Q3 FY2017 April 27, 2017
Q3 FY2017 Fellow shareholders, We're pleased to say Q3 of FY2017 was another terric quar ter for Atlassian. We grew all three of
our product families (cloud, ser ver, and data center) and expanded our presence across teams of all kinds.We ended the quar ter with revenue of $159.9 million, reecting growth of 36% year-over-year, and free cash ow of $68.3 million. We also closed our acquisition of Trello during Q3 and ended the quar ter with a combined total customer count of over 85,000 organizations, illustrating both the breadth of our reach and the immense size of the market in which we play. We're a few steps closer to our goal of ser ving teams
in all of the Fortune 500,000 – not just the Fortune 500 – with an exciting path still ahead of us. Such strong, consistent grow th wouldn't be possible without our amazing team. As of Q3, we have
over 2,000 Atlassians around the world – a milestone we could scarcely imagine when we star ted the company out of a college apar tment 15 years ago in Sydney. Our colleagues inspire us ever y day with their energy, intelligence, and ability to deliver great products. We're incredibly proud of what this team has achieved so far as we work together to unleash the potential of every team. Trello We ocially welcomed Trello to the Atlassian family on February 3rd. Along with enhancing our product por tfolio and helping us reach more business teams, the acquisition paves the way for an
array of deep product integrations and other market oppor tunities. On the integration front, our nance and IT teams have merged the back-end accounting and
analytics systems that will bring the t wo businesses into operational harmony. On the product side, teams are getting acquainted and working out a collaboration model that will allow us to deliver
a steady stream of customer-facing updates going for ward. From the CEOs 2
Q3 FY2017 3 Meanwhile, several Atlassian products shipped new Trello Power-Ups – product integrations akin to Atlassian's add-ons. JIRA Soft ware, Conuence, and Bitbucket launched their Power-Ups for cloud in late March, along with updates to the Power-Up forHipChat. The new Power-Ups create a tight connection bet ween Atlassian and Trello products, making it easier for users to ensure they 're working on the highest priority items. Attaching issues, pages, branches, and pull requests to Trello cards sur faces key information like status and severity levels. Similarly, theHipChat Power-Up sends updates from Trello boards into HipChat rooms so the whole team can keep up with the play-by-play, and even create new Trello cards without leaving HipChat. As we work to integrate our teams and products with Trello's, we're careful not to let our excitement
get the better of us and pull them in so close that we inadver tently “smother them with love.” We
want Trello to concentrate on all the things that have already earned them approximately 22 million registered users and propelled the company’s tremendous grow th. The integration process is going smoothly so far, thanks to the dedication of teams on both sides. Enterprise customers We delivered several updates tailored to the needs of larger customers in Q3. JIRA Soft ware Data Center, Conuence Data Center, and HipChat Ser ver now oer native suppor t for SAML 2.0 single
sign-on, allowing companiesto shift identity management to ex ternal providers (likeOkta andAzure Active Director y)or a custom SAML implementation. For their thousands of end-users, this means easier andmore secure sign in, with one less password to remember. JIRA Soft ware Data Center also introduced zero-downtime upgrades so companies can install the
latest versions without interr upting users' work while installing a newer version. And for customers who'd rather use ex ternally-hosted infrastr ucture than manage their own ser vers, Conuence Data Center now suppor ts deployment on the Amazon Web Ser vices (AWS) platform. Marketplace Around the time of our IPO in December 2015, approximately 36% of Atlassian customers had purchased at least one add-on from the Atlassian Marketplace, with many more using the add-ons oered for free. As of Q3, that number has grown to approximately43%(excluding Trello customers), pushing the Marketplace’s cumulative lifetime sales nor th of $250 million. With more than3,000free and paid add-ons, the Atlassian Marketplace is one of the top B2B market- places in the industr y. Not only do we benet from the revenue we receive from Marketplace sales,
but add-ons also suppor t our long-term success. Customers who purchase an add-on to ser ve niche use cases are more loyal, and more likely to recommend Atlassian products to their friends and teammates. As such, we're excited to deepen our relationship with the add-on developer community next month
at AtlasCamp, now in its 9th yearand going strong. Approximately 600 AtlasCamp attendees will
join us in Barcelona for t wo days of talks, training, demos, and net working.
