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Atlassian Announces Second Quarter Fiscal Year 2017 Results

/EIN News/ -- Quarterly revenue of $148.9 million, up 36% year-over-year

Quarterly IFRS operating loss of $2.6 million and non-IFRS operating income of $27.6 million

Quarterly free cash flow of $44.5 million

SAN FRANCISCO, Jan. 19, 2017 (GLOBE NEWSWIRE) -- Atlassian Corporation Plc (NASDAQ:TEAM), a leading provider of team collaboration and productivity software, today announced financial results for the second quarter of fiscal 2017 ended December 31, 2016, and released a shareholder letter on the Investor Relations section of its website at https://investors.atlassian.com.

“We delivered great results this quarter, as we saw strong performance across our cloud, server and data center products," said Scott Farquhar, Atlassian co-CEO and co founder. "Additionally, we announced plans to acquire Trello, a breakout collaboration service that has amassed more than 19 million registered users and is especially popular with business teams. The acquisition will extend Atlassian's leadership in powering all work for all teams.”

Second Quarter Fiscal Year 2017 Financial Highlights:

On an IFRS basis, Atlassian reported:

  • Revenue: Total revenue was $148.9 million for the second quarter of fiscal 2017, up 36% from $109.7 million for the second quarter of fiscal 2016.
  • Operating Loss: Operating loss was $2.6 million for the second quarter of fiscal 2017, compared with operating income of $3.4 million for the second quarter of fiscal 2016.
  • Net Loss and Net Loss Per Diluted Share: Net loss was $1.7 million for the second quarter of fiscal 2017, compared with net income of $5.1 million for the second quarter of fiscal 2016. Net loss per diluted share was $0.01 for the second quarter of fiscal 2017, compared with net income per diluted share of $0.03 for the second quarter of fiscal 2016.
  • Balance Sheet: Cash and cash equivalents and short-term investments at the end of the second quarter of fiscal 2017 totaled $795.3 million.

On a non-IFRS basis, Atlassian reported:

  • Operating Income: Operating income was $27.6 million for the second quarter of fiscal 2017, compared with $20.3 million for the second quarter of fiscal 2016.
  • Net Income and Net Income Per Diluted Share: Net income was $21.7 million for the second quarter of fiscal 2017, compared with $19.1 million for the second quarter of fiscal 2016. Net income per diluted share was $0.09 for the second quarter of fiscal 2017, compared with $0.11 per diluted share for the second quarter of fiscal 2016.
  • Free Cash Flow: Cash flow from operations for the second quarter of fiscal 2017 was $47.4 million, while capital expenditures totaled $2.9 million, leading to free cash flow of $44.5 million, an increase of 55% year-over-year.

A reconciliation of IFRS to non-IFRS financial measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below, under the heading “About Non-IFRS Financial Measures.”

Recent Business Highlights:

  • Customer growth: Atlassian ended the second quarter of fiscal 2017 with a total customer count on an active subscription or maintenance agreement basis of 68,837, a 27% increase over December 31, 2015. Atlassian added 3,164 net new customers during the quarter.
  • Trello acquisition: On January 9, 2017, Atlassian announced that it entered into a definitive agreement to acquire Trello, one of the fastest growing cloud collaboration services. The acquisition is valued at approximately $425 million and is expected to close in the third quarter of fiscal 2017 ending March 31, 2017, subject to certain closing conditions and regulatory clearance.
  • New Chief People Officer: Atlassian welcomed Helen Russell as its new Chief People Officer in October 2016. Helen joined Atlassian from Sonos, where she was Chief Human Resources Officer, and before that ran global HR for Kantar, EMEA HR for Yahoo, and EMEA HR for Siebel Systems. Helen has a truly global background, having worked in the United Kingdom and Switzerland, as well as the United States.

