Atlassian Corp

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business

Atlassian Corporation, a Delaware corporation (the “Company”), designs, develops, licenses, and maintains software and provisions software hosting services to help teams organize, discuss, and complete their work. The Company’s primary products include Jira Software and Jira Work Management for planning and project management, Confluence for content creation and sharing, and Jira Service Management for team service, management, and support applications.

The Company’s fiscal year ends on June 30 of each year. References to fiscal year 2024, for example, refer to the fiscal year ending June 30, 2024.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). These principles are established primarily by the Financial Accounting Standards Board (“FASB”).

The accompanying condensed consolidated financial statements contain all normal recurring adjustments which are necessary to fairly present the condensed consolidated balance sheets as of December 31, 2023 and June 30, 2023, the statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the three and six months ended December 31, 2023 and 2022.

These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are sufficient to make the information not misleading. Results of operations for interim periods are not necessarily indicative of results for the entire year or of the results to be expected in future periods.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions in the Company’s condensed consolidated financial statements. These estimates are based on information available as of the date of the condensed consolidated financial statements. On a regular basis, management evaluates these estimates and assumptions. Such management estimates and assumptions include, but are not limited to, the standalone selling price of performance obligations for revenue contracts with multiple performance obligations, useful lives and impairment of long-lived assets, valuation of intangible assets, valuation of strategic investments and income taxes. Actual results could differ materially from these estimates.

Significant Accounting Policies

There were no significant changes to the Company’s significant accounting policies disclosed in Note 2, “Summary of Significant Accounting Policies,” of its Annual Report on Form 10-K for fiscal year 2023, which was filed with the SEC on August 18, 2023.

Concentration of Credit Risk and Significant Customers

Financial instruments potentially exposing the Company to credit risk consist primarily of cash, cash equivalents, accounts receivable, derivative contracts and investments. The Company holds cash at financial institutions that management believes are high credit, quality financial institutions and invests in investment grade securities rated A- and above. The Company’s derivative contracts expose it to credit risk to the extent that the counterparties may be unable to meet the terms of the arrangement. The Company enters into master netting agreements with select financial institutions to reduce its credit risk and trades with several counterparties to reduce its concentration risk with any single counterparty. The Company does not have significant exposure to counterparty credit risk at this time. In addition, the Company does not require nor is required to post collateral of any kind related to any foreign currency derivatives.

Credit risk arising from accounts receivable is mitigated to a certain extent due to the Company’s large number of customers and their dispersion across various industries and geographies. The Company’s customer base is highly diversified, thereby limiting credit risk. The Company manages credit risk with customers by closely monitoring its receivables and contract assets. The Company continuously monitors outstanding receivables locally to assess whether there is objective evidence that outstanding accounts receivables and contract assets are credit-impaired. As of December 31, 2023 and June 30, 2023, no customer represented more than 10% of the total accounts receivable balance. For the three and six months ended December 31, 2023 and 2022, no customer represented more than 10% of total revenues.

New Accounting Standards Not Yet Adopted in Fiscal Year 2024

In June 2022, the FASB issued Accounting Standards Update (“ASU”) No. 2022-03 “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restriction.” This ASU clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This amendment also requires public entities to add certain disclosures for equity securities subject to contractual sale restrictions. This ASU is effective for fiscal years beginning after December 15, 2023. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

In November 2023, the FASB issued ASU No. 2023-07“Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable segment. This ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024 with early adoption permitted and requires retrospective application to all prior periods. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09“Income Taxes (Topic 740): Improvements to Income Tax Disclosures.”This ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. This ASU is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

3. Fair Value Measurements

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2023, by the level within the fair value hierarchy (in thousands):

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2023, by level within the fair value hierarchy (in thousands):

Due to the short-term nature of accounts receivables, net, contract assets, accounts payable, and accrued expenses and other current liabilities, their carrying amount is assumed to approximate their fair value.

Determination of Fair Value

The Company uses quoted prices in active markets for identical assets to determine the fair value of the Company’s Level 1 investments. The fair value of the Company’s Level 2 investments is determined based on quoted market prices or alternative market observable inputs.

