Atlassian Corporation Plc — FY2019 Form 20-F
Period note: The supplied filing is the annual report for the fiscal year ended June 30, 2019, not a standalone 2018 Q4 filing. It does not provide clear standalone Q4 results. Financial statements are prepared under IFRS and presented in U.S. dollars; prior periods were retrospectively adjusted for IFRS 15.
Business context
Atlassian sells collaboration and work-management software, including Jira, Confluence, Trello, Bitbucket, Jira Service Desk, Opsgenie and Jira Align. Its online, self-service model emphasizes customer adoption, expansion and recurring subscription and maintenance revenue. At June 30, 2019, it reported 152,727 customers, up from 125,796 a year earlier; no customer contributed more than 1% of FY2019 revenue. More than 75% of revenue in each of the last three fiscal years was recurring.
Financial performance
| Metric (USD millions, except percentages and per-share data) | FY2019 | FY2018, adjusted | Change |
|---|---|---|---|
| Revenue | $1,210.1 | $881.0 | +37% |
| Subscription revenue | $634.0 | $410.7 | +54% |
| Maintenance revenue | $394.5 | $326.5 | +21% |
| Gross profit / gross margin | $999.8 / 83% | $708.3 / 80% | Margin +3 percentage points |
| Operating expenses | $1,063.2 | $754.3 | +41% |
| Operating loss | $(63.4) | $(46.0) | Loss widened |
| Net loss / diluted loss per share | $(637.6) / $(2.67) | $(113.4) / $(0.49) | Loss widened substantially |
| Operating cash flow | $466.3 | $311.5 | +50% |
| Free cash flow (non-IFRS) | $422.2 | $281.2 | +50% |
Revenue growth was attributed to demand from new and existing customers; over 90% of FY2019 revenue came from customer accounts already present by June 30, 2018. Revenue from Americas, EMEA and Asia Pacific grew 37%, 37% and 40%, respectively. R&D expense was $579.1 million, or 48% of revenue, versus $415.8 million, or 47%, in FY2018. Share-based compensation was $257.8 million, up from $162.9 million.
FY2019 IFRS net loss included a $533.9 million non-cash loss on remeasurement of the exchange feature of the notes and related capped calls; the filing reports $535.5 million of total other non-operating expense. Excluding specified items, including share-based compensation, acquired-intangible amortization and note/capped-call effects, non-IFRS net income was $214.5 million, compared with $124.5 million in FY2018. These supplemental measures are not substitutes for IFRS results.
Liquidity, debt and financial position
At June 30, 2019, cash and cash equivalents were $1,268.4 million and short-term investments were $445.0 million. Operating cash flow was $466.3 million; capital expenditures were $44.2 million. Investing cash outflow was $604.2 million, including $418.6 million net cash paid for business combinations. Cash declined by $141.9 million during the year, partly reflecting acquisitions and investment purchases. Management stated existing cash, cash equivalents and operating cash generation should meet anticipated cash needs for at least 12 months.
Total liabilities were $2,411.8 million, versus $1,514.5 million; total equity was $565.5 million, versus $907.3 million. Reported working capital was negative $287.6 million, compared with positive $1,377.1 million in FY2018. The $1.0 billion principal amount of 0.625% exchangeable senior notes was classified as current after an exchange condition was met at year-end. The notes are cash-settled, not exchangeable into shares. Their June 30, 2019 net carrying amount was $853.6 million; the embedded exchange derivative liability was $851.1 million and capped-call derivative assets were $214.6 million. Contractual obligations reported $1,604.9 million due within one year for the notes based on their if-exchanged value at the period-end share price; this is not the same as the notes’ carrying amount.
Material changes, outlook and risks
- Subscription revenue grew faster than maintenance and perpetual-license revenue, consistent with increased adoption of cloud subscriptions and Data Center term licenses. Management expected subscription revenue to continue growing faster than perpetual licenses.
- Operating expenses increased substantially as the company expanded R&D, cloud infrastructure, marketing, global operations and headcount. Management expected these expenses to rise in absolute dollars and stated it did not expect near-term IFRS profitability.
- FY2019 acquisitions included OpsGenie for approximately $259.5 million cash and AgileCraft for approximately $154.0 million cash plus $1.7 million in replacement-share value. The filing also reports smaller acquisitions. Acquisition accounting and acquired-asset valuations involve significant estimates.
- IFRS 16 adoption beginning July 1, 2019 was expected to add approximately $286 million of right-of-use assets and lease liabilities, primarily for real estate leases.
- Principal risks include intense competition; reliance on Jira Software and Confluence for approximately two-thirds of revenue; customer renewal and expansion; execution and economics of the cloud transition; cybersecurity and service availability; privacy and data-transfer regulation; foreign-exchange exposure; and difficulty sustaining growth or achieving IFRS profitability.
- The notes’ conditional exchange feature was triggered at June 30, 2019, making them exchangeable at holders’ option from July 1 through September 30, 2019. Cash settlement could affect liquidity. Fair-value changes in the notes and capped calls can also cause substantial volatility in reported earnings.
- The company reported no material legal proceedings and no significant changes since the audited financial statements. It did not plan to pay dividends in the foreseeable future. Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Review the standalone Q4 FY2019 results separately; this filing reports full-year figures and does not give a clear Q4 income statement.
- Check subsequent filings for whether noteholders exchanged the notes after year-end, the cash settlement amount, and resulting liquidity and working-capital effects.
- Assess recurring-revenue growth, customer retention and expansion, and the pace and profitability of the cloud transition.
- Track share-based compensation and operating-expense growth against revenue growth, and distinguish IFRS results from management’s non-IFRS measures.
- Review acquisition integration and the assumptions supporting acquired goodwill and intangible-asset valuations, as well as the balance-sheet impact of IFRS 16 adoption.