Atlassian Corp (TEAM) FY 2024 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section of our Annual Report on Form 10-K discusses our financial condition and results of operations for fiscal years 2024 and 2023, and year-to-year comparisons between fiscal years 2024 and 2023, in accordance with U.S. generally accepted accounting principles (“GAAP”). A discussion of our financial condition and results of operations for the fiscal year 2022 and year-to-year comparisons between fiscal years 2023 and 2022 that is not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended 2023, filed on August 18, 2023.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing under “Financial Statements and Supplementary Data” in Item 8 in this Annual Report on Form 10-K. As discussed in the section titled “Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” under Part I, Item 1A in this Annual Report on Form 10-K.

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Company Overview

Our mission is to unleash the potential of every team.

Our products help teams plan, track and execute shared work — delivering superior outcomes for their organizations.

Our primary products include Jira for planning and project management, Confluence for content creation and sharing, Jira Service Management for team service, management and support applications, and Loom, which we acquired in November 2023, for asynchronous video collaboration. Together, our connected portfolio of products form integrated solutions and, when deployed in the cloud, provide customers all the benefits of analytics, automation, and now AI, along with integrations with thousands of third-party apps as a solution that is deeply entrenched in how teams collaborate and how organizations run. The Atlassian platform is the common technology foundation for our products that drives connection between teams, information, and workflows. It allows work to flow seamlessly across tools, automates the mundane so teams can focus on what matters, and enables better decision-making based on the data customers choose to put into our products.

Our mission is possible with a deep investment in product development to create and refine innovative, high-value, and versatile products that users love. We make our products affordable for organizations of all sizes and transparently share our pricing online for most of our products. We aim to grow our customer base, targeting organizations of all sizes, in every industry, and in most geographies, and strategically expand our relationships with customers over time with our dedicated sales team. This product-led philosophy enables us to go to market in a unique and efficient way. To land new customers, we’ve engineered a low-friction flywheel with an emphasis on self-service, making it easy to try and get value first and foremost. This allows us to operate at an unusual scale for an enterprise software company, with customers across virtually every industry sector in approximately 200 countries and territories as of June 30, 2024. Our customers range from small organizations that have adopted one of our products for a small group of users, to over eighty percent of the Fortune 500, many of which use a combination of our products across thousands of users. By designing our products to be simple, powerful, affordable, and easy to adopt, we generate demand through word-of-mouth and viral expansion within organizations, allowing our sales force to focus primarily on expanding and deepening strategic relationships with existing customers, particularly in the enterprise.

Our high-velocity, low-friction distribution model is designed to drive exceptional customer scale by making products that are free to try and affordable to purchase online. We prioritize product quality, automated distribution, transparent pricing, and customer service to land new customers and expand to new teams. We also have a sales team focused primarily on expanding and deepening strategic relationships with existing customers, particularly large enterprises. We primarily rely on word-of-mouth and low-touch demand generation to drive trial, adoption, and initial expansion of our products. A substantial majority of our sales are automated through our website, including sales of our products through our solution partners and resellers. For fiscal year 2024, we derived over 50% of our revenue from channel partners’ sales efforts. Our solution partners and resellers primarily focus on customers in regions that require local language support and other customized needs. We plan to continue to invest in our partner programs to help us enter and grow in new markets, complementing our automated, low-touch approach.

Our culture of innovation, transparency and dedication to customer service drives our success in implementing and refining this unique approach. We believe this approach creates a self-reinforcing effect that fosters innovation, quality, customer success, and scale. As part of this strategy, we invest significantly more in research and development activities than in traditional sales activities relative to other enterprise software companies.

We generate revenues primarily in the form of subscription and maintenance fees. Subscription revenues consist primarily of fees earned from subscription-based arrangements for providing customers the right to use our software in a cloud-based-infrastructure that we provide (“Cloud offerings”). We also sell on-premises term license agreements for our Data Center products (“Data Center offerings”), consisting of software licensed for a specified period and support and maintenance services that are bundled with the license for the term of the license period. Subscription revenues also include subscription-based agreements for our premier support services. From time to time, we make changes to our product offerings, prices and pricing plans for our products which may impact the growth rate of our revenue, our deferred revenue balances, and customer retention. Subscription revenue, through our Cloud and Data Center offerings, results in a large recurring revenue base.