Strategic Investments Measured and Recorded at Fair Value on a Non-Recurring Basis

The Company’s investments in privately held companies are not included in the tables above and are discussed in Note 4,“Investments.” The carrying value of the Company’s privately held equity securities are adjusted on a non-recurring basis upon observable price changes in orderly transactions for identical or similar investments of the same issuer, or impairment (referred to as the measurement alternative). Privately held equity securities that have been remeasured during the period based on observable price changes in orderly transactions are classified within Level 2 or Level 3 in the fair value hierarchy because the Company estimates the value based on valuation methods which may include a combination of the observable transaction price at the transaction date and other unobservable inputs including volatility, rights and preferences of the investments, and obligations of the securities the Company holds. The fair value of privately held equity securities that have been remeasured due to impairment are classified within Level 3. The Company’s privately held debt and equity securities amounted to $142.7 million and $140.1 million as of December 31, 2023 and June 30, 2023, respectively.

4. Investments

Marketable Securities

The Company’s investments of marketable securities as of December 31, 2023, consisted of the following (in thousands):

The Company’s investments of marketable securities as of June 30, 2023, consisted of the following (in thousands):

The table below summarizes the Company’s marketable securities by remaining contractual maturity based on their effective maturity dates (in thousands):

The Company regularly reviews the changes to the rating of its marketable securities by rating agencies and monitors the surrounding economic conditions to assess the risk of expected credit losses. As of December 31, 2023, the unrealized losses and the related risk of expected credit losses were not material, and as of June 30, 2023, no unrealized losses were recorded.

Strategic Investments

Carrying value of privately held debt securities

The Company’s investments of privately held debt securities as of December 31, 2023, consisted of the following (in thousands):

The Company’s investments of privately held debt securities as of June 30, 2023, consisted of the following (in thousands):

Carrying value of publicly traded and privately held equity securities

The carrying value is measured as the total initial cost plus the cumulative net gain (loss). Publicly traded equity securities are recorded at fair value and privately held equity securities are measured using the measurement alternative.

The Company did not have any publicly traded equity securities as of December 31, 2023 and the carrying values for privately held equity securities as of December 31, 2023 are summarized below (in thousands):

Privately held equity securities cumulative net losses are comprised ofdownward adjustments and impairment of$7.3 million andupward adjustments of $5.5 million as of December 31, 2023.

The carrying values for publicly traded and privately held equity securitiesas of June 30, 2023 are summarized below (in thousands):

Privately held equity securities cumulative net losses are comprised ofdownward adjustments and impairment of $5.9 million andupward adjustments of$5.5 millionas of June 30, 2023.

Gains and Losses on Strategic Investments

The components of gains and losses on strategic investments were as follows (in thousands):

Unrealized gains recognized on privately held equity securities includes upward adjustments from equity securities accounted for under the measurement alternative while unrealized losses recognized on privately held equity securities includes downward adjustments and impairment.

Realized gains recognized on sales of publicly traded equity securities reflects the difference between the sale proceeds and the carrying value of the security at the beginning of the period or the purchase date, if later.

Equity Method Investment

Vertical First Trust (“VFT”) was established for the construction project associated with the Company’s new global headquarters in Sydney, Australia (the “Australian HQ Property”). In fiscal year 2023, the Company completed a non-cash sale of the controlling interest of VFT to a third-party buyer as part of the contemplated transactions for the buyer to invest in and develop the Australian HQ Property. The Company retained a minority equity interest of 13% in the form of ordinary units in VFT and has significant influence in VFT. The Company’s interest in VFT is accounted for using the equity method in the condensed consolidated financial statements. Under the equity method, the Company records its proportionate share of VFT’s earnings or losses.

As of the date of sale, the Company used a discounted cash flow model to calculate the fair value of its retained equity interest. The fair value of the retained interest is classified as a Level 3 investment in the fair value hierarchy. The inputs to the valuation included observable inputs, including capitalization rate, discount rate, and other management inputs, including the underlying building practical completion date. The maximum exposure to loss related to the Company’s investment in VFT equals the Company’s capital investment.

The following table sets forth the carrying amounts of the equity method investment and the movements during the six months ended December 31, 2023 (in thousands):

The carrying amount of the Company’s investment in VFT was reported within strategic investments in the condensed consolidated balance sheets.

5. Derivative Contracts

The Company has derivative instruments that are used for hedging activities as discussed below.

The following table sets forth the notional amounts of the Company’s hedging derivative instruments as of December 31, 2023 (in thousands, except for average interest rate):

The following table sets forth the notional amounts of the Company’s hedging derivative instruments as of June 30, 2023 (in thousands, except for average interest rate):

The fair value of the Company’s derivative instruments were as follows (in thousands):

The pre-tax effects of derivatives designated as cash flow hedging instruments on the condensed consolidated financial statements were as follows (in thousands):

6. Property and Equipment

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

Depreciation expense was $7.2 million for thethree months ended December 31, 2023 and 2022, and $14.0 million and$13.5 million for the six months ended December 31, 2023 and 2022, respectively.

