Atlassian Corp 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with 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 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended June 30, 2025, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on August 15, 2025. 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 Securities Exchange Act of 1934, as amended (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,” “plan,” “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. Overview Our mission is to unleash the potential of every team. Atlassian’s team collaboration software enables organizations to connect all teams through a system of work that unlocks productivity at scale. Our deeply interconnected portfolio of apps, AI agents, and products, each with discrete value propositions, delivers solutions for software teams, IT operations and support teams, leadership, and business teams. We’ve put AI at the center of our portfolio to enhance teamwork for users across our apps and Collections, a carefully curated set of apps and agents designed to solve complex tasks. These apps, agents, and Collections are all built on the Atlassian Cloud Platform and data model: a common technology foundation that seamlessly connects teams, information, and workflows throughout an organization. We generate revenues primarily in the form of subscription fees. Subscription revenues consist primarily of fees earned from subscription-based arrangements for providing customers the right to use our software apps 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 apps and product offerings, prices, and pricing plans for our offerings, which may impact the growth rate of our revenue, and our deferred revenue balances, remaining performance obligations, and customer retention. Subscription revenue, through our Cloud and Data Center offerings, results in a large recurring revenue base. In September 2025, we announced plans to end-of-life our Data Center deployment offering. Beginning in March 2026, we will no longer sell term licenses to new customers, and we will stop selling term licenses and expansions to existing customers in March 2028. Subject to limited exceptions, we also plan to end maintenance and support for on-premises versions of our products in March 2029. In order to support customers who face unique requirements or challenges, we will offer an approximately three-year extended maintenance period for certain customers. In the second quarter of fiscal 2026, we completed the acquisitions of The Browser Company of New York Inc. (“BCNY”) and A Software Company (“DX”). We believe integrating these technologies into our offerings will enhance customer value. BCNY has built a browser for enterprises optimized for SaaS applications in the AI-era. DX offers market-leading engineering intelligence that provides leaders with data-driven insights to understand how their 28 investments are helping teams accelerate and improve their work and enhances the value of the offerings in our Collections. 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, inflationary pressures, interest rate policy, changes in trade policies, political instability, and geopolitical tensions. We monitor the direct and indirect impacts of these circumstances on our business and financial results. 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. Restructuring During the first quarter of fiscal 2026, we initiated a rebalancing of resources, resulting in the elimination of certain roles. These actions were part of our initiatives to reduce additional capacity no longer necessary due to the increased ability, accessibility, performance, stability, and supportability of our products. As a result, we recorded severance and other termination benefits of $27.9 million and stock-based compensation of $1.4 million for the affected employees for the six months ended December 31, 2025. In addition, during the first quarter of fiscal 2026, we exited certain floors of a leased property, which we plan to sublease, in order to optimize our real estate footprint. As a result, we recorded impairment charges for the related operating lease right-of-use assets and leasehold improvements of $26.3 million for the six months ended December 31, 2025. A summary of restructuring charges for the six months ended December 31, 2025 by major activity type is as follows (in thousands): Severance and Other Termination Benefits Stock-based Compensation Lease Consolidation Total Cost of revenue $ 27,794 $ 1,432 $ 2,366 $ 31,592 Research and development — — 12,102 12,102 Marketing and sales — — 8,154 8,154 General and administrative 95 — 3,735 3,830 Total $ 27,889 $ 1,432 $ 26,357 $ 55,678 The execution of these actions, including cash payment of the severance and other termination benefits related liabilities, was substantially completed as of December 31, 2025. Refer to Note 14, “ Restructuring ,” in the notes of our condensed consolidated financial statements for additional information. 