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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
 
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
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)
 
Not Applicable
(Translation of Registrant’s name into English)

England and Wales
(Jurisdiction of incorporation or organization)
 
Exchange House
Primrose Street
London EC2A 2EG
c/o Herbert Smith Freehills LLP
415.701.1110
(Address of principal executive offices)

Stuart Fagin
Deputy General Counsel
Atlassian Corporation Plc
Exchange House
Primrose Street
London EC2A 2EG
c/o Herbert Smith Freehills LLP
415.701.1110
IR@atlassian.com
(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




ANNUAL REPORT
TABLE OF CONTENTS
INTRODUCTION
4
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
4
PART I
5
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
5
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
5
Item 3. KEY INFORMATION
5
Item 4. INFORMATION ON THE COMPANY
36
Item 4A. UNRESOLVED STAFF COMMENTS
45
Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
45
Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
62
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 
74
Item 8. FINANCIAL INFORMATION
78
Item 9. THE OFFER AND LISTING
79
Item 10. ADDITIONAL INFORMATION 
79
Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
87
Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 
88
PART II
88
Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 
88
Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
88
Item 15. CONTROLS AND PROCEDURES
88
Item 16. RESERVED
89
Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
89
Item 16B. CODE OF ETHICS.
89
Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
89
Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
90
Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
90
Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
90
Item 16G. CORPORATE GOVERNANCE
90
Item 16H. MINE SAFETY DISCLOSURE
90
PART III
90
ITEM 17. FINANCIAL STATEMENTS
91
ITEM 18. FINANCIAL STATEMENTS
91
ITEM 19. EXHIBITS
92
SIGNATURES
94
CONSOLIDATED FINANCIAL STATEMENTS  
F-1



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INTRODUCTION
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.

4


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.
PART I

Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 

 Not applicable.

Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

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.

5


Consolidated Statements of Operations Data:
  Fiscal Year Ended June 30,
  2020 2019 2018 2017 2016
(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   


6


Consolidated Statements of Financial Position Data:

  As of June 30,
  2020 2019 2018 2017 2016
(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:
Share-based compensation;
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.

7


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.

8


  Fiscal Year Ended June 30,
  2020 2019 2018 2017 2016
(U.S. $ and shares in thousands, except per share data)
Gross profit
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   
Operating income
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   
Net income
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.

9


B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

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.

10


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.

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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.

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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.

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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.

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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 the Atlassian Marketplace facilitate greater usage and customization of our products. If we do not continue to add new vendors and developers, or our existing vendors and developers stop developing or supporting the apps that they sell on Atlassian Marketplace, our business could be harmed.
Interruptions or performance problems associated with our technology and infrastructure could harm our business and results of operations.
Our continued growth depends in part on the ability of our existing and potential customers to access our solutions at any time and within an acceptable amount of time. In addition, we rely almost exclusively on our websites for the downloading of and payment for all our products. We have experienced, and may in the future experience, disruptions, data loss and corruption, outages and other performance problems with our infrastructure and websites due to a variety of factors, including infrastructure changes, introductions of new functionality, human or software errors, capacity constraints, denial of service attacks, or other security-related incidents. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve our performance, especially during peak usage times and as our products and websites become more complex and our user traffic increases. If our products and websites are unavailable or if our users are unable to access our products within a reasonable amount of time, or at all, our business could be harmed. Moreover, we provide service level commitments under certain of our paid customer cloud contracts, pursuant to which we guarantee specified minimum availability. From time to time, we have granted, and in the future will continue to grant, credits to paid customers pursuant to the terms of these agreements. If we fail to meet these contractual commitments, we could be obligated to provide credits for future service, or face contract termination with refunds of prepaid amounts related to unused subscriptions, which could harm our business, results of operations, and financial condition.

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Additionally, we depend on services from various third parties, including Amazon Web Services, to maintain our infrastructure and distribute our products via the Internet. Any disruptions in these services, including as a result of actions outside of our control, would significantly impact the continued performance of our products. In the future, these services may not be available to us on commercially reasonable terms, or at all. Any loss of the right to use any of these services could result in decreased functionality of our products until equivalent technology is either developed by us or, if available from another provider, is identified, obtained and integrated into our infrastructure. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed, and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business, results of operations and financial condition could be harmed.
Real or perceived errors, failures, vulnerabilities or bugs in our products or in the products on Atlassian Marketplace could harm our business and results of operations.
Errors, failures, vulnerabilities, or bugs may occur in our products, especially when updates are deployed or new products are rolled out. Our solutions are often used in connection with large-scale computing environments with different operating systems, system management software, equipment, and networking configurations, which may cause errors, failures of products, or other negative consequences in the computing environment into which they are deployed. In addition, deployment of our products into complicated, large-scale computing environments may expose errors, failures, vulnerabilities, or bugs in our products. Any such errors, failures, vulnerabilities, or bugs may not be found until after they are deployed to our customers. Real or perceived errors, failures, vulnerabilities, or bugs in our products could result in negative publicity, loss or unauthorized access to customer data, loss of or delay in market acceptance of our products, loss of competitive position, or claims by customers for losses sustained by them, all of which could harm our business and results of operations.
In addition, third-party apps on Atlassian Marketplace may not meet the same quality standards that we apply to our own development efforts and, to the extent these apps contain bugs, vulnerabilities, or defects, such apps may create disruptions in our customers’ use of our products, lead to data loss or unauthorized access to customer data, damage our brand and reputation, and affect the continued use of our products, any of which could harm our business, results of operations and financial condition.
Any failure to offer high-quality product support could harm our relationships with our customers and our business, results of operations, and financial condition.
In deploying and using our products, our customers depend on our product support teams to resolve complex technical and operational issues. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for product support. We also may be unable to modify the nature, scope and delivery of our product support to compete with changes in product support services provided by our competitors. Increased customer demand for product support, without corresponding revenue, could increase costs and harm our results of operations. In addition, as we continue to grow our operations and reach a global and vast customer base, we need to be able to provide efficient product support that meets our customers’ needs globally at scale. The number of our customers has grown significantly and that has put additional pressure on our product support organization. In order to meet these needs, we have relied in the past and will continue to rely on third-party vendors and self-service product support to resolve common or frequently asked questions, which supplement our customer support teams. If we are unable to provide efficient product support globally at scale, including through the use of third-party vendors and self-service support, our ability to grow our operations could be harmed and we may need to hire additional support personnel, which could harm our results of operations. Our sales are highly dependent on our business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality product support, or a market perception that we do not maintain high-quality product support, could harm our reputation, our ability to sell our products to existing and prospective customers, and our business, results of operations and financial condition.
Our sales model does not rely primarily on a direct enterprise sales force, which could impede the growth of our business.
Our sales model does not rely primarily on traditional, quota-carrying sales personnel. Although we believe our business model can continue to scale without a large, direct enterprise sales force, our viral marketing model may not continue to be as successful as we anticipate, and the absence of a large, direct, enterprise sales function may impede our future growth. As we continue to scale our business, a more traditional sales infrastructure could assist in reaching larger enterprise customers and growing our revenue. Identifying, recruiting, training, and retaining such a qualified sales force would require significant time, expense and attention and would significantly impact our business model. In addition, expanding our sales infrastructure would considerably change our cost

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structure and results of operations, and we may have to reduce other expenses, such as our research and development expenses, in order to accommodate a corresponding increase in marketing and sales expenses and maintain positive free cash flow. If our lack of a large, direct enterprise sales force limits us from reaching larger enterprise customers and growing our revenue, and we are unable to hire, develop, and retain talented sales personnel in the future, our revenue growth and results of operations could be harmed.
Our quarterly results may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control. If our quarterly financial results fall below the expectations of investors or any securities analysts who follow us, the price of our Class A ordinary shares could decline substantially. Factors that may cause our revenue, results of operations and cash flows to fluctuate from quarter to quarter include, but are not limited to:
Our ability to attract new customers, retain and increase sales to existing customers, and satisfy our customers’ requirements;
The timing of customer renewals;
Changes in our or our competitors’ pricing policies and offerings;
New products, features, enhancements, or functionalities introduced by our competitors;
The amount and timing of operating costs and capital expenditures related to the operations and expansion of our business;
Significant security breaches, technical difficulties, or interruptions to our products;
Our increased focus on our cloud offerings;
The number of new employees added;
Changes in foreign currency exchange rates or adding additional currencies in which our sales are denominated;
The amount and timing of acquisitions or other strategic transactions;
Extraordinary expenses such as litigation or other dispute-related settlement payments;
General economic conditions that may adversely affect either our customers’ ability or willingness to purchase additional licenses, subscriptions, and maintenance plans, delay a prospective customer’s purchasing decisions, reduce the value of new license, subscription, or maintenance plans, or affect customer retention;
The impact of social unrest, natural disasters, diseases and pandemics, such as the COVID-19 pandemic, and any associated economic downturn, and political and social unrest, on our results of operations and financial performance;
Potential exchanges of our Notes for payment of cash due to the triggering of the conditional exchange feature of the Notes;
Non-coupon impact related to the Notes and related capped call transactions;
Seasonality in our operations;
The impact of new accounting pronouncements and associated system implementations; and
The timing of the grant or vesting of equity awards to employees, contractors, or directors.
Many of these factors are outside of our control, and the occurrence of one or more of them might cause our revenue, results of operations, and cash flows to vary widely. As such, we believe that quarter-to-quarter comparisons of our revenue, results of operations, and cash flows may not be meaningful and should not be relied upon as an indication of future performance.
If we are unable to develop and maintain successful relationships with our solution partners, our business, results of operations, and financial condition could be harmed.
We have established relationships with certain solution partners to distribute our products. We believe that continued growth in our business is dependent upon identifying, developing and maintaining strategic relationships with our existing and potential solution partners that can drive substantial revenue and provide additional value-added services to our customers. Currently we derive approximately one-third of our revenue from channel partners’ sales efforts.

Successfully managing our indirect channel distribution efforts is a complex process across the broad range of geographies where we do business or plan to do business. Our solution partners are independent businesses we do not control. Notwithstanding this independence, we still face legal risk and reputational harm from the activities of our solution partners including, but not limited to, export control violations, workplace conditions, corruption and anti-competitive behavior.

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Our agreements with our existing solution partners are non-exclusive, meaning they may offer customers the products of several different companies, including products that compete with ours. They may also cease marketing our products with limited or no notice and with little or no penalty. We expect that any additional solution partners we identify and develop will be similarly non-exclusive and unbound by any requirement to continue to market our products. If we fail to identify additional solution partners in a timely and cost-effective manner, or at all, or are unable to assist our current and future solution partners in independently distributing and deploying our products, our business, results of operations, and financial condition could be harmed. If our solution partners do not effectively market and sell our products, or fail to meet the needs of our customers, our reputation and ability to grow our business could also be harmed.
Many of our solution partners rely on in-person interactions to manage and build relationships with our customers. Currently, as a result of the work and travel restrictions due to COVID-19, our solution partners’ activities are being conducted remotely. We do not yet know the extent of the negative impact this will have on our solution partners’ ability to distribute our products.
Acquisitions of other businesses, products, or technologies could disrupt our business, and we may be unable to integrate acquired businesses and technologies successfully or achieve the expected benefits of such acquisitions.
We have completed a number of acquisitions and strategic investments and continue to evaluate and consider additional strategic transactions, including acquisitions of, or investments in, businesses, technologies, services, products, and other assets in the future. We also may enter into strategic relationships with other businesses to expand our products, which could involve preferred or exclusive licenses, additional channels of distribution, discount pricing or investments in other companies.
Any acquisition, investment or business relationship may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel, or operations of the acquired companies, particularly if the key personnel of the acquired companies choose not to work for us, their software and services are not easily adapted to work with our products, or we have difficulty retaining the customers of any acquired business due to changes in ownership, management or otherwise. Acquisitions may also disrupt our business, divert our resources, and require significant management attention that would otherwise be available for development of our existing business. We may not successfully evaluate or utilize the acquired technology or personnel, or accurately forecast the financial impact of an acquisition transaction, including accounting charges. Moreover, the anticipated benefits of any acquisition, investment, or business relationship may not be realized or we may be exposed to unknown risks or liabilities.
In the future, we may not be able to find suitable acquisition candidates, and we may not be able to complete acquisitions on favorable terms, if at all. Our previous and future acquisitions or strategic investments may not achieve our goals, and any future acquisitions or strategic investments we complete could be viewed negatively by users, customers, developers or investors.
Negotiating these transactions can be time consuming, difficult and expensive, and our ability to complete these transactions may often be subject to approvals that are beyond our control. Consequently, these transactions, even if announced, may not be completed. For one or more of those transactions, we may:
Issue additional equity securities that would dilute our existing shareholders;
Use cash that we may need in the future to operate our business;
Incur large charges, expenses, or substantial liabilities;
Incur debt on terms unfavorable to us or that we are unable to repay;
Encounter difficulties retaining key employees of the acquired company or integrating diverse software codes or business cultures; and
Become subject to adverse tax consequences, substantial depreciation, impairment, or deferred compensation charges.
If we are not able to maintain and enhance our brand, our business, results of operations, and financial condition could be harmed.

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We believe that maintaining and enhancing our reputation as a differentiated and category-defining company is critical to our relationships with our existing customers and to our ability to attract new customers. The successful promotion of our brand attributes will depend on a number of factors, including our, and our solution partners’, marketing efforts, our ability to continue to develop high-quality products, and our ability to successfully differentiate our products from competitive products. In addition, independent industry analysts often provide analyses of our products, as well as the products offered by our competitors, and perception of the relative value of our products in the marketplace may be significantly influenced by these analyses. If these analyses are negative, or less positive as compared to those of our competitors’ products, our brand may be harmed.
The promotion of our brand requires us to make substantial expenditures, and we anticipate that the expenditures will increase as our market becomes more competitive, as we expand into new markets, and as more sales are generated through our solution partners. To the extent that these activities yield increased revenue, this revenue may not offset the increased expenses we incur. If we do not successfully maintain and enhance our brand, our business may not grow, we may have reduced pricing power relative to competitors, and we could lose customers or fail to attract new customers, any of which could harm our business, results of operations, and financial condition.
Because our products rely on the movement of data across national boundaries, global privacy and data security concerns could result in additional costs and liabilities to us or inhibit sales of our products globally.
Privacy and data security have become significant issues in the United States, Europe and in many other jurisdictions where we offer our products. The regulatory framework for the collection, use, safeguarding, sharing, and transfer of information worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future.

Globally, virtually every jurisdiction in which we operate has established its own data security and privacy frameworks with which we, or our customers, must comply. Data protection regulation is an area of increased focus and changing requirements. On April 27, 2016, the European Union (“EU”) adopted the General Data Protection Regulation 2016/679, or GDPR, that took effect on May 25, 2018, replacing the prior data protection laws of each EU member state. GDPR applies to any company established in the EU as well as to those outside the EU if they collect and use personal data in connection with the offering of goods or services to individuals in the EU or the monitoring of their behavior. GDPR enhances data protection obligations for processors and controllers of personal data, including, for example, expanded disclosures about how personal information is to be used, limitations on retention of information, mandatory data breach notification requirements, and extensive new obligations on services providers. Interpretation and enforcement of GDPR remains uncertain. Non-compliance with GDPR can trigger steep fines of up to €20 million or 4% of total worldwide annual turnover, whichever is higher. Similar regulations have also come into effect and been proposed around the world. For example, the California Consumer Privacy Act, or CCPA, took effect January 1, 2020 and the California Attorney General began enforcement on July 1, 2020. Aspects of the CCPA and its interpretation and enforcement remain unclear. We cannot fully predict the impact of the CCPA on our business or operations, but it may require us to modify our data processing practices and policies and to incur substantial costs and expenses in an effort to comply. Record-breaking enforcement actions globally have shown that regulators do wield their right to impose substantial fines for violations of privacy regulations, and these enforcement actions could result in guidance from regulators that would require changes to our current compliance strategy. Given the breadth and depth of changes in data protection obligations, complying with global data protection requirements requires time, resources, and a review of our technology and systems currently in use against regulatory requirements.

We currently rely on the EU-U.S. Privacy Shield and standard contractual clauses approved by the European Commission as our legal mechanism for onward transfers of data from Europe. The EU-U.S. Privacy Shield program underwent its third annual review by EU regulatory authorities in October 2019, which re-affirmed the EU-U.S. Privacy Shield as a valid framework for transferring data from the EU to the United States. Nonetheless, the review reported a number of recommendations for improvement in the program before the next annual review, and there continue to be concerns about whether the EU-U.S. Privacy Shield and other transfer mechanisms will face additional challenges. Similarly, the validity of standard contractual clauses is currently under review by the European Court of Justice. In order to diversify our data transfer strategy, we will continue to explore other options managing data from Europe, including without limitation, amending standard contractual clauses where required, and considering suppliers that house data in Europe, which may involve substantial expense and distraction from other aspects of our business. We may, however, be unsuccessful in establishing an adequate mechanism for data transfer, and will be at risk of enforcement actions taken by an EU data protection authority until such point in time that we ensure an adequate mechanism for European data transfers, which could damage our reputation, inhibit

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sales and harm our business. Despite actions we have taken or will be taking to diversify our data transfer strategies, we may be unsuccessful in establishing a conforming means of transferring data due to ongoing legislative activity that could vary the current data transfer landscape. As we expand into new markets and grow our customer base, we will need to comply with any new requirements. If we cannot comply with, or if we incur a violation of one or more of these requirements, some customers may be limited in their ability to purchase our products, particularly our cloud products. Growth could be harmed, and we could incur significant liabilities.

In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that either legally or contractually apply to us. Further, our customers may require us to comply with more stringent privacy and data security contractual requirements or obtain certifications that we do not currently have, and any failure to obtain these certifications could reduce the demand for our products and our business could be harmed. If we were required to obtain additional industry certifications, we may incur significant additional expenses and have to divert resources, which could slow the release of new products, all of which could harm our ability to effectively compete.

The interpretation and application of many privacy and data protection laws are, and will likely remain, uncertain, and it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices or product features. If so, in addition to the possibility of fines, lawsuits and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our products, which could harm our business. Any inability to adequately address privacy and data security concerns or comply with applicable privacy or data security laws, regulations and policies could result in additional cost and liability to us, damage our reputation, inhibit sales, and harm our business.
Our global operations subject us to risks that can harm our business, results of operations, and financial condition.
A key element of our strategy is to operate globally and sell our products to customers around the world. Operating globally requires significant resources and management attention and subjects us to regulatory, economic, geographic, and political risks. In particular, our global operations subject us to a variety of additional risks and challenges, including:
Increased management, travel, infrastructure, and legal compliance costs associated with having operations in many countries;
Difficulties in enforcing contracts, including “clickwrap” contracts that are entered into online, of which we have historically relied as part of our product licensing strategy, but which may be subject to additional legal uncertainty in some foreign jurisdictions;
Increased financial accounting and reporting burdens and complexities;
Requirements or preferences within other regions for domestic products, and difficulties in replacing products offered by more established or known regional competitors;
Differing technical standards, existing or future regulatory and certification requirements, and required features and functionality;
Communication and integration problems related to entering and serving new markets with different languages, cultures, and political systems;
Compliance with foreign privacy and security laws and regulations and the risks and costs of non-compliance;
Compliance with laws and regulations for foreign operations, including anti-bribery laws (such as the U.S. Foreign Corrupt Practices Act, the U.S. Travel Act, and the U.K. Bribery Act), import and export control laws, tariffs, trade barriers, economic sanctions, and other regulatory or contractual limitations on our ability to sell our products in certain foreign markets, and the risks and costs of non-compliance;
Heightened risks of unfair or corrupt business practices in certain geographies that may impact our financial results and result in restatements of our consolidated financial statements;
Fluctuations in currency exchange rates and related effects on our results of operations;
Difficulties in repatriating or transferring funds from, or converting currencies in certain countries;
Weak economic conditions which could arise in each country or region in which we operate or sell our products, or general political and economic instability around the world, including as a result of COVID-19;
Differing labor standards, including restrictions related to, and the increased cost of, terminating employees in some countries;
Difficulties in recruiting and hiring employees in certain countries;
The preference for localized software and licensing programs and localized language support;

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Reduced protection for intellectual property rights in some countries and practical difficulties associated with enforcing our legal rights abroad;
Imposition of travel restrictions, prohibitions of non-essential travel, modifications of employee work locations, or cancellation or reorganization of certain sales and marketing events as a result of COVID-19;
Compliance with the laws of numerous foreign taxing jurisdictions, including withholding obligations, and overlapping of different tax regimes; and
Geopolitical risks, such as political and economic instability, and changes in diplomatic and trade relations.
Compliance with laws and regulations applicable to our global operations substantially increases our cost of doing business in foreign jurisdictions. We may be unable to keep current with changes in government requirements as they change from time to time. Failure to comply with these laws and regulations could harm our business. In many countries, it is common for others to engage in business practices that are prohibited by our internal policies and procedures or other regulations applicable to us. Although we have implemented policies and procedures designed to ensure compliance with these regulations and policies, there can be no assurance that all of our employees, contractors, business partners and agents will comply with these regulations and policies. Violations of laws, regulations or key control policies by our employees, contractors, business partners, or agents could result in delays in revenue recognition, financial reporting misstatements, enforcement actions, reputational harm, disgorgement of profits, fines, civil and criminal penalties, damages, injunctions, other collateral consequences, or the prohibition of the importation or exportation of our products and could harm our business, results of operations, and financial condition.
We depend on our executive officers and other key employees and the loss of one or more of these employees or the inability to attract and retain highly skilled employees could harm our business.
Our success depends largely upon the continued services of our executive officers and key employees. We rely on our leadership team and other key employees in the areas of research and development, products, strategy, operations, security, go-to-market, marketing, IT, support, and general and administrative functions. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. In addition, we do not have employment agreements with our executive officers or other key personnel that require them to continue to work for us for any specified period and, therefore, they could terminate their employment with us at any time. The loss of one or more of our executive officers, especially our Co-Chief Executive Officers, or other key employees could harm our business.
In addition, in order to execute our growth plan, we must attract and retain highly qualified personnel. Competition for these personnel in Sydney, Australia, the San Francisco Bay Area, and in other locations where we maintain offices, is intense, especially for engineers experienced in designing and developing software and cloud-based services. We have from time to time experienced, and we expect to continue to experience, difficulty hiring and retaining employees with appropriate qualifications. In particular, recruiting and hiring senior product engineering personnel has been, and we expect to continue to be, challenging. If we are unable to hire and retain talented product engineering personnel, we may be unable to scale our operations or release new products in a timely fashion and, as a result, customer satisfaction with our products may decline.
Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, these employers may attempt to assert that the employees or we have breached certain legal obligations, resulting in a diversion of our time and resources. In addition, job candidates and existing employees often consider the value of the equity awards they receive in connection with their employment. If the value or perceived value of our equity awards declines, it could harm our ability to recruit and retain highly skilled employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business, results of operations and financial condition could be harmed.
Our corporate values have contributed to our success, and if we cannot maintain these values as we grow, we could lose the innovative approach, creativity, and teamwork fostered by our values, and our business could be harmed.
We believe that a critical contributor to our success has been our corporate values, which we believe foster innovation, teamwork, and an emphasis on customer-focused results. In addition, we believe that our values create an environment that drives and perpetuates our product strategy and low-cost distribution approach. As we grow and continue to develop the infrastructure of a public company, we may find it difficult to maintain our corporate

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values. Any failure to preserve our values could harm our future success, including our ability to retain and recruit personnel, innovate and operate effectively, and execute on our business strategy.
We face exposure to foreign currency exchange rate fluctuations.
While we primarily sell our products in U.S. dollars, we incur expenses in currencies other than the U.S. dollar, which exposes us to foreign currency exchange rate fluctuations. A large percentage of our expenses are denominated in the Australian dollar (“AUD”), and fluctuations could have a material negative impact on our results of operations. Moreover, our subsidiaries, other than our U.S. subsidiaries, maintain net assets that are denominated in currencies other than the U.S. dollar. In addition, we recently began to transact in non-U.S. dollar currencies for our products, and, accordingly, changes in the value of non-U.S. dollar currencies relative to the U.S. dollar could affect our revenue and results of operations due to transactional and translational remeasurements that are reflected in our results of operations.
We have a foreign exchange hedging program to hedge a portion of certain exposures to fluctuations in non-U.S. dollar currency exchange rates. We use derivative instruments, such as foreign currency forward contracts, to hedge the exposures. The use of such hedging instruments may not fully offset the adverse financial effects of unfavorable movements in foreign currency exchange rates over the limited time the hedges are in place. Moreover, the use of hedging instruments may introduce additional risks if we are unable to structure effective hedges with such instruments or if we are unable to forecast hedged exposures accurately.
We are subject to government regulation, including import, export, economic sanctions, and anti-corruption laws and regulations, that may expose us to liability and increase our costs.
Various of our products are subject to U.S. export controls, including the U.S. Department of Commerce’s Export Administration Regulations and economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. These regulations may limit the export of our products and provision of our services outside of the United States, or may require export authorizations, including by license, a license exception, or other appropriate government authorizations, including annual or semi-annual reporting and the filing of an encryption registration. Export control and economic sanctions laws may also include prohibitions on the sale or supply of certain of our products to embargoed or sanctioned countries, regions, governments, persons and entities. In addition, various countries regulate the importation of certain products through import permitting and licensing requirements, and have enacted laws that could limit our ability to distribute our products. The exportation, reexportation, and importation of our products, and the provision of services, including by our solution partners, must comply with these laws or else we may be adversely affected through reputational harm, government investigations, penalties, and a denial or curtailment of our ability to export our products or provide services. Complying with export control and sanctions laws can be time consuming and complex and may result in the delay or loss of sales opportunities. Although we take precautions to prevent our products from being provided in violation of such laws, we are aware of previous exports of certain of our products to a small number of persons and organizations that are the subject of U.S. sanctions or located in countries or regions subject to U.S. sanctions. If we are found to be in violation of U.S. sanctions or export control laws, it could result in substantial fines and penalties for us and for the individuals working for us. Changes in export or import laws or corresponding sanctions may delay the introduction and sale of our products in international markets, or, in some cases, prevent the export or import of our products to certain countries, regions, governments, persons or entities altogether, which could adversely affect our business, financial condition and results of operations.
We are also subject to various domestic and international anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, as well as other similar anti-bribery and anti-kickback laws and regulations. These laws and regulations generally prohibit companies and their employees and intermediaries from authorizing, offering, or providing improper payments or benefits to officials and other recipients for improper purposes. We rely on certain third parties to support our sales and regulatory compliance efforts and can be held liable for their corrupt or other illegal activities, even if we do not explicitly authorize or have actual knowledge of such activities. Although we take precautions to prevent violations of these laws, our exposure for violating these laws increases as our international presence expands and as we increase sales and operations in additional jurisdictions.

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We recognize certain revenue streams over the term of our subscription and maintenance contracts. Consequently, downturns in new sales may not be immediately reflected in our results of operations and may be difficult to discern.
We generally recognize subscription and maintenance revenue from customers ratably over the terms of their contracts. As a result, a significant portion of the revenue we report in each quarter is derived from the recognition of deferred revenue relating to subscription and maintenance plans entered into during previous quarters. Consequently, a decline in new or renewed licenses, subscriptions, and maintenance plans in any single quarter may only have a small impact on our revenue results for that quarter. However, such a decline will negatively affect our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our products, and potential changes in our pricing policies or rate of expansion or retention, may not be fully reflected in our results of operations until future periods. For example, the impact of COVID-19 may cause customers to request concessions, including better pricing, or to slow their rate of expansion or reduce their number of licenses, which may not be reflected immediately in our results of operations. We may also be unable to reduce our cost structure in line with a significant deterioration in sales. In addition, a significant majority of our costs are expensed as incurred, while a significant portion of our revenue is recognized over the life of the agreement with our customer. As a result, increased growth in the number of our customers could continue to result in our recognition of more costs than revenue in the earlier periods of the terms of certain of our customer agreements. Our subscription and maintenance revenue also makes it more difficult for us to rapidly increase our revenue through additional sales in any period, as revenue from certain new customers must be recognized over the applicable term.
If we fail to integrate our products with a variety of operating systems, software applications, platforms and hardware that are developed by others, our products may become less marketable, less competitive, or obsolete and our results of operations could be harmed.
Our products must integrate with a variety of network, hardware, and software platforms, and we need to continuously modify and enhance our products to adapt to changes in hardware, software, networking, browser and database technologies. In particular, we have developed our products to be able to easily integrate with third-party applications, including the applications of software providers that compete with us, through the interaction of application programming interfaces, or APIs. In general, we rely on the fact that the providers of such software systems continue to allow us access to their APIs to enable these customer integrations. To date, we have not relied on long-term written contracts to govern our relationship with these providers. Instead, we are subject to the standard terms and conditions for application developers of such providers, which govern the distribution, operation and fees of such software systems, and which are subject to change by such providers from time to time. Our business could be harmed if any provider of such software systems:
Discontinues or limits our access to its APIs;
Modifies its terms of service or other policies, including fees charged to, or other restrictions on us or other application developers;
Changes how customer information is accessed by us or our customers;
Establishes more favorable relationships with one or more of our competitors; or
Develops or otherwise favors its own competitive offerings over ours.
We believe a significant component of our value proposition to customers is the ability to optimize and configure our products with these third-party applications through our respective APIs. If we are not permitted or able to integrate with these and other third-party applications in the future, demand for our products could decline and our business and results of operations could be harmed.
In addition, an increasing number of organizations and individuals within organizations are utilizing mobile devices to access the Internet and corporate resources and to conduct business. We have designed and continue to design mobile applications to provide access to our products through these devices. If we cannot provide effective functionality through these mobile applications as required by organizations and individuals that widely use mobile devices, we may experience difficulty attracting and retaining customers. Failure of our products to operate effectively with future infrastructure platforms and technologies could also reduce the demand for our products, resulting in customer dissatisfaction and harm to our business. If we are unable to respond to changes in a cost-effective manner, our products may become less marketable, less competitive or obsolete and our results of operations could be harmed.

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We may be sued by third parties for alleged infringement or misappropriation of their intellectual property rights.
There is considerable patent and other intellectual property development activity in our industry. Our future success depends in part on not infringing upon or misappropriating the intellectual property rights of others. We have received, and may receive in the future, communications from third parties, including practicing entities and non-practicing entities, claiming that we are infringing upon or misappropriating their intellectual property rights, and we may be found to be infringing upon or misappropriating such rights. We may be unaware of the intellectual property rights of others that may cover some or all of our technology, or technology that we obtain from third parties. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty or license payments, prevent us from offering our products or using certain technologies, require us to implement expensive work-arounds, refund fees to customers or require that we comply with other unfavorable terms. In the case of infringement or misappropriation caused by technology that we obtain from third parties, any indemnification or other contractual protections we obtain from such third parties, if any, may be insufficient to cover the liabilities we incur as a result of such infringement or misappropriation. We may also be obligated to indemnify our customers or business partners in connection with any such claims or litigation and to obtain licenses, modify our products or refund fees, which could further exhaust our resources. Even if we were to prevail in the event of claims or litigation against us, any claim or litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and other employees from our business operations and disrupt our business.
Indemnity provisions in various agreements potentially expose us to substantial liability for intellectual property infringement and other losses. 
Our agreements with customers and other third parties may include indemnification or other provisions under which we agree to indemnify or otherwise be liable to them for losses suffered or incurred as a result of claims of intellectual property infringement, damages caused by us to property or persons, or other liabilities relating to or arising from our products or other acts or omissions. The term of these contractual provisions often survives termination or expiration of the applicable agreement. Large indemnity payments or damage claims from contractual breach could harm our business, results of operations and financial condition. Although we generally contractually limit our liability with respect to such obligations, we may still incur substantial liability related to them. Any dispute with a customer with respect to such obligations could have adverse effects on our relationship with that customer and other current and prospective customers, reduce demand for our products, damage our reputation and harm our business, results of operations and financial condition.
We use open source software in our products that may subject our products to general release or require us to re-engineer our products, which could harm our business.
We use open source software in our products and expect to continue to use open source software in the future. There are uncertainties regarding the proper interpretation of and compliance with open source software licenses. Consequently, there is a risk that the owners of the copyrights in such open source software may claim that the open source licenses governing their use impose certain conditions or restrictions on our ability to use the software that we did not anticipate. Such owners may seek to enforce the terms of the applicable open source license, including by demanding release of the source code for the open source software, derivative works of such software, or, in some cases, our proprietary source code that uses or was developed using such open source software. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our products, any of which could result in additional cost and liability to us, reputational damage and harm to our business and results of operations. In addition, if the license terms for the open source software we utilize change, we may be forced to re-engineer our products or incur additional costs to comply with the changed license terms or to replace the affected open source software. Although we have implemented policies and tools to regulate the use and incorporation of open source software into our products, we cannot be certain that we have not incorporated open source software in our products in a manner that is inconsistent with such policies.

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Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.
Our success and ability to compete depend in part upon our intellectual property. We primarily rely on a combination of patent, copyright, trade secret and trademark laws, trade secret protection and confidentiality or license agreements with our employees, customers, business partners and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be inadequate. We make business decisions about when to seek patent protection for a particular technology and when to rely upon trade secret protection, and the approach we select may ultimately prove to be inadequate. Even in cases where we seek patent protection, there is no assurance that the resulting patents will effectively protect every significant feature of our products. In addition, we believe that the protection of our trademark rights is an important factor in product recognition, protecting our brand and maintaining goodwill and if we do not adequately protect our rights in our trademarks from infringement, any goodwill that we have developed in those trademarks could be lost or impaired, which could harm our brand and our business. In any event, in order to protect our intellectual property rights, we may be required to spend significant resources to monitor and protect these rights.
For example, in order to promote the transparency and adoption of our downloadable software, we provide our customers with the ability to request a copy of the source code of those products, which they may customize for their internal use under limited license terms, subject to confidentiality and use restrictions. If any of our customers misuses or distributes our source code in violation of our agreements with them, or anyone else obtains access to our source code, it could cost us significant time and resources to enforce our rights and remediate any resulting competitive harms.
Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights, which could result in the impairment or loss of portions of our intellectual property rights. Our failure to secure, protect and enforce our intellectual property rights could harm our brand and our business.
Our global operations and structure subject us to potentially adverse tax consequences.

We generally conduct our global operations through subsidiaries and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. A change in our global operations or changes in tax laws or interpretations of such tax laws could result in higher effective tax rates, reduced cash flows and lower overall profitability. In particular, our intercompany relationships are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions. The relevant revenue and taxing authorities may disagree with positions we have taken generally, or our determinations as to the value of assets sold or acquired, or income and expenses attributable to specific jurisdictions. In addition, in the ordinary course of our business we are subject to tax audits from various taxing authorities. If such a disagreement were to occur, and our position was not sustained, or if a tax audit resulted in an adverse finding, we could be required to pay additional taxes, interest and penalties, which could result in one-time tax charges, higher effective tax rates, reduced cash flows and lower overall profitability of our operations.

Certain government agencies in jurisdictions where we do business have had an extended focus on issues related to the taxation of multinational companies. In addition, the Organization for Economic Cooperation and Development (“OECD”) continues to introduce various proposals changing the way tax is assessed, collected and governed. Of note are the efforts around the base erosion and profit shifting which seek to establish certain international standards for taxing the worldwide income of multinational companies. These measures have been endorsed by the leaders of the world’s 20 largest economies.

The EU together with the United Kingdom have recently established a mandate that focuses on the transparency of cross-border arrangements concerning at least one EU member state through mandatory disclosure and exchange of cross-border arrangements rules. These regulations (known as MDR in the United Kingdom and DAC 6 in the EU) require taxpayers to disclose certain transactions to the tax authorities resulting in an additional layer of compliance and require careful consideration of the tax benefits obtained when entering into transactions that need to be disclosed.


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Also, in March 2018, the European Commission (“EC”) proposed a series of measures aimed at ensuring a fair and efficient taxation of digital businesses operating within the EU. As collaborative efforts by the OECD and EC continue, some countries have unilaterally moved to introduce their own digital service tax or equalization levy to capture tax revenue on digital services more immediately. Notably France, Italy, Austria, the United Kingdom, Turkey and India have enacted or will soon enact this tax, generally 2% on taxable activities.

As a result of the above measures and the increasing focus by government taxing authorities on multinational companies, the tax laws of certain countries in which we do business could change on a prospective or retroactive basis, and any such changes could increase our liabilities for taxes, interest and penalties, lead to higher effective tax rates, and therefore could harm our cash flows, results of operations and financial position.

U.S. federal income tax reform could adversely affect us.

On December 22, 2017, the United States passed legislation commonly known as the Tax Cuts and Jobs Act (the “Tax Act”) that significantly reforms the Internal Revenue Code of 1986, as amended (the “Code”). The Tax Act, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest and executive compensation, allows for the expensing of capital expenditures and puts into effect the migration from a worldwide system of taxation to a territorial system. We do not expect the Tax Act to have a material impact to our projection of minimal cash taxes. However, the full impact of this tax reform on our business in future years is still uncertain and could adversely affect us.

Taxing authorities may successfully assert that we should have collected or in the future should collect sales and use, value-added or similar taxes, and we could be subject to liability with respect to past or future sales, which could harm our results of operations.

We do not collect sales and use, value-added and similar taxes in all jurisdictions in which we have sales, based on our understanding that such taxes are not applicable. Sales and use, value-added and similar tax laws and rates vary greatly by jurisdiction. Certain jurisdictions in which we do not collect such taxes may assert that such taxes are applicable, which could result in tax assessments, penalties, and interest, and we may be required to collect such taxes in the future. Such tax assessments, penalties and interest, or future requirements could harm our results of operations.
Changes in laws and regulations related to the Internet or changes in the Internet infrastructure itself may diminish the demand for our products, and could harm our business.
The future success of our business depends upon the continued use of the Internet as a primary medium for commerce, communication, and business applications. Federal, state, or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the Internet as a commercial medium. Changes in these laws or regulations could require us to modify our products in order to comply with these changes. In addition, government agencies or private organizations have imposed and may impose additional taxes, fees, or other charges for accessing the Internet or commerce conducted via the Internet. These laws or charges could limit the growth of Internet-related commerce or communications generally, or result in reductions in the demand for Internet-based products such as ours. In addition, the use of the Internet as a business tool could be harmed due to delays in the development or adoption of new standards and protocols to handle increased demands of Internet activity, security, reliability, cost, ease-of-use, accessibility, and quality of service. The performance of the Internet and its acceptance as a business tool has been harmed by phishing attacks, cyber-attacks, viruses, worms, and similar malicious programs and the Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. If the use of the Internet is adversely affected by these issues, demand for our products could decline and our business could be harmed.
We are exposed to credit risk and fluctuations in the market values of our investment portfolio.
Given the global nature of our business, we have diversified U.S. and non-U.S. investments. Credit ratings and pricing of our investments can be negatively affected by liquidity, credit deterioration, financial results, economic risk, political risk, sovereign risk or other factors. As a result, the value and liquidity of our investments may fluctuate substantially. Therefore, although we have not realized any significant losses on our investments, future fluctuations in their value could result in a significant realized loss.

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Catastrophic events may disrupt our business.
Natural disasters, pandemics, including COVID-19, other public health emergencies, geopolitical conflicts, social unrest, or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could harm our business. We have a large employee presence and operations in the San Francisco Bay Area, California. The west coast of the United States contains active earthquake zones. In the event of a major earthquake, hurricane or catastrophic event such as fire, power loss, telecommunications failure, cyber-attack, war or terrorist attack, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our application development, lengthy interruptions in our product availability, breaches of data security and loss of critical data, all of which could harm our business, results of operations and financial condition.
Additionally, we rely on our network and suppliers of third-party infrastructure and applications, internal technology systems, and our websites for our development, marketing, internal controls, operational support, hosted services and sales activities. If these systems were to fail or be negatively impacted as a result of a natural disaster, disease or pandemic, including COVID-19, or catastrophic event, our ability to conduct normal business operations and deliver products to our customers could be impaired.
As we grow our business, the need for business continuity planning and disaster recovery plans will grow in significance. If we are unable to develop adequate plans to ensure that our business functions continue to operate during and after a disaster, disease or pandemic, including COVID-19, or catastrophic event, and successfully execute on those plans, our business and reputation could be harmed.

If we are deemed to be an investment company under the Investment Company Act of 1940, our results of operations could be harmed.
We are not registered as an investment company under the Investment Company Act of 1940, as amended (“Investment Company Act”) as we believe that we meet all the requirements for exemption provided under Rule 3a-8 under the Investment Company Act. If we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act that impose, among other things, limitations on capital structure, restrictions on specified investments, prohibitions on transactions with affiliates, and compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would increase our operating expenses and could harm our results of operations.
Adverse economic conditions could negatively impact our business.
Our results of operations may vary based on the impact of changes in our industry or the global economy on us or our customers. Our business depends on demand for business software applications generally and for collaboration software solutions in particular. In addition, the market adoption of our products and our revenue is dependent on the number of users of our products. To the extent that weak economic conditions, including as a result of the COVID-19 pandemic, reduce the number of personnel providing development or engineering services or that limit the available budgets within organizations for software products, demand for our products could be harmed. If economic conditions deteriorate, our customers and prospective customers may elect to decrease their information technology budgets, which would limit our ability to grow our business and harm our results of operations.
In addition, the recent COVID-19 pandemic has created significant additional uncertainty for the global economy. If the outbreak worsens or continues for an indefinite period of time, especially in regions in which we have material operations or sales, our business and results of operations could be adversely affected.

