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Atlassian Announces Third Quarter Fiscal Year 2018 Results

April 19, 2018 4:05 PM

Quarterly revenue of $223.7 million, up 40% year-over-year

Quarterly IFRS operating margin of (5%) and non-IFRS operating margin of 17%

Quarterly free cash flow of $86.4 million and free cash flow margin of 39%

SAN FRANCISCO--(BUSINESS WIRE)-- Atlassian Corporation Plc (NASDAQ: TEAM), a leading provider of team collaboration and productivity software, today announced financial results for its third quarter of fiscal 2018 ended March 31, 2018 and released a shareholder letter on the Investor Relations section of its website at https://investors.atlassian.com.

“Atlassian had a strong quarter, adding more than 6,000 net new customers for the first time, and engaging with almost 3,000 users and partners around the world as part of our Team Tour,” said Mike Cannon-Brookes, Atlassian’s co-CEO and co-founder. “We were also excited to open our newest office in Bengaluru, India. This office will play an important role in expanding our global presence as we scale Atlassian to serve the Fortune 500,000.”

Third Quarter Fiscal Year 2018 Financial Highlights:

On an IFRS basis, Atlassian reported:

On a non-IFRS basis, Atlassian reported:

A reconciliation of IFRS to non-IFRS financial measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below, under the heading “About Non-IFRS Financial Measures.”

Recent Business Highlights:

Board of Directors Announcements:

“We're excited about two big changes to our Board of Directors,” said Scott Farquhar, Atlassian's co-CEO and co-founder. “We're announcing the appointment of Shona Brown, a current Board member, as the new Chair the Board, where she will continue to improve our governance and processes, and help guide Atlassian as we scale. We are also adding a new Board member, Sasan Goodarzi, who brings almost 15 years of experience driving product leadership and growth at Intuit, and has first-hand knowledge of what it takes to scale a successful software business in the cloud.”

Atlassian is pleased to announce the appointment of Shona Brown to Chair of the Board, succeeding Scott Farquhar, who remains on the Board. She has served as a member of Atlassian's Board of Directors since November 2015, and also as Chair of the Compensation and Leadership Development Committee.

Dr. Brown is a former member of the Google executive team, which she joined in 2003. She served as vice president of business operations from 2003 to 2006 and as senior vice president of business operations from 2006 to 2011, after which she transitioned to a role leading Google’s technology for social impact efforts until 2012. Dr. Brown moved into a senior advisory role with Google from 2013 to 2015. Previously, Dr. Brown was a partner at McKinsey & Company, a management consulting firm. She is currently an advisor and board member to a portfolio of technology startups and also serves on the board of PepsiCo. Dr. Brown holds a bachelor of computer systems engineering from Carleton University, a master of arts in philosophy and economics from Oxford University (which she attended as a Rhodes scholar) and a Ph.D. in industrial engineering and industrial management from Stanford University.

Atlassian is excited to welcome Sasan Goodarzi to our Board. Mr. Goodarzi is executive vice president and general manager of Intuit’s Small Business and Self-Employed Group. Appointed to this role in May 2016, he leads an organization that offers a global platform with a suite of products and services under the QuickBooks brand in pursuit of Intuit's mission of powering prosperity around the world.

Mr. Goodarzi has held multiple general management positions during two separate stints at Intuit, including as senior vice president and general manager for the company’s ProTax division and Intuit Financial Services from 2004 to 2010, as chief information officer leading Intuit’s transition to the cloud from 2011 to 2013, and as general manager and executive vice president of TurboTax from 2013 to 2016. Prior to joining Intuit, Mr. Goodarzi worked for Invensys, a global provider of industrial automation, transportation and controls technology, serving as global president of the products group. He also held a number of senior leadership roles in the automation control division at Honeywell.

Mr. Goodarzi earned his bachelor’s degree in electrical engineering at the University of Central Florida and a master’s degree in business administration from the Kellogg School of Management at Northwestern University.