Q3 FY2017 4 Mike Cannon-Brookes
Co-founder and CEO Scott Farquhar
Co-founder and CEO Elsewhere in the Atlassian Universe It's viva Barcelona! If you're going to put on one event in this beautiful cit y, you may as well do t wo events back-to-back. Immediately preceding AtlasCamp, we're holding the rst-ever European edition of Summit, our popular user conference. Interest from sponsors, par tners and customers is strong,
and we expect to sell-out the event with nearly 1,600 attendees - a fantastic turnout for our inaugural European conference . Later this year, Atlassian Summit U.S. will return to San Jose, CA. Training and other specialty sessions will take place on September 12th, followed by keynotes and breakout sessions on the 13th and 14th. This year, for the rst time, we're also holding an investor andnancial analyst session. So mark those dates on your calendar and stay tuned for more details coming this summer. Now it's on to Q4, and the business of unleashing the potential of every team. We look for ward to talking with you and answering your questions during the upcoming earnings call, or wherever we
may chance to meet. Best Wishes, Mike Cannon-Brookes and Scott Farquhar
Q3 FY2017 Our customers represent diverse industries and geographies, from star t-ups to blue chips, thanks to a
highly automated sales model that allows us to target the Fortune 500,000. We nished the third quar ter of scal 2017 with 85,031 customers. We added 16,194 net new customers
during the quar ter; this number beneted from an increase of 12,789 customers as a result of our acqui-
sition of Trello during the quar ter.Excluding Trello, Atlassian ended the third quar ter of scal 2017 with
a total customer count of 72,242, a 26% year-over-year increase. Net new customers added during the quar ter excluding Trello were 3,405.For historical reference, Trello has t ypically added approximately
700-1,000net new customers each quar ter.Going for ward, we will be repor ting total customers and
total net new customers for the company as a whole, including those from Trello. Some of the new customers we added during the quar ter include luxur y brands Hermes and Gucci, ber
optic telecommunications ser vices provider Hot wire Communications, France's Ministry of Agriculture, transpor tation and logistics company J.B. Hunt, skin care product provider Proactiv,and medical tech-
nology company Kestra Medical. Customers use our products in all sor ts of ways, across all types of teams. While it would be dicult to
list the thousands of use cases for our products, we'd like to share a handful of the myriad stories our customers share with us each quar ter. These illustrate the breadth of applications and versatility of our products, as well as how we expand across teams, depar tments and customer organizations. Customer highlight s 5 Customers: We dene the number of customers at the end of any par ticular period as the number of organizations with unique domains that have at least one active and paid license or subscription of our products for which they paid approximately $10 or more per month (excluding star ter licenses). While a single customer may have distinct depar tments, operating segments or subsidiaries with multiple active licenses or subscriptions of our products, if the product deployments share a unique domain name, we only include the customer once for purposes of calculating this metric. We dene active licenses
as those licenses that are under an active maintenance or subscription contract as of period end. Q2'15 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 85,031 68,837 65,673 60,950 57,431 54,262 51,636 48,622 45,640 42,780 Customers
Period ended Jay Simons
President
Q3 FY2017 Mercy Ships Empowering life-saving healthcare in developing nations Mercy Ships is an international non-governmental organization (NGO) with 1,200 sta and volunteers working across Nor th America, Europe, and Africa to provide free healthcare via the largest civilian hospital ship, the 500-footAfrica Mercy.Equipped with ve state-of-the-ar t operating rooms, theAfrica Mercy sails from por t
to por t delivering ser vices to areas where treatable conditions might other wise become life-threatening due
to lack of basic medical care. Atlassian powers the logistics forAfrica Mercy and the entire Mercy Ships organization. Conuence (dubbed "Navigator ") ser ves as the central hub, connecting the teams at Mercy Ships, managing documents, and facilitating global communications. Processes and instr uctions for medical crews with doctors, nurses and sta rotating in from over 40 countries are maintained in Conuence to ensure optimal care is provided. Teams post calendars for impor tant maritime and employee training on Conuence, and even use it
to develop the curriculum for their on-board K-12 Academy for volunteers' families. While Conuence is used organization-wide to post internal news and announcements, it also ser ves as a source of inspiration as
volunteer success stories are posted about patients they ' ve helped. On board theAfrica Mercy, JIRA Ser vice Desk is used to track maintenance requests, sta work schedules
and boarding arrangements. On shore, Mercy Ships uses JIRA Ser vice Desk to manage the ship's monthly
re-supply, safety training, sta development, and general IT request s. Mercy Ships also recently rolled out HipChat internally across the entire organizationto replace email for
quick messages and group discussions and has fully integrated it with its other Atlassian products. (See
Mercy Ships' video on how they use HipChat internally:https://vimeo.com/209455160/8384916188). Dice.com A classic land-and-expand story Dice.com, a technology career website, uses the entire Atlassian product por tfolio to power over 80,000
job listings, 3 million registered technology professionals and approximately 2.4 million unique visitors each month. Prior to Atlassian, Dice was using a disparate mix of tools for collaboration and communication.
