Atlassian Announces Third Quarter Fiscal Year 2019 Results

Atlassian Corporation Plc (NASDAQ: TEAM), a leading provider of team
collaboration and productivity software, today announced financial
results for its third quarter of fiscal 2019 ended March 31, 2019 and
released a shareholder letter on the Investor Relations section of its
website at https://investors.atlassian.com. All
financial results and targets are based on the new revenue recognition
standard IFRS 15, which the company adopted on July 1, 2018.

“We achieved a strong third quarter and wrapped up another successful
Atlassian Summit, our flagship user conference,” said Mike
Cannon-Brookes, Atlassian’s co-founder and co-CEO. “It was amazing to
spend time with almost 5,000 users and partners at Summit. At Summit
this year, we showcased our world-class Cloud offerings, along with our
latest innovations that help solve the increasing collaboration
challenges facing IT teams and enterprise customers.”

“We were also excited to welcome the newest member of the Atlassian
family, AgileCraft, which we rebranded as Jira Align. Jira Align will
play a vital role in helping larger enterprises scale the benefits of
agile teamwork across their organizations,” said Scott Farquhar,
Atlassian’s co-founder and co-CEO.

Third Quarter Fiscal Year 2019 Financial Highlights:

On an IFRS basis, Atlassian reported:

• Revenue: Total revenue was $309.3 million for the third quarter
  of fiscal 2019, up 38% from $224.3 million for the third quarter of
  fiscal 2018.
• Operating Loss and Operating Margin: Operating loss was
  $27.6 million for the third quarter of fiscal 2019, compared with
  operating loss of $10.3 million for the third quarter of fiscal
  2018. Operating margin was (9%) for the third quarter of fiscal 2019,
  compared with (5%) for the third quarter of fiscal 2018.
• Net Loss and Net Loss Per Diluted Share: Net loss was $202.8
  million for the third quarter of fiscal 2019, compared with net loss
  of $15.8 million for the third quarter of fiscal 2018. Net loss per
  diluted share was $0.85 for the third quarter of fiscal 2019, compared
  with net loss per diluted share of $0.07 for the third quarter of
  fiscal 2018.

  Net loss for the third quarter of fiscal 2019
  included a non-cash charge of $172.6 million recorded in “other
  non-operating (expense) income, net”, as a result of marking to fair
  value the exchange feature of Atlassian’s exchangeable senior notes
  and the related capped calls.

• Balance Sheet: Cash and cash equivalents, and short-term
  investments at the end of the third quarter of fiscal
  2019 totaled $1.8 billion.

On a non-IFRS basis, Atlassian reported:

• Operating Income and Operating Margin: Operating income
  was $58.0 million for the third quarter of fiscal 2019, compared with
  operating income of $39.0 million for the third quarter of fiscal
  2018. Operating margin was 19% for the third quarter of fiscal 2019,
  compared with 17% for the third quarter of fiscal 2018.
• Net Income and Net Income Per Diluted Share: Net
  income was $52.4 million for the third quarter of fiscal 2019,
  compared with net income of $23.0 million for the third quarter of
  fiscal 2018. Net income per diluted share was $0.21 for the third
  quarter of fiscal 2019, compared with net income per diluted share of
  $0.09 per diluted share for the third quarter of fiscal 2018.
• Free Cash Flow: Cash flow from operations for the third quarter
  of fiscal 2019 was $133.3 million, while capital expenditures totaled
  $6.1 million, resulting in free cash flow of $127.1 million, an
  increase of 47% year-over-year. Free cash flow margin for the third
  quarter of fiscal 2019 was 41%.

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:

• Customer Growth: Atlassian ended the third quarter of fiscal
  2019 with a total customer count, on an active subscription or
  maintenance agreement basis, of 144,038. Atlassian added 5,803 net new
  customers during the quarter.
• AgileCraft Acquisition: In early April, Atlassian closed its
  acquisition of AgileCraft, a leading provider of enterprise agile
  planning software. AgileCraft helps enterprise organizations build and
  manage a ‘master plan’ of their most strategic projects and
  workstreams. The acquisition was valued at approximately $166 million,
  comprising approximately $154 million in cash, and the remainder in
  Atlassian restricted shares, subject to continued vesting provisions.
  At Summit, Atlassian’s flagship user conference, the company announced
  the rebranding of AgileCraft as Jira Align.
• Opsgenie Innovations for IT Teams: Atlassian showcased
  Opsgenie’s latest incident management capabilities at Summit. These
  included features such as Actions, which helps resolve incidents
  faster by automatically triggering tasks on third-party platforms, and
  Edge Encryption, which secures sensitive data to help customers meet
  compliance requirements. We also announced deeper integrations with
  the Atlassian platform, as well as new integrations with Statuspage
  and Slack.

