,000 . The landlord has agreed to provide the Company with a construction allowance of approximately $2.6 million .

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our 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

We help companies see their digital business more clearly. Our cloud-based platform and suite of products, which we call the New Relic Digital Intelligence Platform, enables organizations to collect, store, and analyze massive amounts of data in real time so they can better understand their application and infrastructure performance, improve their digital customer experience, and achieve business success. We design all our products to be highly intuitive and frictionless; they are easy to deploy, and customers can rapidly, often within minutes, realize benefits and results. Software developers can build better applications faster, as they can see how their software will perform and is actually performing for end-users. IT operations teams can use our products to quickly find and fix performance problems as well as prevent future issues. Business users such as product managers can get answers to how their new product launch is being received, or how a pricing change impacted customer retention, without waiting for help from IT. For each of these audiences—software developers, IT operations, and business users—we aim to be the first, best place to look to understand their digital business.

We were founded in 2007 and we launched our first product offering, New Relic APM (Application Performance Management), in 2008. Since then, we have broadened our product offerings to support a wide variety of programming languages and frameworks and have added a number of additional products and platform capabilities that now form the New Relic Digital Intelligence Platform. For example, in 2013, we released New Relic Mobile to support mobile by providing native mobile application performance management for the iOS and Android mobile operating systems; in 2014, we released New Relic Browser to improve browser-side performance, New Relic Synthetics to enable our users to test their software through simulated usage and New Relic Insights to leverage big data analytics; and in 2016, we released New Relic Infrastructure to provide real-time visibility into critical configuration changes that affect a company’s cloud infrastructure.

We sell our products primarily through direct sales and marketing channels utilizing a wide range of online and offline sales and marketing activities. The majority of our users visit our website, create an account, and deploy our software. Many users initially subscribe to one of our products to address a particular use case and broaden the usage of our products as they become more familiar with our products. For larger mid-market and enterprise organizations, our sales team focuses on leveraging users in existing accounts to expand our product users and usage across the organization. Although enterprise organizations constitute a minority of our total paid business accounts, the revenue we receive from enterprise paid business accounts is on pace to provide a majority of our overall revenue by the end of the fiscal year ended March 31, 2018.

We offer access to the New Relic Digital Intelligence Platform under subscription plans that also include service and support. Our plans typically have terms of one year, although some of our customers commit for shorter or longer periods. We recognize revenue from subscription fees ratably over the service period. Historically, most of our customers have paid us on a monthly basis. As a result, our deferred revenue at any given period of time has been relatively low. In recent periods we have secured an increased percentage of multi-year commitments, which has grown as we have sold more to larger organizations. Because we generally invoice many of these larger organizations less frequently, our deferred revenue has increased over time, and we expect it to continue to increase on a year-over-year basis. However, due to our mix of subscription plans and billing frequencies, we do not believe that changes in our deferred revenue in a given period are directly correlated with our revenue growth.

We have grown rapidly in recent periods, with revenue for the three months ended September 30, 2017 and 2016 of $84.7 million and $63.4 million , respectively, representing year-over-year growth of 33% . For the six months ended September 30, 2017 and 2016 , our revenue was $164.8 million and $122.0 million , respectively, representing year-over-year growth of 35% . We expect that the rate of growth in our revenue will decline over the long term as our business scales, even if our revenue continues to grow in absolute terms. We have continued 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 of $14.7 million and $14.1 million for the three months ended September 30, 2017 and 2016 , respectively, and $30.6 million and $32.2 million for the six months ended September 30, 2017 and 2016 , respectively. Our accumulated deficit as of September 30, 2017 was $290.8 million .

Internationally, we currently offer our products in Europe, Middle East, and Africa, or EMEA; Asia-Pacific, or APAC; and other non-U.S. locations, as determined based on the billing address of our customers, and our revenue from those regions constituted 18% , 7% , and 6% , respectively, of our revenue for the three months ended September 30, 2017 , and 19% , 8% , and 6% , respectively, of our revenue for the three months ended September 30, 2016 . Our revenue from those regions constituted 19% , 7% , and 6% , respectively, of our revenue for the six months ended September 30, 2017 , and 19% , 8% , and 6% , respectively, of our revenue for the six months ended September 30, 2016 . We believe there is further 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.

Our employee headcount has increased to 1,230 employees as of September 30, 2017 from 1,013 employees as of September 30, 2016 and we plan to continue to invest aggressively in the growth of our business to take advantage of our market opportunity. For example, we intend to continue to increase our investment in sales and marketing, including further expanding our sales teams, increasing our marketing activities, and growing our international operations, particularly as we increase our sales to larger organizations. In addition, we plan to continue to invest in research and development to enhance and further develop our products and platform capabilities.

While these areas represent significant opportunities for us, we also face significant risks and challenges that we must successfully address in order to sustain the growth of our business and improve our operating results. We are continuing to incur expenses in the near term as we continue to invest in the growth of our sales and expansion of paid business accounts. However, we may not realize any long-term benefit from these investments in the growth of our business. In addition, any investments that we make in sales and marketing or other areas will occur in advance of our experiencing any benefits from such investments, so it may be difficult for us to determine if we are efficiently allocating our resources in these areas. As a result, we have never achieved profitability and we do not expect to be profitable for the foreseeable future. Further, our reported revenue, operating results, and cash flows for a given period may not be indicative of future results due to our limited operating history and fluctuations in the number of new employees, the rate of our expansion, the timing of expenses we incur to grow our business and operations, levels of competition, and market demand for our products.

Factors Affecting Our Performance

Market Adoption of Our Products. We are defining a new category of software, which we refer to as digital intelligence. Our success is dependent on the market adoption of this emerging category of software, which may not yet be well understood by the market. For the foreseeable future, we expect that our revenue growth will be primarily driven by the pace of adoption and penetration of our products and we will incur significant expenses associated with educating the market about the benefits of our products.

Increasing the Number of Paid Business Accounts. Our future growth is dependent on our ability to increase the number of accounts that pay us to use our products. Many users experience our products with a free trial after which they have the option to purchase one or more of our subscription plans. We believe that we have a significant competitive advantage as our users experience the ease of installation and the full set of features that our products deliver during the free trial period.

Retention and Expansion within Paid Business Accounts. A key factor in our success is the retention and expansion of our subscription agreements 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 the number of subscriptions we sell to our current customers as they become more familiar with our products and adopt our products to address additional business use cases.

Investment in Sales and Marketing. We expect to continue to invest aggressively in sales and marketing to drive additional revenue. Any investments that we make in sales and marketing will occur in advance of our experiencing any benefits from such investments, so it may be difficult for us to determine if we are efficiently allocating our resources. As we continue to focus sales and marketing investments more heavily towards large organizations, this may require more of our resources. In addition, we expect our sales cycle to be longer and less predictable with respect to larger customers, which may delay realization of future sales. We also intend to increase our sales and marketing investment in international markets, such as Europe, and those markets may take longer and be more costly to develop than the U.S. market.

Key Operating Metrics

We review the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make key strategic decisions:

Number of Paid Business Accounts and Number of Paid Business Accounts with Annual Recurring Revenue over $100,000 . We believe that our ability to increase our number of paid business accounts is one indicator of our market penetration, the growth of our business and our potential future prospects. We define the number of paid business accounts at the end of any particular period as the number of accounts at the end of the period, as identified by a unique account identifier, for which we have recognized revenue on the last day of the period indicated. A single organization or customer may have multiple paid business accounts for separate divisions, segments, or subsidiaries. We round the number of total paid business accounts that we report as of a particular date down to the nearest hundred. We had approximately 15,900 paid business accounts as of September 30, 2017 . We expect the rate at which we add paid business accounts to decrease over time as we scale our business, but it may fluctuate from period to period as a result of the introduction of alternative pricing options for our products or other factors.

As a subset of this metric, we believe that our number of paid business accounts with annual recurring revenue over $100,000 is one indicator of our business as it relates to the acquisition of larger accounts within our overall customer base, including our market penetration of larger mid-market and enterprise customers, as well as deeper penetration into our existing customer base. For this purpose, we define annual recurring revenue as the revenue we would contractually expect to receive from those customers over the following 12 months, without any increase or reduction in any of their subscriptions. We had 586 paid business accounts with annual recurring revenue over $100,000 as of September 30, 2017 , which was a 37.2% increase compared to 427 as of September 30, 2016 . We believe this increase reflects our continued focus of a greater proportion of our sales and marketing efforts on larger mid-market and enterprise customers. As with our total paid business accounts, we expect the rate at which we add paid business accounts with annual recurring revenue over $100,000 to decrease over time as a result of deeper penetration into the enterprise market.

Percentage of Annualized Recurring Revenue from Enterprise Paid Business Accounts. We believe that our ability to increase the percentage of annualized recurring revenue from enterprise paid business accounts relative to our overall business is an important indicator of our success with respect to our focus in recent periods to improve our market penetration with enterprise companies. We define an enterprise paid business account as a paid business account that we measure to have over 1,000 employees. Growth or reduction reflected in this figure would include, in addition to the acquisition, loss or consolidation of enterprise paid business accounts, any changes we make to the categorization of existing paid business accounts, for example to reflect that they have expanded beyond the employee threshold, which we review periodically.

Our percentage of annualized recurring revenue from enterprise paid business accounts was 51% as of September 30, 2017 , compared to 43% as of September 30, 2016 . We expect the percentage of annualized recurring revenue from enterprise paid business accounts to increase over time. However, because of the size of our large installed base and potential seasonality in regard to selling into enterprise customers, we believe the percentage may not move significantly from quarter to quarter and we expect the rate of increase in the percentage of enterprise paid business accounts to moderate over time.

Annualized Revenue per Average Paid Business Account. We believe that our annualized revenue per average paid business account is another indicator of our business as it relates to the acquisition of larger accounts within our overall customer base, including our market penetration of larger mid-market and enterprise customers, as well as deeper penetration into our existing customer base. We define our annualized revenue per average paid business account as the annualized revenue for the current period divided by the average of the number of paid business accounts at the end of the current period and the end of the prior period. We round down our annualized revenue per average paid business account to the nearest $500.

Our annualized revenue per average paid business account for the quarter ended September 30, 2017 grew to over $21,500 , which was an increase of 22.9% compared to approximately $17,500 for the quarter ended September 30, 2016 . We believe this increase reflects our continued focus on larger mid-market and enterprise customers. We have experienced a decrease in the rate of growth of our annualized revenue per average paid business account and we expect the decrease to continue over time as our business scales and we introduce alternative pricing options for our products.

Dollar-Based Net Expansion Rate. Our ability to generate revenue is dependent on our ability to maintain and grow our relationships with our existing customers. We track our performance in this area by measuring our dollar-based net expansion rate. Our dollar-based net expansion rate increases when customers increase their use of our products, use additional

products, or upgrade to a higher subscription tier. Our dollar-based net expansion rate is reduced when customers decrease their use of our products, use fewer products, or downgrade to a lower subscription tier.

Our dollar-based net expansion rate compares our recurring subscription revenue from paid business accounts from one period to the next. We measure our dollar-based net expansion rate on a monthly basis because many of our customers change their subscriptions more frequently than quarterly or annually. To calculate our annual dollar-based net expansion rate, we first establish the base period monthly recurring revenue from all our paid business accounts at the end of a month. This represents the revenue we would contractually expect to receive from those paid business accounts over the following month, without any increase or reduction in any of their subscriptions. We then (i) calculate the actual monthly recurring revenue from those same paid business accounts at the end of that following month; then (ii) divide that following month’s recurring revenue by the base month’s recurring revenue to arrive at our monthly net expansion rate; then (iii) calculate a quarterly net expansion rate by compounding the net expansion rates of the three months in the quarter; and then (iv) calculate our annualized net expansion rate by compounding our quarterly net expansion rate over an annual period.

The quarterly fluctuations in our dollar-based net expansion rate are primarily driven by transactions within a particular quarter in which certain paid business accounts from larger subscription customers either significantly upgrade or significantly downgrade their subscriptions and by increased sales to existing paid business accounts in particular quarters due to sales and marketing campaigns in a particular quarter. In addition, we believe that the composition of our customer base also has an impact on the net expansion rate, such that a relative increase in the number of paid business accounts from larger enterprises versus small to medium-sized organizations will tend to increase our quarterly net expansion rate, while a relative increase in the number or paid business accounts from small to medium-sized organizations versus larger enterprises will tend to decrease the quarterly net expansion rate, as smaller businesses tend to cancel subscriptions more frequently than larger enterprises. This rate is also impacted by factors including, but not limited to, new product introductions, promotional activity, mix of customer size, and the variable timing of renewals.

Our annualized dollar-based net expansion rate increased to 122.9% for the three-month period ended September 30, 2017 from 116.3% for the three-month period ended September 30, 2016 . In the three-month period ended September 30, 2017 , we saw a greater amount of upsell activity relative to our total installed base than the comparable period in the prior year. We also experienced improved churn rates relative to the comparable period in the prior year with more of our business coming from mid-market and enterprise customers.

Key Components of Results of Operations

Revenue

We offer access to our products under subscription 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 by an account, number of servers monitored, number of applications monitored, or number of mobile devices monitored. Our plans typically have terms of one year, although some of our customers commit for shorter or longer periods. Historically, most of our customers have paid us on a monthly basis. As a result, our deferred revenue at any given period of time has been relatively low. As we have increased our sales to larger organizations, we have increasingly been invoicing our customers on a less frequent basis, and therefore, we expect our deferred revenue to continue to increase on a year-over-year basis.

Additionally, we expect our business to continue to become more seasonal as mid-market and enterprise customers start to represent a larger percentage of our revenues. The first two quarters of each fiscal year usually have lower 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. As a result, over time we could potentially see stronger sequential revenue results in our fourth and first fiscal quarters as our deferred revenue is recognized. We expect that this seasonality will continue to affect our sales and operating results in the future, which can make it difficult to achieve sequential growth in certain financial metrics or could result in sequential declines on a quarterly basis.

Cost of Revenue

Cost of revenue consists of expenses relating to data center operations, hosting-related costs, payment processing fees, depreciation and amortization, consulting costs, and salaries and benefits of operations and global customer support personnel. Salaries and benefits costs associated with our operations and global customer support personnel 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 and therefore expect a corresponding increase in our cost of revenue.

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 operations and global customer support personnel, hosting-related costs, and the amortization of capitalized software. We expect that our gross margin will decline modestly over the long term, although we expect our gross margin to fluctuate from period to period as a result of these factors.

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. We also incur other non-personnel costs such as an allocation of our general overhead 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. However, we expect our research and development expenses to decrease modestly as a percentage of our revenue over the long term, 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. Commissions are expensed in the period when a customer contract is executed. Sales and marketing expenses also include the costs of our marketing and brand awareness programs.

We plan to continue investing in sales and marketing globally by increasing the number of our sales personnel, expanding our domestic and international marketing activities, building brand awareness, and sponsoring additional marketing events. We expect our sales and marketing expenses to continue to increase in absolute dollars and continue to be our largest operating expense category for the foreseeable future. However, we expect our sales and marketing expenses to decrease as a percentage of our revenue over the long term, although our sales and marketing expenses 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 external 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. We also expect that we will continue to incur additional general and administrative expenses as a result of being a publicly traded company. 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 decrease modestly as a percentage of our revenue over the long term, although our general and administrative expense may fluctuate from period to period depending on fluctuations in our revenue and the timing and extent of our general and administrative expenses, such as litigation costs.

Other Income, Net

Other income, net consists primarily of interest income, interest expense, and foreign exchange gains and losses.