Today, the company uses our products as a single platform for improving teamwork, communication, and eciency across teams and geographies. Dice star ted its journey with Atlassian when one engineering team adopted JIRA. After seeing how JIRA changed the way that team worked, other teams across Dice’s parent company, DHI Group, Inc.,joined in.
Today, over a dozen separate development teams use JIRA, including technology-oriented teams like IT, Operations, and Business Systems. They also added JIRA Ser vice Desk to manage internal ser vice request s.
“If it isn’t in JIRA, it doesn’t exist (or, you shouldn’t be working on it ).” Conuence was rst adopted by DHI Group, Inc.’s IT depar tment for use as a documentation tool. Soon after,
the customer suppor t depar tment realized Conuence could replace its unwieldy paper-based system for tracking suppor t cases. The company has since cur tailed its practice of emailing documents back and for th,
and moved over to Conuence for internal collaboration.Ever ything from HR benets documentation to
CEO blog posts are in Conuence. 6
Q3 FY2017 Footwear and athletic apparel company Increasing team efficiency with Atlassian’s products Since rst adopting Atlassian product s ve years ago, business teams at one of the world's largest foot wear and athletic apparel companies are using our products to work more eectively. For example, its Global Brand Management team – a critical team, given that brand image is this customer 's beating hear t – turned to Conuence to provide a more open and robust system that now enables over 80 brand executives, representing six regions, to repor t weekly strategy updates for their respective brand categories to senior leadership. As a result of the eciency gained in repor ting, the senior leadership team is better able to focus on key points and take immediate action. Today, the company has over 8,000 users on Conuence and spends over $300,000 annually on Atlassian product s, including JIRA Soft ware, JIRA Core, JIRA Ser vice Desk, HipChat and Bitbucket. Globally renowned broadcaster Expanding from IT to product development teams Atlassian tools have gone viral at one of the world's oldest broadcasting organizations. B ecause this customer delivers news through several mediums, including programs streamed to mobile devices, it needed faster development cycles to suppor t the constant ow of new technology used by its viewers. The 100-person IT operations team that suppor ts digital products adopted JIRA and Conuence to replace a web of complex and inecient platforms: Word docs, information stored on net work drives, or simply emailed around and forgotten. Now, JIRA helps the team track work and resolve critical incidents eciently, while Conuence provides easy access to documentation and information about the organization's products and platforms. Propelled by the success experienced by the IT operations team, Atlassian products spread to the company’s product development teams, who star ted using JIRA to suppor t agile workows for soft ware development, as well as Conuence for design documents and meeting notes. This quickly improved eciency and collaboration across the 10,000-person division. “Cross-organization interactions couldn’t have happened without Conuence and JIRA. With all the histor y and contex t stored in Atlassian tools, there’s such a wealth of information. The system ties it all together for us,
and we’re a huge organization.” Recently, the teams went a step fur ther and implemented a new DevOps process based entirely on
our product s’ capabilities. The new process allowed the development teams to work smar ter and faster, moving from t wo deployments per week to ve deployments per day! 7
Q3 FY2017 Financial highlights Revenue Total revenue for the third quar ter of scal 2017 was $159.9 million, up 36% year-over-year. Our revenue for the quar ter reected strong per formance across our cloud, ser ver and data center product s. Our revenue by line item for the quar ter is as follows: • Subscription revenueprimarily relates to fees earned from sales of our cloud products. A small por tion of this revenue also relates to sales of our data center products, which are ser ver product s sold to our largest enterprise customers on a subscription basis. We recognize subscription revenue ratably over the term of the contract. For Q3'17, subscription revenue was $63.4 million, up 64% year- over-year. The grow th in subscription revenue reects more of our customers choosing our cloud products, as well as strong grow th in our data center oerings during the quar ter.Trello revenue, which is included in subscription revenue, achieved the target of approximately $1 million for Q3'17 that we communicated previously. • Maintenance revenuerepresents fees earned from providing customers updates, upgrades and technical product suppor t for our perpetual license product s.Maintenance revenue is recognized ratably over the suppor t period, which is t ypically 12 months. For Q3'17, maintenance revenue was $67.1 million, up 19% year-over-year. 8 Murray Demo
