ATLASSIAN CORPORATION The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and the information contained in Item 5. Operating and Financial Review and Prospects for the year endedJune 30, 2022 , included in our Annual Report on Form 20-F filed with theSEC onAugust 19, 2022 . This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), Section 21E of the Exchange Act and the Private Securities Litigation Reform Act of 1995. In some cases, you can identify these statements by forward-looking words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "estimate," or "continue," and similar expressions or variations, but these words are not the exclusive means for identifying such statements. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results and timing 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" in Part II, Item 1A of this Quarterly Report on Form 10-Q. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q. Our free cash flow measures included in the sections entitled "Key Business Metrics-Free Cash Flow" are not presented in accordance with GAAP. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. These measures may be different from non-GAAP financial measures used by other companies, thus limiting their usefulness for comparison purposes. We encourage investors to carefully consider our results under GAAP, as well as our supplemental non-GAAP results, to more fully understand our business.
Company Overview
Our mission is to unleash the potential of every team.
Our products help teams organize, discuss and complete their work - delivering superior outcomes for their organizations.
Our products serve teams of all shapes and sizes, in virtually every industry. Our primary products includeJira Software and Jira Work Management for planning and project management, Confluence for content creation and sharing,Trello for capturing and adding structure to fluid, fast-forming work for teams, Jira Service Management for team service, management and support applications, Jira Align for enterprise agile planning, and Bitbucket for code sharing and management. Together, our products form an integrated system for organizing, discussing and completing shared work, becoming deeply entrenched in how people collaborate and how organizations run. Our mission is possible with deep investment in product development to create and refine high-quality and versatile products that users love. By making our products affordable for organizations of all sizes and transparently sharing our pricing online for most of our products, we do not follow the practice of opaque pricing and ad hoc discounting that is typical in the enterprise software industry. We pursue customer volume, targeting every organization, regardless of size, industry, or geography. This allows us to operate at unusual scale for an enterprise software company, with more than 250,000 customers across virtually every industry sector in approximately 200 countries as ofDecember 31, 2022 . Our customers range from small organizations that have adopted one of our products for a small group of users, to over two-thirds of the Fortune 500, many of which use a combination of our products across thousands of users. To reach this expansive market, we primarily distribute and sell our products online, without traditional sales infrastructure, where our customers can get started in minutes without the need for assistance. We focus on enabling a self-service, low-friction model that makes it easy for customers to try, adopt and use our products. By making our products simple, powerful, affordable and easy to adopt, we generate demand from word-of-mouth and viral expansion within organizations. 37 -------------------------------------------------------------------------------- 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, scale and profitability. As a result of this strategy, we invest significantly more in research and development activities than in traditional sales activities relative to other enterprise software companies. A substantial majority of our sales are automated through our website, including sales of our products through our solution partners and resellers. 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. We generate revenues primarily in the form of subscriptions, maintenance and other sources. 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 service that is 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. 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 operated by our customers on their premises ("Server offerings"). Maintenance revenue combined with our subscription revenue business, through ourCloud and Data Center products, results in a large recurring revenue base. In each of the past three fiscal years, more than 80% of our total revenues have been of a recurring nature from either maintenance fees or subscriptions. Customers typically pay us maintenance fees annually, at the beginning of each year. We typically recognize revenue on the license portion of term license agreements (Data Center offerings) once the customer obtains control of the license, which is generally upon delivery of the license, and for maintenance and subscriptions, revenue is recognized ratably over the term of the contract. Any invoice amounts or payments received in advance of revenue recognition from subscriptions or maintenance are included in our deferred revenue balance. The deferred revenue balance is influenced by several factors, including customer decisions around the timing of renewals, length of contracts and invoice timing within the period. We no longer sell perpetual licenses for our Server offerings. SinceFebruary 2022 , we no longer sell upgrades to Server offerings and plan to end maintenance and support for these Server offerings inFebruary 2024 . We will proactively help our customers transition to other versions of our products with our migration tools and programs, customer support teams, and pricing and packaging options.
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. Weakening economic conditions as a result of rising inflation, increases in interest rates, andRussia's invasion ofUkraine did not individually have a material adverse impact on our financial condition or results of operations during the three and six months endedDecember 31, 2022 ; however, starting in fiscal year 2023 we began to see the growth from existing customers moderate. This trend has become more pronounced during the three months endedDecember 31, 2022 . We believe this is largely due to customers impacted by weakening economic conditions. 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.
Customers
We have successfully demonstrated a history of growing both our customer base
and spend per customer through growth in users, purchase of new licenses and
adoption of new products. We believe that our ability to attract new customers
and grow our customer base drives our success as a business.
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In the first quarter of fiscal year 2022, we refined the definition of number of
customers at the end of any particular period to be the number of organizations
with unique domains that have at least one active and paid non-starter license
or subscription, with two or more seats. A single-user account is no longer
counted as a customer. 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 this metric.