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We may require additional capital to support our operations or the growth of our business and we cannot be certain that we will be able to secure this capital on favorable terms, or at all.
We may require additional capital to respond to business opportunities, challenges, acquisitions, the repayment of our Notes, a decline in the level of license, subscription or maintenance revenue for our products, the impacts of the COVID-19 pandemic, or other unforeseen circumstances. We may not be able to timely secure debt or equity financing on favorable terms, or at all. Any debt financing obtained by us could involve restrictive covenants relating to financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. If we raise additional funds through further issuances of equity, convertible debt securities or other securities convertible into equity, our existing shareholders could suffer significant dilution in their percentage ownership of Atlassian, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our Class A ordinary shares. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to grow or support our business and to respond to business challenges could be significantly limited.
Risks Related to Ownership of Our Class A Ordinary Shares
The dual class structure of our ordinary shares has the effect of concentrating voting control with certain shareholders, in particular, our Co-Chief Executive Officers and their affiliates, which will limit our other shareholders ability to influence the outcome of important transactions, including a change in control.
Our Class B ordinary shares have ten votes per share and our Class A ordinary shares have one vote per share. As of June 30, 2020, shareholders who hold our Class B ordinary shares collectively hold approximately 90.33% of the voting power of our outstanding share capital and in particular, our Co-Chief Executive Officers, Michael Cannon-Brookes and Scott Farquhar, collectively hold approximately 89.45% of the voting power of our outstanding share capital. The holders of our Class B ordinary shares will collectively continue to control a majority of the combined voting power of our share capital and therefore be able to control substantially all matters submitted to our shareholders for approval so long as our Class B ordinary shares represent at least 10% of all of our outstanding Class A ordinary shares and Class B ordinary shares in the aggregate. These holders of our Class B ordinary shares may also have interests that differ from holders of our Class A ordinary shares and may vote in a way which may be adverse to such interests. This concentrated control may have the effect of delaying, preventing or deterring a change in control of Atlassian, could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of Atlassian and might ultimately affect the market price of our Class A ordinary shares.
If Messrs. Cannon-Brookes and Farquhar retain a significant portion of their holdings of our Class B ordinary shares for an extended period of time, they will control a significant portion of the voting power of our share capital for the foreseeable future. As members of our board of directors, Messrs. Cannon-Brookes and Farquhar each owe statutory and fiduciary duties to Atlassian and must act in good faith and in a manner they consider would be most likely to promote the success of Atlassian for the benefit of shareholders as a whole. As shareholders, Messrs. Cannon-Brookes and Farquhar are entitled to vote their shares in their own interests, which may not always be in the interests of our shareholders generally.
The market price of our Class A ordinary shares may be volatile or may decline regardless of our operating performance resulting in substantial losses for our Class A ordinary shareholders.
The trading price of our Class A ordinary shares is volatile and could continue to fluctuate significantly regardless of our operating performance in response to numerous factors, many of which are beyond our control, including:
Actual or anticipated fluctuations in our results of operations;
The financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
Failure of securities analysts to initiate or maintain coverage of Atlassian, publication of inaccurate or unfavorable research about our business, changes in financial estimates or ratings changes by any securities analysts who follow Atlassian or our failure to meet these estimates or the expectations of investors;
Announcements by us or our competitors of significant technical innovations, new products, acquisitions, pricing changes, strategic partnerships, joint ventures or capital commitments;

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Changes in operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;
Price and volume fluctuations in the overall stock market from time to time, including as a result of trends in the economy as a whole;
Actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;
Developments or disputes concerning our intellectual property or our products, or third-party proprietary rights;
Changes in accounting standards, policies, guidelines, interpretations or principles;
New laws or regulations, new interpretations of existing laws, or the new application of existing regulations to our business;
Changes in tax laws or regulations;
Any major change in our board of directors or management;
Additional Class A ordinary shares being sold into the market by us or our existing shareholders or the anticipation of such sales;
Arbitrage or hedging strategy by purchasers of our Notes and certain financial institutions in connection with our capped call transactions;
Cyber-security and privacy breaches;
Lawsuits threatened or filed against us; and
Other events or factors, including those resulting from geopolitical risks, natural disasters, diseases and pandemics, including COVID-19, war, incidents of terrorism, or responses to these events.
In addition, the stock markets, and in particular the market on which our Class A ordinary shares are listed, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many technology companies. Stock prices of many technology companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, shareholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from operating our business, and harm our business, results of operations and financial condition.
Substantial future sales of our Class A ordinary shares could cause the market price of our Class A ordinary shares to decline.
The market price of our Class A ordinary shares could decline as a result of substantial sales of our Class A ordinary shares, particularly sales by our directors, executive officers and significant shareholders, or the perception in the market that holders of a large number of shares intend to sell their shares. As of June 30, 2020, we had 128,201,296 outstanding Class A ordinary shares and 119,761,681 outstanding Class B ordinary shares.
We have also registered Class A ordinary shares that we issue under our employee equity incentive plans. These shares may be sold freely in the public market upon issuance.
Certain holders of our Class A ordinary shares and our Class B ordinary shares, including our founders, have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our shareholders. Sales of our Class A ordinary shares pursuant to these registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause the market price of our Class A ordinary shares to fall and make it more difficult for our investors to sell our Class A ordinary shares at a price that they deem appropriate.

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The requirements of being a public company may strain our resources, divert management’s attention, and affect our ability to attract and retain executive officers and qualified board members.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of NASDAQ Global Select Market and other applicable securities rules and regulations. Compliance with these rules and regulations has increased our legal and financial compliance costs, making some activities more difficult, time-consuming, and costly, and has increased demand on our systems and resources. Such demands would likely continue to increase, particularly if we were to lose our status as a foreign private issuer as discussed below. The Exchange Act requires, among other things, that we file annual reports with respect to our business and results of operations. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight is required. As a result of the complexity involved in complying with the rules and regulations applicable to public companies, our management’s attention may be diverted from other business concerns, which could harm our business, results of operations and financial condition. In addition, the pressures of operating a public company may divert management’s attention to delivering short-term results, instead of focusing on long-term strategy.
As a public company it is more expensive for us to maintain adequate director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified executive officers and members of our board of directors.
If we are unable to maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A ordinary shares could be negatively affected.
As a public company, we are required to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. We are required to furnish a report by management on the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of Class A ordinary shares could be negatively affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
We do not expect to declare dividends in the foreseeable future.
We currently anticipate that we will retain future earnings for the development, operation and expansion of our business, and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to shareholders will therefore be limited to the increase, if any, of our share price, which may never occur.
Risks Related to Our Outstanding Notes
Paying amounts due in cash in respect of our outstanding Notes on interest payment dates, at maturity and upon exchange thereof will require a significant amount of cash. We may not have sufficient cash flow from our business to pay when due, or raise the funds necessary to pay when due, amounts owed in respect of the Notes, which could adversely affect our business and results of operations.

The ability to make scheduled payments of interest on, and principal of, to satisfy exchanges for cash in respect of our outstanding Notes depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control, including the impacts of the COVID-19 pandemic. If we are unable to generate enough cash flow to make payments on the Notes when due, we may be required to adopt one or more alternatives, such as selling assets or obtaining additional debt financing or equity capital on terms that may be onerous or highly dilutive. Our ability to refinance the Notes, which we may need to do in order to satisfy our obligations thereunder, will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on the Notes.


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The holders of the Notes have the right to require us to repurchase their Notes upon the occurrence of a fundamental change (as defined in the indenture governing the Notes (the “Indenture”)) at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. Upon repurchase of the Notes, we will be required to make cash payments in respect of the Notes being repurchased. In addition, upon a holder’s exchange of the Notes for cash in accordance with the terms of the Indenture, we would be required to make cash payments in respect of the Notes being exchanged in the manner set forth in the Indenture. We may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of, or exchange of, the Notes for cash. Our failure to repurchase the Notes or exchange the Notes for cash at a time when the repurchase or exchange is required by the Indenture governing the Notes would constitute a default under such Indenture.

In addition, our indebtedness on the Notes, combined with our other financial obligations and contractual commitments, could have other important consequences. For example, it could:

Make us more vulnerable to adverse changes in government regulation and in the worldwide economic, industry and competitive environment;
Limit our flexibility in planning for, or reacting to, changes in our business and our industry;
Place us at a disadvantage compared to our competitors who have less debt;
Limit our ability to borrow additional amounts to fund acquisitions, for working capital and for other general corporate purposes; and
Make an acquisition of the Company less attractive or more difficult.

Any of these factors could harm our business, results of operations and financial condition. In addition, if we incur additional indebtedness, the risks related to our business and our ability to repay our indebtedness on the Notes would increase.
The conditional exchange feature of the Notes, when triggered, may adversely affect our liquidity and results of operations.
When the conditional exchange feature of the Notes is triggered, holders of Notes are entitled to exchange the Notes at any time during specified periods, at their option. The conditional exchange feature of the Notes was triggered as of June 30, 2020, and the Notes are currently exchangeable at the option of the holders, in whole or in part, between July 1, 2020 and September 30, 2020. If holders elect to exchange their Notes during such fiscal quarter, we would be required to settle our exchange obligation through the payment of cash, which could adversely affect our liquidity. In addition, even without holders electing to exchange their Notes during such fiscal quarter, we were required under applicable accounting rules to continue to classify the outstanding principal of the Notes as a current rather than long-term liability as of June 30, 2020.
Whether the Notes will be exchangeable following such fiscal quarter will depend on the continued satisfaction of this condition or another exchange condition in the future. If holders elect to exchange their Notes during future periods following the satisfaction of an exchange condition, we would be required to settle our exchange obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders do not elect to exchange their Notes during such future periods, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
The accounting for the Notes may result in volatility to our reported financial results, which could adversely affect the price at which our Class A ordinary shares trade.
We will settle exchanges of the Notes entirely in cash. Accordingly, the exchange feature that is part of the Notes is accounted for as a derivative pursuant to accounting standards relating to derivative instruments and hedging activities. In general, this results in an initial valuation of the exchange feature, which is bifurcated from the debt component of the Notes, resulting in an original issue discount. The original issue discount is amortized and recognized as a component of interest expense over the term of the Notes, which results in an effective interest rate reported in our consolidated statements of operations significantly in excess of the stated interest rate of the Notes. Although this accounting treatment does not affect the amount of cash interest paid to holders of the Notes or our cash flows, it reduces our earnings and could adversely affect the price at which our Class A ordinary shares trade.

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Additionally, for each financial statement period after issuance of the Notes, a derivative gain or loss will be reported in our consolidated statements of operations to the extent the valuation of the exchange feature changes from the previous period. The capped call transactions described below and elsewhere in this annual report will also be accounted for as derivative instruments. The valuation of the exchange feature of the Notes and capped call transactions utilizes significant observable and unobservable market inputs, including stock price, stock price volatility, and time to expiration of the Notes. The change of inputs at period end from the previous period may result in a material change of the valuation and the gain or loss resulting from the exchange feature of the Notes and capped call transactions may not completely offset each other. As such, there may be a material net impact to our consolidated statements of operations, which could adversely affect the price at which our Class A ordinary shares trade.
The arbitrage or hedging strategy by purchasers of the Notes and Option Counterparties in connection with our capped call transactions may affect the value of our Class A ordinary shares.
We expect that many investors in, and potential purchasers of the Notes will employ, or seek to employ, an arbitrage strategy with respect to the Notes. Investors would typically implement such a strategy by selling short our Class A ordinary shares underlying the Notes and dynamically adjusting their short position while continuing to hold the Notes. Investors may also implement this type of strategy by entering into swaps on our Class A ordinary shares in lieu of or in addition to selling short our Class A ordinary shares. This activity could decrease (or reduce the size of any increase in) the market price of our Class A ordinary shares at that time.
In connection with the pricing of the Notes, we entered into privately negotiated capped call transactions with certain financial institutions (the “Option Counterparties”). The capped call transactions are expected generally to offset cash payments due upon exchange of the Notes in excess of the principal amount thereof in the event that the market value per Class A ordinary share of the Company is at the time of exchange of the Notes greater than the strike price under the capped call transactions, with such offset subject to a cap based on the cap price. We believe the Option Counterparties, in connection with establishing their initial hedges of the capped call transactions, purchased our Class A ordinary shares and/or entered into various derivative transactions with respect to our Class A ordinary shares concurrently with or shortly after the pricing of the Notes. The Option Counterparties may modify these initial hedge positions by entering into or unwinding various derivatives with respect to our Class A ordinary shares and/or purchasing or selling our Class A ordinary shares or other securities of ours in secondary market transactions prior to the maturity of the Notes. This activity could decrease, or reduce the size of any increase in the market price of our Class A ordinary shares at that time.
We are subject to counterparty risk with respect to the capped call transactions.
The Option Counterparties are financial institutions, and we are subject to the risk that they might default under the capped call transactions. Our exposure to the credit risk of the Option Counterparties is not secured by any collateral. If an Option Counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings, with a claim equal to our exposure at that time under the capped call transactions with that Option Counterparty. Our exposure will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our Class A ordinary shares. In addition, upon a default by an Option Counterparty, we may suffer adverse tax consequences and may, on a net basis, have to pay more cash to settle exchanges of the Notes. We can provide no assurances as to the financial stability or viability of the Option Counterparties.
Risks Related to being a Foreign Private Issuer or an English Company
As a foreign private issuer, we are permitted to report our financial results under IFRS, are exempt from certain rules under the U.S. securities laws and are permitted to file less information with the SEC than a U.S. company, and our Class A ordinary shares are not listed, and we do not intend to list our shares, on any market in the United Kingdom, our country of incorporation. This may limit the information available to holders of our Class A ordinary shares.
We are a foreign private issuer, as defined in the SEC’s rules and regulations and, consequently, we are not subject to all of the disclosure requirements applicable to public companies organized within the United States. For example, we are exempt from certain rules under the Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act, including the U.S. proxy rules under Section 14 of the Exchange Act. In addition, our officers and directors are exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities.

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Moreover, while we have been, and expect to continue to, voluntarily submit quarterly interim consolidated financial data to the SEC under cover of the SEC’s Form 6-K, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies and are not required to file quarterly reports on Form 10-Q or current reports on Form 8-K under the Exchange Act. If some investors find our Class A ordinary shares less attractive because of these exemptions, there may be a less active trading market for our Class A ordinary shares and our share price may be more volatile.
Furthermore, our shares are not listed and we do not currently intend to list our shares on any market in the United Kingdom, our country of incorporation. As a result, we are not subject to the reporting and other requirements of companies listed in the United Kingdom. Accordingly, there will be less publicly available information concerning Atlassian than there would be if we were a public company organized in the United States.
In addition, we report our financial statements under IFRS. There have been and there may in the future be certain significant differences between IFRS and GAAP, including differences related to revenue recognition, share-based compensation expense, income tax and earnings per share. As a result, our financial information and reported earnings for historical or future periods could be significantly different if they were prepared in accordance with GAAP. As a result, it may be difficult to meaningfully compare our financial statements under IFRS with those companies that prepare financial statements under GAAP.
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices in lieu of certain requirements under the NASDAQ listing standards. This may afford less protection to holders of our Class A ordinary shares than U.S. regulations.
As a foreign private issuer whose shares are listed on the NASDAQ Global Select Market, we are permitted to follow English corporate law and the Companies Act 2006 (Companies Act) with regard to certain aspects of corporate governance in lieu of certain requirements under the NASDAQ listing standards.
A foreign private issuer must disclose in its annual reports filed with the SEC each requirement under the NASDAQ listing standards with which it does not comply, followed by a description of its applicable home country practice. Our home country practices differ in significant respects from the corporate governance requirements applicable to U.S. domestic issuers listed on the NASDAQ Global Select Market and may, therefore, afford less protection to holders of our Class A ordinary shares.
We may rely on exemptions available under the NASDAQ listing standards to a foreign private issuer and follow our home country practices in the future, and as a result, our shareholders may not be provided with the benefits of certain corporate governance requirements of the NASDAQ listing standards.
We may lose our foreign private issuer status in the future, which could result in significant additional cost and expense.
In order to maintain our current status as a foreign private issuer, either
(i) a majority of voting power of our shares must be either directly or indirectly owned of record by non-residents of the United States
or
(ii) (a) a majority of our executive officers or directors must not be U.S. citizens or residents, (b) more than 50% of our assets cannot be located in the United States, and (c) our business must be administered principally outside the United States.
If we lose this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We would also be required under current SEC rules to prepare our financial statements in accordance with GAAP and modify certain of our corporate governance practices in accordance with various SEC rules and the NASDAQ listing standards. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer will likely be higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it could make it more difficult and expensive for us to obtain director and officer liability insurance. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.

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Provisions contained in our articles of association and under the laws of England may frustrate or prevent an attempt to obtain control of us.
Provisions in our articles of association, as amended and restated, may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated articles of association include provisions that:
Specify that general meetings of our shareholders can be called only by our board of directors, the chair of our board of directors, or one of our Co-Chief Executive Officers (or otherwise by shareholders in accordance with the Companies Act); and
Provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum.
Provisions of the laws of England may also have the effect of delaying or preventing a change of control or changes in our management. The Companies Act includes provisions that:
Require that any action to be taken by our shareholders be effected at a duly called general meeting (including the annual general meeting) and not by written consent; and
Require the approval of the holders of at least 75% of the voting power of our outstanding shares to amend the provisions of our articles of association.
These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors, which is responsible for appointing the members of our management.
In addition, because we are a public limited company whose registered office is in the United Kingdom, we may become subject to the U.K. City Code on Takeovers and Mergers (“Takeover Code), which is issued and administered by the U.K. Panel on Takeovers and Mergers (“Takeover Panel). The Takeover Code applies, among other things, to an offer for a public company whose registered office is in the United Kingdom and whose securities are admitted to trading on a regulated market or multilateral trading facility in the United Kingdom (and for these purposes NASDAQ does not fall within the definition of regulated market or multilateral trading facility), or to an offer for a public company whose registered office is in the United Kingdom if Atlassian is considered by the Takeover Panel to have its place of central management and control in the United Kingdom. Although we believe that the Takeover Code does not apply to us, the Takeover Panel will be responsible for determining whether we have our place of central management and control in the United Kingdom by looking at various factors, including the structure of our board of directors and where they are resident.
If at the time of a takeover offer the Takeover Panel determines that we have our place of central management and control in the United Kingdom, or if at that time we have our shares admitted to trading on a regulated market or multilateral trading facility in the United Kingdom (or a regulated market in one or more member states of the European Economic Area), we would be subject to a number of rules and restrictions, including, but not limited to, the following: (i) our ability to enter into deal protection arrangements with a bidder would be extremely limited; (ii) we may not, without the approval of our shareholders, be able to perform certain actions that could have the effect of frustrating an offer, such as issuing shares or carrying out acquisitions or disposals; and (iii) we would be obliged to provide equality of information to all bona-fide competing bidders.
The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.
We are incorporated under English law. The rights of holders of Class A ordinary shares are governed by English law, including the provisions of the Companies Act, and by our articles of association. These rights differ in certain respects from the rights of shareholders in typical U.S. corporations organized under Delaware law.
Shareholders in certain jurisdictions may not be able to exercise their pre-emptive rights if we increase our share capital.
Under the Companies Act, our shareholders generally have the right to subscribe and pay for a sufficient number of our shares to maintain their relative ownership percentages prior to the issuance of any new shares in exchange for cash consideration. Shareholders in certain jurisdictions may not be able to exercise their pre-emptive rights unless securities laws have been complied with in such jurisdictions with respect to such rights and the related shares, or an exemption from the requirements of the securities laws of these jurisdictions is available. We currently do not intend to register the Class A ordinary shares under the laws of any jurisdiction other than the

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United States, and no assurance can be given that an exemption from the securities laws requirements of other jurisdictions will be available to shareholders in these jurisdictions. To the extent that such shareholders are not able to exercise their pre-emptive rights, the pre-emptive rights would lapse, and the proportional interests of such shareholders would be reduced.
Further, the Companies Act provides that in certain circumstances the pre-emptive rights available to shareholders can be overridden, including where there is an issue of shares for non-cash consideration or the disapplication of the pre-emptive rights is approved by the holders of at least 75% of our outstanding shares. Our shareholders have approved the disapplication of these pre-emptive rights for a period of five years from our fiscal 2017 annual shareholder meeting.
U.S. holders of our shares could be subject to material adverse tax consequences if we are considered a “passive foreign investment company” for U.S. federal income tax purposes.
We do not believe that we are a passive foreign investment company, and we do not expect to become a passive foreign investment company. However, our status in any taxable year will depend on our assets, income and activities in each year, and because this is a factual determination made annually after the end of each taxable year, there can be no assurance that we will not be considered a passive foreign investment company for the current taxable year or any future taxable years. If we were a passive foreign investment company for any taxable year while a taxable U.S. holder held our shares, such U.S. holder would generally be taxed at ordinary income rates on any sale of our shares and on any dividends treated as “excess distributions.” An interest charge also generally would apply based on any taxation deferred during such U.S. holder’s holding period in the shares.
U.S. investors may have difficulty enforcing civil liabilities against us, our directors, or our executive officers.
Under English law, a director owes various statutory and fiduciary duties to us, and not, except in certain limited circumstances, to shareholders. This means that under English law generally we, rather than the shareholders, are the proper claimant in an action in respect of a wrong done to us by a director. Notwithstanding this general position, the Companies Act provides that a court may allow a shareholder to bring a derivative claim, which is an action in respect of and on behalf of us, in respect of a cause of action arising from a director’s negligence, default, breach of duty or breach of trust. The ability to bring a derivative claim is, however, subject to compliance with a number of procedural requirements, which may in practice be difficult for shareholders to comply with.
We are a public limited company incorporated under the laws of England. Certain of our directors and executive officers reside outside the United States. In addition, a substantial portion of our assets and a substantial portion of the assets of such directors and executive officers, are located outside the United States. As a result, it may be difficult for an investor to serve legal process on us or our directors and executive officers or have any of them appear in a U.S. court.
It may not be possible to bring proceedings or enforce a judgment of a U.S. court in respect of civil liabilities predicated on the U.S. federal securities laws in England. The English courts will not enforce, either directly or indirectly, a penal, revenue or other public law of a foreign state. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in England. An award of damages is usually considered to be punitive if it does not seek to compensate the claimant for loss or damage suffered and is instead intended to punish the defendant. In addition to public policy aspects of enforcement, the enforceability of any judgment in England will depend on the particular facts of the case such as the nature of the judgment and whether the English court considered the U.S. court to have had jurisdiction. It will also depend on the laws and treaties in effect at that time. The United States and the United Kingdom do not currently have a treaty or convention providing for the reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. Therefore, to enforce a judgment of a U.S. court, the party seeking to enforce the judgment must bring an action at common law in respect of the amount due under the judgment.

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Item 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Corporate Information 
Atlassian Corporation Plc was incorporated and registered in the United Kingdom in November 2013 as a public company limited by shares. Our registered office is located at Exchange House, Primrose Street, London EC2A 2EG, c/o Herbert Smith Freehills LLP. Our principal offices are located at Level 6, 341 George St., Sydney, NSW, 2000 Australia for Atlassian Pty Ltd and at 350 Bush Street, Floor 13, San Francisco, California 94104 for Atlassian, Inc.
Atlassian Corporation Plc is a holding company and we conduct substantially all of our business through certain of our subsidiaries, including Atlassian Pty Ltd and Atlassian, Inc.
The principal laws and legislation under which we operate and under which the Class A ordinary shares and Class B ordinary shares are issued is the Companies Act and the regulations made thereunder.
In October 2019, we acquired Code Barrel Pty Ltd (“Code Barrel”), a workflow automation tool for Jira. Total purchase price consideration for Code Barrel was approximately $39.1 million in cash. Code Barrel is the creator of ‘Automation for Jira,’ a tool for easily automating several aspects of Jira. The acquisition of Code Barrel enhances Jira by helping customers automate more of the time-consuming and error-prone tasks in Jira.
In May 2020, we acquired Halp, Inc. (“Halp”), a message-based conversational help desk ticketing solution. The total purchase price was approximately $17.6 million, which consisted of approximately $17.0 million in cash and $0.6 million in fair value of replacement shares attributable to service provided prior to acquisition. The acquisition of Halp complements our current product offerings and enables customers to integrate real-time messaging tools into their existing workflow solutions like Jira Service Desk and Confluence.
In July 2020, we acquired Mindville AB, an asset and configuration management company based in Sweden. Mindville brings critical configuration management database capability to Jira Service Desk to better meet the needs of our IT customers. See Note 23, “Events after the reporting period,” to the notes to our consolidated financial statements for additional information.
The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our website address is atlassian.com. The information contained on our website is not part of this annual report.
B. Business Overview
Our mission is to unleash the potential of every team.
Our company was founded in 2002 to help software teams work better together. But from the beginning, our products were also designed to help developers collaborate with non-developer teams involved in software innovation. As more non-developer teams have gained exposure to our products, and as we add to our portfolio through research and development and acquisitions, teams are adopting and extending our products to novel use cases, bringing our products to more users and business teams in their organizations. This trend has created an expansive market opportunity for us.
Our products help teams organize, discuss, and complete their work – delivering superior outcomes for their organizations. Our primary products include Jira Software, targeting software teams, and Jira Core, targeting other business teams (collectively, “Jira”) for planning and project management, Confluence for content creation and sharing, Trello for capturing and adding structure to fluid, fast-forming work for teams, Jira Service Desk for team service and support applications, Opsgenie for incident management, Jira Align for enterprise agile planning, Bitbucket for code sharing and management and Atlasian Access for enterprise-grade security and centralized administration. Together, our products form an integrated system for organizing, discussing and completing shared work, becoming deeply entrenched in how people collaborate and how organizations run.
We begin with a deep investment in product development to create and refine high-quality and versatile products that users love. By making our products affordable for organizations of all sizes and transparently sharing our pricing online for most of our products, we do not follow the practice of opaque pricing and discounting that is typical in the enterprise software industry. We pursue customer volume, targeting every organization, regardless of size, industry, or geography. This allows us to operate at unusual scale for an enterprise software company, with more than 174,000 customers across virtually every industry sector in approximately 190 countries as of June 30,

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2020. Our customers range from small organizations that have adopted one of our products for a small group of users, to over two-thirds of the Fortune 500, many of which use a combination of our products across thousands of users.
We take a long-term view of our customer relationships and our opportunity. We recognize that users drive the adoption and proliferation of our products and, as a result, we focus on enabling a self-service, low-friction distribution model that makes it easy for users to try, adopt, and use our products. We are relentlessly focused on measuring and improving user satisfaction as we know that one happy user will beget another, thereby expanding the large and organic word-of-mouth community that helps drive our growth.
The Atlassian Way
Our product strategy, distribution model and Company culture work in concert to create unique value for our customers and competitive advantages for our Company.
We invest significantly in developing and refining versatile products that can be used in myriad ways, helping teams achieve their full potential. Our products are easy to adopt and use, which allows them to be distributed organically and efficiently.
Because our products are easy to purchase and are offered at affordable price points, they can be sold through a high-velocity, low-friction online distribution model. This model allows us to generate demand from word-of-mouth and viral expansion within organizations, rather than having to solely rely on a traditional sales infrastructure, especially with enterprise-scale customers. Our model is designed to operate at scale and serve millions of customers.
Our culture of innovation, transparency, and dedication to our customers drives our success in implementing and refining this unique approach. We believe this approach creates a self-reinforcing effect that fosters innovation, quality, customer satisfaction, scale, and profitability. As a result of this strategy, we invest significantly more in research and development activities than in traditional sales activities relative to other enterprise software companies.
Our Product Strategy
We have developed and acquired a broad portfolio of products that help teams large and small to organize, discuss, and complete their work in a new way that is coordinated, efficient and innovative. Our products serve the needs of teams of software developers, IT professionals, and knowledge workers. While these products provide a range of distinct functionality to users, they share certain core attributes:
Built for Teams - Our products are singularly designed to help teams work better together and achieve more. We design products that help our customers collaborate more effectively, be more transparent and operate in a coordinated manner. 
Easy to Adopt and Use - We invest significantly in research and development to enable our products to be both powerful and extremely easy to use. Our software is designed to be accessed from the Internet and immediately put to work. By reducing the friction that usually accompanies the purchasing process of business software and eliminating the need for complicated and costly implementation and training, we believe we attract more people to try, buy, and derive value from our software.
Versatile and Adaptable - We design simple products that are useful in a broad range of workflows and projects. We believe that our products can improve any process involving teams, multiple workstreams, and deadlines. For example, Jira, which enables software teams to plan, build, and ship code, is also used by thousands of our customers to manage workflows related to product design, supply chain management, expense management, and legal document review. 
Integrated - Our products are integrated and designed to work well together. For example, the status of an IT service ticket generated in Jira Service Desk can be viewed in Confluence, providing visibility to business stakeholders.
Open - We are dedicated to making our products open and interoperable with a range of other platforms and applications, such as Microsoft, Zoom, Slack, salesforce.com, Workday, and Dropbox. In order to provide a platform for our partners and to promote useful products for our users, in 2012 we introduced the Atlassian Marketplace, an online marketplace that features thousands of apps created by a growing global network of independent developers and vendors. The Atlassian Marketplace provides customers a wide

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range of additional capabilities they use to extend or enhance our products, further increasing the value of our platform.
Our Distribution Model
Our high-velocity, low-friction distribution model is designed to drive exceptional customer scale by making affordable products available online. We focus on product quality, automated distribution, transparent pricing, and customer service in lieu of a costly traditional sales infrastructure. We primarily rely on word-of-mouth and low-touch demand generation to drive trial, adoption, and expansion of our products.
The following are key attributes of our unique model:
Innovation-driven - Relative to other enterprise software companies, we invest significantly in research and development rather than marketing and sales. Our goal is to focus our spending on measures that improve quality, ease of adoption, and expansion, and create organic customer demand for our products. We also invest in ways to automate and streamline distribution and customer support functions to enhance our customer experience and improve our efficiency.
In addition, a portion of our research and development spending is directed towards demand generation and customer conversion. For example, we have invested in the development of an internal platform that analyzes customer behavior and promotes additional products directly to users in the context of their activity.
Simple and Affordable - We offer our products at affordable prices in a simple and transparent format. For example, a customer can use a full-feature free version of our products for up to a certain number of users. In addition, a customer coming to our website can evaluate, purchase and set up a Jira license, for 10 users or 50,000+ users, based on a transparent list price, without any interaction with a sales person. This approach, which stands in contrast to the opaque and complex pricing plans offered by most traditional enterprise software vendors, is designed to complement the easy-to-use, easy-to-adopt nature of our products and accelerate adoption by large volumes of new customers.
Organic and Expansive - Our model benefits significantly from customer word-of-mouth driving traffic to our website. The vast majority of our transactions are conducted on our website, which drastically reduces our customer acquisition costs. We also benefit from distribution leverage via our network of solution partners, who resell and customize our products. Once we have landed within a customer team, the networked nature and flexibility of our products tend to lead to adoption by other teams and departments, resulting in user growth, new use cases, and the adoption of our other products.
Scale-oriented - Our model is designed to generate and benefit from significant customer scale and our goal is to maximize the number of individual users of our software. With more than 174,000 customers using our software today, we are able to reach a vast number of users, gather insights to refine our offerings, and generate revenue growth by expanding within our customer accounts. With 5,892 customers paying us in excess of $50,000, 267 customers paying us in excess of $500,000 and 104 customers paying us in excess of $1,000,000 during fiscal year 2020, many of whom started as significantly smaller customers, we have demonstrated our ability to grow within our existing customer base. Ultimately, our model is designed to serve millions of customers and to benefit from the data, network effects, and customer insights that emerge from such scale.
Data-driven - Our scale and the design of our model allows us to gather insights into and improve the customer experience. We track, test, nurture and refine every step of the customer journey and our users' experience. This allows us to intelligently manage our funnel of potential users, drive conversion, and promote additional products to existing users. Our scale has enabled us to experiment with various approaches to these tasks and constantly tune our strategies for user satisfaction and growth.

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Our Culture
Our company culture is exemplified by our core values:
TEAM-20200630_G1.JPG
The following are the key elements of our corporate culture that contribute to our ability to drive customer value and achieve competitive differentiation:
Openness and Innovation - We value transparency and openness as an organization. We believe that putting product pricing and documentation online promotes trust and makes customers more comfortable engaging with our low-touch model. In addition, we are dedicated to innovation and encourage our employees to invent new applications, uses, and improvements for our software. We run our Company using our own products, which promotes open communication and transparency throughout the organization.
Dedication to the Customer - Customer service and support is at the core of our business. Our customer support teams strive to provide unparalleled service to our customers. We also encourage our service teams to build scalable, self-service solutions that customers will love, as we believe superior service drives greater customer happiness, which in turn breeds positive word-of-mouth.
Team-driven - As our mission is to unleash the potential of every team, we value teamwork highly. We encourage our employees to be both team oriented and entrepreneurial in identifying problems and inventing solutions. Dedication to teamwork starts at the top of our organization with our unique co-CEO structure, and is celebrated throughout our Company. 
Long-term Focused - We believe that we are building a company that can grow and prosper for decades to come. Our model, in which we expand across our customers’ organizations over time, requires a patient, long-term approach, and a dedication to continuous improvement. This is exemplified by our investment in research and development, which is significant relative to traditional software models and is designed to drive the long-term sustainability of our product leadership. Given the choice between short-term results and building long-term scale, we choose the latter.
Our Financial Model
By developing a product strategy, distribution model, and culture that are designed around the needs of our customers and users, we believe that we have established a financial model that is favorable for our shareholders. Our model has allowed us to grow customers and revenue steadily while generating positive free cash flow for each of the last 15 fiscal years. Our model relies on rapidly and efficiently landing new customers and expanding our relationship with them over time. The following are the key elements of our model:
Significant Investment in Ongoing Product Development and Sales Automation - Our research and development investments enable us to rapidly build new products, continuously enhance our existing products, acquire and integrate technologies, obtain data-driven insights, and further automate and streamline our approach to customer acquisition.
Rapid and Efficient Acquisition of New Customers - By building products that are affordable and easy to adopt and use, we are able to attract customers rapidly without relying primarily on a traditional sales force, thereby lowering the cost of customer acquisition significantly.
Continued Expansion - Our success is dependent on our ability to expand the relationship with our existing base of customers through the addition of more users, teams and products.
Predictability of Sales - As we are not dependent on a traditional sales force and primarily rely on a high-velocity, low-friction online distribution model, we have historically experienced a linear quarterly sales

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cycle. Once teams begin working together with our software, we become embedded in their workflows, becoming a system for engagement within organizations. This degree of integration makes our products difficult to displace and provides us with steady and predictable revenue.
Positive Free Cash Flow - By reducing customer acquisition costs and establishing a revenue model that has scaled linearly, our model has allowed us to have positive free cash flow for more than the last 15 fiscal years.

Our Products 

We offer a range of team collaboration products, including:
Jira for team planning and project management; 
Confluence for team content creation and sharing; 
Trello for capturing and adding structure to fluid, fast-forming work for teams;
Jira Service Desk for team service and support applications;
Opsgenie for incident management;
Jira Align for enterprise agile planning;
Bitbucket for team code sharing and management; and
Atlasian Access for enterprise-grade security and centralized administration.
These products can be deployed by users in the cloud and many of our products can be deployed behind the firewall on the customers' own infrastructure.
Jira. Jira provides a sophisticated and flexible workflow management system that helps teams plan, organize, track and manage their work and projects. Jira’s customizable dashboards and powerful reporting features keep teams aligned and on track. 
Confluence. Confluence is a social and flexible content collaboration platform used to create, share, organize, and discuss projects. Through Confluence’s rich and dynamic editor, our customers create and share their work - meeting notes, blogs, product requirements, file lists, company information, or project plans - with their team or external customers. Confluence’s collaborative capabilities enable teams to stay up to date and on the same page.
Trello. Trello is a collaboration and organization product that captures and adds structure to fluid, fast-forming work for teams. A project management application that can organize your tasks into lists and boards, Trello can tell users and their teams what is being worked on, by whom, and how far along the task or project is. At the same time, Trello is extremely simple and flexible, which allows it to serve a vast number of other collaboration and organizational needs.
Jira Service Desk. Jira Service Desk is an intuitive and flexible service desk product for creating and managing service experiences for a variety of service team providers, including IT, legal, and HR teams. Jira Service Desk features an elegant self-service portal, best-in-class team collaboration, ticket management, integrated knowledge, service level agreement support, and real-time reporting.
Opsgenie. Opsgenie is an incident management tool that enables IT teams to plan for and respond to service disruptions. Opsgenie quickly routes alerts to the appropriate IT teams, speeding diagnosis and resolution, and reducing downtime.
Jira Align. Jira Align helps enterprise organizations build and manage a ‘master plan’ that maps strategic projects to the various work streams required to deliver them. Jira Align provides business leaders with better visibility into bottlenecks, risks, and dependencies, as well as more accuracy around capacity planning and measuring return on investment.
Bitbucket. Bitbucket is a code management and collaboration product for teams using distributed version control systems. Bitbucket empowers teams to build, store, test, collaborate and deploy shared code.

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Atlassian Access. Atlassian Access is an enterprise-wide product for enhanced security and centralized administration that works across every Atlassian cloud products used, including Jira, Jira Service Desk, Confluence, Trello, and Bitbucket.
Other Products
We also offer additional products, including Atlassian cloud apps, Bamboo, Crowd, Crucible, Fisheye, Halp, Sourcetree, Statuspage and Trello Power-Ups.
Key Technologies and Capabilities 
Our products and technology infrastructure are designed to provide simple-to-use and versatile products with industry-standard security and data protection that scales to organizations of all sizes, from five user teams to large organizations with thousands of users. Maintaining the security and integrity of our infrastructure is critical to our business. As such, we leverage standard security and monitoring tools to ensure performance across our network.
The Atlassian Cloud Platform
Our products are built upon a platform of shared components and services that provide a common system for user management, add-ons, search, user interfaces and more. Over time, our strategy is to build more common micro services shared across our platform. This approach allows us to develop and introduce new products faster, as we can leverage common foundational services that already exist. This also allows our products to more seamlessly integrate with one another, and provides customers better experiences when using multiple products.
One component of our platform is the Atlassian User Interface (“AUI”), a library of JavaScript, CSS, templates and other resources for quickly creating interfaces that conform to Atlassian design guidelines. AUI is integrated into our products, and is also available externally so third-party developers can build products that conform to our interface specifications.
Atlassian Connect
Open APIs and extensibility have been a hallmark of our products for many years. We offer a broad set of representational state transfer (REST)-based APIs to interact with many of our products features and data. Atlassian Connect is a framework to build apps for our products. An app may be an integration with another existing service, a set of new features for an Atlassian application, or an entirely new product that runs within an application. Atlassian Connect add-ons operate remotely over HTTP and can be written with any programming language and web framework.
Atlassian Connect apps must conform to a set of approval guidelines administered by us and can be publicly offered by third parties and sold via the Atlassian Marketplace.
The Atlassian Marketplace and Ecosystem 
The Atlassian Marketplace is a hosted online marketplace for free and purchasable apps to our products. The Atlassian Marketplace offers thousands of apps from a large and growing ecosystem of third-party vendors and developers.
We offer the Atlassian Marketplace to customers to simplify the discovery and purchase of add-on capabilities for our products and to third-party vendors and developers to more easily reach our customer base, and to simplify license management and renewals. Our portion of revenue derived from each add-on sale to the vendors is approximately 25%. In fiscal year 2020, the Atlassian Marketplace generated over $400 million in purchases.
Marketing
Our go-to-market approach is driven by the strength and innovation of our products and organic user demand. Our model focuses on a land-and-expand strategy, automated and low-touch customer service, superior product quality, and disruptive pricing. We make our products easy to set up and try, which facilitates rapid and widespread adoption of our software. Our products are built for teams, and thus have natural network effects that help them spread virally, through word-of-mouth, across teams and departments. This word-of-mouth marketing increases as more individual users and teams discover our products.
Our marketing efforts focus on growing our company brand, building broader awareness and increasing demand for each of our products. We invest in brand and product promotion, demand generation through direct marketing and advertising, and content development to help educate the market about the benefits of our products.

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We also leverage insights gathered from our users and customers to improve our targeting and ultimately the return-on-investment from our marketing activities. Data-driven marketing is an important part of our business model, which focuses on continuous product improvement and automation in customer engagement and service.
Sales
Our website is our primary forum for sales, and supports thousands of commercial transactions daily. We share a wide variety of information directly with prospective customers, including detailed product information and product pricing. Our sales model focuses on enabling customer self-service, data-driven targeting and automation. As a result, we do not rely primarily on a traditional, commissioned direct sales force. We focus on allowing purchasing to be coordinated online through an automated, easy-to-use web-based process that permits payment using a credit card or bank/wire transfer. We augment rigorous and continuously-improving automated processes with a customer service team to help customers where needed and identify future automation improvements.
We also have a global network of solution partners with unique expertise, services and products that complement the Atlassian portfolio, such as deployment and customization services, localized purchasing assistance around currency, and language and specific in-country compliance requirements. Sales programs consist of activities and teams focused on supporting our solution partners, tracking channel sales activity, supporting and servicing our largest customers by helping optimize their experience across our product portfolio, helping customers expand their use of our products across their organizations and helping product evaluators learn how they can use our tools most effectively.
Community and Ecosystem
We are deeply committed to our global community, with over 25,000 third-party developers on the Atlassian platform and a network of over 500 solution partners. We foster a sense of community with our users through our Atlassian Community Events (“ACE”) program, where users can meet in their local cities at annual live customer and developer events, including Atlassian Summit, Atlassian Open, Atlas Camp, and Atlassian Community, our online community which features user-generated questions and answers with in-depth discussion of our products. While these events are typically held in-person, as a result of the COVID-19 pandemic, we have adjusted the format of various events to be hosted virtually in accordance with local public health guidelines.
ACEs are community-led meetups held around the world that we sponsor and are run by a network of enthusiastic and committed customers who develop an agenda covering wide-ranging topics for users to discuss together.
The Atlassian Summit is our user event where our users can engage and learn from thousands of other users and hundreds of product experts. While we have typically held this event in person in prior years, in fiscal year 2020, we hosted Atlassian Summit entirely virtually with over 16,000 unique viewers. We use the event to share future product themes, deeper how-tos and customer-lead adoption best practices. The event also features product demos and hands-on training courses and is a large virtual networking opportunity for customers to meet each other, our partner ecosystem, and our employees. We plan to host Atlassian Summit entirely virtually in fiscal year 2021.
Atlassian Open is a multi-city event where users can learn how to make teams more open, powerful, effective and happier. During these events we share how we’re creating the future of teamwork. 
Atlas Camp is our developer conference which provides an opportunity for the developer community to enhance their skills and knowledge of our products, including the integration capabilities of our platform, and meet with product specialists.
Customer Support and Services
We focus on designing products that are easy to set up, adopt, and use without support. We provide maintenance and support for all of our licensed customers through our global, multi-channel technical support and services group. Customers are entitled to technical support through an active subscription to our cloud products, or through an active annual maintenance agreement for our on-premises products. This maintenance and support provides customers with new features and improvements, and 24x7 access to our phone and online support teams.
Our automated support services enable our customers to help themselves and include the following resources:

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Technical Documentation - Users can access documentation and instruction for all versions of our products.
Knowledge Base - We offer troubleshooting and how-to tips for all of our products, with links to all our product-specific knowledge bases.
Atlassian University - Atlassian University offers step-by-step interactive tutorials and videos that instruct users and admins on how to use our product.
Over-the-web Hands-on Training - Webinars, led by our skilled training instructors, teach users how to use each product.
Atlassian Community - Atlassian Community is our online community for users to ask questions and provide answers and contribute in-depth discussions on our products and features.
Purchasing FAQ - We offer a simple guide to the online purchasing and account management service.
We also offer premier hands-on support from a team of dedicated senior support engineers and technical account managers who act as a single point of contact for our support, product and engineering teams.
Further customized support and professional services are provided through Atlassian solution partners. We have over 500 solution partners worldwide dedicated to handling specific needs of our customers, such as translating documentation, providing on-site demos or training, building add-ons, tuning deployments, assisting with complex enterprise solutions, and providing setup or agile-based coaching. Our solution partners specialize in environment integrations and customizations and work with some of our largest customers to conduct hands-on system integrations, deployments, and upgrades.
Competition
Our products serve teams of all shapes and sizes in every industry, from software and technical teams, to IT and service teams, to a broad array of business teams.
Our competitors range from large technology vendors to new and emerging businesses in each of the markets we serve:
Software Teams - Our competitors include large technology vendors, including Microsoft (including GitHub) and IBM, and smaller companies like Gitlab that offer project management, collaboration and developer tools.
IT Teams - Our competitors range from cloud vendors, including ServiceNow, salesforce.com, PagerDuty, Zendesk and Freshworks, to legacy vendors such as BMC Software (Remedy) that offer service desk solutions.
Business Teams - Our competitors range from large technology vendors, including Microsoft and Google, that offer a suite of products, to smaller companies like Asana, Monday.com and Smartsheet, which offer point solutions for team collaboration.
In most cases, due to the flexibility and breadth of our products, we co-exist alongside many of our competitors' products within our own customer base, such as Microsoft, Gitlab and Asana.
The principal competitive factors in our markets include product capabilities, flexibility, total cost of ownership, ease of access and use, performance and scalability, integration, customer satisfaction and global reach. Our product strategy, distribution model and company culture allow us to compete favorably on all these factors. Through our focus on research and development we are able to rapidly innovate, offer a breadth of products that are easy to use yet powerful, are integrated and delivered through multiple deployment options from cloud, to on-premises software to highly scalable data center solutions. Our high-velocity, low-friction online distribution model allows us to efficiently reach customers globally without the need to invest in a traditional sales force. Our culture enables us to focus on customer success through superior products, transparent pricing and world-class customer support.
Employees 
Our employees are our greatest asset and we strive to foster a collaborative, productive and fun work environment. As of June 30, 2020, 2019 and 2018 we had 4,907, 3,616, and 2,638 employees, respectively.