7. Business Combinations

Loom, Inc

On November 30, 2023, the Company acquired 100% of the outstanding equity of Loom, Inc. (“Loom”), an asynchronous video messaging platform that helps users communicate through instantly shareable videos. The acquisition of Loom will further elevate the collaboration experience of Atlassian customers. Total purchase price consideration for Loom was approximately $885.6 million and consisted of cash. The Company has included the financial results of Loom in its condensed consolidated financial statements from the date of acquisition, which were not material for the three and six months ended December 31, 2023. Pro forma results of operations have not been presented for the three and six months ended December 31, 2023 and 2022 because the effect of the acquisition was not material to our condensed consolidated financial statements.

The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):

The excess of purchase consideration over the fair value of assets acquired and liabilities assumed was recorded as goodwill. The resulting goodwill is primarily attributed to the assembled workforce and expanded market opportunities, including integrating the Loom product offering with existing Company services to enhance asynchronous collaboration among distributed teams. The goodwill is not deductible in the U.S. for income tax purposes. The fair values assigned to assets acquired and liabilities assumed are preliminary based on management’s estimates and assumptions and may be subject to change as additional information is received. The primary areas that remain preliminary relate to the fair values of certain intangible assets acquired, certain tangible assets and liabilities acquired, contingencies as of the acquisition date, income tax, including deferred taxes, and residual goodwill. The Company expects to finalize the valuation not later than one year from the acquisition date.

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition:

Developed technology represents the estimated fair value of Loom’s asynchronous video technology. Trade name represents the estimated fair value of the Loom trade name.

In connection with the transaction, the Company granted $30.2 million worth of replacement awards in the form of Atlassian restricted stock units ("RSU") to Loom employees and $54.7 million worth of restricted stock awards to certain key Loom employees. The fair value of the replacement awards and restricted stock awards was based on the stock price of the Company on the grant date. Both the replacement awards and restricted stock awards are subject to future vesting provisions based on service conditions and the related cost is accounted for as stock-based compensation.

Other fiscal year 2024 business combination

On October 4, 2023, the Company acquired 100% of the outstanding equity of a privately-held company in Australia that developed an IT asset discovery and data management tool, primarily to expand our product and service offerings. This transaction was accounted for as a business combination and was not material to the Company’s condensed consolidated financial statements.

8. Goodwill and Intangible Assets

Goodwill

Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill amounts are not amortized, but rather are tested for impairment at least annually during the fourth quarter, or when indicators of impairment exist.

Goodwill consisted of the following (in thousands):

Intangible Assets

Intangible assets consisted of the following (in thousands):

Amortization expense for intangible assets was approximately $9.9 million and$8.3 million for thethree months ended December 31, 2023 and 2022, respectively and $18.1 million and $16.6 million for the six months ended December 31, 2023 and 2022, respectively.

The following table presents the estimated future amortization expense related to intangible assets held as of December 31, 2023 (in thousands):

9. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

10. Debt

Credit Facility

In October 2020, the Company’s principal U.S. operating subsidiary, Atlassian US, Inc., entered into a credit agreement (the “Credit Agreement”) establishing a $1 billion senior unsecured delayed-draw term loan facility (the “Term Loan Facility”) and a $500 million senior unsecured revolving credit facility (the “Revolving Credit Facility,” and together with the Term Loan Facility, the “Credit Facility”). The Company used the net proceeds of the Credit Facility for general corporate purposes, including repayment of the then existing indebtedness. The Credit Facility bears interest, at the Company’s option, at a base rate plus a margin up to 0.50% or the Secured Overnight Financing Rate, plus a credit spread adjustment of 0.10%, plus a spread of 0.875% to 1.50%, in each case with such margin being determined by the Company’s consolidated leverage ratio. The Revolving Credit Facility may be borrowed, repaid, and re-borrowed until its maturity, and the Company has the option to request an increase of $250 million in certain circumstances.

The Credit Facility matures in October 2025 and the Company may prepay the Credit Facility at its discretion without penalty. Commencing on October 31, 2023, the Company is obligated to repay the outstanding principal amount of the Term Loan 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 Term Loan Facility. The Company originally drew $1 billion in fiscal year 2022 under the Term Loan Facility. During the three months ended December 31, 2023, the Company made a required repayment of $12.5 million. As of December 31, 2023, $987.5 million was outstanding under the Term Loan Facility.

