ATOMOS LIMITED — Annual Report 2019

Aug 28, 2019

1

ATOMOS LTD ACN 139 730 500 ASX: AMS

Appendix 4E – Preliminary Final Report

Reporting period

Reporting period: for the year ended 30 June 2019 Previous corresponding period: for the year ended 30 June 2018

Results for announcement to the market

Atomos Ltd and its controlled entities is referred to as “Atomos”, “the Group” or “the Company” within this report.

eport.
Revenue and loss after tax for the year ended 30 June 2019	2019	2018	% change
	$'000	$'000
Revenue from ordinary activities	55,681	35,648	56%
Loss from ordinaryactivities after tax attributable to members	(1,959)	(16,513)	88%
Net Loss for theyear attributable to members	(1,959)	(16,513)	88%
Earnings before interest,tax,depreciation and amortisation(EBITDA)	1,780	(10,519)	117%
Earnings before interest, tax, depreciation, amortisation and items not in the ordinary course of business1	1,645	222	641%
Loss from ordinary activities after tax attributable to members before items not in the ordinarycourse of business1	(652)	(1,811)	64%

1Results have been presented to exclude the impact of items outside the ordinary course of business to allow shareholders to make a meaningful comparison with prior year comparative. Further details on the material items have been provided in the notes below.

Dividends

No dividends have been paid during the period and it is not proposed that any dividends be paid. No dividends were paid during the previous corresponding period.

Overview of operating results

Revenue from ordinary activities in 2019 was up $20.0 million, or 56%, from $35.6 million driven by the successful launch of the Ninja V and Shinobi products during the period. The revenue includes $1.7 million in respect of the sale of components (at cost) to several third-party manufacturers used by Atomos. These components are included in the cost of products the manufacturer assembles on Atomos’ behalf which are then sold to Atomos. Underlying sales revenue to external customers is therefore $54.0 million, or 51% up on 2018.

Net loss after tax for the year was down $14.6 million, or 88% to $2.0m. The improvement was primarily driven by:

• Growth in gross profit of $9.1 million;

• One-off impairment of intangibles in 2018 of $9.7 million;

• Higher finance charges and tax expense in 2018 of $3.0 million; and

• Increase in other gains of $1.1 million principally due to the revaluation of embedded derivative to fair value on conversion / redemption of convertible notes

This was partially offset by:

• Investment in marketing expenses to drive entry into and penetration of the ‘Social’ market segment ($3.3 million);

• Costs associated with the IPO of $1.5 million in 2019;

• Increased depreciation and amortisation of $1.2 million driven by commencement of amortisation of intangibles; and

• Increase in other operating expenses of $2.3 million

2

Appendix 4E – Preliminary Final Report (continued)

Net tangible assets per security
	30/6/19	30/6/18
Net tangible assets per share:	$0.10	$0.02
Total number of shares on issue at year end:	151,957,624	105,722,865

Entities over which control has been gained or lost during the period

There are no entities over which control has been gained or lost during the period.

Associates and joint venture entities

There are no associates and joint venture entities.

Dividend reinvestment plans

The Company currently does not have a dividend reinvestment plan.

Independent audit report

This report is based on the consolidated financial statements that are in the process of final auditor review. The independent audit report will be included within the Company’s Annual Report.

Accounting standards

This report has been compiled using Australian Accounting Standards and International Financial Reporting Standards.

Other information required by Listing Rule 4.3A

Other information requiring disclosure to comply with Listing 4.3A is contained in the 30 June 2019 Annual Report (which includes the Directors’ Report) which has not been lodged with this Appendix 4E.

3

Atomos Limited Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the year ended 30 June 2019

Revenue Cost of sales Gross profit Other income Other gains / (losses) Employee benefits expense Share based payments Advertising and marketing expense Research and development expense Administration and other expense Transaction costs Distribution expense Depreciation and amortisation Interest charges Legal and professional services Occupancy expense Impairment of intangible assets Loss before income tax Income tax (expense) Loss for the year Other comprehensive income, net of income tax Items that will not be reclassified subsequently to profit or loss: Items that may be reclassified subsequently to profit or loss: - Exchange differences on translating foreign operations Other comprehensive income for the year, net of income tax Total comprehensive loss for the year Earnings per share Basic earnings (loss) per share Diluted earnings (loss) per share	2019 2018 $’000 $’000 55,681 35,648 (29,782) (18,828)
	25,899 16,820 2 332 1,018 (58) (7,035) (6,004) (1,017) (314) (5,604) (2,322) (4,139) (3,764) (2,168) (2,878) (2,061) (105) (1,585) (1,233) (1,469) (278) (1,443) (3,961) (821) (590) (709) (674) - (9,729)
	(1,132) (14,758)
	(827) (1,755)
	(1,959) (16,513)
	- -
	(205) 157
	(205) 157
	(205) 157
	(2,164) (16,356)
	2019 2018 ($0.01) ($0.29) ($0.01) ($0.29)