Financial Targets:

Atlassian is providing its financial targets for the fourth quarter and
full fiscal year 2019. The company’s financial targets are as follows:

• Fourth Quarter Fiscal Year 2019:
  • Total revenue is expected to be in the range of $329 million to
    $331 million.
  • Gross margin is expected to be approximately 82% on an IFRS basis
    and approximately 85% on a non-IFRS basis.
  • Operating margin is expected to be approximately (13%) on an IFRS
    basis and approximately 13% on a non-IFRS basis.
  • Net loss per diluted share is expected to be approximately ($0.17)
    on an IFRS basis, and net income per diluted share is expected to
    be approximately $0.16 on a non-IFRS basis.
  • Weighted average share count is expected to be in the range of 240
    million to 241 million shares when calculating diluted IFRS net
    loss per share and in the range of 250 million to 251 million
    shares when calculating diluted non-IFRS net income per share.
• Fiscal Year 2019:
  • Total revenue is expected to be in the range of $1,205 million to
    $1,207 million.
  • Gross margin is expected to be approximately 82% on an IFRS basis
    and approximately 86% on a non-IFRS basis.
  • Operating margin is expected to be in the range of (7%) to (6.5%)
    on an IFRS basis and in the range of 19.5% to 20% on a non-IFRS
    basis.
  • Net loss per diluted share is expected to be approximately
    ($1.78) on an IFRS basis, and net income per diluted share is
    expected to be approximately $0.82 on a non-IFRS basis.
  • Weighted average share count is expected to be in the range of 238
    million to 239 million shares when calculating diluted IFRS net
    loss per share and in the range of 248 million to 249 million
    shares when calculating diluted non-IFRS net income per share.
  • Cash flow from operations is expected to be in the range of $425
    million to $435 million and free cash flow is expected to be in
    the range of $385 million to $395 million, which includes capital
    expenditures that are expected to be approximately $40 million.

With respect to Atlassian’s expectations under “Financial Targets”
above, a reconciliation of IFRS to non-IFRS gross margin, operating
margin, net income (loss) per diluted share, and free cash flow has 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:

• When: Wednesday, April 17, 2019 at 2:00 p.m. Pacific Time (5:00
  p.m. Eastern Time).
• Webcast: A live webcast of the call can be accessed from the
  Investor Relations section of Atlassian’s website at: https://investors.atlassian.com. Following
  the call, a replay will be available on the same website.
• Dial in: To access the call via telephone in North America,
  please dial 1-888-346-0688. For international callers, please dial
  1-412-902-4250. Participants should request the “Atlassian call” after
  dialing in.
• Audio replay: An audio replay of the call will be available via
  telephone for seven days, beginning two hours after the call. To
  listen to the replay in North America, please dial 1-877-344-7529
  (access code 10129468). International callers, please dial
  1-412-317-0088 (access code 10129468).

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 team collaboration
and productivity software helps teams organize, discuss and complete
shared work. Teams at more than 144,000 customers, across large and
small organizations – including General Motors, Walmart Labs, Bank of
America Merrill Lynch, Lyft, Verizon, Spotify and NASA – use Atlassian’s
project tracking, content creation and sharing, and service management
products to work better together and deliver quality results on time.
Learn more about our products, including Jira Software, Confluence,
Trello, Bitbucket, Opsgenie, Jira Service Desk, and Jira Align 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, anticipated growth, anticipated benefits of the
AgileCraft acquisition, 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 include:

• 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, non-coupon impact related to exchangeable
  senior notes and capped calls, 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.

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

• Share-based compensation
• Amortization of acquired intangible assets
• Non-coupon impact related to exchangeable senior notes and capped
  calls:
  • Amortization of notes discount and issuance costs
  • Mark to fair value of the exchangeable senior notes exchange
    feature
  • Mark to fair value of the related capped call transactions
• The related income tax effects on these items, and changes in our
  assessment regarding the realizability of our deferred tax assets

We exclude expenses related to share-based compensation, amortization of
acquired intangible assets, non-coupon impact related to exchangeable
senior notes and capped calls, 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, non-coupon impact related to exchangeable senior
notes and capped calls, 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:

• As measures of operating performance, because these financial 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;
• To allocate resources to enhance the financial performance of our
  business;
• To evaluate the effectiveness of our business strategies; and
• In communications with our Board of Directors concerning our financial
  performance.

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.

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