The Company is also obligated to pay a commitment fee on the undrawn amounts of the Revolving Credit Facility at an annual rate ranging from 0.075% to 0.20%, determined by the Company’s consolidated leverage ratio.

The Credit Facility requires compliance with various financial and non-financial covenants, including affirmative and negative covenants. The financial covenants include a maximum consolidated leverage ratio of 3.5 x, which ratio increases to 4.5 x during the period of four fiscal quarters immediately following a material acquisition. As of December 31, 2023, the Company was in compliance with all related covenants.

11. Commitments and Contingencies

Noncancellable Purchase Obligations

The Company has contractual commitments for services with third-parties related to its cloud services platform and other infrastructure services. These commitments are non-cancellable and expire withinone tofive years. During the three and six months ended December 31, 2023, there were no material changes outside the ordinary course of business to the Company’s non-cancelable purchase obligations disclosed in its Annual Report on Form 10-K for fiscal year 2023.

Operating Leases

There were no material changes to the Company’s operating lease arrangements and future lease payments under non-cancelable operating leases including obligations for leases that have not yet commenced disclosed in Note 11, “Leases,” of the Company’s Annual Report on Form 10-K for fiscal year 2023.

Supplemental information related to operating leases were as follows (in thousands):

Legal Proceedings

On February 3, 2023, a putative securities class action (the “Putative Class Action”) was filed in the U.S. District Court for the Northern District of California, captioned City of Hollywood Firefighters’ Pension Fund vs. Atlassian Corporation, Case No. 3:23-cv-00519, naming the Company and certain of its officers as defendants. The lawsuit is purportedly brought on behalf of purchasers of the Company’s securities between August 5, 2022 and November 3, 2022 (the “Class Period”). The complaint alleges claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, based on allegedly false and misleading statements about the Company’s business and prospects during the Class Period. The lawsuit seeks unspecified damages. The defendants moved to dismiss, and the court held a hearing on January 10, 2024. On January 22, 2024, the court issued a ruling granting the defendants’ motion to dismiss, and providing the plaintiffs until February 12, 2024 to file an amended complaint.

In March, April and August 2023, three stockholder derivative lawsuits were filed in the U.S. District Court for the District of Delaware against the members of the Company’s board of directors and certain of its officers, captioned Silva v. Cannon-Brookes, Case No. 1:23-cv-00283; Keane v. Cannon-Brookes, Case No. 1:23-cv-00399; and Azzawi v. Cannon-Brookes, Case No. 1:23-cv-00884. The Company is named as a nominal defendant. These stockholder derivative lawsuits are based largely on the same allegations as the Putative Class Action, including allegations relating to the Company’s disclosures during the Class Period as well as, in certain instances, alleged insider trading. The lawsuits purport to assert claims for, among other things, breach of fiduciary duty, corporate waste, unjust enrichment, and violations of Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder. The complaints seek unspecified damages and other relief purportedly on the Company’s behalf. In May and August 2023, the Court consolidated the Silva, Keane, and Azzawi actions into In re Atlassian Corporation Stockholder Derivative Litigation, Case No. 1:23-cv-00283-GBW (the “Consolidated Action”), and stayed the Consolidated Action pending resolution of any motion(s) to dismiss in the Putative Class Action.

On September 6, 2023, a stockholder derivative lawsuit was filed in the U.S. District Court for the Northern District of California against the members of the Company’s board of directors and certain of its officers, captioned Capistrano v. Cannon-Brookes, Case No. 4:23-cv-04584 (the “Capistrano Action”). The Company is named as a nominal defendant. The complaint is based largely on the same allegations as the Putative Class Action and the Consolidated Action, including allegations relating to the Company’s disclosures during the Class Period as well as, in certain instances, alleged insider trading. The lawsuits purport to assert claims for, among other things, breach of fiduciary duty, corporate waste, unjust enrichment, and violations of Section 10(b) of the Exchange Act, and Rule 10b-5 promulgated thereunder. The complaints seek unspecified damages and other relief purportedly on the Company’s behalf. On October 31, 2023, the Court stayed the Capistrano Action pending resolution of any motion(s) to dismiss in the Putative Class Action.

