Atlassian Corporation Plc - Form 6-K Summary (Quarter Ended March 31, 2019)
Business Context and Reporting Period
This Form 6-K reports the unaudited consolidated financial results for Atlassian Corporation Plc for the three and nine months ended March 31, 2019. Atlassian is a UK-incorporated foreign private issuer providing collaboration and productivity software (Jira, Confluence, Trello, Bitbucket, etc.) primarily through a self-service, cloud-based subscription model. The financial statements reflect the full retrospective adoption of IFRS 15 (Revenue from Contracts with Customers) effective July 1, 2018.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Mar 31, 2019 | 3 Months Ended Mar 31, 2018 (Adj) | 9 Months Ended Mar 31, 2019 | 9 Months Ended Mar 31, 2018 (Adj) |
|---|---|---|---|---|
| Total Revenues | $309,270 | $224,330 | $875,541 | $634,388 |
| Gross Profit | $255,081 | $179,090 | $726,385 | $505,894 |
| Gross Margin | 82% | 80% | 83% | 80% |
| Operating Loss | $(27,557) | $(10,276) | $(30,918) | $(43,578) |
| Net Loss (IFRS) | $(202,844) | $(15,823) | $(400,104) | $(91,502) |
| Net Loss Per Share (Diluted) | $(0.85) | $(0.07) | $(1.68) | $(0.40) |
| Free Cash Flow | $127,145 | $86,383 | $323,987 | $216,846 |
| Cash & Equivalents (End of Period) | $1,445,284 | $393,513 | $1,445,284 | $393,513 |
Note: 2018 figures are adjusted for IFRS 15 adoption. Non-IFRS Net Income for the nine months ended March 31, 2019, was $163.3 million.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 38% year-over-year for both the three and nine-month periods. Subscription revenue grew 57% (3-month) and 56% (9-month), driven by existing customer expansion and new cloud adoptions.
- Operating Expenses: Operating expenses increased significantly due to strategic investments. Research and Development (R&D) rose 41% (3-month) and 34% (9-month). General and Administrative (G&A) expenses surged 83% (3-month) and 47% (9-month), largely due to increased share-based compensation and professional fees related to acquisitions.
- Net Loss Volatility: The reported IFRS net loss widened substantially compared to the prior year. This is primarily attributable to a non-cash mark-to-market loss of $172.6 million (3-month) and $377.6 million (9-month) related to the embedded exchange feature of the $1 billion Exchangeable Senior Notes and related capped call transactions.
- Acquisitions: The company acquired Opsgenie (Oct 2018) and Butler for Trello (Dec 2018), adding $194.2 million to goodwill and $90.3 million to intangible assets.
Guidance, Outlook, and Risks
- Outlook: Management expects to continue investing in R&D, cloud infrastructure, and global expansion. They anticipate operating expenses will increase in absolute dollars. The company does not expect to achieve IFRS profitability in the near term due to these investments and the accounting impact of the Notes.
- Non-IFRS Performance: Management emphasizes Non-IFRS metrics to demonstrate operational profitability. Non-IFRS operating income for the nine months ended March 31, 2019, was $195.3 million, compared to $123.8 million in the prior year.
- Key Risks:
- Derivative Accounting: Continued volatility in reported earnings due to the fair value changes of the Notes and capped call transactions.
- Competition: Intense competition from large vendors (Microsoft, Google, Salesforce) and point-solution providers.
- Cloud Transition: Risks associated with scaling cloud infrastructure and the potential for lower initial revenue recognition compared to perpetual licenses as customers migrate to the cloud.
- Regulatory: Compliance with global data privacy laws (GDPR) and export controls.
Investor Verification Checklist
- Derivative Impact: Verify the magnitude of the non-cash mark-to-market losses on the Exchangeable Senior Notes and capped calls to understand the divergence between IFRS Net Loss and operational cash generation.
- Subscription Mix: Confirm the accelerating shift from perpetual license/maintenance revenue to subscription revenue, which impacts revenue recognition timing and future growth visibility.
- Share-Based Compensation: Review the $181.6 million in share-based payment expense for the nine-month period and the remaining unamortized balance ($306.1 million) to assess future expense pressure.
- Customer Metrics: Validate the growth in the customer base (144,038 customers as of March 31, 2019) and retention rates, as these are primary drivers of the subscription model.
- Acquisition Integration: Monitor the integration progress and financial contribution of the Opsgenie and Butler for Trello acquisitions.