Atlassian Corporation Plc - Q1 2017 Financial Summary (Form 6-K)
Business Context and Reporting Period
This filing covers the three-month period ended September 30, 2016 (Q1 of fiscal year 2017). Atlassian Corporation Plc is a UK-incorporated foreign private issuer providing collaboration and productivity software (JIRA, Confluence, HipChat, Bitbucket) via cloud and on-premises models. The company operates globally with a self-service, low-touch sales model and reported 65,673 customers as of period end.
Key Financial Metrics
| Metric (in thousands, except per share) | Q1 2017 (Sep 30, 2016) | Q1 2016 (Sep 30, 2015) |
|---|---|---|
| Total Revenues | $136,787 | $101,822 |
| Gross Profit | $114,225 | $85,402 |
| Gross Margin | 84% | 84% |
| Operating Income (Loss) | $(5,128) | $7,078 |
| Net Income (Loss) | $(2,637) | $5,082 |
| Net Income Per Share (Diluted) | $(0.01) | $0.03 |
| Operating Cash Flow | $28,462 | $14,404 |
| Free Cash Flow | $26,071 | $8,249 |
| Cash & Cash Equivalents | $266,745 | $208,332 |
| Short-term Investments | $487,599 | N/A |
Note: The company reported a net loss for the quarter despite strong revenue growth, primarily due to increased operating expenses and share-based compensation.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 34% year-over-year to $136.8 million. Subscription revenue grew 64% to $49.9 million, while maintenance revenue grew 23% to $61.7 million.
- Profitability Shift: The company transitioned from an operating profit of $7.1 million in Q1 2016 to an operating loss of $5.1 million in Q1 2017. This was driven by a 48% increase in Research & Development expenses and a 62% increase in General & Administrative expenses.
- Share-Based Compensation: Total share-based payment expense more than doubled to $30.5 million (from $14.1 million), significantly impacting operating income.
- Acquisition: Atlassian acquired StatusPage (Dogwood Labs) for $18.3 million in cash, net of cash acquired, adding $15.5 million to goodwill.
- Customer Base: The number of customers grew from 51,636 to 65,673.
Outlook, Commentary, and Risks
- Management Commentary: Management attributes the net loss to significant investments in R&D, cloud infrastructure, and global expansion. They expect operating expenses to continue increasing in absolute dollars. Gross margins are expected to fluctuate and potentially decrease as the cloud subscription mix grows (due to hosting costs).
- Non-IFRS Measures: On a non-IFRS basis (excluding share-based compensation and amortization of acquired intangibles), the company reported operating income of $27.8 million and net income of $22.7 million.
- Liquidity: The company holds $754.3 million in cash, cash equivalents, and short-term investments. Management believes this is sufficient for at least the next 12 months.
- Risks: Key risks include intense competition (Microsoft, Google, Slack), the transition to cloud offerings, reliance on a limited number of products (JIRA/Confluence), foreign currency fluctuations (expenses in AUD), and the complexity of global operations and data privacy regulations (GDPR).
Investor Verification Checklist
- Cloud Transition Impact: Verify the trajectory of subscription revenue growth versus perpetual license revenue to assess the long-term recurring revenue model.
- Expense Trajectory: Monitor the rate of increase in R&D and G&A expenses relative to revenue growth to determine when IFRS profitability might be achieved.
- Share-Based Compensation: Review the remaining unamortized share-based compensation ($120.7 million) and its expected impact on future earnings.
- Customer Retention: Assess customer retention rates and expansion revenue, as the business model relies heavily on renewals and upselling existing customers.
- Foreign Exchange Exposure: Evaluate the effectiveness of the new hedging program initiated in July 2016 against the Australian dollar, given the significant portion of expenses denominated in AUD.