We define active licenses as those licenses that are under an active maintenance
or subscription contract as of period end.
Our customers, as defined in this metric, have generated substantially all of
our revenue in each of the periods presented. 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 more than 250,000 customers. 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 customer base. No single customer contributed more than 5%
of our total revenues during the three and six months ended December 31, 2022 .
The following table sets forth our number of customers:
As of
December 31, 2021 March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022
Number of customers 226,521 234,575 242,623 249,173 253,177
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 for strategic
opportunities, including investing 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):
Three Months Ended December 31, Six Months Ended December 31,
2022 2021 2022 2021
Net cash provided by operating activities
(4,040) (12,581) (20,536) (19,462)
Free cash flow $ 146,485 $ 193,874 $ 222,431 $ 251,994
Free cash flow decreased by $47.4 million during the three months ended December
31, 2022 as compared to the three months ended December 31, 2021 . The net
decrease of net cash provided by operating activities was primarily attributable
to an increase in cash paid to suppliers and employees and cash used to pay
income taxes, offset by an increase in cash received from customers. The net
decrease of free cash flow was primarily attributable to the net decrease of net
cash provided by operating activities described above, offset by a decrease in
capital expenditures.
Free cash flow decreased by $29.6 million during the six months ended December
31, 2022 as compared to the six months ended December 31, 2021 . The net decrease
of net cash provided by operating activities was primarily attributable to an
increase in cash paid to suppliers and employees and cash used to pay income
taxes, offset by an increase in cash received from customers. The net decrease
of free cash flow was primarily attributable to the net decrease of net cash
provided by operating activities described above.
For more information about net cash provided by operating activities, please see "Liquidity and Capital Resources."
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--------------------------------------------------------------------------------Components of Results of Operations
OnSeptember 30, 2022 , the Company completed theU.S. Domestication to change its publicly traded parent company from a company incorporated under the laws ofEngland andWales to aDelaware corporation. In fiscal year 2022 and prior periods, we prepared our financial information in accordance with IFRS. As a consequence of becoming aU.S. domestic issuer, beginning with the Quarterly Report on Form 10-Q for the three months endedSeptember 30, 2022 , we are required to present our financial information in accordance with GAAP. The below financial information has been prepared in accordance with GAAP. The financial information should not be expected to correspond to figures we have previously presented under IFRS. 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 products, 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, with a majority being one month. For cloud-based services, subscription revenue is recognized ratably as services are performed, commencing with the date the service is made available to customers. ForData Center products, 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 perpetual license products on an if-and-when-available basis. Maintenance revenue is recognized ratably over the term of the support period.
Other Revenues
Other revenues primarily include perpetual license revenue and fees received for sales of third-party apps in theAtlassian Marketplace . Technical account management, consulting and training services are also included in other revenues. Perpetual license revenues represent fees earned from the license of software to customers for use on the customer's premises other than data center products. Software is licensed on a perpetual basis. Perpetual license revenues consist of the revenues recognized from sales of licenses to customers. The Company no longer sells perpetual licenses or upgrades for our Server offerings. The Company typically recognized revenue on the license portion of perpetual license arrangements once the customer obtained control of the license, which is generally upon delivery of the license. Revenue from the sale of third-party apps viaAtlassian 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 the Company functions as the agent in the relationship. Revenue from technical account management 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 as our customers continue to migrate to ourCloud and Data Center offerings. Migrating our larger customers to the cloud continues to be one of our most important priorities over the next several years. Consistent with our strategy, our Server business is expected to contract. Maintenance revenue is expected to decline as Server customers migrate to ourCloud and Data Center offerings. 40 --------------------------------------------------------------------------------
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; certain IT program fees; and facilities and related overhead costs. To support our cloud-based infrastructure, we utilize third-party managed hosting facilities and self-managed data centers. We allocate stock-based compensation to personnel costs based on the expense category in which the employee works. We allocate overhead such as information technology infrastructure, 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.
Our cost of revenues also includes amortization of acquired intangible assets, such as the amortization of the cost associated with an acquired company's developed technology.
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 decrease due to the sales mix shift from Server offerings to Cloud offerings. This impact will be primarily driven by increased hosting costs as well as additional personnel costs to support migrations and 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 infrastructure, 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 expense for our employees, including stock-based compensation, consulting and contractors costs, contract software development costs, 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.
Marketing and Sales
Marketing and sales expenses consist primarily of compensation expense for our
employees, including stock-based compensation, marketing and sales programs,
consulting and contractors 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 expense
for our employees, including stock-based compensation, for finance, legal, human
resources and information technology personnel, consulting and contractors
costs, certain IT program expenses, other corporate expenses and facilities and
related overhead costs.
