Business context and reporting period
Atlassian Corporation (Nasdaq: TEAM) designs collaboration and work-management software, including Jira, Confluence, Trello and Bitbucket. This Form 10-Q covers the quarter and six months ended December 31, 2022 (fiscal Q2 and fiscal H1 2023). The company completed its U.S. domestication in September 2022 and now reports under U.S. GAAP; comparative periods were retrospectively converted from IFRS, so historical figures may differ from prior presentations.
Key financial results
| Metric | Q2 FY2023 | Q2 FY2022 | H1 FY2023 | H1 FY2022 |
|---|---|---|---|---|
| Revenue | $872.7m | $688.5m | $1,680.1m | $1,302.6m |
| Gross profit / margin | $716.8m / 82% | $578.3m / 84% | $1,384.8m / 82% | $1,096.1m / 84% |
| Operating income (loss) | ($99.2m) | $23.0m | ($133.3m) | $79.5m |
| Net income (loss) | ($205.0m) | ($22.3m) | ($218.8m) | ($433.5m) |
| Operating cash flow | $150.5m | $206.5m | $243.0m | $271.5m |
| Free cash flow (non-GAAP) | $146.5m | $193.9m | $222.4m | $252.0m |
Revenue grew 27% year over year in Q2 and 29% in H1. Subscription revenue rose 40% in Q2 and 44% in H1; maintenance revenue fell 17% and 15%, respectively. By deployment, Q2 cloud revenue increased 41% and Data Center 40%, while Server revenue declined 22%.
Q2 operating expenses were $816.0m, up from $555.3m, with R&D at $473.7m, marketing and sales at $186.2m, and general and administrative at $156.1m. Stock-based compensation was $265.8m in Q2 and $439.4m in H1. Q2 non-GAAP operating income was $174.8m and non-GAAP net income was $114.7m; these measures exclude specified expenses and adjustments and should be considered alongside GAAP results.
Balance sheet, debt and liquidity
At December 31, 2022, cash and cash equivalents were $1.637bn, marketable securities $36.1m, and accounts receivable $354.8m. Current assets totaled $2.135bn and current liabilities $1.645bn. The company had $999.5m outstanding on its term loan and access to a $500m revolving facility. The credit facility matures in October 2025; the company reported compliance with its covenants. Management said existing cash, operating cash generation and borrowing capacity should cover anticipated needs for at least 12 months.
H1 operating cash flow was $243.0m, down $28.5m year over year, primarily due to increased payments to suppliers and employees and income taxes. Cash and cash equivalents increased $250.7m during H1. The company reported a $1.9bn non-cancellable commitment for infrastructure services over five years. A future Sydney headquarters lease is expected to start in FY2027, with approximately $944.6m of payments over its initial 15-year term.
Changes, outlook and notable items
- Management said growth from existing customers moderated from the start of FY2023 and that the trend became more pronounced in Q2, which it attributed largely to weaker economic conditions.
- Management expects subscription revenue to remain the primary growth driver as customers migrate to Cloud and Data Center. It expects Server activity and maintenance revenue to decline, and gross margin to face pressure as the mix shifts toward Cloud and hosting and customer-support costs rise. No specific numerical earnings or revenue guidance is provided in the supplied filing text.
- An $83.0m reserve for uncertain tax positions was recorded amid Australian Taxation Office negotiations over U.S.-Australia transfer pricing for tax years 2019–2025; resolution was expected within 12 months. The provision for income taxes was $100.5m in Q2 despite a pretax loss of $104.5m. The company maintains full valuation allowances on U.S. and Australian deferred tax assets.
- The July 2022 non-cash sale of a controlling interest in Vertical First Trust generated a $45.2m gain in H1; Atlassian retained a 13% equity-method interest. The prior-year comparison includes substantial exchangeable-note and capped-call settlement and fair-value charges, affecting year-over-year H1 net-loss comparisons.
- In January 2023, the board authorized repurchases of up to $1.0bn of Class A shares, with no fixed expiration date or obligation to repurchase a specified amount. The company also noted that required capitalization and amortization of R&D costs under the Tax Cuts and Jobs Act could materially increase future cash taxes if not changed.
- Class B shares carry 10 votes per share; holders collectively controlled approximately 88% of voting power at December 31, 2022. Management reported effective disclosure controls and no material legal proceedings or material litigation loss accruals.
Key facts for investors to verify
- Whether customer expansion and retention stabilize, and whether cloud migrations sustain growth as Server and maintenance revenue contract.
- How cloud hosting costs, elevated operating expenses and stock-based compensation affect GAAP profitability, cash generation and margins.
- The outcome and cash impact of the Australian transfer-pricing negotiations and the $83.0m uncertain-tax reserve.
- Execution and economics of the $1.9bn infrastructure commitment and future Sydney headquarters lease obligations.
- Actual timing and scale of share repurchases, given the program’s discretionary nature and the company’s debt and investment needs.
- Comparability of periods after the IFRS-to-GAAP conversion and the effects of strategic-investment marks and other unusual items.