SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2020
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-37651
Atlassian Corporation Plc
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name into English)
England and Wales
(Jurisdiction of incorporation or organization)
London EC2A 2EG
c/o Herbert Smith Freehills LLP
(Address of principal executive offices)
Deputy General Counsel
Atlassian Corporation Plc
London EC2A 2EG
c/o Herbert Smith Freehills LLP
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
|Title of each class|| Trading Symbol||Name of each exchange on which registered|
|Class A Ordinary Shares||TEAM||NASDAQ Global Select Market|
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: Class B Ordinary Shares
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
As of June 30, 2020, 128,201,296 Class A Ordinary Shares and 119,761,681 Class B Ordinary Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☑
Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing: U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☑ Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
|Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS|
|Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE|
|Item 3. KEY INFORMATION|
|Item 4. INFORMATION ON THE COMPANY|
|Item 4A. UNRESOLVED STAFF COMMENTS|
|Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS|
|Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES|
|Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
|Item 8. FINANCIAL INFORMATION|
|Item 9. THE OFFER AND LISTING |
|Item 10. ADDITIONAL INFORMATION |
|Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK|
|Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
|Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
|Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS|
|Item 15. CONTROLS AND PROCEDURES|
|Item 16. RESERVED|
|Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT|
|Item 16B. CODE OF ETHICS.|
|Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES|
|Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
|Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS|
|Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT|
|Item 16G. CORPORATE GOVERNANCE|
|Item 16H. MINE SAFETY DISCLOSURE|
|ITEM 17. FINANCIAL STATEMENTS|
|ITEM 18. FINANCIAL STATEMENTS|
|ITEM 19. EXHIBITS|
|CONSOLIDATED FINANCIAL STATEMENTS|| |
All references in this annual report to “Atlassian” or the “Company,” “we,” “our,” “us” or similar terms refer to Atlassian Corporation Plc and its subsidiaries.
Our consolidated financial statements are presented in U.S. dollars. All references in this annual report to “$,” “U.S. $,” “U.S. dollars” and “dollars” mean U.S. dollars, unless otherwise noted.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that articulate our expectations, strategy, plans or intentions. Forward-looking statements contained in this annual report include, but are not limited to, statements about:
•Our future financial performance, including our revenues, cost of revenues, gross profit or gross margin and operating expenses;
•The sufficiency of our cash and cash equivalents to meet our liquidity needs;
•Our ability to increase the number of customers using our software;
•Our ability to attract and retain customers to use our products and solutions;
•Our ability to develop new products and enhancements to our existing products;
•Our ability to successfully expand in our existing markets and into new markets;
•Our ability to effectively manage our growth and future expenses;
•Our ability to prevent security breaches and unauthorized access to customer data;
•Our ability to maintain, protect and enhance our intellectual property;
•Our ability to grow our cloud offerings, including the impact of customers transitioning from perpetual licenses to subscription licenses;
•Our future growth and profitability;
•Our ability to comply with modified or new laws and regulations applying to our business, including privacy and data security regulations;
•Our ability to attract and retain qualified employees and key personnel;
•Future acquisitions of, or investments in, complementary companies, products, services or technologies; and
•The impact of natural disasters, diseases and pandemics, such as the novel coronavirus (“COVID-19”) pandemic, and any associated economic downturn, and political and social unrest on our results of operations and financial performance.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this annual report.
You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this annual report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in “Risk Factors” and elsewhere in this annual report. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this annual report. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
The forward-looking statements made in this annual report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this annual report to reflect events or circumstances after the date of this annual report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, or investments.
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Item 3. KEY INFORMATION
A. Selected Financial Data
The following tables summarize our selected consolidated financial and other data. We prepare our consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”), which includes all standards issued by the International Accounting Standards Board (“IASB”) and related interpretations issued by the IFRS Interpretations Committee. We derived the consolidated statements of operations data for the fiscal years ended June 30, 2020, 2019 and 2018 and the consolidated summary of financial position data as of June 30, 2020 and 2019 from our audited consolidated financial statements included elsewhere in this annual report. The selected statements of operations data for the fiscal years ended June 30, 2017 and 2016 and the consolidated statements of financial position data as of June 30, 2018, 2017 and 2016 are derived from our audited consolidated financial statements that are not included in this annual report. The selected summary data for the year ended June 30, 2020 reflects the adoption of IFRS 16, Leases (“IFRS 16”). The selected summary data for the year ended June 30, 2019, 2018, 2017 and 2016 does not reflect the adoption of IFRS 16.The selected summary data for the years ended June 30, 2020, 2019, 2018 and 2017 reflects the adoption of IFRS 15, Revenue from Contracts with Customers (“IFRS 15”). The selected summary data for the year ended June 30, 2016 does not reflect the adoption of IFRS 15. You should read the following selected consolidated financial data in conjunction with “Item 4. Information on the Company” and our consolidated financial statements and related notes included elsewhere in this annual report.