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--------------------------------------------------------------------------------Income Taxes
Provision for income taxes consists primarily of income taxes related to federal, state, and foreign jurisdictions where we conduct business.
Net Loss
We incurred a net loss during the three and six months endedDecember 31, 2022 , primarily due to our significant investments in research and development, infrastructure for our Cloud offerings, as well as in growing our team. We also incurred additional tax expense from the recognition of a reserve for uncertain tax positions in the three months endedDecember 31, 2022 .
Critical Accounting Estimates
Our condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of these condensed 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 condensed 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 condensed 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. Determining whether products and services are considered distinct performance obligations may require judgment.
We allocate the transaction price for each contract to each performance
obligation based on the relative 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 economic
life of the software, and other observable inputs to estimate the price we would
charge if the products and services were sold separately.
Our products are generally sold with a right of return, we may provide other
credits or incentives, and, in certain instances, we estimate customer usage of
our services, which are accounted for as variable consideration when determining
the amount of revenue to recognize. Returns and credits are estimated at
contract inception and updated at the end of each reporting period if additional
information becomes available. Variable consideration was not material for the
periods presented.
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 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
42
--------------------------------------------------------------------------------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 condensed consolidated statements of operations and establishing a new carrying value for the investment.
Valuation of Minority Interest in
InJuly 2022 , we completed a non-cash sale of our controlling interest in VFT to a third-party buyer. VFT was established for the construction project associated with our new Australian HQ Property. We retained a minority equity interest of 13% in the form of ordinary shares and have significant influence in VFT. VFT was deconsolidated at the time of the sale, and we accounted for our retained equity interest as an equity method investment in our condensed consolidated financial statements. We used our best estimates and assumptions to accurately determine the fair value of our retained equity interest in VFT. The estimation is primarily due to the judgmental nature of the inputs to the valuation model used to measure fair value and the sensitivity to the significant underlying assumptions. Our estimates are inherently uncertain. We used a discounted cash flow model to calculate the fair value of our retained equity interest. The significant inputs to the valuation included observable market inputs, including capitalization rate, discount rate, and other management inputs, including the underlying building practical completion date. These assumptions are forward-looking and could be affected by future economic and market conditions and construction progress.
Income Tax
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, 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 condensed consolidated financial statements.
43
--------------------------------------------------------------------------------Results of Operations
The following table sets forth our results of operations for the periods indicated (in thousands, except for percentages of total revenues):
Three Months Ended December 31, Six Months Ended December 31,
2022 2021 2022 2021
Revenues:
Subscription $ 711,199 82 % $ 508,987 74 % $ 1,362,183 82 % $ 944,283 72 %
Maintenance 106,023 12 127,059 18 219,588 13 257,649 20
Other 55,482 6 52,480 8 98,325 5 100,618 8
Total revenues 872,704 100 688,526 100 1,680,096 100 1,302,550 100
Cost of revenues 155,945 18 110,191 16 295,337 18 206,447 16
Gross profit 716,759 82 578,335 84 1,384,759 82 1,096,103 84
Operating expenses:
Research and development 473,676 54 318,569 46 872,682 52 590,709 45
Marketing and sales 186,191 21 121,046 18 346,319 20 220,375 17
General and administrative 156,131 18 115,678 17 299,024 18 205,500 16
Total operating expenses 815,998 93 555,293 81 1,518,025 90 1,016,584 78
Operating income (loss) (99,239) (11) 23,042 3 (133,266) (8) 79,519 6
Other income (expense), net (6,749) (1) (22,343) (3) 22,540 1 (478,147) (37)
Interest income 8,963 1 74 - 14,106 1 351 -
Interest expense (7,508) (1) (21,022) (3) (13,629) (1) (32,540) (2)
Loss before income taxes (104,533) (12) (20,249) (3) (110,249) (7) (430,817) (33)
Provision for income taxes (100,498) (12) (2,079) - (108,523) (6) (2,715) -
Net loss $ (205,031) (24) % $ (22,328) (3) % $ (218,772) (13) % $ (433,532) (33) %
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Three Months Ended
Revenues
Three Months Ended December 31,
(in thousands, except percentage data) 2022 2021 $ Change % Change Subscription$ 711,199 $ 508,987 $ 202,212 40 % Maintenance 106,023 127,059 (21,036) (17) Other 55,482 52,480 3,002 6 Total revenues$ 872,704 $ 688,526 $ 184,178 27 % Total revenues increased$184.2 million , or 27%, in the three months endedDecember 31, 2022 compared to the three months endedDecember 31, 2021 . Growth in total revenues was primarily attributable to increased demand for our products from both new and existing customers. Of total revenues recognized in the three months endedDecember 31, 2022 , over 90% was attributable to sales to customer accounts existing on or beforeSeptember 30, 2022 . Our number of total customers increased to 253,177 atDecember 31, 2022 from 226,521 atDecember 31, 2021 . Subscription revenues increased$202.2 million , or 40%, in the three months endedDecember 31, 2022 compared to the three months endedDecember 31, 2021 . 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$21.0 million , or 17%, in the three months endedDecember 31, 2022 compared to the three months endedDecember 31, 2021 . We no longer offer upgrades to perpetual licenses beginningFebruary 2022 , and plan to end maintenance and support for these products inFebruary 2024 . Other revenues increased$3.0 million , or 6%, in the three months endedDecember 31, 2022 compared to the three months endedDecember 31, 2021 . The increase in other revenues was primarily attributable to an increase of$10.5 million in revenue from sales of third-party apps through ourAtlassian Marketplace , offset by a decrease of$8.0 million in perpetual license revenues as we discontinued selling new perpetual licenses for our products beginningFebruary 2021 .