The defendants have denied and intend to continue to deny the allegations of wrongdoing and vigorously defend against the claims in each of the Putative Class Action, the Consolidated Action, and the Capistrano Action.

In addition to the matters discussed above, from time to time, the Company is party to litigation and other legal proceedings in the ordinary course of business. While the Company does not believe the ultimate resolution of pending legal matters is likely to have a material adverse effect on the Company’s financial position, the results of any litigation or other legal proceedings are uncertain and as such the resolution of such legal proceedings, either individually or in the aggregate, could have a material adverse effect on its business, results of operations, financial condition or cash flows. The Company accrues for loss contingencies when it is both probable that it will incur the loss and when it can reasonably estimate the amount of the loss or range of loss. For the periods presented, the Company has not recorded any liabilities as a result of the litigation or other legal proceedings in its condensed consolidated financial statements.

Indemnification Provisions

The Company’s agreements include provisions indemnifying customers against intellectual property and other third-party claims. In addition, the Company has entered into indemnification agreements with its directors, executive officers and certain other officers that will require the Company to, among other things, indemnify these individuals for certain liabilities that may arise as a result of their affiliation with the Company. For the periods presented, the Company has not incurred any costs as a result of such indemnification obligations and has not recorded any liabilities related to such obligations in the condensed consolidated financial statements.

12. Revenue

Remaining Performance Obligations

Transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and unbilled amounts that will be recognized as revenue in future periods. Transaction price allocated to the remaining performance obligations is influenced by several factors, including the timing of renewals, the timing of delivery of software licenses, average contract terms, and foreign currency exchange rates. Unbilled portions of the remaining performance obligations are subject to future economic risks including bankruptcies, regulatory changes and other market factors.

As of December 31, 2023, approximately $1.9 billion of revenue is expected to be recognized from the transaction price allocated to remaining performance obligations. The Company expects to recognize revenue on approximately 80% of these remaining performance obligations over the next 12 months with the balance recognized thereafter.

Disaggregated Revenue

The Company’s revenues by geographic region based on end-users who purchased the Company’s products or services are as follows (in thousands):

The Company provides different deployment options for its product offerings. Cloud offerings provide customers the right to use the Company’s software in a cloud-based infrastructure that the Company provides. Data Center offerings are on-premises term license agreements for the Company’s Data Center products, which are 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. Server offerings include the license of software on a perpetual basis to customers for use on the customer’s premises and support and maintenance services. Marketplace and other offerings mainly include fees received for sales of third-party apps in the Atlassian Marketplace and services like premier support, technical account management, consulting and training. Premier support consists of subscription-based arrangements for a higher level of support across different deployment options, and revenues from this offering are included in Subscription revenues within the Company’s condensed consolidated statements of operations.

The revenues from Server offerings consists of revenue from maintenance services since the Company no longer sells perpetual licenses for its Server offerings. The Company will generally end maintenance and support for these Server offerings in February 2024.

The Company’s revenues by deployment options are as follows (in thousands):

Deferred Revenue

The Company records deferred revenues when cash payments are received or due in advance of the Company satisfying its performance obligations, including amounts which are refundable. The changes in the balances of contract balances are as follows (in thousands):

For the three months ended December 31, 2023 and 2022, approximately 38% and 36% of revenue recognized was from the deferred revenue balances at the beginning of each fiscal year, respectively. For the six months ended December 31, 2023 and 2022, approximately 48% and 46% of revenue recognized was from the deferred revenue balances at the beginning of each fiscal year, respectively.

Deferred Contract Acquisition Costs

The changes in the balances of deferred contract acquisition costs are as follows (in thousands):

The Company periodically reviews these deferred contract acquisition costs to determine whether events or changes in circumstances have occurred that could impact the period of benefit. There were no impairment losses recorded during the periods presented.

13. Stockholders’ Equity

Stock-based Compensation

A summary of RSU activity for the six months ended December 31, 2023 was as follows (in thousands except share and per share data):

As of December 31, 2023, total compensation cost not yet recognized in the condensed consolidated financial statements related to employee and director RSU awards was $2.3 billion, which is expected to be recognized over a weighted-average period of 1.8 years.

During the six months ended December 31, 2023, the Company granted 301,751 shares of restricted stock awards. During the six months ended December 31, 2022, the Company didnot grant any shares of restricted stock awards. As of December 31, 2023 and June 30, 2023, there were 302,281 and 6,131 shares of restricted stock outstanding, respectively. These outstanding shares of restricted stock are subject to forfeiture or repurchase at the original exercise price during the repurchase period following employee termination, as applicable. The total aggregate intrinsic value of outstanding shares of restricted stock were $71.9 million and $1.0 million as of December 31, 2023 and June 30, 2023, respectively.