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 September 30,						Six Months Ended September 30,
	2017			2016			2017			2016

	(in thousands, except per share data)
Revenue	$	84,685		$	63,440		$	164,783		$	122,047
Cost of revenue (1)	15,694			11,778			30,671			23,433
Gross profit	68,991			51,662			134,112			98,614
Operating expenses:
Research and development (1)	18,266			14,741			36,532			30,710
Sales and marketing (1)	51,261			40,382			100,622			79,168
General and administrative (1)	14,305			10,833			28,247			21,069
Total operating expenses	83,832			65,956			165,401			130,947
Loss from operations	(14,841		)	(14,294		)	(31,289		)	(32,333		)
Other income (expense):
Interest income	512			250			969			471
Interest expense	(21		)	(21		)	(43		)	(42		)
Other income (expense), net	(152		)	(126		)	162			(237		)
Loss before income taxes	(14,502		)	(14,191		)	(30,201		)	(32,141		)
Income tax provision (benefit)	189			(61		)	424			60
Net loss	$	(14,691	)	$	(14,130	)	$	(30,625	)	$	(32,201	)
Net loss per share, basic and diluted	$	(0.27	)	$	(0.28	)	$	(0.57	)	$	(0.63	)
Weighted-average shares used to compute net loss per share, basic and diluted	54,699			51,328			54,201			50,779


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



	Three Months Ended September 30,				Six Months Ended September 30,
	2017		2016		2017		2016

	(in thousands)
Cost of revenue	$	603	$	513	$	1,129	$	894
Research and development	3,305		2,522		6,141		5,063
Sales and marketing	3,875		3,409		8,181		6,171
General and administrative	2,439		1,819		4,394		3,473
Total stock-based compensation expense	$	10,222	$	8,263	$	19,845	$	15,601



	Three Months Ended September 30,				Six Months Ended September 30,
	2017		2016		2017		2016

	(as a percentage of revenue)
Revenue	100	%	100	%	100	%	100	%
Cost of revenue (1)	19		19		19		19
Gross profit	81		81		81		81
Operating expenses:
Research and development (1)	22		23		23		25
Sales and marketing (1)	61		64		61		65
General and administrative (1)	16		17		17		17
Total operating expenses	99		104		101		107
Loss from operations	(18	)	(23	)	(20	)	(26	)
Other income (expense):
Interest income	1		1		1		—
Interest expense	—		—		—		—
Other income (expense), net	—		—		—		—
Loss before income taxes	(17	)	(22	)	(19	)	(26	)
Income tax provision (benefit)	—		—		—		—
Net loss	(17	%)	(22	%)	(19	%)	(26	%)


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



	Three Months Ended September 30,				Six Months Ended September 30,
	2017		2016		2017		2016

	(as a percentage of revenue)
Cost of revenue	1	%	1	%	1	%	1	%
Research and development	4		4		4		4
Sales and marketing	4		5		5		5
General and administrative	3		3		2		3
Total stock-based compensation expense	12	%	13	%	12	%	13	%

Revenue



	Three Months Ended September 30,				Change				Six Months Ended September 30,				Change
	2017		2016		Amount		%		2017		2016		Amount		%

	(dollars in thousands)
United States	$	58,020	$	42,912	$	15,108	35	%	$	112,799	$	82,722	$	30,077	36	%
EMEA	15,625		12,078		3,547		29		30,493		23,007		7,486		33
APAC	6,213		4,823		1,390		29		12,107		9,363		2,744		29
Other	4,827		3,627		1,200		33		9,384		6,955		2,429		35
Total revenue	$	84,685	$	63,440	$	21,245	33	%	$	164,783	$	122,047	$	42,736	35	%

Revenue increased $21.2 million , or 33% , in the three months ended September 30, 2017 compared to the same period of 2016 . The increase was a result of an increase in the number of paid business accounts and an increase in product adoption by existing paid business accounts. Our revenue from EMEA increased $3.5 million , or 29% , in the three months ended September 30, 2017 compared to the same period of 2016 , and our revenue from APAC increased $1.4 million , or 29% , in the three months ended September 30, 2017 compared to the same period of 2016 , as a result of an increase in the number of paid business accounts and an increase in product adoption by existing paid business accounts located in these geographic regions.

Revenue increased $42.7 million , or 35% , in the six months ended September 30, 2017 compared to the same period of 2016 . The increase was a result of an increase in the number of paid business accounts and an increase in product adoption

by existing paid business accounts. Our revenue from EMEA increased $7.5 million , or 33% , in the six months ended September 30, 2017 compared to the same period of 2016 , and our revenue from APAC increased $2.7 million , or 29% , in the six months ended September 30, 2017 compared to the same period of 2016 , as a result of an increase in the number of paid business accounts and an increase in product adoption by existing paid business accounts located in these geographic regions.

Cost of Revenue



	Three Months Ended September 30,				Change				Six Months Ended September 30,				Change
	2017		2016		Amount		%		2017		2016		Amount		%

	(dollars in thousands)
Cost of revenue	$	15,694	$	11,778	$	3,916	33	%	$	30,671	$	23,433	$	7,238	31	%

Cost of revenue increased $3.9 million , or 33% , in the three months ended September 30, 2017 compared to the same period of 2016 . The increase was primarily a result of an increase in personnel-related costs and hosting-related costs necessary to support our growth, an increase in amortization expense related to capitalized software development costs, and an increase in payment processing costs due to the increase in revenue. Hosting-related costs, depreciation expense, amortization expense, and payment processing fees increased by $2.5 million. Personnel-related costs increased by $1.4 million, driven by higher headcount.

Cost of revenue increased $7.2 million , or 31% , in the six months ended September 30, 2017 compared to the same period of 2016 . The increase was primarily a result of an increase in personnel-related costs and hosting-related costs necessary to support our growth, an increase in amortization expense related to capitalized software development costs, and an increase in payment processing costs due to the increase in revenue. Hosting-related costs, depreciation expense, amortization expense, and payment processing fees increased by $4.4 million. Personnel-related costs increased by $2.8 million, driven by higher headcount.

Research and Development



	Three Months Ended September 30,				Change				Six Months Ended September 30,				Change
	2017		2016		Amount		%		2017		2016		Amount		%

	(dollars in thousands)
Research and development	$	18,266	$	14,741	$	3,525	24	%	$	36,532	$	30,710	$	5,822	19	%

Research and development expenses increased $3.5 million , or 24% , in the three months ended September 30, 2017 compared to the same period of 2016 . The increase was primarily a result of an increase of $3.1 million in personnel-related costs, driven by higher headcount, and a $0.4 million increase of other miscellaneous expenses.

Research and development expenses increased $5.8 million , or 19% , in the six months ended September 30, 2017 compared to the same period of 2016 . The increase was primarily a result of an increase of $5.2 million in personnel-related costs, driven by higher headcount, a $0.5 million increase in software subscription expenses, and a $0.1 million increase of other miscellaneous expenses.

Sales and Marketing



	Three Months Ended September 30,				Change				Six Months Ended September 30,				Change
	2017		2016		Amount		%		2017		2016		Amount		%

	(dollars in thousands)
Sales and marketing	$	51,261	$	40,382	$	10,879	27	%	$	100,622	$	79,168	$	21,454	27	%

Sales and marketing expenses increased $10.9 million , or 27% , in the three months ended September 30, 2017 compared to the same period of 2016 . The increase was primarily a result of an increase in personnel-related costs of $9.4 million, driven by higher headcount. Facility expenses, including rent expense, increased by $0.4 million. The remaining increase was primarily due to a $0.7 million increase in travel expenses, and a $0.4 million increase of other miscellaneous expenses.

Sales and marketing expenses increased $21.5 million , or 27% , in the six months ended September 30, 2017 compared to the same period of 2016 . The increase was primarily a result of an increase in personnel-related costs of $19.6 million, driven by higher headcount. Facility expenses, including rent expense, increased by $1.0 million. The remaining increase was primarily due to a $0.9 million increase in travel expenses.

General and Administrative



	Three Months Ended September 30,				Change				Six Months Ended September 30,				Change
	2017		2016		Amount		%		2017		2016		Amount		%

	(dollars in thousands)
General and administrative	$	14,305	$	10,833	$	3,472	32	%	$	28,247	$	21,069	$	7,178	34	%

General and administrative expenses increased $3.5 million , or 32% , in the three months ended September 30, 2017 compared to the same period of 2016 . The increase in general and administrative expenses was primarily a result of an increase in personnel-related costs of $1.3 million, driven by an increase in headcount. The remaining increase was primarily due to a $1.6 million increase in consultant expenses, a $0.3 million increase in facilities expenses, and a $0.3 million increase of other miscellaneous expenses.

General and administrative expenses increased $7.2 million , or 34% , in the six months ended September 30, 2017 compared to the same period of 2016 . The increase in general and administrative expenses was primarily a result of an increase in personnel-related costs of $3.2 million, driven by an increase in headcount. The remaining increase was primarily due to a $2.8 million increase in consultant expenses, a $0.4 million increase in software subscription expenses and a $0.6 million increase in facilities expenses.

Other Income, Net



	Three Months Ended September 30,				Change				Six Months Ended September 30,				Change
	2017		2016		Amount		%		2017		2016		Amount		%

	(dollars in thousands)
Other income, net	$	339	$	103	$	236	229	%	$	1,088	$	192	$	896	467	%

Other income, net increased by $0.2 million in the three months ended September 30, 2017 compared to the same period of 2016 , and $0.9 million in the six months ended September 30, 2017 compared to the same period of 2016 . These increases were primarily a result of an increase in interest income.

Liquidity and Capital Resources



	Six Months Ended September 30,
	2017			2016

	(in thousands)
Cash provided by operating activities	$	16,601		$	3,837
Cash provided by (used in) investing activities	(14,483		)	11,788
Cash provided by financing activities	20,293			12,406
Net increase in cash and cash equivalents	$	22,411		$	28,031

To date, we have financed our operations primarily through private and public equity financings and customer payments for subscription services. 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 continued expansion of sales and marketing activities, the introduction of new and enhanced products, seasonality of our billing activities, timing and extent of spending to support our growth strategy, and the continued market acceptance of our products. 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 six months ended September 30, 2017 , cash provided by operating activities was $16.6 million as a result of a net loss of $30.6 million , adjusted by non-cash charges of $31.8 million and a change of $15.4 million in our operating assets and liabilities. The change in our operating assets and liabilities was primarily the result of a $22.5 million decrease in accounts receivable and a $2.8 million increase in accrued compensation and benefits and other liabilities. This was partially offset by a $5.5 million increase in prepaid expenses and other assets, a $3.5 million decrease in deferred revenue, a $0.5 million decrease in accounts payable, and a $0.4 million decrease in deferred rent.

During the six months ended September 30, 2016, cash provided by operating activities was $3.8 million as a result of a net loss of $32.2 million, adjusted by non-cash charges of $24.6 million and a change of $11.4 million in our operating assets and liabilities. The change in our operating assets and liabilities was primarily the result of a $5.7 million increase in deferred revenue as a result of increased sales of subscriptions to our products, a $5.5 million decrease in accounts receivable, a $3.0 million increase in deferred rent, and a $0.8 million increase in accounts payable. This was partially offset by a $2.8 million increase in prepaid expenses and other assets and a $0.7 million decrease in accrued compensation and benefits and other liabilities.

Investing Activities

Cash used in investing activities during the six months ended September 30, 2017 was $14.5 million , primarily as a result of purchases of short-term investments of $55.1 million , purchases of property and equipment of $14.4 million , and increases in capitalization of software development costs of $1.5 million . This was partially offset by proceeds from the maturity and sale of short-term investments of $56.4 million .

Cash provided by investing activities during the six months ended September 30, 2016 was $11.8 million, primarily as a result of proceeds from the maturity and sale of short-term investments of $87.4 million. This was partially offset by purchases of short-term investments of $65.4 million, purchases of property and equipment of $8.5 million, and increases in capitalization of software development costs of $1.7 million.

Financing Activities

Cash provided by financing activities during the six months ended September 30, 2017 was $20.3 million , which was the result of proceeds from the exercise of stock options and proceeds from our employee stock purchase plan.

Cash provided by financing activities during the six months ended September 30, 2016 was $12.4 million, which was the result of proceeds from the exercise of stock options and proceeds from our employee stock purchase plan.

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 5 — 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, 2017 in our Annual Report.

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 condensed consolidated financial statements in accordance with GAAP. In the preparation of these condensed consolidated financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. We refer to accounting estimates of this type as critical accounting policies and estimates.

There have been no significant changes in our critical accounting policies and estimates during the six months ended September 30, 2017 as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017, or our Annual Report, as filed with the Securities and Exchange Commission, or SEC, on May 18, 2017.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The new guidance provides principles for recognizing revenue to which an entity expects to be entitled for the transfer of promised goods or services to customers. The new guidance will be effective for us in our fiscal year beginning April 1, 2018. The guidance may be applied retrospectively to each prior period presented (full retrospective method), or with the cumulative effect recognized as of the date of initial adoption (modified retrospective method). We currently intend to adopt Topic 606 using the modified retrospective approach in our first quarter of fiscal year 2019. As we continue to assess the new standard along with industry trends and internal progress, we may adjust our implementation plan accordingly.

We anticipate the significant impacts of adopting Topic 606 will include the deferral of incremental commission costs of obtaining contracts and additional disclosure requirements. Currently, we record commissions as sales and marketing expenses as incurred. Under the new standard, we will capitalize incremental commissions related to initial contracts over the expected period of benefit. We have not yet concluded the amortization period of these capitalized costs, which will affect the classification and magnitude of the deferred costs at each reporting period. We will continue to quantify the effects of adopting Topic 606 on our condensed consolidated financial statements, including the impact on our revenue as well as the changes discussed above.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) , which requires lessees to put most leases on their balance sheets but recognize the expenses on their income statements in a manner similar to current practice. ASU 2016-02 states that a lessee would recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying asset for the lease term. The new standard will be effective for us in the fiscal year beginning April 1, 2019; early adoption is permitted. The amendments require a modified retrospective approach with optional practical expedients. We are currently evaluating the impact of this standard on our condensed consolidated financial statements.

awards using the modified retrospective transition method. These excess tax benefits, recognized upon adoption, were recorded as a deferred tax asset, which was then fully offset by our U.S. federal and state deferred tax asset valuation allowance resulting in no impact to our accumulated deficit. Without the valuation allowance, our deferred tax asset would have increased by $39.5 million. All future excess tax benefits resulting from the settlement of stock awards will be recorded to the income tax provision.

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 updated guidance requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down. The measurement of credit losses for newly recognized financial assets and subsequent changes in the allowance for credit losses are recorded in the statement of income. The update to the standard will be effective for us in the fiscal year beginning April 1, 2020; early adoption is permitted in the fiscal year beginning April 1, 2019. We are currently evaluating the effect the standard will have on our condensed consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements. The ASU provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting. The new guidance will be effective for us in our fiscal year beginning April 1, 2018. We are currently evaluating the impact of this standard on our condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Risk

Our subscription 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. 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.

Interest Rate Risk

We had cash and cash equivalents of $110.7 million as of September 30, 2017 , consisting of bank deposits, commercial paper, 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 also had no outstanding debt for any of the periods presented. We have an agreement to maintain cash balances at a financial institution of no less than $8.0 million as collateral for three 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 $116.7 million as of September 30, 2017 , consisting of certificates of deposit, commercial paper, corporate notes and bonds, U.S. treasury securities, and U.S. agency 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.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition, or results of operations.

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 Securities Exchange Act of 1934, as amended (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 September 30, 2017 , 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 September 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

On November 5, 2012, CA, Inc. filed an action against us in the U.S. District Court for the Eastern District of New York alleging that we willfully infringe certain of its U.S. patents. CA, Inc. asserts that a portion of our application performance management software – the .NET and Java agents – infringes certain claims of those patents. Among other things, CA, Inc. has sought permanent injunctive relief against us and damages in an amount to be determined at trial. Specifically, CA, Inc. alleges in the complaint that we willfully infringe certain CA, Inc. United States Patents, including U.S. Patent Nos. 7,225,361 B2, or the ’361 patent, 7,512,935 B1, or the ’935 patent, and 7,797,580 B2, or the ’580 patent. Discovery is complete in the case, and the court has ruled on summary judgment motions filed by both parties. On April 8, 2015, the court granted CA, Inc.’s partial summary judgment motion seeking to estop New Relic from contesting the validity of the ’361 and ’580 patents. On September 28, 2015, the court granted New Relic’s partial summary judgment motion as to non-infringement of the ’935 patent by the Java and .NET agents, and denied summary judgment as to invalidity of the ’935 patent. Following the court’s summary judgment rulings, the only remaining claims for infringement in this litigation are CA, Inc.’s assertions that the Java agent infringes asserted claims of the ’361 and ’580 patents. A trial date is not currently set.

We intend to continue to contest this lawsuit vigorously. If this matter has an adverse outcome, it may have an impact on our financial position, results from operations, and cash flows. Should CA, Inc. prevail on its claims, we could be required to pay substantial damages for past sales of such products, enjoined from using and selling such products if a license or other right to continue selling our products is not made available to us, and required to pay substantial ongoing royalties and comply with unfavorable terms if such a license is made available to us. Any of these outcomes could result in a material adverse effect on our business. However, we cannot at this time predict the likely outcome of this proceeding or estimate the amount or range of loss or possible loss that may arise from it. Even if we were to prevail, litigation is costly and time-consuming, and could divert the attention of our management and key personnel from our business operations and dissuade potential customers from purchasing our products, either of which could materially harm our business.

During the course of litigation, we anticipate announcements of the results of hearings and motions, and other interim developments related to the litigation, which our competitors could try to use to their competitive advantage by creating uncertainty amongst our customers. If securities analysts or investors regard these announcements as negative, the market price of our common stock may decline.

In addition, from time to time, we are involved in legal proceedings and are subject to claims arising in the ordinary course of our business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business, operating results, financial condition, or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors.

Item 1A. Risk Factors

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

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

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

We have incurred net losses in each fiscal period since our inception, including net losses of $30.6 million and $32.2 million in the six months ended September 30, 2017 and 2016 , respectively. At September 30, 2017 , we had an accumulated deficit of $290.8 million . We expect to continue to expend substantial financial and other resources on, among other things:


•	sales and marketing, including expanding our direct sales organization and marketing programs, particularly for larger customers;


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


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


•	hiring of additional employees; and


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

These investments may not result in increased revenue or growth of our business. We expect that our revenue growth rate will continue to decline over time. Accordingly, we may not be able to generate sufficient revenue to offset our expected cost increases and to achieve and sustain profitability. If we fail to achieve and sustain profitability, our operating results and business would be harmed.