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C. Organizational Structure
Atlassian Corporation Plc is a holding company and we conduct substantially all of our business through certain of our subsidiaries. As of June 30, 2020, our subsidiaries, all of which are wholly-owned, are as follows:
Name Country of Incorporation
Atlassian (UK) Limited United Kingdom, United States of America
Atlassian (UK) Holdings Limited United Kingdom, United States of America
Atlassian (Australia) Limited United Kingdom, United States of America
Atlassian (UK) Operations Limited United Kingdom
Atlassian, Inc. United States of America
Atlassian Network Services, Inc. United States of America
Dogwood Labs, Inc. United States of America
Trello, Inc. United States of America
AgileCraft LLC United States of America
AgileCraft Australia Pty Ltd (1) Australia
OpsGenie, Inc. United States of America
Opsgenie Yazılım Anonim Şirketi Turkey
iFountain, LLC United States of America
Halp, Inc United States of America
Atlassian Australia 1 Pty Ltd Australia
Atlassian Australia 2 Pty Ltd Australia
Atlassian Corporation Pty. Ltd. Australia
Atlassian Pty Ltd Australia
Good Software Co. Pty Ltd Australia
Code Barrel Pty Ltd Australia
Lead Green Pty Ltd Australia
Lead Green Trust Australia
Vertical First Pty Ltd Australia
Vertical First Trust Australia
Atlassian Capital Pty. Ltd. Australia
MITT Australia Pty Ltd Australia
MITT Trust Australia
Atlassian Holdings B.V. Netherlands
Atlassian K.K. Japan
Atlassian Germany GmbH Germany
Atlassian Philippines, Inc. Philippines
Atlassian France SAS France
Atlassian B.V. Netherlands
Atlassian Canada Inc. Canada
Atlassian India LLP India
(1) AgileCraft Australia Pty Ltd is currently in liquidation.
D. Property, Plant and Equipment
As of June 30, 2020, our principal offices consist of approximately 245,000 and 277,000 square feet of leased office facilities in Sydney, Australia and the San Francisco Bay Area, California, United States, respectively. We also lease other office facilities around the world, including Austin, Texas; New York, New York; and Boston, Massachusetts, in the United States; the Netherlands; Japan; the Philippines; India; and Turkey.

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In February 2020, we entered into lease agreements for approximately 158,000 square feet of office space in a building under construction in Austin, Texas, United States. We expect to begin occupying 82,000 square feet and 76,000 square feet of this space in fiscal years 2022 and 2023, respectively.
We believe that suitable additional or alternative space will be available as needed to accommodate our growth if we require additional space.
Item 4A. Unresolved Staff Comments

Not applicable.

Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Our mission is to unleash the potential of every team.
Our products help teams organize, discuss and complete their work — delivering superior outcomes for their organizations.
Our products serve teams of all shapes and sizes, in virtually every industry. Our primary products include Jira for planning and project management, Confluence for content creation and sharing, Trello for capturing and adding structure to fluid, fast-forming work for teams, Jira Service Desk for team service and support applications, Opsgenie for incident management, Jira Align for enterprise agile planning, Bitbucket for code sharing and management and Atlasian Access for enterprise-grade security and centralized administration. Together, our products form an integrated system for organizing, discussing and completing shared work, becoming deeply entrenched in how people collaborate and how organizations run.
We begin with a deep investment in product development to create and refine high-quality and versatile products that users love. By making our products affordable for organizations of all sizes and transparently sharing our pricing online for our products, we do not follow the practice of opaque pricing and discounting that is typical in the enterprise software industry. We pursue customer volume, targeting every organization, regardless of size, industry or geography.
To reach this expansive market, we primarily distribute and sell our products online without traditional sales infrastructure where our customers can get started in minutes without the need for assistance. We focus on enabling a self-service, low-friction model that makes it easy for customers to try, adopt and use our products. By making our products simple, powerful, affordable and easy to adopt, we generate demand from word-of-mouth and viral expansion within organizations.
Our culture of innovation, transparency and dedication to customer service drives our success in implementing and refining this unique approach. We believe this approach creates a self-reinforcing effect that fosters innovation, quality, customer happiness, scale and profitability. As a result of this strategy, we invest significantly more in research and development activities than in traditional sales activities relative to other enterprise software companies.
A substantial majority of our sales are automated through our website, including sales of our products through our solution partners and resellers. Our solution partners and resellers primarily focus on customers in regions that require local language support and other customized needs. Sales through indirect channels comprised over one-third of total revenues for fiscal year 2020. We plan to continue to invest in our partner programs to help us enter and grow in new markets, complementing our automated, low-touch approach.
We generate revenues primarily in the form of subscriptions, maintenance, perpetual license and other sources. Subscription revenues consist primarily of fees earned from subscription-based arrangements for providing customers the right to use our software in a cloud-based-infrastructure that we provide. Subscription revenues also include the sale of on-premises term licenses, consisting of software licensed for a specified period and support and maintenance service that is bundled with the license for the term of the license period. From time to time we make changes to our prices and pricing plans for our products which may impact the growth rate of our revenue, our deferred revenue balances, and customer retention.
Maintenance provides our customers with access to unspecified future updates, upgrades and enhancements and technical product support for perpetual license products on an if and when available basis. Maintenance revenue combined with a subscription revenue business, through our cloud and Data Center products,

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results in a large recurring revenue base. In each of the past three fiscal years, more than 80% of our total revenues have been of a recurring nature from either maintenance fees or subscriptions.
Customers typically pay us 100% of the initial perpetual license fee as maintenance revenue annually, beginning in the first year. We typically recognize revenue on the license portion of perpetual license arrangements and term license agreements once the customer obtains control of the license, which is generally upon delivery of the license, and for maintenance and subscriptions, revenue is recognized ratably over the term of the contract. Any invoice amounts or payments received in advance of revenue recognition from subscriptions or maintenance are included in our deferred revenue balance. The deferred revenue balance is influenced by several factors, including customer decisions around the timing of renewals, length of contracts and invoice timing within the period.
Key Business Metrics
We utilize the following key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.
Customers
We have successfully demonstrated a history of growing both our customer base and spend per customer through growth in users, purchase of new licenses and adoption of new products. We believe that our ability to attract new customers and grow our customer base drives our success as a business.
As of June 30, 2020, we had 174,097 customers. With these customers using our software today, we are able to reach a vast number of users, gather insights to refine our offerings and generate growing revenue by expanding within our customer base. No single customer contributed more than 5% of our total revenues during the fiscal year ended June 30, 2020.
We define the number of customers at the end of any particular period as the number of organizations with unique domains that have at least one active and paid license or subscription of our products for which they paid approximately $10 or more per month. While a single customer may have distinct departments, operating segments, or subsidiaries with multiple active licenses or subscriptions of our products, if the product deployments share a unique domain name, we only include the customer once for purposes of calculating this metric. We define active licenses as those licenses that are under an active maintenance or subscription contract as of period end.
Our customers, as defined in this metric, have generated substantially all of our revenue in each of the periods presented. Including organizations who have only adopted our free or starter products, the active use of our products extends well beyond our 174,097 customers.
The following table sets forth our number of customers:
  As of June 30,
  2020 2019 2018
Customers 174,097 152,727 ** 125,796 *
* Includes an increase in customers of 14,263 due primarily to Bitbucket Cloud pricing changes as we moved from a tiered pricing model to a per-user pricing model. As a result, certain organizations using Bitbucket Cloud who had not previously met our definition of a “customer” now qualify as customers.
** Includes an increase of 1,396 customers as a result of our acquisition of OpsGenie and an increase of approximately 2,500 Trello customers as a result of the open board limits we introduced for Trello.
Free cash flow
Free cash flow is a non-IFRS financial measure that we calculate as net cash provided by operating activities less net cash used in investing activities for capital expenditures, and net cash used in financing activities for payments of lease obligations.


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  Fiscal Year Ended June 30,
  2020 2019 2018
  (U.S. $ in thousands)
Net cash provided by operating activities $ 574,210    $ 466,342    $ 311,456   
Less: Purchase of property and equipment (35,709)   (44,192)   (30,209)  
Less: Payments of lease obligations (38,125)   —    —   
Free cash flow * $ 500,376    $ 422,150    $ 281,247   
* 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.
Free cash flow increased by $78.2 million during the fiscal year ended June 30, 2020 as compared to the fiscal year ended June 30, 2019 as a result of an increase of $107.9 million in net cash provided by operating activities and a decrease of $8.5 million in capital expenditures, offset by payment of lease obligations of $38.1 million. 
For more information about net cash provided by operating activities, please see “Liquidity and Capital Resources.”
A. Results of Operations
Components of Results of Operations
Sources of Revenues
Subscription revenues
Subscription revenues consist primarily of fees earned from subscription-based arrangements for providing customers the right to use our software in a cloud-based-infrastructure that we provide. We also sell on-premises term license agreements for our Data Center products, which are software licensed for a specified period, and includes support and maintenance service that is bundled with the license for the term of the license period. Subscription revenues are driven primarily by the number and size of active licenses, the type of product and the price of the licenses. Our subscription-based arrangements generally have a contractual term of one to twelve months, with a majority being one month. For cloud-based services, subscription revenue is recognized ratably as services are performed, commencing with the date the service is made available to customers. For on-premises term-based licenses, we recognize revenue upfront for the portion that relates to the delivery of the term license and the support and related revenue is recognized ratably as the services are delivered over the term of the arrangement.
Maintenance revenues
Maintenance revenues represent fees earned from providing customers unspecified future updates, upgrades and enhancements and technical product support for perpetual license products on an if and when available basis. Maintenance revenue is recognized ratably over the term of the support period.
Perpetual license revenues
Perpetual license revenues represent fees earned from the license of software to customers for use on the customer’s premises other than Data Center products. Software is licensed on a perpetual basis. Perpetual license revenues consist of the revenues recognized from sales of licenses to new customers and additional licenses to existing customers. We typically recognize revenue on the license portion of perpetual license arrangements once the customer obtains control of the license, which is generally upon delivery of the license.
Other revenues
Other revenues include primarily fees received for sales of third-party apps in the Atlassian Marketplace. Technical account management, consulting and training services are also included in other revenues. Revenue from the sale of third-party apps via Atlassian Marketplace is recognized at the date of product delivery given that all of our obligations have been met at that time and on a net basis as we function as the agent in the relationship.

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Revenue from technical account management is recognized over the time period that the customer has access to the service. Revenue from consulting and training is recognized over time as the services are performed.
Cost of Revenues
Cost of revenues primarily consists of expenses related to hosting our cloud infrastructure, which includes third-party hosting fees and depreciation associated with computer equipment and software; compensation expenses for our employees and contractors, including share-based payment expense, associated with our customer support and infrastructure service teams; payment processing fees; amortization of product technologies; certain IT program fees; and facilities and related overhead costs. To support our cloud-based infrastructure, we utilize third-party managed hosting facilities and self-managed data centers. We allocate share-based payment expense to personnel costs based on the expense category in which the employee works. We allocate overhead such as information technology infrastructure, rent and occupancy charges in each expense category based on headcount in that category. As such, general overhead expenses are reflected in cost of revenues and operating expense categories.
Our cost of revenues also includes amortization of acquired intangible assets, such as the amortization of the cost associated with an acquired company’s developed technology.
Gross Profit and Gross Margin
Gross profit is total revenues less total cost of revenues. Gross margin is gross profit expressed as a percentage of total revenues. Gross margin can fluctuate from period to period as a result of changes in product and services mix.
Operating Expenses
Our operating expenses are classified as research and development, marketing and sales, and general and administrative. For each functional category, the largest component is compensation expenses, which include salaries and bonuses, share-based payment expense, employee benefit costs, and contractor costs. We allocate overhead such as information technology infrastructure, rent, and occupancy charges in each expense category based on headcount in that category.
Research and development
Research and development expenses consist primarily of compensation expense for our employees and contractors, including share-based payment expense, contract software development costs, certain IT program expenses, and facilities and related overhead costs. We continue to focus our research and development efforts on building new products, adding new features and services, integrating acquired technologies, increasing functionality, enhancing our cloud infrastructure and developing our mobile capabilities.
Marketing and sales
Marketing and sales expenses consist primarily of compensation expense for our employees and contractors, including share-based payment expense, for our marketing and sales employees, marketing and sales programs, certain IT program expenses, and facilities and related overhead costs. Marketing programs consist of advertising, promotional events, corporate communications, brand building and product marketing activities such as online lead generation. Sales programs consist of activities and teams focused on supporting our solution partners and resellers, tracking channel sales activity, supporting and servicing our customers by helping them optimize their experience and expand the use of our products across their organizations and helping product evaluators learn how they can use our tools most effectively.
General and administrative
General and administrative expenses consist primarily of compensation expense for our employees and contractors, including share-based payment expense, for finance, legal, human resources and information technology personnel, as well as external legal, accounting and other, professional fees, certain IT program expenses, other corporate expenses and facilities and related overhead costs.
Share-based payment expense
We allocate share-based payment expense to personnel costs based on the functional category in which the employee works. We recognize our share-based payments as an expense in the consolidated statements of operations based on their grant date fair values and vesting periods.

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We adhere to the accelerated method of expense recognition for share-based awards subject to graded vesting (i.e., when portions of the award vest at different dates throughout the vesting period). For example, for a grant vesting over four years, we treat the grant as multiple awards (sometimes referred to as “tranches”) and recognize the cost on a straight-line basis separately for each tranche. This results in the majority of the grant’s share-based payment expense being recognized in the first year of the grant rather than equally per year under a straight-line expense methodology.
We began granting RSUs in 2014. Prior to our initial public offering (“IPO”), we granted RSUs with both a time-based service condition and a liquidity condition. The time-based service condition for substantially all of these awards is satisfied over four years. The liquidity condition was satisfied upon the effectiveness of the registration statement related to our IPO. Pursuant to IFRS, we estimate the fair value of each award at the date of grant and recognize expense over the service period rather than starting expense recognition upon a liquidity event, as is the case under U.S. Generally Accepted Accounting Principles.
During the fiscal years ended 2020 and 2019 we recognized share-based payment expense of $313.4 million and $257.8 million, respectively. As of June 30, 2020, the aggregate share-based payment expense remaining to be amortized to cost of revenues and operating expenses, over a weighted-average period of 1.4 years, was $328.6 million. We expect this share-based payment expense balance to be amortized as follows: $220.9 million during fiscal year 2021; $79.0 million during fiscal year 2022; $25.0 million during fiscal year 2023 and $3.7 million thereafter. The expected amortization reflects only outstanding share awards as of June 30, 2020.
Income taxes
Income taxes primarily consist of income taxes in the United Kingdom, Australia and the United States, as well as income taxes in certain other foreign jurisdictions.
We generally conduct our international operations through wholly-owned subsidiaries and report our taxable income in various jurisdictions.
Net loss
We incurred a net loss on an IFRS basis in fiscal years 2020 and 2019, primarily due to the marking to fair value of the Notes and capped call. Please refer to Note 16, “Exchangeable Senior Notes,” to the notes to our consolidated financial statements for details of our Notes and capped call. Our significant investments in research and development and technology infrastructure for our cloud-based offerings, expanding our operations globally, and developing new products and features for, and enhancements of, our existing products were also a contributing factor.

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Results of Operations
The following table sets forth our results of operations for the periods indicated:
  Fiscal Year Ended June 30,
  2020 2019
(U.S. $ and shares in thousands, except per share data)
Revenues:    
Subscription $ 931,455    $ 633,950   
Maintenance 469,350    394,526   
Perpetual license 95,162    93,593   
Other 118,206    88,058   
Total revenues 1,614,173    1,210,127   
Cost of revenues (1) (2) 268,807    210,285   
Gross profit 1,345,366    999,842   
Operating expenses:
Research and development (1) (2) 763,188    579,134   
Marketing and sales (1) (2) 299,683    268,356   
General and administrative (1) 268,409    215,714   
Total operating expenses 1,331,280    1,063,204   
Operating income (loss) 14,086    (63,362)  
Other non-operating expense, net (338,486)   (535,453)  
Finance income 27,801    33,500   
Finance costs (49,610)   (40,241)  
Loss before income tax expense (346,209)   (605,556)  
Income tax expense (4,445)   (32,065)  
Net loss $ (350,654)   $ (637,621)  
Net loss per share attributable to ordinary shareholders:
Basic $ (1.43)   $ (2.67)  
Diluted $ (1.43)   $ (2.67)  
Weighted-average shares outstanding used to compute net loss per share attributable to ordinary shareholders:
Basic 244,844    238,611   
Diluted 244,844    238,611   
(1) Amounts include share-based payment expense, as follows:
Cost of revenues $ 19,787    $ 17,450   
Research and development 204,150    149,049   
Marketing and sales 41,960    39,303   
General and administrative 47,498    51,960   
(2) Amounts include amortization of acquired intangible assets, as follows:
Cost of revenues $ 29,509    $ 27,997   
Research and development 166    60   
Marketing and sales 12,860    28,744   

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The following table sets forth our results of operations data for each of the periods indicated as a percentage of total revenues:
  Fiscal Year Ended June 30,
  2020 2019
Revenues:    
Subscription 58  % 52  %
Maintenance 29    33   
Perpetual license    
Other    
Total revenues 100    100   
Cost of revenues 17    17   
Gross profit 83    83   
Operating expenses:    
Research and development 47    48   
Marketing and sales 18    22   
General and administrative 17    18   
Total operating expenses 82    88   
Operating income (loss)   (5)  
Other non-operating expense, net (21)   (44)  
Finance income    
Finance costs (4)   (4)  
Loss before income tax expense (22)   (50)  
Income tax expense —    (3)  
Net loss (22)   (53)  
Amounts include share-based payment expense, as follows:
Cost of revenues % %
Research and development 13    12   
Marketing and sales    
General and administrative    
Amounts include amortization of acquired intangible assets, as follows:
Cost of revenues % %
Research and development —    —   
Marketing and sales    

Fiscal Year Ended 2020 and 2019
Revenues
  Fiscal Year Ended June 30,
  2020 2019 $ Change % Change
  (U.S. $ in thousands)
Subscription $ 931,455    $ 633,950    $ 297,505    47  %
Maintenance 469,350    394,526    74,824    19   
Perpetual license 95,162    93,593    1,569     
Other 118,206    88,058    30,148    34   
Total revenues $ 1,614,173    $ 1,210,127    $ 404,046    33   


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Total revenues increased $404.0 million, or 33%, in the fiscal year ended June 30, 2020 compared to the fiscal year ended June 30, 2019. Growth in total revenues was attributable to increased demand for our products from both new and existing customers. Of total revenues recognized in the fiscal year ended June 30, 2020, over 90% was attributable to sales to customer accounts existing on or before June 30, 2019. Our number of total customers increased to 174,097 at June 30, 2020 from 152,727 at June 30, 2019.
Subscription revenues increased $297.5 million, or 47%, in the fiscal year ended June 30, 2020 compared to the fiscal year ended June 30, 2019. The increase in subscription revenues was primarily attributable to additional subscriptions from our existing customer base. As customers increasingly adopt our cloud-based subscription services and term-based licenses for our on-premises Data Center products for their business needs, we expect our subscription revenues to continue to increase in future periods.
Maintenance revenues increased $74.8 million, or 19%, in the fiscal year ended June 30, 2020 compared to the fiscal year ended June 30, 2019. The increase in maintenance revenues was primarily attributable to growing renewal of software maintenance contracts from our customers related to our perpetual license software offerings.
Perpetual license revenues increased $1.6 million, or 2%, in the fiscal year ended June 30, 2020 compared to the fiscal year ended June 30, 2019. The increase in perpetual license revenues was attributable to additional licenses to existing customers.
Other revenues increased $30.1 million, or 34%, in the fiscal year ended June 30, 2020 compared to the fiscal year ended June 30, 2019. The increase in other revenues was primarily attributable to an increase in revenue from sales of third-party apps through our Atlassian Marketplace.
Total revenues by geography were as follows:
  Fiscal Year Ended June 30,
  2020 2019 $ Change % Change
  (U.S. $ in thousands)
Americas $ 802,499    $ 603,959    $ 198,540    33  %
EMEA 633,735    474,712    159,023    33   
Asia Pacific 177,939    131,456    46,483    35   
Total revenues $ 1,614,173    $ 1,210,127    $ 404,046    33   
Cost of Revenues
  Fiscal Year Ended June 30,
  2020 2019 $ Change % Change
  (U.S. $ in thousands)  
Cost of revenues $ 268,807    $ 210,285    $ 58,522    28  %
Gross margin 83  % 83  %    

Cost of revenues increased $59 million, or 28%, in the fiscal year ended June 30, 2020 compared to the fiscal year ended June 30, 2019. The overall increase was primarily due to an increase of $25.4 million in hosting fees paid to the third party providers and an increase of $21.1 million in compensation expense for employees and contractors.
We increased our headcount during the period to meet the higher demand for our products and services from our customers. We expect to continue to invest in additional personnel as we scale. Over time, we expect the revenue from our cloud subscription business to grow as a percentage of total revenues. As a result, we intend to continue to invest in our cloud infrastructure. We expect that cost of revenues will increase in absolute dollars and may increase as a percentage of revenues in future periods.

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Operating Expenses
Research and development
  Fiscal Year Ended June 30,    
  2020 2019 $ Change % Change
  (U.S. $ in thousands)  
Research and development $ 763,188    $ 579,134    $ 184,054    32  %
Research and development expenses increased $184.1 million, or 32%, in the fiscal year ended June 30, 2020 compared to the fiscal year ended June 30, 2019. The overall increase was primarily a result of an increase of $154.9 million in compensation expense for employees and contractors (which includes an increase of $55.1 million in share-based payment expenses) and an increase of $19.2 million in professional services.
We increased our research and development headcount during the period in order to enhance and extend our service offerings and develop new technologies. We expect that research and development expenses will increase in absolute dollars and may increase as a percentage of revenues in future periods as we continue to invest in additional personnel and technology to support the development, improvement and integration of technologies. We have not capitalized any research and development costs during fiscal year 2020 and 2019.
Marketing and sales
  Fiscal Year Ended June 30,    
  2020 2019 $ Change % Change
  (U.S. $ in thousands)  
Marketing and sales $ 299,683    $ 268,356    $ 31,327    12  %
Marketing and sales expenses increased $31.3 million, or 12%, for the fiscal year ended June 30, 2020, compared to the fiscal year ended June 30, 2019. Marketing and sales expenses increased primarily due to an increase of $29.5 million in compensation expense for employees and an increase of $11.0 million in professional services, offset by a decrease of $15.9 million in amortization of acquired intangible assets. Our marketing and sales headcount increased during the period as a result of hiring additional personnel to expand our relationship with our existing customers and to attract new customers.
General and administrative
  Fiscal Year Ended June 30,    
  2020 2019 $ Change % Change
  (U.S. $ in thousands)  
General and administrative $ 268,409    $ 215,714    $ 52,695    24  %
General and administrative expenses increased $52.7 million, or 24%, in the fiscal year ended June 30, 2020 compared to the fiscal year ended June 30, 2019. The increase was primarily due to an increase of $25.8 million in compensation expense for employees and contractors, an increase of $9.9 million in professional services and an increase of $5.4 million in software subscription expense. Our general and administrative headcount increased during the period as we added personnel to support our growth.
Other non-operating expense, net
  Fiscal Year Ended June 30,    
  2020 2019 $ Change % Change
  (U.S. $ in thousands)  
Other non-operating expense, net $ (338,486)   $ (535,453)   $ 196,967    **
_______________________
** Not meaningful

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Other non-operating expense, net decreased $197.0 million in the fiscal year ended June 30, 2020, compared to the fiscal year ended June 30, 2019. The decrease was primarily due to the net impact from the mark to fair value of the embedded exchange feature of the Notes and the related capped call transactions of $198.0 million. Please refer to Note 16, “Exchangeable Senior Notes,” to the notes to our consolidated financial statements for more details.
Income tax expense
  Fiscal Year Ended June 30,    
  2020 2019 $ Change % Change
  (U.S. $ in thousands)  
Income tax expense $ (4,445)   $ (32,065)   $ 27,620    **
Effective tax rate ** **    
** Not meaningful
We reported a tax expense of $4.4 million on pretax loss of $346.2 million for the fiscal year ended June 30, 2020, as compared to a tax expense of $32.1 million on pretax loss of $605.6 million for the fiscal year ended June 30, 2019. Our effective tax rate substantially differed from the U.K. statutory income tax rate of 19.0% primarily due to different tax rates in foreign jurisdictions such as the U.S. and Australia, the recognition of significant permanent differences during the fiscal years ended 2020 and 2019, and non-cash charges to adjust the carrying value of our U.S. and Australian deferred tax assets due to changes in our assessment of the realizability of our U.S. and Australian deferred tax assets. In June 2019, as a result of our assessment of the realizability of its Australian deferred tax assets, we recorded non-cash charges to tax expense of $54.7 million to reduce the carrying value of these assets. Our assessment of the realizability of our Australian and U.S. deferred tax assets is based on all available positive and negative evidence. Such evidence includes, but is not limited to, recent cumulative earnings or losses, expectations of future taxable income by taxing jurisdiction, and the carry-forward periods available for the utilization of deferred tax assets.
Significant permanent differences included non-deductible charges related to the Notes, nondeductible share-based payment expense and research and development incentives.
See Note 8, “Income Tax,” to the notes to our consolidated financial statements for our reconciliation of loss before income tax expense to income tax expense. A change in our global operations could result in changes to our effective tax rates, future cash flows and overall profitability of our operations.
B. Liquidity and Capital Resources
As of June 30, 2020, we had cash and cash equivalents totaling $1.5 billion, short-term investments totaling $676.1 million and trade receivables totaling $112.0 million. Since our inception, we have primarily financed our operations through cash flows generated by operations.
Our cash flows from operating activities, investing activities, and financing activities for the fiscal years ended 2020, 2019 and 2018 were as follows:
  Fiscal Year Ended June 30,
  2020 2019 2018
(U.S. $ in thousands)
Net cash provided by operating activities $ 574,210    $ 466,342    $ 311,456   
Net cash used in investing activities (318,931)   (604,198)   (51,696)  
Net cash provided by (used in) financing activities (42,575)   (3,187)   906,789   
Effect of exchange rate changes on cash and cash equivalents (1,176)   (855)   (630)  
Net increase (decrease) in cash and cash equivalents $ 211,528    $ (141,898)   $ 1,165,919   
We believe that our existing cash and cash equivalents, together with cash generated from operations, will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements will depend on many factors including our growth rate, the timing and extent of spend on research and development efforts, employee headcount, marketing and sales activities, acquisitions of additional businesses and technologies, the timing and extent of exchange of the Notes for payments of cash, the introduction of new software and services

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offerings, enhancements to our existing software and services offerings and the continued market acceptance of our products.
Cash provided by operating activities has historically been affected by the amount of net income (loss) adjusted for non-cash expense items such as depreciation and amortization, depreciation of right-of-use assets, non-coupon impact related to the Notes and capped calls and expense associated with share-based awards, the timing of employee-related costs such as bonus payments, collections from our customers, which is our largest source of operating cash flows, and changes in other working capital accounts.
Accounts impacting working capital consist of trade receivables, prepaid expenses and other current assets, trade and other payables, current provisions, and current deferred revenue. Our working capital may be impacted by various factors in future periods, such as billings to customers for subscriptions, licenses and maintenance services and the subsequent collection of those billings or the amount and timing of certain expenditures.
Net cash provided by operating activities was $574.2 million for the fiscal year ended June 30, 2020, as a result of $346.2 million in loss before income tax expense adjusted by non-cash charges including the net loss of marking to fair value of the embedded exchange feature of the Notes and related capped call transactions of $336.0 million, debt discount and issuance cost amortization of $35.6 million, share-based payment expense of $313.4 million, depreciation and amortization of $62.3 million, and depreciation of our right-of-use assets of $35.1 million. The net increase of $143.0 million from our operating assets and liabilities was primarily attributable to a $131.5 million increase in our deferred revenue as a result of increased sales of subscriptions and renewals of maintenance contracts and a $51.5 million increase in our trade and other payables, provisions and other non-current liabilities, offset by a $29.4 million increase in trade receivables and a $10.6 million increase in prepaid expenses and other assets. Net cash provided by operating activities was also impacted by interest received of $29.2 million and income tax paid, net of tax refund received of $17.9 million.
Net cash provided by operating activities was $466.3 million for the fiscal year ended June 30, 2019, as a result of $605.6 million in loss before income tax expense adjusted by non-cash charges including the net loss of marking to fair value of the embedded exchange feature of the Notes and related capped call transactions of $533.9 million, depreciation and amortization of $70.2 million, share-based payment expense of $257.8 million and debt discount and issuance cost amortization of $33.9 million. The net increase of $169.0 million from our operating assets and liabilities was primarily attributable to a $122.5 million increase in our deferred revenue as a result of increased sales of subscriptions and renewals of maintenance contracts and a $75.6 million increase in trade and other payables, provisions and other non-current liabilities, offset by a $30.2 million increase in trade receivables. Net cash provided by operating activities was also impacted by interest received of $30.3 million and tax refunds received, net of income tax paid of $7.0 million.
Net cash used in investing activities during the fiscal year ended June 30, 2020 was $318.9 million. This was primarily related to purchases of investments totaling $985.9 million, cash paid for business combinations, net of cash acquired, totaling $53.2 million and capital expenditures totaling $35.7 million, offset by cash received from the maturing of investments which totaled $513.3 million and proceeds from sales of investments of $245.5 million.
Net cash used in investing activities during the fiscal year ended June 30, 2019 was $604.2 million. This was primarily related to cash paid for business combinations, net of cash acquired, totaling $418.6 million, purchases of investments totaling $648.0 million and purchases of property and equipment totaling $44.2 million to support the growth of our business, including hardware, equipment and leasehold improvements, offset by cash received from the maturing of investments which totaled $485.0 million and proceeds from sales of investments of $20.5 million.
Net cash used in financing activities for the fiscal year ended June 30, 2020 was $42.6 million and was primarily related to payments of lease obligations of $38.1 million and coupon interest payments on the Notes of $(6.3) million, offset by proceeds from exercises of employee share options of $1.8 million.
Net cash used by financing activities for the fiscal year ended June 30, 2019 was $3.2 million and was primarily related to coupon interest payments on the Notes of $6.3 million, offset by proceeds from exercises of employee share options of $3.5 million.

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Critical Accounting Polices and Estimates
We prepare our consolidated financial statements in accordance with IFRS, which includes all standards issued by the IASB and related interpretations issued by the IFRS Interpretations Committee. The preparation of the consolidated financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, contingent liabilities, revenues, and expenses. We base our judgments and estimates on historical experience and on other various factors we believe to be reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from these estimates under different assumptions and conditions and may materially affect the financial results or the financial position reported in future periods.
While our significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies” to the notes to our consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the accounting policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.
Revenue recognition
Revenues are generally recognized upon the transfer of control of promised products or services provided to our customers, reflecting the amount of consideration we expect to receive for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. The revenue recognition policy is consistent for sales generated directly with customers and sales generated indirectly through solution partners and resellers.
Revenues are recognized upon the application of the following steps:
1.Identification of the contract or contracts with a customer;
2.Identification of the performance obligations in the contract;
3.Determination of the transaction price;
4.Allocation of the transaction price to the performance obligations in the contract; and
5.Recognition of revenue when, or as, the performance obligation is satisfied.
The timing of revenue recognition may differ from the timing of billing our customers. We receive payments from customers based on a billing schedule as established in our contracts. Contract assets are recognized when performance is completed in advance of scheduled billings. Deferred revenue is recognized when billings are in advance of performance under the contract. Our revenue arrangements include standard warranty provisions that our products and services will perform and operate in all material respects, with the applicable published specifications, the financial impacts which have historically been and are expected to continue to be insignificant. Our contracts do not include a significant financing component.
Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require judgment.
We allocate the transaction price for each contract to each performance obligation based on the relative standalone selling price (“SSP”) for each performance obligation. We use judgment in determining the SSP for products and services. We typically determine an SSP range for our products and services which is reassessed on a periodic basis or when facts and circumstances change. For all performance obligations other than perpetual and term licenses, we are able to determine SSP based on the observable prices of products or services sold separately in comparable circumstances to similar customers. In instances where performance obligations do not have observable standalone sales, we utilize available information that may include market conditions, pricing strategies, the economic life of the software, and other observable inputs to estimate the price we would charge if the products and services were sold separately.
Our products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances we estimate customer usage of our services, which are accounted for as variable consideration when determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Variable consideration was not material for the periods presented.

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Recognition of revenue
Revenue recognized from contracts with customers is disaggregated into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. We report our revenues in four categories: (i) subscription, (ii) maintenance, (iii) perpetual license, and (iv) other. In addition, we present revenue by geographic region in Note 15, “Revenue,” to the notes to our consolidated financial statements.
Subscription revenues
Subscription revenues consist primarily of fees earned from subscription-based arrangements for providing customers the right to use our software in a cloud-based-infrastructure that we provide. We also sell on-premises term license agreements for our Data Center products, which are software licensed for a specified period, and includes support and maintenance service that is bundled with the license for the term of the license period. Subscription revenues are driven primarily by the number and size of active licenses, the type of product and the price of the licenses. Our subscription-based arrangements generally have a contractual term of one to twelve months, with a majority being one month. For cloud-based services, subscription revenue is recognized ratably as services are performed, commencing with the date the service is made available to customers. For on-premises term-based licenses, we recognize revenue upfront for the portion that relates to the delivery of the term license and the support and related revenue is recognized ratably as the services are delivered over the term of the arrangement.
Maintenance revenues
Maintenance revenues represent fees earned from providing customers unspecified future updates, upgrades and enhancements and technical product support for perpetual license products on an if and when available basis. Maintenance revenue is recognized ratably over the term of the support period.
Perpetual license revenues
Perpetual license revenues represent fees earned from the license of software to customers for use on the customer’s premises other than Data Center products. Software is licensed on a perpetual basis. Perpetual license revenues consist of the revenues recognized from sales of licenses to new customers and additional licenses to existing customers. We typically recognize revenue on the license portion of perpetual license arrangements once the customer obtains control of the license, which is generally upon delivery of the license.
Other revenues
Other revenues include primarily fees received for sales of third-party apps in the Atlassian Marketplace. Technical account management, consulting and training services are also included in other revenue. Revenue from the sale of third-party apps via Atlassian Marketplace is recognized at the date of product delivery given that all of our obligations have been met at that time and on a net basis as we function as the agent in the relationship. Revenue from technical account management is recognized over the time period that the customer has access to the service. Revenue from consulting and training is recognized over time as the services are performed.
Business combinations
We include the results of operations of the businesses that we acquire beginning from the acquisition date. We allocate the purchase price of our acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
We use our best estimates and assumptions to accurately assign fair value to the intangible assets acquired at the acquisition date. The estimation is primarily due to the judgmental nature of the inputs to the valuation models used to measure the fair value of these intangible assets, as well as the sensitivity of the respective fair values to the underlying significant assumptions. Our estimates are inherently uncertain and subject to refinement. We use a discounted cash flow method of the income approach to measure the fair value of these intangible assets. Assumptions used to estimate the fair value of the intangible assets include revenue growth rates, technology migration curve, customer attrition rates and discount rates. These assumptions are forward-looking and could be affected by future economic and market conditions.
During the measurement period, which may be up to one year from the date of acquisition, we may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed based on

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additional information obtained affecting the fair value of those assets and liabilities, with the corresponding offset to goodwill. In addition, uncertain tax positions are initially established in connection with a business combination as of the acquisition date. We continue to collect information and reevaluate these provisional estimates and assumptions as deemed reasonable by management. We record any adjustments to these provisional estimates and assumptions against goodwill provided they arise within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations.
Goodwill
Goodwill is the excess of the aggregate of the consideration transferred over the identifiable assets acquired and liabilities assumed. Goodwill is tested for impairment annually during the fourth quarter of our fiscal year and when circumstances indicate that the carrying value may be impaired. We perform our annual goodwill impairment test at the level of our operating segment as there are no lower levels within the Group at which goodwill is monitored. Impairment is determined for goodwill by assessing the recoverable amount of the operating segment. When the recoverable amount of the operating segment is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
Intangible assets
We acquire intangible assets separately or in connection with business combinations. Intangible assets are measured at cost initially. All of our intangible assets are subject to amortization and are amortized over their estimated useful life using the straight-line method. The amortization expense on intangible assets is recognized in the consolidated statements of operations in the expense category, consistent with the function of the intangible asset.
The estimated useful lives for each intangible asset class are as follows:
Patents, trademarks and other rights 1 - 12 years
Customer relationships 2 - 10 years
Acquired developed technology 2 - 7 years
Intangible assets with finite lives are assessed for impairment whenever there is an indication that the intangible asset may be impaired. When the recoverable amount of an intangible asset is less than its carrying amount, an impairment loss is recognized.
Impairment of non-financial assets
At the end of each reporting period, we assess whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, we estimate the asset’s recoverable amount. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. An asset’s recoverable amount is the higher of an asset’s or cash generating unit (“CGU”)’s fair value less costs of disposal and its value in use. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used.
Leases
In January 2016, the IASB issued IFRS 16, which supersedes the previous leases standard, IAS 17, Leases and related interpretations. The standard introduced a single lessee accounting model and requires a lessee to recognize leases on its statement of financial position, represented by right-of-use assets and lease obligations. We adopted IFRS 16 as of July 1, 2019, using the modified retrospective method and, therefore, the comparatives for fiscal years 2019 and 2018 have not been restated.
Prior to adoption of IFRS 16
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at the inception date, whether fulfillment of the arrangement is dependent on the use of a specific

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asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. We categorize leases at their inception as either operating or finance leases. Expenses incurred in operating leases (net of any incentives received from the lessor) are recognized on a straight-line basis over the term of the lease.
After adoption of IFRS 16
Group as lessee
We determine if an arrangement is a lease at inception. Our lease agreements generally contain lease and non-lease components. Lease payments under our lease arrangements are primarily fixed. Non-lease components primarily include payments for maintenance and utilities and are expensed as incurred.
Lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is our incremental borrowing rate, because the interest rate implicit in our leases is not readily determinable. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. Our lease terms include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option. We generally use the base, non-cancelable, lease term when determining lease liabilities. We reassess the lease term if and when a significant event or change in circumstances occurs within the control of the Group.
Right-of-use assets are recognized at cost at the lease commencement date. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct cost incurred, any prepaid lease payments less lease incentives and an estimate of restoration cost. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.
We apply the short-term lease recognition exemption for our short-term leases and leases of low-value assets. Short-term leases are leases with a lease term of 12 months or less. Low-value assets are primarily comprised of office equipment. Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis over the lease term.
Taxation
Current tax
Current income tax assets and/or liabilities comprise amounts expected to be recovered or paid to Her Majesty's Revenue & Customs (“HMRC”), the Australian Taxation Office, the United States Internal Revenue Service (“IRS”) and other fiscal authorities relating to the current or prior reporting periods, which are unpaid at each reporting date. Current tax is payable on taxable income that differs from the consolidated statements of operations in the financial statements due to permanent and temporary timing differences. The calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax
We use the liability method of accounting for income taxes. Deferred income tax assets and liabilities represent temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and their corresponding tax basis used in the computation of taxable income. Deferred tax however is not recognized on the initial recognition of goodwill, or the initial recognition of an asset or liability (other than in a business combination) in a transaction that affects neither tax nor accounting income.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where we are able to control the reversal of the temporary differences and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax liabilities are generally provided for in full.
Deferred tax assets are recognized to the extent that they are expected to reverse in the foreseeable future and it is probable that they will be able to be utilized against future taxable income, based on our forecast of future results of operations. Deferred tax assets are adjusted for significant non-taxable income, expenses and specific limits on the use of any unused tax loss or credit. Unrecognized deferred income tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable income will allow the deferred tax asset to be recovered.

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Deferred tax assets and liabilities are calculated, without discounting, at tax rates and in accordance with laws that are expected to apply to their respective period of realization, provided the tax rates and laws are enacted or substantively enacted by the end of the reporting period. The carrying amount of deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax asset to be utilized.
Deferred tax liabilities and assets are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and we intend to settle our current tax assets and liabilities on a net basis. Changes in deferred tax assets or liabilities are recognized as a component of tax expense (benefit) in the consolidated statements of operations, except where they relate to items that are recognized in other comprehensive income or directly in equity, in which case the related deferred tax is also recognized in other comprehensive income or equity, respectively. Where deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.
Deferred tax assets are recognized for deductible temporary differences for which management considers it is probable that future taxable income will be available to utilize those temporary differences. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable income, together with future tax-planning strategies. Assumptions about the generation of future taxable income depend on management’s estimates of future cash flows, future business expectations, capital expenditures, dividends, and other capital management transactions. Management judgment is also required in relation to the application of income tax legislation, which involves complexity and an element of uncertainty. Where management judgment is found to be misplaced, some or all of recognized deferred tax asset and liability carrying amounts may require adjustment, resulting in a corresponding credit or charge to the consolidated statements of operations.
New Standards, Interpretations and Amendments Not Yet Adopted in Fiscal Year 2020
The IASB has issued other amendments resulting from improvements to IFRS that management considers do not have any impact on the accounting policies, financial position or performance of the Group. We do not expect them to have a material impact on our accounting policies.
C. Research and Development, Patents and Licenses, etc.
Research and Development
Our research and development organization is primarily responsible for design, development, testing and delivery of our products and platform. It is also responsible for our customer services platforms, including billing and support, our Marketplace platform, and marketing and sales systems that power our automated distribution model.
As a company, we prioritize research and development above all other operating investments. Over the last two fiscal years, we invested $989.1 million in research and development activities, excluding share-based compensation, translating to 35.0% of the revenue generated over the same period. During this period, we released new versions, features, and cloud platform capabilities to drive existing customer success and expansion as well as attract new customers to our products.
As of June 30, 2020, over 50% of our employees were involved in research and development activities. Our research and development organization is primarily distributed across six locations: Sydney, Australia, the San Francisco Bay Area, California, New York, New York, Austin, Texas, Bengaluru, India, and Ankara, Turkey. In addition, we conduct research and development activities at our partner location in Gdansk, Poland.
Our research and development organization consists of flexible and dynamic teams that follow agile development methodologies to enable rapid product releases across our various platforms: cloud, server and data center. In addition to investing in our internal development teams, we invest heavily in our developer ecosystem to enable external software developers to build features and solutions on top of our platform. Given our relentless focus on the customer, we work closely with our customers to develop our products, and have designed a development process that incorporates the feedback that matters most from our users. From maintaining an active online community to measuring user satisfaction for our products, we are able to address our users’ greatest needs.