Financial Targets:

Atlassian is providing its financial targets for the third quarter and full fiscal year 2017. The company’s financial targets are as follows:

  • Third Quarter Fiscal Year 2017: 
    • Total revenue is expected to be in the range of $155 million to $157 million.*
    • Gross margin is expected to be approximately 80% on an IFRS basis and approximately 84% on a non-IFRS basis. 
    • Operating margin is expected to be approximately (24%) on an IFRS basis and approximately 12% on a non-IFRS basis. 
    • Weighted-average share count is expected to be in the range of 235 million to 237 million shares on a fully diluted basis. 
    • Net loss per diluted share is expected to be approximately ($0.15) on an IFRS basis, and net income per diluted share is expected to be approximately $0.06 on a non-IFRS basis.
       
  • Fiscal Year 2017: 
    • Total revenue is expected to be in the range of $611 million to $615 million.** 
    • Gross margin is expected to be in the range of 81% to 82% on an IFRS basis and in the range of 84% to 85% on a non-IFRS basis. 
    • Operating margin is expected to be approximately (16%) on an IFRS basis and approximately 15% on a non-IFRS basis. 
    • Weighted-average share count is expected to be in the range of 234 million to 236 million shares on a fully diluted basis. 
    • Net loss per diluted share is expected to be in the range of ($0.30) to ($0.29) on an IFRS basis, and net income per diluted share is expected to be in the range of $0.32 to $0.33 on a non-IFRS basis. 
    • Free cash flow is expected to be in the range of $160 million to $165 million, which factors in capital expenditures that are expected to be approximately $15 million in fiscal 2017.

*Our third quarter fiscal 2017 revenue target includes a revenue contribution from Trello of approximately $1 million.
**Our full year fiscal 2017 revenue target includes a revenue contribution from Trello of approximately $4 million.

For fiscal year 2018, Trello is expected to be dilutive to IFRS earnings per share, and neutral to slightly accretive to non-IFRS earnings per share.
 
The above estimates relating to expected contributions from Trello include fair value write-down adjustments to acquired deferred revenue as part of purchase accounting for the acquisition.

With respect to Atlassian’s expectations under “Financial Targets” above, a reconciliation of IFRS to non-IFRS gross margin, operating margin, net income per diluted share, and free cash flow have been provided in the financial statement tables included in this press release.

Shareholder Letter and Webcast/Conference Call Details

A detailed shareholder letter is available on the Investor Relations section of Atlassian’s website at: https://investors.atlassian.com. Atlassian will host a webcast and conference call to answer questions today:

  • When: Thursday, January 19, 2017 at 2:00 P.M. Pacific Time (5:00 P.M. Eastern Time).
  • Webcast: A live webcast of the call can be accessed from the Investor Relations section of Atlassian’s website at: https://investors.atlassian.com. Following the call, a replay will be available on the same website.
  • Dial in: To access the call via telephone in North America, please dial 1-888-346-0688. For international callers, please dial 1-412-902-4250. Participants should request the “Atlassian call” after dialing in.
  • Audio replay: An audio replay of the call will be available via telephone for seven days, beginning two hours after the call. To listen to the replay in North America, please dial 1-877-344-7529 (access code 10097585). International callers, please dial 1-412-317-0088 (access code 10097585).

Atlassian has used, and will continue to use, its Investor Relations website at https://investors.atlassian.com as a means of disclosing material non-public information and for complying with its disclosure obligations.

About Atlassian

Atlassian unleashes the potential in every team. Our collaboration software helps teams organize, discuss and complete shared work. Teams at more than 68,000 large and small organizations - including Citigroup, eBay, Coca-Cola, Visa, BMW and NASA - use Atlassian's project tracking, content creation and sharing, real-time communication and service management products to work better together and deliver quality results on time. Learn about products including JIRA Software, Confluence, HipChat, Bitbucket and JIRA Service Desk at https://atlassian.com.

Forward-Looking Statements

This press release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, which statements involve substantial risks and uncertainties. All statements other than statements of historical fact could be deemed forward looking, including risks and uncertainties related to the anticipated benefits of the Trello acquisition, the ability of Atlassian to extend its leadership in powering all types of teamwork, the ability of Atlassian and Trello to close the announced acquisition and the timing of the closing of the acquisition, statements about Atlassian’s products, technology and other key strategic areas, and Atlassian’s financial targets such as revenue, share count and IFRS and non-IFRS financial measures including gross margin, operating margin, net income per diluted share and free cash flow.