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.

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

We have experienced significant growth in recent periods and expect our growth to continue. If we are not able to manage this growth and expansion, or if our business does not grow as we expect, our operating results may suffer.

We have experienced significant growth in our customer adoption and have expanded and intend to continue to significantly expand our operations, including our domestic and international employee headcount. This growth has placed, and will continue to place, significant demands on our management and our operational and financial infrastructure.

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


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


•	further improving our key business systems, processes, and information technology infrastructure, including our and third-party hosted data centers, to support our business needs;


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


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

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

Our business depends on our customers purchasing additional subscriptions and products from us and renewing their subscriptions. Any decline in our customer expansions and renewals would harm our future operating results. *

Our future success depends in part on our ability to sell more subscriptions and additional products to our current customers. If our customers do not purchase additional subscriptions and products from us, our revenue may decline and our operating results may be harmed.

In addition, in order for us to maintain or improve our operating results, it is important that our customers enter into paid subscriptions and renew their subscriptions when the contract term expires. Many of our customers start their accounts on a free trial and have no obligation to begin a paid subscription. Our customers that enter into paid subscriptions have no obligation to renew their subscriptions after the expiration of their subscription period. Subscription periods are most often one year in length, but in recent fiscal years we have secured an increased percentage of multi-year commitments with respect to new paid business accounts. In addition, our customers may renew for lower subscription amounts or for shorter contract lengths. In the past, some of our customers have elected not to renew their agreements with us, and we cannot accurately predict future net expansion rates. Moreover, certain legacy customers with annual subscriptions have the right to cancel their agreements prior to the termination of the subscription term.

Our customer expansions and renewals may decline or fluctuate as a result of a number of factors, including: customer usage, customer satisfaction with our products and platform capabilities and customer support, our prices, the prices of competing products, mergers and acquisitions affecting our customer base, consolidation of affiliates’ multiple paid business accounts into a single paid business account, the effects of global economic conditions, or reductions in our customers’ spending levels generally. These factors may also be exacerbated if, consistent with our growth strategy, our customer base continues to grow to encompass larger enterprises.

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

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

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

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

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

We expect that we may need to change our pricing model from time to time, including as a result of global economic conditions, reductions in our customers’ spending levels generally or changes in how computing infrastructure is broadly consumed. Similarly, as we introduce new products or services, or as a result of the evolution of our existing products and services, we may have difficulty determining the appropriate price structure for our products. In addition, as new and existing competitors introduce new products or services that compete with ours, or revise their pricing structures, we may be unable to attract new customers at the same price or based on the same pricing model as we have used historically. Moreover, as we continue to target selling our products to larger organizations, these larger organizations may demand substantial price concessions. As a result, we may be required from time to time to revise our pricing structure or reduce our prices, which could adversely affect our business.

Failure to effectively expand our marketing and sales capabilities could harm our ability to increase our customer adoption and achieve broader market acceptance of our products. *

Our ability to increase our customer adoption and achieve broader market acceptance of our products will depend to a significant extent on our ability to expand our marketing and sales operations, with an emphasis on continuing to improve our ability to target sales to large enterprise organizations. We plan to continue expanding our sales force, both domestically and internationally. We also dedicate significant resources to sales and marketing programs, including online advertising and field marketing programs. For example, during the six months ended September 30, 2017 , sales and marketing expenses represented 61% of our revenue. The effectiveness of our marketing programs has varied over time and may vary in the future due to competition. All of these efforts have required and will continue to require us to invest significant financial and other resources. If we are unable to hire, develop, and retain talented sales personnel, if our sales personnel are unable to achieve desired productivity levels in a reasonable period of time, or if our sales and marketing programs are not effective, our ability to increase our customer adoption and achieve broader market acceptance of our products could be harmed.

If we are unable to continue to increase the sales of our solutions to large enterprises while mitigating the risks associated with serving such customers, our business, financial position, and results of operations may suffer.

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

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

Because users are able to configure our platform to collect and store confidential or proprietary information, security concerns could result in additional cost and liability to us or inhibit sales of our products. *

Our operations involve protection of our intellectual property, along with the storage and transmission and processing of our customers’ proprietary data, which customers might choose to have include some personally identifiable information, and security breaches, computer malware, and computer hacking attacks could expose us to a risk of loss of this information, loss of business, severe reputational damage adversely affecting customer or investor confidence, regulatory investigations and orders, litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, and significant costs for remediation and incentives offered to customers or other business partners in an effort to maintain business relationships after a breach and other liabilities.

Cyber-attacks and other malicious Internet-based activity continue to increase generally. If our products or security measures are perceived as weak or actually compromised as a result of third-party action, employee or customer error, malfeasance, stolen or fraudulently obtained log-in credentials, or otherwise, our customers may curtail or stop using our products, our reputation could be damaged, our business may be harmed, and we could incur significant liability. We may be unable to anticipate or prevent techniques used to obtain unauthorized access or to sabotage systems because they change frequently and generally are not detected until after an incident has occurred. As we increase our customer adoption and our brand becomes more widely known and recognized, we may become more of a target for third parties seeking to compromise our security systems or gain unauthorized access to our customers’ data.

If we are not able to detect and indicate activity on our platform that might be nefarious in nature, our customers could suffer harm. In such cases, we could face exposure to legal claims, particularly if the customer suffered actual harm. We cannot assure you that any limitations of liability provisions in our contracts for a security lapse or breach would be enforceable or

adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim. We also cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims related to a security breach, or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our expansion rates, financial condition, operating results, and reputation.

Changes in privacy laws, regulations, and standards may cause our business to suffer. *

We are subject to federal, state, and international laws relating to the collection, use, retention, security, and transfer of personally identifiable information. The regulatory framework for privacy and security issues worldwide is still evolving and as a result implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. We publicly post documentation regarding our practices concerning the processing, use, and disclosure of data. Any failure by us, our suppliers, or other parties with whom we do business to comply with this documentation or with other federal, state, or international regulations could result in proceedings against us by governmental entities or others. In many jurisdictions, enforcement actions and consequences for noncompliance are rising. In the United States, these include rules and regulations promulgated under the authority of federal agencies and state attorneys general and legislatures and consumer protection agencies. In addition, privacy advocates and industry groups have regularly proposed, and may propose in the future, self-regulatory standards with which we must legally comply or that contractually apply to us, like the Payment Card Industry Data Security Standard, or PCI DSS. If we fail to follow these security standards, such as those set forth in the PCI DSS, even if no customer information is compromised, we may incur significant fines or experience a significant increase in costs.

Internationally, virtually every jurisdiction in which we operate has established its own data security and privacy legal framework with which we or our customers must comply, including but not limited to the European Union, or EU. The EU’s data protection landscape is currently unstable, resulting in possible significant operational costs for internal compliance and risk to our business. While we have taken steps to mitigate the impact on us, such as implementing standard contractual clauses and self-certifying under the EU-US Privacy Shield, the efficacy and longevity of these mechanisms remains uncertain. In addition, the EU has adopted the General Data Protection Regulation, or GDPR, which is scheduled to go into effect in early 2018 and contains numerous requirements and changes, including more robust obligations on data processors and heavier documentation requirements for data protection compliance programs by companies. Complying with the GDPR may cause us to incur substantial operational costs or require us to change our business practices. Despite our efforts to bring practices into compliance before the effective date of the GDPR, we may not be successful either due to internal or external factors such as resource allocation limitations or a lack of vendor cooperation. Non-compliance could result in proceedings against us by governmental entities, customers, data subjects, or others. We may also experience difficulty retaining or obtaining new European or multi-national customers due to the legal requirements, compliance cost, potential risk exposure, and uncertainty for these entities. We may find it necessary to establish systems to maintain personal data originating from the EU in the European Economic Area, which may involve substantial expense and distraction from other aspects of our business. In the meantime, there could be uncertainty as to how to comply with EU privacy law.

Because the interpretation and application of many privacy and data protection laws along with contractually imposed industry standards are uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our products and platform capabilities. If so, in addition to the possibility of fines, lawsuits, and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our products and platform capabilities, which could have an adverse effect on our business. Any inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy and data security laws, regulations, and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales, and adversely affect our business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our products. Privacy and data security concerns, whether valid or not valid, may inhibit market adoption of our products, particularly in certain industries and foreign countries. If we are not able to adjust to changing laws, regulations, and standards related to the Internet, our business may be harmed.

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

The software industry is subject to rapid technological change, evolving industry standards and practices, and changing customer needs, requirements, and preferences. The success of our business will depend, in part, on our ability to adapt and respond effectively to these changes on a timely basis. If we are unable to develop and sell new products that satisfy our customers and provide enhancements and new features for our existing products and platform capabilities that keep pace with rapid technological and industry change, our revenue and operating results could be adversely affected. If new technologies emerge that are able to deliver competitive products and applications at lower prices, more efficiently, more conveniently, or more securely, such technologies could adversely impact our ability to compete.

Our platform must also integrate with a variety of network, hardware, mobile, and software platforms and technologies, and we need to continuously modify and enhance our products and platform capabilities to adapt to changes and innovation in these technologies. If developers widely adopt new software platforms, we would have to develop new versions of our products and platform capabilities to work with those new platforms. This development effort may require significant engineering, marketing, and sales resources, all of which would affect our business and operating results. Any failure of our products and platform capabilities to operate effectively with future infrastructure platforms and technologies could reduce the demand for our products. If we are unable to respond to these changes in a cost-effective manner, our products may become less marketable and less competitive or obsolete, and our operating results may be negatively affected.

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

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

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

The market for application and infrastructure performance monitoring is rapidly evolving, significantly fragmented, and highly competitive, with relatively low barriers to entry in some segments. Our competitors fall into four primary categories:


•	performance monitoring providers such as AppDynamics, Inc. (an operating division of Cisco Systems, Inc.), Datadog, Inc., Dynatrace LLC, and Splunk Inc.;


•	diversified technology companies such as Hewlett Packard Enterprise Company, International Business Machines Corporation, Microsoft Corporation, and Oracle Corporation;


•	large enterprise software and service companies such as BMC Software, Inc. and CA, Inc.; and


•	companies offering analytics products competing with our New Relic Insights product, including Amazon Web Services, Inc. and Google Inc.

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

With the introduction of new technologies, the evolution of our products and platform capabilities and new market entrants, we expect competition to intensify in the future. Moreover, as we expand the scope of our solutions, we may face additional competition. Additionally, some potential customers, particularly large enterprises, may elect to develop their own internal products. If one or more of our competitors were to merge or partner with another of our competitors or another large diversified technology company, the change in the competitive landscape could also adversely affect our ability to compete effectively. For example, in March 2017, Cisco Systems, Inc. completed its purchase of AppDynamics, Inc. If we are unable to

maintain our current pricing due to the competitive pressures, our margins will be reduced and our operating results will be negatively affected. In addition, pricing pressures and increased competition generally could result in reduced sales, reduced margins, losses, or the failure of our solutions to achieve or maintain more widespread market acceptance, any of which could harm our business.

Because we recognize revenue from our subscriptions over the subscription term, downturns or upturns in new sales and renewals may not be immediately reflected in our operating results and may be difficult to discern.

We generally recognize revenue from customers ratably over the terms of their subscriptions. A portion of the revenue we report in each quarter is derived from the recognition of revenue relating to subscriptions entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any single quarter may have a small impact on our revenue for that quarter. However, such a decline will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our solutions, and potential changes in our rate of renewals, may not be fully reflected in our results of operations until future periods. In addition, a significant majority of our costs are expensed as incurred, while revenue is recognized over the life of the agreement with our customer. As a result, increased growth in the number of our customers could continue to result in our recognition of more costs than revenue in the earlier periods of the terms of our agreements. In future periods we expect that the way in which we recognize this revenue will be impacted by Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers,” or Topic 606. Please see the risk factor under the heading “ The nature of our business requires the application of complex revenue recognition rules. Significant changes in U.S. generally accepted accounting principles, or GAAP, from the adoption of recently issued accounting standards could materially affect our financial position and results of operations. ” for more information.

Seasonality may cause fluctuations in our sales and operating results.

We have experienced seasonality in our sales and operating results in the past, and we believe that we will increasingly experience seasonality in the future as we continue to target larger enterprise customers. The first two quarters of each fiscal year usually have lower or potentially negative sequential deferred revenue growth than the third and fourth fiscal quarters, during which we generally benefit from a larger renewal base and opportunity to up-sell existing customers. We believe that this results from the procurement, budgeting, and deployment cycles of many of our customers, particularly our enterprise customers, which tend to have a concentration of increased activity in the periods surrounding the change of the company’s fiscal year. As a result, over time we could potentially see stronger sequential revenue results in our fourth and first fiscal quarters as our deferred revenue is recognized. We expect that this seasonality will continue to affect our sales and operating results in the future, which can make it difficult to achieve sequential growth in certain financial metrics or could result in sequential declines on a quarterly basis. Accordingly, historical patterns should not be considered indicative of our future sales activity or performance.

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

Our continued growth depends in part on the ability of our existing and potential customers to access our products and platform capabilities at any time and within an acceptable amount of time. We have experienced, and may in the future experience, disruptions, outages, and other performance problems due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints due to an overwhelming number of users accessing our products and platform capabilities simultaneously, denial of service attacks, or other security related incidents. It may become increasingly difficult to maintain and improve our performance, especially during peak usage times and as our products and platform capabilities become more complex and our user traffic increases. If our products and platform capabilities are unavailable or if our users are unable to access our products and platform capabilities within a reasonable amount of time or at all, our business would be negatively affected. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be adversely affected.

In addition, we currently serve our customers from third-party data centers located in the Chicago, Illinois area and, to a lesser extent, a combination of cloud hosting providers. The continuous availability of our products and platform capabilities depends on the operations of our Chicago facilities, on our cloud hosting providers, on a variety of network service providers, on third-party vendors, and on our own site operations staff. We depend on our third-party providers’ abilities to protect our Chicago data center facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts, and similar events. If there are any lapses of service or damage to the facilities, we could experience lengthy interruptions in our products and platform capabilities as well as delays and additional expenses in arranging new facilities and services. Even with current and planned disaster recovery arrangements, which, to date, have not been tested in an actual crisis, our business could be harmed. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could further reduce our revenue, subject us to liability, and cause us to issue credits or cause customers not to renew their subscriptions, any of which could harm our business.

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

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

Our ongoing and planned investments in data center hosting facilities are expensive and complex, may result in a negative impact on our cash flows, and may negatively impact our financial results.

We have made and will continue to make substantial investments in new equipment to support growth at our Chicago area data center hosting facilities, provide enhanced levels of products and platform capabilities to our customers, and potentially reduce future costs of subscription revenue. In addition, we may need to add additional data centers or similar resources to support our growth or as a result of regulatory requirements that may be applicable to us. We have also invested in a combination of cloud hosting providers to serve our customers for certain portions of our service. Ongoing or future improvements to our cloud infrastructure may be more expensive than we anticipate, and may not yield the expected savings in operating costs or the expected performance benefits. We may not be able to maintain or achieve cost savings from our investments, which could harm our financial results.

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

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

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


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


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


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


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


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


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


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


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


•	limitations on our ability to repatriate earnings;


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


•	limited or insufficient intellectual property protection;


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


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

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

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

Our success and future growth depend largely upon the continued services of our executive officers and other key employees in the areas of research and development, marketing, sales, services, and general administrative functions. From time to time, there may be changes in our executive management team or other key employees resulting from the hiring or departure of these personnel. Our executive officers and other key employees are employed on an at-will basis, which means that these personnel could terminate their employment with us at any time. The loss of one or more of our executive officers, especially our Chief Executive Officer, Lewis Cirne, or the failure by our executive team to effectively work with our employees and lead our company, could harm our business. We also are dependent on the continued service of our existing software engineers because of the complexity of our products and platform capabilities.

In addition, to execute our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel in the San Francisco Bay Area and the Portland area, where our headquarters and the majority of our research and development personnel are located, respectively, and in other locations where we maintain offices, is intense, especially for engineers experienced in designing and developing software and software-as-a-service, or SaaS, applications and experienced sales professionals. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached their legal obligations, resulting in a diversion of our time and resources. In addition, prospective and existing employees often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity awards declines, or experiences significant volatility, it may adversely affect our ability to recruit and retain key employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects could be adversely affected.

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

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

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

We believe that our corporate culture has been a critical component to our success. We have invested substantial time and resources in building our team, including the hiring of a new Chief People Officer in February 2017. As we grow and mature as a public company, we may find it difficult to maintain our corporate culture. Any failure to preserve our culture could negatively affect our future success, including our ability to recruit and retain personnel and effectively focus on and pursue our corporate objectives.