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Intellectual Property
We protect our intellectual property through a combination of trademarks, domain names, copyrights, trade secrets and patents, as well as contractual provisions and restrictions governing access to our proprietary technology.
We registered ‘‘Atlassian’’ as a trademark in the United States, Australia, the EU, Russia, China, Japan, Switzerland, Norway, Singapore, Israel, Korea, and Canada. We have also registered or filed for trademark registration of product-related trade names and logos in the United States, Australia, the EU, Brazil, Russia, India, and China, and certain other jurisdictions, and will pursue additional trademark registrations to the extent we believe it would be beneficial and cost effective.
As of June 30, 2020, we had 117 issued patents and have over 200 applications pending in the United States. We also have a number of patent applications pending before the European Patent Office. These patents and patent applications seek to protect proprietary inventions relevant to our business. We intend to pursue additional patent protection to the extent we believe it would be beneficial and cost effective.
We are the registered holder of a variety of domain names that include ‘‘Atlassian’’ and similar variations.
In addition to the protection provided by our registered intellectual property rights, we protect our intellectual property rights by imposing contractual obligations on third parties who develop or access our technology. We enter into confidentiality agreements with our employees, consultants, contractors and business partners. Our employees, consultants and contractors are also subject to invention assignment agreements, pursuant to which we obtain rights to technology that they develop for us. We further protect our rights in our proprietary technology and intellectual property through restrictive license and service use provisions in both the general and product-specific terms of use on our website and in other business contracts.
D. Trend Information
We operate with a long-term mindset to drive durable growth measured over decades.
In the fiscal year ended June 30, 2020, we completed the full rollout of free cloud editions across our core products - Jira Software, Confluence and Jira Service Desk. We also launched the Atlassian Cloud Enterprise, a complete ladder of cloud editions to fit any size customer’s needs. This is the direct result of our multi-year investment in our cloud platform.
Migrating our larger customers to the cloud is one of our most important priorities over the next several years. Consistent with our strategy, our server business is slowing. As a result, we expect perpetual license revenue, mainly driven by new server sales and upgrades, will decline in the fiscal year ending June 30, 2021. Maintenance revenue, mainly driven by server renewals, will be flat year over year as we expect a smaller impact from price increases and a growing impact from server migrations.
While COVID-19 did not have a material adverse impact on our financial condition or results of operations during the fiscal year ended June 30, 2020, 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 predicted at this time. For example, while our diverse customer base is a competitive advantage for us and helps fuel our low-friction flywheel sales model, we have revenue exposure to customers who are small- and medium-sized businesses and to industries that may be disproportionately impacted by COVID-19. Also, a majority of our cloud customers choose to be billed on a monthly basis and many of these customers are small and medium-sized businesses that may be adversely impacted by COVID-19. In addition, we may experience elongated sales cycles and extended payment terms and concessions as the economic and social impacts of COVID-19 become more fully realized.
Across our deployment options, we expect to see less revenue growth in the fiscal year ending June 30, 2021 from pricing and packaging. Any pricing optimizations will be specifically targeted to support our long-term business strategy. We will offer loyalty discounts to incentivize eligible existing enterprise server customers to migrate to our cloud products. We will also continue to support our customers that are facing challenging times as a result of COVID-19’s impact on the macroeconomy.
We’ll continue investing to pursue the large market opportunities ahead of us, despite macroeconomic headwinds and slower revenue growth. We expect to invest in additional personnel as we scale, with the majority in research and development. We plan to invest in our platform, cloud services, migration tools, new product

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initiatives, and in improvements across the cloud portfolio. We expect our operating income and operating cash flow to decrease in the fiscal year ended June 30, 2021.
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the current fiscal year that are reasonably likely to have a material effect on our revenues, income, profitability, liquidity or capital reserves, or that caused the disclosed financial information to be not necessarily indicative of future results of operations or financial conditions.
E. Off-Balance Sheet Arrangements
We did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other purposes. Other than operating leases for office space, we have not engaged in off-balance sheet financing arrangements.
F. Contractual Obligations and Commitments
Our principal contractual obligations primarily consist of obligations under our Notes, leases for office space, contractual commitments for hosting services and capital purchase obligations for the construction or purchase of property and equipment.
At June 30, 2020 contractual obligations, were as follows:
  Payments Due by Period
  Total Less than
1 year
1 to 3
years
3 to 5
years
After 5
years
  (U.S. $ in thousands)
Exchangeable senior notes (1) $ 2,211,244    $ 2,211,244    $ —    $ —    $ —   
Lease liabilities (2) 297,082    41,584    109,015    54,325    92,158   
Purchase obligations 235,002    90,972    144,030    —    —   
Capital purchase obligations 9,781    9,781    —    —    —   
Total $ 2,753,109    $ 2,353,581    $ 253,045    $ 54,325    $ 92,158   
(1) As of June 30, 2020, the closing price exchange condition of the Notes has been met and the Notes and exchange derivative liability are classified as current on our consolidated statements of financial position and may be due in less than one year. The amount related to the Notes represent the if-exchanged value using stock price as of June 30, 2020. Refer to Note 16, “Exchangeable Senior Notes,” to the notes to our consolidated financial statements for more details on the Notes.
(2) Lease liabilities represent undiscounted lease payments excluding certain low-value and short-term leases. For further information, refer to Note 2, “Summary of Significant Accounting Policies,” and Note 12, “Leases,” to the notes to our consolidated financial statements.
G. Safe Harbor
See “Special Note Regarding Forward-Looking Statements.”
Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth information for our directors and executive officers, including their ages as of June 30, 2020. Unless otherwise stated, the address for our non-employee directors and executive officers, other than Messrs. Cannon-Brookes and Farquhar, is 350 Bush Street, Floor 13, San Francisco, California 94104. The address for Messrs. Cannon-Brookes and Farquhar is Level 6, 341 George Street, Sydney, NSW, 2000, Australia.

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Name Age Position
Executive Officers and Employee Directors:    
Michael Cannon-Brookes 40 Co-Founder, Co-Chief Executive Officer and Director
Scott Farquhar 40 Co-Founder, Co-Chief Executive Officer and Director
Jay Simons (1) 47 President
James Beer 59 Chief Financial Officer
Erika Fisher 35 General Counsel
Tami Rosen 49 Chief People Officer
Sri Viswanath 45 Chief Technology Officer
Non-Employee Directors:    
Shona L. Brown (2) 54 Director and Chair
Heather Mirjahangir Fernandez (3)(4) 44 Director
Sasan Goodarzi (2) 52 Director
Jay Parikh (2) 47 Director
Enrique Salem (3)(4) 54 Director
Steven Sordello (3) 51 Director
Richard P. Wong (4) 51 Director
__________________________________

(1) Mr. Simons continued to serve as the Company’s President until his departure from the Company in August 2020.
(2) Member of the Compensation and Leadership Development Committee.
(3) Member of the Audit Committee.
(4) Member of the Nominating and Corporate Governance Committee.
Each executive officer serves at the discretion of our board of directors and holds office until their successor is duly elected and qualified or until their earlier resignation or removal. There are no family relationships among any of our directors or executive officers and no arrangement or understanding with major shareholders, customers, suppliers or others, pursuant to which any directors or executive officers were selected as a director or member of senior management.
Executive Officers and Employee Directors
Michael Cannon-Brookes co-founded Atlassian and has served as our Co-Chief Executive Officer and as a member of our board of directors since October 2002. Mr. Cannon-Brookes has also served as an adjunct professor of computer science & engineering at the University of New South Wales, Australia since April 2014. Mr. Cannon-Brookes holds a Bachelor of Commerce in information systems from the University of New South Wales, Australia.
Scott Farquhar co-founded Atlassian and has served as our Co-Chief Executive Officer and as a member of our board of directors since October 2002 and as chair of our board of directors from December 2016 to April 2018. Mr. Farquhar holds a Bachelor of Science in business information technology from the University of New South Wales, Australia.
Jay Simons has served as our President since August 2011 through August 2020. From June 2008 to August 2011, Mr. Simons served as our Vice President of Sales and Marketing. From October 2005 to May 2008, Mr. Simons served in various roles, including Vice President, Marketing, at BEA Systems, Inc., an enterprise software company, which was acquired by Oracle Corporation in 2008. From 1998 to 2005, Mr. Simons served in various roles, including Vice President, Product Marketing & Strategy, at Plumtree Software, Inc., a web software company, which was acquired by BEA Systems, Inc. in 2005. Mr. Simons is currently a director of HubSpot, Inc., a cloud-based marketing and sales software platform company. Mr. Simons holds a Bachelor of Arts in political science and environmental science from the University of Washington.

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James Beer has served as our Chief Financial Officer since February 2018. Before joining Atlassian, Mr. Beer served as Executive Vice President and Chief Financial Officer of McKesson Corporation, a Fortune 10 healthcare services and information technology company. Between 2006 and 2013, Mr. Beer was Executive Vice President and Chief Financial Officer of Symantec Corporation, a cybersecurity company, where he managed the worldwide finance organization. Previous to his work at Symantec, Mr. Beer was Chief Financial Officer of AMR Corp. and American Airlines, AMR’s principal subsidiary. Mr. Beer holds a Bachelor of Science degree in Aeronautical Engineering from Imperial College, London University, and a Master of Business Administration from Harvard Business School. Mr. Beer currently serves on the board of directors for Alaska Air Group, parent company of Alaska Airlines, and ForeScout Technologies, Inc., an Internet of things (IoT) security company. Mr. Beer is also a member of the Federal Reserve Bank of San Francisco's Economic Advisory Council.
Erika Fisher has served as our General Counsel since July 2019. From April 2016 to July 2019, Ms. Fisher served multiple roles at Atlassian, including Legal Counsel, Privacy & Product Counsel and Head of Privacy before becoming General Counsel. From November 2013 to March 2016, Ms. Fisher served as an Associate at Goodwin Procter LLP, focusing her practice on technology companies and intellectual property transactions. From January 2012 to June 2013, Ms. Fisher was an Associate at Weil, Gotshal & Manges LLP, where she worked on real estate and structured finance transactions. Ms. Fisher began her legal career as a judicial intern in both the U.S. District Court for the Southern District of Florida and the U.S. District Court for the Middle District of Florida. Ms. Fisher holds a Juris Doctorate (JD) degree from the University of Pennsylvania, a Certificate in Business and Public Policy from the Wharton School, and a Bachelor of Arts degree from the University of Miami.
Tami Rosen has served as our Chief People Officer since January 2020. From April 2018 to January 2020, Ms. Rosen served as Chief People Officer at Luminar Technologies, and became their advisor from January 2020 to April 2020. From July 2015 to May 2019, Ms. Rosen served as Vice President of People at Quora from May 2017 to February 2018. From January 2014 to April 2017, Ms. Rosen served as the Senior Director Human Resources/Faculty of Apple University at Apple. From May 1997 to October 2013, Ms. Rosen held multiple leadership roles at Goldman Sachs, including Managing Director of Human Capital Management, Divisional HR Head for the Investment Management Division, Global HR Co-Head for the Federation Divisions, Co-Head of Federation Experience Hire Recruiting, and Divisional HR Head for the Operations Division. Ms. Rosen holds a Bachelor of Arts degree in Law and Society from Binghamton University.
Sri Viswanath has served as our Chief Technology Officer since January 2016. From April 2013 to December 2015, Mr. Viswanath served as Chief Technology Officer and Senior Vice President of Product and Engineering at Groupon, Inc., a global local commerce company. From September 2012 to April 2013, Mr. Viswanath was the Vice President of Research and Development for mobile computing at VMware, a provider of cloud and virtualization software and services. From September 2009 to November 2011, Mr. Viswanath served as Senior Vice President of Engineering at Ning, Inc., an online SaaS platform company, which was acquired in November 2011 by Glam Media, a media company, where he became Senior Vice President of Engineering and General Manager of publisher products from November 2011 to August 2012. From 1999 to July 2008, Mr. Viswanath led the development of a number of open-source and business-to-business products at Sun Microsystems. Mr. Viswanath is currently a director of Splunk Inc., a company that produces software for searching, monitoring, and analyzing machine-generated big data. Mr. Viswanath holds a Master of Science in computer science from Clemson University and a Master of Science in management from Stanford University.
Non-Employee Directors
Shona L. Brown has served on our board of directors since November 2015 and as chair of our board of directors since April 2018. Dr. Brown is currently an independent advisor. She served as a senior advisor to Google Inc., an Internet search and technology company, from January 2013 until November 2015. From April 2011 to December 2012, Dr. Brown served as Senior Vice President of Google.org, Google's charitable organization. From 2003 to 2011, Dr. Brown served as Vice President and later as Senior Vice President, Business Operation of Google Inc. From 1995 to 2003, Dr. Brown was a consultant at McKinsey & Company, where she served as a partner from 2000 to 2003. Dr. Brown is currently a director of PepsiCo, Inc., a food and beverage company, as well as several private companies and non-profit organizations. Dr. Brown holds a Bachelor of Computer Systems Engineering from Carleton University, a Master of Arts in philosophy and economics from Oxford University, and a Ph.D. in industrial engineering and industrial management from Stanford University.
Heather Mirjahangir Fernandez has served on our board of directors since November 2015. Ms. Mirjahangir Fernandez is the Chief Executive Officer and co-founder of Solv., an early stage private company in the digital health space. From January 2014 to August 2015, Ms. Mirjahangir Fernandez served as Senior Vice President and General Manager of Business Services at Trulia, Inc., an online residential real estate site, which was

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acquired by Zillow, Inc. in 2015. From August 2006 to January 2014, Ms. Mirjahangir Fernandez served in various other senior management positions in sales and marketing at Trulia, Inc. Prior to Trulia, Inc., Ms. Mirjahangir Fernandez was an advisor at Morgan Stanley and Director of the Impact Group at Blanc & Otus. Ms. Mirjahangir Fernandez holds a Bachelor of Arts in political science from University of California, Berkeley and a Master of Business Administration from Stanford University Graduate School of Business.
Sasan Goodarzi has served on our board of directors since April 2018. Mr. Goodarzi has served as Chief Executive Officer and board member of Intuit, Inc., a financial software company, since January 2019. From May 2016 to January 2019, Mr. Goodarzi was Executive Vice President and General Manager of Intuit, Inc. Small Business Group. From 2004 to 2010, Mr. Goodarzi was Senior Vice President and General Manager for Intuit’s ProTax division and Intuit Financial Services. From 2011 to 2013, Mr. Goodarzi served as Intuit’s Chief Information Officer. From 2013 to 2016, Mr. Goodarzi served as the Executive Vice President and General Manager of Turbo Tax. Prior to 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 and served as the Chief Executive Officer and co-founder of a technology startup, Lazer Cables Inc. Mr. Goodarzi earned his Bachelor of Science degree in electrical engineering at the University of Central Florida and a Master of Business Administration from the Kellogg School of Management at Northwestern University.
Jay Parikh has served on our board of directors since July 2013. Mr. Parikh has served as Vice President of Infrastructure Engineering at Facebook, Inc., a social media and social networking service company, since November 2009. From October 2007 to October 2009, Mr. Parikh served as Senior Vice President, Engineering & Operations at Ning, Inc., a social networking company. From April 1999 to October 2007, Mr. Parikh served as Vice President of Engineering at Akamai Technologies, Inc., a cloud services provider. Mr. Parikh holds a Bachelor of Science in mechanical engineering from Virginia Tech.
Enrique Salem has served on our board of directors since July 2013. Mr. Salem has served as a Managing Director of Bain Capital Ventures since July 2014. From April 2009 to July 2012, Mr. Salem served as President, Chief Executive Officer and a director of Symantec Corporation, a cybersecurity company. From June 2004 to April 2009, Mr. Salem served in various other senior management positions at Symantec Corporation. From April 2002 to June 2004, Mr. Salem served as the President and Chief Executive Officer of Brightmail, Inc., an email filtering company, which was acquired by Symantec Corporation in 2004. Mr. Salem is currently a director of FireEye, Inc., a network security company, ForeScout Technologies, Inc., an Internet of things (IoT) security company, DocuSign, Inc., an e-signature solutions company, and several private companies. Mr. Salem holds a Bachelor of Arts degree in computer science from Dartmouth College.
Steven Sordello has served on our board of directors since November 2015. Since July 2007, Mr. Sordello has served as the Chief Financial Officer of LinkedIn Corporation, an online business-oriented social networking service, which was acquired by Microsoft in 2016. From August 2006 to July 2007, Mr. Sordello served as Chief Financial Officer of TiVo, Inc., a manufacturer of digital video recorders. From May 1999 to October 2005, Mr. Sordello served in several roles, including as Chief Financial Officer, at Ask Jeeves, Inc., an Internet search engine company, which was acquired by IAC in 2005. Prior to that, Mr. Sordello served in various finance roles at Adobe Systems Incorporated, a software company, and Syntex Corporation, a pharmaceuticals company, which was acquired by Roche Pharmaceuticals in 1994. Mr. Sordello is currently a member of the board of trustees of Santa Clara University. Mr. Sordello holds a Master of Business Administration and a Bachelor of Science in business from Santa Clara University.
Richard P. Wong has served on our board of directors since July 2010. Mr. Wong has served as a General Partner to Accel Partners, a venture capital firm, since December 2006. From January 2001 to November 2006, Mr. Wong held a number of executive roles at Openwave Systems Inc., a mobile software company, including Senior Vice President of Products and Chief Marketing Officer. Mr. Wong is currently a director of several private companies. Mr. Wong holds a Master of Management from the MIT Sloan School of Management and a Bachelor of Science in materials science and engineering from the Massachusetts Institute of Technology.


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B. Compensation
Executive Officers’ Compensation
For the fiscal year ended June 30, 2020, we paid an aggregate of $3,615,460 in cash compensation and benefits to our executive officers, including our Co-Chief Executive Officers who also served as employee directors. We paid our executive officers a base salary and annual cash bonus and made contributions to their retirement funds; however, Messrs. Cannon-Brookes and Farquhar each opted not to participate in our bonus for fiscal year 2020.
Directors’ Compensation
Employee Directors
For the fiscal year ended June 30, 2020, we did not pay our employee directors any compensation for their services as directors. The table below sets forth the compensation paid to our employee directors for their services as executive officers for the fiscal year ended June 30, 2020:

Fiscal Year Ended June 30, 2020 Employee Directors’ Compensation (U.S. $) (1)
Name Salary/Fees(2) Benefits Annual Bonus(3) Long-Term Incentive Retirement Benefits(4) Total
Michael Cannon-Brookes $ 46,323    $ 269    $ —    $ —    $ 4,426    $ 51,018   
Scott Farquhar $ 50,183    $ 201    $ —    $ —    $ 4,787    $ 55,171   

(1)For the fiscal year ended June 30, 2020, the cash compensation for our employee directors were set, and paid, in Australian dollars. Currency received by our employee directors in Australian dollars have been converted into U.S. dollars using a monthly average exchange rate for fiscal year 2020 of AUD 1.49 to USD 1.00.
(2)Messrs. Cannon-Brookes and Farquhar each opted for their salaries to be reduced to AUD $74,653.28, the annualized statutory minimum wage in Australia, effective July 1, 2019.
(3)Messrs. Cannon-Brookes and Farquhar each opted not to participate in our bonus plan during the fiscal year ended June 30, 2020.
(4)These amounts represent our contributions to each employee director's retirement fund, as required by applicable jurisdictional law.
Non-Employee Directors
On December 4, 2019 our shareholders approved a new policy (the “Director Compensation Policy”), effective as of December 4, 2019, pursuant to which our non-employee directors are eligible to receive the following cash retainers and equity awards (U.S. $):
Annual Retainer for Board of Directors Membership
Annual service on the board of directors
$ 55,000   
Additional retainer for annual service as chair of the board of directors
$ 50,000   
Additional Annual Retainer for Committee Chairs
Annual service as chair of the Audit Committee
$ 20,000   
Annual service as chair of the Compensation and Leadership Development Committee
$ 15,000   
Annual service as chair of the Nominating and Corporate Governance Committee
$ 10,000   
On the date of each annual general meeting (“AGM”), each non-employee director who continues as a non-employee director following the AGM is granted RSUs on the date of such AGM having a value of $250,000 (the “Annual Grant”). A new non-employee director who joins other than at an AGM (on the first eligible grant date following their appointment to our board of directors) is granted a pro-rata proportion of an Annual Grant based on the time between their appointment and the next AGM. The Annual Grant vests in full on the earlier of: (i) the one-year anniversary of the grant date; and (ii) the next AGM, subject to continued service as a director through the applicable vesting date, unless the Compensation and Leadership Development Committee determines that circumstances warrant continuation of vesting.

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All awards granted to our non-employee directors are subject to 100% accelerated vesting upon the sale of the company.
We reimburse all reasonable expenses incurred by non-employee directors in connection with their service on our board of directors. This would include expenses incurred for attending board or committee meetings, or we may alternatively provide a travel allowance for such purpose. We may reimburse reasonable expenses for items which, for tax purposes, would be treated as a taxable benefit, in which case we may also pay any such tax on behalf of the non-employee director or provide a tax gross-up. In addition, we provide liability-related insurance and indemnification benefits to our directors.
Each of our non-employee directors is required, within four years following their first election to our board of directors (or, if later, from the effective date of our Director Compensation Policy), to own Class A ordinary shares having an aggregate value of at least $250,000.
For the fiscal year ended June 30, 2020, we paid our non-employee directors in accordance with our Director Compensation Policy. The table below sets forth the compensation paid to our non-employee directors for the fiscal year ended June 30, 2020:
Fiscal Year Ended June 30, 2020 Non-Employee Directors’ Compensation (U.S. $)
Name Salary/Fees Benefits Annual Bonus
Long-Term Incentives(5)
Retirement Benefits Total
Shona Brown (1)
$ 102,500    —    —    $ 250,027    (6) —    $ 352,527   
Heather Mirjahangir Fernandez $ 52,500    —    —    $ 250,027    (6) —    $ 302,527   
Sasan Goodarzi (2)
$ 60,000    —    —    $ 250,027    (6) —    $ 310,027   
Jay Parikh $ 52,500    —    —    $ 250,027    (6) —    $ 302,527   
Enrique Salem $ 52,500    —    —    $ 250,027    (6) —    $ 302,527   
Steven Sordello (3)
$ 72,500    —    —    $ 250,027    (6) —    $ 322,527   
Richard P. Wong (4)
$ 62,500    —    —    $ 250,027    (6) —    $ 312,527   

(1) Dr. Brown was the chair of the Compensation and Leadership Development Committee through December 31, 2019 and chair of the board of directors.
(2) Mr. Goodarzi was the chair of the Compensation and Leadership Development Committee from January 1, 2020 through June 30, 2020.
(3) Mr. Sordello was the chair of the Audit Committee.
(4) Mr. Wong was the chair of the Nominating and Corporate Governance Committee.
(5) The equity awards are not subject to performance measures, so the value of the equity awards have been included in full, notwithstanding that the equity awards are subject to outstanding service-based vesting conditions.
(6) Each continuing non-employee member of our board of directors received an Annual Grant.
Director Agreements
We entered into director agreements with each of Messrs. Parikh and Salem, each dated July 30, 2013. The director agreements for Messrs. Parikh and Salem each provided the non-employee director with an option to purchase 200,000 shares of restricted stock (automatically converted into the right to receive Class A ordinary shares upon our IPO), in each case at an exercise price of U.S. $2.92. The options vest in 48 equal monthly installments from their respective grant dates (each on July 30, 2013). Messrs. Parikh and Salem each early exercised his option and received shares subject to the company’s right of repurchase if the applicable director terminates his service for any reason prior to the applicable vesting dates. All early-exercised shares for each of Messrs. Parikh and Salem have vested and are no longer subject to the company’s right of repurchase.
We also entered into director agreements with Dr. Brown, Ms. Mirjahangir Fernandez and Mr. Sordello in November 2015, and with Mr. Goodarzi in April 2018, and each were eligible to receive cash retainers and equity awards in accordance with the terms of our Director Compensation Policy.

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We have not entered into a director agreement with Mr. Wong. In addition, we have not entered into a director agreement or employment agreement with either Mr. Cannon-Brookes or Mr. Farquhar.
In addition, pursuant our Director Compensation Policy, Messrs. Wong, Parikh and Salem each were eligible to receive cash retainers and an Annual Grant in accordance with the terms of our Director Compensation Policy. 
We do not have service contracts with any of our non-employee directors that provide for benefits upon a termination of service.
Executive Severance Plan
In December 2014, we adopted an executive severance plan (the "Executive Severance Plan"), under which certain of our executive officers, excluding Messrs. Cannon-Brookes and Farquhar, may participate. The Executive Severance Plan provides for a severance payment equal to six months of base salary upon a termination by us without "cause" (as defined in the Executive Severance Plan) or a resignation by the executive officer for "good reason" (as defined in the Executive Severance Plan). In addition, upon such a termination within 12 months following a "change in control" (as defined in the Executive Severance Plan) in which outstanding equity awards of the company will be assumed, continued or substituted by the successor entity, an executive officer will generally receive 100% (or such lower percentage as may be determined by our board of directors or the Compensation and Leadership Development Committee) accelerated vesting of all unvested and outstanding equity awards held by such executive officer at such time; provided, that any equity awards subject to performance conditions will be deemed satisfied at the target levels specified in the applicable award agreements. Notwithstanding the foregoing, if the outstanding equity awards of the company will not be assumed, continued or substituted by the successor entity in connection with the change in control, then each executive officer will receive 100% accelerated vesting of all unvested and outstanding equity awards held by such executive officer at such time; provided, that any equity awards subject to performance conditions will be deemed satisfied at the target levels specified in the applicable award agreements.
Executive Bonus Plan
We paid cash incentive bonuses to our executive officers for the fiscal year ended June 30, 2020 pursuant to our annual executive bonus plan (the “FY20 Bonus Plan”). Messrs. Cannon-Brookes and Farquhar each opted not to participate in the FY20 Bonus Plan.
The FY20 Bonus Plan provided our executive officers with an opportunity to earn an annual bonus payment with a target equal to 50% to 60% of their base salary and a maximum payout equal to 125%, as applicable, of their base salary, based on company performance (measured by revenue) and individual performance. In fiscal year 2020, payout to our executive officers pursuant to the FY20 Bonus Plan was equal to 100% of each executive officer’s bonus target amount.
Retirement Benefits
For the fiscal year ended June 30, 2020, we contributed approximately $9,213 into retirement funds on behalf of our executive officers in Australia (as required by applicable jurisdictional law), and approximately $58,367 into a tax qualified retirement plan (the “401(k) Plan”) on behalf of our executive officers in the United States. Currency received by our employee directors in Australian dollars have been converted into U.S. dollars using a monthly average exchange rate for fiscal year 2020 of AUD $1.49 to U.S. $1.00.
401(k) Plan
We maintain a 401(k) Plan that provides all regular U.S. employees, including U.S. executive officers, with an opportunity to save for retirement on a tax-advantaged basis. Under our 401(k) Plan, participants may elect to defer a portion of their eligible compensation on a pre-tax and Roth after-tax, and voluntary after-tax basis and have it contributed to the 401(k) Plan subject to applicable annual Code limits. The 401(k) Plan allows for matching contributions to be made by us. Currently, we make a safe harbor match based on the participant's pre-tax and Roth after-tax contributions up to a maximum of 4% of the participant's base salary, bonus and commissions paid during the applicable contribution period. Employee elective deferrals and safe harbor matching contributions are 100% vested at all times.
Health and Welfare Benefits

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Our executive officers are eligible to participate in all of our employee benefit plans, including our medical, dental, life and disability insurance plans, to the same extent as other employees generally in the jurisdiction each executive officer resides. In addition, we generally do not provide our executive officers or directors with material perquisites or other personal benefits.
Outstanding Equity Awards, Grants and Options
We periodically grant options and RSUs to our employees, directors and consultants to enable them to share in our successes and to reinforce a corporate culture that aligns their interests with those of our shareholders.
During the fiscal year ended June 30, 2020, we granted 199,236 RSUs in the aggregate under our 2015 Share Incentive Plan (the “2015 Plan”) to our non-employee directors and executive officers. Our non-employee directors were granted equity awards during such fiscal year in accordance with the Director Compensation Policy.
As of June 30, 2020, our executive officers held options to purchase 345,500 Class A ordinary shares, and 443,553 RSUs. As of June 30, 2020, our directors held 16,190 RSUs.
Equity Compensation Plans
Prior to our IPO in December 2015, we granted equity awards under three main equity plans, our UK Employee Share Option Plan (the “Share Option Plan”), our 2013 U.S. Share Option Plan (the “2013 Plan”) and our 2014 Restricted Share Unit Plan (the “2014 Plan”). Following our IPO in December 2015, we no longer grant equity awards under these equity plans. All equity awards have since been granted under our 2015 Plan.
2015 Share Incentive Plan
Our 2015 Plan was adopted by our board of directors in October 2015 and approved by our shareholders in November 2015 and became effective immediately prior to our IPO in December 2015. The 2015 Plan replaced the Share Option Plan, the 2013 Plan and the 2014 Plan. The 2015 Plan allows the Compensation and Leadership Development Committee to make equity-based incentive awards to our officers, employees, directors and consultants; provided, that awards to non-employee directors and consultants will be made under a subplan to the 2015 Plan.
We initially reserved 20,700,000 Class A ordinary shares for the issuance of awards under the 2015 Plan. The 2015 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each July 1, beginning on July 1, 2016, by 5% of the outstanding Class A ordinary shares on the immediately preceding June 30th or such lesser number of Class A ordinary shares as determined by the cCompensation and Leadership Development Committee in its discretion. This number is subject to adjustment in the event of a share split, share dividend or other change in our capitalization. As of June 30, 2020, 7,371,743 RSUs, 9,582 restricted Class A ordinary shares, and 99,587 options to purchase Class A ordinary shares at a weighted-average exercise price of approximately $0.73 remained outstanding under the 2015 Plan.
The shares we issue under the 2015 Plan will be newly created shares or shares that we reacquire. The Class A ordinary shares underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without the issuance of shares, expire or are otherwise terminated (other than by exercise) under the 2015 Plan or our other equity plans will be added back to the Class A ordinary shares available for issuance under the 2015 Plan.
Options and share appreciation rights with respect to no more than 5,000,000 shares may be granted to any one individual in any one calendar year and the maximum “performance-based award” payable to any one “covered employee” during a performance cycle under the 2015 Plan is 5,000,000 shares or $5,000,000 in the case of cash-based performance awards. The maximum number of shares that may be issued as incentive share options may not exceed 20,700,000 cumulatively increased on July 1, 2016 and on each July 1st thereafter by the lesser of the annual increase for such year or 10,350,000 shares. The value of all awards issued under the 2015 Plan and all other cash compensation paid by us to any non-employee director in any calendar year cannot exceed $1,500,000.
The 2015 Plan is administered by our Compensation and Leadership Development Committee. Our Compensation and Leadership Development Committee has full power to select, from among the individuals eligible for awards, the individuals to whom awards will be granted, to make any combination of awards to participants, and to determine the specific terms and conditions of each award, subject to the provisions of the 2015 Plan. Persons eligible to participate in the 2015 Plan will be those full- or part-time officers, employees, non-employee directors and consultants as selected from time to time by our Compensation and Leadership Development Committee in its discretion. Our Compensation and Leadership Development Committee may also delegate to our Chief Executive

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Officers, the chair of our Compensation and Leadership Development Committee, or a committee including either of such individuals, the power to grant awards to individuals (other than individuals subject to Section 16 of the Exchange Act or Section 162(m) of the Code.
The 2015 Plan permits us to grant options that are intended to qualify as incentive share options under Section 422 of the Code and options that do not so qualify. The per share exercise price of each option will be determined by our Compensation and Leadership Development Committee but may not be less than 100% of the fair market value of a Class A ordinary share on the date of grant. An incentive share option that is granted to an employee who owns more than 10% of the combined voting power of all classes of our shares, or a 10% owner, must have a per share exercise price of not less than 110% of the fair market value of a Class A ordinary share on the date of grant. The term of each option will be fixed by our Compensation and Leadership Development Committee and may not exceed ten years from the date of grant (five years in the case of an incentive share option held by a 10% owner). Our Compensation and Leadership Development Committee will determine at what time or times each option may be exercised. To the extent required for incentive share option treatment under Section 422 of the Code, the aggregate fair market value (determined as of the time of grant) of the shares that first become exercisable by an option holder during any calendar year must not exceed $100,000. To the extent that any option exceeds this limit, it will constitute a nonqualified share option.
Our Compensation and Leadership Development Committee may award share appreciation rights subject to such conditions and restrictions as it may determine. Share appreciation rights entitle the recipient to Class A ordinary shares, or cash, equal to the value of the appreciation in our share price over the exercise price. The per share exercise price may not be less than 100% of fair market value of a share on the date of grant. The term of a share appreciation right may not exceed ten years.
Our Compensation and Leadership Development Committee may award restricted Class A ordinary shares and RSUs to participants subject to such conditions and restrictions as it may determine. These conditions and restrictions may include the achievement of certain performance goals and/or continued employment with us through a specified vesting period. Our Compensation and Leadership Development Committee may also grant Class A ordinary shares that are free from any restrictions under the 2015 Plan. Unrestricted Class A ordinary shares may be granted to participants in recognition of past services or for other valid consideration and may be issued in lieu of cash compensation due to such participant.
Our Compensation and Leadership Development Committee may grant performance share awards to participants that entitle the recipient to receive awards of Class A ordinary shares upon the achievement of certain performance goals and such other conditions as our Compensation and Leadership Development Committee shall determine. Our Compensation and Leadership Development Committee may grant dividend equivalent rights to participants that entitle the recipient to receive credits for dividends that would be paid if the recipient had held a specified number of Class A ordinary shares.
Our Compensation and Leadership Development Committee may grant cash bonuses under the 2015 Plan to participants, subject to the achievement of certain performance goals.
Our Compensation and Leadership Development Committee may grant awards of restricted shares, RSUs, performance shares or cash-based awards under the 2015 Plan that are intended to qualify as "performance-based compensation" under Section 162(m) of the Code. These awards will only vest or become payable upon the attainment of performance goals that are established by our Compensation and Leadership Development Committee and related to one or more performance criteria. The performance criteria that could be used with respect to any such awards include: total shareholder return, earnings before interest, taxes, depreciation and amortization, net income (loss) (either before or after interest, taxes, depreciation and/or amortization), changes in the market price of our shares, economic value-added, funds from operations or similar measure, sales or revenue or bookings, acquisitions or strategic transactions, operating income (loss), cash flow (including, but not limited to, operating cash flow and free cash flow), return on capital, assets, equity, or investment, return on sales, gross or net profit levels, productivity, expense, margins, operating efficiency, customer satisfaction, working capital, earnings (loss) per share of our shares, sales or market shares, number of customers and number of average users, any of which may be measured in absolute terms, as compared to any incremental increase or as compared to results of a peer group.
The 2015 Plan provides that upon the effectiveness of a “sale event,” as defined in the 2015 Plan, an acquirer or successor entity may assume, continue or substitute for the outstanding awards under the 2015 Plan. To the extent that awards granted under the 2015 Plan are not assumed or continued or substituted by the successor entity, all unvested and/or unexercisable awards with time-based vesting, conditions or restrictions granted under

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the 2015 Plan shall fully accelerate, and all awards with conditions and restrictions relating to the attainment of performance goals may become vested and nonforfeitable in the plan administrator's discretion or to the extent specified in the applicable award agreement, in each case prior to the effectiveness of the sale event and then shall terminate. In the event of such termination, individuals holding options and share appreciation rights will be permitted to exercise such options and share appreciation rights (to the extent exercisable) prior to the sale event. In addition, in connection with the termination of the 2015 Plan upon a sale event, we may make or provide for a cash payment to participants holding vested and exercisable options and share appreciation rights equal to the difference between the per share cash consideration payable to shareholders in the sale event and the exercise price of the options or share appreciation rights.
Our board of directors may amend or discontinue the 2015 Plan and our Compensation and Leadership Development Committee may amend or cancel outstanding awards for purposes of satisfying changes in law or any other lawful purpose, but no such action may adversely affect rights under an award without the holder's consent. Certain amendments to the 2015 Plan require the approval of our shareholders.
No awards may be granted under the 2015 Plan after the date that is ten years from the date of shareholder approval of the 2015 Plan.
Atlassian UK Employee Share Option Plan
The Share Option Plan was adopted in November 2013. Following our IPO in December 2015, we no longer grant any equity awards under this plan and any shares remaining available for issuance were cancelled. The Share Option Plan will continue to govern outstanding awards granted thereunder. As of June 30, 2020, options to purchase 11,778 Class A ordinary shares remained outstanding under the Share Option Plan at a weighted-average exercise price of approximately $3.18 per share.
The Share Option Plan allowed for the grant of options to our eligible employees, consultants or directors.
The Share Option Plan is administered by our Compensation and Leadership Development Committee. The administrator has full power to select, from among the individuals eligible for options, the individuals to whom options will be granted, determine the specific terms and conditions of each option, administer the Share Option Plan and delegate functions and powers as it may consider appropriate to administer the Share Option Plan to any person or persons capable of performing those functions and exercising those powers.
An option, whether vested or unvested, lapses on the earliest to occur on the date: (i) specified in the offer to participate in the Share Option Plan; (ii) on which a “cessation event” (as defined in the Share Option Plan) occurs; (iii) on which the option otherwise lapses under the terms of the Share Option Plan; (iv) on which any lapsing event occurs as specified in the offer to participate in the Share Option Plan; and (v) if no date is specified and the option has not otherwise lapsed, June 30, 2017. We may elect to purchase options, whether vested or not, from an option holder prior to the options being exercised.
Upon the occurrence of an “exit event” (as defined in the Share Option Plan), each option will either be (i) assumed or an equivalent option or right will be substituted by such successor corporation or a parent or subsidiary of such successor operation or (ii) terminated in exchange for a payment of cash, securities and/or other property equal to the excess of the fair market value of the portion of the options that are vested and exercisable immediately prior to the consummation of the exit event over the per share exercise price thereof.
Our board of directors may amend the Share Option Plan at any time; however, such amendment must not adversely affect the rights of option holders, without their consent, unless such amendment is required by applicable law.
2013 U.S. Share Option Plan
The 2013 Plan was adopted in November 2013. Following our IPO in December 2015, we no longer grant any equity awards under this plan and any shares remaining available for issuance were cancelled. The 2013 Plan will continue to govern outstanding awards granted thereunder. As of June 30, 2020, options to purchase 346,809 Class A ordinary shares remained outstanding under the 2013 Plan at a weighted-average exercise price of approximately $3.18 per share.
The 2013 Plan allowed for the grant of options to our employees, directors and consultants.
The 2013 Plan is administered by our Compensation and Leadership Development Committee. The administrator has full power to select, from among the individuals eligible for options, the individuals to whom

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options will be granted, to implement an option exchange program, to determine the specific terms and conditions of each option and to construe and interpret the terms of the 2013 Plan and any award agreements thereunder.
The 2013 Plan permitted the granting of both options to purchase restricted shares intended to qualify as incentive share options under Section 422 of the Code and options that do not so qualify. Incentive share options were only granted to employees and were required to meet certain other requirements. The per share option exercise price of each option was determined by our Compensation and Leadership Development Committee but were not be less than 100% of the fair market value of a restricted share on the date of grant. The term of each option did not exceed seven years from the date of grant (five years in the case of an incentive share option held by a 10% owner). The administrator determines at what time or times each option may be exercised.
The 2013 Plan provides that upon the effectiveness of a “corporate transaction,” as defined in the 2013 Plan, each outstanding option will either be (i) assumed or an equivalent award will be substituted by the successor corporation or a parent or subsidiary of such successor corporation or (ii) terminated, in exchange for payment of cash, securities and/or other property for vested and exercisable options.
Our board of directors may amend or discontinue the 2013 Plan at any time; however, such amendment must not adversely affect the rights of option holders without their consent. Certain amendments to the 2013 Plan require the approval of our shareholders. 
2014 Restricted Share Unit Plan
The 2014 Plan was adopted in March 2014. Following our IPO in December 2015, we no longer grant any equity awards under this plan and any shares remaining available for issuance were cancelled. As of June 30, 2020, no RSUs remained outstanding under the 2014 Plan.
2015 Employee Share Purchase Plan
The 2015 Employee Share Purchase Plan (“ESPP”) was adopted by our board of directors in October 2015 and approved by our shareholders in November 2015. We may, but have not yet elected to, implement the ESPP.
The ESPP initially reserves and authorizes up to a total of 5,700,000 Class A ordinary shares to participating employees. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each July 1st, beginning on July 1, 2016, by the lesser of (i) 2,850,000 Class A ordinary shares, (ii) 1% of the outstanding number Class A ordinary shares on the immediately preceding June 30th, or (iii) such lesser number of Class A ordinary shares as determined by the plan administrator. The share reserve is subject to adjustment in the event of a share split, share dividend or other change in our capitalization.
The ESPP is administered by our Compensation and Leadership Development Committee. The administrator has the authority to make all determinations for administration of the ESPP.
All employees employed by us or by any of our designated affiliates whose customary employment is for more than 20 hours a week (unless this exclusion is not permitted by applicable law) are eligible to participate in the ESPP. Any employee who owns 5% or more of the total combined voting power or value of all classes of our shares is not eligible to purchase Class A ordinary shares under the ESPP.
Offerings to our employees to purchase Class A ordinary shares under the ESPP may be made at such times as determined by the administrator. Offerings will continue for such period, referred to as offering periods, as the administrator may determine, but may not be longer than 27 months. Each eligible employee may elect to participate in any offering by submitting an enrollment form before the applicable offering date.
Each employee who is a participant in the ESPP may purchase Class A ordinary shares by authorizing payroll deductions of up to 10% of their eligible compensation during an offering period. Unless the participating employee has previously withdrawn from the offering, their accumulated payroll deductions will be used to purchase Class A ordinary shares on the last business day of the applicable offering period equal to the lower of (i) the accumulated payroll deductions divided by either a per share price equal to 85% of the fair market value of a share of our Class A ordinary shares on the first business day or the last business day of the offering period, whichever is lower, (ii) 2,500 Class A ordinary shares, or (iii) such other lesser maximum number of Class A ordinary shares as shall have been established by the administrator in advance of the offering. Under applicable tax rules, an employee may purchase no more than $25,000 worth of Class A ordinary shares, valued at the start of the purchase period, under the ESPP in any calendar year.