Maintenance provides our customers with access to unspecified future updates, upgrades and enhancements and technical product support on an if-and-when-available basis for perpetual license products purchased and

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operated by our customers on their premises (“Server offerings”). We no longer sell perpetual licenses for our Server offerings and generally ended maintenance and support for these Server offerings in February 2024, subject to limited exceptions for some enterprise customers that have signed an agreement for our Cloud offerings. We have helped our customers transition to other versions of our products with our migration tools and programs, customer support teams, and pricing and packaging options. Maintenance revenue no longer constitutes a material portion of our recurring revenue base after February 2024.

On November 30, 2023, we acquired 100% of the outstanding equity of Loom, Inc., an asynchronous video messaging platform that helps users communicate through instantly shareable videos. We believe the acquisition of Loom, Inc. will further elevate the collaboration experience for our customers.

Economic Conditions

Our results of operations may vary based on the impact of changes in the global economy on us or our customers. Our business depends on demand for business software applications generally and for collaboration software solutions in particular. We are subject to risks and exposures from the evolving macroeconomic environment, including the effects of rising inflation, and increases in interest rates, political instability, and geopolitical tensions. We monitor the direct and indirect impacts of these circumstances on our business and financial results. We have seen expansion from existing customers moderate in recent quarters, particularly amongst our small and medium-sized customers. The extent to which these risks ultimately impact our business, results of operations, and financial position will depend on future developments, which are uncertain and cannot be predicted at this time.

Key Business Metrics

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

Customer Base

We have a history of successfully growing both our total customer base and the spend per customer through growth in users, purchase of new licenses, and adoption of new products. We believe our ability to attract new customers is critical, and expanding within the existing customer base is the primary driver of our success as a business. Typically, new customers begin their journey with Atlassian products with a small footprint by either adopting our free editions or purchasing a single product for a limited number of users. We are focused on continuing to grow our total customer base, specifically the number of customers with more than $10,000 in annualized recurring revenue from our Cloud offerings (“Cloud ARR”), as it measures our ability to successfully expand within our existing customer base.

We define the number of total customers at the end of any particular period as the number of organizations with unique domains with an active subscription for two or more seats. We define the number of customers with Cloud ARR greater than $10,000 using the same definition as total customers with the distinction of having an active Cloud subscription and greater than $10,000 in Cloud ARR. We define Cloud ARR as the annualized recurring revenue run-rate of Cloud subscription agreements at a point in time. We calculate Cloud ARR by taking the Cloud monthly recurring revenue (“Cloud MRR”) run-rate and multiplying it by 12. Cloud MRR for each month is calculated by aggregating monthly recurring revenue from committed contractual amounts at a point in time. Cloud ARR and Cloud MRR should be viewed independently of revenue and do not represent our revenue under GAAP, as they are operational metrics that can be affected by contract start and end dates and renewal rates. While a single customer may have distinct departments, operating segments, or subsidiaries with multiple active licenses or subscriptions of our products, if the product deployments share a unique domain name, we only include the customer once for purposes of calculating a customer.

As of June 30, 2024, we had more than 300,000 customers. Including single user accounts and organizations who have only adopted our free or starter products, the active use of our products extends well beyond our total customer base. With these customers using our software today, we are able to reach a vast number of users, gather insights to refine our offerings, and generate growing revenue by expanding within our total customer base. Customers with greater than $10,000 in Cloud ARR represent the majority of our Cloud ARR. No single customer contributed more than 5% of our total revenues during fiscal year 2024.