Consolidated Statements of Operations Data:
| ||Fiscal Year Ended June 30,|
|(U.S. $ and shares in thousands, except per share data)|
|Revenues:|| || |
|Subscription||$||931,455 || ||$||633,950 || ||$||410,694 || ||$||249,823 || ||$||146,659 || |
|Maintenance||469,350 || ||394,526 || ||326,511 || ||264,453 || ||218,848 || |
|Perpetual license||95,162 || ||93,593 || ||83,171 || ||74,058 || ||65,487 || |
|Other||118,206 || ||88,058 || ||60,602 || ||38,350 || ||26,064 || |
|Total revenues||1,614,173 || ||1,210,127 || ||880,978 || ||626,684 || ||457,058 || |
|Cost of revenues (1) (2)||268,807 || ||210,285 || ||172,690 || ||119,161 || ||75,783 || |
|Gross profit||1,345,366 || ||999,842 || ||708,288 || ||507,523 || ||381,275 || |
|Operating expenses:|| || |
|Research and development (1) (2)||763,188 || ||579,134 || ||415,776 || ||310,169 || ||208,306 || |
|Marketing and sales (1) (2)||299,683 || ||268,356 || ||187,315 || ||134,404 || ||93,391 || |
|General and administrative (1)||268,409 || ||215,714 || ||151,242 || ||118,784 || ||85,458 || |
|Total operating expenses||1,331,280 || ||1,063,204 || ||754,333 || ||563,357 || ||387,155 || |
|Operating income (loss)||14,086 || ||(63,362)|| ||(46,045)|| ||(55,834)|| ||(5,880)|| |
|Other non-operating expense, net||(338,486)|| ||(535,453)|| ||(15,157)|| ||(1,342)|| ||(1,072)|| |
|Finance income||27,801 || ||33,500 || ||9,877 || ||4,851 || ||2,116 || |
|Finance costs||(49,610)|| ||(40,241)|| ||(6,806)|| ||(75)|| ||(71)|| |
|Loss before income tax expense||(346,209)|| ||(605,556)|| ||(58,131)|| ||(52,400)|| ||(4,907)|| |
|Income tax benefit (expense) ||(4,445)|| ||(32,065)|| ||(55,301)|| ||14,951 || ||9,280 || |
Net income (loss)
|$||(350,654)|| ||$||(637,621)|| ||$||(113,432)|| ||$||(37,449)|| ||$||4,373 || |
|Net income (loss) per share attributable to ordinary shareholders:|| |
|Basic||$||(1.43)|| ||$||(2.67)|| ||$||(0.49)|| ||$||(0.17)|| ||$||0.02 || |
|Diluted||$||(1.43)|| ||$||(2.67)|| ||$||(0.49)|| ||$||(0.17)|| ||$||0.02 || |
|Weighted-average shares outstanding used to compute net income (loss) per share attributable to ordinary shareholders:|| |
|Basic||244,844 || ||238,611 || ||231,184 || ||222,224 || ||182,773 || |
|Diluted||244,844 || ||238,611 || ||231,184 || ||222,224 || ||193,481 || |
(1)Amounts include share-based payment expense, as follows:
|Cost of revenues||$||19,787 || ||$||17,450 || ||$||11,955 || ||$||6,856 || ||$||5,371 || |
|Research and development||204,150 || ||149,049 || ||98,609 || ||79,384 || ||35,735 || |
|Marketing and sales||41,960 || ||39,303 || ||23,605 || ||17,395 || ||11,945 || |
|General and administrative||47,498 || ||51,960 || ||28,704 || ||33,813 || ||22,429 || |
(2)Amounts include amortization of acquired intangible assets, as follows:
|Cost of revenues||$||29,509 || ||$||27,997 || ||$||21,188 || ||$||14,587 || ||$||7,405 || |
|Research and development||166 || ||60 || ||— || ||— || ||— || |
|Marketing and sales||12,860 || ||28,744 || ||36,090 || ||15,269 || ||86 || |
Consolidated Statements of Financial Position Data:
| ||As of June 30,|
|(U.S. $ in thousands)|
|Cash and cash equivalents||$||1,479,969 || ||$||1,268,441 || ||$||1,410,339 || ||$||244,420 || ||$||259,709 || |
|Short-term investments||676,072 || ||445,046 || ||323,134 || ||305,499 || ||483,405 || |
|Derivative assets||327,487 || ||215,233 || ||99,995 || ||3,252 || ||— || |
|Right-of-use assets, net||217,683 || ||— || ||— || ||— || ||— || |
|Working capital (deficit)||(374,993)|| ||(287,597)|| ||1,377,145 || ||296,984 || ||542,038 || |
|Total assets||3,894,072 || ||2,977,258 || ||2,421,828 || ||1,282,117 || ||990,973 || |
|Deferred revenue||601,005 || ||468,820 || ||342,871 || ||245,195 || ||181,068 || |
|Derivative liabilities||1,284,598 || ||855,079 || ||207,970 || ||— || ||— || |
|Exchangeable senior notes, net||889,183 || ||853,576 || ||819,637 || ||— || ||— || |
|Lease obligations||264,568 || ||— || ||— || ||— || ||— || |
|Total liabilities||3,318,766 || ||2,411,791 || ||1,514,508 || ||379,424 || ||259,310 || |
|Share capital||24,744 || ||24,199 || ||23,531 || ||22,726 || ||21,620 || |
|Total equity||575,306 || ||565,467 || ||907,320 || ||902,693 || ||731,663 || |
Non-IFRS Financial Results
Our reported results 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 results of operations. 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 our exchangeable senior notes (the “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; and
•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 beginning in fiscal year 2020, with the adoption of IFRS 16, payments of lease obligations are also deducted.
Our non-IFRS financial measures reflect adjustments based on the items below:
•Amortization of acquired intangible assets;
•Non-coupon impact related to the Notes and capped calls:
•Amortization of the Notes discount and issuance costs;
•Mark to fair value of the 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; and
•Purchase of property and equipment and payments of lease obligations.
We exclude expenses related to share-based compensation, amortization of acquired intangible assets, non-coupon impact related to the 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 the 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 results of operations 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 and investors concerning our financial performance.
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.
The following table provides reconciliations of non-IFRS financial measures to the most directly comparable financial measures calculated and presented in accordance with IFRS for the fiscal years ended June 30, 2020, 2019, 2018, 2017 and 2016. The data for the year ended June 30, 2020 reflects the adoption of IFRS 16 on July 1, 2019. The data for the year ended June 30, 2019, 2018, 2017 and 2016 does not reflect the adoption of IFRS 16. The data for the years ended June 30, 2020, 2019, 2018 and 2017 reflect the adoption of IFRS 15 on July 1, 2018. The data for the year ended June 30, 2016 does not reflect the adoption of IFRS 15.