Share Repurchase Program

In January 2023, the Board of Directors authorized a program to repurchase up to $1.0 billion of the Company’s outstanding Class A Common Stock (the “Share Repurchase Program”). During the three and six months ended December 31, 2023, the Company repurchased and subsequently retired approximately 0.5 million and 0.9 million shares of its Class A Common Stock for approximately $98.1 million and $163.5 million at an average price per share of $185.34 and $186.03, respectively. All repurchases were made in open market transactions. As of December 31, 2023, the Company was authorized to purchase a remaining $682.4 million of its Class A Common Stock under the Share Repurchase Program.

14. Net Loss Per Share

The Company computes net loss per share of Class A and Class B Common Stock using the two-class method. As the liquidation and dividend rights for both Class A and Class B Common Stock are identical, the net loss is allocated on a proportionate basis to the weighted-average number of shares of common stock outstanding for the period. Basic net loss per share attributable to Class A and Class B stockholders is computed by dividing the net loss by the weighted-average number of Class A and Class B Common Stock outstanding during the period.

For the calculation of diluted net loss per share, net loss for basic earnings per share is adjusted by the effect of dilutive securities, including awards under the Company’s equity compensation plans. The dilutive potential shares of common stock are computed using the treasury stock method or the as-if converted method, as applicable. Since the Company is in a loss position for all periods reported, basic and diluted net loss per share are the same for all periods as the inclusion of potential dilutive shares would have been anti-dilutive.

The following tables present the calculation of basic and diluted net loss per share attributable to common stockholders (in thousands, except per share data):

The potential weighted average dilutive securities that were not included in the dilutive earnings per share calculation because the effect would be anti-dilutive are as follows (shares in thousands):

15. Income Taxes

The Company computes its provision for income taxes by applying the estimated annual effective tax rate to year-to-date ordinary income and adjusts the provision for discrete tax items recorded in the period. In each quarter, the Company updates the estimated annual effective tax rate and makes a year-to-date adjustment to the provision. The estimated annual effective tax rate is subject to volatility due to several factors, including changes in the Company’s domestic and foreign earnings, current cash taxes in jurisdictions with full valuation allowances, material discrete tax items, or a combination of these factors as a result of certain transactions or events.

The Company reported an income tax provision of $44.4 million on pretax loss of $40.1 million and an income tax provision of $65.3 million on pretax loss of $51.1 million for the three and six months ended December 31, 2023, respectively, as compared to an income tax provision of $100.5 million on pretax loss of $104.5 million and an income tax provision of $108.5 million on pretax loss of $110.2 million for the three and six months ended December 31, 2022, respectively. The income tax provision for the three and six months ended December 31, 2023 reflects a decrease in tax expense primarily attributable to a decrease in the recognition of reserves for uncertain tax positions and the partial release of valuation allowance of certain U.S. federal and state deferred tax assets as a result of the addition of deferred tax liabilities acquired from Loom, see Note 7, “Business Combinations,”for additional information. The Company’s effective tax rate substantially differed from the U.S. statutory income tax rate of 21.0% primarily due to non-deductible stock-based compensation in certain foreign jurisdictions, research and development tax credits and incentives, full valuation allowances in the U.S. and Australia, the recognition of reserves for uncertain tax positions, and different tax rates in foreign jurisdictions such as Australia.

During the three months ended December 31, 2023, the Company finalized an Advanced Pricing Arrangement with the Australian Taxation Office with respect to its transfer pricing arrangements between Australia and the U.S. that covers the tax years ended June 30, 2019 to June 30, 2025. Pursuant to the terms of the agreement, the Company made a cash tax payment of approximately $60.5 million during the three months ended December 31, 2023.

The Company regularly assesses the need for a valuation allowance against its deferred tax assets. The Company’s assessment is based on all positive and negative evidence related to the realizability of such deferred tax assets. Based on available objective evidence as of December 31, 2023, the Company will continue to maintain a full valuation allowance on its U.S. federal, U.S. state, and Australian deferred tax assets as it is more likely than not that these deferred tax assets will not be realized. The Company intends to maintain the full valuation allowance until sufficient positive evidence exists to support the reversal of, or decrease in, the valuation allowance.