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The following table sets forth our number of customers with greater than $10,000 in Cloud ARR as of the dates presented:

Free Cash Flow

Free cash flow is a non-GAAP financial measure that we calculate as net cash provided by operating activities less net cash used in investing activities for capital expenditures. Management considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by our business that can be used to fund our commitments, repay our debt, and for strategic opportunities, such as reinvesting in our business, making strategic acquisitions, and strengthening our financial position. Free cash flow is not a measure calculated in accordance with GAAP and should not be considered in isolation from, or as a substitute for financial information prepared in accordance with GAAP, such as GAAP net cash provided by operating activities. In addition, free cash flow may not be comparable to similarly titled metrics of other companies due to differences among methods of calculation. The following table presents a reconciliation of net cash provided by operating activities to free cash flow for the periods presented (in thousands):

Free cash flow increased by $573.1 million during fiscal year 2024 as compared to fiscal year 2023. The increase in free cash flow was primarily attributable to an increase in net cash provided by operating activities, offset by an increase in capital expenditures. The increase in net cash provided by operating activities was primarily attributable to an increase in cash received from customers, partially offset by an increase in cash paid to suppliers and employees and cash used to pay income taxes.

For more information about net cash provided by operating activities, please see “Liquidity and Capital Resources.”

Components of Results of Operations

Sources of Revenues

Subscription Revenues

Subscription revenues consist primarily of fees earned from subscription-based arrangements for providing customers the right to use our software in a cloud-based-infrastructure that we provide. We also sell on-premises term license agreements for our Data Center offerings, which consist of software licensed for a specified period and include support and maintenance services that are bundled with the license for the term of the license period. Subscription revenues also include subscription-based agreements for our premier support services. Subscription revenues are driven primarily by the number and size of active licenses, the type of product and the price of the licenses. Our subscription-based arrangements generally have a contractual term of one to twelve months. For Cloud offerings, subscription revenue is recognized ratably as services are performed, commencing with the date the service is made available to customers. For Data Center offerings, we recognize revenue upfront for the portion that relates to the delivery of the term license and the support and related revenue is recognized ratably as the services are delivered over the term of the arrangement. Premier support consists of subscription-based arrangements for a higher level of support across different deployment options, and revenue is recognized ratably as the services are delivered over the term of the arrangement.

Maintenance Revenues

Maintenance revenues represent fees earned from providing customers unspecified future updates, upgrades and enhancements and technical product support for our Server offerings on an if-and-when-available basis. Maintenance revenue is recognized ratably over the term of the support period.

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Other Revenues

Other revenues primarily include fees received for sales of third-party apps in the Atlassian Marketplace. Advisory services and training services are also included in other revenues. Revenue from the sale of third-party apps via Atlassian Marketplace is recognized on the date of product delivery given that all of our obligations have been met at that time and on a net basis as we function as the agent in the relationship. Revenue from advisory services is recognized over the time period that the customer has access to the service. Revenue from consulting and training is recognized over time as the services are performed.

We expect subscription revenue to increase and continue to be our primary driver of revenue growth. We no longer sell perpetual licenses for our Server offerings and we generally ended maintenance and support for these Server offerings in February 2024. We have helped our Server customers migrate to our Cloud and Data Center offerings and maintenance revenue is immaterial after the Server end of support date.

Cost of Revenues

Cost of revenues primarily consists of expenses related to compensation expenses for our employees, including stock-based compensation, hosting our cloud infrastructure, which includes third-party hosting fees and depreciation associated with computer equipment and software, payment processing fees, consulting and contractors costs associated with our customer support and infrastructure service teams, amortization of acquired intangible assets, such as the amortization of the cost associated with an acquired company’s developed technology, certain IT program expenses, and facilities and related overhead costs. To support our cloud-based infrastructure, we utilize third-party managed hosting facilities. We allocate stock-based compensation based on the expense category in which the employee works. We allocate overhead such as information technology costs, rent and occupancy charges in each expense category based on headcount in that category. As such, general overhead expenses are reflected in cost of revenues and operating expense categories.

We expect cost of revenues to increase as we continue to invest in our cloud-based infrastructure to support migrations and our Cloud customers.