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

We have in the past and may in the future seek to acquire or invest in businesses, products and platform capabilities, or technologies that we believe could complement or expand our products and platform capabilities, enhance our technical capabilities, or otherwise offer growth opportunities. Any acquisition may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not the acquisitions are completed, and may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products and platform capabilities, personnel, or operations of the acquired companies, particularly if the key personnel of the acquired company choose not to work for us, their software is not easily adapted to work with our platform, or we have difficulty retaining the customers of any acquired business due to changes in ownership, management, or otherwise. Acquisitions may also disrupt our business, divert our resources, and require significant management attention that would otherwise be available for development of our existing business. Any acquisitions we are able to complete may not result in any synergies or other benefits we had expected to achieve, which could result in impairment charges that could be substantial. In addition, we may not be able to find and identify desirable acquisition targets or be successful in entering into an agreement with any particular target. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business, and financial condition may suffer or we may be exposed to unknown risks or liabilities.

We may be sued by third parties for alleged infringement of their proprietary rights. *

There is considerable patent, copyright, trademark, trade secret, and other intellectual property development activity in our industry. Our success depends in part on not infringing upon the intellectual property rights of others and how we prepare for and handle claims of infringement. From time to time, our competitors or other third parties may claim that we are infringing upon their intellectual property rights, and we may be found to be infringing upon such rights. For example, we are currently party to a suit brought against us by CA, Inc. that alleges, among other things, that we have infringed on certain patents held by CA, Inc. For more information about these proceedings, see Part II, Item 1 “Legal Proceedings.” In the future, we may receive claims that our products, platform capabilities, and underlying technology infringe or violate the claimant’s intellectual property rights. Any claims or litigation, regardless of merit, could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our products and platform capabilities, or require that we comply with other unfavorable terms.

Even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results. We expect that the occurrence of infringement claims is likely to grow as the market for digital intelligence products grows. Accordingly, our exposure to damages resulting from infringement claims could increase and this could further exhaust our financial and management resources.

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

Our success depends to a significant degree on our ability to protect our proprietary technology and our brand. We rely on a combination of trademarks, trade secret laws, patent, copyrights, service marks, contractual restrictions, and other intellectual property laws and confidentiality procedures to establish and protect our proprietary rights. However, the steps we take to protect our intellectual property may be inadequate. We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property. If we fail to protect our intellectual property rights adequately, our competitors may gain access to our technology and our business may be harmed. In addition, defending our intellectual property rights might entail significant expense. Any patents, trademarks, or other

intellectual property rights that we obtain may be challenged by others or invalidated through administrative process or litigation. As of September 30, 2017 , we had one issued patent, seven patent applications pending, and two trademark registrations for “New Relic” in the United States, as well as two Patent Cooperation Treaty applications and three trademark registrations and four trademark applications for “New Relic” outside of the United States. Despite our issued patent and pending patent applications, we may be unable to maintain or obtain patent protection for our technology. In addition, our existing patent and any patents issued in the future may not provide us with competitive advantages, or may be successfully challenged by third parties. Furthermore, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. Despite our precautions, it may be possible for unauthorized third parties to copy our products and platform capabilities and use information that we regard as proprietary to create products and services that compete with ours. Effective patent, trademark, copyright, and trade secret protection may not be available to us in every country in which our products is available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. As we expand our international activities, our exposure to unauthorized copying and use of our products and platform capabilities and proprietary information will likely increase. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.

We enter into confidentiality and invention assignment agreements with our employees and consultants and enter into confidentiality agreements with other parties. No assurance can be given that these agreements will be effective in controlling access to and distribution of our proprietary information. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our products and platform capabilities.

In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect our intellectual property rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management, and could result in the impairment or loss of portions of our intellectual property. Further, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our products and platform capabilities, impair the functionality of our products and platform capabilities, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our products, or injure our reputation.

Our use of open source software could negatively affect our ability to sell our products and subject us to possible litigation.

We use open source software in our products and platform capabilities and expect to continue to use open source software in the future. We may face claims from others claiming ownership of, or seeking to enforce the terms of, an open source license, including by demanding release of the open source software, derivative works, or our proprietary source code that was developed using such software. These claims could also result in litigation, require us to purchase a costly license, or require us to devote additional research and development resources to change our platform, any of which would have a negative effect on our business and operating results. In addition, if the license terms for the open source software we utilize change, we may be forced to reengineer or discontinue our products and platform capabilities or incur additional costs. We cannot be certain that we have not incorporated open source software in our products and platform capabilities in a manner that is inconsistent with our policies.

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

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

If the market for our technology delivery model and SaaS develops more slowly than we expect, our growth may slow or stall, and our operating results would be harmed.

The market for SaaS business software is less mature than traditional on-premise software applications, and the adoption rate of SaaS business software may be slower among subscribers in industries with heightened data security interests or business practices requiring highly-customizable application software. Our success will depend to a substantial extent on the widespread adoption of SaaS business software in general, but we do not know to what extent the trend of adoption of SaaS solutions will continue in the future. In particular, many organizations have invested substantial personnel and financial resources to integrate legacy software into their businesses over time, and some have been reluctant or unwilling to migrate to SaaS. It is difficult to predict customer adoption rates and demand for our products, the future growth rate and size of the SaaS business software market, or the entry of competitive applications. The expansion of the SaaS business software market depends on a number of factors, including the cost, performance, and perceived value associated with SaaS, as well as the ability of SaaS providers to address data security and privacy concerns. If SaaS business software does not continue to achieve market acceptance, or there is a reduction in demand for SaaS business software caused by a lack of customer acceptance, technological challenges, weakening economic conditions, data security or privacy concerns, governmental regulation, competing technologies and products, or decreases in information technology spending, it would result in decreased revenue and our business would be adversely affected.

Our future performance depends in part on support from third-party software developers.

We provide software that enables third-party software developers to build plugins that integrate with our products and platform capabilities. We operate a community website for sharing these third-party plugins. This presents certain risks to our business, including:


•	third-party developers may not continue developing or supporting the plugins that they share on our community website;


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


•	we do not currently provide support for plugins developed by third-party software developers, and users may be left without support and potentially cease using our products if the third-party software developers do not provide support for these plugins; and


•	these third-party software developers may not possess the appropriate intellectual property rights to develop and share their plugins.

While many of these risks are not within our control to prevent, our brand may be damaged if these plugins do not perform to our customers’ satisfaction and that dissatisfaction is attributed to us.

We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs. If additional capital is not available, we may have to delay, reduce, or cease certain investments.

We may in the future require additional capital to respond to business opportunities that may arise, including the need to develop new products and platform capabilities or enhance our existing products and platform capabilities, enhance our operating infrastructure, possible acquisitions of complementary businesses and technologies, a decline in the level of subscriptions for our products, or other unforeseen circumstances. We may not be able to timely secure additional debt or equity financing on favorable terms, or at all. Any debt financing obtained by us could involve restrictive covenants relating to financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we raise additional funds through further issuances of equity, convertible debt securities, or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences, and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to support our business and to respond to business challenges could be significantly limited, and our business, operating results, financial condition, and prospects could be harmed.

Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.

Market opportunity estimates and growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. Our estimates and forecasts relating to the size and expected growth of our market may prove to be inaccurate. Even if the market in which we compete meets our size estimates and forecasted growth, our business could fail to grow at similar rates, if at all.

We are subject to the tax laws of various jurisdictions, which are subject to unanticipated changes and to interpretation, which could harm our future results.

We are subject to income taxes in the United States and foreign jurisdictions, and our domestic and international tax liabilities are subject to the allocation of expenses in differing jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings and losses in countries with differing statutory tax rates, certain non-deductible expenses as a result of acquisitions, the valuation of deferred tax assets and liabilities, and changes in federal, state, or international tax laws and accounting principles. Further, each jurisdiction has different rules and regulations governing sales and use, value added, and similar taxes, and these rules and regulations are subject to varying interpretations that change over time. Certain jurisdictions in which we did not collect such taxes may assert that such taxes are applicable, which could result in tax assessments, penalties, and interest, and we may be required to collect such taxes in the future. In addition, we may be subject to income tax audits by many tax jurisdictions throughout the world, many of which have not established clear guidance on the tax treatment of SaaS-based companies. Any tax assessments, penalties, and interest, or future requirements may adversely affect our results of operations. Moreover, imposition of such taxes on us going forward would effectively increase the cost of our products to our customers and might adversely affect our ability to retain existing customers or to gain new customers in the areas in which such taxes are imposed.

In addition, the application of the tax laws of various jurisdictions, including the United States, to our international business activities is subject to interpretation and depends on our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements, including our transfer pricing, or determine that the manner in which we operate our business does not achieve the intended tax consequences. As we operate in numerous taxing jurisdictions, the application of tax laws can also be subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions. For instance, it is not uncommon for taxing authorities in different countries to have conflicting views, with respect to, among other things, the manner in which the arm’s length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property.

The nature of our business requires the application of complex revenue recognition rules. Significant changes in U.S. generally accepted accounting principles, or GAAP, from the adoption of recently issued accounting standards could materially affect our financial position and results of operations. *

We prepare our financial statements in accordance with GAAP, which is subject to interpretation or changes by the Financial Accounting Standards Board, or FASB, the SEC, and other various bodies formed to promulgate and interpret appropriate accounting principles. New accounting pronouncements and changes in accounting principles have occurred in the past and are expected to occur in the future, which may have a significant effect on our financial results. For example, in May 2014, the FASB issued Topic 606, which supersedes nearly all existing revenue recognition guidance under GAAP. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. This new standard is effective for our interim and annual periods beginning April 1, 2018, and we anticipate the new standard to have a significant impact on our deferred commissions asset and the related amortization expense. We are continuing to evaluate the impact of the adoption of this standard on our condensed consolidated financial statements and our preliminary assessments are subject to change. Refer to Note 1 in the notes to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information on the new guidance and its potential impact on us. Adoption of this standard and any difficulties in implementation of changes in accounting principles, including the ability to modify our accounting systems, could cause us to fail to meet our financial reporting obligations, which could result in regulatory discipline and harm investors’ confidence in us. In addition, certain choices in the method of implementation of the standard may have an adverse impact on our potential as an acquirer or an acquiree in a business combination.

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

As of our fiscal year ended March 31, 2017, we had U.S. federal and state net operating losses of approximately $313.8 million and $161.4 million, respectively, which may be utilized against future income taxes. In general, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses, or NOLs, to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders (generally 5% stockholders, applying certain look-through and aggregation rules) increases by more than 50% over such stockholders’ lowest percentage ownership during the testing period (generally three years). Purchases of our common stock in amounts greater than specified levels, which are beyond our control, could create a limitation on our ability to utilize our NOLs for tax purposes in the future. Limitations imposed on our ability to utilize NOLs could cause U.S. federal and state income taxes to be paid earlier than would be paid if such limitations were not in effect and could cause such NOLs to expire unused, in each case reducing or eliminating the benefit of such NOLs. Furthermore, we may not be able to generate sufficient taxable income to utilize our NOLs before they expire. If any of these events occur, we may not derive some or all of the expected benefits from our NOLs. In addition, at the state level there may be periods during which the use of NOLs is suspended or otherwise limited, which would accelerate or may permanently increase state taxes owed.

We may face exposure to foreign currency exchange rate fluctuations.

While we have historically transacted in U.S. dollars with substantially all of our customers and vendors, we have transacted in foreign currencies and may transact in foreign currencies in the future. In addition, any international subsidiaries will maintain net assets that are denominated in currencies other than the functional operating currencies of these entities. Accordingly, changes in the value of foreign currencies relative to the U.S. dollar can affect our revenue and operating results due to transactional and translational remeasurement that is reflected in our earnings. As a result of such foreign currency exchange rate fluctuations, it could be more difficult to detect underlying trends in our business and results of operations. In addition, to the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our common stock could be adversely affected. We do not currently maintain a program to hedge transactional exposures in foreign currencies. However, in the future, we may use derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments.

Weakened global economic conditions may harm our industry, business, and results of operations.

Our overall performance depends in part on worldwide economic conditions. Global financial developments and downturns seemingly unrelated to us or the information technology industry may harm us. The United States and other key international economies have been impacted by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies, and overall uncertainty with respect to the economy. In particular, the decision by voters in the United Kingdom to leave the EU has resulted in significant and wide-ranging economic effects across multiple markets. A withdrawal could, among other outcomes, disrupt the free movement of goods, services, and people between the United Kingdom and the EU, undermine bilateral cooperation in key policy areas, and significantly disrupt trade between the United Kingdom and the EU. In addition, a withdrawal could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which EU laws to replace or replicate. Given the lack of comparable precedent, it is unclear what financial, trade, and legal implications the withdrawal of the United Kingdom from the EU would have and how such withdrawal would affect us.

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

Natural disasters and other events beyond our control could harm our business.

Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce, and the global economy, and thus could have a strong negative effect on us. Our business operations are subject to interruption by natural disasters, fire, power shortages, pandemics, and other events beyond our control. We rely on our network and third-party infrastructure and enterprise applications, internal technology systems, and our website for our development, marketing, operational support, hosted products, and sales activities. The west coast of the United States contains active earthquake zones. Although we maintain crisis management and disaster response plans, in the event of a major earthquake, hurricane, or catastrophic event such as fire, power loss, telecommunications failure, cyber-attack, war, or terrorist attack, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our product development, lengthy interruptions in service, breaches of data security, and loss of critical data, all of which could have an adverse effect on our future operating results.

The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain executive management and qualified board members.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of the New York Stock Exchange, and other applicable securities rules and regulations. Compliance with these rules and regulations increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight is required. We are required to disclose changes made in our internal control and procedures on a quarterly basis and we are required to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. As a result of the complexity involved in complying with the rules and regulations applicable to public companies, our management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. Although we have already hired additional employees and have engaged outside consultants to assist us in complying with these requirements, we may need to hire more employees in the future or engage additional outside consultants, which will increase our operating expenses.

In addition, changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest substantial resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

Being a public company and the aforementioned rules and regulations have made it more expensive for us to obtain director and officer liability insurance, and in the future we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

As a result of disclosure of information in our filings with the SEC, our business and financial condition have become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.

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.

Our quarterly financial results may fluctuate widely as a result of the risks and uncertainties described in this report, many of which are outside of our control. If our financial results fall below the expectations of investors or any securities analysts who follow our stock, the price of our common stock could decline substantially.

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

Our stock price has been subject to fluctuations, and will likely continue to be subject to fluctuations, which may be volatile and due to factors beyond our control. *

The market price of our common stock is subject to wide fluctuations in response to various factors, some of which are beyond our control. Since shares of our common stock were sold in our IPO in December 2014 at a price of $23.00 per share, the reported high and low sales prices of our common stock has ranged from $51.31 to $20.39 through September 30, 2017 . In addition to the factors discussed in this “Risk Factors” section and elsewhere in this report, factors that could cause fluctuations in the market price of our common stock include the following:


•	actual or anticipated fluctuations in our operating results;


•	the financial projections we may provide to the public, any changes in these projections, or our failure to meet these projections;


•	failure of securities analysts to initiate or maintain coverage of our company, changes in financial estimates and publication of other news by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;


•	ratings changes by any securities analysts who follow our company;


•	announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;


•	changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;


•	price and volume fluctuations in the overall stock market from time to time, including as a result of trends in the economy as a whole;


•	changes in accounting standards, policies, guidelines, interpretations, or principles, such as the adoption of FASB issued Topic 606, the new revenue recognition standard;


•	actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;


•	developments or disputes concerning our intellectual property or our products and platform capabilities, or third-party proprietary rights;


•	announced or completed acquisitions of businesses or technologies by us or our competitors;


•	new laws or regulations or new interpretations of existing laws, or regulations applicable to our business;


•	changes in our board of directors or management;


•	sales of shares of our common stock by us, our officers, directors, or other stockholders;


•	lawsuits filed or threatened against us; and


•	other events or factors, including those resulting from war, incidents of terrorism, or responses to these events.

In addition, the market for technology stocks and the stock markets in general have experienced extreme price and volume fluctuations. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business, and adversely affect our business, results of operations, financial condition, and cash flows. A decline in the value of our common stock, including as a result of one or more factors set forth above, may result in substantial losses for our stockholders.

Substantial future sales of shares of our common stock could cause the market price of our common stock to decline.

The market price of our common stock could decline as a result of substantial sales of our common stock, particularly sales by our directors, executive officers, and significant stockholders, a large number of shares of our common stock becoming available for sale, or the perception in the market that holders of a large number of shares intend to sell their shares. Additionally, the shares of common stock subject to outstanding options under our equity incentive plans and the shares reserved for future issuance under our equity incentive plans, as well as shares issuable upon vesting of restricted stock awards, will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations. Moreover, some holders of shares of our common stock have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our stockholders. We have also registered shares of common stock that we may issue under our employee equity incentive plans. Accordingly, these shares may be able to be sold freely in the public market upon issuance as permitted by any applicable vesting requirements.

