Atlassian Corporation Plc - Form 6-K Summary
Business Context and Reporting Period
This filing covers the quarterly period ended December 31, 2018, and the six months ended on that date. Atlassian Corporation Plc is a UK-incorporated foreign private issuer providing collaboration and project management software (Jira, Confluence, Trello, Bitbucket). The financial statements are prepared under IFRS and reflect the full retrospective adoption of IFRS 15 (Revenue from Contracts with Customers) effective July 1, 2018. The company operates a high-velocity, low-friction online distribution model with a significant focus on cloud-based subscriptions.
Key Financial Metrics
| Metric | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2018 |
|---|---|---|
| Total Revenues | $298.98 million | $566.27 million |
| Gross Profit | $249.20 million (83% margin) | $471.30 million (83% margin) |
| Operating Loss | ($3.17 million) | ($3.36 million) |
| Net Income (Loss) | $45.19 million | ($197.26 million) |
| Diluted EPS | $0.18 | ($0.83) |
| Free Cash Flow | $122.63 million | $196.84 million |
| Cash & Equivalents | $1.34 billion | $1.34 billion |
| Exchangeable Senior Notes (Carrying Value) | $836.40 million | $836.40 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 39% year-over-year for the quarter and 38% for the six-month period. Subscription revenue grew 56% (quarter) and 56% (six months), driven by existing customer expansion and new cloud adoptions.
- Profitability Volatility: While the company reported a net income of $45.2 million for the quarter, it reported a net loss of $197.3 million for the six months. This volatility is primarily due to non-cash mark-to-market adjustments on the embedded exchange feature of the $1 billion Exchangeable Senior Notes and related capped call transactions.
- Operating Expenses: Operating expenses increased significantly (37% for the quarter) due to investments in R&D, marketing (including campaigns for the Opsgenie acquisition), and increased share-based compensation ($60.5 million for the quarter).
- Acquisitions: The company acquired Opsgenie for $259.5 million in cash plus restricted shares in October 2018, and Butler for Trello for approximately $6.0 million in December 2018.
Outlook, Risks, and Unusual Items
- Unusual Items: The six-month net loss was heavily impacted by a $205.0 million non-cash loss related to the mark-to-fair-value of the Notes' exchange feature and capped call transactions. Excluding these items, Non-IFRS net income for the six months was $110.9 million.
- Guidance: Management does not provide specific forward-looking financial guidance but anticipates continued investment in R&D, global expansion, and cloud infrastructure. They expect operating expenses to increase in absolute dollars.
- Key Risks:
- Competition: Intense competition from Microsoft, Google, and Salesforce.
- Cloud Transition: Risks associated with shifting revenue recognition from perpetual licenses to subscription models, which may lower near-term revenue growth rates.
- Regulatory: Compliance with GDPR and evolving global data privacy laws.
- Notes Hedging: Continued volatility in reported earnings due to the accounting treatment of the exchangeable senior notes and capped call transactions.
Investor Verification Checklist
- Non-IFRS Reconciliation: Verify the reconciliation of IFRS net loss to Non-IFRS net income to understand core operational performance excluding the Notes' mark-to-market volatility.
- Deferred Revenue: Review the $457.6 million in transaction price allocated to remaining performance obligations to assess future revenue visibility.
- Share-Based Compensation: Confirm the $232.2 million of future share-based payment expense remaining to be amortized over 1.3 years.
- Customer Metrics: Validate the growth in total customers (138,235 as of Dec 31, 2018) and the rate of conversion from free to paid users.
- Debt Structure: Review the terms of the $1 billion Exchangeable Senior Notes, specifically the exchange price ($81.52) and the capped call strike price ($114.42), to understand potential dilution or cash settlement scenarios.