Atlassian Corporation (TEAM) — Form 10-Q
Reporting period: Quarter ended March 31, 2024 (fiscal Q3 2024), with nine-month results for the period ended March 31, 2024. The request metadata says “2023 Q3,” but the filing covers fiscal 2024 Q3.
Business context
Atlassian develops collaboration and work-management software, including Jira, Confluence and Jira Service Management. Revenue is increasingly driven by cloud subscriptions and Data Center term licenses as the company phases out Server maintenance. Atlassian acquired asynchronous video platform Loom in November 2023.
Financial performance
| Metric | Q3 FY2024 | Q3 FY2023 | Nine months FY2024 | Nine months FY2023 |
|---|---|---|---|---|
| Revenue | $1.189B (+30%) | $915.5M | $3.227B (+24%) | $2.596B |
| Gross profit / margin | $975.7M / 82% | $746.8M / 82% | $2.641B / 82% | $2.132B / 82% |
| Operating income (loss) | $17.8M | $(161.6)M | $(50.1)M | $(294.8)M |
| Net income (loss) | $12.8M | $(209.0)M | $(103.6)M | $(427.8)M |
| Operating cash flow | $565.4M | $352.4M | $1.022B | $595.3M |
| Free cash flow (non-GAAP) | $554.9M | $349.7M | $1.002B | $572.1M |
- Q3 subscription revenue rose 41% to $1.071B; maintenance fell 69% to $29.5M. Cloud revenue grew 31% and Data Center revenue 64%, while Server revenue declined 69%.
- Q3 operating expenses were $957.9M, including $576.5M in research and development. Stock-based compensation was $282.5M in the quarter and $807.9M for nine months.
- Cash and cash equivalents were $1.949B and marketable securities $163.3M at March 31, 2024. Accounts receivable was $646.1M. Total current liabilities were $2.468B.
- Term-loan debt outstanding was $975M; the $500M revolving credit facility was available. The facility matures in October 2025. Atlassian reported compliance with its covenants.
- Remaining performance obligations were approximately $2.3B; the company expected to recognize about 80% over the next 12 months.
Changes versus comparable periods
- Q3 revenue growth accelerated to 30% from the prior-year quarter’s base, led by subscriptions and migration to Cloud and Data Center. More than 90% of Q3 revenue came from customer accounts already existing by December 31, 2023.
- GAAP operating and net results improved substantially from Q3 FY2023 losses to modest Q3 FY2024 profits. However, the first nine months remained loss-making under GAAP.
- Nine-month operating cash flow increased $426.6M year over year. Investing cash flow included $844.7M of acquisition spending, primarily for Loom; financing outflows included $203.0M of share repurchases and $25.0M of term-loan repayments.
- Goodwill increased to $1.286B from $727.2M at June 30, 2023, largely reflecting acquisitions. Loom’s approximately $885.6M cash purchase price and preliminary purchase accounting included $544.8M of goodwill.
Outlook, risks and unusual items
- Management expects subscriptions to remain the primary growth driver as customers migrate to Cloud and Data Center. It generally ended Server maintenance and support in February 2024; maintenance revenue is expected to become immaterial. Management cautioned that Cloud growth may pressure gross margins through hosting and support costs.
- The company said existing cash, operating cash generation and borrowing capacity should meet anticipated cash needs for at least 12 months. It provided no specific revenue or earnings guidance in the supplied filing text.
- Management cited moderated expansion among existing customers, particularly small and medium-sized customers, amid uncertain economic conditions. Risks include customer retention and migration, competition, cloud availability and security, AI-related legal and reputational issues, foreign exchange, and regulatory and tax changes.
- A known state threat actor exploited a Confluence Server and Data Center vulnerability in October 2023; Atlassian issued a patch and worked with affected customers. The filing also describes ongoing securities and derivative litigation; no litigation liabilities were recorded, and outcomes remain uncertain.
- An Australian tax pricing arrangement covering tax years 2019–2025 resulted in approximately $60.5M of cash tax paid during the nine months. The company maintained full valuation allowances on U.S. federal, U.S. state and Australian deferred tax assets.
- After quarter-end, Atlassian announced that Co-CEO Scott Farquhar intended to step down from that role and move to an advisory role effective August 31, 2024. The filing also disclosed Rule 10b5-1 trading plans adopted by both Co-CEOs.
Most important facts for investors to verify
- Whether Cloud and Data Center growth can offset the continuing decline in Server maintenance, and how customer retention and expansion trends evolve.
- Whether rising cloud-hosting and support costs cause gross-margin pressure, and how GAAP profitability develops given substantial stock-based compensation.
- Cash conversion and liquidity after acquisition spending, tax payments, debt repayments and continued share repurchases; confirm the timing and terms of the October 2025 debt maturity.
- Integration and performance of Loom, including final purchase-price allocation, acquired-intangible amortization and the expected contribution to growth.
- Developments in the securities litigation, the Confluence security incident, and the announced Co-CEO transition.