Atlassian undertakes no obligation to update any forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect new information or the occurrence of unanticipated events, except as required by law.

The achievement or success of the matters covered by such forward-looking statements involves known and unknown risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make. You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent our management’s beliefs and assumptions only as of the date such statements are made.

Further information on these and other factors that could affect our financial results is included in filings we make with the Securities and Exchange Commission from time to time, including the section titled “Risk Factors” in our most recent Forms 20-F and 6-K. These documents are available on the SEC Filings section of the Investor Relations section of our website at: https://investors.atlassian.com.

About Non-IFRS Financial Measures

Our reported results and financial targets include certain non-IFRS financial measures, including non-IFRS gross profit, non-IFRS operating income, non-IFRS net income, non-IFRS net income per diluted share, and free cash flow. Management believes that the use of non-IFRS financial measures provides consistency and comparability with our past financial performance, facilitates period-to-period comparisons of our results of operations, and also facilitates comparisons with peer companies, many of which use similar non-IFRS or non-GAAP financial measures to supplement their IFRS or GAAP results. Non-IFRS results are presented for supplemental informational purposes only to aid in understanding our operating results. The non-IFRS results should not be considered a substitute for financial information presented in accordance with IFRS, and may be different from non-IFRS or non-GAAP measures used by other companies.

Our non-IFRS financial measures reflect adjustments based on the items below:

  • Non-IFRS gross profit. Excludes expenses related to share-based compensation and amortization of acquired intangible assets.
  • Non-IFRS operating income. Excludes expenses related to share-based compensation and amortization of acquired intangible assets.
  • Non-IFRS net income and non-IFRS net income per diluted share. Excludes expenses related to share- based compensation, amortization of acquired intangible assets and related income tax effects on these items.
  • Free cash flow. Free cash flow is defined as net cash provided by operating activities less capital expenditures, which consists primarily of purchases of property and equipment.

We exclude expenses related to share-based compensation, amortization of acquired intangible assets and income tax effect on these items from certain of our non-IFRS financial measures as we believe this helps investors understand our operational performance. In addition, share-based compensation expense can be difficult to predict and varies from period to period and company to company due to differing valuation methodologies, subjective assumptions and the variety of equity instruments, as well as changes in stock price. Management believes that providing non-IFRS financial measures that exclude share-based compensation expense, amortization of acquired intangible assets and the tax effects on these items allow for more meaningful comparisons between our operating results from period to period.

We include the effect of our outstanding share options and restricted share units (“RSUs”) in weighted-average shares used in computing non-IFRS net income per diluted share. IFRS excludes the impact of the full weighting of these outstanding equity awards until the effectiveness of our initial public offering (“IPO”). We have presented the full weighting impact of these additional shares from previously granted share options and RSUs, as if they were outstanding from the date of grant, in order to provide investors with insight into the full impact of all potentially dilutive awards outstanding and to provide comparability across periods.

Management considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by our business that can be used for strategic opportunities, including investing in our business, making strategic acquisitions and strengthening our statement of financial position.

Management uses non-IFRS gross profit, non-IFRS operating income, non-IFRS net income, non-IFRS net income per diluted share and free cash flow:

  • As measures of operating performance, because these financial measures do not include the impact of items not directly resulting from our core operations; 
  • For planning purposes, including the preparation of our annual operating budget; 
  • To allocate resources to enhance the financial performance of our business; 
  • To evaluate the effectiveness of our business strategies; and 
  • In communications with our board of directors concerning our financial performance.

The tables in this press release titled “Reconciliation of IFRS to Non-IFRS Results” and “Reconciliation of IFRS to Non-IFRS Financial Targets” provide reconciliations of non-IFRS financial measures to the most recent directly comparable financial measures calculated and presented in accordance with IFRS.

We understand that although non-IFRS gross profit, non-IFRS operating income, non-IFRS net income, non-IFRS net income per diluted share and free cash flow are frequently used by investors and securities analysts in their evaluation of companies, these measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results of operations as reported under IFRS.

