Atlassian Corporation Plc — Form 20-F summary
Reporting period: The filing is the annual report for the fiscal year ended June 30, 2020, filed August 14, 2020. Although the request specifies “2019 Q4,” this source is an FY2020 annual filing and does not provide a standalone 2019 Q4 results summary. Financial statements are prepared under IFRS and presented in U.S. dollars.
Business context
Atlassian sells collaboration, project-management, software-development and IT-service products, including Jira, Confluence, Trello, Jira Service Desk, Opsgenie and Bitbucket. Its model emphasizes self-service online sales, transparent pricing and word-of-mouth adoption, with solution partners contributing over one-third of FY2020 revenue. The company reported 174,097 customers at year-end, up from 152,727.
Financial performance and liquidity
| Metric (U.S. dollars) | FY2020 | FY2019 | Change / context |
|---|---|---|---|
| Revenue | $1.614 billion | $1.210 billion | Up 33% |
| Subscription revenue | $931.5 million | $634.0 million | Up 47%; 58% of FY2020 revenue versus 52% |
| Maintenance revenue | $469.4 million | $394.5 million | Up 19% |
| Perpetual license revenue | $95.2 million | $93.6 million | Up 2% |
| Gross profit / margin | $1.345 billion / 83% | $999.8 million / 83% | Margin broadly unchanged |
| Operating income (loss), IFRS | $14.1 million | $(63.4) million | Returned to operating income |
| Net income (loss), IFRS | $(350.7) million | $(637.6) million | Loss narrowed; materially affected by note and capped-call valuation |
| Non-IFRS operating income | $370.0 million | $251.2 million | Supplemental measure; excludes specified items including share-based compensation |
| Non-IFRS net income | $288.8 million | $214.5 million | Supplemental measure; not an IFRS result |
| Operating cash flow / free cash flow | $574.2 million / $500.4 million | $466.3 million / $422.2 million | Free cash flow increased $78.2 million |
Research and development expense rose 32% to $763.2 million; marketing and sales rose 12% to $299.7 million; general and administrative expense rose 24% to $268.4 million. Share-based payment expense was $313.4 million, up from $257.8 million. Cash and cash equivalents were $1.480 billion and short-term investments were $676.1 million at June 30, 2020. Working capital was a deficit of $375.0 million, compared with a deficit of $287.6 million a year earlier.
Total liabilities were $3.319 billion. The company had $1.0 billion principal amount of 0.625% exchangeable senior notes, with a net carrying amount of $889.2 million, and lease obligations of $264.6 million. Notes became exchangeable for cash at holders’ option for the July–September 2020 quarter after the exchange condition was met; the filing reports an if-exchanged value of $2.211 billion and classifies the notes and related derivative as current. The related exchange-feature derivative liability was $1.283 billion; capped-call assets were $310.6 million.
Material changes and unusual items
- Revenue growth was led by subscriptions, principally from expansion among existing customers; over 90% of FY2020 revenue came from customer accounts existing on or before June 30, 2019.
- The revenue mix continued shifting toward subscriptions and away from maintenance and perpetual licenses as shares of total revenue. Subscription revenue reached 58% of sales; perpetual licenses were 6%.
- IFRS operating results improved to a small profit, but the company remained loss-making under IFRS net income. Other non-operating expense was $338.5 million, including a $336.0 million net unrealized loss on the exchange derivative and capped-call transactions. These fair-value effects are non-cash but create substantial reported earnings volatility.
- FY2020 investing cash outflow was $318.9 million, versus $604.2 million in FY2019; FY2019 included $418.6 million of net cash paid for acquisitions. FY2020 included $53.2 million of net acquisition cash outflow.
- Atlassian adopted IFRS 16 leases in FY2020 without restating prior periods, recognizing $217.7 million of right-of-use assets and $264.6 million of lease obligations at year-end.
Outlook, risks and contingencies
Management did not provide numerical FY2021 revenue or earnings guidance in the supplied filing text. It expected lower perpetual-license revenue in FY2021 as the server business slowed, maintenance revenue to be flat year over year, and less revenue growth from pricing and packaging. The company expected FY2021 operating income and operating cash flow to decrease as it continued investing, particularly in research and development, cloud services, migration tools, infrastructure and new products. It planned loyalty discounts to encourage eligible enterprise-server customers to migrate to cloud.
Management said COVID-19 had not materially adversely affected FY2020 financial condition or results, but identified significant uncertainty ahead. Risks include weaker technology spending, longer sales cycles, delayed renewals or expansions, customer requests for discounts or extended payment terms, and exposure to small and medium-sized businesses and affected industries. Other major risks include cloud migration and execution, customer retention, intense competition, cybersecurity and service availability, privacy and data-transfer regulation, foreign-exchange movements, and dependence on third-party hosting providers and channel partners.
Management believed existing cash, investments and operating cash generation would meet anticipated needs for at least 12 months. However, the notes’ cash-settlement and exchange provisions could pressure liquidity. Contractual obligations included the notes’ $2.211 billion if-exchanged value, $297.1 million of undiscounted lease liabilities, and $235.0 million of purchase obligations. No material legal proceedings were reported, and the company stated it had no present or future plan to pay dividends. The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective.
Most important facts for investors to verify
- Confirm the period: this is FY2020, not a standalone 2019 Q4 filing.
- Review the notes’ exchangeability, cash-settlement terms, maturity and capped-call offsets, including subsequent exchange activity and liquidity implications.
- Reconcile IFRS losses with non-IFRS profit, focusing on derivative fair-value movements and the substantial share-based compensation adjustment.
- Track cloud migration, subscription growth, server-license declines, renewals and customer retention against management’s qualitative FY2021 outlook.
- Assess the effect of COVID-19 on collections, customer spending and renewal behavior, as well as cloud infrastructure costs and operating cash flow.
- Review the full audited financial statements and notes for IFRS 16 comparability, tax-asset judgments, acquisition accounting and investment valuation risks.