Gross Profit and Gross Margin

Gross profit is total revenues less total cost of revenues. Gross margin is gross profit expressed as a percentage of total revenues. Gross margin can fluctuate from period to period as a result of changes in product and services mix.

We expect gross margin to modestly decrease due to the sales mix shift from Data Center offerings to Cloud offerings. This impact will be primarily driven by increased hosting costs and personnel costs to support our Cloud customers.

Operating Expenses

Our operating expenses are classified as research and development, marketing and sales, and general and administrative. For each functional category, the largest component is compensation expenses, which include salaries and bonuses, stock-based compensation, employee benefit costs, and contractor costs. We allocate overhead, such as information technology costs, rent, and occupancy charges in each expense category based on headcount in that category.

Research and Development

Research and development expenses consist primarily of compensation expenses for our employees, including stock-based compensation, consulting and contractor costs associated with our software development teams, facilities and related overhead costs, and certain IT program expenses. We continue to focus our research and development efforts on building new products, adding new features and services, integrating acquired technologies, increasing functionality, enhancing our cloud infrastructure and developing our mobile capabilities.

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Marketing and Sales

Marketing and sales expenses consist primarily of compensation expenses for our employees, including stock-based compensation, marketing and sales programs, consulting and contractor costs, facilities and related overhead costs, and certain IT program expenses. Marketing programs consist of advertising, promotional events, corporate communications, brand building and product marketing activities such as online lead generation. Sales programs consist of activities and teams focused on supporting our solution partners and resellers, tracking channel sales activity, supporting and servicing our customers by helping them optimize their experience and expand the use of our products across their organizations and helping product evaluators learn how they can use our tools most effectively.

General and Administrative

General and administrative expenses consist primarily of compensation expenses for our employees, including stock-based compensation, for finance, legal, human resources and information technology personnel, facilities and related overhead costs, consulting and contractor costs, certain IT program expenses, and other corporate expenses.

Income Taxes

Provision for income taxes consists primarily of income taxes related to federal, state, and foreign jurisdictions where we conduct business.

Critical Accounting Estimates

Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions and such differences could be material.

While our significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies” to the notes to our consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the accounting policies that we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

Revenue Recognition

Our contracts with customers often include promises to transfer multiple products and services to a customer.

We allocate the transaction price for each contract to each performance obligation based on the relative standalone selling price (“SSP”) for each performance obligation. We use judgment in determining the SSP for products and services. We typically determine an SSP range for our products and services, which is reassessed on a periodic basis or when facts and circumstances change. For all performance obligations other than perpetual and term licenses, we are able to determine SSP based on the observable prices of products or services sold separately in comparable circumstances to similar customers. In instances where performance obligations do not have observable standalone sales, we utilize available information that may include market conditions, pricing strategies, the life of the software, and other observable inputs to estimate the price we would charge if the products and services were sold separately.

Strategic Investments

Investments in privately held equity securities without readily determinable fair values in which we do not own a controlling interest or have significant influence over are measured using the measurement alternative. In applying the measurement alternative, the carrying value of the investment is measured at cost, less impairment, if any, plus or minus changes resulting from observable price changes from orderly transactions for identical or similar investments of the same issuer in the period of occurrence. In determining the estimated fair value of our strategic investments in privately held companies, we use the most recent data available to us. Valuations of privately held

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securities are inherently complex due to the lack of readily available market data and require the use of judgment. The determination of whether an orderly transaction is for an identical or similar investment requires significant judgment. In our evaluation, we consider factors such as differences in the rights and preferences of the investments and the extent to which those differences would affect the fair values of those investments.

We assess our privately held debt and equity securities’ strategic investment portfolio quarterly for impairment. Our impairment analysis encompasses an assessment of both qualitative and quantitative analyses of key factors including the investee’s financial metrics, market acceptance of the investee’s product or technology, general market conditions and liquidity considerations. If the investment is considered to be impaired, we record the investment at fair value by recognizing an impairment through the Consolidated Statements of Operations and establishing a new carrying value for the investment.