Chief Financial Ocer Third quarter of scal 2017 nancial summary (in thousands, except per share data) A reconciliation of IFRS to non-IFRS measures is provided within tables at the end of this letter, in our earnings press release or posted on our Investor Relations website. Third quarter of fiscal 2017 financial summary (in thousands, except per share data) Three Months Ended March 31, IFRS Results 2017 2016 Revenue $159,909 $117,942 Gross profit $127,014 $98,178 Gross margin 79.4% 83.2% Operating loss ($23,063) ($4,935) Operating margin (14.4%) (4.2%) Net loss ($17,461) ($1,072) Net loss per share - diluted ($0.08) ($0.01) Non-IFRS Results Gross profit $133,774 $101,357 Gross margin 83.7% 85.9% Operating income $24,492 $18,254 Operating margin 15.3% 15.5% Net income $18,932 $16,960 Net income per share - diluted $0.08 $0.07
Q3 FY2017 Revenue by type
USD in millions (Y/Y grow th rate in %) Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Subscription Maintenance Perpetual License O ther 13% 23% 64% 28% 17% 68% 36% 11% 71% 64% 39% 9% 69% 19% 19% • License revenueis related to fees earned from the sale of perpetual licenses for our ser ver or
behind-the-rewall products, and is recognized at the time of sale. For Q3'17, license revenue was $19.5 million, up 19% year-over-year. • O ther revenueincludes our por tion of the fees received for sales of third-par ty add-ons and extensions in the Atlassian Marketplace, and for training ser vices. For Q3'17, other revenue was
$10.0 million, up 50% year-over-year. 9 $110 $118 $128 $137 Margins and operating expenses IFRS gross margin for Q3'17 was 79.4%, compared with 83.2% for Q3'16. Non-IFRS gross margin for Q3'17 was 83.7%, compared with 85.9% for Q3'16. As we have discussed in prior quar ters, gross margin for the quar ter included accelerated depreciation expense incurred as par t of our transition from our data centers to third-par ty cloud providers. Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 $160 $149 $137 $128 $118 $110 40%45% 39% 34% 36% Revenue
USD in millions (Y/Y grow th rate in %) 36% 16% 22% 66% $149 $160
Q3 FY2017 On an IFRS basis, operating expenses were $150.1 million in Q3'17, up 46% from $103.1 million in Q3'16. On a
non-IFRS basis, operating expenses were $109.3 million in Q3'17, up 32% from $83.1 million in Q3'16. • Research & development expense on an IFRS basis was $82.3 millionin Q3'17, compared with $54.2 million
in Q3'16.Research & development expense on a non-IFRS basis was $60.6 million or 37.9% of revenue in
Q3'17, compared with $44.7 million or 37.9% of revenue in Q3'16. • Marketing & salesexpense on an IFRS basis was $36.6 million in Q3'17, compared with $24.4 million in Q3'16.Marketing & salesexpense on a non-IFRS basis was $26.4 million or 16.5% of revenue in Q3'17,
compared with $21.7 million or 18.4% of revenue in Q3'16. • General & administrative expense on an IFRS basis was $31.2 million in Q3'17, compared with $24.5 million
in Q3'16.General & administrative expense on a non-IFRS basis was $22.2 million or 13.9% of revenue in
Q3'17, compared with $16.8 million or 14.2% of revenue in Q3'16. Total employee headcount was 2,078 at the end of Q3'17, an increase of 190 employees since the end of
Q2'17. The headcount grow th during the quar ter includes the addition of 92 employees from Trello. The
increase of 98 employees in standalone Atlassian was across all major organizations other than in G&A. IFRS operating loss was $23.1 million for Q3'17, compared with IFRS operating loss of $4.9 million for Q3'16.
Non-IFRS operating income was $24.5 million, or 15.3% of revenue for Q3'17, compared with $18.3 million
or 15.5% of revenue for Q3'16. Operating margin was higher in the quar ter than the target provided during our prior earnings announcement
due to a combination of higher revenue and lower operating expenses primarily related to consulting ser vices, employee count and various other expense categories. Net income IFRS net loss was $17.5 million, or ($0.08) per diluted share, for Q3'17 compared with IFRS net loss of $1.1 million, or ($0.01) per diluted share, for Q3'16. Non-IFRS net income was $18.9 million, or $0.08 per diluted share, for Q3'17 compared with $17.0 million, or $0.07 per diluted share, for Q3'16. Balance sheet Atlassian nished Q3'17 with $503.6 million in cash and cash equivalents and shor t-term investment s.