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The accumulated payroll deductions of any employee who is not a participant on the last day of an offering period will be refunded. An employee's rights under the ESPP terminate upon voluntary withdrawal from the plan or when the employee ceases employment with us for any reason.
The ESPP may be terminated or amended by our Compensation and Leadership Development Committee or board of directors at any time. An amendment that increases the number of our Class A ordinary shares that are authorized under the ESPP and certain other amendments require the approval of our shareholders. The plan administrator may adopt subplans under the ESPP for employees of our non-U.S. subsidiaries and may permit such employees to participate in the ESPP on different terms, to the extent permitted by applicable law.
C. Board of Directors Practices
Composition of our Board of Directors
Our board of directors currently consists of nine members, all of whom were elected pursuant to the board composition provisions of our articles of association. Under our amended and restated articles of association, the appointment of directors is determined by a majority of our board of directors and there are no contractual rights for any shareholder to appoint a director to the board of directors.
Director Independence
Our board of directors has undertaken a review of the independence of each director. Based on information provided by each director concerning their background, employment and affiliations, our board of directors has determined that Dr. Brown, Messrs. Goodarzi, Parikh, Salem, Sordello and Wong, and Ms. Mirjahangir Fernandez do not have relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is "independent" as that term is defined under the NASDAQ listing standards. In making these determinations, our board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our shares by each non-employee director and the transactions described in "Related Party Transactions."
Committees of the Board of Directors
Our board of directors has established an Audit Committee, a Compensation and Leadership Development Committee and a Nominating and Corporate Governance Committee. The composition and responsibilities of each of the committees of our board of directors are described below. Members serve on these committees until their resignation or until otherwise determined by our board of directors. Our board of directors may establish other committees as it deems necessary or appropriate from time to time.
Audit Committee
Messrs. Salem and Sordello and Ms. Mirjahangir Fernandez, each of whom is a non-employee director, comprise our Audit Committee. Mr. Sordello is the chair of our Audit Committee. Our board of directors has determined that each of the members of our Audit Committee satisfies the requirements for independence and financial literacy under the listing standards of NASDAQ and SEC rules and regulations. Our board of directors has determined that Mr. Sordello qualifies as an “audit committee financial expert” as defined in the SEC rules and satisfies the financial sophistication requirements of the NASDAQ listing standards. Our Audit Committee is responsible for, among other things:
selecting and hiring our independent registered public accounting firm; 
evaluating the performance and independence of our independent registered public accounting firm
and the performance of the company’s internal audit function; 
approving the audit and pre-approving any non-audit services to be performed by our independent registered public accounting firm; 
reviewing our financial statements and related disclosures and reviewing our critical accounting policies and practices; 
reviewing the adequacy and effectiveness of our internal control policies and procedures and our disclosure controls and procedures; 
overseeing and reviewing our guidelines and policies that govern the process by which our exposure to risk is assessed and managed by management
overseeing procedures for the treatment of complaints on accounting, internal accounting controls, or audit matters; 

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reviewing and discussing with management and the independent registered public accounting firm the results of our annual audit and the financial statements included in our publicly filed reports; and 
reviewing and approving any proposed related person transactions.
Our Audit Committee operates under a written charter that satisfies the applicable rules and regulations of the SEC and the NASDAQ listing standards.
Compensation and Leadership Development Committee
Dr. Brown and Messrs. Goodarzi and Parikh, each of whom is a non-employee director, comprise our Compensation and Leadership Development Committee. Mr. Goodarzi is the chair of our Compensation and Leadership Development Committee. Although the rules of NASDAQ do not require the Compensation and Leadership Development Committee to be comprised entirely of independent directors for as long as we remain a foreign private issuer, our board of directors has determined that each member of our Compensation and Leadership Development Committee satisfies the requirements for independence under the NASDAQ listing standards and the applicable rules and regulations of the SEC. Each member of our Compensation and Leadership Development Committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Exchange Act. Our Compensation and Leadership Development Committee is responsible for, among other things:
reviewing and evaluating our Co-Chief Executive Officers' and other executive officers' compensation, incentive compensation plans, including the specific goals and amounts, equity compensation, employment agreements, severance arrangements and change in control agreements, and any other benefits, compensation or arrangements; 
administering our equity and cash compensation plans, and other material benefit programs; and
overseeing our overall compensation philosophy, compensation plans, and benefits programs.
Our Compensation and Leadership Development Committee operates under a written charter that satisfies the applicable rules and regulations of the SEC and the NASDAQ listing standards.
Nominating and Corporate Governance Committee 
Ms. Mirjahangir Fernandez and Messrs. Salem and Wong, each of whom is a non-employee director, comprise our Nominating and Corporate Governance Committee. Mr. Wong is the chair of our Nominating and Corporate Governance Committee. Our board of directors has determined that each member of our Nominating and Corporate Governance Committee satisfies the requirements for independence under the NASDAQ listing standards. Our Nominating and Corporate Governance Committee is responsible for, among other things:
evaluating and making recommendations regarding the composition, qualification, organization and governance of our board of directors and its committees; 
evaluating and making recommendations regarding the creation of additional committees or the change in mandate or dissolution of committees; and 
reviewing and making recommendations with regard to our corporate governance guidelines. 
Our Nominating and Corporate Governance Committee operates under a written charter that satisfies the NASDAQ listing standards.
D. Employees
We have made significant investments in our business to support future growth, including a substantial increase in our global employee base. As of June 30, 2020, 2019 and 2018, we had 4,907, 3,616, and 2,638 employees, respectively.
E. Share Ownership
For information regarding the share ownership of our directors and executive officers, please refer to “Item 6.B. Compensation” and “Item 7.A. Major Shareholders and Related Party Transactions.”


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Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
The following table sets forth information with respect to the beneficial ownership of our shares as of June 30, 2020 by:
each executive officer; 
our directors;
our directors and executive officers as a group; and 
each person or entity known by us to own beneficially more than 5% of any class of our outstanding shares (by number or by voting power).
We have determined beneficial ownership in accordance with the rules and regulations of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Except as indicated by the footnotes below, we believe, based on information furnished to us, that the persons and entities named in the table below have sole voting and sole investment power with respect to all shares that they beneficially own, subject to applicable community property laws.
Applicable percentage ownership is based on 128,201,296 Class A ordinary shares and 119,761,681 Class B ordinary shares outstanding as of June 30, 2020. In computing the number of shares beneficially owned by a person and the percentage ownership of such person, we deemed to be outstanding all shares subject to options held by the person that are currently exercisable or exercisable within 60 days of June 30, 2020 or issuable upon the vesting of RSUs held by the person within 60 days of June 30, 2020.
However, except as described above, we did not deem such shares outstanding for the purpose of computing the percentage ownership of any other person.
Shares Beneficially Owned
Class A Class B
% of Total Voting Power (1)
Name of Beneficial Owner Shares % Shares %
5% Shareholders:
Entities affiliated with Baillie Gifford & Co. (2) 7,593,631    5.92  % —    —    *
Entities affiliated with T. Rowe Price Associates, Inc. (3) 16,391,824    12.79  % —    —    *
Directors and Executive Officers:
Michael Cannon-Brookes (4) —    —    59,299,340 49.51  % 44.73  %
Scott Farquhar (5) —    —    59,299,340 49.51  % 44.73  %
Jay Simons (6) 876,978 * 333,000 * *
James Beer (7) 33,927 * —    —    *
Sri Viswanath (8) 313,253 * —    —    *
Erika Fisher (9) 6,158 * —    —    *
Tami Rosen —    —    —    —    —   
Shona Brown (10) 28,845 * —    —    *
Heather Mirjahangir Fernandez (11) 13,425 * —    —    *
Jay Parikh (12) 17,625 * —    —    *
Enrique Salem (13) 128,432 * —    —    *
Steven Sordello (14) 42,859 * —    —    *
Sasan Goodarzi (15) 7,196 * —    —    *
Richard P. Wong (16) 143,835 * —    —    *
All directors and executive officers as a group (14 persons) (17) 1,612,533 1.26  % 118,931,680 99.31  % 89.8  %
_________

*Represents beneficial ownership of less than 1%

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(1) Percentage of total voting power represents voting power with respect to all shares of our Class A ordinary shares and Class B ordinary shares as a single class. Holders of Class A ordinary shares are entitled to one vote per share and holders of Class B ordinary shares are entitled to ten votes per share.
(2) Based on information reported by Baillie Gifford & Co (“Baillie Gifford”) on Schedule 13G filed with the SEC on January 16, 2020. Of the shares of Class A ordinary shares beneficially owned, Baillie Gifford reported that it has sole dispositive power with respect to 7,593,631 shares, and sole voting power with respect to 3,493,567 shares. Baillie Gifford listed their address as Calton Square, 1 Greenside Row, Edinburgh EH1 3AN, Scotland, UK.
(3) Based on information reported by T. Rowe Price Associates, Inc. (“T. Rowe Price”) on Schedule 13G filed with the SEC on February 14, 2020. Of the shares of Class A ordinary shares beneficially owned, T. Rowe Price reported that it has sole dispositive power with respect to 16,391,824 shares, and sole voting power with respect to 6,059,395 shares. Entities affiliated with T. Rowe Price listed their address as 100 E. Pratt Street, Baltimore, Maryland 21202.
(4) Consists of (i) 4,850,850 Class B ordinary shares held of record by Mr. Cannon-Brookes and (ii) 54,448,490 Class B ordinary shares held of record by CBC Co Pty Limited as trustee for the Cannon-Brookes Head Trust.
(5) Consists of (i) 4,850,850 Class B ordinary shares held of record by Mr. Farquhar and (ii) 54,448,490 Class B ordinary shares held of record by Skip Enterprises Pty Limited as trustee for the Farquhar Family Trust.
(6) Consists of (i) 245,720 Class B ordinary shares held of record by Mr. Simons, (ii) 87,280 Class B ordinary shares held of record by The Jay Norman Simons 2013 Annuity Trust, in which Mr. Simons shares voting and dispositive power, (iii) 511,812 Class A ordinary shares held of record by Mr. Simons, (iv) 345,500 Class A ordinary shares subject to outstanding options that are exercisable within 60 days of June 30, 2020, and (v) 19,666 RSUs that vest within 60 days of June 30, 2020.
(7) Consists of (i) 10,208 Class A ordinary shares held of record by Mr. Beer as trustee of the James A & Lael L Beer Trust and (ii) 23,719 RSUs that vest within 60 days of June 30, 2020.
(8) Consists of (i) 297,570 Class A ordinary shares held of record by Mr. Viswanath and (ii) 15,683 RSUs that vest within 60 days of June 30, 2020.
(9) Consists of (i) 1,342 Class A ordinary shares held of record by Ms. Fisher and (ii) 4,816 RSUs that vest within 60 days of June 30, 2020.
(10) Consists of 28,845 Class A ordinary shares held of record by Dr. Brown.
(11) Consists of 13,425 Class A ordinary shares held of record by Ms. Mirjahangir Fernandez.
(12) Consists of 17,625 Class A ordinary shares held of record by Mr. Parikh.
(13) Consists of 128,432 Class A ordinary shares held of record by Mr. Salem.
(14) Consists of 42,859 Class A ordinary shares held of record by Mr. Sordello.
(15) Consists of (i) 6,944 Class A ordinary shares held of record by Mr. Goodarzi and (ii) 252 RSUs that vest within 60 days of June 30, 2020.
(16) Consists of 143,835 Class A ordinary shares held of record by Mr. Wong.
(17) Consists of (i) 1,202,897 Class A ordinary shares, (ii) 118,931,680 Class B ordinary shares, (iii) options to purchase 345,500 Class A ordinary shares that are exercisable within 60 days of June 30, 2020 and (iv) 64,136 RSUs that vest within 60 days of June 30, 2020.
Two of our major shareholders, Michael Cannon-Brookes and Scott Farquhar, hold the majority of our outstanding Class B ordinary shares. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
As of June 30, 2020, approximately 0.1% of our outstanding shares were Class B shares held in the United States by one record holder. As of June 30, 2020, approximately 51.50% of our outstanding shares were Class A shares held in the United States by one record holder (Cede and Company).

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As of June 30, 2020, entities affiliated with each of Artisan Partners Limited Partnership, Capital Research Global Investors, Sands Capital Management, respectively, and entities and individuals affiliated with FMR LLC each no longer hold greater than 5% of our outstanding ordinary shares.
B. Related Party Transactions
Other than as described below, during the fiscal year ended June 30, 2020, there has not been any transaction to which we were or are a party in which we, any of our directors, executive officers, associates, or holders of more than 5% of any class of our voting securities, or any affiliates or member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest.
RSUs
During the fiscal year ended June 30, 2020, we granted RSUs to our non-employee directors and certain of our executive officers.
Indemnification Agreements
We have entered into indemnification agreements with our directors and executive officers to indemnify them to the maximum extent allowed under applicable law. These agreements indemnify these individuals against certain costs, charges, losses, liabilities, damages and expenses incurred by such director in the execution or discharge of his duties. These agreements do not indemnify our directors against any liability attaching to such individuals in connection with any negligence, default, breach of duty or breach of trust in relation to the company of which he or she is a director, which would be rendered void under the Companies Act.
We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and executive officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or executive officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these directors and executive officers pursuant to our indemnification obligations or otherwise as a matter of law.
Certain of our non-employee directors may, through their relationships with their employers, be insured and/or indemnified against certain liabilities incurred in their capacity as members of our board of directors.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, executive officers or persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Registration Agreement
In July 2010, our predecessor entity, Atlassian Corporation Pty Ltd., entered into a Registration Agreement with certain holders of our outstanding share capital, including Messrs. Cannon-Brookes and Farquhar. As of June 30, 2020, certain holders of our Class A ordinary shares and our Class B ordinary shares, including Messrs. Cannon-Brookes and Farquhar, are entitled to rights with respect to the registration of their shares under the Securities Act.
Atlassian Foundation
The Atlassian Foundation was established in 2008 with the vision of helping to make the world better. Together with the Atlassian Foundation International Limited, which was established in 2016, the Atlassian Foundation works on a range of different projects in conjunction with organizations including the Australian Government Department of Foreign Affairs and Trade, Brookings Center for Universal Education, Co-Impact, Educate!, Education Commission, Education Outcomes Fund, 40K Foundation, Global Business Coalition for Education, Humanitix, Raspberry Pi Foundation, Room to Read, Ruangguru, and Teach for All.
We contribute approximately 1% of our annual profits and all revenues associated with our starter licenses for on-premises products to the Atlassian Foundation. We donated $5.3 million to the Atlassian Foundation in fiscal year 2020. Additionally, since the Atlassian Foundation's inception, we have provided, at no charge, certain resources to Atlassian Foundation employees such as office space and salaries.
LinkedIn

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In fiscal year 2020, we purchased approximately $5.2 million of services from LinkedIn Corporation (“LinkedIn”), for recruiting purposes, in the ordinary course of business. Mr. Sordello, one of our board members, is Chief Financial Officer of LinkedIn. The transactions between Atlassian and LinkedIn were not negotiated by Mr. Sordello. Mr. Sordello does not have a material interest in the relationship described above.
Splunk
In fiscal year 2020, we purchased $3.1 million of services from Splunk Inc. (“Splunk”) for systems monitoring purposes, in the ordinary course of business. Sri Viswanath, our Chief Technology Officer, is a director of Splunk. The contract with Splunk was not negotiated by Mr. Viswanath and was executed before he joined the board. Mr. Viswanath does not have a material interest in the relationship described above.
Intuit
In fiscal year 2020, Intuit purchased approximately $0.5 million of products from us, in the ordinary course of business. Mr. Goodarzi, one of our board members, is Chief Executive Officer and a director of Intuit. The transactions between Atlassian and Intuit were not negotiated by Mr. Goodarzi and were in the ordinary course of business. Mr. Goodarzi does not have a material interest in the relationship described above.
Certain Relationships
From time to time, we engage in certain transactions with other companies affiliated with our directors, executive officers, and significant shareholders or their immediate family members. We believe that all such arrangements have been entered into in the ordinary course of business and do not represent a material interest to such directors, executive officers or significant shareholders.
Policies and Procedures for Related Party Transactions
The Audit Committee has the primary responsibility for reviewing and approving or disapproving related party transactions, which are transactions between us and related persons in which we or a related person has or will have a direct or indirect material interest. For purposes of this policy, a related person will be defined as a director, executive officer, nominee for director, or greater than 5% beneficial owner of our ordinary shares, in each case since the beginning of the most recently completed year, and their immediate family members. Our Audit Committee charter provides that the Audit Committee shall review and approve or disapprove any related party transactions.
C. Interests of Experts and Counsel
Not applicable.

Item 8. FINANCIAL INFORMATION 

A. Consolidated Statements and Other Financial Information
 
See “Item 18. Financial Statements.”

Legal Proceedings

We are not a party to any material legal proceedings. From time to time we may be subject to legal proceedings and claims arising in the ordinary course of business. We investigate these claims as they arise and accrue estimates for resolution of legal and other contingencies when losses are probable and estimable. Although the results of litigation and claims cannot be predicted with certainty, we believe there was not at least a reasonable possibility that we had incurred a material loss with respect to such loss contingencies as of June 30, 2020.

Dividend Policy

While we have in the past paid limited dividends, we do not have any present or future plan to pay dividends on our shares. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors, subject to applicable laws, and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, general business conditions, business prospects and other factors our board of directors may deem relevant.


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B. Significant Changes

We have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

Item 9. THE OFFER AND LISTING

A. Offer and Listing Details

The principal market in which our Class A ordinary shares are traded is on the NASDAQ Global Select Market under the symbol “TEAM.”

B. Plan of Distribution

Not applicable.

C. Markets

Our Class A ordinary shares are quoted on the NASDAQ Global Select Market under the symbol “TEAM.”

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

Item 10. ADDITIONAL INFORMATION 

A. Share Capital
 
Not applicable.

B. Memorandum and Articles of Association

The information required by this section, including a summary of certain key provisions of our articles of association, is set forth in Exhibit 4.4 (Description of Share Capital) filed as an exhibit to our annual report filed with the SEC on August 23, 2019, and is incorporated herein by reference.

C. Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than as may be described in “Item 4. Information on the Company,” “Item 5. Operating and Financial Review and Prospects” or elsewhere in this annual report.

D. Exchange Controls

Other than applicable taxation, anti-money laundering and counter-terrorist financing law and regulations and certain economic sanctions which may be in force from time to time, there are currently no English laws or regulations, or any provision of our articles of association, which would prevent the import or export of capital or remittance of dividends, interest and other payments to holders of our securities who are not residents of the United Kingdom on a general basis.


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E. Taxation

Material United Kingdom Tax Considerations

The comments set out below are based on current United Kingdom tax law as applied in England and HMRC practice (which may not be binding on HMRC) as of the date of this annual report, both of which are subject to change, possibly with retrospective effect. They are intended as a general guide and apply only to our shareholders resident and, in the case of an individual, domiciled for tax purposes in the United Kingdom and to whom “split year” treatment does not apply (except insofar as express reference is made to the treatment of non-United Kingdom residents), who hold Class A ordinary shares as an investment and who are the absolute beneficial owners thereof. The discussion does not address all possible tax consequences relating to an investment in the Class A ordinary shares. Certain categories of shareholders, including those carrying on certain financial activities, those subject to specific tax regimes or benefiting from certain reliefs or exemptions, those connected with us, those that own (or are deemed to own) 5% or more of our shares and/or voting power (either alone or together with connected persons) and those for whom the Class A ordinary shares are employment-related securities may be subject to special rules and this summary does not apply to such shareholders and any general statements made in this disclosure do not take them into account. This summary does not address any inheritance tax considerations.

This summary is for general information only and is not intended to be, nor should it be considered to be, legal or tax advice to any particular investor. It does not address all of the tax considerations that may be relevant to specific investors in light of their particular circumstances or to investors subject to special treatment under United Kingdom tax law. In particular:

Taxation of Dividends

We will not be required to withhold amounts on account of United Kingdom tax at source when paying a dividend.

Individuals

United Kingdom resident and domiciled holders do not have to pay tax on the first £2,000 of dividend income received in the 2020/2021 tax year (the "dividend allowance"). However tax will be levied on any dividends received over the dividend allowance at 7.5% on dividend income within the basic rate band, 32.5% on dividend income within the higher rate band and 38.1% on dividend income within the additional rate band.

Corporate Shareholders

Although shareholders who are within the charge to corporation tax would strictly be subject to corporation tax on dividends paid by us (subject to special rules for such shareholders that are “small” companies), generally such dividends will fall within an exempt class and will not be subject to corporation tax (provided certain conditions are met and anti-avoidance rules are satisfied). However, each shareholder's position will depend on its own individual circumstances and shareholders within the charge to corporation tax should consult their own professional advisers.

Non-Residents

A shareholder resident outside the United Kingdom may also be subject to foreign taxation on dividend income under local law. Shareholders who are not resident for tax purposes in the United Kingdom should obtain their own tax advice concerning tax liabilities on dividends received from us.

Taxation of Capital Gains on Disposals of Class A ordinary shares

United Kingdom Shareholders

Shareholders who are resident in the United Kingdom, and individual shareholders who are temporarily non-resident and subsequently resume residence in the United Kingdom within a certain time, may depending on their circumstances and the availability of exemptions or reliefs (including, for example, the annual exempt amount for individuals), be liable to United Kingdom taxation on chargeable gains in respect of gains arising from a sale or other disposal (or deemed disposal) of the Class A ordinary shares.

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Non-United Kingdom Shareholders

An individual holder who is not a United Kingdom resident shareholder will not be liable to United Kingdom capital gains tax on chargeable gains realized on the disposal of their Class A ordinary shares unless such shareholder carries on (whether solely or in partnership) a trade, profession or vocation in the United Kingdom through a branch or agency in the United Kingdom to which the shares are attributable. In these circumstances, such shareholder may, depending on their individual circumstances, be chargeable to United Kingdom capital gains tax on chargeable gains arising from a disposal of their shares.

A corporate holder of shares who is not a United Kingdom resident shareholder will not be liable for United Kingdom corporation tax on chargeable gains realized on the disposal of its shares unless it carries on a trade in the United Kingdom through a permanent establishment to which the shares are attributable. In these circumstances, a disposal of shares by such shareholder may give rise to a chargeable gain or an allowable loss for the purposes of United Kingdom corporation tax.

Stamp Duty and Stamp Duty Reserve Tax

The statements in this section titled “Stamp Duty and Stamp Duty Reserve Tax (“SDRT”)” are intended as a general guide to the current United Kingdom stamp duty and SDRT position. The discussion below relates to shareholders wherever resident, but investors should note that certain categories of person are not liable to stamp duty or SDRT and others may be liable at a higher rate or may, although not primarily liable for tax, be required to notify and account for SDRT under the Stamp Duty Reserve Tax Regulations 1986.

General

Except in relation to depositary receipt systems and clearance services (to which the special rules outlined below apply):

(i) No stamp duty or SDRT will arise on the issue of Class A ordinary shares in registered form by us.

(ii) An agreement to transfer Class A ordinary shares will normally give rise to a charge to SDRT at the rate of 0.5% of the amount or value of the consideration payable for the transfer. SDRT is, in general, payable by the purchaser.

(iii) Instruments transferring Class A ordinary shares will generally be subject to stamp duty at the rate of 0.5% of the consideration given for the transfer (rounded up to the next £5). The purchaser normally pays the stamp duty.

(iv) If a duly stamped transfer completing an agreement to transfer is produced within six years of the date on which the agreement is made (or, if the agreement is conditional, the date on which the agreement becomes unconditional), any SDRT already paid is generally repayable, normally with interest, and any SDRT charge yet to be paid is cancelled.

Depositary Receipt Systems and Clearance Services

United Kingdom domestic law provides that where our Class A ordinary shares are issued or transferred to a depositary receipt system or clearance service (or their nominees or agents) SDRT (in the case of an issue of shares) and stamp duty or SDRT (in the case of a transfer of shares) may be payable, broadly at the higher rate of 1.5% of the amount or value of the consideration given (or, in certain circumstances, the value of the shares) (rounded up to the nearest £5 in the case of stamp duty). Generally, transfers within such depositary receipt system or clearance service are thereafter not subject to stamp duty or SDRT, provided that (in the case of a clearance service) no election under section 97A of the Finance Act 1986 has been made (as to which, see further below).


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However, following the European Court of Justice decision in C-569/07 HSBC Holdings Plc, Vidacos Nominees Limited v. The Commissioners of Her Majesty's Revenue & Customs and the First-tier Tax Tribunal decision in HSBC Holdings Plc and The Bank of New York Mellon Corporation v. The Commissioners of Her Majesty's Revenue & Customs, HMRC has confirmed that a charge to 1.5% SDRT is no longer payable when new shares are issued to a clearance service (such as, in our understanding, DTC) or depositary receipt system. We consider that this position still holds notwithstanding the United Kingdom’s exit from the EU on January 31, 2020. The HM Treasury Autumn Budget 2017 Report contained a statement that “The government will not reintroduce the Stamp Duty and Stamp Duty Reserve Tax 1.5% charge on the issue of shares (and transfers integral to capital raising) into overseas clearance services and depositary receipt systems following the UK’s exit from the EU”. As far as we are aware there has been no subsequent government statement revising this position. Further, as EU Directive 2008/7/EC, which is the basis for the European Court of Justice decisions referenced above (the “Directive”) is not expressly identified as a provision which will not be binding on the United Kingdom during the “implementation period,” we understand that the Directive currently remains effective to the same extent as it did during the time when the United Kingdom was a member of the EU.

HMRC remains of the view that where Class A ordinary shares are transferred (a) to, or to a nominee or an agent for, a person whose business is or includes the provision of clearance services or (b) to, or to a nominee or an agent for, a person whose business is or includes issuing depositary receipts, stamp duty or SDRT will generally be payable at the higher rate of 1.5% of the amount or value of the consideration given or, in certain circumstances, the value of the Class A ordinary shares.
 
There is an exception from the 1.5% charge on the transfer to, or to a nominee or agent for, a clearance service where the clearance service has made and maintained an election under section 97A(1) of the Finance Act 1986 which has been approved by HMRC and which applies to the Class A ordinary shares. In these circumstances, SDRT at the rate of 0.5% of the amount or value of the consideration payable for the transfer will arise on any transfer of Class A ordinary shares into such an account and on subsequent agreements to transfer such Class A ordinary shares within such account. It is our understanding that DTC has not made an election under section 97A(1) of the Finance Act of 1986, and that therefore transfers or agreements to transfer shares held in book entry (i.e., electronic) form within the facilities of DTC should not be subject to United Kingdom stamp duty or SDRT.

Any liability for stamp duty or SDRT in respect of a transfer into a clearance service or depositary receipt system, or in respect of a transfer within such a service, which does arise will strictly be accountable by the clearance service or depositary receipt system operator or their nominee, as the case may be, but will, in practice, be payable by the participants in the clearance service or depositary receipt system.

Certain Material U.S. Federal Income Tax Considerations for U.S. Holders

The following is a summary of certain material U.S. federal income tax considerations relating to the ownership and disposition of Class A ordinary shares by a U.S. holder (as defined below). This summary addresses only the U.S. federal income tax considerations for U.S. holders that hold Class A ordinary shares as capital assets (generally, property held for investment) for U.S. federal income tax purposes. This summary does not address all U.S. federal income tax matters that may be relevant to a particular U.S. holder. This summary does not address tax considerations applicable to a holder of Class A ordinary shares that may be subject to special tax rules including, without limitation, the following:

banks, financial institutions or insurance companies; 

brokers, dealers or traders in securities, currencies, commodities, or notional principal contracts; 

tax-exempt entities or organizations, including an “individual retirement account” or “Roth IRA” as defined in Section 408 or 408A of the Code (as defined below), respectively; 

real estate investment trusts, regulated investment companies or grantor trusts; 

persons that hold the Class A ordinary shares as part of a “hedging,” “integrated,” “wash sale” or “conversion” transaction or as a position in a “straddle” for U.S. federal income tax purposes; 


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partnerships (including entities classified as partnerships for U.S. federal income tax purposes) or other pass-through entities, or persons that will hold the Class A ordinary shares through such an entity; 

certain former citizens or long term residents of the United States; 

holders that own directly, indirectly, or through attribution 10% or more of the voting power or value of the Class A ordinary shares; 

persons who received the Class A ordinary shares as compensation;

persons subject to Section 451(b) of the Code; 

holders that own directly, indirectly or through attribution Class B ordinary shares; and 

holders that have a “functional currency” for U.S. federal income tax purposes other than the U.S. dollar.
 
Further, this summary does not address the U.S. federal estate, gift, or alternative minimum tax considerations, or any U.S. state, local, or non-U.S. tax considerations of the ownership and disposition of the Class A ordinary shares.

This description is based on the Code, existing, proposed and temporary U.S. Treasury Regulations promulgated thereunder and administrative and judicial interpretations thereof. All the foregoing is subject to change, which change could apply retroactively, and to differing interpretations, all of which could affect the tax considerations described below. There can be no assurances that the IRS will not take a contrary or different position concerning the tax consequences of the ownership and disposition of the Class A ordinary shares or that such a position would not be sustained by a court. We have not obtained, nor do we intend to obtain, a ruling with respect to the U.S. federal income tax considerations relating to the purchase, ownership, or disposition of the Class A ordinary shares. Holders should consult their own tax advisers concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing of the Class A ordinary shares in their particular circumstances.

For the purposes of this summary, a “U.S. holder” is a beneficial owner of Class A ordinary shares that is (or is treated as), for U.S. federal income tax purposes:

an individual who is a citizen or resident of the United States; 

a corporation, or other entity that is treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;

an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or 

a trust, if a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of the substantial decisions of such trust or has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.

If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds Class A ordinary shares, the U.S. federal income tax consequences relating to an investment in the Class A ordinary shares will depend in part upon the status of the partner and the activities of the partnership. Such a partner or partnership should consult its tax advisor regarding the U.S. federal income tax considerations of owning and disposing of the Class A ordinary shares in its particular circumstances.
 
As indicated below, this discussion is subject to U.S. federal income tax rules applicable to a “passive foreign investment company” (“PFIC”).

Distributions

Although we do not currently plan to pay dividends, and subject to the discussion in “—Passive Foreign Investment Company Considerations,” below, the gross amount of any distribution (before reduction for any amounts withheld in respect of foreign withholding tax) actually or constructively received by a U.S. holder with respect to Class A ordinary shares will be taxable to the U.S. holder as a dividend to the extent of the U.S. holder's

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pro rata share of our current and accumulated earnings and profits as determined under U.S. federal income tax principles. Distributions in excess of earnings and profits will be non-taxable to the U.S. holder to the extent of, and will be applied against and reduce, the U.S. holder's adjusted tax basis in the Class A ordinary shares. Distributions in excess of earnings and profits and such adjusted tax basis will generally be taxable to the U.S. holder as either long-term or short-term capital gain depending upon whether the U.S. holder has held the Class A ordinary shares for more than one year as of the time such distribution is received. However, since we do not calculate our earnings and profits under U.S. federal income tax principles, it is expected that any distribution will be reported as a dividend, even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.

Non-corporate U.S. holders may qualify for the preferential rates of taxation with respect to dividends on Class A ordinary shares applicable to long-term capital gains (i.e., gains from the sale of capital assets held for more than one year) applicable to qualified dividend income (as discussed below) if we are a “qualified foreign corporation” and certain other requirements (discussed below) are met. A non-United States corporation (other than a corporation that is classified as a PFIC for the taxable year in which the dividend is paid or the preceding taxable year) generally will be considered to be a qualified foreign corporation (a) if it is eligible for the benefits of a comprehensive tax treaty with the United States which the Secretary of Treasury of the United States determines is satisfactory for purposes of this provision and which includes an exchange of information provision, or (b) with respect to any dividend it pays on Class A ordinary shares which are readily tradable on an established securities market in the United States. The Class A ordinary shares are listed on the NASDAQ Global Select Market, which is an established securities market in the United States. However, there can be no assurance that the Class A ordinary shares will be considered readily tradable on an established securities market in the United States in later years. Subject to the discussion in “-Passive Foreign Investment Company Considerations,” below, such dividends will generally be “qualified dividend income” in the hands of individual U.S. holders, provided that a holding period requirement (more than 60 days of ownership, without protection from the risk of loss, during the 121-day period beginning 60 days before the ex-dividend date) and certain other requirements are met. The dividends will not be eligible for the dividends-received deduction generally allowed to corporate U.S. holders.

A U.S. holder generally may claim the amount of any Australian withholding tax as either a deduction from gross income or a credit against its U.S. federal income tax liability. The foreign tax credit is subject to numerous complex limitations that must be determined and applied on an individual basis. Generally, the credit cannot exceed the proportionate share of a U.S. holder’s U.S. federal income tax liability that such U.S. holder’s taxable income from foreign sources bears to such U.S. holder’s worldwide taxable income. In applying this limitation, a U.S. holder’s various items of income and deduction must be classified, under complex rules, as either “foreign source” or “U.S. source.” This limitation is calculated separately with respect to specific categories of income. The amount of a distribution with respect to the Class A ordinary shares that is treated as a “dividend” may be lower for U.S. federal income tax purposes than it is for Australian income tax purposes, potentially resulting in a reduced foreign tax credit for the U.S. holder. In addition, the creditability of foreign taxes could be affected by actions taken by intermediaries in the chain of ownership between the holders of the Class A ordinary shares and us if, as a result of such actions, the holders of the Class A ordinary shares are not properly treated as beneficial owners of the underlying ordinary shares. Each U.S. holder should consult its own tax advisors regarding the foreign tax credit rules.

In general, the amount of a distribution paid to a U.S. holder in a foreign currency will be the dollar value of the foreign currency calculated by reference to the spot exchange rate on the day the U.S. holder receives the distribution, regardless of whether the foreign currency is converted into U.S. dollars at that time. Any foreign currency gain or loss a U.S. holder realizes on a subsequent conversion of foreign currency into U.S. dollars will be U.S. source ordinary income or loss. If dividends received in a foreign currency are converted into U.S. dollars on the day they are received, a U.S. holder should not be required to recognize foreign currency gain or loss in respect of the dividend.


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Sale, Exchange or Other Taxable Disposition of the Class A Ordinary Shares

A U.S. holder will generally recognize gain or loss for U.S. federal income tax purposes upon the sale, exchange or other taxable disposition of Class A ordinary shares in an amount equal to the difference between the U.S. dollar value of the amount realized from such sale or exchange and the U.S. holder's tax basis for those Class A ordinary shares. Subject to the discussion in “—Passive Foreign Investment Company Considerations” below, this gain or loss will generally be a capital gain or loss. The adjusted tax basis in the Class A ordinary shares generally will be equal to the cost of such Class A ordinary shares. Capital gain from the sale, exchange or other taxable disposition of Class A ordinary shares of a non-corporate U.S. holder is generally eligible for a preferential rate of taxation applicable to capital gains, if the non-corporate U.S. holder's holding period determined at the time of such sale, exchange or other taxable disposition for such Class A ordinary shares exceeds one year (i.e., such gain is long-term taxable gain). The deductibility of capital losses for U.S. federal income tax purposes is subject to limitations under the Code. Any such gain or loss that a U.S. holder recognizes generally will be treated as U.S. source income or loss for foreign tax credit limitation purposes.

For a cash basis taxpayer, units of foreign currency paid or received are translated into U.S. dollars at the spot rate on the settlement date of the purchase or sale. In that case, no foreign currency exchange gain or loss will result from currency fluctuations between the trade date and the settlement date of such a purchase or sale. An accrual basis taxpayer, however, may elect the same treatment required of cash basis taxpayers with respect to purchases and sales of the Class A ordinary shares that are traded on an established securities market, provided the election is applied consistently from year to year. Such election may not be changed without the consent of the IRS. For an accrual basis taxpayer who does not make such election, units of foreign currency paid or received are translated into U.S. dollars at the spot rate on the trade date of the purchase or sale. Such an accrual basis taxpayer may recognize exchange gain or loss based on currency fluctuations between the trade date and the settlement date. Any foreign currency gain or loss a U.S. holder realizes will be U.S. source ordinary income or loss.

Net Investment Income Tax

Certain U.S. holders that are individuals, estates or trusts may be subject to a 3.8% tax on all or a portion of their “net investment income,” which may include all or a portion of their dividend income and net gains from the disposition of Class A ordinary shares. Each U.S. holder that is an individual, estate or trust is urged to consult its tax advisors regarding the applicability of the net investment income tax to its income and gains in respect of its investment in the Class A ordinary shares.

Passive Foreign Investment Company Considerations

If we are classified as a PFIC in any taxable year, a U.S. holder would be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of U.S. federal income tax that a U.S. holder could derive from investing in a non-U.S. company that does not distribute all of its earnings on a current basis.

A corporation organized outside the United States generally will be classified as a PFIC for U.S. federal income tax purposes in any taxable year in which, after applying certain look-through rules with respect to the income and assets of its subsidiaries, either: (i) at least 75% of its gross income is “passive income” or (ii) at least 50% of the average quarterly value of its total gross assets (which, assuming we are not a controlled foreign corporation for the year being tested, would be measured by the fair market value of our assets) is attributable to assets that produce “passive income” or are held for the production of “passive income.”

Passive income for this purpose generally includes dividends, interest, royalties, rents, gains from commodities and securities transactions, the excess of gains over losses from the disposition of assets which produce passive income, and includes amounts derived by reason of the temporary investment of cash, including any funds raised in prior or future offerings. If a non-U.S. corporation owns directly or indirectly at least 25% by value of the stock of another corporation, the non-U.S. corporation is treated for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation and as receiving directly its proportionate share of the other corporation’s income. The determination of whether we are a PFIC is a fact-intensive determination made on an annual basis and the applicable law is subject to varying interpretation. If we are classified as a PFIC in any taxable year during which a U.S. holder owns the Class A ordinary shares, such U.S. holder will be subject to special tax rules discussed below and could suffer adverse tax consequences.


85


We do not believe that we are a PFIC, and we do not expect to become a PFIC in the forseeable future. However, our status in any taxable year will depend on our assets, income and activities in each year, and because this is a factual determination made annually after the end of each taxable year, there can be no assurance that we will not be considered a PFIC for the current taxable year or any future taxable years. If we were a PFIC for any taxable year while a taxable U.S. holder held our Class A ordinary shares, such U.S. holder would generally be taxed at ordinary income rates on any gain recognized from the sale or exchange of our Class A ordinary shares and on any dividends treated as “excess distributions” and interest charges generally applicable to underpayments of tax should apply to any taxes payable.

If we are determined to be a PFIC, U.S. holders may be able to make certain elections that could alleviate some of the adverse consequences of PFIC status and would result in an alternative treatment of the Class A ordinary shares. Such elections include a “mark to market” election, a “deemed sale” election, and a “qualified electing fund” election. We may or may not be able to provide the information required to make any such elections, and U.S. holders should therefore not assume that any particular election will be available to them.

If we are determined to be a PFIC, the general tax treatment for U.S. holders described in this section would apply to indirect distributions and gains deemed to be realized by U.S. holders in respect of any of our subsidiaries that also may be determined to be PFICs.

If a U.S. holder owns Class A ordinary shares during any taxable year in which we are a PFIC, the U.S. holder generally will be required to file an IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) with respect to the company, generally with the U.S. holder's federal income tax return for that year. If our company were a PFIC for a given taxable year, then you should consult your tax advisor concerning your annual filing requirements.

The U.S. federal income tax rules relating to PFICs are complex. Prospective U.S. investors are urged to consult their own tax advisers with respect to the ownership and disposition of the Class A ordinary shares, the consequences to them of an investment in a PFIC, any elections available with respect to the Class A ordinary shares and the IRS information reporting obligations with respect to the ownership and disposition of the Class A ordinary shares.

Backup Withholding and Information Reporting

U.S. holders generally will be subject to information reporting requirements with respect to dividends on Class A ordinary shares and on the proceeds from the sale, exchange or disposition of Class A ordinary shares that are paid within the United States or through U.S.-related financial intermediaries, unless the U.S. holder is an “exempt recipient.” In addition, U.S. holders may be subject to backup withholding on such payments, unless the U.S. holder provides a taxpayer identification number and a duly executed IRS Form W-9 or otherwise establishes an exemption. Backup withholding is not an additional tax, and the amount of any backup withholding will be allowed as a credit against a U.S. holder's U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.

Foreign Asset Reporting

Certain U.S. holders who are individuals are required to report information relating to an interest in the Class A ordinary shares, subject to certain exceptions (including an exception for shares held in accounts maintained by U.S. financial institutions) by filing IRS Form 8938 (Statement of Specified Foreign Financial Assets) with their federal income tax return. U.S. holders are urged to consult their tax advisors regarding their information reporting obligations, if any, with respect to their ownership and disposition of the Class A ordinary shares.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

86


 
We are subject to the informational requirements of the Exchange Act. In accordance with these requirements, we file reports and furnish other information as a foreign private issuer with the SEC. These materials, including this report and the exhibits thereto, may be inspected and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The SEC also maintains a Web site at www.sec.gov that contains reports and other information regarding registrants that file electronically with the SEC. This report as well as some of the other information submitted by us to the SEC may be accessed through this Web site. In addition, information about us is available at our web site at www.atlassian.com.

I. Subsidiary Information
 
Not applicable.

Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Currency Risk
We operate globally and are exposed to foreign exchange risk arising from exposure to various currencies in the ordinary course of business. Our exposures primarily consist of the Australian Dollar, British pound, Euro, Japanese yen, Philippine peso, Indian rupee and Canadian dollar. Foreign exchange risk arises from commercial transactions and recognized financial assets and liabilities denominated in a currency other than the U.S. dollar. Our foreign exchange policy is reviewed annually by the our Audit Committee and requires us to monitor our foreign exchange exposure on a regular basis.
The substantial majority of our sales contracts are denominated in U.S. dollars, and our operating expenses are generally denominated in the local currencies of the countries where our operations are located. We therefore benefit from a strengthening of the U.S. dollar and are adversely affected by the weakening of the U.S. dollar.
We have a cash flow hedging program in place and enter into derivative transactions to manage certain foreign currency exchange risks that arise in our ordinary business operations. We recognize all derivative instruments as either assets or liabilities on our consolidated statements of financial position and measure them at fair value. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting.
We enter into master netting agreements with select financial institutions to reduce our credit risk, and we trade with several counterparties to reduce our concentration risk with any single counterparty. We do not have significant exposure to counterparty credit risk at this time. We do not require nor are we required to post collateral of any kind related to our foreign currency derivatives.
Foreign currency exchange rate exposure

We hedged material foreign currency denominated monetary assets and liabilities using balance sheet hedges. The fluctuations in the fair market value of balance sheet hedges due to foreign currency rates generally offset those of the hedged items, resulting in no material effect on profit. Consequently, we are primarily exposed to significant foreign currency exchange rate fluctuations with regard to the spot component of derivatives held within a designated cash flow hedge relationship affecting other comprehensive income
Foreign currency sensitivity
A sensitivity analysis performed on our hedging portfolio as of June 30, 2020 and 2019 indicated that a hypothetical 10% strengthening of the U.S. dollar against the Australian dollar applicable to our business would decrease the fair value of our foreign currency contracts by $27.0 million and $22.5 million, respectively, and a hypothetical 10% weakening of the U.S. dollar against the Australian dollar would increase the fair value of our foreign currency contracts by $27.0 million and $22.5 million, respectively.
Interest Rate Risk
Our cash equivalents and investment portfolio are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely impacted due to a rise in interest rates. As of June 30, 2020, we had cash and cash equivalents totaling $1.5 billion and short-term investments totaling $676.1 million.