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, higher average price per user, and adoption of new apps or 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 with a small footprint by either adopting our free editions or purchasing a single app or 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 29 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 apps, if the app deployments share a unique domain name, we only include the customer once for purposes of calculating a customer. As of December 31, 2025, we had more than 350,000 customers. If we include single-user accounts and organizations that have only adopted our free or starter offerings, the active use of our offerings extends well beyond our total customer base. Through the extensive use of our software, 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 revenue. The following table sets forth our number of customers with greater than $10,000 in Cloud ARR as of the dates presented: As of December 31, 2024 March 31, 2025 June 30, 2025 September 30, 2025 December 31, 2025 Number of customers with greater than $10,000 in Cloud ARR 49,449 50,715 51,978 53,017 55,369 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 in the 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, 2025 2024 2025 2024 Net cash provided by operating activities $ 177,805 $ 351,905 $ 306,519 $ 432,397 Less: Capital expenditures (9,289) (9,336) (23,401) (15,487) Free cash flow $ 168,516 $ 342,569 $ 283,118 $ 416,910 Free cash flow decreased by $174.1 million during the three months ended December 31, 2025, as compared to the three months ended December 31, 2024. The decrease in free cash flow was primarily attributable to a decrease in net cash provided by operating activities. The decrease in net cash provided by operating activities was primarily attributable to an increase in cash paid to employees, vendors, and cash paid for income taxes, partially offset by an increase in cash received from customers. Free cash flow decreased by $133.8 million during the six months ended December 31, 2025 as compared to the six months ended December 31, 2025. The decrease in free cash flow was primarily attributable to a decrease in net cash provided by operating activities. The decrease in net cash provided by operating activities was primarily attributable to an increase in cash paid to employees, vendors, and cash paid for income taxes, partially offset by an increase in cash received from customers. For more information about net cash provided by operating activities, please see “Liquidity and Capital Resources.” 30 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 deployment, 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. In September 2025, we announced plans to end-of-life our Data Center deployment offering. Beginning in March 2026, we will no longer sell term licenses to new customers, and we will stop selling term licenses and expansions to existing customers in March 2028. Subject to limited exceptions, we plan to end maintenance and support for these on-premises versions of our products in March 2029. We expect subscription revenue, specifically from our Cloud offerings, to increase and continue to be our primary driver of revenue growth. We expect our revenue to fluctuate quarterly and within our quarterly financial results based on customer buying patterns. 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. Cost of Revenues Cost of revenues primarily consists of expenses related to hosting our cloud infrastructure, which includes third-party hosting fees and depreciation associated with computer equipment, compensation expenses for our employees, including stock-based compensation, 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. We expect cost of revenues to increase as we continue to invest in our cloud-based infrastructure to support our Cloud customers. 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. 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 mix. We expect gross margin to increase modestly, driven by optimization of our Cloud infrastructure and support costs, partially offset by the revenue mix shift from Data Center offerings to Cloud offerings. 31 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, bonuses, stock-based compensation, and employee benefit costs. Research and Development Research and development expenses consist primarily of compensation expenses for our employees, including stock-based compensation, facilities and related overhead costs, certain IT program expenses, and consulting and contractor costs associated with our software development teams. We continue to focus our research and development efforts on building new apps, and AI agents, adding new features and services, integrating acquired technologies, increasing functionality, enhancing our Cloud infrastructure, and advancing our artificial intelligence capabilities. Marketing and Sales Marketing and sales expenses consist primarily of compensation expenses for our employees, including stock-based compensation, marketing and sales program expenses, consulting and contractor costs, facilities and related overhead costs, and certain IT program expenses. Marketing programs consist of advertising, promotional events, such as user conferences, sponsorships, corporate communications, brand building, and marketing activities such as online lead generation. Sales programs consist of activities and teams focused on direct sales to customers, 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 offerings 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 (benefit from) income taxes consists primarily of income taxes related to federal, state, and foreign jurisdictions where we conduct business. 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. 