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Atomos Limited

Consolidated Statement of Financial Position

As at 30 June 2019

Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Other current assets Total current assets Non-current assets Property, plant and equipment Intangible assets Total non-current assets Total assets Liabilities Current liabilities Trade and other payables Borrowings Provisions Other financial liabilities Current liabilities Non-current liabilities Provisions Total non-current liabilities Total liabilities Net assets Equity Issued capital Reserves Accumulated losses Total equity

2019 2018 $'000 $'000 5,112 1,447 8,024 4,848 7,886 5,953 2,995 1,746 24,017 13,994 1,673 824 8,472 7,671 10,145 8,495 34,162 22,489

8,801 8,461 1,500 2,706 610 493 - 1,496 10,911 13,156 42 47 42 47 10,953 13,203 23,209 9,286 44,057 28,987 2,177 1,365 (23,025) (21,066) 23,209 9,286

5

Atomos Limited

Consolidated Statement of Changes in Equity

For the year ended 30 June 2019

Balance at 1 July 2017 Transactions with owners Share-based payments Conversion of Class A shares Conversion of convertible notes Issue of new share capital Transaction costs relating to issue of shares Income tax benefit relating to transaction costs Total transactions with owners Comprehensive income Loss for the year Other comprehensive income Total comprehensive income Balance at 30 June 2018 Balance at 1 July 2018 Transactions with owners Share-based payments Conversion of convertible notes Issue of new share capital Transaction costs relating to issue of shares Income tax benefit relating to transaction costs Total transactions with owners Comprehensive income Loss for the year Other comprehensive income Total comprehensive income Balance at 30 June 2019		Issued capital (Ordinary shares) Issued capital (Class A shares) Retained earnings Foreign currency translation reserve Share based payments reserve Total equity $’000 $’000 $’000 $’000 $,000 $’000 8,595 292 (4,553) 195 - 4,529
		- - - - 1,013 1,013 292 (292) - - - - 13,567 - - - - 13,567 7,000 - - - - 7,000 (467) - - - - (467) - - - - - -
		20,392 (292) - - 1,013 21,113
		- - (16,513) - - (16,513) - - - 157 - 157
		- - (16,513) 157 - (16,356)
		28,987 - (21,066) 352 1,013 9,286
		28,987 - (21,066) 352 1,013 9,286
		- - - - 1,017 1,017 9,457 - - - - 9,457 6,000 - - - - 6,000 (387) - - - - (387) - - - - - -
		15,070 - - - 1,017 16,087
		- - (1,959) - - (1,959) - - - (205) - (205)
		- - (1,959) (205) - (2,164)
		44,057 - (23,025) 147 2,030 23,209

6

Atomos Limited Consolidated Statement of Cash Flows For the year ended 30 June 2019

Operating activities Receipts from customers Payments to suppliers and employees Interest received Income taxes paid Net cash used in operating activities Investing activities Payments for property, plant and equipment Payments for intangible assets Net cash used in investing activities Financing activities Proceeds from issue of equity instruments in the company Proceeds from issue of convertible notes Interest paid Payment for transaction costs Proceeds from borrowings Repayments of borrowings Net cash inflow from financing activities Net change in cash and cash equivalents Cash and cash equivalents, beginning of year Exchange differences on cash and cash equivalents Cash and cash equivalents, end of year	2019 2018 $’000 $’000 52,868 34,944 (56,363) (37,846) 2 1 (158) -
	(3,651) (2,901)
	(1,325) (724) (1,794) (3,629)
	(3,119) (4,353)
	6,000 7,000 7,000 1,112 (114) (432) (2,013) (410) 1,500 - (1,950) (110)
	10,423 7,160
	3,653 (94) 1,447 1,548 12 (7)
	5,112 1,447

7

Notes to the Consolidated Financial Statements - Condensed

Review of Operations

The 2019 year was a pivotal period for the Company which saw the completion of a multi-year investment in a new technology platform (the Ninja Platform) which will underpin future Atomos products for the next few years. The first product developed on this new platform, Ninja V, was launched in September 2018 and has been extremely successful.

In December 2018 the Company was successfully listed on the ASX.

Summary of results for 2019 compared to prior period

Consolidated Income Statement	2019	2018	Change $	Change %
	$'000	$'000	$'000
Revenue	55,681	35,648	20,033	56%
Cost of sales	(29,782)	(18,828)	(10,954)	(58%)
Gross profit	25,899	16,820	9,079	54%
Gross Margin %	47%	47%		(0%)
Operating expenses	(24,119)	(17,610)	(6,509)	(34%)
Impairment of Intangibles	-	(9,729)	9,729	100%
EBITDA	1,780	(10,519)	12,299	117%
Finance costs	(1,443)	(3,961)	2,518	65%
Depreciation and amortisation	(1,469)	(278)	(1,191)	(428%)
Loss before income tax	(1,132)	(14,758)	13,626	92%
Income tax(expense)/ benefit	(827)	(1,755)	928	53%
Loss for theyear	(1,959)	(16,513)	14,554	88%

Included in the above results are certain items which were not incurred in the ordinary course of business and are fully detailed in the normalised earnings section overleaf. The impact of excluding those items on the Consolidated Income Statement is as follows:

Normalised Consolidated Income	2019	2018	Change $	Change %
Statement	$'000	$'000	$'000
Revenue	53,961	35,648	18,313	51%
Gross profit	24,049	17,302	6,747	39%
Gross Margin %	45%	49%		(4%)
Operatingexpenses	(22,404)	(17,080)	(5,323)	(31%)
EBITDA	1,645	222	1,423	641%

Revenue

Normalised revenue of $54.0 million was 51% higher than in 2018. This was driven by strong performance of the Ninja V, launched in September 2018 and the Shinobi devices, launched in March 2019. These products represent the successful start of Atomos’ push into one of its key growth areas, the ‘Social’ market segment. The 2019 normalised revenue was 28% higher than the prospectus forecast.