| ||Fiscal Year Ended June 30,|
(U.S. $ and shares in thousands, except per share data)
|IFRS gross profit||$||1,345,366 || ||$||999,842 || ||$||708,288 || ||$||507,523 || ||$||381,275 || |
|Plus: Share-based payment expense||19,787 || ||17,450 || ||11,955 || ||6,856 || ||5,371 || |
|Plus: Amortization of acquired intangible assets||29,509 || ||27,997 || ||21,188 || ||14,587 || ||7,405 || |
|Non-IFRS gross profit||$||1,394,662 || ||$||1,045,289 || ||$||741,431 || ||$||528,966 || ||$||394,051 || |
|IFRS operating income (loss)||$||14,086 || ||$||(63,362)|| ||$||(46,045)|| ||$||(55,834)|| ||$||(5,880)|| |
|Plus: Share-based payment expense||313,395 || ||257,762 || ||162,873 || ||137,448 || ||75,480 || |
|Plus: Amortization of acquired intangible assets||42,535 || ||56,801 || ||57,278 || ||29,856 || ||7,491 || |
|Non-IFRS operating income||$||370,016 || ||$||251,201 || ||$||174,106 || ||$||111,470 || ||$||77,091 || |
|IFRS net income (loss)||$||(350,654)|| ||$||(637,621)|| ||$||(113,432)|| ||$||(37,449)|| ||$||4,373 || |
|Plus: Share-based payment expense||313,395 || ||257,762 || ||162,873 || ||137,448 || ||75,480 || |
|Plus: Amortization of acquired intangible assets||42,535 || ||56,801 || ||57,278 || ||29,856 || ||7,491 || |
|Plus: Non-coupon impact related to exchangeable senior notes and capped calls||371,561 || ||567,847 || ||19,892 || ||— || ||— || |
|Less: Income tax effects and adjustments||(88,030)|| ||(30,243)|| ||(2,150)|| ||(39,864)|| ||(16,018)|| |
|Non-IFRS net income||$||288,807 || ||$||214,546 || ||$||124,461 || ||$||89,991 || ||$||71,326 || |
|Net income per share|
|IFRS net income (loss) per share - diluted||$||(1.43)|| ||$||(2.67)|| ||$||(0.49)|| ||$||(0.17)|| ||$||0.02 || |
|Plus: Share-based payment expense||1.27 || ||1.05 || ||0.68 || ||0.59 || ||0.37 || |
|Plus: Amortization of acquired intangible assets||0.17 || ||0.23 || ||0.25 || ||0.13 || ||0.04 || |
|Plus: Non-coupon impact related to exchangeable senior notes and capped calls||1.49 || ||2.37 || ||0.08 || ||— || ||— || |
|Less: Income tax effects and adjustments||(0.35)|| ||(0.12)|| ||(0.01)|| ||(0.17)|| ||(0.08)|| |
|Non-IFRS net income per share - diluted||$||1.15 || ||$||0.86 || ||$||0.51 || ||$||0.38 || ||$||0.35 || |
|Weighted-average diluted shares outstanding|
|Weighted-average shares used in computing diluted IFRS net loss per share||244,844 || ||238,611 || ||231,184 || ||222,224 || ||193,481 || |
|Plus: Dilution from share options and RSUs (1)||6,811 || ||9,609 || ||12,801 || ||13,833 || ||— || |
|Plus: Dilution from share options and RSUs granted in periods prior to IPO (2)||— || ||— || ||— || ||— || ||8,205 || |
|Weighted-average shares used in computing diluted non-IFRS net income per share||251,655 || ||248,220 || ||243,985 || ||236,057 || ||201,686 || |
|Free cash flow|
|IFRS net cash provided by operating activities||$||574,210 || ||$||466,342 || ||$||311,456 || ||$||199,381 || ||$||129,542 || |
|Less: Purchase of property and equipment||(35,709)|| ||(44,192)|| ||(30,209)|| ||(15,129)|| ||(34,213)|| |
|Less: Payments of lease obligations||(38,125)|| ||— || ||— || ||— || ||— || |
|Free cash flow (3)||$||500,376 || ||$||422,150 || ||$||281,247 || ||$||184,252 || ||$||95,329 || |
(1) The effects of these dilutive securities were not included in the IFRS calculation of diluted net loss per share for the fiscal year ended June 30, 2020, 2019, 2018 and 2017 because the effect would have been anti-dilutive.
(2) Gives effect to share options and restricted share units (“RSUs”) in periods prior to our IPO for comparability.
(3) As a result of our adoption of IFRS 16 on July 1, 2019, we have updated our definition of free cash flow to subtract payments of lease obligations under IFRS 16. These payments were previously, but no longer, reported in cash provided by operating activities. As a result, free cash flow is not affected by this change. Please see Note 2, “Summary of Significant Accounting Policies,” to the notes to our consolidated financial statements for additional information regarding IFRS 16 adoption.
B. Capitalization and Indebtedness
C. Reasons for the Offer and Use of Proceeds
D. Risk Factors
Risks Related to Our Business and Industry
A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider such risks and uncertainties, together with the other information contained in this annual report, and in our other public filings. If any such risks and uncertainties actually occur, our business, financial condition or results of operations could differ materially from the plans, projections and other forward-looking statements included elsewhere in this annual report and in our other public filings. In addition, if any of the following risks and uncertainties, or if any other risks and uncertainties, actually occur, our business, financial condition, or results of operations could be harmed substantially.
The COVID-19 pandemic, and any associated economic and social impacts, could harm our business and results of operations.