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, discount rate, and technology migration curves. These assumptions are inhere ntly uncertain and unpredictable 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. 32 There have been no other significant changes to our critical accounting policies and estimates during the three and six months ended December 31, 2025, as compared to the critical accounting estimates disclosed in Management’s Discussion and Analysis of Financial Results of Operations included in our Annual Report on Form 10-K for fiscal year 2025. 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. 33 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, 2025 % of Total Revenues 2024 % of Total Revenues 2025 % of Total Revenues 2024 % of Total Revenues Revenues: Subscription $ 1,507,656 95 % $ 1,213,248 94 % $ 2,882,158 95 % $ 2,345,196 95 % Other 78,659 5 73,215 6 136,710 5 129,048 5 Total revenues 1,586,315 100 1,286,463 100 3,018,868 100 2,474,244 100 Cost of revenues 237,691 15 223,127 17 495,615 16 440,751 18 Gross profit 1,348,624 85 1,063,336 83 2,523,253 84 2,033,493 82 Operating expenses: Research and development 826,489 52 680,213 53 1,582,483 52 1,283,314 52 Marketing and sales 376,434 24 271,894 21 712,861 24 524,287 21 General and administrative 193,448 12 168,708 13 371,993 12 315,349 13 Total operating expenses 1,396,371 88 1,120,815 87 2,667,337 88 2,122,950 86 Operating loss (47,747) (3) (57,479) (4) (144,084) (4) (89,457) (4) Other income (expense), net (13,550) (1) (7,999) (1) 5,254 — (27,431) (1) Interest income 18,065 1 25,586 2 47,910 1 54,150 2 Interest expense (12,525) (1) (7,291) (1) (21,161) (1) (14,609) (1) Loss before income taxes (55,757) (4) (47,183) (4) (112,081) (4) (77,347) (4) Provision for (benefit from) income taxes (13,112) (1) (8,975) (1) (17,566) (1) 84,630 3 Net loss $ (42,645) (3) % $ (38,208) (3) % $ (94,515) (3) % $ (161,977) (7) % 34 Three Months Ended December 31, 2025 and 2024 Revenues Three Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Subscription $ 1,507,656 $ 1,213,248 $ 294,408 24 % Other 78,659 73,215 5,444 7 Total revenues $ 1,586,315 $ 1,286,463 $ 299,852 23 % Total revenues increased $299.9 million, or 23%, in the three months ended December 31, 2025 compared to the three months ended December 31, 2024. Growth in total revenues was primarily attributable to increased demand for our offerings from existing customers. Of total revenues recognized in the three months ended December 31, 2025, over 90% was attributable to sales to customer accounts existing on or before September 30, 2025. Subscription revenues increased $294.4 million, or 24%, in the three months ended December 31, 2025 compared to the three months ended December 31, 2024. The increase in subscription revenues was primarily attributable to paid seat expansion from our existing customers and price increases. Other revenues increased $5.4 million, or 7%, in the three months ended December 31, 2025 compared to the three months ended December 31, 2024. The increase in other revenues was primarily attributable to an increase of $4.9 million in marketplace revenue. Total revenues by deployment options were as follows: Three Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Cloud $ 1,067,027 $ 846,962 $ 220,065 26 % Data Center 435,616 362,281 73,335 20 Marketplace and other 83,672 77,220 6,452 8 Total revenues $ 1,586,315 $ 1,286,463 $ 299,852 23 % Total revenues by geography were as follows: Three Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Americas $ 746,248 $ 619,165 $ 127,083 21 % EMEA 663,340 525,482 137,858 26 Asia Pacific 176,727 141,816 34,911 25 Total revenues $ 1,586,315 $ 1,286,463 $ 299,852 23 % Cost of Revenues Three Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Cost of revenues $ 237,691 $ 223,127 $ 14,564 7 % Gross margin 85 % 83 % Cost of revenues increased $14.6 million, or 7%, in the three months ended December 31, 2025 compared to the three months ended December 31, 2024. The overall increase was primarily attributable to an increase of $23.0 million in hosting fees and an increase of $9.6 million in amortization expense, partially offset by a decrease of $13.6 million in compensation expense for employees (which includes a decrease of $2.9 million in stock-based compensation) and a decrease of $4.0 million in consulting and other professional fees. 35 Operating Expenses Research and Development Three Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Research and development $ 826,489 $ 680,213 $ 146,276 22 % Research and development expenses increased $146.3 million, or 22%, in the three months ended December 31, 2025 compared to the three months ended December 31, 2024. The overall increase was primarily attributable to an increase of $141.8 million in compensation expenses for employees (which includes an increase of $64.6 million in stock-based compensation ). Marketing and Sales Three Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Marketing and sales $ 376,434 271,894 $ 104,540 38 % Marketing and sales expenses increased $104.5 million , or 38%, for the three months ended December 31, 2025 compared to the three months ended December 31, 2024 . The overall increase was primarily attributable to an increase of $64.0 million in compensation expenses for employees (which includes an increase of $12.2 million in stock-based compensation) , and an increase of $29.7 million in advertising