Total revenues by deployment options were as follows:
Three Months Ended December 31,
(in thousands, except percentage data) 2022 2021 $ Change % Change Cloud$ 512,335 $ 364,099 $ 148,236 41 % Data Center 194,264 139,108 55,156 40 Server 106,168 135,519 (29,351) (22) Marketplace and services 59,937 49,800 10,137 20 Total revenues$ 872,704 $ 688,526 $ 184,178 27 %
Total revenues by geography were as follows:
Three Months Ended December 31,
(in thousands, except percentage data) 2022 2021 $ Change % Change Americas$ 429,709 $ 348,256 $ 81,453 23 % EMEA 343,770 263,695 80,075 30 Asia Pacific 99,225 76,575 22,650 30 Total revenues$ 872,704 $ 688,526 $ 184,178 27 % 45
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Cost of Revenues
Three Months Ended December 31,
(in thousands, except percentage data) 2022 2021 $ Change % Change Cost of revenues$ 155,945 $ 110,191$ 45,754 42 % Gross margin 82 % 84 % Cost of revenues increased$45.8 million , or 42%, in the three months endedDecember 31, 2022 compared to the three months endedDecember 31, 2021 . The overall increase was primarily attributable to an increase of$21.3 million in compensation expense for employees (which includes an increase of$10.1 million in stock-based compensation), an increase of$15.1 million in hosting fees paid to third-party providers, and an increase of$3.3 million in professional services. Operating Expenses Research and Development Three Months Ended December 31, (in thousands, except percentage data) 2022 2021 $ Change % Change Research and development$ 473,676 $ 318,569 $ 155,107 49 % Research and development expenses increased$155.1 million , or 49%, in the three months endedDecember 31, 2022 compared to the three months endedDecember 31, 2021 . The overall increase was primarily attributable to an increase of$126.5 million in compensation expenses for employees (which includes an increase of$79.2 million in stock-based compensation), and an increase of$12.2 million in professional services. Marketing and Sales Three Months Ended December 31, (in thousands, except percentage data) 2022 2021 $ Change % Change Marketing and sales$ 186,191 121,046$ 65,145 54 % Marketing and sales expenses increased$65.1 million , or 54%, for the three months endedDecember 31, 2022 , compared to the three months endedDecember 31, 2021 . The overall increase was primarily attributable to an increase of$38.9 million in compensation expenses for employees (which includes an increase of$16.3 million in stock-based compensation), an increase of$7.7 million in professional services, and an increase of$7.1 million in online product advertisement expenses. General and Administrative Three Months Ended December 31, (in thousands, except percentage data) 2022 2021 $ Change % Change General and administrative$ 156,131 115,678$ 40,453 35 % General and administrative expenses increased$40.5 million , or 35%, in the three months endedDecember 31, 2022 compared to the three months endedDecember 31, 2021 . The overall increase was primarily attributable to an increase of$34.3 million in compensation expenses for employees (which includes an increase of$14.4 million in stock-based compensation).
Other Income and Expense
Three Months Ended December 31,
(in thousands, except percentage data) 2022 2021 $ Change % Change Other expense, net$ (6,749) $ (22,343) $ 15,594 (70) % Other expense, net decreased$15.6 million in the three months endedDecember 31, 2022 , compared to the three months endedDecember 31, 2021 . The decrease was primarily attributable to a$20.5 million decrease in mark-to-market adjusted losses related to our publicly held equity securities, offset by a$5.6 million increase in losses related to our private equity investments. 46 --------------------------------------------------------------------------------
Interest Expense
Three Months Ended December 31,
(in thousands, except percentage data) 2022 2021 $ Change % Change Interest expense$ (7,508) $ (21,022) $ 13,514 ** Interest expense decreased$13.5 million in the three months endedDecember 31, 2022 compared to the three months endedDecember 31, 2021 . The decrease was primarily attributable to$16.9 million in lower amortization of debt discount and issuance cost due to settlements of the Notes in fiscal year 2022, offset by an increase in interest expense of$3.3 million from our Credit Facility.
