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Reading Atlassian's (TEAM) annual report for 2017, I came across the following sentence:

Net cash provided by financing activities was $2.3 million for the fiscal year ended June 30, 2015 as a result of proceeds from exercises of employee share options.

What on Earth does this mean?

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Many companies (particularly tech companies like Atlassian) grant their employees "share options" as part of their compensation. A share option is the right to buy a share in the company at a "strike price" specified when the option is granted.

Typically these "vest" after 1-4 years so long as the employee stays with the company. Once they do vest, the employee can exercise them by paying the strike price - typically they'd do that if the shares are now more valuable. The amount they pay to exercise the option goes to the company and will show up in the $2.3 million quoted in the question.

  • Often (based on a sample-size of one – the company I work for) the strike price for the options is at a small/modest discount to the current share price at the time the options are granted. This gives the employees an immediate "paper profit", although – as Ganesh says – they usually cannot realise that profit for a few years until the options "vest". The discount gives some protection should the share price remain around the current level, but the intention is that employees are spurred-on to make the company successful as any rise in the share price increases their benefit from the options. – TripeHound Sep 27 '17 at 7:59

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