and marketing program expenses. General and Administrative Three Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change General and administrative $ 193,448 168,708 $ 24,740 15 % General and administrative expenses increased $24.7 million, or 15%, in the three months ended December 31, 2025 compared to the three months ended December 31, 2024 . The overall increase was primarily attributable to an increase of $16.7 million in compensation expense for employees, an increase of $2.5 million in software subscription related expense and an increase of $1.7 million in professional service fees. Other Expense, net Three Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Other expense, net $ (13,550) $ (7,999) $ (5,551) 69 % Other expense, net increased $5.6 million, or 69%, in the three months ended December 31, 2025, compared to the three months ended December 31, 2024. The overall increase in other expense was primarily attributable to an increase of $6.5 million in realized loss on strategic investments. Interest Income Three Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Interest income 18,065 25,586 $ (7,521) (29) % Interest income decreased $7.5 million, or (29)% in the three months ended December 31, 2025, compared to the three months ended December 31, 2024 . The decrease was primarily attributable to a decrease in investment income as a result of decreased invested cash balances. Interest Expense Three Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Interest expense $ (12,525) $ (7,291) $ (5,234) 72 % 36 Interest expense increased $5.2 million, or 72% in the three months ended December 31, 2025 compared to the three months ended December 31, 2024 . The increase was primarily attributable to the amortization of interest rate swap contracts. Benefit from Income Taxes Three Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Benefit from income taxes $ (13,112) $ (8,975) $ (4,137) * Effective tax rate * * * Not meaningful Benefit from income taxes increased $4.1 million for the three months ended December 31, 2025, as compared to the three months ended December 31, 2024. The increase was primarily attributable to the partial release of valuation allowance on certain U.S. deferred tax assets resulting from the recognition of additional deferred tax liabilities in connection with the business combinations and the change in the mix of earnings and losses in foreign jurisdictions. See Note 7, “Business Combinations,” and Note 17, “ Income Taxes ,” of the notes to our condensed consolidated financial statements for additional information. Our future effective annual tax rate may be materially affected 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, 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. Changes in our global operations could result in changes to our effective tax rates, future cash flows, and overall profitability of our operations. We recognize the tax benefit of an uncertain tax position only if we conclude it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement with the taxing authority. We believe we have provided adequate reserves for income tax uncertainties in all open tax years. Based on the information currently available, we do not anticipate a material change in unrecognized tax benefits in the next 12 months. On July 4, 2025, the U.S. government enacted The One Big Beautiful Bill Act (“OBBBA”), which includes, among other provisions, changes to the U.S. corporate income tax system such as allowing the immediate expensing of qualifying domestic research and development costs and permanent extensions of certain provisions within the Tax Cuts and Jobs Act. Certain provisions are effective for us beginning in fiscal year 2026. The changes had an immaterial impact on our income tax benefit for the three and six months ended December 31, 2025 and we currently do not anticipate these changes to have a material impact on our results for fiscal year 2026. We will continue to monitor any developments and guidance related to OBBBA. The Organization for Economic Co-operation and Development introduced a framework for a global minimum corporate income tax of 15% known as the Global Anti-Base Erosion rules. This legislation has been enacted in certain jurisdictions where we operate and is effective for our fiscal year 2026. As of December 31, 2025, the global minimum tax does not have a significant impact on our financial statements. As additional jurisdictions enact legislation, transitional rules lapse, and other provisions of the global minimum tax legislation become effective, our effective tax rate and cash tax payments may increase in future years. 