Gross Profit

Normalised gross profit was impacted by higher than anticipated component costs associated with the Ninja V. Management addressed these component cost issues which saw the second half margin increase from 43.4% to 45.3%, resulting in 44.6% for the full year. This compares with the prospectus forecast of 47.1%.

8

Review of Operations (continued)

Operating Costs

Normalised operating costs of $22.4 million were $5.3 million or 31% up on 2018 and $2.8 million or 14% higher than the prospectus forecast. This cost increase principally reflects higher marketing expenditure of $2.3 million. The additional investment in marketing was to support Atomos’ entry into the emerging Social segment in 2019 and to support further growth.

EBITDA

The normalised EBITDA for 2019 was $1.6 million which compares with 2018 of $0.2 million and the prospectus forecast of $0.3 million.

Finance Costs

Finance Costs for 2019 of $1.4 million (2018: $4.1 million) were significantly reduced reflecting the fact that the convertible notes were redeemed or converted to equity at the IPO.

Depreciation and Amortisation

Depreciation and amortisation increased by $1.2 million. This increase represented the initial amortisation of previously capitalised development costs as the Company commenced commercialisation of the development effort.

Income Tax Expense

Income tax expenses incurred of $0.6 million during the period relate to non-Australian 100% subsidiaries where a taxable profit was reported and $0.2 million due to a tax differential within the Australian tax consolidated Group relating to Research and Development grants.

Net Loss (After Tax)

The consolidated loss of the Group for the financial year after providing for income tax amounted to $1.96 million (2018: loss $16.5 million).

9

Reconciliation of normalised earnings

Earnings before interest, tax, depreciation and amortisation (EBITDA) is a non-IFRS term which the Group uses to measure performance. This includes a number of items which are not in the ordinary course of business, these have been excluded in the table below to provide a view or normalised earnings.

		Items not in the
	2019	ordinary course of	Underlying
$’000	Reported	business1	Result
Revenue	55,681	(1,720)	53,961
Cost of sales	(29,782)	(130)	(29,912)
Gross profit	25,899	(1,850)	24,049
Gross Margin %	47%		45%
Operating Expenses – ongoing	(22,404)		(22,404)
OperatingExpenses – one-off	(1,715)	1,715	0
EBITDA	1,780	(135)	1,645
Depreciation and amortisation	(1,469)	0	(1,469)
Finance costs	(1,443)	1,442	(1)
Loss before income tax	(1,132)	1,307	175
Income tax(expense)/ benefit	(827)	0	(827)
Loss for theyear	(1,959)	1,307	(652)
1Items not in the ordinary course of business(2019)			$’000
Revenue
Sales to suppliers: supplierpass through sales at no margin			(1,720)
Revenue			(1,720)
Cost of sales
Sales to suppliers: supplier pass through sales at no margin			1,720
One off Inventory write-off/clearance			1,277
Resolution of European Customs dutydispute			(3,127)
Cost of sales			(130)
Operating Expenses
Revaluation of embedded derivative and other financial instruments			(1,018)
IPO & other transaction costs			2,033
Accelerated vesting of pre IPO share options			535
Costs associated with resolvingEuropean customs dispute			165
Operating Expenses			1,715
Interest on convertible notes			1,442
Total Items not in the ordinary course of business			1,307

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Reconciliation of normalised earnings (continued)

		Items not in the
	2018	ordinary course of	Underlying
	Reported	business2	Result
Revenue	35,648		35,648
Cost of sales	(18,828)	482	(18,346)
Gross profit	16,820	482	17,302
Gross Margin %	47%		49%
Operating Expenses - ongoing	(17,080)		(17,080)
OperatingExpenses – one-off	(10,259)	10,259	0
EBITDA	(10,519)	10,636	222
Depreciation and amortisation	(278)		(278)
Finance costs	(3,961)	3,961	0
Loss before income tax	(14,758)	14,702	(56)
Income tax (expense) / benefit	(1,755)		(1,755)
Loss for theyear	(16,513)	14,702	(1,811)
2Items not in the ordinary course of business(2018)			$’000
Cost of sales
One off Inventorywrite-off			482
Cost of sales			482
Operating Expenses
Asset impairment charges			9,993
Transitional costs			878
Incremental listed company costs			(210)
Revaluation of embedded derivatives			(377)
Employee share plan costs			(153)
Transaction costs			128
Operating Expenses			10,259
Interest on convertible notes			3,961
Total Items not in the ordinary course of business			14,702

-End of Appendix 4E – preliminary final report-