87


A sensitivity analysis performed on our portfolio as of June 30, 2020 and 2019 indicated that a hypothetical 100 basis point increase in interest rates would decrease the market value of our investments by $5.4 million and $2.3 million, respectively, and a hypothetical 100 basis point decrease in interest rates would increase the market value of our investments by $1.6 million and $2.3 million, respectively. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur.
Equity Price Risk
We are exposed to equity price risk in connection with our Notes, including exchange and settlement provisions based on the price of our Class A ordinary shares at exchange or maturity of the Notes. In addition, the capped call transactions associated with the Notes also include settlement provisions that are based on the price of our Class A ordinary shares. The amount of cash we may receive from capped call counterparties in connection with the capped calls is determined by the price of our Class A ordinary shares.

A sensitivity analysis performed on the Notes embedded exchange derivative and capped call transactions as of June 30, 2020 and 2019 indicated that a hypothetical 10% increase in our share price would increase the fair value of the Notes embedded exchange derivative and capped call transactions by $192.6 million and $122.4 million, respectively, and a hypothetical 10% decrease in our share price would decrease the fair value of the Notes embedded exchange derivative and capped call transactions by $184.8 million and $116.3 million, respectively.

We are also exposed to equity price risk in connection with our equity investments. Our marketable and non-marketable equity investments are susceptible to market price risk from uncertainties about future values of the investment securities. As of June 30, 2020 and 2019, our marketable equity investments are fair valued at $100.2 million and $58.9 million, respectively. A hypothetical 10% increase in the respective share prices of our equity investments as of June 30, 2020 and 2019 would increase the fair value of our marketable equity investments by $10.0 million and $5.9 million, respectively, and a hypothetical 10% decrease in the respective share prices of our equity investments would decrease the fair value of our marketable equity investments by $10.0 million and $5.9 million, respectively.

See Note 5, “Financial Assets and Liabilities,” to the notes to our consolidated financial statements for more details on our quantitative and qualitative disclosure about market risk.

Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 

Not applicable.

PART II 

Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 

None.

Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

Item 15. CONTROLS AND PROCEDURES

Disclosure controls and procedures

Our Co-Chief Executive Officers and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of June 30, 2020, have concluded that, as of such date, our disclosure controls and procedures were effective and ensured that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Co-Chief Executive Officers and our Chief Financial Officer, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.


88


Management’s report on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Our internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with IFRS. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of June 30, 2020. Our independent registered public accounting firm, Ernst & Young LLP, has issued an audit report with respect to our internal control over financial reporting, which appears in Part III, Item 18 of this annual report.

Changes in internal control over financial reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the year ended June 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on effectiveness of controls and procedures
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Item 16. [RESERVED]

Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Mr. Sordello is independent and qualifies as an “audit committee financial expert” as set forth in Rule 10A-3 under the Exchange Act and satisfies the financial sophistication requirements of the NASDAQ listing standards.

Item 16B. CODE OF ETHICS

Our board of directors has adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including our Co-Chief Executive Officers, Chief Financial Officer and other executive and senior financial officers. The full text of our code of business conduct and ethics is posted on the investor relations page of our website at https://investors.atlassian.com. We intend to disclose any amendments to our code of business conduct and ethics, or waivers of its requirements, as it applies to our executive officers and directors, on our website or in filings under the Exchange Act.

Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Aggregate audit fees, audit-related fees, tax fees and the aggregate of all other fees billed to us by Ernst & Young LLP for the fiscal years ended June 30, 2020 and 2019 were as follows:

2020 2019
(U.S. $ in thousands)
Audit fees (1) $ 2,745    $ 2,980   
Audit-related fees (2) 876    648   
Tax fees (3) 243    220   
Other fees (4) 11     
Total $ 3,875    $ 3,856   

89



(1) Audit Fees consist of fees incurred for professional services rendered for the integrated audit of our annual consolidated financial statements, review of the quarterly consolidated financial statements and foreign statutory audits and services that are normally provided by Ernst & Young LLP in connection with statutory and regulatory filings or engagements. Audit fees also include accounting consultations, research related to the integrated audit.

(2) Audit-Related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements and are not reported under “Audit Fees.” This primarily consists of fees for service organization control audits and due diligence on acquisitions.

(3) Tax fees relate to assistance with tax compliance, tax planning and various tax advisory services.

(4) Other fees are any additional amounts for products and services provided by the principal accountants.

Our Audit Committee has adopted a pre-approval policy for the engagement of our independent accountant to perform certain audit and non-audit services. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the Audit Committee pre-approves annually all audit services, audit-related services, tax services and other services as described above, that may be performed by our independent accountants. All of the audit and non-audit services provided by our principal accountants have been pre-approved by our Audit Committee.

Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not applicable.

Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

Item 16G. CORPORATE GOVERNANCE

We are a “foreign private issuer” under the securities laws of the United States and the rules of NASDAQ. Under the securities laws of the United States, foreign private issuers are subject to different disclosure requirements than U.S. domiciled registrants. We intend to take all actions necessary for us to maintain compliance as a foreign private issuer under the applicable corporate governance requirements of the Sarbanes-Oxley Act, the rules adopted by the SEC and NASDAQ's listing standards. Under NASDAQ's rules, a foreign private issuer is subject to less stringent corporate governance requirements. Subject to certain exceptions, the rules of NASDAQ permit a foreign private issuer to follow its home country practice in lieu of the listing requirements of NASDAQ. We intend to follow home country practices in lieu of the listing requirements of NASDAQ with regard to voting by a show of hands and quorum requirements. Otherwise, we intend to follow the requirements of NASDAQ to the extent possible under English law.

In addition, because we are a foreign private issuer, our directors and executive officers are not subject to short-swing profit liability and insider trading reporting obligations under Section 16 of the Exchange Act. They will, however, be subject to the obligations to report changes in share ownership under Section 13 of the Exchange Act and related SEC rules to the extent appropriate.

Item 16H. MINE SAFETY DISCLOSURE

Not applicable.




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PART III

Item 17. FINANCIAL STATEMENTS

See “Item 18. Financial Statements.”

Item 18. FINANCIAL STATEMENTS

The following financial statements are filed as part of this annual report, together with the report of the independent registered public accounting firm:

Reports of Independent Registered Public Accounting Firm

Consolidated Statements of Operations for the fiscal years ended June 30, 2020, 2019 and 2018 

Consolidated Statements of Comprehensive Loss for the fiscal years ended June 30, 2020, 2019 and 2018 

Consolidated Statements of Financial Position as of June 30, 2020 and 2019

Consolidated Statements of Changes in Equity for the fiscal years ended June 30, 2020, 2019 and 2018 

Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2020, 2019 and 2018 

Notes to the Consolidated Financial Statements

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Item 19. EXHIBITS
Exhibit
Number
  Description
3.1    (1)
4.1    (2)
4.2    (3)
4.3    (4)
4.4    (7)
10.1    (4)
10.1    (5)
10.1    (6)
10.1   
(3) #
10.2   
(3) #

10.3   
(3) #

10.4   
(3) #

10.5   
(3) #

10.6   
(3) #

10.7   
(3) #

10.8   
(3) #

10.9   
(3) #

10.10   
(3) #

10.11   
(3) #

10.12   
(3) #

10.13   
#
10.14   
(3) #

10.15    (3)
10.16    (3)
10.17    (3)
10.18    (3)
12.1   
12.2   
12.3   
13.1   
92



____________________________

(1)  Incorporated by reference to the company’s report on Form 6-K filed on December 8, 2016.

(2)  Incorporated by reference to the company’s Registration Statement on Form F-1/A (File No. 333-207879) filed on November 18, 2015.

(3)  Incorporated by reference to the company’s Registration Statement on Form F-1 (File No. 333-207879) filed on November 9, 2015.

(4)  Incorporated by reference to the company’s report on Form 6-K filed on April 30, 2018.

(5)  Incorporated by reference to the company’s report on Form 6-K filed on October 30, 2017.

(6)  Incorporated by reference to the company’s report on Form 6-K filed on November 27, 2017.

(7)  Incorporated by reference to the company’s report on Form 20-F filed on August 23, 2019.

# Indicates management contract or compensatory plan, contract or agreement.

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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
  ATLASSIAN CORPORATION PLC
Date: August 14, 2020
By:   /s/ Michael Cannon-Brookes
      Name:   Michael Cannon-Brookes
      Title:   Co-Chief Executive Officer
  By:   /s/ Scott Farquhar
      Name:   Scott Farquhar
      Title:   Co-Chief Executive Officer


94


ATLASSIAN CORPORATION PLC
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
  Page
Reports of Independent Registered Public Accounting Firm
F-2
Consolidated Statements of Operations
F-5
Consolidated Statements of Comprehensive Loss
F-6
Consolidated Statements of Financial Position
F-7
Consolidated Statements of Changes in Equity
F-8
Consolidated Statements of Cash Flows
F-9
Notes to Consolidated Financial Statements

F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Atlassian Corporation Plc
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Atlassian Corporation Plc (the Company) as of June 30, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, changes in equity and cash flows for each of the three years in the period ended June 30, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2020, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated August 14, 2020 expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for leases as a result of the adoption of IFRS 16, Leases, and the amendments effective July 1, 2019 under the modified retrospective method.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosures to which it relates.

F-2


Revenue recognition

Description of the Matter

As described in Note 2 to the consolidated financial statements, the Company primarily derives revenues from cloud-based services agreements and subscription-based and perpetual software license arrangements that include bundled support and maintenance services for the term of the license period. The Company’s contracts with customers often contain multiple performance obligations, including promises to transfer multiple software products and/or services to a customer. To account for promised goods and services in accordance with IFRS 15, Revenue from Contracts with Customers, the Company allocates the transaction price to the distinct performance obligations on a relative standalone selling price basis and recognizes revenue when control of the distinct performance obligation is transferred to the customer. For example, the Company recognizes software license revenue at the time of delivery of the license and recognizes subscription and support revenue over time as the services are performed.

Auditing the Company’s recognition of revenue was challenging and complex due to the effort required to analyze the accounting treatment for the Company’s various software product and service offerings in accordance with IFRS 15. This involved assessing the impact of terms and conditions of new or amended contracts with customers or new product or service offerings, the determination of the relative standalone selling prices for each distinct performance obligation and the timing of recognition of revenue.
How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company's internal controls over the relevant terms of its contracts, the appropriate accounting for those terms under IFRS 15, including the identification of performance obligations, determination of the relative standalone selling price for each performance obligation, and the determination of the timing of recognition of revenue. This included testing relevant controls over the information systems that are important to the initiation, recording and billing of revenue transactions.
Among other procedures to evaluate management’s identification and determination of the distinct performance obligations, we read executed contracts for a sample of sales transactions to understand the contract, identified the promised goods and services in the contract and identified the distinct performance obligations. To test management’s determination of relative standalone selling price for each performance obligation, we performed audit procedures, among others, to assess the appropriateness of the methodology applied, tested mathematical accuracy of the underlying data and calculations, and tested sample selections to corroborate the data underlying the Company’s calculations. We also evaluated whether the Company appropriately applied its revenue recognition policy to a sample of sales transactions to determine whether revenue was recognized in the correct amount and period. Finally, we assessed the appropriateness of the related disclosures in the consolidated financial statements.


/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2012.
San Francisco, California
August 14, 2020
F-3


Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Atlassian Corporation Plc
Opinion on Internal Control over Financial Reporting
We have audited Atlassian Corporation Plc’s internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Atlassian Corporation Plc (the Company) maintained, in all material respects, effective internal control over financial reporting as of June 30, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s 2020 consolidated financial statements, and our report dated August 14, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



/s/ Ernst & Young LLP

San Francisco, California
August 14, 2020
F-4



ATLASSIAN CORPORATION PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. $ and shares in thousands, except per share data)
    Fiscal Year Ended June 30,
  Notes 2020 2019 2018
Revenues:      
Subscription   $ 931,455    $ 633,950    $ 410,694   
Maintenance   469,350    394,526    326,511   
Perpetual license   95,162    93,593    83,171   
Other   118,206    88,058    60,602   
Total revenues 15 1,614,173    1,210,127    880,978   
Cost of revenues (1) (2)   268,807    210,285    172,690   
Gross profit   1,345,366    999,842    708,288   
Operating expenses:  
Research and development (1) (2)   763,188    579,134    415,776   
Marketing and sales (1) (2)   299,683    268,356    187,315   
General and administrative (1)   268,409    215,714    151,242   
Total operating expenses   1,331,280    1,063,204    754,333   
Operating income (loss)   14,086    (63,362)   (46,045)  
Other non-operating expense, net 6 (338,486)   (535,453)   (15,157)  
Finance income   27,801    33,500    9,877   
Finance costs   (49,610)   (40,241)   (6,806)  
Loss before income tax expense   (346,209)   (605,556)   (58,131)  
Income tax expense 8 (4,445)   (32,065)   (55,301)  
Net loss   $ (350,654)   $ (637,621)   $ (113,432)  
Net loss per share attributable to ordinary shareholders:  
Basic 18 $ (1.43)   $ (2.67)   $ (0.49)  
Diluted 18 $ (1.43)   $ (2.67)   $ (0.49)  
Weighted-average shares outstanding used to compute net loss per share attributable to ordinary shareholders:  
Basic 18 244,844    238,611    231,184   
Diluted 18 244,844    238,611    231,184   
(1) Amounts include share-based payment expense, as follows:
Cost of revenues $ 19,787    $ 17,450    $ 11,955   
Research and development 204,150    149,049    98,609   
Marketing and sales 41,960    39,303    23,605   
General and administrative 47,498    51,960    28,704   

(2) Amounts include amortization of acquired intangible assets, as follows:
Cost of revenues $ 29,509    $ 27,997    $ 21,188   
Research and development 166    60    —   
Marketing and sales 12,860    28,744    36,090   
The above consolidated statements of operations should be read in conjunction with the accompanying notes.
F-5


ATLASSIAN CORPORATION PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(U.S. $ in thousands)
    Fiscal Year Ended June 30,
  Notes 2020 2019 2018
Net loss   $ (350,654)   $ (637,621)   $ (113,432)  
Items that will not be reclassified to profit or loss in subsequent periods:  
Net change in unrealized gain on investments classified at fair value through other comprehensive income 5 41,255    38,662    —   
Income tax effect (9,380)   (8,813)   —   
Other comprehensive income for items that will not be reclassified to profit or loss, net of tax 31,875    29,849    —   
Items that will be reclassified to profit or loss in subsequent periods:
Foreign currency translation adjustment   (613)   (35)   118   
Net change in unrealized gain (loss) on investments classified at fair value through other comprehensive income 5 5,053    1,340    (586)  
Net gains (losses) on derivative instruments 5 16,711    1,539    (8,341)  
Income tax effect   (8,961)   (553)   2,502   
Other comprehensive income (loss) after tax that will be reclassified to profit or loss in subsequent periods 12,190    2,291    (6,307)  
Other comprehensive income (loss), net of tax 44,065    32,140    (6,307)  
Total comprehensive loss, net of tax $ (306,589)   $ (605,481)   $ (119,739)  
The above consolidated statements of comprehensive loss should be read in conjunction with the accompanying notes.
F-6


ATLASSIAN CORPORATION PLC
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(U.S. $ in thousands)
June 30,
Notes 2020 2019
Assets
Current assets:
Cash and cash equivalents 14 $ 1,479,969    $ 1,268,441   
Short-term investments 5 676,072    445,046   
Trade receivables 9 112,019    82,525   
Tax receivables 1,509    707   
Derivative assets 5,16 327,487    215,156   
Prepaid expenses and other current assets 14 46,730    30,236   
Total current assets 2,643,786    2,042,111   
Non-current assets:
Property and equipment, net 10 97,648    81,459   
Deferred tax assets 8 35,351    17,084   
Goodwill 11 645,140    608,907   
Intangible assets, net 11 129,690    150,975   
Right-of-use assets, net 12 217,683    —   
Other non-current assets 14 124,774    76,722   
Total non-current assets 1,250,286    935,147   
Total assets $ 3,894,072    $ 2,977,258   
Liabilities
Current liabilities:
Trade and other payables 14 $ 202,570    $ 159,487   
Tax liabilities 19,583    11,703   
Provisions 14 14,291    8,983   
Deferred revenue 15 573,813    440,954   
Lease obligations 12 34,743    —   
Derivative liabilities 5,16 1,284,596    855,005   
Current portion of exchangeable senior notes, net 16 889,183    853,576   
Total current liabilities 3,018,779    2,329,708   
Non-current liabilities:
Deferred tax liabilities 8 31,304    13,872   
Provisions 14 9,493    6,082   
Deferred revenue 15 27,192    27,866   
Lease obligations 12 229,825    —   
Other non-current liabilities 2,173    34,263   
Total non-current liabilities 299,987    82,083   
Total liabilities 3,318,766    2,411,791   
Equity
Share capital 17 24,744    24,199   
Share premium 17 459,892    458,166   
Other capital reserves 17 1,130,918    816,660   
Other components of equity 17 76,144    32,079   
Accumulated deficit (1,116,392)   (765,637)  
Total equity 575,306    565,467   
Total liabilities and equity $ 3,894,072    $ 2,977,258   
The above consolidated statements of financial position should be read in conjunction with the accompanying notes.
F-7


ATLASSIAN CORPORATION PLC
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(U.S. $ in thousands)
Other components of equity
Notes Share capital Share premium Other capital reserves Cash flow hedge reserve Foreign currency translation reserve Investments at fair value through other comprehensive income reserve Accumulated deficit Total equity
Balance as of June 30, 2017 $ 22,726    $ 450,959    $ 437,346    $ 2,215    $ 4,289    $ (258)   $ (14,584)   $ 902,693   
Net loss —    —    —    —    —    —    (113,432)   (113,432)  
Other comprehensive income (loss), net of tax —    —    —    (5,839)   118    (586)   —    (6,307)  
Total comprehensive loss, net of tax —    —    —    (5,839)   118    (586)   (113,432)   (119,739)  
Issuance of ordinary shares upon exercise of share options 17 243    3,761    —    —    —    —    —    4,004   
Vesting of early exercised shares 17 37    46    —    —    —    —    —    83   
Issuance of ordinary shares for settlement of restricted share units 17 525    —    (525)   —    —    —    —    —   
Share-based payment 7 —    —    162,873    —    —    —    —    162,873   
Tax benefit from share plans —    —    140    —    —    —    —    140   
Reduction in deferred tax assets 8 —    —    (42,734)   —    —    —    —    (42,734)  
805    3,807    119,754    —    —    —    —    124,366   
Balance as of June 30, 2018 $ 23,531    $ 454,766    $ 557,100    $ (3,624)   $ 4,407    $ (844)   $ (128,016)   $ 907,320   
Net loss —    —    —    —    —    —    (637,621)   (637,621)  
Other comprehensive income (loss), net of tax —    —    —    1,077    (35)   31,098    —    32,140   
Total comprehensive loss, net of tax —    —    —    1,077    (35)   31,098    (637,621)   (605,481)  
Issuance of ordinary shares upon exercise of share options 17 150    3,392    —    —    —    —    —    3,542   
Vesting of early exercised shares 17 51      —    —    —    —    —    59   
Issuance of ordinary shares for settlement of restricted share units 17 467    —    (467)   —    —    —    —    —   
Share-based payment 7 —    —    257,777    —    —    —    —    257,777   
Replacement equity awards related to business combination 13 —    —    1,768    —    —    —    —    1,768   
Tax benefit from share plans —    —    482    —    —    —    —    482   
668    3,400    259,560    —    —    —    —    263,628   
Balance as of June 30, 2019 $ 24,199    $ 458,166    $ 816,660    $ (2,547)   $ 4,372    $ 30,254    $ (765,637)   $ 565,467   
Net loss —    —    —    —    —    —    (350,654)   (350,654)  
Other comprehensive income (loss), net of tax —    —    —    8,714    (613)   35,964    —    44,065   
Total comprehensive loss, net of tax —    —    —    8,714    (613)   35,964    (350,654)   (306,589)  
Issuance of ordinary shares upon exercise of share options 17 76    1,726    —    —    —    —    —    1,802   
Vesting of early exercised shares 17 64    —    (32)   —    —    —    —    32   
Issuance of ordinary shares for settlement of restricted share units 17 405    —    (405)   —    —    —    —    —   
Share-based payment 7 —    —    313,706    —    —    —    —    313,706   
Replacement equity awards related to business combination 13 —    —    552    —    —    —    —    552   
Tax benefit from share plans —    —    437    —    —    —    —    437   
Cumulative effect of applying new accounting pronouncement 2 —    —    —    —    —    —    (101)   (101)  
545    1,726    314,258    —    —    —    (101)   316,428   
Balance as of June 30, 2020 $ 24,744    $ 459,892    $ 1,130,918    $ 6,167    $ 3,759    $ 66,218    $ (1,116,392)   $ 575,306   
The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.
F-8


ATLASSIAN CORPORATION PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. $ in thousands)
  Fiscal Year Ended June 30,
Notes 2020 2019 2018
Operating activities        
Loss before income tax expense   $ (346,209)   $ (605,556)   $ (58,131)  
Adjustments to reconcile loss before income tax expense to net cash provided by operating activities:  
Depreciation and amortization 10, 11 62,271    70,248    79,435   
Depreciation of right-of-use assets 12 35,127    —    —   
Gain on sale of investments, disposal of assets and other (993)   (2,357)   (1,163)  
Net unrealized foreign currency gain   (1,503)   (770)   (188)  
Share-based payment expense 7 313,395    257,762    162,873   
Net unrealized loss on exchange derivative and capped call transactions 6 335,953    533,908    12,414   
Amortization of debt discount and issuance cost 16 35,608    33,939    7,478   
Interest income (27,801)   (33,500)   (9,877)  
Interest expense   14,002    6,302    1,113   
Changes in assets and liabilities:  
Trade receivables 9 (29,440)   (30,211)   (19,635)  
Prepaid expenses and other assets   (10,608)   1,085    (8,449)  
Trade and other payables, provisions and other non-current liabilities   51,532    75,624    43,477   
Deferred revenue 15 131,535    122,502    97,676   
Interest received   29,217    30,328    8,679   
Tax refunds received (income tax paid), net   (17,876)   7,038    (4,246)  
Net cash provided by operating activities   574,210    466,342    311,456   
Investing activities
Business combinations, net of cash acquired 13 (53,212)   (418,595)   —   
Purchases of intangible assets —    (2,110)   —   
Purchases of property and equipment (35,709)   (44,192)   (30,209)  
Proceeds from sales of property, equipment and intangible assets —    3,721    2,775   
Purchases of investments (985,931)   (648,036)   (347,822)  
Proceeds from maturities of investments 513,268    485,021    206,119   
Proceeds from sales of investments 245,498    20,545    123,862   
Increase in restricted cash (2,085)   (552)   (3,131)  
Payment of deferred consideration (760)   —    (3,290)  
Net cash used in investing activities (318,931)   (604,198)   (51,696)  
Financing activities
Proceeds from exercise of share options 1,802    3,542    3,995   
Proceeds from issuance of exchangeable senior notes, net of discount and issuance costs (payment of issuance cost) 16 —    (410)   990,494   
Purchase of capped calls 16 —    —    (87,700)  
Payments of lease obligations 12 (38,125)   —    —   
Interest paid (6,250)   (6,319)   —   
Repayment of exchangeable senior notes 16 (2)   —    —   
Net cash provided by (used in) financing activities (42,575)   (3,187)   906,789   
Effect of exchange rate changes on cash and cash equivalents (1,176)   (855)   (630)  
Net increase (decrease) in cash and cash equivalents   211,528    (141,898)   1,165,919   
Cash and cash equivalents at beginning of period 1,268,441    1,410,339    244,420   
Cash and cash equivalents at end of period $ 1,479,969    $ 1,268,441    $ 1,410,339   
The above consolidated statements of cash flows should be read in conjunction with the accompanying notes.
F-9


ATLASSIAN CORPORATION PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information
Atlassian Corporation Plc (the “Company”) is a public company limited by shares, incorporated and registered in the United Kingdom. The registered office of the Company and its subsidiaries (collectively, “Atlassian,” the “Group,” “our,” or “we”) is located at Exchange House, Primrose Street, London EC2A 2EG, c/o Herbert Smith Freehills LLP.
We design, develop, license and maintain software and provision software hosting services to help teams organize, discuss and complete their work. Our primary products include Jira Software, targeting software teams, and Jira Core, targeting other business teams (collectively, “Jira”), Confluence for team content creation and sharing, Trello for capturing and adding structure to fluid, fast-forming work for teams, Jira Service Desk for team service and support applications, Opsgenie for incident management, Jira Align for enterprise agile planning, Bitbucket for code sharing and management and Atlasian Access for enterprise-grade security and centralized administration.
The accompanying consolidated financial statements of the Group for the year ended June 30, 2020 were authorized for issue in accordance with a resolution of the board of directors on August 14, 2020.
2. Summary of Significant Accounting Policies
Basis of preparation
The consolidated financial statements of the Group have been prepared 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. The consolidated financial statements have been prepared on a historical cost basis, except for debt and equity financial assets and derivative financial instruments that have been measured at fair value.
All amounts included in the consolidated financial statements are reported in thousands of U.S. dollars (U.S. $ in thousands) except where otherwise stated. Due to rounding, numbers presented throughout this document may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.
Effective July 1, 2019, we adopted the requirements of IFRS 16, Leases, (“IFRS 16”) using the modified retrospective method as discussed below. We recognized the cumulative effect of the initial application of the standard as an adjustment to the opening balance of accumulated deficit on the date of initial application while the prior period amounts were not adjusted.
Use of estimates
The preparation of the financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgments and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgments and estimates on historical experience and on other various factors it believes to be reasonable under the circumstances, the result of which forms the basis of the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions and may materially affect the financial results or the financial position reported in future periods. Significant estimates, assumptions and judgments made by management include revenue recognition and impairment of non-financial assets (see Note 3, “Critical Accounting Estimates and Judgments”). Other estimates, assumptions and judgments made by management include business combinations, fair value measurement of financial instruments and accounting for income taxes.
F-10


In January 2020, the World Health Organization declared a novel coronavirus (“COVID-19”) a Public Health Emergency of International Concern, and a pandemic in March 2020. The impact of COVID-19 continues to unfold and the extent of the impact will depend on a number of factors, including 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. The Group considered the impact of COVID-19 on the assumptions and estimates used, including the allowance for credit losses for accounts receivable, the credit worthiness of customers entering into revenue arrangements, our impairment assessment of assets, the fair values of our financial instruments, and income taxes, which require increased judgement and carry a higher degree of estimate uncertainty. The Group determined that there were no material adverse impacts on the consolidated financial statements for the year ended June 30, 2020. As events continue to evolve and additional information becomes available, the Group’s assumptions and estimates may change in future periods.
Principles of consolidation
The consolidated financial statements incorporate the financial positions and the results of operations of the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. Intercompany transactions, balances and unrealized gains on transactions between Group companies are eliminated.
Segment
The Group operates as a single operating segment, which is also its reporting segment. An operating segment is defined as a component of an entity for which discrete financial information is available and whose results of operations are regularly reviewed by the chief operating decision maker. The Group's chief operating decision makers are the Group's Co-Chief Executive Officers, who review results of operations to make decisions about allocating resources and assessing performance based on consolidated financial information. Accordingly, the Group has determined it operates in one operating segment.
Foreign currency
The Group's consolidated financial statements are presented using the U.S. dollar, which is the Company's functional currency. Some of the Group’s foreign subsidiaries’ functional currency is the local currency. We translate the financial statements of these subsidiaries to U.S. dollars using month-end exchange rates for assets and liabilities, and average exchange rates for revenue, costs, and expenses. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are recorded as a separate component on the consolidated statements of comprehensive income.
Foreign currency transaction gains and losses from re-measurement of monetary assets and liabilities that are denominated in currencies other than the respective functional currencies are included in other non-operating expense, net in the consolidated statements of operations for the period.
Revenue recognition
Policies, Estimates and Judgments
Revenues are generally recognized upon the transfer of control of promised products or services provided to our customers, reflecting the amount of consideration we expect to receive for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. The revenue recognition policy is consistent for sales generated directly with customers and sales generated indirectly through solution partners and resellers.
Revenues are recognized upon the application of the following steps:
1.Identification of the contract or contracts with a customer;
2.Identification of the performance obligations in the contract;
3.Determination of the transaction price;
4.Allocation of the transaction price to the performance obligations in the contract; and
5.Recognition of revenue when, or as, the performance obligation is satisfied.
F-11


The timing of revenue recognition may differ from the timing of billing our customers. We receive payments from customers based on a billing schedule as established in our contracts. Contract assets are recognized when performance is completed in advance of scheduled billings. Deferred revenue is recognized when billings are in advance of performance under the contract. Our revenue arrangements include standard warranty provisions that our products and services will perform and operate in all material respects with the applicable published specifications, the financial impacts which have historically been and are expected to continue to be insignificant. Our contracts do not include a significant financing component.
Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require judgment.
We allocate the transaction price for each contract to each performance obligation based on the relative standalone selling price (“SSP”) for each performance obligation. We use judgment in determining the SSP for products and services. We typically determine an SSP range for our products and services which is reassessed on a periodic basis or when facts and circumstances change. For all performance obligations other than perpetual and term licenses, we are able to determine SSP based on the observable prices of products or services sold separately in comparable circumstances to similar customers. In instances where performance obligations do not have observable standalone sales, we utilize available information that may include market conditions, pricing strategies, the economic life of the software, and other observable inputs to estimate the price we would charge if the products and services were sold separately.
Our products are generally sold with a right of return, we may provide other credits or incentives, and in certain instances we estimate customer usage of our services, which are accounted for as variable consideration when determining the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period if additional information becomes available. Variable consideration was not material for the periods presented.
Recognition of revenue
Revenue recognized from contracts with customers is disaggregated into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. We report our revenues in four categories: (i) subscription, (ii) maintenance, (iii) perpetual license, and (iv) other. In addition, we present revenue by geographic region in Note 15, “Revenue.
Subscription revenues
Subscription revenues consist primarily of fees earned from subscription-based arrangements for providing customers the right to use our software in a cloud-based-infrastructure that we provide. We also sell on-premises term license agreements for our Data Center products, which are software licensed for a specified period, and includes support and maintenance service that is bundled with the license for the term of the license period. Subscription revenues are driven primarily by the number and size of active licenses, the type of product and the price of the licenses. Our subscription-based arrangements generally have a contractual term of one to twelve months, with a majority being one month. For cloud-based services, subscription revenue is recognized ratably as services are performed, commencing with the date the service is made available to customers. For on-premises term-based licenses, we recognize revenue upfront for the portion that relates to the delivery of the term license and the support and related revenue is recognized ratably as the services are delivered over the term of the arrangement.
Maintenance revenues
Maintenance revenues represent fees earned from providing customers unspecified future updates, upgrades and enhancements and technical product support for perpetual license products on an if and when available basis. Maintenance revenue is recognized ratably over the term of the support period.
Perpetual license revenues
Perpetual license revenues represent fees earned from the license of software to customers for use on the customer’s premises other than Data Center products. Software is licensed on a perpetual basis. Perpetual license revenues consist of the revenues recognized from sales of licenses to new customers and additional licenses to existing customers. We typically recognize revenue on the license portion of perpetual license arrangements once the customer obtains control of the license, which is generally upon delivery of the license.
F-12


Other revenues
Other revenues include primarily fees received for sales of third-party apps in the Atlassian Marketplace. Technical account management, consulting and training services are also included in other revenues. Revenue from the sale of third-party apps via Atlassian Marketplace is recognized at the date of product delivery given that all of our obligations have been met at that time and on a net basis as we function as the agent in the relationship. Revenue from technical account management is recognized over the time period that the customer has access to the service. Revenue from consulting and training is recognized over time as the services are performed.
Cash and cash equivalents
The Group considers all highly liquid investments purchased with an original maturity of three months or less and subject to an insignificant risk of changes in value to be cash equivalents. Cash equivalents also include amounts due from third-party credit card processors as they are both short-term and highly liquid in nature and are typically converted to cash within three days of the sales transaction.
Current versus non-current classification
The Group presents assets and liabilities in the consolidated statements of financial position based on current or non-current classification. An asset is current when it is: expected to be realized or intended to be sold or consumed in the normal operating cycle; expected to be realized within twelve months after the reporting period; or cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. All other assets are classified as non-current. A liability is current when it is due to be settled within twelve months after the reporting period. The Group classifies all other liabilities as non-current.
Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Our financial assets include trade receivables and contract assets, debt and equity investments and derivative financial instruments. We generally classify financial assets into the following categories: subsequently measured at amortized cost, at fair value through other comprehensive income, and at fair value through profit or loss depending on the contractual cash flows of and our business model for holding the respective asset. Financial assets that are measured at fair value on a recurring basis include debt and equity investments and derivative financial instruments. Trade receivables and contract assets are measured at amortized cost. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date.
Our financial liabilities include trade and other payables, exchangeable senior notes (the “Notes”) and derivative financial instruments. We generally classify financial liabilities as subsequently measured at amortized cost and at fair value through profit or loss. Financial liabilities that are measured at fair value are the derivative financial instruments. Trade and other payables are measured at amortized cost and the Notes are measured at amortized cost using the effective interest rate (“EIR”) method.
Debt investments
The Group’s marketable debt securities were classified as instruments at fair value through other comprehensive income. These debt securities give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. After consideration of our objectives, as well as our liquidity requirements, we may sell these debt securities prior to their stated maturities. As we view these securities as available for use to support current operations, we classify highly liquid securities with maturities beyond 12 months as current assets under the caption short-term investments on the consolidated statements of financial position. Fair value changes of marketable debt securities that have been recognized in other comprehensive income are reclassified to profit or loss upon sale of the financial asset.
Equity investments
We invest in equity securities of public and private companies, in which the Company does not have a controlling interest or significant influence, to promote business and strategic objectives. The Group has irrevocably designated the equity investments as instruments at fair value through other comprehensive income. Changes in fair value of these equity investments are recognized in other comprehensive income and never reclassified to profit or loss, even if the asset is impaired, sold or otherwise derecognized.
F-13


Marketable equity securities are measured at fair value using readily determinable market value. Non-marketable equity securities are measured at fair value using market data, such as publicly available financing round valuations. Judgment is required particularly in estimating the fair values of non-marketable equity securities.
Exchangeable senior notes
The Notes are classified as financial liabilities at amortized cost and measured using the EIR method. Amortized cost is calculated by taking into account any discount and issuance cost that are an integral part of the EIR. The EIR amortization is included as finance costs in the consolidated statements of operations.
Derivative financial instruments
The Group enters into foreign exchange forward contracts with the objective to mitigate certain currency risks associated with cost of revenues and operating expenses denominated in foreign currencies. These foreign exchange forward contracts are designated as cash flow hedges. We also enter into foreign exchange forward contracts to hedge a portion of certain foreign currency denominated as monetary assets and liabilities to reduce the risk that such foreign currency will be adversely affected by changes in exchange rates. Hedging derivative instruments are recognized as either assets or liabilities and are measured at fair value.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which it wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge.
The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the Group will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:
There is ‘an economic relationship’ between the hedged item and the hedging instrument;
The effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship; and
The hedge ratio of the hedging relationship is the same as the ratio resulting from the quantity of the hedged item and the quantity of the hedging instrument.
For derivative instruments designated as cash flow hedges, the effective portion of the gains (losses) on the derivatives is initially reported as a component of other comprehensive income and is subsequently recognized in earnings when the hedged exposure is recognized in earnings. Amounts reclassified from cash flow hedge reserve to profit or loss are recorded to the same functional expense as the hedged item or items. Gains (losses) on derivatives representing hedge ineffectiveness are recognized in earnings. For derivative instruments that are not designated as hedges, gains (losses) from changes in fair values are primarily recognized in other income (expense), net.
The Group has other derivatives such as embedded exchange feature of the Notes and capped call transactions (“Exchange and Capped Call Derivatives”). Please see Note 16, “Exchangeable Senior Notes” for details. The Exchange and Capped Call Derivatives are measured at fair value at each reporting date and gains (losses) from changes in fair values are recognized in other non-operating expense, net. The Group used Black-Scholes option pricing models to fair value the Exchange and Capped Call Derivatives. Certain inputs used in the model such as stock price volatility requires judgment.
Impairment of financial assets
The Group measures loss allowances on debt investments at fair value through other comprehensive income at an amount equal to lifetime expected credit losses (“ECLs”), except for securities that are determined to have low credit risk at the reporting date and other securities and bank balances for which credit risk has not increased significantly since initial recognition, which are measured as 12-month ECLs. ECLs are a probability-weighted estimate of the difference in the present value of contractual cash flows and the present value of cash flows that the Group expects to receive. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months following the reporting date.

F-14


For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs. The Group does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
Derecognition
Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.
Financial liabilities are derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the consolidated statements of operations.
Fair value measurement
The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value, we consider the principal or most advantageous market in which we would transact, as well as assumptions that market participants would use when pricing the asset or liability. 
The three levels of inputs that may be used to measure fair value are:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
The fair value of financial instruments traded in active markets is included in Level 1.
The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity-specific estimates. If all significant inputs required to measure the fair value an instrument are observable, the instrument is included in Level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.
Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Group's assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and considers factors specific to the asset or liability.
Property and equipment
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method to allocate the cost over the estimated useful lives or, in the case of leasehold improvements and certain leased equipment, the remaining lease term if shorter. The estimated useful lives for each asset class are as follows:
Equipment
1 - 3 years
Computer hardware and computer-related software
1 - 5 years
Furniture and fittings
3 - 10 years
Leasehold improvements
Shorter of the remaining lease term or 7 years
F-15



Business combinations
We include the results of operations of the businesses that we acquire as of the acquisition date. We record the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
We use our best estimates and assumptions to accurately assign fair value to the intangible assets acquired at the acquisition date. The estimation is primarily due to the judgmental nature of the inputs to the valuation models used to measure the fair value of these intangible assets, as well as the sensitivity of the respective fair values to the underlying significant assumptions. Our estimates are inherently uncertain and subject to refinement. We use a discounted cash flow method of the income approach to measure the fair value of these intangible assets. Assumptions used to estimate the fair value of the intangible assets include revenue growth rates, technology migration curves, customer attrition rates and discount rates. These assumptions are forward-looking and could be affected by future economic and market conditions.
During the measurement period, which may be up to one year from the date of acquisition, the Group may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed based on additional information obtained affecting the fair value of those assets and liabilities, with the corresponding offset to goodwill. In addition, uncertain tax positions are initially established in connection with a business combination as of the acquisition date. The Group continues to collect information and reevaluates these provisional estimates and assumptions as deemed reasonable by management. The Group records any adjustments to these provisional estimates and assumptions against goodwill provided they arise within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of operations. Please refer to Note 13, “Business combinations,” for details.
Goodwill
Goodwill is the excess of the aggregate of the consideration transferred over the identifiable assets acquired and liabilities assumed. Goodwill is tested for impairment annually during the fourth quarter of the Group's fiscal year and when circumstances indicate that the carrying value may be impaired. The Group performs its goodwill impairment test at the level of its operating segment as there are no lower levels within the Group at which goodwill is monitored. Impairment is determined for goodwill by assessing the recoverable amount of the operating segment. When the recoverable amount of the operating segment is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
Intangible assets
We acquire intangible assets separately or in connection with business combinations. Intangible assets are measured at cost initially. All of our intangible assets are with finite lives and are amortized over their estimated useful life using the straight-line method. The amortization expense on intangible assets is recognized in the consolidated statements of operations in the expense category, consistent with the function of the intangible asset.
The estimated useful lives for each intangible asset class are as follows:
Patents, trademarks and other rights
1 - 12 years
Customer relationships
2 - 10 years
Acquired developed technology
2 - 7 years
Intangible assets with finite lives are assessed for impairment whenever there is an indication that the intangible asset may be impaired. When the recoverable amount of an intangible asset is less than its carrying amount, an impairment loss is recognized.




F-16


Impairment of non-financial assets
At the end of each reporting period, the Group assesses whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. An asset’s recoverable amount is the higher of an asset’s or cash generating unit (“CGU”)’s fair value less costs of disposal and its value in use. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used.
Share-based payments
Share-based payments cover equity-settled awards including stock options, restricted share units (“RSUs”) and restricted shares issued to our employees in exchange of their service. The cost of the equity-settled awards is determined by the fair value at the grant date. The fair value of RSUs or restricted shares is equal to the market value of our common stock on the grant date. The Group estimates the fair value of stock options using the Black-Scholes option pricing model. This option-pricing model requires the input of assumptions, including the awards’ expected life and the price volatility of the underlying stock.
We recognize equity-settled awards cost, net of estimated forfeitures, over the awards’ requisite service period on a graded-vesting basis. No compensation cost is recognized for awards that do not ultimately vest because service conditions have not been met and we estimate forfeiture based on historical experience. The respective expenses are recognized as employee benefits and classified in our consolidated statements of operations according to the activities that the employees perform.
The Group also issues replacement awards in connection with business combinations in exchange for awards held by employees of the acquiree. We recognize the portion of the acquiree award that is attributable to pre-combination service as purchase consideration. The portion of the replacement award attributable to post-combination service is recognized as employee benefits and classified in our consolidated statements of operations according to the activities that the employees perform.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.
Leases
Prior to adoption of IFRS 16
The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at the inception date, whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. The Group categorizes leases at their inception as either operating or finance leases. Expenses incurred in operating leases (net of any incentives received from the lessor) are recognized on a straight-line basis over the term of the lease.




F-17


After adoption of IFRS 16
Group as lessee
We determine if an arrangement is a lease at inception. Our lease agreements generally contain lease and non-lease components. Lease payments under our lease arrangements are primarily fixed. Non-lease components primarily include payments for maintenance and utilities and are expensed as incurred.
Lease liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value of the future lease payments is our incremental borrowing rate, because the interest rate implicit in our leases is not readily determinable. Our incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. Our lease terms include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option. We generally use the base, non-cancelable, lease term when determining lease liabilities. We reassesses the lease term if and when a significant event or change in circumstances occurs within the control of the Group.
Right-of-use assets are recognized at cost at the lease commencement date. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct cost incurred, any prepaid lease payments less lease incentives and an estimate of restoration cost. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.
We apply the short-term lease recognition exemption for our short-term leases and leases of low-value assets. Short-term leases are leases with a lease term of 12 months or less. Low-value assets are primarily comprised of office equipment. Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis over the lease term.
Research and development
Research and development expense includes the employee and hardware costs incurred for the development of new products, enhancements and updates of existing products and quality assurance activities. These costs incurred for the development of computer software are expensed until the point that technological feasibility has been established, which for our products, is typically reached shortly before the release of such products and as a result, the Group has not capitalized any research and development costs.
Taxation
Current tax
Current income tax assets and/or liabilities comprise amounts expected to be recovered or paid to Her Majesty's Revenue & Customs, the Australian Taxation Office, the United States Internal Revenue Service and other fiscal authorities relating to the current or prior reporting periods, which are unpaid at each reporting date. Current tax is payable on taxable income that differs from the consolidated statements of operations in the financial statements due to permanent and temporary timing differences. The calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax
The Group uses the liability method of accounting for income taxes. Deferred income tax assets and liabilities represent temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and their corresponding tax basis used in the computation of taxable income. Deferred tax however is not recognized on the initial recognition of goodwill, or the initial recognition of an asset or liability (other than in a business combination) in a transaction that affects neither tax nor accounting income.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax liabilities are generally provided for in full.