 
Atlassian Corporation Plc
Consolidated Statements of Operations
(U.S. $ and shares in thousands, except per share data)
(unaudited)
 
  Three Months Ended December 31,   Six Months Ended December 31,
  2016   2015   2016   2015
Revenues:              
Subscription $ 56,326     $ 33,911     $ 106,257     $ 64,378  
Maintenance 65,060     53,508     126,801     103,862  
Perpetual license 18,210     15,645     35,711     31,146  
Other 9,313     6,642     16,927     12,142  
Total revenues 148,909     109,706     285,696     211,528  
Cost of revenues (1) (2) 26,899     18,473     49,461     34,893  
Gross profit 122,010     91,233     236,235     176,635  
Operating expenses:              
Research and development (1) 69,758     47,846     137,215     93,306  
Marketing and sales (1) (2) 27,416     21,713     52,396     37,975  
General and administrative (1) 27,475     18,307     54,391     34,909  
Total operating expenses 124,649     87,866     244,002     166,190  
Operating income (loss) (2,639 )   3,367     (7,767 )   10,445  
Other non-operating income (expense), net (251 )   (181 )   (314 )   (784 )
Finance income 1,441     123     2,763     169  
Finance costs (38 )   (49 )   (45 )   (57 )
Income (loss) before income tax benefit (expense) (1,487 )   3,260     (5,363 )   9,773  
Income tax benefit (expense) (211 )   1,805     1,028     374  
Net income (loss) $ (1,698 )   $ 5,065     $ (4,335 )   $ 10,147  
Net income (loss) per share attributable to ordinary shareholders:              
Basic $ (0.01 )   $ 0.03     $ (0.02 )   $ 0.06  
Diluted $ (0.01 )   $ 0.03     $ (0.02 )   $ 0.06  
Weighted-average shares outstanding used to compute net income (loss) per share attributable to ordinary shareholders:              
Basic 221,316     160,328     219,910     152,168  
Diluted 221,316     165,730     219,910     155,576  
                       

_______________
(1) Amounts include share-based payment expense, as follows:

  Three Months Ended December 31,   Six Months Ended December 31,
  2016   2015   2016   2015
Cost of revenues $ 1,505     $ 1,301     $ 2,844     $ 2,507  
Research and development 16,159     7,777     33,158     13,698  
Marketing and sales 3,089     3,064     6,604     5,806  
General and administrative 7,053     2,910     15,723     7,137  

(2) Amounts include amortization of acquired intangible assets, as follows:

  Three Months Ended December 31,   Six Months Ended December 31,
  2016   2015   2016   2015
Cost of revenues $ 2,198     $ 1,830     $ 4,400     $ 3,575  
Marketing and sales 219     22     415     43  


Atlassian Corporation Plc
Consolidated Statements of Financial Position
(U.S. $ in thousands)
 
  December 31, 2016   June 30, 2016
  (unaudited)    
Assets      
Current assets:      
Cash and cash equivalents $ 336,162     $ 259,709  
Short-term investments 459,112     483,405  
Trade receivables 27,608     15,233  
Current tax receivables 6,301     6,013  
Prepaid expenses and other current assets 17,053     14,178  
Total current assets 846,236     778,538  
Non-current assets:      
Property and equipment, net 49,687     58,762  
Deferred tax assets 138,864     127,411  
Goodwill 22,584     7,138  
Intangible assets, net 17,332     13,577  
Other non-current assets 8,404     5,547  
Total non-current assets 236,871     212,435  
Total assets $ 1,083,107     $ 990,973  
Liabilities      
Current liabilities:      
Trade and other payables $ 56,245     $ 57,886  
Current tax liabilities 2,457     286  
Provisions 4,852     4,716  
Deferred revenue 195,556     173,612  
Total current liabilities 259,110     236,500  
Non-current liabilities:      
Deferred tax liabilities 9,683     6,639  
Provisions 2,169     2,170  
Deferred revenue 9,988     7,456  
Other non-current liabilities 9,955     6,545  
Total non-current liabilities 31,795     22,810  
Total liabilities $ 290,905     $ 259,310  
Equity      
Share capital $ 22,240     $ 21,620  
Share premium 447,468     441,734  
Other capital reserves 306,507     244,335  
Other components of equity 1,047     4,699  
Retained earnings 14,940     19,275  
Total equity $ 792,202     $ 731,663  
Total liabilities and equity $ 1,083,107     $ 990,973  
               


