Atlassian Corporation Plc - Q1 2020 Financial Summary (Form 6-K)
Business Context and Reporting Period
This report covers the three months ended September 30, 2019 (Q1 Fiscal 2020). Atlassian is a global software company providing collaboration and productivity tools (Jira, Confluence, Trello, Bitbucket) primarily via cloud subscriptions. The company adopted IFRS 16 (Leases) on July 1, 2019, impacting the balance sheet and cash flow classification.
Key Financial Metrics
| Metric (in thousands, except per share) | Q1 2020 (Sep 30, 2019) | Q1 2019 (Sep 30, 2018) |
|---|---|---|
| Total Revenues | $363,390 | $267,292 |
| Gross Profit | $301,111 | $222,107 |
| Gross Margin | 83% | 83% |
| Operating Loss | $(4,555) | $(192) |
| Net Income | $69,320 | $(242,445) |
| Diluted EPS | $0.28 | $(1.03) |
| Operating Cash Flow | $76,191 | $84,929 |
| Free Cash Flow | $62,408 | $74,213 |
| Cash & Equivalents | $1,187,191 | $1,517,780 (End of Period) |
| Short-term Investments | $587,496 | $445,046 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 36% year-over-year, driven by a 50% increase in subscription revenue ($201.1M) and a 19% increase in maintenance revenue.
- Profitability Shift: The company reported a net income of $69.3M compared to a net loss of $242.4M in the prior year. This turnaround is primarily due to a $82.2M non-operating gain from the mark-to-market valuation of the embedded exchange feature of its 2023 Exchangeable Senior Notes and related capped call transactions.
- Operating Expenses: Operating expenses rose 37% to $305.7M. Research and Development (R&D) increased 41% to $175.9M, and General and Administrative (G&A) increased 35% to $61.7M, partly due to the adoption of IFRS 16 (depreciation of right-of-use assets).
- Customer Base: Total customers grew to 159,787, up from 131,684 in the prior year.
Outlook, Risks, and Unusual Items
- Unusual Items: The reported net income is heavily influenced by non-cash accounting adjustments related to the Exchangeable Senior Notes. Non-IFRS net income (excluding share-based compensation, amortization, and note-related impacts) was $70.0M.
- Notes Exchangeability: The conditional exchange feature of the $1 billion Exchangeable Senior Notes was triggered as of September 30, 2019. Holders may exchange notes for cash between October 1 and December 31, 2019. Consequently, the notes were reclassified as a current liability, reducing net working capital.
- Acquisitions: The company acquired AgileCraft (April 2019) and Code Barrel (October 2019, subsequent event) to enhance enterprise agile planning and workflow automation capabilities.
- Risks: Key risks include the potential cash outflow from note exchanges, intense competition (Microsoft, Salesforce, Google), reliance on cloud infrastructure, and data privacy regulations (GDPR).
Investor Verification Checklist
- Note Exchange Impact: Verify the extent of cash settlement required if holders exercise their exchange rights on the $1 billion senior notes in Q2 2020.
- Non-IFRS Adjustments: Review the reconciliation of IFRS net income to Non-IFRS net income to understand core operational profitability excluding derivative mark-to-market volatility.
- IFRS 16 Adoption: Assess the long-term impact of lease obligations ($282.3M total) on future cash flows and operating expenses.
- Subscription Mix: Monitor the continued shift from perpetual licenses to subscription revenue, which now comprises 55% of total revenue.
- Share-Based Compensation: Note the significant expense ($77.3M) and the remaining unamortized balance ($282.7M) which will impact future earnings.