If securities or industry analysts do not continue to publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If industry analysts cease coverage of us, the trading price for our common stock would be negatively affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline. In addition, independent industry analysts, such as Gartner and Forrester, often provide reviews of our products and platform capabilities, as well as those of our competitors, and perception of our offerings in the marketplace may be significantly influenced by these reviews. We have no control over what these industry analysts report, and because industry analysts may influence current and potential customers, our brand could be harmed if they do not provide a positive review of our products and platform capabilities or view us as a market leader.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of our company more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our common stock.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws include provisions that:


•	authorize our board of directors to issue, without further action by the stockholders, shares of undesignated preferred stock with terms, rights, and preferences determined by our board of directors that may be senior to our common stock;


•	require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;


•	specify that special meetings of our stockholders can be called only by our board of directors, the Chairman of our board of directors, or our Chief Executive Officer;


•	establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;


•	provide that our board of directors is divided into three classes, with each class serving three-year staggered terms;


•	prohibit cumulative voting in the election of directors;


•	provide that our directors may be removed only for cause;


•	provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and


•	require the approval of our board of directors or the holders of at least seventy-five percent (75%) of our outstanding shares of capital stock to amend our bylaws and certain provisions of our certificate of incorporation.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years

following the date on which the stockholder became an “interested” stockholder. Any delay or prevention of a change of control transaction or changes in our management could cause the market price of our common stock to decline.

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for the adjudication of certain disputes, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. *

Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the sole and exclusive forum for:


•	any derivative action or proceeding brought on our behalf;


•	any action asserting a claim of breach of a fiduciary duty owed by any director, officer, or other employee of New Relic to us or our stockholders;


•	any action asserting a claim against us or any of our directors, officers, or other employees arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; and


•	any action asserting a claim against us or any of our directors, officers, or other employees that is governed by the internal affairs doctrine.

This exclusive-forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. If a court were to find this exclusive-forum provision to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our business.

We do not intend to pay dividends on our common stock so any returns will be limited to changes in the value of our common stock.

We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, our ability to pay cash dividends on our common stock may be prohibited or limited by the terms of any future debt financing arrangements. Any return to stockholders will therefore be limited to the increase, if any, of our stock price, which may never occur.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Use of Proceeds from Registered Securities

On December 17, 2014, we closed our IPO of 5,750,000 shares of our common stock, including 750,000 shares of common stock from the full exercise of the option to purchase additional shares granted to the underwriters, at a price to the public of $23.00 per share. The offer and sale of all of the shares in our IPO were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-200078), which was declared effective by the SEC on December 11, 2014.

There has been no material change in the planned use of proceeds from our IPO as described in our final prospectus filed with the SEC on December 12, 2014 pursuant to Rule 424(b)(4). Pending the uses described, we have invested the net proceeds from the offering in short-term, investment-grade interest-bearing securities such as money market accounts, certificates of deposit, commercial paper, and guaranteed obligations of the U.S. government.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit

No.

Description of Exhibit

Incorporated by Reference

Filed

Herewith

Form

File No.

Exhibit

File Date

3.1

Amended and Restated Certificate of Incorporation of the Registrant.

10-K

001-36766

3.1

May 28, 2015

3.2

Amended and Restated Bylaws of the Registrant.

S-1

333-200078

3.4

November 10, 2014

10.1

Seventh Amendment to Lease by and between the Registrant and 111 SW 5th Avenue Investors LLC, dated as of September 15, 2017.

10.2

Fourth Amendment to Lease by and between the Registrant and 188 Spear Street LLC, dated as of November 1, 2017.

10.3

New Relic, Inc. Non-Employee Director Compensation Policy, as amended.

31.1

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 (1)

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

(1)

The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any of the Registrant’s filings under the Securities Act of 1933, as amended, irrespective of any general incorporation language contained in any such filing.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



			NEW RELIC, INC.
Date:	November 7, 2017
		By:	/s/ Mark Sachleben
			Mark Sachleben
			Chief Financial Officer
			(Principal Financial and Accounting Officer and Duly Authorized Signatory)

SEVENTH AMENDMENT TO LEASE

THIS SEVENTH AMENDMENT TO LEASE (this “ Amendment ”), dated solely for reference purposes as of September 15, 2017, is between 111 SW 5 ^th Avenue Investors LLC, a Delaware limited liability company (“ Landlord ”), and New Relic, Inc., a Delaware corporation (“ Tenant ”).

RECITALS

A. Landlord and Tenant entered into a certain Office Lease, dated as of June 15, 2012 (the “ Original Lease ”) as amended by a First Amendment to Lease, dated as of October 23, 2012 (“ First Amendment ”), a Second Amendment to Lease dated as of November 5, 2013 (the “ Second Amendment ”), a Third Amendment to Lease dated as of March 10, 2014 (the “ Third Amendment ”), a Temporary Space Extension Agreement dated as of May 1, 2014, a Fourth Amendment to Lease dated as of May 21, 2014 (the “ Fourth Amendment ”), a Fifth Amendment to Lease dated as of June 26, 2014 (the “ Fifth Amendment ”), and a Sixth Amendment to Lease dated as of March 30, 2016 (the “ Sixth Amendment ”) (the Original Lease, as so amended, is referred to herein as the “ Lease ”).

B. The parties desire to amend the Lease as set forth in and subject to the terms and conditions contained in this Amendment.

NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Capitalized Terms . All capitalized terms that are not specifically defined in this Amendment and that are defined in the Lease will have the same meaning for purposes of this Amendment as they have in the Lease. References in this Amendment to Sections of the Original Lease refer to the correspondingly numbered “Articles” of the Original Lease.

2. Expansion Premises .‎

(a) Leasing and Delivery . The Fourth Expansion Premises is the 22 ^nd Floor of the Building consisting of 19,996 rentable square feet using an agreed 9.2% load factor. Landlord leases to Tenant, and Tenant leases from Landlord, the Fourth Expansion Premises. From and after the Fourth Expansion Effective Date (as defined below), the Fourth Expansion Premises will be deemed a part of the Premises for all purposes. The “Fourth Expansion Effective Date” means the date Landlord delivers the Fourth Expansion Premises to Tenant in broom clean condition and all tenants have been relocated from the Fourth Expansion Premises and Landlord has exclusive possession of the Fourth Expansion Premises (together, the “ Improvable Condition ”). Landlord shall use good faith, diligent efforts (at Landlord’s sole cost and expense), to deliver the Fourth Expansion Premises, in Improvable Condition, to Tenant on April 1, 2018 and will use reasonable efforts to inform Tenant in advance of any anticipated delay in delivery beyond April 1, 2018. Notwithstanding anything to the contrary set forth herein, Tenant shall have no obligation to accept delivery of the Premises prior to April 1, 2018. If Landlord fails to deliver possession of the Fourth

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Expansion Premises to Tenant in Improvable Condition on April 1, 2018, Tenant shall be entitled to send written notice to Landlord stating that if Landlord has not delivered the Fourth Expansion Premises within sixty (60) days after the date of Tenant’s notice, Tenant may elect to terminate this Amendment. If Landlord does not deliver the Fourth Expansion Premises to Tenant prior to the expiration of such sixty (60) day period, Tenant may terminate this Amendment by providing written notice to Landlord within ten (10) days after the end of the sixty (60)-day period. If Tenant elect to terminate this Amendment, this Amendment will be automatically null and void and of no further force or effect. If Landlord so elects, the parties agree to execute an instrument which confirms and effects a release and surrender of all of Tenant’s right, title and interest in and to the Fourth Expansion Premises pursuant to the terms of the Lease and otherwise, provided that failure of either party to execute such instrument shall not effect such termination. If Tenant fails to provide such termination notice within the time period set forth above, time being of the essence, Tenant will be deemed to have irrevocably waived such termination right. The foregoing is Tenant’s sole remedy for late or failed delivery of the Fourth Expansion Promises

(b) Lease Term . The Lease Term for the Fourth Expansion Premises (the “ Fourth Expansion Term ”) shall commence on the Fourth Expansion Effective Date and shall expire on the final day of the ninety‑sixth (96 ^th ) full calendar month thereafter; the Fourth Expansion Effective Date will not occur prior to April 1, 2018. Landlord and Tenant agree, upon demand by the other, to execute and deliver a Commencement Certificate in the form of Exhibit B attached hereto. If Landlord makes such demand upon Tenant but Tenant fails to respond within fifteen (15) days, then Tenant will irrevocably be deemed to have agreed with Landlord as to the information set forth in the Commencement Certificate so delivered by Landlord to Tenant.‎

3. Base Rent . Commencing on the Fourth Expansion Effective Date, Tenant shall pay, in addition to all sums otherwise payable under the Lease, Base Rent for the Fourth Expansion Premises in the following amounts (calculated at the initial rate of $24.50 per rentable square foot then escalated $1.00 per rentable square foot annually, but with the first two (2) months abated):



Months	Monthly Amount
1-2	$0.00*
3-12	$40,825.17**
13-24		$42,491.50
25-36		$44,157.83
37-48		$45,824.17
49-60		$47,490.50
61-72		$49,156.83
73-84		$50,823.17
85-96		$52,489.50

*Tenant shall pay Tenant’s Share of Taxes and Expenses during this period.

**Any first partial month is charged a prorated portion of this amount.

2 – SEVENTH AMENDMENT TO LEASE

4. Adjustments .

(a) Parking . Commencing on the Fourth Expansion Effective Date, Tenant’s right to rent parking spaces will be as follows, subject to the conditions set forth herein and the other provisions of this Lease. Tenant shall have the right to rent non‑reserved monthly parking spaces at the monthly rates then in effect in a ratio of one space for each full 1,000 rentable square feet leased. Spaces shall be allocated first to three (3) spaces in the Tower structure located directly across S.W. Fifth Avenue from the Building, then one (1) space in the underground Plaza garage, and repeated until the full allocation is used. The rates charged by Landlord are subject to change, without notice, from time to time by Landlord, provided such new rates are generally applicable to similarly situated office tenants in the Building.

(b) Tenant’s Share . Effective on the Fourth Expansion Effective Date, Tenant’s Share of Taxes and Expenses shall be calculated based upon the rentable square footage of the entire Premises and shall be 13.602% (102,225/751,556).

(c) Expense Cap . The Cap on Controllable Expenses set forth in Section 4.L. of the Original Lease is and shall be a Cap on the amount of Controllable Expenses per rentable square foot of the Premises leased hereunder from time to time.

5. Tenant Improvements . Tenant shall improve the Fourth Expansion Premises pursuant to the Work Letter attached to this Seventh Amendment to Lease as Exhibit A (the “ Work Letter ”). Landlord shall, as provided in the Work Letter, provide a tenant improvement allowance in the amount of $899,820.00 ($45.00 per rentable square foot of the Fourth Expansion Premises) (the “ Allowance ”).

6. Renewal . Tenant shall have a single option to renew the Lease Term for the sixty (60) month Renewal Term pursuant to Section 32 of the Original Lease, as modified by Section 9(a) of the Fourth Amendment and as modified herein.

(a) Time Period . The expiration date of the Lease Term for all of the Premises presently leased hereunder other than the Fourth Expansion Space (the “Existing Premises”) is August 31, 2023 (the “ Existing Expiration Date ”). The time periods in Section 32 of the Original Lease, as amended, that refer to the Expiration Date shall be references to such Existing Expiration Date.

(b) Options . Tenant’s initial binding notice to Landlord pursuant to Section 32(C) of the Original Lease shall specify that Tenant intends to renew this Lease as to (i) the Fourth Expansion Premises, all of the Existing Premises, and all additional space that is then co‑terminus with the Existing Premises (“ Same Term Space ”), (“ Option 1 ”), (ii) the Fourth Expansion Premises, all Same Term Space, and all of the Existing Premises except the entire 5 ^th Floor (“ Option 2 ”), or (iii) all of the Existing Premises, with or without the 5 ^th Floor, and all Same Term Space, but not the Fourth Expansion Space (“ Option 3 ”). If the initial binding notice does not specify one of such choices, it shall be deemed to specify that Tenant intends to renew this Lease as to the space listed in Option 1. If Tenant later gives a final binding notice electing

3 – SEVENTH AMENDMENT TO LEASE

to renew this Lease pursuant to Section 32(D) of the Original Lease, such election shall apply to the same space as is specified in the initial binding notice.

(c) Effect on Spaces that would expire during the Renewal Term . If this Lease is renewed as to the space listed in Option 1 or the space listed in Option 2, then the Fourth Expansion Term and the Lease Term for any Midterm Space (as defined below) shall be co‑terminus with the expiration date of the Renewal Term and, accordingly, the Fourth Expansion Term and the Lease Term as to any Midterm Space shall be extended for the period from the otherwise scheduled expiration dates(s) to the expiration of the Renewal Term (the “ Tail Period ”). Until the Tail Period, Base Rent for the Fourth Expansion Space and any Midterm Space shall be the then applicable amount(s) under this Lease; Base Rent for the Fourth Expansion Space and any Midterm Space for the Tail Period shall be the same rate per rentable square foot as is in effect from time to time during the Tail Period for the Existing Premises (or the Existing Premises except the 5 ^th Floor, as the case may be). “Midterm Space” is space that is added to the Premises after execution of this Seventh Amendment but prior to the Existing Expiration Date for a term that expires after the Existing Expiration Date but prior to the final day of the Renewal Term. For example, if Tenant leases the Option Space pursuant to Section 7 below, or if Tenant leases an Expansion Space pursuant to Section 8 for a term that expires on the same date as does the Fourth Expansion Term, then each such space is a Midterm Space.

(d) Effect on Spaces that would expire after the Renewal Term . If this Lease is renewed as to the space listed in Option 1 or the space listed in Option 2, then the Lease Term and Base Rent as to any separate space added to the Premises after execution of this Seventh Amendment as to which the Lease Term is scheduled to expire on or after the final day of the Renewal Term shall not be affected by such renewal.

(e) Nonrenewal of Fourth Expansion Premises . If this Lease is renewed as to the space listed in Option 3, then (i) the Lease Term and Base Rent as to the Fourth Expansion Premises shall be unaffected by such renewal, and (ii) the Lease Term and Base Rent for any Midterm Space shall be as set forth in Section 6(c) above.

(f) Sole Rights . This Section sets forth the single and only one time renewal right to Tenant; any other right or option to renew or extend this Lease is hereby deleted.

7. Expansion Option .

(a) Option Space . The Option Space is the 23 ^rd Floor of the Building consisting of 20,003 rentable square feet. The Option Space is currently leased to another lessee under a lease that is scheduled to expire on March 30, 2020.

(b) Grant of Option . Tenant is hereby granted the option to lease the Option Space on the terms set forth in this Section (the “ Option ”). Tenant shall exercise the Option, if at all, by written notice (the “ Option Notice ”) given no later than June 30, 2019. If Landlord determines that the Option Space will be available for lease earlier than March 30, 2020 (i.e., if the current lease of the same is terminated early), then Landlord shall have the right to give written notice to Tenant stating the date that Landlord expects the Option Space to be available for delivery (the

4 – SEVENTH AMENDMENT TO LEASE

“ Early Exercise Notice ”). If the Early Exercise Notice is given, then the Option Notice shall be given, if at all, no later than thirty (30) days following the giving of the Early Exercise Notice. If the Option Notice is not given by the applicable date stated in this Section, then this Section 7 shall be void.

(c) Lease of Option Space . If the Option is exercised, then the Option Space shall become a part of the Premises and shall be leased to Tenant pursuant to an amendment to this Lease. Such amendment shall include the following provisions.

(i) The Lease Term as to the Option Space shall commence upon delivery of possession of the same to Tenant and shall expire on the final day of the Fourth Expansion Term.

(ii) Possession of the Option Space will be delivered to Tenant in its “AS IS” condition, broom clean, promptly following surrender of the same by the existing lessee.

(iii) Tenant shall be allowed a period of ninety (90) days to improve the Premises before the commencement of any rent abatement period set forth in the amendment and, if no rent abatement period was included in such amendment, before the commencement of Base Rent and Tenant’s Share of Taxes and Expenses commence to accrue. All improvements shall be constructed by Tenant in accordance with this Lease and the terms of the applicable amendment.

(iv) Base Rent and the tenant improvement allowance for the Option Space shall be Fair Market Rent and a Fair Market Allowance determined in accordance with Section 32 of the Original Lease. For purposes of this provision, (A) the time periods in Section 32 of the Original Lease shall commence upon the giving of the Option Notice rather than the giving of an “initial binding notice”, and (B) the Fair Market Rent and Fair Market Allowance shall be determined by reference to comparable expansions of office tenants in the Pertinent Market rather than renewals. Tenant shall have until 5:00 p.m. on the forty‑fifth (45 ^th ) day following receipt of a draft of the same to execute an amendment hereto with ‎Landlord to lease the Option Space on the terms set forth above and otherwise on the terms of this Lease. Should Tenant fail to execute such an amendment within the time allowed, then the Option Notice shall be void.

(d) Financial Statements . As a condition to Landlord executing an amendment with Tenant under this Section, Landlord shall have the right to review then current financial statements of Tenant. Such statements shall be delivered by Tenant with the Option Notice; provided, if Tenant is then subject to the public reporting requirements of the Securities Exchange Act of 1934 and such statements are readily available, Tenant need not deliver the same to Landlord. If such financial statements are not so delivered (if required) or if Landlord is not satisfied, in its discretion, with the financial condition of Tenant as demonstrated by such financial statements, then the Option Notice will be void.