In January 2020 the World Health Organization declared COVID-19 a Public Health Emergency of International Concern, and a pandemic in March 2020. This outbreak has continued to rapidly spread across the world and has significantly impacted global economic activity, worldwide financial markets and social practices. The related adverse public health developments, including orders to shelter-in-place, travel restrictions, and mandated business closures, have adversely affected workforces, organizations, customers, economies, and financial markets globally, leading to an economic downturn and increased market volatility. It has also disrupted the normal operations of many businesses, including ours. The COVID-19 pandemic may prevent us from conducting business operations at full capacity for an indefinite period of time. For example, we have taken precautionary measures intended to help minimize the risk of the virus to our employees which may disrupt our operations, including temporarily closing our offices worldwide, requiring all employees to work remotely, and suspending all travel worldwide for our employees. An extended period of remote-work arrangements could strain our business continuity plans, introduce operational risk, including, but not limited to, cybersecurity risks, and impair our ability to effectively manage our business, which may negatively impact our business, results of operations, and financial condition. We are actively monitoring the impacts of the situation and may adjust our current policies and practices as more information and public health guidance become available.
This outbreak and the resulting economic and social impact, as well as intensified measures undertaken to contain the spread of COVID-19, could decrease technology spending, affect our ability to accurately forecast our future results, adversely affect demand for our products, cause some of our paid customers or suppliers to file for bankruptcy protection or go out of business, affect the ability of our customer support team to conduct in-person trainings or our solutions partners to conduct in-person sales, impact expected spending from new customers or renewals or expansions from existing customers, negatively impact collections of accounts receivable, result in elongated sales cycles, and harm our business, results of operations, and financial condition. In particular, we have revenue exposure to customers who are small- and medium-sized businesses and to industries that may be disproportionately impacted by COVID-19. If these customers’ business operations and finances are negatively affected, they may not purchase or renew our products, may reduce or delay spending, or request extended payment terms or price concessions, which would negatively impact our business, results of operations, and financial condition.
The extent to which COVID-19 ultimately impacts our business, results of operations, and financial position will depend on future developments, which are uncertain and cannot be fully predicted at this time, including, but not limited to, the duration and spread of the outbreak, its severity, the actions taken by governments and authorities to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.
Our rapid growth makes it difficult to evaluate our future prospects and may increase the risk that we will not continue to grow at or near historical rates.
We have been growing rapidly over the last several years, and as a result, our ability to forecast our future results of operations is subject to a number of uncertainties, including our ability to effectively plan for and model future growth. Our recent and historical growth should not be considered indicative of our future performance. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies in rapidly changing industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations, our growth rates may slow, and our business would suffer.
We may not be able to sustain our revenue growth rate or achieve profitability in the future.
Our historical growth rate should not be considered indicative of our future performance and may decline in the future. In future periods, our revenue could grow more slowly than in recent periods or decline for a number of reasons, including any reduction in demand for our products, increase in competition, limited ability to, or our decision not to, increase pricing, contraction of our overall market, a slower than anticipated adoption of our cloud offerings, or our failure to capitalize on growth opportunities. In addition, we expect expenses to increase substantially in the near term, particularly as we continue to make significant investments in research and development and technology infrastructure for our cloud offerings, expand our operations globally and develop new products and features for, and enhancements of, our existing products. As a result of these significant investments, and in particular share-based compensation associated with our growth, we may not be able to achieve IFRS profitability in future periods. In addition, the additional expenses we will incur may not lead to sufficient additional revenue to maintain historical revenue growth rates and profitability.
The markets in which we participate are intensely competitive, and if we do not compete effectively, our business, results of operations, and financial condition could be harmed.
The markets for our solutions are fragmented, rapidly evolving, highly competitive, and have relatively low barriers to entry. We face competition from both traditional, larger software vendors offering full collaboration and productivity suites and smaller companies offering point products for features and use cases. Our principal competitors vary depending on the product category and include Microsoft (including GitHub), IBM, Google, ServiceNow, salesforce.com, PagerDuty, Gitlab, Zendesk, Asana, Monday.com and Smartsheet. In addition, some of our competitors have made acquisitions to offer a more comprehensive product or service offering, which may allow them to compete more effectively with our products. We expect this trend to continue as companies attempt to strengthen or maintain their market positions in an evolving industry. Following such potential consolidations, companies may create more compelling product offerings and be able to offer more attractive pricing options, making it more difficult for us to compete effectively.