During the quar ter, we usedapproximately$362.8 million in cash, net of cash received,to acquire Trello. Free cash ow Free cash ow for Q3'17 was $68.3 million, comprised of cash ow from operations of $72.9 million, less capital expenditures of $4.6 million. Free cash ow margin, dened as free cash ow as a percentage of revenue, was 42.7%. 10
Q3 FY2017 Financial targets for Q4'17 and full year scal 20 17 11 Financial Targets IFRS Three Months Ending June 30, 2017 Fiscal Year Ending June 30, 2017 Revenue $170M to $172M* $616M to $618M** Gross margin 80% 81% Operating margin (20%) (11%) Net loss per share - diluted ($0.10) ($0.20) Non-IFRS Three Months Ending June 30, 2017 Fiscal Year Ending June 30, 2017 Gross margin 84% 84% Operating margin 14% 17% Net income per share - diluted $0.08 $0.35 Weighted-average shares used in computing diluted non-IFRS net income per share 238M to 240M 235M to 236M Free cash flow not provided $173M to $177M *Our four th quar ter scal 2017 revenue targetincludesa revenue contribution from Trello of approximately $3 million. **Our full year scal 2017 revenue targetincludesa revenue contribution from Trello ofapproximately $4 million. We recorded a beginning deferred revenue balance (after fair value write-down adjustments related to
purchase accounting) of approximately$2 million for Trello. We recognized a por tion of this as revenue
in Q3'17. For scal 2018, we expect a revenue contribution from Trello of approximately $20 million. We do not
plan to break out Trello revenue from our total revenues in scal 2018. We will be providing scal 2018 nancial targets as par t of our four th quar ter and scal year 2017 result s
in July. We would like to note that we plan to modif y pricing for severalproduct sin the coming months.
We are not announcing any changes today, but we expect the impact of this change will modestly
increase our scal 2018 revenue, contributing low single-digit points of annual revenue grow th.
Q3 FY2017 Atlassian Corporation Plc
Consolidated statements of operations (U.S. $ and shares in thousands, except per share data)
(unaudited) 12 Three Months Ended March 31, Nine Months Ended March 31, 2017 2016 2017 2016 Revenues: Subscription $ 63,369 $ 38,691 $ 169,626 $ 103,069 Maintenance 67,072 56,178 193,873 160,040 Perpetual license 19,495 16,430 55,206 47,576 Other 9,973 6,643 26,900 18,785 Total revenues 159,909 117,942 445,605 329,470 Cost of revenues (1) (2) 32,895 19,764 82,356 54,657 Gross profit 127,014 98,178 363,249 274,813 Operating expenses: Research and development (1) 82,262 54,170 219,477 147,476 Marketing and sales (1) (2) 36,625 24,436 89,021 62,411 General and administrative (1) 31,190 24,507 85,581 59,416 Total operating expenses 150,077 103,113 394,079 269,303 Operating income (loss) (23,063) (4,935) (30,830) 5,510 Other non-operating expense, net (492) 54 (806) (730) Finance income 1,040 703 3,803 872 Finance costs (6) (5) (51) (62) Income (loss) before income tax benefit (22,521) (4,183) (27,884) 5,590 Income tax benefit 5,060 3,111 6,088 3,485 Net income (loss) $ (17,461) $ (1,072) $ (21,796) $ 9,075 Net income (loss) per share attributable to ordinary shareholders: Basic $ (0.08) $ (0.01) $ (0.10) $ 0.05 Diluted $ (0.08) $ (0.01) $ (0.10) $ 0.05 Weighted-average shares outstanding used to compute net income (loss) per share attributable to ordinary shareholders: Basic 223,333 212,920 221,034 172,272 Diluted 223,333 212,920 221,034 180,417 (1) Amounts include share-based payment expense, as follows: Three Months Ended March 31, Nine Months Ended March 31, 2017 2016 2017 2016 Cost of revenues $ 1,853 $ 1,258 $ 4,697 $ 3,765 Research and development 21,628 9,495 54,786 23,193 Marketing and sales 5,336 2,754 11,940 8,560 General and administrative 8,965 7,739 24,688 14,876 (2) Amounts include amortization of acquired intangible assets, as follows: Three Months Ended March 31, Nine Months Ended March 31, 2017 2016 2017 2016 Cost of revenues $ 4,907 $ 1,921 $ 9,307 $ 5,496 Marketing and sales 4,866 22 5,281 65