Business Combinations

The allocation of the purchase price in a business combination requires management to make significant estimates in determining the fair value of acquired assets and assumed liabilities, especially with respect to intangible assets. The excess of the purchase price in a business combination over the fair value of these tangible and intangible assets acquired and liabilities assumed is recorded as goodwill. Critical assumptions used to estimate the fair value of intangible assets include projected revenue growth, projected operating expense, and technology migration curves. These assumptions are inherently uncertain and subject to refinement and, as a result, actual results may differ from estimates. We evaluate these estimates and assumptions as new information is obtained and may record adjustments to the fair value of the tangible and intangible assets acquired and liabilities assumed but not later than one year from the acquisition date.

Income Taxes

We account for income taxes using the asset and liability method. We recognize deferred tax assets and liabilities for the future tax consequences attributable to (i) temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and (ii) operating loss and tax credit carryforwards. Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not applicable to the periods in which we expect the temporary difference will reverse. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized. Future realization of deferred tax assets ultimately depends on the existence of sufficient taxable income within the carryback or carryforward periods available under the applicable tax law. We regularly review the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. Our judgment regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute our business plans and tax planning strategies. Should there be a change in the ability to recover deferred tax assets, our income tax provision would increase or decrease in the period in which the assessment is changed.

In the multiple tax jurisdictions in which we operate, our tax returns are subject to routine audit by the Internal Revenue Service, Australian Taxation Office (“ATO”), and other taxation authorities. These audits at times may produce alternative views regarding certain tax positions taken in the year(s) of review. As a result, we record uncertain tax positions, which require recognition at the time when it is deemed more likely than not that the position in question will be upheld. Although management believes that the judgment and estimates involved are reasonable and that the necessary provisions have been recorded, changes in circumstances or unexpected events could adversely affect our financial position, results of operations, and cash flows.

New Accounting Pronouncements Pending Adoption

The impact of recently issued accounting standards is set forth in Note 2, “Summary of Significant Accounting Policies,” of the notes to our consolidated financial statements.

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Results of Operations

The following table sets forth our results of operations for the periods indicated (in thousands, except for percentages of total revenues):

Fiscal Years Ended June 30, 2024 and 2023

Revenues

Total revenues increased $824.0 million, or 23%, in fiscal year 2024 compared to fiscal year 2023. Growth in total revenues was primarily attributable to increased demand for our products from both new and existing customers. Of total revenues recognized in fiscal year 2024, over 90% was attributable to sales to customer accounts existing on or before June 30, 2023.

Subscription revenues increased $1.0 billion, or 34%, in fiscal year 2024 compared to fiscal year 2023. The increase in subscription revenues was primarily attributable to additional subscriptions from our existing customer base, and customers migrating to subscription services for our Cloud offerings and term-based licenses for our Data Center offerings.

Maintenance revenues decreased $222.5 million, or 56%, in fiscal year 2024 compared to fiscal year 2023. We no longer offer upgrades to perpetual licenses beginning February 2022, and generally ended maintenance and support for these products in February 2024.

Other revenues increased $44.7 million, or 21%, in fiscal year 2024 compared to fiscal year 2023. The increase in other revenues was primarily attributable to an increase of $38.3 million in revenue from sales of third-

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party apps through our Atlassian Marketplace.

Total revenues by deployment options were as follows:

Total revenues by geography were as follows:

Cost of Revenues

Cost of revenues increased $169.7 million, or 27%, in fiscal year 2024 compared to fiscal year 2023. The overall increase was primarily attributable to an increase of $101.9 million in hosting fees paid to third-party providers, and an increase of $48.4 million in compensation expense for employees (which includes an increase of $8.1 million in stock-based compensation).

Operating Expenses

Research and development

Research and development expenses increased $314.2 million, or 17%, in fiscal year 2024 compared to fiscal year 2023. The overall increase was primarily attributable to an increase of $349.5 million in compensation expenses for employees (which includes an increase of $114.0 million in stock-based compensation), partially offset by restructuring charges of $43.1 million recorded during fiscal year 2023, and a decrease of $32.2 million in contractor costs and professional services fees.