37 Six Months Ended December 31, 2025 and 2024 Revenues Six Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Subscription $ 2,882,158 $ 2,345,196 $ 536,962 23 % Other 136,710 129,048 7,662 6 Total revenues $ 3,018,868 $ 2,474,244 $ 544,624 22 % Total revenues increased $544.6 million, or 22%, in the six months ended December 31, 2025 compared to the six months ended December 31, 2024. Growth in total revenues was primarily attributable to increased demand for our products from existing customers. Of total revenues recognized in the six months ended December 31, 2025, over 90% was attributable to sales to customer accounts existing on or before June 30, 2025. Subscription revenues increased $537.0 million, or 23%, in the six months ended December 31, 2025 compared to the six months ended December 31, 2024. The increase in subscription revenues was primarily attributable to paid seat expansion from our existing customers and price increases. Other revenues increased $7.7 million, or 6%, in the six months ended December 31, 2025 compared to the six months ended December 31, 2024. The increase in other revenues was primarily attributable to an increase of $7.9 million in marketplace revenue. Total revenues by deployment options were as follows: Six Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Cloud $ 2,064,735 $ 1,639,268 $ 425,467 26 % Data Center 808,264 697,875 110,389 16 Marketplace and other 145,869 137,101 8,768 6 Total revenues $ 3,018,868 $ 2,474,244 $ 544,624 22 % Total revenues by geography were as follows: Six Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Americas $ 1,452,034 $ 1,203,664 $ 248,370 21 % EMEA 1,229,419 994,751 234,668 24 Asia Pacific 337,415 275,829 61,586 22 Total revenues $ 3,018,868 $ 2,474,244 $ 544,624 22 % Cost of Revenues Six Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Cost of revenues $ 495,615 $ 440,751 $ 54,864 12 % Gross margin 84 % 82 % Cost of revenues increased $54.9 million, or 12%, in the six months ended December 31, 2025 compared to the six months ended December 31, 2024. The overall increase was primarily attributable to an increase of $37.4 million in hosting fees paid to third-party providers. In addition, we recorded restructuring charges of $31.6 million in the six months ended December 31, 2025, which were composed of $29.2 million of severance and other termination benefits, and $2.4 million of impairment charges for a lease and leasehold improvements. The increase was partially offset by a decrease of $6.8 million in fees paid for consulting and other professional services. 38 Operating Expenses Research and Development Six Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Research and development $ 1,582,483 $ 1,283,314 $ 299,169 23 % Research and development expenses increased $299.2 million, or 23%, in the six months ended December 31, 2025 compared to the six months ended December 31, 2024. The overall increase was primarily attributable to an increase of $278.3 million in compensation expenses for employees (which includes an increase of $117.6 million in stock-based compensation ). In addition, we recorded restructuring charges of $12.1 million in the six months ended December 31, 2025 , related to impairment charges for a lease and leasehold improvements. Marketing and Sales Six Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Marketing and sales $ 712,861 $ 524,287 $ 188,574 36 % Marketing and sales expenses increased $188.6 million, or 36%, for the six months ended December 31, 2025 , compared to the six months ended December 31, 2024 . The overall increase was primarily attributable to an increase of $109.8 million in compensation expenses for employees (which includes an increase of $20.2 million in stock-based compensation), and an increase of $50.9 million in advertising and marketing program expenses. In addition, we recorded restructuring charges of $8.2 million in the six months ended December 31, 2025 , related to impairment charges for a lease and leasehold improvements. General and Administrative Six Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change General and administrative $ 371,993 $ 315,349 $ 56,644 18 % General and administrative expenses increased $56.6 million, or 18%, in the six months ended December 31, 2025 compared to the six months ended December 31, 2024 . The overall increase was primarily attributable to an increase of $36.4 million in compensation expenses for employees (which includes an increase of $2.2 million in stock-based compensation) and an increase of $6.2 million in professional service fees . In addition, we recorded restructuring charges of $3.7 million in the six months ended December 31, 2025 , related to impairment charges for a lease and leasehold improvements. Other Income (Expense), net Six Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Other income (expense), net $ 5,254 $ (27,431) $ 32,685 (119) % Other income (expense), net increased $32.7 million, or 119% in the six months ended December 31, 2025 compared to the six months ended December 31, 2024. The overall increase in other income was primarily attributable to an increase of $24.7 million in unrealized gains on public equity investments and a decrease of $15.3 million in expenses related to our share of loss from an equity method investment. Interest Income Six Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Interest income $ 47,910 $ 54,150 $ (6,240) (12) % Interest income decreased $6.2 million , or 12% in the six months ended December 31, 2025 compared to the six months ended December 31, 2024 . The decrease was primarily attributable to a decrease in our portfolio yield due to declining interest rates. 