Financial Targets:

Atlassian is providing its financial targets for the fourth quarter and full fiscal year 2018. The company’s financial targets are as follows:

With respect to Atlassian’s expectations under “Financial Targets” above, a reconciliation of IFRS to non-IFRS gross margin, operating margin, net income per diluted share, and free cash flow have been provided in the financial statement tables included in this press release.

Shareholder Letter and Webcast/Conference Call Details

A detailed shareholder letter is available on the Investor Relations section of Atlassian’s website at: https://investors.atlassian.com. Atlassian will host a webcast and conference call to answer questions today:

Atlassian has used, and will continue to use, its Investor Relations website at https://investors.atlassian.com as a means of making material information public and for complying with its disclosure obligations.

About Atlassian

Atlassian unleashes the potential of every team. Our collaboration software helps teams organize, discuss and complete shared work. Teams at more than 119,000 customers, across large and small organizations - including Citigroup, eBay, Coca-Cola, Visa, BMW and NASA - use Atlassian's project tracking, content creation and sharing, real-time communication and service management products to work better together and deliver quality results on time. Learn more about products including Jira Software, Confluence, Stride, Trello, Bitbucket and Jira Service Desk at https://atlassian.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. All statements other than statements of historical fact could be deemed forward looking, including risks and uncertainties related to statements about our products, customers, expansion, technology and other key strategic areas, and our financial targets such as revenue, share count and IFRS and non-IFRS financial measures including gross margin, operating margin, net income (loss) per diluted share and free cash flow.

We undertake no obligation to update any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law.

The achievement or success of the matters covered by such forward-looking statements involves known and unknown risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make. You should not rely upon forward-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.

Further information on these and other factors that could affect our financial results is included in filings 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 (reporting our quarterly 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 Financial Measures

Our reported results and financial targets include certain non-IFRS financial measures, including non-IFRS gross profit, non-IFRS operating income, non-IFRS net income, non-IFRS net income per diluted share, and free cash flow. Management believes that the use of these non-IFRS financial measures provides consistency and comparability with our past financial performance, 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 financial 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 financial information presented in accordance with IFRS, and may be different from non-IFRS or non-GAAP measures used by other companies.

Our non-IFRS financial measures reflect adjustments based on the items below:

Non-IFRS gross profit. Excludes expenses related to share-based compensation and amortization of acquired intangible assets.

Non-IFRS operating income. Excludes expenses related to share-based compensation and amortization of acquired intangible assets.

Non-IFRS net income and non-IFRS net income per diluted share. Excludes expenses related to share- based compensation, amortization of acquired intangible assets, the related income tax effects on these items and changes in our assessment regarding the realizability of our deferred tax assets.

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 and acquired intangible assets.

We exclude expenses related to share-based compensation, amortization of acquired intangible assets, the related income tax effects on these items and changes in our assessment regarding the realizability of our deferred tax assets from certain of our non-IFRS financial measures as we believe this helps investors understand our operational performance. In addition, share-based compensation expense can be difficult to predict and varies from period to period and company to company due to differing valuation methodologies, subjective assumptions and the variety of equity instruments, as well as changes in stock price. Management believes that providing non-IFRS financial measures that exclude share-based compensation expense, amortization of acquired intangible assets, the related income tax effects on these items and changes in our assessment regarding the realizability of our deferred tax assets allow for more meaningful comparisons between our operating results from period to period.

Management considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by our business that can be used for strategic opportunities, including investing in our business, making strategic acquisitions and strengthening our statement of financial position.

Management uses non-IFRS gross profit, non-IFRS operating income, non-IFRS net income, non-IFRS net income per diluted share and free cash flow:

The tables in this press release titled “Reconciliation of IFRS to Non-IFRS Results” and “Reconciliation of IFRS to Non-IFRS Financial Targets” provide reconciliations of non-IFRS financial measures to the most recent directly comparable financial measures calculated and presented in accordance with IFRS.

We understand that although non-IFRS gross profit, non-IFRS operating income, non-IFRS net income, non-IFRS net income per diluted share and free cash flow 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 reported under IFRS.