Marketing and sales

Marketing and sales expenses increased $107.6 million, or 14%, for fiscal year 2024 compared to fiscal year 2023. The overall increase was primarily attributable to an increase of $86.0 million in compensation expenses for employees (which includes an increase of $7.4 million in stock-based compensation), and an increase of $15.0 million in advertising and marketing event expenses.

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General and administrative

General and administrative expenses increased $4.2 million, or 1%, in fiscal year 2024 compared to fiscal year 2023. The overall increase was primarily attributable to an increase of $36.6 million in compensation expenses for employees (which includes an increase of $14.2 million in stock-based compensation), offset by restructuring charges of $20.7 million recorded during fiscal year 2023, and a decrease of $7.6 million in recruitment cost.

Other income (expense), net

Other income (expense), net decreased $45.4 million in fiscal year 2024 compared to fiscal year 2023. The decrease was primarily attributable to a decrease in other income of $45.2 million from a non-cash sale of a controlling interest of a subsidiary that occurred during fiscal year 2023, and an increase in other expense of $11.3 million related to our share of loss from an equity method investment, partially offset by a decrease of $17.3 million in losses related to our other strategic investments.

Interest income

Interest income increased $46.9 million, or 94% in fiscal year 2024 compared to fiscal year 2023. The increase was primarily attributable to an increase in investment income as a result of increased investment balances and increased interest rates.

Interest expense

Interest expense increased $3.9 million, or 13%, in fiscal year 2024 compared to fiscal year 2023. The overall increase was primarily attributable to an increase in interest expense from our Credit Facility (as defined below) as a result of increased interest rates.

Provision for income taxes

**    Not meaningful

We reported an income tax provision of $215.1 million on pretax loss of $85.4 million for fiscal year 2024, as compared to an income tax provision of $175.6 million on pretax loss of $311.1 million for fiscal year 2023. The increase in the income tax provision for the fiscal year ended June 30, 2024 was primarily attributable to the increase in valuation allowance and overall growth in foreign jurisdictions associated with an increase in profit and non-deductible stock-based compensation, offset by a decrease in reserves for uncertain tax positions.

We finalized an Advanced Pricing Arrangement with the ATO with respect to our transfer pricing arrangements between Australia and the U.S. that covers the tax years ended June 30, 2019 to June 30, 2025. Pursuant to the terms of the agreement, we made a cash tax payment of approximately $60.5 million during fiscal year 2024.

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Our effective tax rate substantially differed from the U.S. statutory income tax rate of 21.0% primarily attributable to full valuation allowances in the U.S. and Australia, research and development tax credits and incentives, non-deductible stock-based compensation in certain foreign jurisdictions, and the recognition of reserves for uncertain tax positions. See Note 17, “Income Taxes,” to the notes to our consolidated financial statements for additional information.

We regularly assess the need for a valuation allowance against our deferred tax assets. Our assessment is based on all positive and negative evidence related to the realizability of such deferred tax assets. Based on available objective evidence as of June 30, 2024, we will continue to maintain a full valuation allowance on our U.S. federal, U.S. state, and Australian deferred tax assets as it is more likely than not that these deferred tax assets will not be realized. We intend to maintain the full valuation allowance until sufficient positive evidence exists to support the reversal of, or decrease in, the valuation allowance.

Our future effective annual tax rate may be materially impacted by the expense or benefit from tax amounts associated with our foreign earnings that are taxed at rates different from the federal statutory rate, changes in valuation allowances, level of profit before tax, accounting for uncertain tax positions, business combinations, and changes in our valuation allowances to the extent sufficient positive evidence becomes available, closure of statute of limitations or settlement of tax audits, and changes in tax laws.

A significant amount of our earnings is generated by our Australian subsidiaries. Our future effective tax rates may be adversely affected to the extent earnings are lower than anticipated in countries where we have lower statutory tax rates. See Note 17, “Income Taxes,” to the notes to our consolidated financial statements for additional information. Changes in our global operations could result in changes to our effective tax rates, future cash flows, and overall profitability of our operations.