39 Interest Expense Six Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Interest expense $ (21,161) $ (14,609) $ (6,552) 45 % Interest expense increased $6.6 million, or 45%, in the six months ended December 31, 2025 compared to the six months ended December 31, 2024 . The increase was primarily attributable to the amortization of interest rate swap contracts. Provision for (Benefit from) Income Taxes Six Months Ended December 31, (in thousands, except percentage data) 2025 2024 $ Change % Change Provision for (benefit from) income taxes $ (17,566) $ 84,630 $ (102,196) * Effective tax rate * * * Not meaningful Provision for (benefit from) income taxes decreased $102.2 million for the six months ended December 31, 2025, as compared to the six months ended December 31, 2024. The decrease was primarily attributable to the change in the mix of earnings and losses in foreign jurisdictions and the partial release of valuation allowance on certain U.S. deferred tax assets resulting from the recognition of additional deferred tax liabilities in connection with the business combinations. See Note 7, “Business Combinations,” and Note 17, “ Income Taxes ,” of 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, 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. Changes in our global operations could result in changes to our effective tax rates, future cash flows, and overall profitability of our operations. We recognize the tax benefit of an uncertain tax position only if we conclude it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement with the taxing authority. We believe we have provided adequate reserves for income tax uncertainties in all open tax years. Based on the information currently available, we do not anticipate a material change in unrecognized tax benefits in the next 12 months. On July 4, 2025, the U.S. government enacted OBBBA, which includes, among other provisions, changes to the U.S. corporate income tax system such as allowing the immediate expensing of qualifying domestic research and development costs and permanent extensions of certain provisions within the Tax Cuts and Jobs Act. Certain provisions are effective for us beginning in fiscal year 2026. The changes had an immaterial impact on our income tax benefit for the three and six months ended December 31, 2025 and we currently do not anticipate these changes to have a material impact on our results for fiscal year 2026. We will continue to monitor any developments and guidance related to OBBBA. The Organization for Economic Co-operation and Development introduced a framework for a global minimum corporate income tax of 15% known as the Global Anti-Base Erosion rules. This legislation has been enacted in certain jurisdictions where we operate and is effective for our fiscal year 2026. As of December 31, 2025, the global minimum tax does not have a significant impact on our financial statements. As additional jurisdictions enact legislation, transitional rules lapse, and other provisions of the global minimum tax legislation become effective, our effective tax rate and cash tax payments may increase in future years. Liquidity and Capital Resources 40 As of December 31, 2025, we had cash and cash equivalents totaling $1.2 billion, marketable securities totaling $407.9 million, and accounts receivable totaling $911.9 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 the periods presented were as follows (in thousands): Six Months Ended December 31, 2025 2024 Net cash provided by operating activities $ 306,519 $ 432,397 Net cash used in investing activities (1,204,586) (130,394) Net cash used in financing activities (450,246) (255,994) Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash (6,752) (5,492) Net increase (decrease) in cash, cash equivalents, and restricted cash $ (1,355,065) $ 40,517 Our primary source of cash is 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, income taxes, professional services fees, marketing expenses, software expenses, and facility expenses. Net cash provided by operating activities decreased by $125.9 million for the six months ended December 31, 2025, compared to the six months ended December 31, 2024. The net decrease was primarily attributable to an increase in cash paid to employees, vendors, and cash paid for income taxes, partially offset by an increase in cash received from customers. Net cash used in investing activities increased by $1,074.2 million during the six months ended December 31, 2025, compared to the six months ended December 31, 2024. The net increase was primarily attributable to an increase in cash consideration paid for acquisitions, net of cash acquired of approximately $1,223.9 million. Net cash used in financing activities increased by $194.3 million for the six months ended December 31, 2025, compared to the six months ended December 31, 2024. The net increase was primarily attributable to an increase in repurchases of Class A Common Stock of $197.4 million. Material Cash Requirements Debt As of December 31, 2025 , 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 2029 Notes and the 2034 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. 