(e) Limitations .

(i) Availability . Landlord has not promised that the existing lessee will surrender the Option Space on or before any particular date. ‎Landlord shall have no liability for the failure of the existing lessee to surrender the Option Space on the scheduled date. ‎Landlord

5 – SEVENTH AMENDMENT TO LEASE

shall have no obligation to evict such lessee and may ‎allow such lessee to holdover, whether or not pursuant to a contractual right to do so.

(ii) Prior Rights . The ‎rights of Tenant under this Section are subject and subordinate to all prior rights of other ‎lessees.‎

(iii) Termination . Notwithstanding anything to the contrary contained herein, this Section shall become null and void if a Default (as defined in Article 15 of the Original Lease) occurs. Further, an Option Notice shall be void and Landlord shall have no obligation to lease the Expansion Space to Tenant if, at the time the Option Notice is given or at the time set for execution of an amendment pursuant to this Section, (A) an event which, with the giving of notice or the passage of time or both, would constitute a Default, exists, or (B) Tenant is not in possession of and occupying all of the Premises.

(iv) Rights Personal . The rights of Tenant under this Section are personal to, and may be exercised only by, the Tenant named herein or the then lessee hereunder that is a Permitted Transferee (as defined below). With the exception of a Permitted Transferee, no assignee shall ‎have any such rights, and neither the Tenant named herein nor the Permitted Transferee shall have the right to exercise such rights on behalf of any third party. If the ‎Tenant named herein ‎shall assign this Lease or sublet all or any portion of the Premises to any party other than a Permitted Transferee, then ‎effective upon such assignment or subletting, Tenant’s rights under this Section ‎shall simultaneously ‎terminate and be of no further force or effect. For purposes of this Section, a “ Permitted Transferee ” shall be any assignee or sublessee identified in any of the following: (A) an assignment or subletting of all or a portion of the Premises to an affiliate of Tenant (an entity which is controlled by, controls, or is under common control with, Tenant as of the date of this Lease), (B) an assignment of the Lease to an entity which acquires all or substantially all of the stock or assets of Tenant, or (C) an assignment of the Lease to an entity which is the resulting entity of a merger or consolidation of Tenant during the term of the Lease.

(f) Confirmation . At such time as Tenant has no rights with respect to the Option Space, Tenant shall execute and deliver to Landlord a certificate so stating.

8. Right of First Offer .

(a) ‎ Expansion Space . The Expansion Space is any space on any of the following floors (the “ Expansion Floors ”) that Landlord is marketing or intends to commence marketing during a period covered by an Interest Notice (as defined below).

The 4 ^th Floor

The 6 ^th Floor

The 21 ^st Floor

The 26 ^th Floor

The 30 ^th Floor

However, at any time Tenant is not leasing space on a floor listed above or on a floor adjacent to such listed floor, then such listed floor will cease to be Expansion Floor. For example,

6 – SEVENTH AMENDMENT TO LEASE

if Tenant ceases leasing the 5 ^th Floor and is not then leasing any space on the 4 ^th Floor or 6 ^th Floor, then the 4 ^th Floor and 6 ^th Floor shall no longer be Expansion Floors. As a further example, if Tenant ceases leasing the 5 ^th Floor and is then leasing space on the 6 ^th Floor but not the 4 ^th Floor, then the 4 ^th Floor shall no longer be an Expansion Floor but the 6 ^th Floor will continue to be an Expansion Floor.

(b) Interest Notice . If, from time to time, Tenant in good faith desires to lease additional space, Tenant will give to Landlord written notice (the “ Interest Notices ”) setting forth parameters for the amount of space it requires and the date Tenant desires to commence occupancy (the “ Parameters ”). An Interest Notice shall be void if delivered sooner than 365 days prior to the desired occupancy commencement date. Landlord shall respond in a timely manner advising Tenant of Landlord’s then expectation of the existence or absence of possible leasing opportunities within the Parameters. If Landlord is already actively negotiating with a third party to lease space on an Expansion Floor when Landlord receives an Interest Notice, Tenant will have no right to be offered such space unless and until Landlord determines that such negotiations have ended without such space being leased to the third party.

(c) Grant of Right of First Offer . At the time, if any, after Landlord’s receipt of an Interest Notice that Landlord first intends to market or to ‎negotiate with one or more third parties to lease an Expansion Space that Landlord determines in good faith to be consistent with the Parameters, other than marketing or negotiation regarding a lease arrangement with the existing lessee who would be renewing or ‎extending its occupancy of such space (whether or not pursuant to a contractual right to do so) or with a lessee that holds a prior expansion right, Landlord shall give Tenant written notice (“ Landlord’s Communication ”) of the financial consideration and other terms upon which Landlord is willing to lease such Expansion Space to Tenant. Landlord’s Communication shall constitute an ‎offer to Tenant to lease such Expansion Space on the terms set forth ‎in Landlord’s Communication and otherwise on the terms set forth in this Lease. Tenant specifically acknowledges that Landlord may offer ‎the Expansion Space as part of a larger space and on terms that require Tenant to lease the entirety of the larger space. Tenant further acknowledges that Landlord may offer the Expansion Space for a length of term that is different than the Lease Term as to the Premises or one or more parts of the Premises. However, if a Landlord’s Communication is given prior to the first anniversary of the Fourth Expansion Effective Date, then the Expansion Space described in such Landlord’s Communication shall be offered (i) for a term expiring on the same date as the Fourth Expansion Term, (ii) at the same per rentable square foot Base Rent rates as apply to the Fourth Expansion Premises from time to time, and (iii) with the same Allowance per rentable square foot as applies to the Fourth Expansion Premises prorated in a ratio of the number of months in the Lease Term as to the Expansion Space divided by 96.

(d) ‎ Leasing of Expansion Space . Tenant shall have until 5:00 p.m. on the tenth (10 ^th ) business day following the giving of Landlord’s Communication to accept Landlord’s offer and until the forty‑fifth (45 ^th ) day following receipt of the draft of the same to execute an amendment hereto with ‎Landlord to lease the Expansion Space on the terms set forth in Landlord’s Communication and otherwise on the terms of this Lease. Should Tenant fail to accept the offer or to execute such an amendment within the respective time allowed, Landlord may market the Expansion Space and execute a lease with any third party on any terms negotiated, whether similar

7 – SEVENTH AMENDMENT TO LEASE

or dissimilar to those in Landlord’s Communication, without the obligation to re-offer the same to Tenant.

(e) Financial Statements . As a condition to Landlord executing an amendment with Tenant under this Section, Landlord shall have the right to review then current financial statements of Tenant. Such statements shall be delivered by Tenant within three (3) business days of the giving of the Landlord’s Communication; provided, if Tenant is then subject to the public reporting requirements of the Securities Exchange Act of 1934 and such statements are readily available, Tenant need not deliver the same to Landlord. If such financial statements are not so delivered (if required) or if Landlord is not satisfied, in its discretion, with the financial condition of Tenant as demonstrated by such financial statements, then Landlord may proceed to market the applicable Expansion Space as if Tenant had rejected Landlord’s Communication.

(f) Limitations .

(i) Availability . Landlord has not promised that any Expansion Space shall be or ‎become available to Tenant or that such an event shall occur on or before any particular date. ‎Landlord shall have no liability for the failure of any Expansion Space to become available. ‎Landlord shall have no obligation to remove any other tenant from any Expansion Space and may ‎allow any such tenant to renew or extend its lease and/or to holdover, whether or not pursuant to a contractual right to do so, without offering the Expansion Space to Tenant. In no event shall any ‎actual or alleged failure by Landlord under this Section allow Tenant to terminate this Lease.

(ii) Prior Rights . The ‎rights of Tenant under this Section are subject and subordinate to all prior rights of other ‎lessees.‎

(iii) Termination . Notwithstanding anything to the contrary contained herein, this Section shall become null and void if a Default (as defined in Article 15 of the Original Lease) occurs. Further, Landlord has no obligation to offer Expansion Space to Tenant or to lease Expansion Space to Tenant if, at the time a Landlord’s Communication would be given or at the time set for execution of an amendment pursuant to this Section, (A) an event which, with the giving of notice or the passage of time or both, would constitute a Default, exists, or (B) Tenant is not in possession of and occupying all of the Premises.

(g) Demising . If this Lease ends as to a portion of a space but not the entirety of such space (for example, if two spaces are leased at different times with differing expiration dates and such spaces are no longer separately demised), then Tenant, at its cost, shall demise

8 – SEVENTH AMENDMENT TO LEASE

such portion of the space (including separating all utilities) in accordance with a reasonable demising plan provided by Landlord.

(h) Confirmation . At such time as Tenant rejects a Landlord’s Communication or ‎otherwise has no rights with respect to an Expansion Space, the parties hereto shall, at the election of either such party, execute and deliver a certificate setting forth the compliance of Landlord and Tenant with the process set forth in this Section and/or such other matters as either party may reasonably request.

9. Lease Revisions . Section 37 and Section 38 of the Original Lease are hereby deleted and are of no force or effect. All rights and options of Tenant to lease or to be offered other space in the Building, including but not limited to Sections 38 and 39 of the Original Lease, Section 8 of the Fourth Amendment, and Section 7 of the Fifth Amendment, are hereby deleted and replaced by Sections 7 and 8 above.

10. Holdover . The surrender and holdover provisions of the Lease, including but not limited to Section 23 of the Original Lease, Section 24 of the Original Lease, and Section 6 of the Fifth Amendment, shall apply separately to the entirety of all space leased hereunder that has the same expiration or termination date. For example, such provisions shall apply separately to the entirety of the Existing Premises such that a holdover in any part of the Existing Premises will be deemed a holdover in all of the Existing Premises, but such a holdover in the Existing Premises shall not constitute a holdover in the Fourth Expansion Premises if the Fourth Expansion Term is, at that time, not ending.

11. Casualty . Section 11C of the Original Lease is hereby deleted and replaced with the following:

“C. Termination of Lease . The entire portion of the Premises located on a Floor of the Building sharing a common expiration date is a “Floor Space”. Notwithstanding the foregoing to the contrary, in lieu of performing the restoration work, Landlord may elect to terminate this Lease as to one or more Floor Space(s) by notifying Tenant in writing of such termination within sixty (60) days after the date of damage (such termination notice to include a termination date providing at least thirty (30) days for Tenant to vacate the Floor Space), if the Property shall be damaged by fire or other casualty or cause such that: (a) more than twenty‑five percent (25%) of such Floor Space(s) is affected by the damage and fewer than twenty‑four (24) months remain in the Term as to such Floor Space, or any material damage occurs to the Floor Space during the last twelve (12) months of the Term as to such Floor Space, (b) any Lender shall require that the insurance proceeds or any portion thereof be used to retire the Mortgage debt (or shall terminate the ground lease, as the case may be), or the damage is not fully covered, except for deductible amounts, by Landlord’s insurance policies, or (c) the cost of the repairs, alterations, restoration or improvement work would exceed twenty‑five percent (25%) of the replacement value of the Building (whether or not the Premises are affected by the damage). Tenant agrees that the abatement of Rent provided herein shall be Tenant’s sole recourse in the event of such damage, and waives any other rights Tenant may have under any applicable Law to perform repairs or terminate the

9 – SEVENTH AMENDMENT TO LEASE

Lease by reason of damage to the Premises or Property. In addition, if a substantial portion of the Building is destroyed such that a Floor Space becomes untenantable, then Landlord will select a registered architect licensed to do business in Oregon to estimate the time for completion of restoration of such Floor Space. If such architect should certify that such work to such Floor Space cannot be accomplished by using standard working methods and procedures so as to make such Floor Space tenantable within 180 days from the date the rehabilitation is started or within 3 months from such date if the Lease Term as to such Floor Space has less than 12 months remaining at the time of certification, either party will have the right to terminate this Lease as to such Floor Space by giving to the other notice of such election within 10 days after Tenant’s receipt of the architect’s certificate. If such architect certifies that such work can be completed within such 180‑day period but such work is not actually substantially completed within 240 days after the date the rehabilitation is started (subject to force majeure), then Tenant may provide written notice to Landlord specifying that this Lease will terminate as to such Floor Space if such work is not substantially completed within thirty (30) days after the date of such notice. In the event the work is not substantially completed by the end of such thirty (30) day period this Lease will automatically terminate as to such Floor Space and neither party shall have any further rights or obligations hereunder as to such Floor Space except those obligations or liabilities which have accrued on or before such termination date and except those expressly provided as surviving expiration or termination hereof. If said fire or other casualty results in the total destruction of the Building, this Lease will automatically terminate as of the date of said fire or other casualty.”

12. Authority; Not Restricted . Landlord and Tenant each represent and warrant to the other that this Amendment has been duly authorized, executed and delivered by and on behalf of each party hereto and constitutes the valid and binding agreement of Landlord and Tenant in accordance with the terms hereof. Tenant warrants and represents to Landlord that Tenant is not, and shall not become, a person or entity with whom Landlord is restricted from doing business with under regulations of the Office of Foreign Asset Control (“ OFAC ”) of the Department of the Treasury (including, but not limited to, those named on OFAC’s Specially Designated and Blocked Persons list) or under any statute, executive order (including, but not limited to, the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action and is not and shall not engage in any dealings or transaction or be otherwise associated with such persons or entities.

13. Real Estate Brokers . Each party hereto hereby represents and warrants to the other that, in connection with this Amendment, the party so representing and warranting has not dealt with any real estate broker, agent or finder, except for Cresa and Jones Lang LaSalle Americas, Inc. (each, a “ Broker ”), and, to its knowledge no other broker initiated or participated in the negotiation of this Amendment, submitted or showed the applicable premises to Tenant or is entitled to any commission in connection with this Amendment. Each party hereto will indemnify, defend and hold harmless the other against any and all claims, costs, liabilities and expenses (including, without limitation, reasonable attorneys’ fees) in connection with any inaccuracy in such party’s

10 – SEVENTH AMENDMENT TO LEASE

representation. Landlord agrees that it will pay the applicable commission to the Brokers according to a separate agreement.

14. Stipulation . The Premises are stipulated for all purposes to contain the number of rentable square feet as set forth in this Amendment. Unless otherwise expressly provided herein, any statement of square footage set forth in this Amendment, or that may have been used in calculating rental, is an approximation which Landlord and Tenant agree is reasonable and the rental based thereon is not subject to revision whether or not the actual square footage is more or less.

15. Counterparts . This Amendment may be executed in any number of counterparts and by each of the undersigned on separate counterparts and may be delivered by facsimile or other electronic delivery (such as, without limitation, scanned signatures in .pdf format), and each such counterpart will be deemed to be an original, but all such counterparts will together constitute but one and the same Amendment.

16. Time of Essence . Time is of the essence of this Amendment.

17. No Offer . Submission of this instrument for examination or negotiation will not bind Landlord, and no obligation on the part of Landlord will arise until this Amendment is executed and delivered by both Landlord and Tenant. However, the execution of this Amendment by Tenant and delivery thereof to Landlord or Landlord’s agent will constitute an irrevocable offer by Tenant on the terms and conditions herein contained, which offer may not be revoked for thirty (30) days after such delivery.

18. Entire Agreement . This Amendment and the Lease contain all the terms, covenants, conditions and agreements between Landlord and Tenant relating to the matters provided for in this instrument. No prior or other agreement or understanding pertaining to such matters other than the Lease will be valid or of any force or effect. This Amendment may only be modified by an agreement in writing signed by Landlord and Tenant.

19. Joint and Several Liability . If this Amendment is signed, or if the obligations of Tenant are otherwise guaranteed, by more than one party, their obligations shall be joint and several, and the release or limitation of liability of any one or more of the parties shall not release or limit the liability of any other party.

20. Certification . As an essential inducement to Landlord to execute this Amendment, Tenant hereby certifies and warrants to and agrees with Landlord that (a) no event of default by Landlord under the Lease exists as of the date hereof, nor has any event occurred which, with the passage of time or the giving of notice, or both, would constitute an event of default, (b) Landlord is not in any manner in default in the performance or observance of any obligation or duty owed to Tenant, under the Lease or otherwise, and (c) Tenant has no defenses, offsets, claims or counterclaims to the observance and performance by Tenant of any provision of the Lease or this Amendment, or, if any such defenses, offsets, claims or counterclaims exist, they are hereby forever waived, released and settled in consideration of this Amendment.

11 – SEVENTH AMENDMENT TO LEASE

21. Limitation on Liability . The liability of Landlord to Tenant under this Amendment will be limited as provided in Section 35K of the Original Lease, which Section is incorporated herein by reference as though fully set forth herein.

22. Lease in Full Force and Effect . As modified hereby, the Lease and all of the terms and provisions thereof remain in full force and effect and are incorporated herein as if herein fully recited.

[Signature Page Follows]

12 – SEVENTH AMENDMENT TO LEASE

IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment in multiple original counterparts as of the day and year first above written.