Liquidity and Capital Resources

As of June 30, 2024, we had cash and cash equivalents totaling $2.2 billion, short-term investments totaling $162.0 million and accounts receivables totaling $628.0 million. Since our inception, we have primarily financed our operations through cash flows generated by operations and corporate debt.

Our cash flows from operating activities, investing activities, and financing activities for fiscal years 2024 and 2023 were as follows:

Our primary source of cash is primarily through collections from our customers. Our primary uses of cash from operating activities are general business expenses including employment expenses, cloud platform and other infrastructure services, professional services fees, income taxes, marketing expenses, software expenses, and facility expenses.

Net cash provided by operating activities increased by $580.0 million for fiscal year 2024, compared to fiscal year 2023. The net increase was primarily attributable to an increase in cash received from customers, partially offset by an increase in cash paid to suppliers and employees and cash used to pay income taxes.

Net cash used in investing activities increased by $962.5 million for fiscal year 2024, compared to fiscal year 2023. The net increase was primarily attributable to an increase in cash consideration paid for acquisitions, net of cash acquired, of approximately $842.0 million, an increase in net outflows of $138.1 million related to marketable securities activity, partially offset by an increase in net inflows of $24.9 million related to strategic investment activity.

Net cash used in financing activities increased by $259.8 million for fiscal year 2024, compared to fiscal year 2023. The net cash used in financing activities was primarily attributable to an increase in repurchases of Class A

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Common Stock of $245.3 million, and principal payments of our long term debt of $1.0 billion, offset by proceeds from issuance of debt, net of issuance costs of $987.0 million.

Material Cash Requirements

Debt

As of June 30, 2024, we had $500.0 million aggregate principal amount of 5.250% senior notes due 2029 (the “2029 Notes”) and $500.0 million aggregate principal amount of 5.500% senior notes due 2034 (the “2034 Notes,” and together with the 2029 Notes, the “Notes”). The Notes will mature on May 15, 2029, and May 15, 2034, respectively. Interest on the notes will be paid semi-annually in arrears on May 15 and November 15 of each year, starting from November 15, 2024. Refer to Note 11, “Debt,” to our consolidated financial statements for additional information.

On August 12, 2024, Atlassian US, Inc.’s prior credit facility was amended and restated to provide for a $750 million senior unsecured revolving credit facility (the “2024 Credit Facility”). We may repay outstanding loans under the 2024 Credit Facility at any time, without premium or penalty, and we have an option to request an increase of $250 million in certain circumstance. The 2024 Credit Facility matures in August 2029. Refer to Note 18, “Subsequent Events,” to our consolidated financial statements for additional information. As of June 30, 2024, there were no outstanding borrowings under the prior credit facility, and we were in compliance with all related covenants.

Share Repurchase Program

In January 2023, the Board of Directors authorized a program to repurchase up to $1.0 billion of our outstanding Class A Common Stock (the “Share Repurchase Program”). The Share Repurchase Program does not have a fixed expiration date, may be suspended or discontinued at any time, and does not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. During fiscal year 2024, we repurchased approximately 2.2 million shares of our Class A Common Stock for approximately $394.0 million at an average price per share of $182.32. All repurchases were made in open market transactions. As of June 30, 2024, we were authorized to purchase $451.8 million of our Class A Common Stock under the Share Repurchase Program. Refer to Note 15, “Stockholders' Equity,” to our consolidated financial statements for additional information.

Contractual Obligations

Our principal commitments consist of contractual commitments for cloud services platform and other infrastructure services, and obligations under leases for office space including obligations for leases that have not yet commenced. Refer to Note 10, “Leases,” and Note 12, “Commitments and Contingencies,” to our consolidated financial statements for additional information.