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 circumstances. The 2024 Credit Facility replaced our prior credit facility entered into in October 2020, which provided for a $1 billion senior unsecured delayed-draw term loan facility (the “Term Loan”) and a $500 million senior unsecured revolving credit facility. The 2024 Credit Facility matures in August 2029. As of December 31, 2025, there were no borrowings under the 2024 Credit Facility. Refer to Note 10, “ Debt, ” to our condensed consolidated financial statements for additional information. Share Repurchase Program 41 In September 2024, the Board of Directors authorized a program to repurchase up to $1.5 billion of our outstanding Class A Common Stock (the “2024 Repurchase Program”). The 2024 Repurchase Program commenced in April 2025 following completion of the prior repurchase program. In October 2025, the Board of Directors authorized a new program under which we may repurchase up to an additional $2.5 billion of the Company’s outstanding Class A Common Stock (the “2025 Repurchase Program” and, together with the 2024 Repurchase Program, the “Repurchase Programs”). The 2025 Repurchase Program will commence following completion of the 2024 Repurchase Program. The Repurchase Programs do not have a fixed expiration date, may be suspended or discontinued at any time, and do not obligate us to repurchase any specific dollar amount or to acquire any specific number of shares. During the three and six months ended December 31, 2025, we repurchased and subsequently retired approximately 1.3 million and 2.7 million shares of Class A Common Stock for approximately $200.4 million and $450.3 million at an average price per share of $156.74 and $169.21, respectively. All repurchases were made in open market transactions. As of December 31, 2025, $720.9 million and $2.5 billion of Class A Common Stock remained available for repurchase under the 2024 Share Repurchase Program and 2025 Share Repurchase Program, respectively. Contractual Obligations Our principal commitments consist of contractual commitments for our 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 11, “ Commitments and Contingencies,” to our condensed 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 offerings. As of December 31, 2025, 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 condensed 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, non-GAAP gross margin, non-GAAP operating income, non-GAAP operating margin, 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 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. 42 • 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, and the related income tax effects of these items. • 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 the three and six months ended December 31, 2025 and 2024 (in thousands, except percentage and per share data): Three Months Ended December 31, Six Months Ended December 31, 2025 2024 2025 2024 Gross profit GAAP gross profit $ 1,348,624 $ 1,063,336 $ 2,523,253 $ 2,033,493 Plus: Stock-based compensation 20,121 23,031 38,620 41,245 Plus: Amortization of acquired intangible assets 19,753 10,130 29,710 20,246 Plus: Restructuring charges (3) — — 31,592 — Non-GAAP gross profit $ 1,388,498 $ 1,096,497 $ 2,623,175 $ 2,094,984 Gross margin GAAP gross margin 85% 83% 84% 82% Plus: Stock-based compensation 2 1 1 2 Plus: Amortization of acquired intangible assets 1 1 1 1 Plus: Restructuring charges (3) — — 1 — Non-GAAP gross margin 88% 85% 87% 85% Operating income GAAP operating loss $ (47,747) $ (57,479) $ (144,084) $ (89,457) Plus: Stock-based compensation 452,624 378,730 802,319 664,876 Plus: Amortization of acquired intangible assets 25,353 13,896 39,003 27,778 Plus: Restructuring charges (3) — — 55,678 — Non-GAAP operating income $ 430,230 $ 335,147 $ 752,916 $ 603,197 Operating margin GAAP operating margin (3)% (4)% (5)% (4)% Plus: Stock-based compensation 29 29 27 27 Plus: Amortization of acquired intangible assets 1 1 1 1 Plus: Restructuring charges (3) — — 2 — Non-GAAP operating margin 27% 26% 25% 24% Net income GAAP net loss $ (42,645) $ (38,208) $ (94,515) $ (161,977) Plus: Stock-based compensation 452,624 378,730 802,319 664,876 Plus: Amortization of acquired intangible assets 25,353 13,896 39,003 27,778 Plus: Restructuring charges (3) — — 55,678 — 43 Adjustment for: Income tax (1) (114,445) (98,791) (205,947) (75,350) Non-GAAP net income $ 320,887 $ 255,627 $ 596,538 $ 455,327 Net income per share GAAP net loss per share - diluted $ (0.16) $ (0.15) $ (0.36) $ (0.62) Plus: Stock-based compensation 1.71 1.43 3.04 2.53 Plus: Amortization of acquired intangible assets 0.10 0.05 0.15 0.11 Plus: Restructuring charges (3) — — 0.21 — Adjustment for: Income tax (1) (0.43) (0.37) (0.78) (0.29) Non-GAAP net income per share - diluted $ 1.22 $ 0.96 $ 2.26 $ 1.73 Weighted-average diluted shares outstanding Weighted-average shares used in computing diluted GAAP net loss per share 263,828 261,147 263,409 260,812 Plus: Dilution from dilutive securities (2) 364 4,546 843 2,422 Weighted-average shares used in computing diluted non-GAAP net income per share 264,192 265,693 264,252 263,234 Free cash flow GAAP net cash provided by operating activities $ 177,805 $ 351,905 $ 306,519 $ 432,397 Less: Capital expenditures (9,289) (9,336) (23,401) (15,487) Free cash flow $ 168,516 $ 342,569 $ 283,118 $ 416,910 (1) We 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 years 2026 and 2025, we determined the projected non-GAAP tax rate to be 24% and 26%, respectively. 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. (2) 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 December 31, 2025 and December 31, 2024 because the effect would have been anti-dilutive. (3) Restructuring charges include stock-based compensation expense related to the rebalancing of resources for the six months ended December 31, 2025. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK There have been no material changes to our market risk from the information presented in Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report on Form 10-K for the year ended June 30, 2025.