Atlassian Corporation Plc - Q1 2019 Financial Summary (Form 6-K)
Business Context and Reporting Period
This report covers the three months ended September 30, 2018 (Q1 Fiscal 2019). Atlassian is a UK-based public company providing collaboration and productivity software (Jira, Confluence, Trello, Bitbucket). The financial statements are prepared under IFRS and reflect the full retrospective adoption of IFRS 15 (Revenue from Contracts with Customers) effective July 1, 2018. The company operates a high-velocity, low-friction online distribution model with a significant focus on cloud-based subscriptions.
Key Financial Metrics
| Metric (in thousands, except per share) | Q1 2019 (Sep 30, 2018) | Q1 2018 (Sep 30, 2017) |
|---|---|---|
| Total Revenues | $267,292 | $195,480 |
| Gross Profit | $222,107 | $155,390 |
| Gross Margin | 83% | 79% |
| Operating Loss | $(192) | $(20,289) |
| Net Loss (IFRS) | $(242,445) | $(11,470) |
| Net Loss Per Share (Basic/Diluted) | $(1.03) | $(0.05) |
| Operating Cash Flow | $84,929 | $65,249 |
| Free Cash Flow | $74,213 | $62,685 |
| Cash & Equivalents (End of Period) | $1,517,780 | $305,871 |
| Total Debt (Exchangeable Notes) | $827,970 (Carrying Value) | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 37% year-over-year to $267.3 million. Subscription revenue grew 55% to $134.1 million, driven by cloud adoption and existing customer expansion. Maintenance revenue grew 22%.
- Operating Performance: Operating loss narrowed significantly from $20.3 million to $0.2 million, primarily due to revenue growth outpacing operating expense increases.
- Net Loss Volatility: Net loss widened dramatically to $242.4 million (from $11.5 million). This is almost entirely attributable to a $236.4 million non-cash unrealized loss on the mark-to-market valuation of the embedded exchange feature of the $1 billion Exchangeable Senior Notes issued in April 2018 and related capped call transactions.
- Liquidity: Cash and cash equivalents increased by $107.4 million during the quarter. The company maintains a strong liquidity position with over $1.5 billion in cash and short-term investments.
- Customer Base: Total customers increased to 131,684 (up from 107,746 in the prior year).
Guidance, Outlook, and Risks
- Non-IFRS Results: Management highlights Non-IFRS metrics to exclude the impact of share-based compensation, amortization of acquired intangibles, and the Notes-related mark-to-market volatility. Non-IFRS Net Income for the quarter was $49.2 million ($0.20 per diluted share).
- Outlook: Management expects to continue investing in R&D, cloud infrastructure, and global expansion. They anticipate expenses will increase substantially in the near term and do not expect to achieve IFRS profitability in the near future due to these investments and the accounting treatment of the Notes.
- Subsequent Event: In October 2018, Atlassian acquired OpsGenie, Inc. for approximately $295 million ($259 million cash + restricted shares).
- Key Risks:
- Accounting Volatility: The fair value of the Notes and capped call transactions is sensitive to stock price and volatility, causing significant fluctuations in reported net income.
- Competition: Intense competition from Microsoft, Google, Salesforce, and others.
- Regulatory: Compliance with GDPR and global data privacy laws.
- Cloud Transition: Risks associated with scaling cloud infrastructure and transitioning customers from on-premises to cloud models.
Investor Verification Checklist
- Non-GAAP Reconciliation: Verify the reconciliation of IFRS Net Loss to Non-IFRS Net Income to understand the core operational profitability excluding the $236M derivative loss.
- Deferred Revenue: Review the $364.5 million deferred revenue balance (current + non-current) as a leading indicator of future revenue recognition.
- Notes Valuation: Monitor the fair value of the Exchangeable Senior Notes and capped call transactions, as changes in stock volatility will directly impact future reported earnings.
- Customer Retention: Assess customer retention rates and expansion revenue, as over 90% of revenue comes from existing customers.
- Acquisition Integration: Track the integration and financial impact of the OpsGenie acquisition announced post-period.