Atlassian Corporation Plc
Consolidated Statements of Operations
(U.S. $ and shares in thousands, except per share data)
(unaudited)
Three Months Ended March 31, Nine Months Ended March 31,

2018

2017

2018

2017

Revenues:
Subscription $ 105,604 $ 63,369 $ 285,775 $ 169,626
Maintenance 81,953 67,072 238,630 193,873
Perpetual license 21,273 19,495 62,967 55,206
Other 14,893 9,973 42,795 26,900
Total revenues 223,723 159,909 630,167 445,605
Cost of revenues (1) (2) 45,240 32,895 128,494 82,356
Gross profit 178,483 127,014 501,673 363,249
Operating expenses:
Research and development (1) 108,544 82,262 304,730 219,477
Marketing and sales (1) (2) 48,652 36,625 138,928 89,021
General and administrative (1) 32,167 31,190 106,476 85,581
Total operating expenses 189,363 150,077 550,134 394,079
Operating loss (10,880 ) (23,063 ) (48,461 ) (30,830 )
Other non-operating income (expense), net 740 (492 ) (418 ) (806 )
Finance income 2,001 1,040 4,824 3,803
Finance costs (8 ) (6 ) (24 ) (51 )
Loss before income tax benefit (expense) (8,147 ) (22,521 ) (44,079 ) (27,884 )
Income tax benefit (expense) (6,119 ) 5,060 (49,411 ) 6,088
Net loss $ (14,266 ) $ (17,461 ) $ (93,490 ) $ (21,796 )
Net loss per share attributable to ordinary shareholders:
Basic $ (0.06 ) $ (0.08 ) $ (0.41 ) $ (0.10 )
Diluted $ (0.06 ) $ (0.08 ) $ (0.41 ) $ (0.10 )
Weighted-average shares outstanding used to compute net loss per share attributable to ordinary shareholders:
Basic 232,221 223,333 230,180 221,034
Diluted 232,221 223,333 230,180 221,034

_______________

(1) Amounts include share-based payment expense, as follows:

Three Months Ended March 31,

Nine Months Ended March 31,

2018

2017

2018

2017

Cost of revenues

$

3,021

$

1,853

$

9,193

$

4,697

Research and development

25,347

21,628

78,338

54,786

Marketing and sales

5,816

5,336

18,161

11,940

General and administrative

737

8,965

18,705

24,688

(2) Amounts include amortization of acquired intangible assets, as follows:

Three Months Ended March 31,

Nine Months Ended March 31,

2018

2017

2018

2017

Cost of revenues

$

5,302

$

4,907

$

15,889

$

9,307

Marketing and sales

9,022

4,866

27,067

5,281

Atlassian Corporation Plc
Consolidated Statements of Financial Position
(U.S. $ in thousands)
(unaudited)
March 31, 2018 June 30, 2017
Assets
Current assets:
Cash and cash equivalents $ 393,513 $ 244,420
Short-term investments 370,353 305,499
Trade receivables 38,469 26,807
Current tax receivables 13,129 12,445
Prepaid expenses and other current assets 22,697 23,317
Total current assets 838,161 612,488
Non-current assets:
Property and equipment, net 35,098 41,173
Deferred tax assets 97,234 188,239
Goodwill 312,048 311,900
Intangible assets, net 77,978 120,789
Other non-current assets 12,226 9,269
Total non-current assets 534,584 671,370
Total assets $ 1,372,745 $ 1,283,858
Liabilities
Current liabilities:
Trade and other payables $ 100,106 $ 73,192
Current tax liabilities 22 2,207
Provisions 6,882 6,162
Deferred revenue 308,181 245,306
Total current liabilities 415,191 326,867
Non-current liabilities:
Deferred tax liabilities 42,951 43,950
Provisions 4,209 3,333
Deferred revenue 17,861 10,691
Other non-current liabilities 9,820 4,969
Total non-current liabilities 74,841 62,943
Total liabilities 490,032 389,810
Equity
Share capital 23,318 22,726
Share premium 453,894 450,959
Other capital reserves 518,793 437,346
Other components of equity 3,427 6,246
Accumulated deficit (116,719 ) (23,229 )
Total equity 882,713 894,048
Total liabilities and equity $ 1,372,745 $ 1,283,858
Atlassian Corporation Plc
Consolidated Statements of Cash Flows
(U.S. $ in thousands)
(unaudited)
Three Months Ended March 31, Nine Months Ended March 31,
2018 2017 2018 2017
Operating activities
Loss before income tax benefit (expense) $ (8,147 ) $ (22,521 ) $ (44,079 ) $ (27,884 )
Adjustments to reconcile loss before income tax benefit (expense) to net cash provided by operating activities:
Depreciation and amortization 20,111 18,485 61,681 37,780
Gain on sale of investments and other assets (1,193 ) (15 ) (1,225 ) (422 )
Net unrealized foreign currency (gain) loss 67 209 (95 ) 1
Share-based payment expense 34,921 37,782 124,397 96,111
Interest income (2,001 ) (1,040 ) (4,824 ) (3,803 )
Changes in assets and liabilities:
Trade receivables (3,500 ) 2,155 (11,887 ) (9,913 )
Prepaid expenses and other assets (236 ) (89 ) 907 (2,859 )
Trade and other payables, provisions and other non-current liabilities 27,311 12,707 33,569 9,308
Deferred revenue 24,343 25,035 70,045 49,352
Interest received 1,677 1,470 4,468 5,147
Income tax paid, net of refunds (1,677 ) (1,255 ) (3,704 ) (4,034 )
Net cash provided by operating activities 91,676 72,923 229,253 148,784
Investing activities
Business combinations, net of cash acquired — (362,795 ) — (381,090 )
Purchases of property and equipment (5,293 ) (4,623 ) (12,407 ) (9,921 )
Proceeds from sale of other assets 1,000 — 1,000 342
Purchases of investments (64,896 ) (105,021 ) (292,024 ) (338,385 )
Proceeds from maturities of investments 43,217 23,088 125,104 80,188
Proceeds from sales of investments 18,907 235,173 100,965 433,761
Increase in restricted cash (96 ) — (3,237 ) (3,369 )
Payment of deferred consideration (3,290 ) — (3,290 ) (935 )
Net cash used in investing activities (10,451 ) (214,178 ) (83,889 ) (219,409 )
Financing activities
Proceeds from exercise of share options 932 1,535 3,087 7,403
Net cash provided by financing activities 932 1,535 3,087 7,403
Effect of exchange rate changes on cash and cash equivalents 451 440 642 395
Net increase (decrease) in cash and cash equivalents 82,608 (139,280 ) 149,093 (62,827 )
Cash and cash equivalents at beginning of period 310,905 336,162 244,420 259,709
Cash and cash equivalents at end of period $ 393,513 $ 196,882 $ 393,513 $ 196,882
Atlassian Corporation Plc
Reconciliation of IFRS to Non-IFRS Results
(U.S. $ and shares in thousands, except per share data)
(unaudited)
Three Months Ended March 31, Nine Months Ended March 31,
2018 2017 2018 2017

Gross profit

IFRS gross profit $ 178,483 $ 127,014 $ 501,673 $ 363,249
Plus: Share-based payment expense 3,021 1,853 9,193 4,697
Plus: Amortization of acquired intangible assets 5,302 4,907 15,889 9,307
Non-IFRS gross profit $ 186,806 $ 133,774 $ 526,755 $ 377,253

Operating income

IFRS operating loss $ (10,880 ) $ (23,063 ) $ (48,461 ) $ (30,830 )
Plus: Share-based payment expense 34,921 37,782 124,397 96,111
Plus: Amortization of acquired intangible assets 14,324 9,773 42,956 14,588
Non-IFRS operating income $ 38,365 $ 24,492 $ 118,892 $ 79,869

Net income

IFRS net loss $ (14,266 ) $ (17,461 ) $ (93,490 ) $ (21,796 )
Plus: Share-based payment expense 34,921 37,782 124,397 96,111
Plus: Amortization of acquired intangible assets 14,324 9,773 42,956 14,588
Less: Income tax effects and adjustments (10,389 ) (11,162 ) 11,673 (25,587 )
Non-IFRS net income $ 24,590 $ 18,932 $ 85,536 $ 63,316