Atlassian Corporation Plc
Consolidated Statements of Cash Flows
(U.S. $ in thousands)
(unaudited)
 
  Three Months Ended December 31,   Six Months Ended December 31,
  2016   2015   2016   2015
Operating activities              
Income (loss) before income tax $ (1,487 )   $ 3,260     $ (5,363 )   $ 9,773  
Adjustments to reconcile income (loss) before income tax to net cash provided by operating activities:              
Depreciation and amortization 11,253     5,372     19,295     9,906  
Loss (gain) on sale of investments and other assets (65 )   137     (407 )   137  
Net unrealized foreign currency loss (gain) (115 )   (130 )   (208 )   434  
Share-based payment expense 27,806     15,052     58,329     29,148  
Interest income (1,441 )   (123 )   (2,763 )   (169 )
Changes in assets and liabilities:              
Trade receivables (12,695 )   (2,866 )   (12,068 )   (1,588 )
Prepaid expenses and other assets 2,416     164     (2,770 )   (2,754 )
Trade and other payables, provisions and other non-current liabilities 5,135     5,962     (3,399 )   (4,742 )
Deferred revenue 16,629     7,551     24,317     14,252  
Interest received 1,381     23     3,677     106  
Income tax paid, net of refunds (1,418 )   (2,503 )   (2,779 )   (8,200 )
Net cash provided by operating activities 47,399     31,899     75,861     46,303  
Investing activities              
Business combinations, net of cash acquired         (18,295 )    
Purchases of property and equipment (2,907 )   (3,133 )   (5,298 )   (9,288 )
Proceeds from sale of other assets         342      
Purchases of investments (81,628 )   (112,243 )   (233,364 )   (116,643 )
Proceeds from maturities of investments 22,250     15,040     57,100     34,622  
Proceeds from sales of investments 86,706         198,588      
Increase in restricted cash (3,369 )       (3,369 )    
Payment of deferred consideration (750 )       (935 )   (1,025 )
Net cash provided by (used in) investing activities 20,302     (100,336 )   (5,231 )   (92,334 )
Financing activities              
Proceeds from issuance of ordinary shares upon initial public offering, net of offering costs     433,192         431,447  
Proceeds from exercise of share options 2,151     2,291     5,868     3,502  
Employee payroll taxes paid related to net share settlement of equity awards     (5,395 )       (5,395 )
Net cash provided by financing activities 2,151     430,088     5,868     429,554  
Effect of exchange rate changes on cash and cash equivalents (435 )   285     (45 )   (349 )
Net increase in cash and cash equivalents 69,417     361,936     76,453     383,174  
Cash and cash equivalents at beginning of period 266,745     208,332     259,709     187,094  
Cash and cash equivalents at end of period $ 336,162     $ 570,268     $ 336,162     $ 570,268  
                               


Atlassian Corporation Plc
Reconciliation of IFRS to Non-IFRS Results
(U.S. $ and shares in thousands, except per share data)
(unaudited)
 