Our competitors, particularly our competitors with greater financial and operating resources, may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards, or customer requirements. With the introduction of new technologies, the evolution of our products, and new market entrants, we expect competition to intensify in the future. For example, as we expand our focus into new use cases or other product offerings beyond software development teams, we expect competition to increase. Pricing pressures and increased competition generally could result in reduced sales, reduced margins, losses, or the failure of our products to achieve or maintain more widespread market acceptance, any of which could harm our business, results of operations and financial condition.
Many of our current and potential competitors have greater resources than we do, with established marketing relationships, large enterprise sales forces, access to larger customer bases, pre-existing customer relationships, and major distribution agreements with consultants, system integrators and resellers. Additionally, some current and potential customers, particularly large organizations, have elected, and may in the future elect, to develop or acquire their own internal collaboration and productivity software tools that would reduce or eliminate the demand for our solutions.
Our products seek to serve multiple markets, and we are subject to competition from a wide and varied field of competitors. Some competitors, particularly new and emerging companies with sizeable venture capital investment, could focus all their energy and resources on one product line or use case and, as a result, any one competitor could develop a more successful product or service in a particular market which could decrease our market share and harm our brand recognition and results of operations. For all of these reasons and others we cannot anticipate today, we may not be able to compete successfully against our current and future competitors, which could harm our business, results of operations, and financial condition.
Our distribution model of offering and selling on-premises offerings of certain of our products, in addition to offering and selling cloud offerings of these products, increases our expenses, may impact revenue recognition timing, and may pose other challenges to our business.
We offer and sell both on-premises and cloud offerings of certain of our products. For these products, our cloud offering enables quick setup and subscription pricing, while our on-premises offering permits more customization, a perpetual or term license fee structure, and complete application control. Historically, these products were developed in the context of our on-premises offering, and we have less operating experience offering and selling these products via our cloud offering. Although a substantial majority of our revenue has historically been generated from customers using our on-premises products, we believe that over time more customers will move to our cloud offering, and our cloud offering will become more central to our distribution model. As more of our customers transition to the cloud, we may be subject to additional competitive pressures, which could harm our business. Further, as more customers elect our cloud offering in place of our on-premises offering, revenues from such customers are typically lower in the initial year, which may impact our near-term revenue growth rates. If our cloud offering does not develop as quickly as we expect, if we are unable to continue to scale our systems to meet the requirements of a successful large, cloud offering, or if we lose customers currently using our on-premises products due to our increased focus on our cloud offering or our inability to successfully migrate them to our cloud products, our business could be harmed. We are directing a significant portion of our financial and operating resources to implement a robust cloud offering for our products, but even if we continue to make these investments, we may be unsuccessful in growing or implementing our cloud offering that competes successfully against our current and future competitors and our business, results of operations, and financial condition could be harmed.
Our business depends on our customers renewing their subscriptions and maintenance plans and purchasing additional licenses or subscriptions from us, and any decline in our customer retention or expansion could harm our future results of operations.
In order for us to maintain or improve our results of operations, it is important that our customers renew their subscriptions and maintenance plans when existing contract terms expire and that we expand our commercial relationships with our existing customers. Our customers have no obligation to renew their subscriptions or maintenance plans, and our customers may not renew subscriptions or maintenance plans with a similar contract duration or with the same or greater number of users. Our customers generally do not enter into long-term contracts, rather they primarily have monthly or annual terms. Some of our customers have elected not to renew their agreements with us and it is difficult to accurately predict long-term customer retention.
Our customer retention and expansion may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our products, new market entrants, our product support, our prices and pricing plans, the prices of competing software products, reductions in our customers’ spending levels, new product releases and changes to packaging of our product offerings, mergers and acquisitions affecting our customer base, our increased focus on our cloud offerings, or the effects of global economic conditions, including the impacts on us or our customers, partners and suppliers from the COVID-19 pandemic. We may be unable to timely address any retention issues with specific customers, which could harm our results of operations. If our customers do not purchase additional licenses or subscriptions or renew their subscriptions or maintenance plans, renew on less favorable terms, or fail to add more users, our revenue may decline or grow less quickly, which could harm our future results of operations and prospects.
If we are not able to develop new products and enhancements to our existing products that achieve market acceptance and that keep pace with technological developments, our business and results of operations could be harmed.