F-18


Deferred tax assets are recognized to the extent that they are expected to reverse in the foreseeable future and it is probable that they will be able to be utilized against future taxable income, based on the Group's forecast of future results of operations. Deferred tax assets are adjusted for significant non-taxable income, expenses and specific limits on the use of any unused tax loss or credit. Unrecognized deferred income tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable income will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are calculated, without discounting, at tax rates and in accordance with laws that are expected to apply to their respective period of realization, provided the tax rates and laws are enacted or substantively enacted by the end of the reporting period. The carrying amount of deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax asset to be utilized.
Deferred tax liabilities and assets are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Changes in deferred tax assets or liabilities are recognized as a component of tax expense (benefit) in the consolidated statements of operations, except where they relate to items that are recognized in other comprehensive income or directly in equity, in which case the related deferred tax is also recognized in other comprehensive income or equity, respectively. Where deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.
Deferred tax assets are recognized for deductible temporary differences for which management considers it is probable that future taxable income will be available to utilize those temporary differences. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable income, together with future tax-planning strategies. Assumptions about the generation of future taxable income depend on management’s estimates of future cash flows, future business expectations, capital expenditures, dividends, and other capital management transactions. Management judgment is also required in relation to the application of income tax legislation, which involves complexity and an element of uncertainty. Where management judgment is found to be misplaced, some or all of recognized deferred tax asset and liability carrying amounts may require adjustment, resulting in a corresponding credit or charge to the consolidated statements of operations.
For details of taxation, please refer to Note 8, “Income Tax.
New Standards, Interpretations and Amendments Adopted in Fiscal Year 2020
IFRS 16, Leases
In January 2016, the IASB issued IFRS 16, which supersedes the previous leases standard, IAS 17, Leases (“IAS 17”), and related interpretations. The standard introduced a single lessee accounting model and requires a lessee to recognize leases on its statement of financial position, represented by right-of-use assets and lease obligations. We adopted IFRS 16 as of July 1, 2019, using the modified retrospective method and, therefore, the comparatives for fiscal year 2019 and 2018 have not been restated.
We applied IFRS 16 using the following practical expedients permitted under the new standard:
The use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
Reliance on previous assessments on whether leases are onerous;
The exclusion from recognition of right-of-use assets or lease obligations for leases of low value or for leases with a term ending within 12 months as of July 1, 2019; and,
The exclusion of initial direct costs for the measurement of the right-of-use asset as of July 1, 2019.
On adoption of IFRS 16, we recognized lease obligations in relation to leases which had previously been classified as ‘operating leases’ under the principles of IAS 17. These liabilities were measured at the present value of the remaining lease payments, discounted using our incremental borrowing rate as of July 1, 2019. The weighted-average incremental borrowing rate applied to the lease obligations on July 1, 2019 was 2.91%. Right-of-use assets were recognized as an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.

F-19


The adoption of IFRS 16 affected the following items on our consolidated statements of financial position as of July 1, 2019:
Prepaid expenses and other current assets – increased by $9.5 million;
Right-of-use assets, net – increased by $241.4 million;
Property and equipment, net – decreased by $1.2 million;
Other non-current assets – increased by $0.9 million;
Trade and other payables – decreased by $1.4 million;
Lease obligations, current – increased by $29.8 million;
Other non-current liabilities – decreased by $33.8 million; and
Lease obligations, non-current – increased by $256.2 million.
The net impact on accumulated deficit as of July 1, 2019 was an increase of $0.1 million.
The following table presents the reconciliation of our operating lease commitments disclosed as of June 30, 2019 to our lease obligations recognized as of July 1, 2019:
July 1, 2019
(U.S. $ in thousands)
Operating lease commitments disclosed as of June 30, 2019 $ 330,848   
Less: Short-term leases recognized on a straight-line basis as expense (1,756)  
Undiscounted lease commitments, excluding short-term leases $ 329,092   
Discounted using incremental borrowing rate and recognized as lease obligations as of July 1, 2019 $ 285,973   
Lease obligations, current 29,787   
Lease obligations, non-current 256,186   
Total lease obligations $ 285,973   
There is no material impact on other comprehensive income and basic and diluted earnings per share from the adoption of IFRS 16.
IFRIC Interpretations 23, Uncertainty over Income Tax Treatments (“IFRIC 23”)
On June 7, 2017, the IFRS IC issued IFRIC 23, which clarifies how the recognition and measurement requirements of IAS 12, Income Taxes, are applied where there is uncertainty over income tax treatments. IFRIC 23 applies to all aspects of income tax accounting where there is an uncertainty regarding the treatment of an item, including taxable profit or loss, the tax bases of assets and liabilities, and tax losses and credits. This interpretation became effective for annual periods beginning on, or after January 1, 2019 and did not have a significant impact on our consolidated financial statements.
New Standards, Interpretations and Amendments Not Yet Adopted in Fiscal Year 2020
The IASB has issued other amendments resulting from improvements to IFRS that management considers do not have any impact on the accounting policies, financial position or performance of the Group. The Group does not expect them to have a material impact on the accounting policies.








F-20


3. Critical Accounting Estimates and Judgments
Management has identified the following critical accounting policies for which significant judgments, estimates and assumptions are made.
Critical accounting estimates and assumptions
Revenue recognition
Determining the SSP for products and services requires estimates and assumptions. We typically determine a SSP range for our products and services which is reassessed on a periodic basis or when facts and circumstances change. For all performance obligations other than perpetual and term licenses, we are able to determine SSP based on the observable prices of products or services sold separately in comparable circumstances to similar customers. In instances where performance obligations do not have observable standalone sales, we utilize available information that may include market conditions, pricing strategies, the economic life of the software, and other observable inputs to estimate the price we would charge if the products and services were sold separately.
Critical accounting judgments
Impairment of non-financial assets
For assets excluding goodwill, and CGUs, impairment assessments are made at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. Goodwill is tested for impairment annually during the fourth quarter of the Group's fiscal year and when circumstances indicate that the carrying value may be impaired. These include product performance, technology, economic and political environments, and future product expectations. If an impairment trigger exists or when annual impairment testing for an asset is required, the recoverable amount of the asset is determined.
There was no goodwill impairment in the fiscal years ended 2020, 2019 and 2018. No indicators of impairment existed that were significant enough to warrant non-financial assets other than goodwill to be tested for impairment in the fiscal years ended 2020, 2019 and 2018. For details of non-financial assets, please refer to Note 10, “Property and Equipment” and Note 11, “Goodwill and Intangible assets.”
F-21


4. Group Information
As of June 30, 2020, the Group’s subsidiaries, all of which are wholly owned, were as follows:
Name Country of Incorporation
Atlassian (UK) Limited United Kingdom, United States of America
Atlassian (UK) Holdings Limited United Kingdom, United States of America
Atlassian (Australia) Limited United Kingdom, United States of America
Atlassian (UK) Operations Limited United Kingdom
Atlassian, Inc. United States of America
Atlassian Network Services, Inc. United States of America
Dogwood Labs, Inc. United States of America
Trello, Inc. United States of America
AgileCraft LLC United States of America
AgileCraft Australia Pty Ltd (1) Australia
OpsGenie, Inc. United States of America
Opsgenie Yazılım Anonim Şirketi Turkey
iFountain, LLC United States of America
Halp, Inc United States of America
Atlassian Australia 1 Pty Ltd Australia
Atlassian Australia 2 Pty Ltd Australia
Atlassian Corporation Pty. Ltd. Australia
Atlassian Pty Ltd Australia
Good Software Co. Pty Ltd Australia
Code Barrel Pty Ltd Australia
Lead Green Pty Ltd Australia
Lead Green Trust Australia
Vertical First Pty Ltd Australia
Vertical First Trust Australia
Atlassian Capital Pty. Ltd. Australia
MITT Australia Pty Ltd Australia
MITT Trust Australia
Atlassian Holdings B.V. Netherlands
Atlassian K.K. Japan
Atlassian Germany GmbH Germany
Atlassian Philippines, Inc. Philippines
Atlassian France SAS France
Atlassian B.V. Netherlands
Atlassian Canada Inc. Canada
Atlassian India LLP India
(1) AgileCraft Australia Pty Ltd is currently in liquidation.
5. Financial Assets and Liabilities
Financial Risk Management
The Group's activities expose it to a variety of financial risks: market risk (including currency risk, equity price risk, and interest rate risk), credit risk and liquidity risk. The Group's overall risk management approach focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Group.
F-22


Management regularly reviews the Group's risk management objectives to ensure that risks are identified and managed appropriately. The board of directors is made aware of and reviews management's risk assessments prior to entering into significant transactions.
Market risk
Currency risk
The Group operates globally and is exposed to foreign exchange risk arising from exposure to various currencies in the ordinary course of business. Our exposures primarily consist of the Australian dollar (“AUD”), British pound, Euro (“EUR”), Japanese yen, Philippine peso, Indian rupee and Canadian dollar. Foreign exchange risk arises from commercial transactions and recognized financial assets and liabilities denominated in a currency other than the U.S. dollar (“USD”). The Group’s foreign exchange policy is reviewed annually by the Group’s Audit Committee and requires the Group to monitor its foreign exchange exposure on a regular basis.
The substantial majority of our sales contracts are denominated in U.S. dollars, and our operating expenses are generally denominated in the local currencies of the countries where our operations are located. We therefore benefit from a strengthening of the U.S. dollar and are adversely affected by the weakening of the U.S. dollar.
We have a hedging program in place and enter into derivative transactions to manage certain foreign currency exchange risks that arise in the Group’s ordinary business operations. We enter into master netting agreements with financial institutions to execute our hedging program. We recognize all hedging derivative instruments as either assets or liabilities on our consolidated statements of financial position and measure them at fair value. We have the rights to net certain hedging derivative assets and liabilities, but we currently present them on the gross basis. Gains and losses resulting from changes in fair value are accounted for depending on the use of the derivative and whether it is designated and qualifies for hedge accounting.
Our master netting agreements are with select financial institutions to reduce our credit risk, and we trade with several counterparties to reduce our concentration risk with any single counterparty. We do not have significant exposure to counterparty credit risk at this time. We do not require nor are we required to post collateral of any kind related to our foreign currency derivatives.
Cash flow hedging
We enter into foreign exchange forward contracts with the objective to mitigate certain currency risks associated with forecast cost of revenues and operating expenses denominated in Australian dollars. These foreign exchange forward contracts are designated as cash flow hedges.
There is an economic relationship between the hedged items and the hedging instruments as the terms of the foreign exchange and forward contracts match the terms of the expected highly probable forecast transactions (i.e., notional amount and expected payment date). The Group has established a hedge ratio of 1:1 for the hedging relationships as the underlying risk of the foreign exchange and forward contracts are identical to the hedged risk components. We measure ineffectiveness in a cash flow hedge relationship using the hypothetical derivative method. Ineffectiveness occurs only if the present value of the cumulative gain or loss on the derivative instrument exceeds the present value of the cumulative gain or loss on the hypothetical derivative, which is used to measure changes of expected future cash flow. Ineffectiveness mainly rises from the differences in the timing of the cash flows of the hedged items and the hedging instruments.
It is our policy to enter into cash flow hedges to hedge cost of revenues and operating expenses up to 24 months.
Balance sheet hedging
We also enter into foreign exchange forward contracts to hedge a portion of certain foreign currency denominated monetary assets and liabilities to reduce the risk that such foreign currency assets or liabilities will be adversely affected by changes in exchange rates. These contracts hedge monetary assets and liabilities that are denominated in non-functional currencies. These contracts do not subject us to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the monetary assets and liabilities being hedged.



F-23


Foreign currency exchange rate exposure

The Group hedges material foreign currency denominated monetary assets and liabilities using balance sheet hedges. The fluctuations in the fair market value of balance sheet hedges due to foreign currency rates generally offset those of the hedged items, resulting in no material effect on profit. Consequently, we are primarily exposed to significant foreign currency exchange rate fluctuations with regard to the spot component of derivatives held within a designated cash flow hedge relationship affecting other comprehensive income.
The following table sets forth foreign currency sensitivity analysis of a hypothetical 10% change in exchange rate of the U.S. dollar against the Australian dollar to our cash flow hedging portfolio:
Foreign Currency Sensitivity Effect on other comprehensive income, before tax
2020 2019
(U.S. $ in thousands)
Foreign currency forward contracts - cash flow hedging:
U.S. dollar +10%, decrease in fair value of foreign currency forward contracts
$ (26,999)   $ (22,526)  
U.S. dollar -10%, increase in fair value of foreign currency forward contracts
26,999    22,526   
Equity Price Risk
The Group is exposed to equity price risk in connection with our Notes, including exchange and settlement provisions based on the price of our Class A ordinary shares at exchange or maturity of the Notes. In addition, the capped call transactions associated with the Notes also include settlement provisions that are based on the price of our Class A ordinary shares. The amount of cash we may receive from capped call counterparties in connection with the capped calls is determined by the price of our Class A ordinary shares. The Group is also exposed to equity price risk in connection with our equity investments. The Group’s marketable and non-marketable equity investments are susceptible to market price risk from uncertainties about future values of the investment securities.

The following table sets forth equity price sensitivity analysis of a hypothetical 10% change in share prices:

Equity Price Sensitivity Effect on other non-operating expense, net Effect on other comprehensive income, before tax
2020 2019 2020 2019
(U.S. $ in thousands)
Fair Value change of the Exchange and Capped Call Derivatives:
Increase in our share price of 10%
$ (192,641)   $ (122,443)   $ —    $ —   
Decrease in our share price of 10%
184,784    116,343    —    —   
Fair value change of marketable equity investments:
Increase in respective share prices of 10%
—    —    10,019    5,893   
Decrease in respective share prices of 10%
—    —    (10,019)   (5,893)  

Interest rate risk
Our cash equivalents and investment portfolio are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely impacted due to a rise in interest rates. As of June 30, 2020, the Group had cash and cash equivalents totaling $1.5 billion and short-term investments totaling $676.1 million.
The following table sets forth an interest rate sensitivity analysis of a hypothetical 100 basis point change in interest rates. This estimate is based on a sensitivity model that measures market value changes when changes in interest rates occur:
F-24


Interest Rate Sensitivity Effect on other comprehensive income, before tax
2020 2019
(U.S. $ in thousands)
Change in market value of debt investments:
Interest Rate +100bps, decrease in market value of debt investments
$ (5,397)   $ (2,285)  
Interest Rate -100bps, increase in market value of debt investments
1,617    2,285   

Credit risk
The Group is exposed to credit risk arising from cash and cash equivalents, deposits with banks and financial institutions, investments, foreign exchange derivative contracts, and capped call transactions related to our issuance of the Notes, as well as credit exposures to customers, including outstanding receivables and committed transactions. Credit risk is managed on a Group basis.
The Group has a minimum credit rating requirement for banks and financial institutions with which it transacts. The Group’s investments are governed by a corporate investment policy with a minimum credit rating and concentration limits for all securities.
The Group is exposed to credit risk in the event of non-performance by the counterparties to our foreign exchange derivative contracts and our capped call transactions at maturity. To reduce the credit risk, we continuously monitor credit quality of our counterparties to such derivatives. We believe the risk of non-performance under these contracts is remote.
The Group's customer base is highly diversified, thereby limiting credit risk. Our credit policy typically requires payment within 30-45 days, and we establish credit limits for each customer based on our internal guidelines. The Group does not hold collateral as security or call on other credit enhancements. The Group manages its credit risk with customers by closely monitoring its receivables and contract assets. We continuously monitor outstanding receivables locally to assess whether there is objective evidence that our trade receivables and contract assets are credit-impaired. An impairment analysis is performed at each reporting date using a provision matrix to measure ECLs. The provision rates are based on days past due. Please refer to Note 9, “Trade Receivables” for the details of receivables, credit concentration, and ECL allowance.
Liquidity risk
Liquidity risk is the risk that the group will encounter difficulty in meeting its obligations associated with its financial liabilities as they fall due. The Group’s primary source of cash is cash generated from business operations.
The table below presents the contractual undiscounted cash flows relating to the Group’s financial liabilities at the balance sheet date. The cash flows are grouped based on the remaining period to the contractual maturity date. The Group has sufficient funds, including its cash, cash equivalents, short-term investments and expected cash flows from operations, to meet these commitments as they become due. The Group may enter into financial transactions to secure additional funding to supplement existing cash flows or to maintain financial flexibility.
F-25


Contractual maturities of financial liabilities are as follows:
Less than 1 year 1 - 3 years 3 - 5 years More than 5 years Total
(U.S. $ in thousands)
As of June 30, 2020
Financial liabilities:
Trade and other payables $ 202,570    $ —    $ —    $ —    $ 202,570   
Lease liabilities (1) 41,584    109,015    54,325    92,158    297,082   
Derivative liabilities 1,507      —    —    1,509   
Exchangeable senior notes (2) 2,211,244    —    —    —    2,211,244   
$ 2,456,905    $ 109,017    $ 54,325    $ 92,158    $ 2,712,405   
As of June 30, 2019
Financial liabilities:
Trade and other payables $ 159,487    $ —    $ —    $ —    $ 159,487   
Derivative liabilities 3,879    74    —    —    3,953   
Exchangeable senior notes (2) 1,604,923    —    —    —    1,604,923   
$ 1,768,289    $ 74    $ —    $ —    $ 1,768,363   
(1) Lease liabilities represent undiscounted lease payments excluding certain low-value and short-term leases, refer to Note 12, “Leases” for details.
(2) The amount related to Notes represent the if-exchanged value using stock price as of June 30, 2020 and 2019, respectively. Refer to Note 16, “Exchangeable Senior Notes” for details.
Capital risk management
For the purpose of the Group’s capital management, capital includes issued capital, share premium and all other capital reserves attributable to the equity holders of the parent. The primary objective of the Group's capital structure management is to ensure that it maintains an appropriate capital structure to support its business and maximize shareholder value. The Group manages its capital structure and adjusts it based on business needs and economic conditions. No material changes were made to the process of managing capital during the fiscal years ended June 30, 2020 and 2019. During the fiscal year ended June 30, 2018, the Group issued $1.0 billion of the Notes for working capital and other corporate purposes, including acquiring complementary businesses, products, services or technologies.
To maintain or adjust the capital structure, the Group may return capital to shareholders, issue new shares, or consider external financing alternatives. The Group does not have any present or future plan to pay dividends on its shares.

F-26


Fair Value Measurements
The following table presents the Group’s financial assets and liabilities as of June 30, 2020, by level within the fair value hierarchy:
Level 1 Level 2 Level 3 Total
(U.S. $ in thousands)
Description
Assets measured at fair value
Cash and cash equivalents:
Money market funds $ 439,947    $ —    $ —    $ 439,947   
U.S. treasury securities —    5,599    —    5,599   
Agency securities —    8,749    —    8,749   
Commercial paper —    167,248    —    167,248   
Corporate debt securities —    27,365    —    27,365   
Short-term investments:
U.S. treasury securities —    296,118    —    296,118   
Agency securities —    24,586    —    24,586   
Certificates of deposit and time deposits —    12,052    —    12,052   
Commercial paper —    31,937    —    31,937   
Corporate debt securities —    308,651    —    308,651   
Municipal securities —    2,728    —    2,728   
Current derivative assets:
Derivative assets - hedging —    16,879    —    16,879   
Derivative assets - capped call transactions —    310,608    310,608   
Other non-current assets:
Certificates of deposit and time deposits —    3,347    —    3,347   
Marketable equity securities 100,187    —    —    100,187   
Non-marketable equity securities —    —    3,750    3,750   
Total assets measured at fair value $ 540,134    $ 905,259    $ 314,358    $ 1,759,751   
Liabilities measured at fair value
Current derivative liabilities:
Derivative liabilities - hedging $ —    $ 1,507    $ —    $ 1,507   
Derivative liabilities - exchangeable feature of Notes —    —    1,283,089    1,283,089   
Non-current derivative liabilities:
Derivative liabilities - hedging —      —     
Total liabilities measured at fair value $ —    $ 1,509    $ 1,283,089    $ 1,284,598   



F-27


The following table presents the Group’s financial assets and liabilities as of June 30, 2019, by the level within the fair value hierarchy:
Level 1 Level 2 Level 3 Total
(U.S. $ in thousands)
Description
Assets measured at fair value
Cash and cash equivalents:
Money market funds $ 593,696    $ —    $ —    $ 593,696   
U.S. treasury securities —    6,996    —    6,996   
Agency securities —    8,084    —    8,084   
Certificates of deposit and time deposits —    9,844    —    9,844   
Commercial paper —    67,327    —    67,327   
Corporate debt securities —    7,560    —    7,560   
Short-term investments:
U.S. treasury securities —    101,759    —    101,759   
Agency securities —    26,966    —    26,966   
Certificates of deposit and time deposits —    20,466    —    20,466   
Commercial paper —    94,035    —    94,035   
Corporate debt securities —    201,820    —    201,820   
Current derivative assets:
Derivative assets - hedging —    559    —    559   
Derivative assets - capped call transactions —    —    214,597    214,597   
Non-current derivative assets:
Derivative assets - hedging —    77    —    77   
Other non-current assets:
Certificates of deposit and time deposits —    3,660    —    3,660   
Marketable equity securities 58,932    —    —    58,932   
Non-marketable equity securities —    —    3,000    3,000   
Total assets measured at fair value $ 652,628    $ 549,153    $ 217,597    $ 1,419,378   
Liabilities measured at fair value
Current derivative liabilities:
Derivative liabilities - hedging $ —    $ 3,879    $ —    $ 3,879   
Derivative liabilities - exchangeable feature of Notes —    —    851,126    851,126   
Non-current derivative liabilities:
Derivative liabilities - hedging —    74    —    74   
Total liabilities measured at fair value $ —    $ 3,953    $ 851,126    $ 855,079   
Due to the short-term nature of trade receivables, contract assets and trade and other payables, their carrying amount is assumed to approximate their fair value.





F-28


Determination of fair value
The following table sets forth a description of the valuation techniques and the inputs used in fair value measurement:
Type Valuation Technique Inputs
Money market fund Quoted price in active market N/A
Marketable debt securities Quoted market price to the extent possible or alternative pricing sources and models utilizing market observable inputs N/A
Marketable equity securities Quoted price in active market N/A
Non-marketable equity securities Publicly available financing round valuation N/A
Foreign currency forward contracts Discounted cash flow Foreign currency spot and forward rate
Interest rate
Credit quality of counterparties
Exchange and Capped Call Derivatives
Black-Scholes option pricing models Stock price
Time to expiration of the options
Stock price volatility
Interest rate
Exchangeable senior notes Quoted market price N/A
Level 3 financial instruments disclosure
In April 2018, the Group issued $1 billion in Notes and entered into related capped call transactions. Please refer to Note 16, “Exchangeable Senior Notes” for details. Exchange and Capped Call Derivatives are classified as level 3 as the Group uses stock price volatility implied from options traded with a substantially shorter term, which makes this an unobservable input that is significant to the valuation.
The table below present stock price volatility sensitivity analysis of the fair value change assume a 10% higher volatility, holding other inputs constant:
          Stock Price Volatility Sensitivity Effect on Other non-operating expense, net
2020 2019
(U.S. $ in thousands)
Stock price volatility range as of fiscal year end
39.2% - 42.8%
43.8% - 47.3%
Fair Value change of the Exchange and Capped Call Derivatives: $ (37,366)   $ (46,888)  

F-29


The following table presents the reconciliations of Level 3 financial instrument fair values:
  Capped Call Embedded exchange feature of Notes Non-marketable equity investments
  (U.S. $ in thousands)
Balance as of June 30, 2018 $ 99,932    $ (202,553)   $ —   
Purchases —    —    23,000   
Transfer out —    —    (20,942)  
Gains (losses)
Recognized in finance income —    —    270   
Recognized in other non-operating expense, net
114,665    (648,573)   —   
Recognized in other comprehensive income —    —    672   
Balance as of June 30, 2019 214,597    (851,126)   3,000   
Change in unrealized gains (losses) relating to assets and liabilities held as of June 30, 2019
Recognized in other non-operating expense, net
114,665    (648,573)   —   
Balance as of June 30, 2019 $ 214,597    $ (851,126)   $ 3,000   
Purchases —      750   
Gains (losses)
Recognized in other non-operating expense, net
96,011    (431,964)   —   
Balance as of June 30, 2020 $ 310,608    $ (1,283,089)   $ 3,750   
Change in unrealized gains (losses) relating to assets and liabilities held as of June 30, 2020
Recognized in other non-operating expense, net
96,011    (431,964)   —   
There were no transfers between levels during fiscal year 2020. There were transfers out from Level 3 due to initial public offerings of the respective investees during fiscal year 2019.
Investments
As of June 30, 2020, the Group’s investments consisted of the following:
  Amortized Cost Unrealized Gains Unrealized Losses Fair Value
  (U.S. $ in thousands)
Debt Investments
Marketable debt securities:
U.S. treasury securities $ 294,103    $ 2,017    $ (2)   $ 296,118   
Agency securities 24,280    306    —    24,586   
Certificates of deposit and time deposits 15,399    —    —    15,399   
Commercial paper 31,937    —    —    31,937   
Corporate debt securities 305,448    3,205    (2)   308,651   
Municipal securities 2,700    28    —    2,728   
Total debt investments $ 673,867    $ 5,556    $ (4)   $ 679,419   
Equity Investments
Marketable equity securities $ 20,270    $ 79,917    $ —    $ 100,187   
Non-marketable equity securities 3,750    —    —    3,750   
Total equity investments $ 24,020    $ 79,917    $ —    $ 103,937   
Total investments $ 697,887    $ 85,473    $ (4)   $ 783,356   
F-30


As of June 30, 2020, the Group had $676.1 million of investments which were classified as short-term investments on the Group’s consolidated statements of financial position. Additionally, the Group had marketable equity securities totaling $100.2 million, non-marketable equity securities totaling $3.8 million, and certificates of deposit and time deposits totaling $3.3 million which were classified as long-term and were included in other non-current assets on the Group’s consolidated statements of financial position.
As of June 30, 2019, the Group’s investments consisted of the following:
  Amortized Cost Unrealized Gains Unrealized Losses Fair Value
  (U.S. $ in thousands)
Debt Investments
Marketable debt securities:
 U.S. treasury securities $ 101,563    $ 203    $ (7)   $ 101,759   
 Agency securities 26,936    33    (3)   26,966   
 Certificates of deposit and time deposits 24,126    —    —    24,126   
 Commercial paper 94,035    —    —    94,035   
 Corporate debt securities 201,552    292    (24)   201,820   
Total debt investments $ 448,212    $ 528    $ (34)   $ 448,706   
Equity Investments
Marketable equity securities $ 20,270    $ 38,662    $ —    $ 58,932   
Non-marketable equity securities 3,000    —    —    3,000   
Total equity investments $ 23,270    $ 38,662    $ —    $ 61,932   
Total investments $ 471,482    $ 39,190    $ (34)   $ 510,638   
As of June 30, 2019, the Group had $445.0 million of investments which were classified as short-term investments on the Group’s consolidated statements of financial position. Additionally, the Group had marketable equity securities totaling $58.9 million, non-marketable equity securities totaling $3.0 million, and certificates of deposit and time deposits totaling $3.7 million which were classified as long-term and were included in other non-current assets on the Group’s consolidated statements of financial position.
The effects of the Group’s investments on the consolidated financial statements were as follows (amounts presented are prior to any income tax effects):
Fiscal Year Ended June 30,
2020 2019 2018
(U.S. $ in thousands)
Unrealized gains (losses) recognized in other comprehensive income $ 46,975    $ 40,017    $ (601)  
Gains (losses) recognized into profit or loss $ 697    $ 15    $ (15)  
The table below summarizes the Group’s debt investments by remaining contractual maturity based on the effective maturity date:
  As of June 30,
2020 2019
  (U.S. $ in thousands)
Recorded as follows:    
Due in one year or less $ 443,324    $ 442,964   
Due after one year 236,095    5,742   
Total investments $ 679,419    $ 448,706   
F-31


Derivative financial instruments
The Group has derivative instruments that are used for hedging activities as discussed below and derivative instruments relating to the Notes and the capped calls as discussed in Note 16, “Exchangeable Senior Notes.
The fair value of the hedging derivative instruments were as follows:
As of June 30,
Statement of Financial Position Location 2020 2019
(U.S. $ in thousands)
Derivative assets - hedging
Derivatives designated as hedging instruments:
Foreign exchange forward contracts Current derivative assets $ 14,195    $ 247   
Foreign exchange forward contracts Other non-current assets —    77   
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts Current derivative assets 2,684    312   
Total derivative assets $ 16,879    $ 636   
Derivative liabilities - hedging
Derivatives designated as hedging instruments:
Foreign exchange forward contracts Current derivative liabilities $ 1,164    $ 3,854   
Foreign exchange forward contracts Other non-current liabilities   74   
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts Current derivative liabilities 343    25   
Total derivative liabilities $ 1,509    $ 3,953   
The following table sets forth the notional amounts of our hedging derivative instruments as of June 30, 2020 (U.S. $ in thousands):
Notional Amounts of Derivative Instruments
Notional Amount by Term to Maturity Classification by Notional Amount
Under 12 months Over 12 months Total Cash Flow Hedge Non Hedge Total
AUD/USD forward contracts:
Notional amount $ 393,705    $ 8,441    $ 402,146    $ 256,890    $ 145,256    $ 402,146   
Average forward rate 0.6610    0.6844    —    0.6536    0.6754    —   
EUR/USD forward contracts:
Notional amount 7,205    —    7,205    —    7,205    7,205   
Average forward rate 1.1179    —    —    —    1.1179    —   
Total $ 400,910    $ 8,441    $ 409,351    $ 256,890    $ 152,461    $ 409,351   
F-32


The following table sets forth the notional amounts of our hedging derivative instruments as of June 30, 2019 (U.S. $ in thousands):
Notional Amounts of Derivative Instruments
Notional Amount by Term to Maturity Classification by Notional Amount
Under 12 months Over 12 months Total Cash Flow Hedge Non Hedge Total
AUD/USD forward contracts:
Notional amount $ 253,472    $ 14,477    $ 267,949    $ 230,264    $ 37,685    $ 267,949   
Average forward rate 0.7156    0.7085    —    0.7181    0.6979    —   
EUR/USD forward contracts:
Notional amount 6,202    —    6,202    —    6,202    6,202   
Average forward rate 1.1302    —    —    —    1.1302    —   
Total $ 259,674    $ 14,477    $ 274,151    $ 230,264    $ 43,887    $ 274,151   
The effects of derivatives designated as hedging instruments on our consolidated financial statements were as follows (amounts presented are prior to any income tax effects):
Fiscal Year Ended June 30,
2020 2019 2018
(U.S. $ in thousands)
Gains (losses) recognized into general and administrative - ineffective portion $ (159)   $ 24    $ 12   
Gross unrealized gains (losses) recognized in other comprehensive income (loss) $ 3,048    $ (8,369)   $ (4,387)  
Net gains (losses) reclassified from cash flow hedge reserve into profit or loss - effective portion $ (13,663)   $ (9,908)   $ 3,954   
Recognized in cost of revenues (807)   (713)   134   
Recognized in research and development (9,647)   (6,935)   2,532   
Recognized in marketing and sales (273)   (194)   112   
Recognized in general and administrative (2,936)   (2,066)   1,176   
Change in fair value used for measuring ineffectiveness:
Cash flow hedging instruments $ 2,889    $ (8,345)   $ (4,375)  
Hedged item - highly probable forecast purchases 3,048    (8,369)   (4,387)  

6. Other Non-Operating Expense, Net
Other non-operating expense, net consisted of the following:
Fiscal Year Ended June 30,
  2020 2019 2018
(U.S. $ in thousands)
Net unrealized loss on exchange derivative and capped calls $ (335,953)   $ (533,908)   $ (12,414)  
Foreign currency exchange gain (loss), net 910    (702)   (413)  
Contributions to Atlassian Foundation (5,282)   (3,629)   (1,856)  
Other income 1,839    2,786    1,311   
Exchange derivative allocated issuance costs —    —    (1,785)  
Other non-operating expense, net $ (338,486)   $ (535,453)   $ (15,157)  

F-33


7. Expenses
Loss before income tax expense included the following expenses:
  Fiscal Year Ended June 30,
  2020 2019 2018
  (U.S. $ in thousands)
Depreciation:    
Equipment $ 2,077    $ 1,336    $ 1,214   
Computer hardware and software 1,096    1,476    11,543   
Furniture and fittings 3,000    2,031    1,485   
Leasehold improvements 13,563    8,604    7,915   
Total depreciation 19,736    13,447    22,157   
Amortization:  
Patents and trademarks 5,377    7,796    6,990   
Customer relationships 8,086    21,015    29,100   
Acquired developed technology 29,072    27,990    21,188   
Total amortization 42,535    56,801    57,278   
Total depreciation and amortization $ 62,271    $ 70,248    $ 79,435   
Employee benefits expense:  
Salaries and wages $ 468,178    $ 351,401    $ 273,326   
Variable compensation 82,391    62,106    33,067   
Payroll taxes 53,189    42,020    30,478   
Share-based payment expense 313,395    257,762    162,873   
Defined contribution plan expense 29,783    22,566    16,839   
Contractor expense 35,343    27,263    23,666   
Other 63,362    53,654    44,877   
Total employee benefits expense $ 1,045,641    $ 816,772    $ 585,126   

8. Income Tax
The major components of income tax expense for the fiscal years ended 2020, 2019 and 2018 are as follows:
  Fiscal Year Ended June 30,
  2020 2019 2018
  (U.S. $ in thousands)
Current income tax:    
Current income tax charge $ (25,715)   $ (15,788)   $ (1,956)  
Adjustments in respect of current income tax of previous years 1,276    (361)   (48)  
Deferred tax:
Benefit (expense) relating to origination and reversal of temporary differences 18,702    30,417    (19,934)  
Adjustments in respect of temporary differences of previous years 1,292    (46,333)   (33,363)  
Income tax expense $ (4,445)   $ (32,065)   $ (55,301)  

A reconciliation between income tax expense and the product of accounting loss multiplied by the U.K.'s domestic tax rate for the fiscal years ended 2020, 2019 and 2018, is as follows:
F-34


  Fiscal Year Ended June 30,
  2020 2019 2018
  (U.S. $ in thousands)
Loss before income tax expense $ (346,209)   $ (605,556)   $ (58,131)  
At the United Kingdom's statutory income tax rate of 19% in fiscal years 2020, 2019 and 2018
65,688    115,031    12,508   
Tax effect of amounts that are not taxable (deductible) in calculating taxable income:
Research and development incentive 6,816    660    2,620   
Non-deductible charges relating to exchangeable senior notes (80,262)   (104,445)   (3,195)  
Share-based payment (10,619)   (3,729)   (11,199)  
Foreign tax credits not utilized (93)   —    —   
Foreign tax paid 4,765    —    —   
Amortization of intangible assets that do not give rise to deferred taxes —    (4)   (31)  
Foreign tax rate adjustment 1,416    1,685    (4,968)  
Adjustment to deferred tax balance 8,835    6,337    (14,602)  
Other items, net (3,559)   (906)   (3,023)  
(7,013)   14,629    (21,890)  
Adjustments in respect to current income tax of previous years 1,276    (361)   (48)  
Adjustments in respect to deferred income tax of previous years 1,292    (46,333)   (33,363)  
Income tax expense $ (4,445)   $ (32,065)   $ (55,301)  

F-35


Details of deferred taxes, recognized and unrecognized:
  Consolidated Statements of
Financial Position
Consolidated Statements of Operations
 
  As of June 30, Fiscal Year Ended June 30,
  2020 2019 2020 2019
  (U.S. $ in thousands)
Depreciation for tax purposes $ 500    $ 35    $ 465    $ (2,564)  
Provisions, accruals and prepayments 152    (454)   240    (7,164)  
Deferred revenue 697    (3,073)   3,775    (23,932)  
Unrealized foreign currency exchange gains (1,414)   (428)   (986)   (101)  
Unrealized investment losses (gains) (26,133)   (8,213)   421    (405)  
Carried forward tax losses (gains) 5,893    2,034    3,430    (409)  
Carried forward tax credits—credited to profit and loss 3,571    2,452    1,055    (3,005)  
Intangible assets 17,538    9,943    9,445    13,095   
Tax benefit from share plans—income 1,012    551    459    331   
Tax benefit (expense) from share plans—equity 1,230    889    (91)   300   
Deferred foreign taxes —    —    —    10,605   
Other, net 1,001    (524)   1,781    (2,667)  
Deferred tax benefit (expense) —    —    $ 19,994    $ (15,916)  
Deferred tax assets, net $ 4,047    $ 3,212   
Reflected in the consolidated statements of financial position as follows:      
Deferred tax assets $ 35,351    $ 17,084       
Deferred tax liabilities (31,304)   (13,872)      
Deferred tax assets, net $ 4,047    $ 3,212       
Items for which no deferred tax asset has been recognized:        
Depreciation and amortization for tax purposes 7,197    4,804   
Provisions, accruals and prepayments 19,561    13,421   
Deferred revenue 45,874    37,342   
Unrealized foreign currency exchange gains 92    —   
Unused tax losses 616,667    401,108   
Intangible assets 1,818,086    1,963,534   
Tax benefit from share plans- income 54,066    45,849   
Tax benefit from share plans- equity 89,151    109,061   
Capital loss 1,291    1,391   
Carried forward tax credits- credited to profit and loss 70,259    47,537   
Unrealized loss on investments —    1,076   
Other, net 10,787    10,610   
$ 2,733,031    $ 2,635,733   

F-36


  2020 2019
  (U.S. $ in thousands)
Reconciliation of deferred tax assets, net  
Balance at the beginning of $ 3,212    $ 47,060   
Deferred tax expense for the year 19,994    (15,916)  
Debited to equity (17,867)   (8,884)  
Impact from business combinations (1,401)   (19,092)  
Currency revaluation impact 109    44   
Balance at the end of $ 4,047    $ 3,212   
In June 2019, as a result of the Group’s assessment of the realizability of its Australian deferred tax assets, the Group recorded non-cash charges to tax expense of $54.7 million. The assessment of the realizability of the Australian and U.S. deferred tax assets is based on all available positive and negative evidence. Such evidence includes, but is not limited to, recent cumulative earnings or losses, expectations of future taxable income by taxing jurisdiction, and the carry-forward periods available for the utilization of deferred tax assets. The Group will continue to assess and record any necessary changes to align its deferred tax assets to their realizable value.
The impact on the net deferred tax asset from business combinations of $19.1 million in fiscal year 2019 represents the net deferred tax assets and liabilities recognized as a result of the acquisition of OpsGenie. The Group acquired net operating loss carryforward deferred tax assets of approximately $1.8 million from OpsGenie. The Group also recognized deferred tax liabilities of approximately $19.6 million primarily related to acquired intangibles from OpsGenie, the amortization of which will not be deductible from future taxable profits.
The Group recognizes certain amounts directly in equity including current tax benefits related to tax deductions in excess of cumulative book expense for share based payment awards, deferred tax benefits related to revaluing its deferred tax assets for share based payment awards to fair market value at each reporting date, and deferred tax expense or benefit related to unrealized gains and losses that are recorded in other comprehensive income.
2020 2019
(U.S. $ in thousands)
Amounts recognized directly in equity:  
Net deferred tax—debited directly to equity $ (17,867)   $ (8,884)  
The Group has the following losses and credits available for offsetting future profit and taxes:
Expiration Amount carried forward Amount recognized as of June 30, 2020
U.S. net operating loss (Pre - 2017 Tax Reform) June 30, 2031 - December 30, 2038 $ 126,612    $ 384   
U.S. net operating loss (Post - 2017 Tax Reform) None 2,598,427    5,122   
State net operating loss- various states June 30, 2024 - June 30, 2040 774,308    422   
U.S. research and development credits June 30, 2030 - June 30, 2040 49,848    468   
State research and development credits- California None 20,621    175   
State research and development credits- Texas June 30, 2036 - June 30, 2040 2,923    2,923   
Australia capital loss None 4,637    —   
State enterprise zone credits June 30, 2020 - June 30, 2024 436     

F-37


9. Trade Receivables
The Group’s trade receivables consisted of the following:
As of June 30,
  2020 2019
  (U.S. $ in thousands)
Gross trade receivables $ 113,175    $ 83,044   
Expected credit loss allowance (1,156)   (519)  
Total trade receivables $ 112,019    $ 82,525   
As of June 30, 2020, one customer represented 11% of the total trade receivables balance. As of June 30, 2019, two customers represented 13% and 13% of the total trade receivables balance, respectively.
Expected Credit Loss Allowance
The movements in the ECL allowance were as follows:
  (U.S. $ in thousands)
As of June 30, 2018 $ 629   
Change in estimate (110)  
As of June 30, 2019 $ 519   
Change in estimate 637   
As of June 30, 2020 $ 1,156   
The following table sets forth the information about the credit risk exposure on the Group's trade receivables using a provision matrix:
Past due days
Current < 90 days > 90 days Total
(U.S. $ in thousands except ECL rate)
As of June 30, 2020
ECL rate 0.5  % 4.1  % 52.9  %
Trade receivables carrying amount 105,585    6,858    732    113,175   
ECL allowance 489    280    387    1,156   
As of June 30, 2019
ECL rate —    —    43.3  %
Trade receivables carrying amount 71,883    9,961    1,200    83,044   
ECL allowance —    —    519    519   
For the purpose of the provision matrix, customers are clustered into different risk classes, mainly based on past due days of trade receivables. We also consider market information such as the country risk assessment of their country of origin, type of industry and objective evidence of credit impairment for individual receivables. Loss rates used to reflect lifetime ECL are based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
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10. Property and Equipment
Property and equipment, net consisted of the following:
  Equipment Computer
Hardware
and Software
Furniture
and Fittings
Leasehold
Improvements and Other
Construction in progress Total
  (U.S. $ in thousands)
As of June 30, 2019
Opening cost balance $ 5,224    $ 9,147    $ 11,031    $ 61,456    $ —    $ 86,858   
Additions 3,460    1,911    4,268    33,838    —    43,477   
Disposals (829)   (514)   (689)   (5,339)   —    (7,371)  
Effect of change in exchange rates     (4)   83    —    85   
Closing cost balance 7,857    10,548    14,606    90,038    —    123,049   
Opening accumulated depreciation (3,064)   (6,830)   (3,895)   (21,413)   —    (35,202)  
Depreciation expense (1,336)   (1,476)   (2,031)   (8,604)   —    (13,447)  
Disposals 741    498    493    5,339    —    7,071   
Effect of change in exchange rates   —      (18)   —    (12)  
Closing accumulated depreciation (3,658)   (7,808)   (5,428)   (24,696)   —    (41,590)  
Net book amount $ 4,199    $ 2,740    $ 9,178    $ 65,342    $ —    $ 81,459   
As of June 30, 2020
Opening cost balance $ 7,857    $ 10,548    $ 14,606    $ 90,038    $ —    $ 123,049   
Adjustment due to IFRS 16 adoption —    —    —    (2,767)   —    (2,767)  
Additions 1,967    1,825    5,190    17,608    10,985    37,575   
Disposals (118)   (289)   (105)   (1,116)   —    (1,628)  
Effect of change in exchange rates (54)   (19)   (4)   (663)   276    (464)  
Closing cost balance 9,652    12,065    19,687    103,100    $ 11,261    155,765   
Opening accumulated depreciation (3,658)   (7,808)   (5,428)   (24,696)   —    (41,590)  
Adjustment due to IFRS 16 adoption —    —    —    1,521    —    1,521   
Depreciation expense (2,077)   (1,096)   (3,000)   (13,563)   —    (19,736)  
Disposals 104    289    39    1,116    —    1,548   
Effect of change in exchange rates 13        122    —    140   
Closing accumulated depreciation (5,618)   (8,611)   (8,388)   (35,500)   —    (58,117)  
Net book amount $ 4,034    $ 3,454    $ 11,299    $ 67,600    $ 11,261    $ 97,648   
The Company had disposals of property and equipment in 2020 and 2019, with a net carrying amount of $0.1 million and $0.3 million, respectively. Construction in progress is related to development costs associated with additional office space in Sydney, Australia.
11. Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill amounts are not amortized, but rather tested for impairment at least annually during the fourth quarter, or when indicators of impairment exist.
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Goodwill consisted of the following:
  Goodwill
  Note (U.S. $ in thousands)
Balance as of June 30, 2018 $ 311,943   
Additions 13 297,010   
Effect of change in exchange rates (46)  
Balance as of June 30, 2019 $ 608,907   
Additions 13 36,261   
Effect of change in exchange rates (28)  
Balance as of June 30, 2020 $ 645,140   
Additions to goodwill during fiscal year 2020 were as a result of the acquisition of Code Barrel Pty Ltd (“Code Barrel”), Halp, Inc. (“Halp”) and net working capital adjustments related to the acquisition of AgileCraft LLC (“AgileCraft”). See Note 13, “Business combinations” for additional information regarding acquisitions.
Impairment test for goodwill
The Group operates as a single operating segment and the Group performs the goodwill impairment test at the level of its operating segment as there are no lower levels within the Group at which goodwill is monitored. The recoverable amount of goodwill was assessed by comparing the market capitalization of the Group to its book value, among other qualitative factors, when reviewing for impairment. There was no impairment of goodwill during the fiscal years ended 2020, 2019 and 2018.