Provision for Income Taxes
Three Months Ended December 31,
(in thousands, except percentage data) 2022 2021 $ Change % Change
Provision for income taxes $ (100,498) $ (2,079) $ (98,419) **
Effective tax rate ** **
** Not meaningful
We reported an income tax provision of $100.5 million on pretax loss of $104.5
million for the three months ended December 31, 2022 , as compared to an income
tax provision of $2.1 million on pretax loss of $20.2 million for the three
months ended December 31, 2021 . The income tax provision for the three months
ended December 31, 2022 reflects an increase in tax provision primarily
attributable to the recognition of a reserve for uncertain tax positions. Since
fiscal year 2020, we have been in unilateral APA negotiations with the ATO
relating to our transfer pricing arrangements between Australia and the U.S.
During the three months ended December 31, 2022 , we discussed with the ATO, for
the first time, a framework to resolve our transfer pricing arrangements for the
APA period (tax years ended June 30, 2019 to June 30, 2025 ). Given the stage of
discussions with the ATO during the three months ended December 31, 2022 , we
recorded a reserve for uncertain tax positions of $83.0 million based upon
applying the recognition and measurement thresholds of ASC 740. Although our
recorded tax reserves are the best estimate of our liabilities, differences may
occur in the future, depending on resolution of the APA negotiations. The
negotiations are expected to be finalized within the next 12 months. The gross
unrecognized tax benefit of $83.0 million , if realized, would affect our
effective tax rate. We do not have any other material audits or negotiations
that are currently in progress. The increase is also attributable to overall
growth in foreign jurisdictions associated with an increase in profit and
non-deductible stock-based compensation.
Our effective tax rate substantially differed from the U.S. statutory income tax
rate of 21.0% primarily attributable to the recognition of a reserve for
uncertain tax positions, different tax rates, non-deductible stock-based
compensation in foreign jurisdictions, and full valuation allowances in the U.S.
and Australia . See Note 17, "Income Tax," to the notes to our condensed
consolidated financial statements for additional information.
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, 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, including impacts of the TCJA. The TCJA, enacted on
December 22, 2017 , eliminates the option to deduct research and development
expenditures, instead requiring taxpayers to capitalize and amortize such
expenditures over five or fifteen years beginning in fiscal year 2023. If not
deferred, modified or repealed, this provision may materially increase future
cash taxes.
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. Changes in our global operations could result in changes to
our effective tax rates, future cash flows, and overall profitability of our
operations.
47
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Six Months Ended
Revenues
Six Months Ended December 31,
(in thousands, except percentage data) 2022 2021 $ Change % Change Subscription$ 1,362,183 $ 944,283 $ 417,900 44 % Maintenance 219,588 257,649 (38,061) (15) Other 98,325 100,618 (2,293) (2) Total revenues$ 1,680,096 $ 1,302,550 $ 377,546 29 % Total revenues increased$377.5 million , or 29%, in the six months endedDecember 31, 2022 compared to the six months endedDecember 31, 2021 . Growth in total revenues was primarily attributable to increased demand for our products from both new and existing customers. Of total revenues recognized in the six months endedDecember 31, 2022 , over 90% was attributable to sales to customer accounts existing on or beforeJune 30, 2022 . Our number of total customers increased to 253,177 atDecember 31, 2022 from 226,521 atDecember 31, 2021 . Subscription revenues increased$417.9 million , or 44%, in the six months endedDecember 31, 2022 compared to the six months endedDecember 31, 2021 . The increase in subscription revenues was primarily attributable to additional subscriptions from our existing customer base, and customers migrating to cloud-based subscription services and term-based licenses for our Data Center products. Maintenance revenues decreased$38.1 million , or 15%, in the six months endedDecember 31, 2022 compared to the six months endedDecember 31, 2021 . We no longer offer upgrades to perpetual licenses beginningFebruary 2022 , and plan to end maintenance and support for these products inFebruary 2024 . Other revenues decreased$2.3 million , or 2%, in the six months endedDecember 31, 2022 compared to the six months endedDecember 31, 2021 . The decrease in other revenues was primarily attributable to a decrease of$16.7 million in perpetual license revenues as we discontinued selling new perpetual licenses for our products beginningFebruary 2021 , offset by an increase of$12.9 million in revenue from sales of third-party apps through ourAtlassian Marketplace .