Our ability to attract new customers, and retain and increase revenue from existing customers depends in large part on our ability to enhance and improve our existing products and to introduce compelling new products that reflect the changing nature of our markets. The success of any enhancement to our products depends on several factors, including timely completion and delivery, competitive pricing, adequate quality testing, integration with existing technologies and our platform, and overall market acceptance. Any new product that we develop may not be introduced in a timely or cost-effective manner, may contain bugs, or may not achieve the market acceptance necessary to generate significant revenue. If we are unable to successfully develop new products, enhance our existing products to meet customer requirements, or otherwise gain market acceptance, our business, results of operations, and financial condition could be harmed.
If we cannot continue to expand the use of our products beyond our initial focus on software developers, our ability to grow our business could be harmed.
Our ability to grow our business depends in part on our ability to persuade current and future customers to expand their use of our products to additional use cases beyond software developers, including IT and business teams. If we fail to predict customer demands or achieve further market acceptance of our products within these additional areas and teams, or if a competitor establishes a more widely adopted product for these applications, our ability to grow our business could be harmed.
We invest significantly in research and development, and to the extent our research and development investments do not translate into new products or material enhancements to our current products, or if we do not use those investments efficiently, our business and results of operations would be harmed.
A key element of our strategy is to invest significantly in our research and development efforts to develop new products and enhance our existing products to address additional applications and markets. In fiscal years 2020 and 2019, our research and development expenses were 47% and 48% of our revenue, respectively. If we do not spend our research and development budget efficiently or effectively on compelling innovation and technologies, our business could be harmed and we may not realize the expected benefits of our strategy. Moreover, research and development projects can be technically challenging and expensive. The nature of these research and development cycles may cause us to experience delays between the time we incur expenses associated with research and development and the time we are able to offer compelling products and generate revenue, if any, from such investment. Additionally, anticipated customer demand for a product we are developing could decrease after the development cycle has commenced, and we would nonetheless be unable to avoid substantial costs associated with the development of any such product. If we expend a significant amount of resources on research and development and our efforts do not lead to the successful introduction or improvement of products that are competitive in our current or future markets, it could harm our business and results of operations.
If we fail to effectively manage our growth, our business and results of operations could be harmed.
We have experienced and expect to continue to experience rapid growth, which has placed, and may continue to place, significant demands on our management, operational, and financial resources. In addition, we operate globally, sell our products to customers in approximately 190 countries, and have employees in Australia, the United States, the United Kingdom, the Netherlands, the Philippines, India, Turkey, Canada, Japan, Sweden, Germany and France. We plan to continue to expand our operations into other countries in the future, which will place additional demands on our resources and operations. We have also experienced significant growth in the number of customers, users, transactions and data that our products and our associated infrastructure support. If we fail to successfully manage our anticipated growth and change, the quality of our products may suffer, which could negatively affect our brand and reputation and harm our ability to retain and attract customers. Finally, our organizational structure is becoming more complex and if we fail to scale and adapt our operational, financial, and management controls and systems, as well as our reporting systems and procedures, to manage this complexity, our business, results of operations, and financial condition could be harmed. We will require significant capital expenditures and the allocation of management resources to grow and change in these areas.
If our current marketing model is not effective in attracting new customers, we may need to incur additional expenses to attract new customers and our business and results of operations could be harmed.
Unlike traditional enterprise software vendors, who rely on direct sales methodologies and face long sales cycles, complex customer requirements and substantial upfront sales costs, we primarily utilize a viral marketing model to target new customers. Through this word-of-mouth marketing, we have been able to build our brand with relatively low marketing and sales costs. We also build our customer base through various online marketing activities as well as targeted web-based content and online communications. This strategy has allowed us to build a substantial customer base and community of users who use our products and act as advocates for our brand and solutions, often within their own corporate organizations. Attracting new customers and retaining existing customers requires that we continue to provide high-quality products at an affordable price and convince customers of our value proposition. If we do not attract new customers through word-of-mouth referrals, our revenue may grow more slowly than expected, or decline. In addition, high levels of customer satisfaction and market adoption are central to our marketing model. Any decrease in our customers’ satisfaction with our products, including as a result of actions outside of our control, could harm word-of-mouth referrals and our brand. If our customer base does not continue to grow through word-of-mouth marketing and viral adoption, we may be required to incur significantly higher marketing and sales expenses in order to acquire new subscribers, which could harm our business and results of operations.