Q3 FY2017 Atlassian Corporation Plc Consolidated statements of nancial position (U.S. $ in thousands) (unaudited) 13 March 31, 2017 June 30, 2016 Assets Current assets: Cash and cash equivalents $ 196,882 $ 259,709 Short-term investments 306,676 483,405 Trade receivables 26,481 15,233 Current tax receivables 6,070 6,013 Prepaid expenses and other current assets 19,337 14,178 Total current assets 555,446 778,538 Non-current assets: Property and equipment, net 45,190 58,762 Deferred tax assets 179,775 127,411 Goodwill 311,748 7,138 Intangible assets, net 134,992 13,577 Other non-current assets 8,513 5,547 Total non-current assets 680,218 212,435 Total assets $ 1,235,664 $ 990,973 Liabilities Current liabilities: Trade and other payables $ 71,381 $ 57,886 Current tax liabilities 5,250 286 Provisions 5,585 4,716 Deferred revenue 221,860 173,612 Total current liabilities 304,076 236,500 Non-current liabilities: Deferred tax liabilities 57,240 6,639 Provisions 2,942 2,170 Deferred revenue 10,884 7,456 Other non-current liabilities 6,914 6,545 Total non-current liabilities 77,980 22,810 Total liabilities $ 382,056 $ 259,310 Equity Share capital $ 22,422 $ 21,620 Share premium 448,986 441,734 Other capital reserves 379,555 244,335 Other components of equity 5,166 4,699 Retained earnings (accumulated deficit) (2,521) 19,275 Total equity $ 853,608 $ 731,663 Total liabilities and equity $ 1,235,664 $ 990,973
Q3 FY2017 Three Months Ended March 31, Nine Months Ended March 31, 2017 2016 2017 2016 Operating activities Income (loss) before income tax $ (22,521) $ (4,183) $ (27,884) $ 5,590 Adjustments to reconcile income (loss) before income tax to net cash provided by operating activities: Depreciation and amortization 18,485 5,678 37,780 15,584 Loss (gain) on sale of investments and other assets (15) 61 (422) 198 Net unrealized foreign currency loss (gain) 209 (442) 1 (8) Share-based payment expense 37,782 21,246 96,111 50,394 Interest income (1,040) (703) (3,803) (872) Changes in assets and liabilities: Trade receivables 2,155 1,003 (9,913) (3,311) Prepaid expenses and other assets (89) (796) (2,859) (824) Trade and other payables, provisions and other non-current liabilities 12,707 10,717 9,308 5,975 Deferred revenue 25,035 15,272 49,352 29,524 Interest received 1,470 1,352 5,147 1,458 Income tax paid, net of refunds (1,255) (961) (4,034) (9,161) Net cash provided by operating activities 72,923 48,244 148,784 94,547 Investing activities Business combinations, net of cash acquired (362,795) — (381,090) — Purchases of property and equipment (4,623) (7,531) (9,921) (16,819) Proceeds from sale of other assets — — 342 — Purchases of investments (105,021) (318,785) (338,385) (435,428) Proceeds from maturities of investments 23,088 13,202 80,188 47,824 Proceeds from sales of investments 235,173 6,361 433,761 6,361 Increase in restricted cash — — (3,369) — Payment of deferred consideration — — (935) (1,025) Net cash used in investing activities (214,178) (306,753) (219,409) (399,087) Financing activities Proceeds from issuance of ordinary shares upon initial public offering, net of offering costs — — — 431,447 Proceeds from exercise of share options 1,535 764 7,403 4,266 Employee payroll taxes paid related to net share settlement of equity awards — — — (5,395) Net cash provided by financing activities 1,535 764 7,403 430,318 Effect of exchange rate changes on cash and cash equivalents 440 371 395 22 Net increase (decrease) in cash and cash equivalents (139,280) (257,374) (62,827) 125,800 Cash and cash equivalents at beginning of period 336,162 570,268 259,709 187,094 Cash and cash equivalents at end of period $ 196,882 $ 312,894 $ 196,882 $ 312,894 Atlassian Corporation Plc Consolidated statements of cash ows (U.S. $ in thousands)
(unaudited) 14
Q3 FY2017 Atlassian Corporation Plc Reconciliation of IFRS to non-IFRS results (U.S. $ and shares in thousands, except per share data)
(unaudited) 15 Three Months Ended March 31, Nine Months Ended March 31, 2017 2016 2017 2016 Gross profit IFRS gross profit $ 127,014 $ 98,178 $ 363,249 $ 274,813 Plus: Share-based payment expense 1,853 1,258 4,697 3,765 Plus: Amortization of acquired intangible assets 4,907 1,921 9,307 5,496 Non-IFRS gross profit $ 133,774 $ 101,357 $ 377,253 $ 284,074 Operating income IFRS operating income (loss) $ (23,063) $ (4,935) $ (30,830) $ 5,510 Plus: Share-based payment expense 37,782 21,246 96,111 50,394 Plus: Amortization of acquired intangible assets 9,773 1,943 14,588 5,561 Non-IFRS operating income $ 24,492 $ 18,254 $ 79,869 $ 61,465 Net income IFRS net income (loss) $ (17,461) $ (1,072) $ (21,796) $ 9,075 Plus: Share-based payment expense 37,782 21,246 96,111 50,394 Plus: Amortization of acquired intangible assets 9,773 1,943 14,588 5,561 Less: Income tax effects and adjustments (11,162) (5,157) (25,587) (10,581) Non-IFRS net income $ 18,932 $ 16,960 $ 63,316 $ 54,449 Net income per share IFRS net income (loss) per share - basic $ (0.08) $ (0.01) $ (0.10) $ 0.05 Plus: Share-based payment expense 0.17 0.10 0.44 0.30 Plus: Amortization of acquired intangible assets 0.04 0.01 0.07 0.03 Less: Income tax effects and adjustments (0.05) (0.02) (0.12) (0.06) Non-IFRS net income per share - basic $ 0.08 $ 0.08 $ 0.29 $ 0.32 IFRS net income (loss) per share - diluted $ (0.08) $ (0.01) $ (0.10) $ 0.05 Plus: Share-based payment expense 0.17 0.09 0.42 0.26 Plus: Amortization of acquired intangible assets 0.04 0.01 