LANDLORD:	111 SW 5th Avenue Investors LLC, a Delaware limited liability company


By:‎	‎111 SW 5th Avenue JV Member LLC, a Delaware limited liability company, member


By:‎	TPF Equity REIT Operating Partnership LP, a Delaware limited partnership, its sole member


By:‎	TPF Equity REIT Operating ‎Partnership GP LLC, a Delaware ‎limited liability company, its general partner

By:‎ /s/ Andrew Wietstock

Name:‎ Andrew Wietstock

Its:‎ Director

By:‎ /s/ Carl Pierce

Name:‎ Carl Pierce

Its:‎ Executive Director


TENANT:	New Relic, Inc., a Delaware corporation

By: /s/ Angel Zhao

Print Name: Angel Zhao

Its: CAO

By: /s/ Mark J. Sachleben

Print Name: Mark J. Sachleben

Its: CFO

13 – SEVENTH AMENDMENT TO LEASE

EXHIBIT A

TENANT IMPROVEMENT WORK LETTER

1. Landlord Work . The Fourth Expansion Premises shall be delivered in the Improvable Condition (as defined in the Amendment to which this Exhibit A is attached). Landlord has not agreed to perform any tenant improvement work.

2. Tenant Work . Tenant intends to install certain leasehold improvements in the Fourth Expansion Premises (the “ Tenant Improvements ”). The installation of such Tenant Improvements is herein referred to as “Tenant’s Work.” The installation of such Tenant Improvements shall be accomplished in accordance with this Work Letter and also all other applicable provisions of the Lease; without limiting the foregoing, the parties agree that the Tenant’s Work is “Work” as defined by Article 9 of the Original Lease, and that all provisions of the Lease applicable to “Work” apply to the Tenant’s Work. In the event of a conflict, the provisions of this Exhibit shall control over the provisions of the Lease.

3. Plans . Prior to commencing Tenant’s Work, Tenant shall obtain Landlord’s prior written approval of the final plans and specifications for Tenant’s Work as set forth in Article 9 of the Original Lease. The final plans and specifications as approved by Landlord are herein referred to as the “Final Plans.” Landlord shall, as part of Landlord’s prior written approval, confirm in writing any portion of Tenant’s Work required to be removed from the Premises by Tenant upon the expiration or earlier termination of the Lease.

4. Permits and Approvals . Prior to commencing any construction activity, Tenant shall obtain, at its sole cost and expense, all permits and approvals necessary to perform Tenant’s Work in accordance with the Final Plans. Copies of all such permits and approvals shall be delivered to Landlord as obtained.


5.	Contractors .

a. General Contract . Tenant shall engage a licensed general contractor to perform Tenant’s Work subject to Landlord approval under Article 9 of the Original Lease. Tenant shall include, within the provisions of its contract with the general contractor, the following provisions:

i. The general contractor shall subcontract only to appropriately licensed subcontractors.

ii. The general contract shall contain all customary warranties for work of the types performed and shall require the general contractor to obtain all customary warranties from each subcontractor and supplier. All such warranties from the general contractor shall expressly state that they are for the benefit of both Landlord and Tenant, that the same are assignable to Landlord, and that Landlord shall have a direct right to enforce the same.

b. Performance . A copy of the general contract and of all subcontracts, supplier contracts, and operating manuals shall be delivered to Landlord as executed/received by Tenant.

1 – EXHIBIT A

Tenant shall pay and perform all of its obligations to the general contractor and otherwise with respect to the Tenant’s Work as it is completed in accordance with the general construction contract. Payments to the general contractor shall be made, in full, no less frequently than monthly.

c. Subcontractors . Tenant and its general contractor shall employ only subcontractors approved by Landlord as provided in Article 9 of the Original Lease to perform mechanical, HVAC, electrical and plumbing work. Approval of any such subcontractor by Landlord does not impose any obligation or liability upon Landlord.


6.	Construction . Tenant shall comply with the following provisions.

a. Course of work . Tenant’s Work shall be conducted as set forth in Article 9 of the Original Lease.

b. Deliveries . Upon final completion, Tenant shall deliver to Landlord the following:

i. A complete set of the Final Plans with field notes, showing fully and in detail all work, including changes from the approved Final Plans and any variations from the work as shown on the Final Plans.

ii. A complete copy of all inspection reports from governmental authorities and of all certificates of occupancy.

iii. To the extent required under this Work Letter, a copy of all warranties from the general contractor, together with an assignment of the rights of Tenant with respect to all such warranties in form reasonably acceptable to Landlord and Tenant.

iv. A certified copy of a completion notice with proof of proper posting and recording pursuant to ORS 87.045.

v. Paid invoices and unconditional lien waivers for all of Tenant’s Work.

vi. A Certificate of Completion from Tenant’s architect in form reasonably acceptable to Landlord and Tenant’s architect.

7. Payment Contribution . Tenant shall finally complete Tenant’s Work in accordance with the provisions of this Lease, shall fully pay for the same, and shall obtain all necessary certificates of occupancy and a certificate from the architect that Tenant’s Work has been finally completed in accordance with the Final Plans. Tenant shall submit evidence of compliance with the foregoing requirements to Landlord following final completion and shall make the deliveries listed in Section 6.b. Within thirty (30) days following the later of Tenant opening for business at the Fourth Expansion Premises and Tenant making such submission and deliveries, Landlord shall pay to Tenant the Costs of Tenant’s Work up to the amount of the Allowance (as those terms are defined herein), as follows.

2 – EXHIBIT A

a. Allowance . The Costs of Tenant’s Work shall be reimbursed by Landlord up to the amount of the Allowance; the Allowance shall not be used for trade fixtures, equipment or personal property. If the Costs are less than the Allowance, then the amount of the Allowance will be automatically reduced to equal the Costs. If any part of the Allowance is not used to pay Costs by the second anniversary of delivery of the Fourth Expansion Premises, the unused part of the Allowance is forfeited and will not be available for any purpose, it being the responsibility of Tenant to plan the remodeling process to allow Tenant’s Work to be completed and Tenant’s right to reimbursement to be perfected by such date.

b. Costs . The “Costs” of Tenant’s Work are all hard and soft costs related to Tenant’s Work including but not limited to architectural plans, permits, and construction costs. Costs shall include a construction oversight fee of 2% of the hard construction costs of Tenant’s Work, to be deducted from the Allowance and paid to Landlord’s agent; Tenant shall not be required to pay Landlord any other sums in connection with Tenant’s Work, including without limitation, as set forth in Article 9(F) of the Lease. Tenant shall pay all Costs as and when due.

c. Default . No disbursement of the Allowance shall be due or paid at any time that a Default exists under the Lease.

8. Construction Oversight . Tenant shall provide all project management and oversight of Tenant’s Work necessary for Tenant to perform its obligations hereunder. Landlord and/or its property manager (or designee) shall be given the schedule for all project meetings and shall have the right to attend all such meetings. Landlord and Landlord’s agents shall have the right, but not the obligation, to inspect the construction of Tenant’s Work as provided in Article 9(B) of the Lease. However, neither the right herein granted to Landlord to make such inspections, nor the making of such inspections by Landlord, shall operate as a waiver of any rights of Landlord to require good and workmanlike performance of all Tenant’s Work in accordance with the requirements of this Work Letter. Notwithstanding any inspection or acceptance by Landlord of Tenant’s Work, or any portion thereof, Tenant acknowledges that Landlord’s sole interest in doing so is to protect the Building and Landlord’s interests. Accordingly, Tenant shall not rely upon Landlord’s inspections or approvals, and agrees that Landlord shall not be the guarantor of, nor responsible for, any of Tenant’s Work. Tenant shall be solely responsible for, and shall remedy, at Tenant’s sole expense, any and all defects in Tenant’s Work that may appear during or after the completion thereof, whether the same shall affect the Fourth Expansion Premises in particular or any part of the Building in general.

3 – EXHIBIT A

EXHIBIT B

COMMENCEMENT CERTIFICATE

It is hereby agreed among the parties to that certain Seventh Amendment to Lease dated __________, 2017 (the “ Lease ”) between New Relic, Inc. (“ Tenant ”), and 111 SW 5 ^th Avenue Investors LLC (“ Landlord ”) that the Fourth Expansion Effective Date is __________.

Tenant hereby acknowledges that the Fourth Expansion Premises have been delivered in accordance with Landlord’s obligations for the delivery of the Fourth Expansion Premises under the Lease.

IN WITNESS WHEREOF, Landlord and Tenant have executed this certificate as of the date hereof.


LANDLORD:	111 SW 5th Avenue Investors LLC, a Delaware limited liability company


By:‎	‎111 SW 5th Avenue JV Member LLC, a Delaware limited liability company, member


By:‎	TPF Equity REIT Operating Partnership LP, a Delaware limited partnership, its sole member


By:‎	TPF Equity REIT Operating ‎Partnership GP LLC, a Delaware ‎limited liability company, its general partner

By:‎

Name:‎ Andrew Wietstock

Its:‎ Director


TENANT:	New Relic, Inc., a Delaware corporation

By:

Print Name:

Its:

By:

Print Name:

Its:

1 – EXHIBIT B

FOURTH AMENDMENT TO LEASE

(Extending Term, Modifying Rent and Amending Lease)

THIS FOURTH AMENDMENT TO LEASE (“ Amendment ”) is executed as of the 1st day of November, 2017, between 188 SPEAR STREET LLC, a Delaware limited liability company (“ Landlord ”) and NEW RELIC, INC., a Delaware corporation (“ Tenant ”).

RECITALS

A. Landlord and Tenant are parties to that certain lease, dated as of July 13, 2012, pursuant to which Tenant initially leased from Landlord certain premises located on the tenth (10 ^th ), eleventh (11 ^th ) and twelfth (12 ^th ) floors of the building located at 188 Spear Street, San Francisco, California (the “ Building ”). The lease was subsequently amended by (i) a First Amendment to Lease, dated as of August 28, 2012 (the “ First Amendment ”), pursuant to which the premises covered by the lease was increased by 128 rentable square feet of space and Tenant was given exclusive access (subject to specified exceptions) to the maintenance deck on the roof of the Building (the “ Maintenance Deck ”), (ii) a Second Amendment to Lease, dated as of March 12, 2013 (as corrected by a letter agreement dated April 24, 2014) (the “ Second Amendment ”) pursuant to which (x) all of the rentable area on the ninth (9 ^th ) floor of the Building was added to the lease, (y) the initial lease term was extended and (y) Landlord and Tenant confirmed certain rent amounts under the lease and Tenant’s repayment of the Additional Allowance under the lease and (iii) a Third Amendment to Lease, dated as of December 10, 2013, pursuant to which Tenant was granted the right to make certain installations on the Maintenance Deck. The aforementioned lease, as so amended, is referred to hereinafter as the “ Lease .” As of the date hereof, the premises under the Lease, excluding the Maintenance Deck (the “ Premises ”) consists of the following space in the Building:



Floor	Suite Number	Rentable Square Footage
9 ^th	9000	18,363
10 ^th	1000	18,363
11 ^th	1100	18,363
12 ^th	1200	18,302
	Total RSF:	73,391

The term of the Lease expires on July 31, 2020, subject to Tenant’s five (5) year renewal option set forth in Paragraph 59 of the Lease.

B. Landlord and Tenant presently desire to amend the Lease to (i) extend the Lease term through and including July 31, 2027, (ii) grant Tenant a construction allowance to be used by Tenant for Alterations to be performed by Tenant in the Premises after the execution of this Amendment, (iii) modify Tenant’s rental obligations for the Premises effective as of November 1, 2017, (iv) grant Tenant an option to further extend the term of the Lease for an additional period of five (5) years, and (v) document certain additional modifications to the Lease agreed upon by Landlord and Tenant, all as more fully provided below.

NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows:

1. Extension of Term . The Lease term specified in Paragraph 2.b. of the Lease, as previously extended, is hereby extended through and including July 31, 2027 (the “ Expiration Date ”). The period commencing on November 1, 2017, and ending on the Expiration Date (as so extended) is referred to herein as the “ New Term .” During the New Term, all of the existing terms, covenants and conditions of the Lease shall be applicable, except to the extent otherwise expressly provided below.

2. Condition of Premises; Landlord’s Allowance

a. Premises As-Is . Tenant shall accept the Premises in its “as-is” state and condition for the New Term and, except as expressly provided below, Landlord shall have no obligation to make or pay for any alterations, improvements or renovations in or to the Premises as a result of the extension of the Lease term. The parties acknowledge that Tenant intends to make certain alterations and improvements (the “ Refurbishment Alterations” ) to the Premises following the execution of this Amendment. The construction of the Refurbishment Alterations shall be subject to Landlord’s approval in accordance with Paragraph 9 of the Lease and otherwise governed by Paragraph 9 of the Lease, except to the extent otherwise expressly provided herein. The general contractor selected by Tenant and approved by Landlord in accordance with Paragraph 9 of the Lease to construct the Refurbishment Alterations is referred to hereinafter as “ Tenant’s Contractor .”

b. Landlord’s Allowance . Notwithstanding anything to the contrary in Paragraph 9 of the Lease, Landlord shall contribute toward the cost of the design, construction and installation of the

Refurbishment Alterations (including, without limitation, Tenant’s Contractor’s fee and the Alteration Operations Fee provided for in Paragraph 9.a. of the Lease) an aggregate amount not to exceed Two Million Five Hundred Sixty Eight Thousand Six Hundred Eighty Five Dollars ($2,568,685.00) (which is $35.00 per rentable square foot of the Premises) (“ Landlord’s Allowance ”), provided that not more than Two Hundred Ninety Three Thousand Five Hundred Sixty Four Dollars ($293,564.00) (which is $4.00 per rentable square foot of the Premises) of Landlord’s Allowance may be applied to design, space planning, consultants and architectural costs, including costs of preparing the construction drawings. No portion of Landlord’s Allowance may be applied to the cost of personal property, equipment, trade fixtures, moving expenses, furniture (including work stations and modular office furniture, regardless of the method of attachment to walls and/or floors), signage or free rent. Notwithstanding anything to the contrary in this Paragraph 2.b., Landlord’s Allowance shall be available for disbursement pursuant to the terms hereof only for the first twenty-six (26) months after the date of this Amendment (the “ Allowance Availability Period ”). Accordingly, if any portion of Landlord’s Allowance is not utilized (and Tenant has not submitted to Landlord invoices evidencing such costs) prior to the expiration of the Allowance Availability Period, such unused portion shall be forfeited by Tenant. Notwithstanding anything to the contrary in Paragraph 9.a. of the Lease, the Alteration Operations Fee shall be full compensation to Landlord for access to the Premises for construction purposes, freight elevator use during normal freight elevator hours and electricity for construction, and no additional charges shall be imposed for such purposes.

If the cost of construction of the Refurbishment Alterations (including the Alteration Operations Fee) is expected to exceed Landlord’s Allowance (based on Tenant’s estimated Budget for the Refurbishment Alterations), then Tenant shall pay all such excess (the “ Excess Cost ”). Based on the estimated cost (the “ Estimated Costs ”) of the construction of the Refurbishment Alterations, the prorata share of the Estimated Costs payable by Landlord and Tenant shall be determined and an appropriate percentage share established for each (a “ Share of Costs ”). Each disbursement of Landlord’s Allowance under the immediately following grammatical paragraph shall be limited to Landlord’s respective Share of Costs for the work covered by the disbursement request. At such time as Landlord’s Allowance has been entirely disbursed, Tenant shall pay the remaining Excess Cost in the same manner as Tenant’s payments of Tenant’s Share of Costs were paid.

Landlord shall disburse the Landlord’s Allowance directly to Tenant, with each disbursement to be made no later than thirty (30) days after Landlord’s receipt from Tenant of (A) invoices of Tenant’s Contractor furnished to Landlord by Tenant covering work actually performed, construction in place and materials delivered to the site (as may be applicable) describing in reasonable detail such work, construction and/or materials for which the requested disbursement applies, (B) a certificate from Tenant’s architect certifying that the work evidenced by such invoices has been performed in accordance with the plans previously approved in writing by Landlord, (C) conditional lien waivers executed by Tenant’s Contractor, subcontractors or suppliers, as applicable, for their portion of the work covered by the requested disbursement, and (D) unconditional lien waivers executed by Tenant’s Contractor and the persons and entities performing the work or supplying the materials covered by Landlord’s previous disbursements for the work or materials covered by such previous disbursements (all such waivers to be in the forms prescribed by applicable law). No payment will be made for materials or supplies not incorporated into the construction, regardless of whether the materials or supplies are located on the Premises. Landlord may withhold the amount of any and all retentions provided for in original contracts or subcontracts until expiration of the applicable lien periods or Landlord’s receipt of unconditional lien waivers and full releases upon final payment (in the form prescribed by applicable law) from Tenant’s Contractor and all subcontractors and suppliers involved in the Refurbishment Alterations. Notwithstanding anything to the contrary contained herein, in no event shall Landlord be obligated to disburse any portion of Landlord’s Allowance (i) during any period that Tenant is in breach of or in default under this Amendment or the Lease as amended hereby, or (ii) for any Refurbishment Alterations (or other permitted associated costs) in space Tenant intends to sublease.