Total revenues by deployment options were as follows:
Six Months Ended December 31,
(in thousands, except percentage data) 2022 2021 $ Change % Change Cloud$ 987,378 $ 682,002 $ 305,376 45 % Data Center 365,492 250,303 115,189 46 Server 219,981 275,066 (55,085) (20) Marketplace and services 107,245 95,179 12,066 13 Total revenues$ 1,680,096 $ 1,302,550 $ 377,546 29 %
Total revenues by geography were as follows:
Six Months Ended December 31,
(in thousands, except percentage data) 2022 2021 $ Change % Change
Americas $ 839,630 $ 656,980 $ 182,650 28 %
EMEA 648,048 498,709 149,339 30
Asia Pacific 192,418 146,861 45,557 31
Total revenues $ 1,680,096 $ 1,302,550 $ 377,546 29 %
Cost of Revenues
Six Months Ended December 31,
(in thousands, except percentage data) 2022 2021 $ Change % Change
Cost of revenues $ 295,337 $ 206,447 $ 88,890 43 %
Gross margin 82 % 84 %
48-------------------------------------------------------------------------------- Cost of revenues increased$88.9 million , or 43%, in the six months endedDecember 31, 2022 compared to the six months endedDecember 31, 2021 . The overall increase was primarily attributable to an increase of$42.2 million in compensation expense for employees (which includes an increase of$14.8 million in stock-based compensation), an increase of$29.6 million in hosting fees paid to third-party providers, and an increase of$5.9 million in professional services. Operating Expenses Research and Development Six Months Ended December 31, (in thousands, except percentage data) 2022 2021 $ Change % Change Research and development$ 872,682 $ 590,709 $ 281,973 48 % Research and development expenses increased$282.0 million , or 48%, in the six months endedDecember 31, 2022 compared to the six months endedDecember 31, 2021 . The overall increase was primarily attributable to an increase of$221.1 million in compensation expenses for employees (which includes an increase of$125.1 million in stock-based compensation), and an increase of$26.0 million in professional services. Marketing and Sales Six Months Ended December 31, (in thousands, except percentage data) 2022 2021 $ Change % Change Marketing and sales$ 346,319 $ 220,375 $ 125,944 57 % Marketing and sales expenses increased$125.9 million , or 57%, for the six months endedDecember 31, 2022 , compared to the six months endedDecember 31, 2021 . The overall increase was primarily attributable to an increase of$73.6 million in compensation expenses for employees (which includes an increase of$25.0 million in stock-based compensation), an increase of$14.8 million in online product advertisement expenses, and an increase of$13.6 million in professional services. General and Administrative Six Months Ended December 31, (in thousands, except percentage data) 2022 2021 $ Change % Change General and administrative$ 299,024 $ 205,500 $ 93,524 46 % General and administrative expenses increased$93.5 million , or 46%, in the six months endedDecember 31, 2022 compared to the six months endedDecember 31, 2021 . The overall increase was primarily attributable to an increase of$73.9 million in compensation expenses for employees (which includes an increase of$27.8 million in stock-based compensation).
Other Income and Expense
Six Months Ended December 31,
(in thousands, except percentage data) 2022 2021 $ Change % Change
Other income (expense), net $ 22,540 $ (478,147) $ 500,687 (105) %
Other income (expense), net increased $500.7 million in the six months ended
December 31, 2022 , compared to the six months ended December 31, 2021 . The
increase was primarily attributable to a decrease of $424.5 million in other
expense from the mark to fair value of the Notes and Capped Calls and charges
related to the full settlements of Notes and Capped Calls during the six months
ended December 31, 2021 , a decrease of $46.5 million in mark-to-market adjusted
losses related to our publicly held equity securities, and an increase of $45.2
million from a non-cash sale of a controlling interest of a subsidiary recorded
during the six months ended December 31, 2022 .
Interest Expense
Six Months Ended December 31,
(in thousands, except percentage data) 2022 2021 $ Change % Change Interest expense$ (13,629) $ (32,540) $ 18,911 (58) % 49
-------------------------------------------------------------------------------- Interest expense decreased$18.9 million in the six months endedDecember 31, 2022 compared to the six months endedDecember 31, 2021 . The overall decrease was primarily attributable to$26.6 million in lower amortization of debt discount and issuance cost due to settlements of the Notes, offset by an increase in interest expense of$7.7 million from our Credit Facility.