If our security measures are breached or unauthorized access to customer data is otherwise obtained, our products may be perceived as insecure, we may lose existing customers or fail to attract new customers, and we may incur significant liabilities.
Use of our products involves the storage, transmission, and processing of our customers’ proprietary data, including potentially personal or identifying information. Unauthorized access to, or security breaches of, our products could result in unauthorized access to data and information, and the loss, compromise or corruption of such data and information. In the event of a security breach, we could suffer loss of business, severe reputational damage adversely affecting customer or investor confidence, regulatory investigations and orders, litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, significant costs for remediation, and other liabilities. We have incurred and expect to incur significant expenses to prevent security breaches, including costs related to deploying additional personnel and protection technologies, training employees, and engaging third-party solution providers and consultants. Our errors and omissions insurance coverage covering certain security and privacy damages and claim expenses may not be sufficient to compensate for all liabilities we may incur.
Although we expend significant resources to create security protections that shield our customer data against potential theft and security breaches, such measures cannot provide absolute security. We have in the past experienced breaches of our security measures. Certain breaches have resulted in unauthorized access to certain data processed through our products. Our products are at risk for future breaches, including, without limitation, breaches that may occur as a result of third-party action, or employee, vendor or contractor error or malfeasance, and other causes. Additionally, due to the COVID-19 pandemic, our employees are temporarily working remotely, which may pose additional data security risks.
As we further transition selling our products via our cloud offering, continue to collect more personal and sensitive information, and operate in more countries, the risk that real or perceived vulnerabilities of our systems could seriously harm our business and our financial performance, by tarnishing our reputation and brand and limiting the adoption of our products, is likely to increase.
Because the techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not identified until they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period and, therefore, have a greater impact on the products we offer, the proprietary data processed through our services, and, ultimately, on our business.
One of our marketing strategies is to offer free trials, limited free versions or affordable starter licenses for certain products, and we may not be able to realize the benefits of this strategy.
We offer free trials, limited free versions or affordable starter licenses for certain products in order to promote additional usage, brand and product awareness, and adoption. Historically, a majority of users never convert to a paid version of our products from these free trials or limited free versions or upgrade beyond the starter license. Our marketing strategy also depends in part on persuading users who use the free trials, free versions or starter licenses of our products to convince others within their organization to purchase and deploy our products. To the extent that these users do not become, or lead others to become, customers, we will not realize the intended benefits of this marketing strategy, and our ability to grow our business could be harmed.
Our business model relies on a high volume of transactions and affordable pricing. As lower cost or free products are introduced by our competitors, our ability to generate new customers could be harmed.
Our business model is based in part on selling our products at prices lower than competing products from other commercial vendors. For example, we offer entry-level or free pricing for certain products for small teams at a price that typically does not require capital budget approval and is orders-of-magnitude less than the price of traditional enterprise software. As a result, our software is frequently purchased by first-time customers to solve specific problems and not as part of a strategic technology purchasing decision. We have historically increased, and will continue to increase, prices from time to time. As competitors enter the market with low cost or free alternatives to our products, it may become increasingly difficult for us to compete effectively and our ability to garner new customers could be harmed. Additionally, some customers may consider our products to be discretionary purchases, which may contribute to reduced demand for our offerings in times of economic uncertainty, including the current environment caused by the COVID-19 pandemic. If we are unable to sell our software in high volume, across new and existing customers, our business, results of operations and financial condition could be harmed.
We derive a majority of our revenue from Jira Software and Confluence.
We derive a majority of our revenue from Jira Software and Confluence. As such, the market acceptance of these products is critical to our success. Demand for these products and our other products is affected by a number of factors, many of which are beyond our control, such as continued market acceptance of our products by customers for existing and new use cases; the timing of development and release of new products, features, functionality and lower cost alternatives introduced by our competitors; technological changes and developments within the markets we serve; and growth or contraction in our addressable markets. If we are unable to continue to meet customer demands or to achieve more widespread market acceptance of our products, our business, results of operations, and financial condition could be harmed.
If the Atlassian Marketplace does not continue to be successful, our business and results of operations could be harmed.
We operate the Atlassian Marketplace, an online marketplace, for selling third-party, as well as Atlassian-built, apps. We rely on the Atlassian Marketplace to supplement our promotional efforts and build awareness of our products, and believe that third-party apps from th