0.06 0.03 Less: Income tax effects and adjustments (0.05) (0.02) (0.11) (0.06) Non-IFRS net income per share - diluted $ 0.08 $ 0.07 $ 0.27 $ 0.28 Weighted-average shares used in computing diluted non-IFRS net income per share: 236,233 230,943 234,934 191,664 Weighted-average diluted shares outstanding Weighted-average shares used in computing diluted IFRS net income (loss) per share 223,333 212,920 221,034 180,417 Plus: Dilution from share options and RSUs (1) 12,900 18,023 13,900 — Plus: Dilution from share options and RSUs granted in periods prior to IPO (2) — — — 11,247 Weighted-average shares used in computing diluted non-IFRS net income per share 236,233 230,943 234,934 191,664 Free cash flow IFRS net cash provided by operating activities $ 72,923 $ 48,244 $ 148,784 $ 94,547 Less: Capital expenditures (4,623) (7,531) (9,921) (16,819) Free cash flow $ 68,300 $ 40,713 $ 138,863 $ 77,728 (1) The effects of these dilutive securities were not included in the IFRS calculation of diluted net loss per share for the three and nine months ended March 31, 2017 because the effect would have been anti-dilutive. (2) Gives effect to share options and RSUs in periods prior to our IPO for comparability.
Q3 FY2017 Atlassian Corporation Plc Reconciliation of IFRS to non-IFRS nancial targets (U.S. $) 16 Three Months Ending June 30, 2017 Fiscal Year Ending June 30, 2017 Revenue $170 million to $172 million $616 million to $618 million IFRS gross margin 80% 81% Plus: Share-based payment expense 1 1 Plus: Amortization of acquired intangible assets 3 2 Non-IFRS gross margin 84% 84% IFRS operating margin (20%) (11%) Plus: Share-based payment expense 27 23 Plus: Amortization of acquired intangible assets 7 5 Non-IFRS operating margin 14% 17% IFRS net loss per share - diluted ($0.10) ($0.20) Plus: Share-based payment expense 0.19 0.60 Plus: Amortization of acquired intangible assets 0.05 0.12 Less: Income tax effects and adjustments (0.06) (0.17) Non-IFRS net income per share - diluted $0.08 $0.35 Weighted-average shares used in computing diluted non- IFRS net income per share 238 million to 240 million 235 million to 236 million IFRS net cash provided by operations $188 million to $192 million Less: Capital expenditures (15 million) Free cash flow $173 million to $177 million
Q3 FY2017 Forward-looking statements This shareholder letter contains for ward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncer tainties. All statements other than statements of historical fact could be deemed for ward looking, including risks and uncer tainties related to statements about Atlassian’s products, technology and other key strategic areas, and Atlassian’s nancial targets such as revenue, share count and IFRS and non-IFRS nancial measures including gross margin, operating margin, net income per diluted share and free cash ow. Atlassian under takes no obligation to update any for ward-looking statements made in this shareholder letter to reect events or circumstances after the date of this shareholder letter or to reect new information or the occurrence of unanticipated events, except as required by law. The achievement or success of the matters covered by such for ward-looking statements involves known and unknown risks, uncer tainties and assumptions. If any such risks or uncer tainties materialize or if any of the assumptions prove incorrect, our results could dier materially from the results expressed or implied by the for ward-looking statements we make. You should not rely upon for ward-looking statements as predictions of future events. Forward-looking statements represent our management’s beliefs and assumptions only as of the date such statements are made. Fur ther information on these and other factors that could aect our nancial results is included in lings we make with the Securities and Exchange Commission from time to time, including the section titled “Risk Factors” in our most recent Forms 20-F and 6-K (repor ting our quar terly results). These documents are available on the SEC Filings section of the Investor Relations section of our website at: https:// investors.atlassian.com. About non-IFRS nancial measures Our repor ted results and nancial targets include cer tain non-IFRS nancial measures, including non-IFRS gross prot, non-IFRS operating income, non-IFRS net income, non-IFRS net income per diluted share, and free cash ow. Management believes that the use of these non- IFRS nancial measures provides consistency and comparability with our past nancial per formance, facilitates period-to-period comparisons of our results of operations, and also facilitates comparisons with peer companies, many of which use similar non-IFRS or non-GAAP nancial measures to supplement their