Net income per share

IFRS net loss per share - basic $ (0.06 ) $ (0.08 ) $ (0.41 ) $ (0.10 )
Plus: Share-based payment expense 0.15 0.17 0.54 0.44
Plus: Amortization of acquired intangible assets 0.06 0.04 0.19 0.07
Less: Income tax effects and adjustments (0.04 ) (0.05 ) 0.05 (0.12 )
Non-IFRS net income per share - basic $ 0.11 $ 0.08 $ 0.37 $ 0.29
IFRS net loss per share - diluted $ (0.06 ) $ (0.08 ) $ (0.41 ) $ (0.10 )
Plus: Share-based payment expense 0.14 0.17 0.53 0.42
Plus: Amortization of acquired intangible assets 0.06 0.04 0.18 0.06
Less: Income tax effects and adjustments (0.04 ) (0.05 ) 0.05 (0.11 )
Non-IFRS net income per share - diluted $ 0.10 $ 0.08 $ 0.35 $ 0.27

Weighted-average diluted shares outstanding

Weighted-average shares used in computing diluted IFRS net loss per share 232,221 223,333 230,180 221,034
Plus: Dilution from share options and RSUs (1) 12,356 12,900 13,185 13,900
Weighted-average shares used in computing diluted non-IFRS net income per share 244,577 236,233 243,365 234,934

Free cash flow

IFRS net cash provided by operating activities $ 91,676 $ 72,923 $ 229,253 $ 148,784
Less: Capital expenditures (5,293 ) (4,623 ) (12,407 ) (9,921 )
Free cash flow $ 86,383 $ 68,300 $ 216,846 $ 138,863
(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, 2018 and 2017 because the effect would have been anti-dilutive.
Atlassian Corporation Plc
Reconciliation of IFRS to Non-IFRS Results
(as a percentage of total revenues)
(unaudited)
Three Months Ended March 31, Nine Months Ended March 31,
2018 2017 2018 2017

Operating margin

IFRS operating margin (5 %) (14 %) (8 %) (7 %)
Plus: Share-based payment expense 16 23 20 22
Plus: Amortization of acquired intangible assets 6 6 7 3
Non-IFRS operating margin 17 % 15 % 19 % 18 %
Atlassian Corporation Plc
Reconciliation of IFRS to Non-IFRS Financial Targets
(U.S. $)
Three Months Ending Fiscal Year Ending
June 30, 2018 June 30, 2018
Revenue $232 million to $234 million $862 million to $864 million
IFRS gross margin 81 % 80 %
Plus: Share-based payment expense 2 2
Plus: Amortization of acquired intangible assets 2 2
Non-IFRS gross margin 85 % 84 %
IFRS operating margin (5 %) (7 %)
Plus: Share-based payment expense 18 19
Plus: Amortization of acquired intangible assets 6 7
Non-IFRS operating margin 19 % 19 %
IFRS net loss per share - diluted ($0.05 ) ($0.44) to ($0.43)
Plus: Share-based payment expense 0.17 0.68
Plus: Amortization of acquired intangible assets 0.06 0.24
Less: Income tax effects and adjustments (0.06 ) (0.01 )
Non-IFRS net income per share - diluted $0.12 $0.47 to $0.48
Weighted-average shares used in computing diluted IFRS net loss per share 234 million to 235 million 231 million to 232 million
Dilution from share options and RSUs (1) 12 million 12 million
Weighted-average shares used in computing diluted non-IFRS net income per share 246 million to 247 million 243 million to 244 million
IFRS net cash provided by operating activities $295 million to $302 million
Less: Capital expenditures (30 million)
Free cash flow $265 million to $272 million
(1) The effects of these dilutive securities are not included in our IFRS calculation of diluted net loss per share for the three months ending June 30, 2018 and fiscal year ending June 30, 2018 because the effect would be anti-dilutive.

Atlassian Corporation Plc

Investor Relations Contact

Ian Lee

[email protected]

or

Media Contact

Scott Rubin

[email protected]

Source: Atlassian Corporation Plc

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