Other Future Obligations

We believe that our existing cash and cash equivalents, together with cash generated from operations, and borrowing capacity from the 2024 Credit Facility will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our other future cash requirements will depend on many factors including our growth rate, the timing and extent of spend on research and development efforts, employee headcount, marketing and sales activities, payments to tax authorities, acquisitions of additional businesses and technologies, the introduction of new software and services offerings, enhancements to our existing software and services offerings and the continued market acceptance of our products.

As of June 30, 2024, we are not party to any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, or capital resources.

Non-GAAP Financial Measures

In addition to the measures presented in our consolidated financial statements, we regularly review other measures that are not presented in accordance with GAAP, defined as non-GAAP financial measures by the SEC, to evaluate our business, measure our performance, identify trends, prepare financial forecasts and make strategic decisions. The key measures we consider are non-GAAP gross profit and non-GAAP gross margin, non-GAAP operating income and non-GAAP operating margin, non-GAAP net income and non-GAAP net income per diluted share, and free cash flow (collectively, the “Non-GAAP Financial Measures”). These Non-GAAP Financial Measures, which may be different from similarly titled non-GAAP measures used by other companies, provide supplemental information regarding our operating performance on a non-GAAP basis that excludes certain gains,

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losses and charges of a non-cash nature or that occur relatively infrequently and/or that management considers to be unrelated to our core operations. Management believes that tracking and presenting these Non-GAAP Financial Measures provides management, our board of directors, investors and the analyst community with the ability to better evaluate matters such as: our ongoing core operations, including comparisons between periods and against other companies in our industry; our ability to generate cash to service our debt and fund our operations; and the underlying business trends that are affecting our performance.

Our Non-GAAP Financial Measures include:

•Non-GAAP gross profit and non-GAAP gross margin. Excludes expenses related to stock-based compensation, amortization of acquired intangible assets, and restructuring charges.

•Non-GAAP operating income and non-GAAP operating margin. Excludes expenses related to stock-based compensation, amortization of acquired intangible assets, and restructuring charges.

•Non-GAAP net income and non-GAAP net income per diluted share. Excludes expenses related to stock-based compensation, amortization of acquired intangible assets, restructuring charges, gain on a non-cash sale of a controlling interest of a subsidiary and the related income tax adjustments.

•Free cash flow. Free cash flow is defined as net cash provided by operating activities less capital expenditures, which consists of purchases of property and equipment.

We understand that although these Non-GAAP Financial Measures are frequently used by investors and the analyst community in their evaluation of our financial performance, these measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. We compensate for such limitations by reconciling these Non-GAAP Financial Measures to the most comparable GAAP financial measures.

The following table presents a reconciliation of our Non-GAAP Financial Measures to the most comparable GAAP financial measure for fiscal years 2024 and 2023 (in thousands, except percentage and per share data):

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(1) Restructuring charges include stock-based compensation expense related to the rebalancing of resources for fiscal year 2023.

(2) In fiscal year 2024, we began to utilize a fixed long-term projected non-GAAP tax rate in our computation of the non-GAAP income tax adjustments in order to provide better consistency across interim reporting periods. In projecting this long-term non-GAAP tax rate, we utilized a three-year financial projection that excludes the direct and indirect income tax effects of the other non-GAAP adjustments reflected above. Additionally, we considered our current operating structure and other factors such as our existing tax positions in various jurisdictions and key legislation in major jurisdictions where we operate. For fiscal year 2024, we determined the projected non-GAAP tax rate to be 27%. This fixed long-term projected non-GAAP tax rate eliminates the effects of non-recurring and period specific items which can vary in size and frequency. Examples of the non-recurring and period specific items include but are not limited to changes in the valuation allowance related to deferred tax assets, effects resulting from acquisitions, and unusual or infrequently occurring items. We will periodically re-evaluate this long-term rate, as necessary, for significant events. The rate could be subject to change for a variety of reasons, for example, significant changes in the geographic earnings mix or fundamental tax law changes in major jurisdictions where we operate.

(3) The effects of these dilutive securities were not included in the GAAP calculation of diluted net loss per share for fiscal years 2024 and 2023 because the effect would have been anti-dilutive.