  Three Months Ended December 31,   Six Months Ended December 31,
  2016   2015   2016   2015
Gross profit              
IFRS gross profit $ 122,010     $ 91,233     $ 236,235     $ 176,635  
Plus: Share-based payment expense 1,505     1,301     2,844     2,507  
Plus: Amortization of acquired intangible assets 2,198     1,830     4,400     3,575  
Non-IFRS gross profit $ 125,713     $ 94,364     $ 243,479     $ 182,717  
Operating income              
IFRS operating income (loss) $ (2,639 )   $ 3,367     $ (7,767 )   $ 10,445  
Plus: Share-based payment expense 27,806     15,052     58,329     29,148  
Plus: Amortization of acquired intangible assets 2,417     1,852     4,815     3,618  
Non-IFRS operating income $ 27,584     $ 20,271     $ 55,377     $ 43,211  
Net income              
IFRS net income (loss) $ (1,698 )   $ 5,065     $ (4,335 )   $ 10,147  
Plus: Share-based payment expense 27,806     15,052     58,329     29,148  
Plus: Amortization of acquired intangible assets 2,417     1,852     4,815     3,618  
Less: Income tax effects and adjustments (6,861 )   (2,859 )   (14,425 )   (5,424 )
Non-IFRS net income $ 21,664     $ 19,110     $ 44,384     $ 37,489  
Net income per share              
IFRS net income (loss) per share - basic $ (0.01 )   $ 0.03     $ (0.02 )   $ 0.06  
Plus: Share-based payment expense 0.13     0.10     0.27     0.20  
Plus: Amortization of acquired intangible assets 0.01     0.01     0.02     0.02  
Less: Income tax effects and adjustments (0.03 )   (0.02 )   (0.07 )   (0.03 )
Non-IFRS net income per share - basic $ 0.10     $ 0.12     $ 0.20     $ 0.25  
               
IFRS net income (loss) per share - diluted $ (0.01 )   $ 0.03     $ (0.02 )   $ 0.06  
Plus: Share-based payment expense 0.12     0.09     0.25     0.17  
Plus: Amortization of acquired intangible assets 0.01     0.01     0.02     0.02  
Less: Income tax effects and adjustments (0.03 )   (0.02 )   (0.06 )   (0.03 )
Non-IFRS net income per share - diluted $ 0.09     $ 0.11     $ 0.19     $ 0.22  
Weighted-average diluted shares outstanding              
Weighted-average shares used in computing diluted IFRS net income (loss) per share 221,316     165,730     219,910     155,576  
Plus: Dilution from share options and RSUs (1) 13,288         14,487      
Plus: Dilution from share options and RSUs granted in periods prior to IPO (2)     14,046         16,571  
Weighted-average shares used in computing diluted non-IFRS net income per share 234,604     179,776     234,397     172,147  
Free cash flow              
IFRS net cash provided by operating activities $ 47,399     $ 31,899     $ 75,861     $ 46,303  
Less: Capital expenditures (2,907 )   (3,133 )   (5,298 )   (9,288 )
Free cash flow $ 44,492     $ 28,766     $ 70,563     $ 37,015  
                               

(1) The effects of these dilutive securities were not included in the IFRS calculation of diluted net loss per share for the three and six months ended December 31, 2016 because the effect would have been anti-dilutive.
(2) Gives effect to share options and RSUs in periods prior to our IPO for comparability.

               
Atlassian Corporation Plc
 
Reconciliation of IFRS to Non-IFRS Financial Targets
 
(U.S. $)
 
               
  Three Months Ending
March 31, 2017

  Fiscal Year Ending
June 30, 2017

Revenue   $155 million to $157 million       $611 million to $615 million  
               
IFRS gross margin   80 %     81% to 82 %
Plus: Share-based payment expense   2       1  
Plus: Amortization of acquired intangible assets   2       2  
Non-IFRS gross margin   84 %     84% to 85 %
               
IFRS operating margin   (24 %)     (16 %)
Plus: Share-based payment expense   33       29  
Plus: Amortization of acquired intangible assets   3       2  
Non-IFRS operating margin   12 %     15 %
               
IFRS net loss per share - diluted $ (0.15 )   $ (0.30) to (0.29 )
Plus: Share-based payment expense   0.22       0.75  
Plus: Amortization of acquired intangible assets   0.02       0.07  
Less: Income tax effects and adjustments   (0.03 )     (0.20 )
Non-IFRS net income per share - diluted $ 0.06     $ 0.32 to 0.33  
Weighted-average shares used in computing diluted non-IFRS net income per share   235 million to 237 million       234 million to 236 million  
           
IFRS net cash provided by operations       $175 million to $180 million  
Less: Capital expenditures       (15 million )
Free cash flow       $160 million to $165 million  
       

 

Investor Relations Contact
Ian Lee
IR@atlassian.com

Media Contact
Paul Loeffler
press@atlassian.com

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