Summary
Atlassian's FY2023 first quarter revenue rose 31.5% to $807.4 million. Gross profit increased 29.0% to $668.0 million. Gross margin slipped to 82.7%, down 1.6 percentage points from the prior-year quarter. The company swung to an operating loss of $34.0 million, down $90.5 million from operating income a year earlier. Operating margin was negative 4.2%, down 13.4 percentage points. Net loss narrowed to $13.7 million, up $397.5 million, or 96.7%. Diluted net loss per share was $0.05, up $1.58, or 96.9%. Revenue growth was strong, but profitability weakened as spending rose. The revenue increase was primarily attributable to additional subscriptions from existing customers and customers migrating to cloud-based services.
Cash generation improved. Operating cash flow rose 42.2% to $92.4 million. Capital expenditures rose 139.7% to $16.5 million. Free cash flow, a non-GAAP measure, was $75.9 million, up $17.8 million, as operating cash flow growth was partly offset by higher capital spending. Deferred revenue was $1.17 billion, up 28.7%. Remaining performance obligations were $1.30 billion. Customer count rose to 249,173 at September 30, 2022 from 216,500 at September 30, 2021. More than 90% of total revenue in the quarter came from customer accounts existing on or before June 30, 2022. No single customer contributed more than 5% of total revenues. Deferred revenue growth of 28.7% suggests billings momentum, though the filing notes deferred revenue can be influenced by renewal timing, contract length and invoice timing.
Operationally, Atlassian continues to push customers from Server offerings to Cloud and Data Center offerings. Subscription revenue increased and remained the primary driver of growth. The Server business is expected to contract. Maintenance revenue is expected to decline as server customers migrate. Management expects subscription revenue to increase in future periods. Cost of revenues is expected to increase in absolute dollars and may increase as a percentage of revenues. Research and development expenses are expected to increase in absolute dollars. Stock-based compensation expense is expected to increase in fiscal year 2023. The company added employees, primarily in research and development, and it no longer sells perpetual licenses for Server offerings. It plans to end maintenance and support for these products in February 2024. The company's revenue mix continues to shift toward subscription offerings, and more than 80% of total revenues have been recurring in each of the past three fiscal years.
The quarter came with clear risks. Atlassian said weakening economic conditions, rising inflation, increases in interest rates, and Russia's invasion of Ukraine did not individually have a material adverse impact on its financial condition or results of operations during the quarter. However, growth of paid users from existing customers moderated, largely because of customers impacted by weakening economic conditions. The rate of customers converting from free versions to paid plans decreased in the fourth quarter of fiscal 2022, and that trend became more pronounced this quarter. The company also faces tax risks. The Tax Cuts and Jobs Act eliminates the option to deduct research and development expenditures, requiring taxpayers to capitalize and amortize such expenditures over five or fifteen years beginning in fiscal 2023. If not deferred, modified, or repealed, this provision may materially increase future cash taxes. Atlassian maintains a full valuation allowance on its U.S. federal, U.S. state, and Australian deferred tax assets.
On liquidity, Atlassian believes existing cash and cash equivalents, together with cash generated from operations and borrowing capacity from its Credit Facility, will be sufficient to meet anticipated cash needs for at least the next 12 months. The Credit Facility matures in October 2025. The Term Loan Facility is fully drawn, and the company has access to a revolving credit facility. The company's future effective tax rate may be materially impacted by foreign earnings taxed at rates different from the federal statutory rate, changes in valuation allowances, level of profit before tax, accounting for uncertain tax positions, business combinations, closure of statute of limitations or settlement of tax audits, and changes in tax laws.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $807.4M | — | — | — | — |
| Gross profit | $668.0M | — | — | — | — |
| Gross margin | 82.7% | — | — | — | — |
| Research & development | $399.0M | — | — | — | — |
| Sales & marketing | $160.1M | — | — | — | — |
| General & administrative | $142.9M | — | — | — | — |
| Total operating expenses | $702.0M | — | — | — | — |
| Operating income (loss) | -$34.0M | — | — | — | — |
| Operating margin | -4.2% | — | — | — | — |
| Net income (loss) | -$13.7M | — | — | — | — |
| Net margin | -1.7% | — | — | — | — |
| Diluted EPS | -$0.05 | — | — | — | — |
| Customers | 240,000 | — | — | — | — |
Risks
MD&A says weakening economic conditions, rising inflation, increases in interest rates, and Russia's invasion of Ukraine did not individually have a material adverse impact in FY2023 Q1, but the company began to see growth of paid users from existing customers moderate largely due to customers impacted by weakening economic conditions, and the decrease in the rate of customers converting from free versions to paid plans became more pronounced.
Company ceased new perpetual Server license sales in February 2021, ceased Server upgrade sales in February 2022, and plans to end Server maintenance and support in February 2024. It expects Cloud customers to generate lower revenue in the initial year and plans enterprise discounts to incentivize migration, which may pressure near-term revenue growth and margins.
Business depends on customers renewing subscriptions and maintenance plans and expanding purchases, but customers primarily have monthly or annual terms and no long-term contracts. Retention and expansion may decline due to inflation, interest rate increases, increased focus on Cloud offerings, and ending perpetual licenses; MD&A notes the free-to-paid conversion decrease became more pronounced this quarter.
GAAP operating loss was $34.0 million in FY2023 Q1 compared with operating income of $56.5 million in FY2022 Q1, and operating margin fell to -4.2% from 9.2%. The company expects substantial near-term investments in R&D and Cloud infrastructure, and stock-based compensation may prevent GAAP profitability.
Markets are fragmented, rapidly evolving, and highly competitive with low barriers. Named competitors include Microsoft including GitHub, IBM, Alphabet, ServiceNow, PagerDuty, Gitlab, Freshworks, Asana, Monday.com, Notion and Smartsheet; competitors with greater resources or low-cost or free alternatives could harm pricing and new customer additions.
Success depends on executive officers and key employees, with no employment agreements requiring executives to stay; competition for engineers in Sydney, San Francisco Bay Area and other locations is intense. New CFO joined September 2022 and new CTO joined May 2022.
Completed U.S. Domestication on September 30, 2022; anticipated benefits may not be realized, and additional legal, accounting and public-company compliance costs as a domestic issuer may exceed expenses incurred before the domestication.
Company derives a majority of revenue from Jira Software and Confluence, so market acceptance of these products is critical; demand can be affected by lower-cost alternatives, competition, and addressable market changes.
Credit Facility contains restrictive covenants and a floating interest rate; failure to comply could trigger acceleration. LIBOR publication is expected to cease after June 30, 2023, and transition to SOFR may increase borrowing costs.
SaaS KPIs
All quarters →Summary, forecast, risks and KPIs are extracted from Atlassian Corp's SEC filings for Q1 FY2023 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 6, 2026.