Provision for Income Taxes
Six Months Ended December 31,
(in thousands, except percentage data) 2022 2021 $ Change % Change Provision for income taxes$ (108,523) $ (2,715) $ (105,808) ** Effective tax rate ** ** ** Not meaningful We reported an income tax provision of$108.5 million on pretax loss of$110.2 million for the six months endedDecember 31, 2022 , as compared to an income tax provision of$2.7 million on pretax loss of$430.8 million for the six months endedDecember 31, 2021 . The income tax provision for the six months endedDecember 31, 2022 reflects an increase in tax provision primarily attributable to the recognition of a reserve for uncertain tax positions. Since fiscal year 2020, we have been in unilateral APA negotiations with the ATO relating to our transfer pricing arrangements betweenAustralia and theU.S. During the three months endedDecember 31, 2022 , we discussed with the ATO, for the first time, a framework to resolve our transfer pricing arrangements for the APA period (tax years endedJune 30, 2019 toJune 30, 2025 ). Given the stage of discussions with the ATO during the three months endedDecember 31, 2022 , we recorded a reserve for uncertain tax positions of$83.0 million based upon applying the recognition and measurement thresholds of ASC 740. Although our recorded tax reserves are the best estimate of our liabilities, differences may occur in the future, depending on resolution of the APA negotiations. The negotiations are expected to be finalized within the next 12 months. The gross unrecognized tax benefit of$83.0 million , if realized, would affect our effective tax rate. We do not have any other material audits or negotiations that are currently in progress. The increase is also attributable to overall growth in foreign jurisdictions associated with an increase in profit and non-deductible stock-based compensation. Our effective tax rate substantially differed from theU.S. statutory income tax rate of 21.0% primarily attributable to the recognition of a reserve for uncertain tax positions, different tax rates, non-deductible stock-based compensation in foreign jurisdictions, and full valuation allowances in theU.S. andAustralia . See Note 17, "Income Tax," to the notes to our condensed 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 ofDecember 31, 2022 , we will continue to maintain a full valuation allowance on ourU.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, including impacts of the TCJA. The TCJA, enacted onDecember 22, 2017 , eliminates the option to deduct research and development expenditures, instead requiring taxpayers to capitalize and amortize such expenditures over five or fifteen years beginning in fiscal year 2023. If not deferred, modified or repealed, this provision may materially increase future cash taxes. 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. 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 ofDecember 31, 2022 , we had cash and cash equivalents totaling$1.6 billion , short-term investments totaling$36.1 million and accounts receivables totaling$354.8 million . Since our inception, we have primarily financed our operations through cash flows generated by operations and corporate debt. 50 --------------------------------------------------------------------------------
Our cash flows from operating activities, investing activities, and financing activities for the periods presented were as follows (in thousands):
Six Months Ended
December 31,
2022 2021
Net cash provided by operating activities $ 242,967 $ 271,456
Net cash provided by investing activities 7,735 108,445
Net cash provided by (used in) financing activities 1,396 (413,184)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash
(1,417) (2,355)
Net increase (decrease) in cash, cash equivalents, and restricted cash
$
250,681
Cash provided by operating activities has historically been affected by the amount of net loss adjusted for non-cash expense items such as depreciation and amortization, depreciation of right-of-use assets, expense associated with stock-based awards, gain on non-cash sale of controlling interest of a subsidiary and non-coupon impact related to the Notes and Capped Calls, the timing of employee-related costs such as bonus payments, collections from our customers, which is our largest source of operating cash flows, income tax payment and changes in other working capital accounts. Accounts impacting working capital consist of accounts receivables, prepaid expenses and other current assets, accounts payables, current provisions, and current deferred revenue. Our working capital may be impacted by various factors in future periods, such as billings to customers for subscriptions, licenses and maintenance services and the subsequent collection of those billings or the amount and timing of certain expenditures. Net cash provided by operating activities decreased by$28.5 million for the six months endedDecember 31, 2022 , compared to the six months endedDecember 31, 2021 . The net decrease was primarily attributable to an increase in cash paid to suppliers and employees and cash used to pay income taxes, offset in part by an increase in cash received from customers. Net cash provided by investing activities decreased by$100.7 million during the six months endedDecember 31, 2022 , compared to the six months endedDecember 31, 2021 . The net decrease was primarily attributable to a decrease of$185.6 million from proceeds from sales of marketable securities and strategic investments, offset by a decrease of$85.6 million purchases of strategic investments. Net cash provided by financing activities increased by$414.6 million for the six months endedDecember 31, 2022 , compared to the six months endedDecember 31, 2021 . The increase was primarily attributable to the full settlement of the Notes for an aggregate consideration of$1.5 billion during the six months endedDecember 31, 2021 , offset by proceeds from the Term Loan Facility of$1.0 billion and net proceeds from settlement of capped call transactions of$135.5 million .
