Atlassian Corporation Plc - Form 6-K Summary
Business Context and Reporting Period
This Form 6-K reports the unaudited consolidated financial results for Atlassian Corporation Plc for the quarter and nine months ended March 31, 2020. Atlassian designs, develops, and licenses software and hosting services to help teams organize, discuss, and complete work. Key products include Jira, Confluence, Trello, and Bitbucket. The company operates globally with a significant focus on cloud-based subscription models.
Key Financial Metrics
| Metric (U.S. $ in thousands) | Three Months Ended Mar 31, 2020 | Nine Months Ended Mar 31, 2020 |
|---|---|---|
| Total Revenues | $411,582 | $1,183,697 |
| Gross Profit | $340,927 | $985,002 |
| Gross Margin | 83% | 83% |
| Operating (Loss) Income | $(19,920) | $17,366 |
| Net (Loss) Income | $(158,825) | $34,569 |
| Net Cash Provided by Operating Activities | $156,313 | $450,869 |
| Free Cash Flow | $140,263 | $404,669 |
| Cash and Cash Equivalents (Ending) | $1,338,193 | $1,338,193 |
| Short-term Investments | $733,612 | $733,612 |
| Total Assets | $3,640,957 | $3,640,957 |
| Total Liabilities | $2,820,798 | $2,820,798 |
Note: Net income/loss is heavily influenced by non-cash mark-to-market adjustments on exchangeable senior notes and capped call derivatives.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 33% ($102.3 million) for the quarter and 35% ($308.2 million) for the nine months compared to the prior year periods. Subscription revenue grew 47% (quarter) and 49% (nine months), driven by existing customer expansion.
- Operating Expenses: Operating expenses increased significantly due to headcount growth and share-based compensation. R&D expenses rose 33% (quarter) and 35% (nine months); Marketing and Sales rose 20% (quarter) and 16% (nine months).
- Profitability Volatility: While the company reported a net loss of $158.8 million for the quarter, this was primarily due to a $141.7 million non-operating expense related to the fair value adjustment of exchangeable notes and capped call derivatives. On a non-IFRS basis, the company reported net income of $61.9 million for the quarter.
- Customer Base: The number of customers grew from 144,038 (March 2019) to 171,051 (March 2020).
- Acquisitions: The company acquired Code Barrel (October 2019) for approximately $39.1 million to enhance Jira automation capabilities.
Guidance, Outlook, Risks, and Unusual Items
- COVID-19 Impact: Management states that while the pandemic caused operational disruptions (remote work, office closures), it did not have a material adverse impact on financial results for the quarter ended March 31, 2020. However, future impacts on customer spending, sales cycles, and retention remain uncertain.
- Unusual Items (Derivatives): The financial results are significantly distorted by the accounting treatment of $1 billion in exchangeable senior notes issued in 2018. The "Other non-operating (expense) income, net" line item fluctuates based on stock price volatility and time to expiration, resulting in large non-cash gains or losses.
- Non-IFRS Measures: Management emphasizes Non-IFRS metrics to show operational performance. Non-IFRS operating income for the nine months ended March 31, 2020, was $287.6 million compared to an IFRS operating income of $17.4 million.
- Liquidity: The company maintains strong liquidity with over $2 billion in cash, cash equivalents, and short-term investments. The exchangeable notes are currently classified as current liabilities because the exchange condition was met as of March 31, 2020.
- Accounting Changes: The company adopted IFRS 16 (Leases) on July 1, 2019, recognizing right-of-use assets and lease obligations on the balance sheet.
Key Facts for Investor Verification
- Derivative Exposure: Verify the sensitivity of net income to stock price volatility due to the embedded exchange feature of the $1 billion notes and related capped call transactions.
- Customer Concentration: Confirm that no single customer represents more than 5% of total revenue, though the company has meaningful exposure to small and medium-sized businesses vulnerable to economic downturns.
- Cloud Transition: Monitor the shift from perpetual license revenue (declining) to subscription revenue (growing) and the associated impact on revenue recognition timing and gross margins.
- Share-Based Compensation: Review the $235.3 million share-based payment expense for the nine months ended March 31, 2020, and the remaining unamortized balance of $354.9 million.
- Debt Classification: Note that the $1 billion exchangeable notes are classified as current liabilities due to the triggered exchange condition, which impacts working capital calculations.