IFRS or GAAP results. Non-IFRS results are presented for supplemental informational purposes only to aid in understanding our operating results. The non-IFRS results should not be considered a substitute for nancial information presented in accordance with IFRS, and may be dierent from non-IFRS or non-GAAP measures used by other companies. Our non-IFRS nancial measures reect adjustments based on the items below: • Non-IFRS gross prot. Excludes expenses related to share-based compensation and amor tization of acquired intangible asset s. • Non-IFRS operating income. Excludes expenses related to share-based compensation and amor tization of acquired intangible asset s. • Non-IFRS net income and non-IFRS net income per diluted share. Excludes expenses related to share based compensation, amor tization of acquired intangible assets and related income tax eects on these items. • Free cash ow. Free cash ow is dened as net cash provided by operating activities less capital expenditures, which consist s primarily of purchases of proper ty and equipment. We exclude expenses related to share-based compensation, amor tization of acquired intangible assets and the related income tax eect s on these items from cer tain of our non-IFRS nancial measures as we believe this helps investors understand our operational per formance. In addition, share-based compensation expense can be dicult to predict and varies from period to period and company to company due to diering valuation methodologies, subjective assumptions and the variety of equity instr uments, as well as changes in stock price. Management believes that providing non-IFRS nancial measures that exclude share-based compensation expense, amor tization of acquired intangible assets and the related income tax eects on these items allow for more meaningful comparisons bet ween our operating results from period to period. 17
Q3 FY2017 We include the eect of our out standing share options and restricted share units (“RSUs”) in weighted-average shares used in computing non-IFRS net income per diluted share. IFRS excludes the impact of the full weighting of these out standing equity awards until the eectiveness of our IPO. We have presented the full weighting impact of these additional shares from previously granted share options and RSUs, as if they were outstanding from the date of grant, in order to provide investors with insight into the full impact of all potentially dilutive awards outstanding and to provide comparability across periods. Management considers free cash ow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by our business that can be used for strategic oppor tunities, including investing in our business, making strategic acquisitions and strengthening our statement of nancial position. Management uses non-IFRS gross prot, non-IFRS operating income, non-IFRS net income, non-IFRS net income per diluted share and free cash ow: • As measures of operating per formance, because these nancial measures do not include the impact of items not directly resulting from our core operations; • For planning purposes, including the preparation of our annual operating budget; • T o allocate resources to enhance the nancial per formance of our business; • T o evaluate the eectiveness of our business strategies; and • In communications with our board of directors concerning our nancial per formance.
The tables in this shareholder letter titled “Reconciliation of IFRS to non-IFRS result s” and “Reconciliation of IFRS to non-IFRS nancial target s” provide reconciliations of non-IFRS nancial measures to the most recent directly comparable nancial measures calculated and presented in accordance with IFRS. We understand that although non-IFRS gross prot, non-IFRS operating income, non-IFRS net income, non-IFRS net income per diluted share and free cash ow are frequently used by investors and securities analysts in their evaluation of companies, these measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results of operations as repor ted under IFRS. About Atlassian Atlassian unleashes the potential in every team. Our collaboration soft ware helps teams organize, discuss and complete shared work. Teams at more than 85,000 large and small organizations — including Citigroup, eBay, CocaCola, Visa, BMW and NASA — use Atlassian's project tracking, content creation and sharing, real-time communication and ser vice management products to work better together and deliver quality results on time. Learn more about products including JIRA Soft ware, Conuence, HipChat, Trello, Bitbucket and JIRA Ser vice Desk at https://atlassian.com. Investor relations contact: Ian Lee, IR@atlassian.com
Media Contact: Paul Loeer, press@atlassian.com 18