Liquidity and Material Cash Requirements
We have fully drawn our$1 billion Term Loan Facility, and we have access to a$500 million Revolving Credit Facility. The Credit Facility matures inOctober 2025 and bears interest, at our option, at a base rate plus a margin up to 0.50% or LIBOR rate plus a spread of 0.875% to 1.50%, in each case with such margin being determined by our consolidated leverage ratio. The Revolving Credit Facility may be borrowed, repaid, and re-borrowed until its maturity, and we have the option to request an increase of$250 million in certain circumstances. The Credit Facility may be repaid at our discretion without penalty. Commencing onOctober 31, 2023 , we are obligated to repay the outstanding principal amount of the Credit Facility in installments on a quarterly basis in an amount equal to 1.25% of the Term Loan Facility borrowing amount until the maturity of the Credit Facility. Please refer to Note 12, "Debt," to the notes to our condensed consolidated financial statements for details of the Credit Facility. We believe that our existing cash and cash equivalents, together with cash generated from operations, and borrowing capacity from the Credit Facility will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our 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. 51 -------------------------------------------------------------------------------- As ofDecember 31, 2022 , the Company is 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. The cash requirements for the upcoming fiscal year relate to our leases, operational and capital purchase commitments, including hosting services, infrastructure investments and property and equipment purchases. Our principal long-term contractual obligations primarily consist of obligations under our Term Loan Facility, leases for office space, including obligations for leases that have not yet commenced, contractual commitments for cloud services platform and other infrastructure services, and capital purchase obligations for the construction or purchase of property and equipment. Refer to Note 9, "Leases," and Note 13, "Commitments," to our condensed consolidated financial statements.
Non-GAAP Financial Measures
In addition to the measures presented in our condensed consolidated financial statements, we regularly review other measures that are not presented in accordance with GAAP, defined as non-GAAP financial measures by theSEC , 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, non-GAAP operating income, non-GAAP net income, 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, 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. Excludes expenses related to stock-based compensation and amortization of acquired intangible assets.
•Non-GAAP operating income. Excludes expenses related to stock-based compensation and amortization of acquired intangible assets.
•Non-GAAP net income and non-GAAP net income per diluted share. Excludes
expenses related to stock-based compensation, amortization of acquired
intangible assets, non-coupon impact related to the Notes and Capped Calls, gain
on a non-cash sale of a controlling interest of a subsidiary and the related
income tax effects on these items, and a non-recurring income tax adjustment.
•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.
52
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The following table presents a reconciliation of our Non-GAAP Financial Measures
to the most comparable GAAP financial measure for the three and six months ended
December 31, 2022 and 2021 (in thousands, except per share data):
Three Months Ended December 31, Six Months Ended December 31,
2022 2021 2022 2021
Gross profit
GAAP gross profit $ 716,759 $ 578,335 $ 1,384,759 $ 1,096,103
Plus: Stock-based compensation 18,553 8,453 29,166 14,370
Plus: Amortization of acquired
intangible assets 5,697 5,599 11,394 11,288
Non-GAAP gross profit $ 741,009 $ 592,387 $ 1,425,319 $ 1,121,761
Operating income
GAAP operating income (loss) $ (99,239) $ 23,042 $ (133,266) $ 79,519
Plus: Stock-based compensation 265,785 145,820 439,416 246,727
Plus: Amortization of acquired
intangible assets 8,296 7,958 16,592 16,012
Non-GAAP operating income $ 174,842 $ 176,820 $ 322,742 $ 342,258
Net income
GAAP net loss $ (205,031) $ (22,328) $ (218,772) $ (433,532)
Plus: Stock-based compensation 265,785 145,820 439,416 246,727
Plus: Amortization of acquired
intangible assets 8,296 7,958 16,592 16,012
Plus: Non-coupon impact related to
exchangeable senior notes and capped
calls - 16,856 - 450,829
Less: Gain on a non-cash sale of a
controlling interest of a subsidiary (2,067) - (45,158) -
Plus (less): Income tax adjustments 47,750 (37,879) 15,202 (75,200)
Non-GAAP net income $ 114,733 $ 110,427 $ 207,280 $ 204,836
Net income per share
GAAP net loss per share - diluted $ (0.80) $ (0.09) $ (0.86) $ (1.72)
Plus: Stock-based compensation 1.04 0.57 1.72 0.98
Plus: Amortization of acquired
intangible assets 0.03 0.03 0.06 0.06
Plus: Non-coupon impact related to
exchangeable senior notes and capped
calls - 0.07 - 1.77
Less: Gain on a non-cash sale of a
controlling interest of a subsidiary (0.01) - (0.17) -
Plus (less): Income tax adjustments 0.19 (0.15) 0.06 (0.29)
Non-GAAP net income per share - diluted
$ 0.81$ 0.80 Weighted-average diluted shares outstanding Weighted-average shares used in computing diluted GAAP net loss per share 255,874 252,960 255,520 252,533 Plus: Dilution from dilutive securities (1) 304 3,072 673 3,178 Weighted-average shares used in computing diluted non-GAAP net income per share 256,178 256,032 256,193 255,711 Free cash flow GAAP net cash provided by operating activities$ 150,525 $ 206,455 $ 242,967 $ 271,456 Less: Capital expenditures (4,040) (12,581) (20,536) (19,462) Free cash flow$ 146,485 $ 193,874 $ 222,431 $ 251,994
(1) The effects of these dilutive securities were not included in the GAAP
calculation of diluted net loss per share for the three and six months ended
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