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Intangible assets
Intangible assets consisted of the following:
  Patents,
Trademarks
and Other
Rights
Acquired Developed Technology Customer
Relationships
Total
  (U.S. $ in thousands)
As of June 30, 2019        
Opening cost balance $ 21,745    $ 137,050    $ 58,684    $ 217,479   
Additions 5,550    72,589    67,168    145,307   
Disposals —    (12,443)   —    (12,443)  
Effect of change in exchange rates —    (103)   —    (103)  
Closing cost balance 27,295    197,093    125,852    350,240   
Opening accumulated amortization (10,032)   (101,971)   (41,899)   (153,902)  
Amortization charge (7,796)   (27,990)   (21,015)   (56,801)  
Disposals —    11,365    —    11,365   
Effect of change in exchange rates —    73    —    73   
Closing accumulated amortization (17,828)   (118,523)   (62,914)   (199,265)  
Net book amount $ 9,467    $ 78,570    $ 62,938    $ 150,975   
As of June 30, 2020        
Opening cost balance $ 27,295    $ 197,093    $ 125,852    $ 350,240   
Additions 500    18,100    2,650    21,250   
Disposals —    (449)   —    (449)  
Closing cost amount 27,795    214,744    128,502    371,041   
Opening accumulated amortization (17,828)   (118,523)   (62,914)   (199,265)  
Amortization charge (5,377)   (29,072)   (8,086)   (42,535)  
Disposals —    449    —    449   
Closing accumulated amortization (23,205)   (147,146)   (71,000)   (241,351)  
Net book amount $ 4,590    $ 67,598    $ 57,502    $ 129,690   
As of June 30, 2020, no development costs have qualified for capitalization, and all development costs have been expensed as incurred.
As of June 30, 2020, the remaining amortization period for patents, trademarks and other rights ranged from one year to eleven years. The remaining amortization period for acquired developed technology ranged from approximately one year to five years. The remaining amortization period for customer relationships ranged from two years to eight years.
12. Leases
The Group leases various offices in locations including, Sydney, Australia; the San Francisco Bay Area, California, New York, New York, Austin, Texas, and Boston, Massachusetts, in the United States; Amsterdam, the Netherlands; Manila, the Philippines; Bengaluru, India; Yokohama, Japan; and Ankara, Turkey under leases expiring within one to nine years. The leases have varying terms, escalation clauses and renewal rights. On renewal, the terms of the leases are renegotiated. We do not assume renewals in our determination of the lease term unless the renewals are deemed to be reasonably assured at lease commencement. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants.


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The following table sets forth the carrying amounts of our right-of-use assets and lease obligations and the movements during the fiscal year ended June 30, 2020:
Office Leases
Right-of-Use Assets Lease Obligations
(U.S. $ in thousands)
As of July 1, 2019 $ 241,421    $ 285,973   
Additions 14,270    13,213   
Disposals (2,388)   (2,388)  
Depreciation expense (35,127)   —   
Interest expense —    7,702   
Payments —    (38,125)  
Effect of change in exchange rates (493)   (1,807)  
As of June 30, 2020 $ 217,683    $ 264,568   
Lease obligations, current $ 34,743   
Lease obligations, non-current 229,825   
Total lease obligations, as of June 30, 2020 $ 264,568   
During the fiscal year ended June 30, 2020, we recognized expense from short-term leases and low value leases of $2.0 million and $0.3 million, respectively. Total cash outflows for leases were $42.5 million, including cash outflows of $30.4 million for the principal portion of the lease obligations, $7.7 million for the interest portion of the lease obligations and $4.4 million for short-term leases and low value leases.
As of June 30, 2020, we have entered into leases with future lease payments of $94.2 million that have not yet commenced and are not yet recorded on our consolidated statements of financial position. These leases will commence between 2020 and 2022 with non-cancelable lease terms of 2 to 12 years.
Supplemental information for comparative periods
As of June 30, 2019, prior to the adoption of IFRS 16, future minimum payments under operating leases having initial or remaining non-cancelable lease terms in excess of one year were as follows:
Operating Leases
(U.S. $ in thousands)
Fiscal Period:
Year ending 2020 $ 38,790   
Years ending 2021 - 2024 148,021   
Thereafter 144,037   
Total commitments $ 330,848   
Rent expenses under operating leases were $38.6 million and $23.6 million during the fiscal year ended June 30, 2019 and 2018, respectively.
13. Business combinations
Fiscal Year 2020
Code Barrel
On October 15, 2019, we acquired 100% of the outstanding equity of Code Barrel, a workflow automation tool for Jira. Total purchase price consideration for Code Barrel was approximately $39.1 million in cash. In addition, the Company granted $27.0 million worth of restricted shares of the Company to key employees of Code Barrel, which are subject to future vesting provisions based on service conditions and accounted for as share based compensation.
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Code Barrel is the creator of ‘Automation for Jira,’ a tool for easily automating several aspects of Jira. The acquisition of Code Barrel enhances Jira by helping customers automate more of the time-consuming and error-prone tasks in Jira. We have included the financial results of Code Barrel in our consolidated financial statements from the date of acquisition, which have not been material. Pro forma results of operations have not been presented for the twelve months ended June 30, 2020 because the effect of the acquisition was not material to the financial statements.
The following table summarizes the preliminary estimated fair values of assets acquired and liabilities assumed as of the date of acquisition:
Fair Value
(U.S. $ in thousands)
Cash and cash equivalents $ 1,970   
Intangible assets 15,900   
Goodwill 23,124   
Trade and other payables (617)  
Deferred revenue (600)  
Deferred tax liabilities (639)  
Net assets acquired $ 39,138   
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The goodwill balance is primarily attributed to the assembled workforce and expanded market opportunities. The goodwill balance is deductible in Australia and not deductible in the U.S. for income tax purposes. The fair values assigned to tangible assets acquired, liabilities assumed and identifiable intangible assets were based on management’s estimates and assumptions. The deferred tax liabilities were primarily a result of the difference in the book basis and tax basis related to the identifiable intangible assets.
The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition:
Fair Value Useful Life
(U.S. $ in thousands) (years)
Developed technology $ 13,700    4
Customer relationships 1,800    3
Trade name 400    1
Total intangible assets subject to amortization $ 15,900   
The amount recorded for developed technology represents the estimated fair value of Code Barrel’s workflow automation technology. The amount recorded for customer relationships represents the fair value of the underlying relationships with Code Barrel’s customers. The amount recorded for trade name represents the fair value of Code Barrel’s brand recognition as of acquisition date.
Halp
On May 11, 2020, we acquired 100% of the outstanding equity of Halp, a message-based conversational help desk ticketing solution. Total purchase price consideration for Halp was approximately $17.6 million, which consisted of approximately $17.0 million in cash and $0.6 million in fair value of replacement shares attributable to service provided prior to acquisition. The Company issued 9,929 replacement shares and the fair value of the replacement shares was based on grant date stock price of the Company. In addition, the Company granted $4.1 million worth of restricted shares of the Company to key employees of Halp, which are subject to future vesting provisions based on service conditions and accounted for as share based compensation.
The Group acquired Halp to provide customers a standalone solution that allows them to turn their internal messaging tool into a help desk. For customers using Jira Service Desk or similar service management tools, Halp integrates their messaging tool seamlessly with their established workflows. The Group has included the financial results of Halp in its consolidated financial statements from the date of acquisition, which have not been material to date. Pro forma results of operations have not been presented for the twelve months ended June 30, 2020 because the effect of the acquisition was not material to the financial statements.
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The following table summarizes the preliminary estimated fair values of assets acquired and liabilities assumed as of the date of acquisition:
Fair Value
(U.S. $ in thousands)
Cash and cash equivalents $ 664   
Trade receivables 36   
Prepaid expenses and other current assets 22   
Deferred tax assets 475   
Intangible assets 5,350   
Goodwill 12,322   
Deferred revenue (50)  
Deferred tax liabilities (1,237)  
Net assets acquired $ 17,582   
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The goodwill balance is primarily attributed to the assembled workforce and expanded market opportunities. The goodwill balance is not deductible for income tax purposes. The fair values assigned to tangible assets acquired, liabilities assumed and identifiable intangible assets were based on management’s estimates and assumptions. The fair value of acquired receivables approximates the gross contractual amounts receivable.
The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition:
Fair Value Useful Life
(U.S. $ in thousands) (years)
Developed technology $ 4,400    6
Customer relationships 850    6
Trade name 100    1
Total intangible assets subject to amortization $ 5,350   
The amount recorded for developed technology represents the estimated fair value of Halp’s message-based help desk ticketing technology. The amount recorded for customer relationships represents the fair value of the underlying relationships with Halp’s customers. The amount recorded for trade name represents the fair value of Halp’s brand recognition as of the acquisition date.
The Group’s purchase price allocations are preliminary and subject to revision as additional information existing as of the acquisition date but unknown to us may become available within the respective measurement period (up to one year from the respective acquisition date). The primary areas of the purchase price allocation that are not yet finalized are identification of contingencies.
Fiscal Year 2019
AgileCraft
On April 3, 2019, we acquired 100% of the outstanding equity of AgileCraft, a leading provider of enterprise agile planning software. Total purchase price consideration for AgileCraft was approximately $156.6 million, which consisted of approximately $154.9 million in cash and $1.7 million in fair value of replacement shares attributable to service provided prior to acquisition. The Company issued 24,173 replacement shares and the fair value of the replacement shares was based on grant date stock price of the Company. In addition, the Company granted $12.5 million worth of restricted shares of the Company to key employees of AgileCraft, which are subject to future vesting provisions based on service conditions and accounted for as share based compensation.
The Group acquired AgileCraft to complement its current product offerings and to help enterprise organizations build and manage a ‘master plan’ of their most strategic projects and workstreams. The Group has included the financial results of AgileCraft in its consolidated financial statements from the date of acquisition, which have not been material to date. Pro forma results of operations have not been presented for the twelve months ended June 30, 2019 because the effect of the acquisition was not material to the financial statements.
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The following table summarizes the estimated fair values of assets acquired and liabilities assumed:
Fair Value
(U.S. $ in thousands)
Cash and cash equivalents $ 1,193   
Trade receivables 3,614   
Prepaid expenses and other current assets 270   
Intangible assets 52,900   
Goodwill 101,999   
Trade and other payables (1,196)  
Deferred revenue (2,230)  
Net assets acquired $ 156,550   
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The goodwill balance is primarily attributed to the assembled workforce and expanded market opportunities. The goodwill balance is deductible for income tax purposes. The fair values assigned to tangible assets acquired, liabilities assumed and identifiable intangible assets were based on management’s estimates and assumptions. The fair value of acquired receivables approximates the gross contractual amounts receivable. Critical estimates in valuing certain intangible assets and goodwill include, but are not limited to, future expected cash flows from revenues, technology migration curve and discount rates. The deferred tax liabilities were primarily a result of the difference in the book basis and tax basis related to the identifiable intangible assets. Transaction costs of $1.2 million were expensed as incurred, which was included in general and administrative expenses.
The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition:
Fair Value Useful Life
(U.S. $ in thousands) (years)
Developed technology $ 34,600    5
Customer relationships 16,900    7
Backlog 1,400    3
Total intangible assets subject to amortization $ 52,900   
The amount recorded for developed technology represents the estimated fair value of AgileCraft’s enterprise agile planning technology. The amount recorded for customer relationships represents the fair value of the underlying relationships with AgileCraft’s customers. The amount recorded for backlog represents the fair value of AgileCraft’s backlog as of acquisition date. Measurement period adjustments, which were not material, mostly related to working capital adjustments. The purchase price allocation was finalized in fiscal year 2020.
OpsGenie
On October 1, 2018, we acquired 100% of the outstanding equity of OpsGenie, Inc., a leader in incident alerting and on-call schedule management, for cash consideration of $259.5 million. In addition, the Company granted $36.3 million worth of restricted shares of the Company to key employees of OpsGenie, which are subject to future vesting provisions based on service conditions and accounted for as share based compensation. The Group acquired OpsGenie to complement our current product offerings and enable customers to plan for and respond to IT service disruptions. The Group has included the financial results of OpsGenie in its consolidated financial statements from the date of acquisition, which have not been material to date. Pro forma results of operations have not been presented for the twelve months ended June 30, 2019 because the effect of the acquisition was not material to the financial statements.
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The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the date of acquisition:
Fair Value
(U.S. $ in thousands)
Cash and cash equivalents $ 1,232   
Trade receivables 1,933   
Prepaid expenses and other current assets 513   
Intangible assets 87,900   
Goodwill 189,727   
Trade and other payables (1,533)  
Deferred revenue (1,217)  
Deferred tax liabilities, net (19,010)  
Net assets acquired $ 259,545   
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The goodwill balance is primarily attributed to the assembled workforce and expanded market opportunities. The goodwill balance is not deductible for income tax purposes. The fair values assigned to tangible assets acquired, liabilities assumed and identifiable intangible assets were based on management’s estimates and assumptions. The fair value of acquired receivables approximates the gross contractual amounts receivable. Critical estimates in valuing certain intangible assets and goodwill include, but are not limited to, future expected cash flows from revenues, technology migration curve, customer attrition rate and discount rates. The deferred tax liabilities were primarily a result of the difference in the book basis and tax basis related to the identifiable intangible assets. Transaction costs of $1.8 million were expensed as incurred, which was included in general and administrative expenses.
The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition:
Fair Value Useful Life
(U.S. $ in thousands) (years)
Developed technology $ 35,600    5
Customer relationships 48,600    10
Trade name 3,700    5
Total intangible assets subject to amortization $ 87,900   
The amount recorded for developed technology represents the estimated fair value of OpsGenie’s incident management and alerting technology. The amount recorded for customer relationships represents the fair value of the underlying relationships with OpsGenie customers. The amount recorded for trade name represents the fair value of OpsGenie trade name. The purchase price allocation was finalized in fiscal year 2020 without further adjustment.
Other fiscal year 2019 business combinations
On April 8, 2019, the Group acquired 100% of the outstanding equity of Good Software Co. Pty Ltd (“Good Software”) for cash consideration of approximately $2.7 million. In addition, the Company granted $1.3 million worth of restricted shares of the Company to a key employee of Good Software, which are subject to future vesting provisions based on service conditions and accounted for as share based compensation. Good Software provides analytics tools for Confluence. The Company acquired Good Software to integrate the analytics tool into Confluence and to complement our current Confluence product. The purchase price was allocated to net tangible assets of $0.2 million, developed technology of $0.6 million, customer relationship of $0.3 million and goodwill of $1.6 million. The goodwill balance is primarily attributed to the assembled workforce and expanded market opportunities when integrating with Confluence. The goodwill balance is partially deductible for income tax purposes. The purchase price allocation was finalized without further adjustment.


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On December 10, 2018, the Group acquired the intangible assets of Ludable LLC related to Butler for Trello, a workflow automation tool, for cash consideration of approximately $6.0 million. In addition, the Company granted $3.5 million worth of restricted shares of the Company to the key employee of Ludable LLC, which are subject to future vesting provisions based on service conditions and accounted for as share based compensation. The transaction was accounted for as a business combination in accordance with the relevant guidance. The Company acquired the Butler for Trello assets to complement our existing Trello offerings and to help automate manual and repetitive tasks. The purchase price was allocated to developed technology of $1.5 million and goodwill of $4.5 million. The goodwill balance is primarily attributed to the assembled workforce and expanded market opportunities when integrating with Trello. The goodwill balance is deductible for income tax purposes. The purchase price allocation was finalized without further adjustment.
Fiscal Year 2018
The Group did not have any business combinations during the fiscal year ended June 30, 2018.
14. Other Balance Sheet Accounts
Cash and cash equivalents
Cash and cash equivalents consisted of the following:
As of June 30,
  2020 2019
  (U.S. $ in thousands)
Cash and bank deposits $ 823,985    $ 565,030   
Amounts due from third-party credit card processors 7,076    9,904   
U.S. treasury securities 5,599    6,996   
Corporate debt securities 27,365    7,560   
Agency securities 8,749    8,084   
Commercial paper 167,248    67,327   
Money market funds 439,947    593,696   
Certificates of deposit and time deposits —    9,844   
Total cash and cash equivalents $ 1,479,969    $ 1,268,441   
The majority of the Group’s cash and cash equivalents are held in bank deposits, money market funds and short-term investments which have a maturity of three months or less to enable us to meet our short-term liquidity requirements. Money market funds are quoted in active markets and are subject to insignificant risk of changes in value. The Group only purchases investment grade securities rated A- and above, which are highly liquid and subject to insignificant risk of changes in value.
Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following:
As of June 30,
  2020 2019
  (U.S. $ in thousands)
Prepaid expenses $ 31,527    $ 23,588   
Accrued interest income on short-term investments 3,329    3,072   
Other receivables 11,305    1,977   
Other current assets 569    1,599   
Total prepaid expenses and other current assets $ 46,730    $ 30,236   

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Other non-current assets
Other non-current assets consisted of the following:
As of June 30,
  2020 2019
  (U.S. $ in thousands)
Marketable equity securities $ 100,187    $ 58,932   
Non-marketable equity securities 3,750    3,000   
Security deposits 4,873    5,010   
Restricted cash 9,174    7,078   
Other 6,790    2,702   
Total other non-current assets $ 124,774    $ 76,722   
As of June 30, 2020 and 2019, the Group had certificates of deposit and time deposits totaling $3.3 million and $3.7 million, respectively, which were classified as long-term and were included in security deposits. The Group’s restricted cash was primarily used for commitments of standby letters of credit related to facility leases and was not available for the Group’s use in its operations.
Trade and other payables
Trade and other payables consisted of the following:
As of June 30,
  2020 2019
  (U.S. $ in thousands)
Trade payables $ 30,738    $ 24,993   
Accrued expenses 76,358    53,802   
Accrued compensation and employee benefits 72,627    54,507   
Sales and indirect taxes 9,009    9,158   
Customer deposits 7,897    7,943   
Other payables 5,941    7,471   
Operating lease payable —    1,613   
Total trade and other payables $ 202,570    $ 159,487   
Current provisions
Current provisions consisted of the following:
As of June 30,
  2020 2019
  (U.S. $ in thousands)
Employee benefits $ 14,291    $ 8,983   
Current provisions for employee benefits include accrued annual leave, long service leave and retention benefits. Long service leave covers all unconditional entitlements where employees have completed the required period of service and those where employees are entitled to pro rata payments.
Non-current provisions
Non-current provisions consisted of the following:
As of June 30,
  2020 2019
  (U.S. $ in thousands)
Employee benefits $ 6,036    $ 3,323   
Dilapidation provision 3,457    2,759   
Total non-current provisions $ 9,493    $ 6,082   
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The non-current provision for employee benefits includes long service leave and retention benefits as described above.
The dilapidation provision relates to certain lease arrangements for office space entered into by the Group. These lease arrangements require the Group to restore each premises to its original condition upon lease termination. Accordingly, the Group records a provision for the present value of the estimated future costs to retire right-of-use assets at the expiration of these leases.
Other non-current liabilities
Other non-current liabilities consisted of the following:
As of June 30,
  2020 2019
  (U.S. $ in thousands)
Deferred rent —    33,845   
Other 2,173    418   
Total other non-current liabilities $ 2,173    $ 34,263   

15. Revenue
Deferred revenues
We record deferred revenues when cash payments are received or due in advance of our performance, including refundable amounts. The increase in the deferred revenue balance for the twelve months ended June 30, 2020 is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $441.0 million of revenues recognized that were included in the deferred revenue balance as of June 30, 2019. Acquisitions contributed $0.7 million to the increase in deferred revenue balance (for more information, see Note 13, “Business combinations”).
Transaction price allocated to remaining performance obligations
Transaction price allocated to the remaining performance obligations represents contracted revenue that has not yet been recognized, which includes unearned revenue and unbilled amounts that will be recognized as revenue in future periods. Transaction price allocated to the remaining performance obligations is influenced by several factors, including the timing of renewals, the timing of delivery of software licenses, average contract terms, and foreign currency exchange rates. Unbilled portions of the remaining performance obligations are subject to future economic risks including bankruptcies, regulatory changes and other market factors.
As of June 30, 2020, approximately $639.4 million of revenue is expected to be recognized from transaction price allocated to remaining performance obligations. We expect to recognize revenue on approximately 92% of these remaining performance obligations over the next 12 months with the balance recognized thereafter. 
Disaggregated revenue
Marketplace apps revenue totaled approximately $103.5 million, $77.4 million and $53.1 million for the fiscal years ended 2020, 2019, and 2018, respectively, which is included in other revenue.
The Group’s revenues by geographic region based on end-users who purchased our products or services are as follows:
  Fiscal Year Ended June 30,
  2020 2019 2018
  (U.S. $ in thousands)
Americas $ 802,499    $ 603,959    $ 439,363   
EMEA 633,735    474,712    347,509   
Asia Pacific 177,939    131,456    94,106   
Total revenues $ 1,614,173    $ 1,210,127    $ 880,978   
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Revenues from the United States totaled approximately $700.9 million, $528.8 million, and $386.0 million for the fiscal years ended 2020, 2019, and 2018, respectively. Revenues from our country of domicile, the United Kingdom, totaled approximately $110.9 million, $86.0 million, and $63.0 million for the fiscal years ended 2020, 2019, and 2018, respectively. No one customer has accounted for more than 10% of revenue for the fiscal years ended 2020, 2019, and 2018.
16. Exchangeable Senior Notes
2023 Exchangeable Senior Notes
In April 2018, Atlassian, Inc. a wholly owned subsidiary of the Company, issued $850 million in aggregate principal amount of Notes due on May 1, 2023. In May, 2018, the initial purchasers of the Notes exercised their option to purchase an additional $150 million in aggregate principal amount of the Notes, bringing the total aggregate principal amount of the Notes to $1 billion. The Notes are senior, unsecured obligations of the Company, and are scheduled to mature on May 1, 2023, unless earlier exchanged, redeemed or repurchased. The Notes bear interest at a rate of 0.625% per year payable semiannually in arrears on May 1 and November 1 of each year, beginning on November 1, 2018. The net proceeds from the offering of the Notes were approximately $990.0 million, after deducting issuance cost.
The Notes are not exchangeable into the Company’s Class A ordinary shares or any other securities under any circumstances. Holders of the Notes may exchange their Notes solely into cash. The initial exchange rate for the Notes is 12.2663 of the Company’s Class A ordinary shares per $1,000 principal amount of Notes (equivalent to an initial exchange price of approximately $81.52 per share), subject to customary anti-dilution adjustments. Holders of the Notes may exchange, at their option, on or after February 1, 2023. Further, holders of the Notes may exchange, at their option, prior to February 1, 2023 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2018 (and only during such calendar quarter), if the last reported sale price of the Class A ordinary shares for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the exchange price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Class A ordinary shares and the exchange rate for the Notes on each such trading day; (3) if the Company calls any or all of the Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. If a fundamental change occurs holders may require the Company to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition, if specific corporate events occur prior to the maturity date or following the Company’s delivery of a notice of redemption, we will increase the exchange rate for a holder that elects to exchange its Notes in connection with such a corporate event or during the related redemption period.
The Company may redeem the Notes at its option, prior to May 1, 2023, in whole but not in part, in connection with certain tax-related events. The Company may also redeem the Notes at its option, on or after November 6, 2020, in whole or in part, if the last reported sale price per Class A ordinary share has been at least 130% of the exchange price then in effect for at least 20 trading days (whether or not consecutive), including the trading day immediately preceding the date on which the Company provides notice of redemption, during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
The exchange feature of the Notes requires bifurcation from the Notes and is accounted for as a derivative liability. The fair value of the Notes’ embedded exchange derivative at the time of issuance was $177.9 million and was recorded as original debt discount for purposes of accounting for the debt component of the Notes. This discount is amortized as interest expense using the effective interest method over the term of the Notes. The Notes embedded exchange derivative is carried on the consolidated statements of financial position at its estimated fair value and is adjusted at the end of each reporting period, with unrealized gain or loss reflected in the consolidated statements of operations. The fair value of the exchange feature derivative liability was $1,283.1 million and $851.1 million as of June 30, 2020 and 2019, respectively.
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In connection with the issuance of the Notes, the Company entered into privately negotiated capped call transactions with certain financial institutions. The aggregate cost of the capped calls was $87.7 million. The capped call transactions expire in May 2023 and must be settled in cash. The capped call can be exercised on each exchange date that the related Notes are submitted for exchange. The capped call transactions are expected to generally offset cash payments due, limited by a capped price per share. The initial cap price of the capped call transactions is $114.42 per share and is subject to certain adjustments under the terms of the capped call transactions. The capped call transactions are accounted for as derivative assets and are carried on the consolidated statements of financial position at their estimated fair value. The capped calls are adjusted to fair value each reporting period, with unrealized gain or loss reflected in the consolidated statements of operations. The fair value of capped call assets was $310.6 million and $214.6 million as of June 30, 2020 and 2019, respectively.
The current or non-current classification of the embedded exchange derivative liability and the capped calls asset corresponds with the classification of the Notes on the consolidated statements of financial position. The classification is evaluated at each balance sheet date, and may change from time to time depending on whether the exchange conditions are met. As of June 30, 2020, the closing price exchange condition has been met and the Notes, exchange derivative liability and the capped call assets are classified as current. Please refer to Note 5, “Financial Assets and Liabilities” for details on the valuation of exchange feature derivative liability and capped call assets. As of June 30, 2020, we have settled one exchange request and have received additional requests for immaterial amounts of the Notes.
The Notes including the exchangeable features are Level 2 instruments, and the fair value of the Notes was $2,234 million and $1,697 million as of June 30, 2020 and 2019, respectively.
The principal amount, unamortized debt discount, unamortized issuance costs and net carrying amount of the liability component of the Notes as of June 30, 2020 and 2019 were as follow:
As of June 30,
2020 2019
(U.S. $ in thousands)
Principal amount $ 999,999    $ 1,000,000   
Unamortized debt discount (105,963)   (140,011)  
Unamortized issuance cost (4,853)   (6,413)  
Net liability $ 889,183    $ 853,576   
The effective interest rate, contractual interest expense and amortization of debt discount for the Notes for the fiscal year ended June 30, 2020 and 2019 were as follow:
Fiscal Year Ended June 30,
2020 2019
(U.S. $ in thousands)
Effective interest rate 4.83  % 4.83  %
Contractual interest expense $ 6,250    $ 6,267   
Amortization of debt discount $ 34,048    $ 32,453   
Amortization of issuance cost $ 1,560    $ 1,486   

F-51


Reconciliation of assets and liabilities arising from financing activities:
  Capped call assets Exchangeable Notes, net Embedded exchange feature of Notes Accrued interest
  (U.S. $ in thousands)
Balance as of June 30, 2018 $ (99,932)   $ 819,637    $ 202,553    $ 1,094   
Cash flows —    —    —    (6,319)  
Amortization of debt discount and issuance cost —    33,939    —    —   
Fair value changes (114,665)   —    648,573    —   
Accrual of interest —    —    —    6,267   
Balance as of June 30, 2019 $ (214,597)   $ 853,576    $ 851,126    $ 1,042   
Cash flows —    (1)   (1)   (6,250)  
Amortization of debt discount and issuance cost —    35,608    —    —   
Fair value changes (96,011)   —    431,964    —   
Accrual of interest —    —    —    6,250   
Balance as of June 30, 2020 $ (310,608)   $ 889,183    $ 1,283,089    $ 1,042   

17. Shareholders’ Equity
Share capital
  As of June 30, As of June 30,
  2020 2019 2020 2019
  (number of shares) (U.S. $ in thousands)
Details      
Class A ordinary shares 127,685,599    117,273,566    $ 12,768    $ 11,727   
Class B ordinary shares 119,761,681    124,722,559    11,976    12,472   
247,447,280    241,996,125    $ 24,744    $ 24,199   
Movements in Class A ordinary share capital
  Number of Shares Amount
  (U.S. $ in thousands)
Details    
Balance as of June 30, 2018 105,371,800    $ 10,537   
Conversion of Class B ordinary shares 5,219,947    522   
Exercise of share options 1,496,875    150   
Issuance for settlement of RSUs 4,674,873    467   
Vesting of share options that were early exercised 510,071    51   
Balance as of June 30, 2019 117,273,566    $ 11,727   
Conversion of Class B ordinary shares 4,960,878    496   
Exercise of share options 761,945    76   
Issuance for settlement of RSUs 4,048,319    405   
Vesting of early exercised shares 640,891    64   
Balance as of June 30, 2020 127,685,599    $ 12,768   
Class A shares as of June 30, 2020 and June 30, 2019 does not include 515,697 and 911,367 shares of restricted stock outstanding, respectively, that are subject to forfeiture or repurchase.
F-52


Movements in Class B ordinary share capital
  Number of Shares Amount
  (U.S. $ in thousands)
Details    
Balance as of June 30, 2018 129,942,506    $ 12,994   
Conversion to Class A ordinary shares (5,219,947)   (522)  
Balance as of June 30, 2019 124,722,559    $ 12,472   
Conversion to Class A ordinary shares (4,960,878)   (496)  
Balance as of June 30, 2020 119,761,681    $ 11,976   
Ordinary shares
Nominal value
Ordinary shares have a nominal value of $0.10.
Conversion
If the aggregate number of Class B ordinary shares comprises less than 10% of the total shares of the Company then in issue, each Class B ordinary share will automatically convert into one Class A ordinary share.
Upon consent of at least 66.66% of the Class B ordinary shares, each Class B ordinary share will convert into one Class A ordinary share. A Class B ordinary shareholder may elect at any time to convert any of its Class B ordinary shares into Class A ordinary shares on a one-for-one basis. Upon a transfer of Class B ordinary shares to a person or entity that is not a permitted Class B ordinary share transferee as defined in the Company’s articles of association, each Class B ordinary share transferred converts into one Class A ordinary share.
Dividend rights
Any dividend declared by the Company shall be paid on the Class A ordinary shares and the Class B ordinary shares pari passu as if they were all shares of the same class.
Voting rights
Each Class A ordinary share is entitled to one vote. Each Class B ordinary share is entitled to 10 votes.
Share premium
Share premium consists of additional consideration for shares above the nominal value of shares in issue.
Other capital reserves
Capital redemption and merger reserves
The Company has capital redemption and merger reserves of $35.0 million in total at June 30, 2020, 2019 and 2018. They are comprised of a $98.0 thousand capital redemption reserve that is a non-distributable reserve arising on the redemption of redeemable shares and a $34.9 million merger reserve representing the difference between the nominal value of the shares issued by the Company in a prior reorganization and the share capital and share premium account prior to reorganization.
Share-based payments reserve
Share-based payments represent the current period’s expense related to the fair value of RSUs and share options issued to employees. Tax benefits from share plans represent the deferred tax benefit of share-based payments in excess of the expense already recognized over the life of the share-based award. The total deferred tax benefit is determined using the intrinsic value of the share-based award as at the reporting date. Issuance of ordinary shares for settlement of RSUs represents the release of ordinary shares to our employees as RSUs vest.
Cash flow hedge reserve
F-53


The change in fair value for the Group’s derivatives designated as hedging instruments are recognized in other comprehensive income and accumulated in a separate reserve within equity. The effect of the cash flow hedges determined to be effective is reclassified to the consolidated statements of operations in the same period as the hedged transactions. Gains or losses related to ineffective portion of cash flow hedges, if any, are recognized immediately to the consolidated statements of operations.
Foreign currency translation reserve
Exchange differences arising on translation of foreign subsidiaries are recognized in other comprehensive income and accumulated in a separate reserve within equity. The cumulative amount is reclassified to the consolidated statements of operations when the net investment is disposed.
Investments at fair value through other comprehensive income reserve
The change in fair value for the Group’s financial instruments classified at fair value through other comprehensive income are recognized in other comprehensive income and accumulated in a separate reserve within equity. The cumulative amount related to the Group’s debt investments is reclassified to the consolidated statements of operations upon the sale of the investment or at maturity date. In contrast, the cumulative amount related to the Group’s equity investments will remain in other comprehensive income upon the sale of the investment.
18. Earnings Per Share
Basic earnings per share is computed by dividing the net income attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding during the period. Diluted earnings per share is computed by giving effect to all potential weighted-average dilutive shares. The dilutive effect of outstanding awards is reflected in diluted earnings per share by application of the treasury stock method.
A reconciliation of the calculation of basic and diluted loss per share is as follows:
  Fiscal Year Ended June 30,
  2020 2019 2018
  (U.S. $ and shares in thousands, except per share data)
Numerator:      
Net loss attributable to ordinary shareholders: $ (350,654)   $ (637,621)   $ (113,432)  
Denominator:      
Weighted-average ordinary shares outstanding—basic 244,844    238,611    231,184   
Weighted-average ordinary shares outstanding—diluted 244,844    238,611    231,184   
Net loss per share attributable to ordinary shareholders:      
Basic net loss per share $ (1.43)   $ (2.67)   $ (0.49)  
Diluted net loss per share $ (1.43)   $ (2.67)   $ (0.49)  
For fiscal years ended June 30, 2020, 2019 and 2018, potential anti-dilutive weighted-average shares excluded from the computation of net loss per share were 6.8 million, 9.6 million and 12.8 million, respectively.
19. Commitments
The Group has contractual commitments for services with third-parties related to its cloud services platform and data centers. These commitments are non-cancellable and expire within two to three years.
Additionally, the Group has capital purchase obligations for the construction or purchase of property and equipment.
The following table sets forth commitments for purchase obligations as of June 30, 2020 and 2019:
F-54


Fiscal Year Ended June 30,
2020 2019
(U.S. $ in thousands)
Capital purchase obligations $ 9,781    $ —   
Other contractual commitments 235,002    328,320   
Total purchase obligation $ 244,783    $ 328,320   
Leasing activities are now in the scope of IFRS 16. Please refer to Note 12, “Leases” for details.
Maturities of purchase obligations as of June 30, 2020 were as follows:
  Capital purchase obligations Other contractual
commitments
Total
  (U.S. $ in thousands)
Fiscal Period:  
Year ending 2021 $ 9,781    $ 90,972    $ 100,753   
Years ending 2022 - 2023 —    144,030    144,030   
Total commitments $ 9,781    $ 235,002    $ 244,783   

20. Related Party Transactions
Key management personnel compensation
All directors and executive management have authority and responsibility for planning, directing and controlling the activities of the Group, and are considered to be key management personnel.
Compensation for the Group’s key management personnel is as follows:
  Fiscal Year Ended June 30,
  2020 2019 2018
  (U.S. $ in thousands)
Executive management:  
Short-term compensation and benefits $ 3,334    $ 3,835    $ 2,991   
Post-employment benefits 68    109    99   
Share-based payments 15,509    17,144    9,335   
$ 18,911    $ 21,088    $ 12,425   
Board of directors:      
Cash remuneration $ 455    $ 430    $ 362   
Share-based payments 1,741    1,772    1,577   
$ 2,196    $ 2,202    $ 1,939   

F-55


21. Geographic Information
The Group’s non-current operating assets by geographic regions are as follows:
Fiscal Year Ended June 30,
2020 2019
(U.S. $ in thousands)
Non-current operating assets:
United States $ 975,446    $ 819,227   
Australia 102,950    18,842   
India 10,233    9,286   
Total non-current operating assets $ 1,088,629    $ 847,355   
Non-current operating assets for this purpose consist of property and equipment, right-of-use assets, goodwill, intangible assets and other non-current assets.
22. Share-based Payments
The Group maintains three share-based employee compensation plans: the 2015 Share Incentive Plan (“2015 Plan”); the Atlassian Corporation Plc 2013 U.S. Share Option Plan (“2013 U.S. Option Plan”); and the Atlassian UK Employee Share Option Plan (together with the 2013 U.S. Option Plan, the “Option Plans”). In October 2015, the board of directors approved the 2015 Plan, and in November 2015, our shareholders adopted the 2015 Plan, effective on our IPO, and provides for the issuance of incentive and nonstatutory share options, share appreciation rights, restricted share awards, RSUs, unrestricted share awards, performance share awards, performance-based awards to covered employees, and dividend equivalent rights to qualified employees, directors and consultants. Under the 2015 Plan, a total of 20.7 million Class A ordinary shares were initially reserved for the issuance of awards, subject to automatic annual increases.
RSU grants generally vest 25% on the one year anniversary and 1/12th of the remaining RSUs vest over the remaining three years, on a quarterly basis thereafter. Performance-based RSUs have non-market performance vesting conditions. Individuals must continue to provide services to a Group entity in order to vest.
The Option Plans allowed for the issuance of options to purchase restricted shares. Effective upon our IPO, all restricted shares automatically converted to Class A ordinary shares and under the Option Plans, the shares underlying the options converted to Class A ordinary shares. Although no future awards will be granted under the Option Plans, they will continue to govern outstanding awards granted thereunder.
Under the Option Plans, share options have a contractual life of seven to ten years and typically follow a standard vesting schedule over a four year period: 25% vest on the one year anniversary and 1/48th monthly vesting for the 36 months thereafter. Individuals must continue to provide services to a Group entity in order to vest. Upon termination, all unvested options are forfeited and vested options must generally be exercised within three months.
F-56


RSU and Class A ordinary share option activity was as follows:
Share Options
Shares
Available
for Grant
Outstanding Weighted
Average
Exercise
Price
RSUs
Outstanding
Balance as of June 30, 2018 30,600,215    2,723,182    $ 2.41    9,602,673   
Increase in shares authorized:
2015 Plan 11,807,109    —    —    —   
RSUs granted (5,397,681)   —    —    5,397,681   
RSUs canceled 1,113,870    —    —    (1,113,870)  
RSUs settled —    —    —    (4,674,873)  
Share options exercised —    (1,496,875)   2.37    —   
Share options canceled 5,481    (5,481)   0.65    —   
Balance as of June 30, 2019 38,128,994    1,220,826    2.47    9,211,611   
Increase in shares authorized:
RSUs granted (3,083,015)   —    —    3,083,015   
RSUs canceled 874,564    —    —    (874,564)  
RSUs settled —    —    —    (4,048,319)  
Share options exercised —    (761,945)   2.37    —   
Share options canceled 707    (707)   1.03    —   
Balance as of June 30, 2020 35,921,250    458,174    $ 2.65    7,371,743   
Share options vested and exercisable as of June 30, 2020 457,663    $ 2.65   
Share options vested and exercisable as of June 30, 2019 1,027,372    $ 2.55   
During fiscal year ended 2019, the Company added 11,807,109 Class A ordinary shares to the pool of shares available for issuance, pursuant to an evergreen provision contained in the 2015 Plan.
The weighted-average remaining contractual life for options outstanding as of both fiscal year end, June 30, 2020 and 2019, were 3.6 years. Options exercisable as of June 30, 2020 and 2019, had a weighted-average remaining contractual life of approximately 3.6 years and 3.2 years, respectively.
The following table summarizes information about share options outstanding as of June 30, 2020:
  Options Outstanding Options Exercisable
Range of
Exercise Prices
Number
Outstanding
Weighted
Average
Exercise
Price
Number
Exercisable
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Years
$0.59 - 0.66
78,563    $ 0.62    78,563    $ 0.62    4.86   
$1.14 21,024    1.14    20,513    1.14    6.07   
$3.18 358,587    3.18    358,587    3.18    3.23   
  458,174    $ 2.65    457,663    $ 2.65    3.64   

F-57


The following table summarizes information about share options outstanding as of June 30, 2019:
  Options Outstanding Options Exercisable
Range of
Exercise Prices
Number
Outstanding
Weighted-
Average
Exercise
Price
Number
Exercisable
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Years
$0.59 - 0.66
196,206    $ 0.63    143,346    $ 0.62    5.83   
$1.14 65,107    1.14    20,868    1.14    7.07   
$1.92 - 2.16
17,828    2.09    17,828    2.09    0.45   
$2.40 - 2.92
299,613    2.47    299,613    2.47    0.86   
$3.18 642,072    3.18    545,717    3.18    3.81   
  1,220,826    $ 2.47    1,027,372    $ 2.55    3.24   
All share-based payments are measured based on the grant date fair value of the awards and recognized in the consolidated statements of operations over the period during which the employee is required to perform services in exchange for the award (generally the four-year vesting period of the award).
The weighted-average grant date fair value of the RSUs issued during the fiscal years ended June 30, 2020 and 2019 was $139.2 and $83.90 per share, respectively. There were no share options granted during the fiscal year ended June 30, 2020 and 2019.
As of June 30, 2020, the Group had an aggregate of $328.6 million of future period share-based payment expense related to all equity awards outstanding, net of estimated forfeitures, to be amortized over a weighted-average remaining period of 1.4 years.
Restricted stock
During the fiscal year 2020 and 2019, the Company granted 245,221 and 593,567 shares of restricted stock that were subject to forfeiture, respectively. The weighted average grant fair value date of these restricted shares was $135.64 and $98.72, respectively. As of June 30, 2020 and 2019, there were 515,697 and 911,367 shares of restricted stock outstanding, respectively. These outstanding shares of restricted stock are subject to forfeiture or repurchase at the original exercise price during the repurchase period following employee termination, as applicable.
23. Events after the reporting period
In July 2020, we acquired Mindville AB, an asset and configuration management company based in Sweden. With the acquisition of Mindville, Atlassian brings critical configuration management database capability to Jira Service Desk to better meet the needs of its IT customers. The consideration is comprised of approximately $36 million in cash. We are in the process of finalizing the intangible assets valuation and acquisition price allocation.
F-58
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