At the time Landlord makes any disbursement of Landlord’s Allowance, Landlord shall retain from Landlord’s Allowance, as a partial payment of the Alteration Operations Fee, a proportionate amount of the Alteration Operations Fee based upon Landlord’s reasonable estimation of the amount required to be withheld from each disbursement in order to ensure that the entire Alteration Operations Fee is retained over the course of construction on a prorata basis. At such time as Landlord’s Allowance has been entirely disbursed, Tenant shall, within thirty (30) days of written demand, pay to Landlord the remainder, if any, of the Alteration Operations Fee theretofore due and not yet paid to Landlord. Upon completion of the Refurbishment Alterations, Tenant shall furnish Landlord with invoices and other documentation reasonably required by Landlord to evidence the total cost of the Refurbishment Alterations, so that the final amount of the Alteration Operations Fee may be calculated, and Tenant shall, within thirty (30) days of written demand, pay to Landlord the remainder, if any, of the Refurbishment Alteration Operations Fee not yet paid to Landlord.

3. Monthly Rent . Prior to November 1, 2017, Tenant shall continue to pay Monthly Rent for the Premises in accordance with the amounts presently provided for in the Lease, as previously amended. Commencing on November 1, 2017, and continuing throughout the New Term, the Monthly Rent provided

for in Paragraphs 2.c. and 5 of the Lease shall, for the entire Premises (i.e., 73,391 RSF), be the amounts set forth below for the respective periods:



Period	Monthly Rent
11/1/17 through 10/31/18	$473,983.54
11/1/18 through 10/31/19	$488,203.05
11/1/19 through 10/31/20	$502,849.14
11/1/20 through 10/31/21	$517,934.61
11/1/21 through 10/31/22	$533,472.65
11/1/22 through 10/31/23	$549,476.83
11/1/23 through 10/31/24	$565,961.14
11/1/24 through 10/31/25	$582,939.97
11/1/25 through 10/31/26	$600,428.17
11/1/25 through 7/31/27	$618,441.01

4. Additional Rent . Prior to August 1, 2020, Tenant shall continue to pay Additional Rent under Paragraph 7 of the Lease in accordance with the terms of the Lease, as previously amended (i.e., with a Base Year that is the 2013 calendar year, a Base Tax Year that is the fiscal tax year ending June 30, 2013, and Tenant’s Share of 35.68%).

Commencing on August 1, 2020, and continuing throughout the New Term, the Base Year shall be modified to be the 2020 calendar year and the Base Tax Year shall be modified to be the fiscal tax year ending June 30, 2020. Tenant’s Share shall remain 35.68%.

5. Letter of Credit . Landlord presently holds a Letter of Credit pursuant to Paragraph 6 of the Lease, as amended by Paragraph 6 of the Second Amendment, in the amount of Five Million Sixty Eight Thousand Fifty Seven Dollars ($5,068,057.00). The Letter of Credit shall remain in effect throughout the New Term. For avoidance of doubt, the provisions of Paragraph 6.b. of the Lease, regarding the reduction in the Letter of Credit if the specified criteria is met, shall continue to apply during the New Term.

6. Reporting Requirements . Effective as of the date hereof, the following language is added to the end of Paragraph 8.b. of the Lease:

“Upon Landlord’s written request, Tenant shall deliver to Landlord, in form reasonably acceptable to Landlord, information relating to Tenant’s electricity consumption at the Premises or any other matter related to Tenant’s occupancy to the extent such requested information is required in order for Landlord to comply with reporting requirements imposed upon Landlord by any federal, state or local law regarding energy use or any other matter. Without limitation of the foregoing, Tenant shall, upon Landlord’s written request, deliver to Landlord information relating to the Premises that is necessary for the Building to earn and maintain performance certifications (including, without limitation, ENERGY STAR and LEED certification), which information shall be in sufficient detail for the Building to comply with the applicable certification criteria and/or requirements, including, without limitation, those applicable to data centers and to any other particular use that is subject to special certification criteria and/or requirements.”

7. Alterations . Effective as the date hereof, the following sentence is added to the end of second grammatical paragraph of Paragraph 9.a. of the Lease:

“Upon the completion of an Alteration, Tenant shall notify Landlord in writing of the total cost of the Alteration.”

8. Parking . During the New Term, Tenant’s right to lease twenty (20) unassigned parking spaces in the Parking Garage pursuant to Paragraph 53 of the Lease, as amended by Paragraph 7 of the Second Amendment, shall remain in full force and effect.

9. Monthly Maintenance Deck Rent . Prior to August 1, 2020, Tenant shall continue to pay Monthly Maintenance Deck Rent pursuant to Paragraph 60.b. of the Lease (which was added to the Lease by Paragraph 2 of the First Amendment). Effective as of August 1, 2020, Tenant’s Monthly Maintenance Deck Rent under Paragraph 60.b. of the Lease shall be modified to be the following amounts:



Period	Monthly Maintenance Deck Rent
8/1/20 through 7/31/21	$5,273.52
8/1/21 through 7/31/22	$5,502.80
8/1/22 through 7/31/23	$5,732.08
8/1/23 through 7/31/24	$5,961.37
8/1/24 through 7/31/25	$6,190.65
8/1/25 through 7/31/26	$6,419.93
8/1/26 through 7/31/27	$6,649.22

10. Renewal Option . The renewal option originally set forth in Paragraph 59 of the Lease is hereby reinstated, provided that the references therein to the “initial term of this Lease” shall be deemed to refer to the New Term, as defined in Paragraph 1 above. The renewal option may only be exercised as to the entire Premises (i.e., 73,391 RSF) together with the Maintenance Deck, and may not be exercised for only a portion of such space.

11. Leasing Restriction . Subject to the terms of this Paragraph 11, during the New Term and, if so exercised, the renewal term referenced in Paragraph 10 above, Landlord shall not lease space in the Building to (or, except with regard to leases in effect as of the date hereof, permit a sublease of space in the Building to) any of the following competitors of Tenant (each a “ Tenant Competitor ”): Cisco, Splunk or ServiceNow (the “ Leasing Restriction ”). Notwithstanding the foregoing, the Leasing Restriction shall be inapplicable if, as of the date Landlord desires to lease space in the Building to a particular Tenant Competitor (i) there exists an uncured monetary Event of Default or a material non-monetary Event of Default, or (ii) Tenant originally named herein (and/or an Affiliate thereof) is not the Tenant under this Lease or (iii) Tenant (and/or an Affiliate thereof) is not actively conducting, in at least eight-five percent (85%) of the Premises then covered by the Lease, a business which is still reasonably deemed competitive with the business then conducted by the Tenant Competitor. If the Leasing Restriction became inapplicable due to the occurrence of any of the clauses in the immediately preceding sentence, then the Leasing Restriction shall permanently be terminated.

12. Financial Statements . Effective as the date hereof, the following sentence is added to the end of Paragraph 48 of the Lease:

“Notwithstanding the foregoing, the foregoing shall be inapplicable so long as Tenant is a publicly traded company and the applicable financial information is publicly available on the internet.”

13. CASp Disclosure . As of the date of this Amendment, the Premises and the common areas expected to be in Tenant’s path of travel during the New Term, have not undergone an inspection by a Certified Access Specialist (CASp) regarding compliance with construction-related accessibility standards. A CASp can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises. This disclosure is made pursuant to Section 1938 of the California Civil Code.

14. Brokers . Landlord and Tenant each represents and warrants that it has negotiated this Amendment directly with Shorenstein Management, Inc., and Cresa (“ Brokers ”), and such party has not authorized or employed, or acted by implication to authorize or to employ, any other real estate broker or salesman to act for it in connection with this Amendment. Each party shall indemnify, defend and hold the other party harmless from and against any and all claims by any real estate broker other than Brokers for a commission, finder’s fee or other compensation as a result of any inaccuracy in the indemnifying party’s foregoing representation and warranty. Pursuant to separate agreement(s), Landlord shall pay Brokers any commissions, fees or other compensation to which such Brokers are entitled in connection with this Amendment.

15. Authority . If Tenant is a corporation, partnership, trust, association or other entity, Tenant hereby covenants and warrants that (a) Tenant is duly incorporated or otherwise established or formed and validly existing under the laws of its state of incorporation, establishment or formation, (b) Tenant has and is duly qualified to do business in the State in California, (c) Tenant has full corporate, partnership, trust, association or other appropriate power and authority to enter into this Amendment and to perform all Tenant’s obligations under the Lease, as amended by this Amendment, and (d) each person (and all of the persons if more than one signs) signing this Amendment on behalf of Tenant is duly and validly authorized to do so.

16. No Offer . Submission of this instrument for examination and signature by Tenant does not constitute an offer to lease or to amend the Lease, or a reservation of or option for lease or to amend the Lease, and this instrument is not effective as a lease amendment or otherwise until executed and delivered by both Landlord and Tenant.

17. Lease in Full Force and Effect . Except as provided above, the Lease is unmodified hereby and remains in full force and effect.

IN WITNESS WHEREOF, the parties have executed this document as of the date and year first above written.



Landlord: 188 SPEAR STREET LLC, a Delaware limited liability company By: /s/ Gregg Meyer Name: Gregg Meyer Title: Vice President	Tenant: NEW RELIC, INC., a Delaware corporation By: /s/ Mark J Sachleben Name: Mark J Sachleben Title: CFO

NEW RELIC, INC.

NON-EMPLOYEE DIRECTOR COMPENSATION POLICY

ADOPTED MAY 6, 2015

EFFECTIVE APRIL 1, 2015

AMENDED EFFECTIVE AUGUST 23, 2017

Each member of the Board of Directors (the “ Board ”) of New Relic, Inc. (the “ Company ”) who is a non-employee director of the Company (each such member, a “ Non-Employee Director ”) will receive the compensation described in this Non-Employee Director Compensation Policy (the “ Director Compensation Policy ”) for his or her Board service.

The Director Compensation Policy will be effective as of April 1, 2015 (the “ Effective Date ”). The Director Compensation Policy may be amended at any time in the sole discretion of the Board or the Compensation Committee of the Board. Any member of the Board that becomes a Non-Employee Director shall be eligible for the compensation described in this Director Compensation Policy immediately following the date that such member becomes a Non-Employee Director (the “ Compensation Commencement Date ”).

A Non-Employee Director may decline all or any portion of his or her compensation by giving notice to the Company prior to the date cash is to be paid or equity awards are to be granted, as the case may be.

Annual Cash Compensation

Each Non-Employee Director will receive the cash compensation set forth below for service on the Board. The annual cash compensation amounts will be payable in equal quarterly installments, in arrears following the end of each quarter in which the service occurred, pro-rated for any partial months of service. All annual cash fees are vested upon payment.


1.	Annual Board Service Retainer :

a. All Non-Employee Directors: $30,000

2. Annual Committee Member Service Retainer :

a. Member of the Audit Committee: $10,000

b. Member of the Compensation Committee: $7,500

c. Member of the Nominating and Corporate Governance Committee: $3,000


3.	Annual Committee Chair Service Retainer (in lieu of Committee Member Service Retainer) :

a. Chairman of the Audit Committee: $20,000

b. Chairman of the Compensation Committee: $15,000

c. Chairman of the Nominating and Corporate Governance Committee: $6,000

In lieu of cash, and prior to the start of each fiscal year, a Non-Employee Director may elect to receive 100% of the annual cash compensation set forth herein for that next fiscal year as restricted stock units (“ RSUs ”) under Company’s 2014 Equity Incentive Plan or any successor equity incentive plan (the “ Plan ”) with an RSU Value (as defined below) equal to the projected annual cash compensation for such Non-Employee Director for the fiscal year based on Board and committee membership as of the first day of such fiscal year (the “ Optional RSU Grant ”).

The grant date for the Optional RSU Grant will be the April 15 first occurring after the start of a fiscal year, provided, however, that if such date is not a trading day on the New York Stock Exchange (e.g., a weekend or holiday), then the grant date shall be the next trading date. The vesting commencement date for each Optional RSU Grant will be the May 15 first occurring after the start of a fiscal year. Each Optional RSU Grant will vest with respect to 1/4 ^th of the total number of units on each quarterly anniversary of the vesting commencement date for such Optional RSU Grant, subject to the Non-Employee Director’s “Continuous Service” on each applicable vesting date. Optional RSU Grants will not be subject to accelerated vesting in connection with a “ Change of Control ” (as defined in the Plan).

In the event a Non-Employee Director were to become entitled to a greater annual cash compensation amount (either as a result of an increase in the cash compensation amounts approved by the Board or a new committee membership or role), such Non-Employee Director will be entitled to receive the difference paid in cash pursuant to the terms above. There would be no effect upon the Optional RSU Grant in the event a Non-Employee Director maintains Continuous Service but would have otherwise been entitled to a lesser amount of cash compensation than that which was used to calculate the Optional RSU Grant (either as a result of a decrease in the cash compensation amounts approved by the Board or a decreased committee membership or role).

Equity Compensation

Equity awards will be granted under the Plan. All stock options granted under this policy will be Nonqualified Stock Options (as defined in the Plan), with a term of ten years from the date of grant and an exercise price per share equal to 100% of the Fair Market Value (as defined in the Plan) of the underlying common stock of the Company on the date of grant.

(a) Automatic Equity Grants.

(i) Initial Grant for New Directors. Without any further action of the Board, each person who, after the Effective Date, is elected or appointed for the first time to be a Non-Employee Director will automatically, upon the Compensation Commencement Date, be granted (A) a Nonstatutory Stock Option to purchase a number of shares of common stock having an Option Value (as defined below) of $80,000 (the “ Initial Option Grant ”) and (B) RSUs with an RSU Value of $80,000 (the “ Initial RSU Grant ” and, together with the Initial Option Grant, the “ Initial Grants ”), multiplied by a fraction, the numerator of which is the number of days that will elapse between the Non-Employee Director’s date of initial appointment or election and the first anniversary of the date of grant of the Company’s most recent Annual Grants (as defined below) and the denominator of which is 365. Each Initial Option Grant and Initial RSU Grant will vest on August 15 ^th of the calendar year following the year in which the Company’s most recent Annual Grants were made, subject to the Non-Employee Director’s Continuous Service (as defined in the Plan) through such date.

(ii) Annual Grant. Without any further action of the Board, at the close of business on the date of each Annual Meeting following the Compensation Commencement Date, each person who is then a Non-Employee Director will automatically be granted (A) a Nonstatutory Stock Option to purchase a number of shares of common stock having an Option Value of $80,000 (the “ Annual Option Grant ”) and (B) RSUs with an RSU Value of $80,000 (the “ Annual RSU Grant ” and, together with the Annual Option Grant, the “ Annual Grants ”). Each Annual Grant will vest on August 15 ^th of the calendar year following the year in which such Annual Grants are made, subject to the Non-Employee Director’s Continuous Service through such date.

(b) Vesting; Change of Control. All vesting is subject to the Non-Employee Director’s “Continuous Service” on each applicable vesting date. Notwithstanding the foregoing vesting schedules, for each Non-Employee Director who remains in Continuous Service with the Company until immediately prior to the closing of a Change of Control, the shares subject to his or her then-outstanding equity awards that were granted pursuant to this policy will become fully vested immediately prior to the closing of such Change of Control.

(c) Calculation of Option Value and Value of a Restricted Stock Unit Award. The “ Option Value ” of a stock option to be granted under this policy will be determined using the same method the Company uses to calculate the grant-date fair value of stock options in its financial statements, except that no provision shall be made for estimated forfeitures related to service-based vesting. The “ RSU Value ” of an RSU award to be granted under this policy will be determined based on the Fair Market Value per share on the grant date.

(d) Remaining Terms. The remaining terms and conditions of each stock option or RSU, including transferability, will be as set forth in the Company’s standard Option Agreement or form of RSU Award Agreement, as applicable, in each case in the form adopted from time to time by the Board.

Expenses

The Company will reimburse Non-Employee Director for ordinary, necessary and reasonable out-of-pocket travel expenses to cover in-person attendance at and participation in Board and committee meetings; provided , that the Non-Employee Director timely submit to the Company appropriate documentation substantiating such expenses in accordance with the Company’s travel and expense policy, as in effect from time to time.

Exhibit 31.1

CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Lewis Cirne, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of New Relic, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.




Date:	November 7, 2017	By:	/s/ Lewis Cirne
			Lewis Cirne
			Chief Executive Officer (Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark Sachleben, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q of New Relic, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.




Date:	November 7, 2017	By:	/s/ Mark Sachleben
			Mark Sachleben
			Chief Financial Officer (Principal Financial Officer)

Exhibit 32.1

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Lewis Cirne, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of New Relic, Inc. for the fiscal quarter ended September 30, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of New Relic, Inc.




Date:	November 7, 2017	By:	/s/ Lewis Cirne
			Lewis Cirne
			Chief Executive Officer

I, Mark Sachleben, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report on Form 10-Q of New Relic, Inc. for the fiscal quarter ended September 30, 2017 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of New Relic, Inc.




Date:	November 7, 2017	By:	/s/ Mark Sachleben
			Mark Sachleben
			Chief Financial Officer

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of New Relic, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.