Summary
Atlassian's fiscal 2023 second quarter revenue was $872.7 million, up 26.7% year over year. GAAP gross profit rose 23.9% to $716.8 million. Gross margin slipped to 82.1%, down 1.9 percentage points. The company swung to a GAAP operating loss of $99.2 million, a 530.7% decline from operating income a year earlier. Operating margin was negative 11.4%, down 14.7 percentage points. Net loss was $205.0 million, and the loss widened 818.3%. Diluted EPS was negative $0.80, and the loss widened 788.9%. The net loss included a non-recurring income tax charge that added $0.32 to the diluted per-share loss.
The first half of fiscal 2023 showed similar pressure. Revenue for the six months ended December 31, 2022 was $1.68 billion, up 29.0% year over year. The year-to-date net loss narrowed 49.5% to $218.8 million. Diluted EPS for the six months was negative $0.86, and the loss narrowed 50.0%. Operating cash flow for the six months was $243.0 million, down 10.5%.
Cash generation softened in the quarter. Operating cash flow was $150.5 million, down 27.1% year over year. Capital expenditures were $4.0 million, down 67.9%. Free cash flow, a non-GAAP measure, was $146.5 million. The quarter included a discrete tax payment of $57.0 million. Excluding that payment, the company said operating cash flow would have been $207.4 million, free cash flow would have been $203.4 million, and free cash flow margin would have been 23%.
Deferred revenue was $1.27 billion, up 30.6% year over year. Remaining performance obligations were $1.40 billion. Atlassian ended the quarter with 253,177 customers, adding 4,004 net new customers. Jira Service Management surpassed 45,000 customers. Cloud migrations tracked up nearly 2x year over year. Two large migrations closed in the quarter. An Australian bank moved 25,000 users to Jira Software Cloud Enterprise. A UK-based bank moved 30,000 users from Data Center editions of Jira Software and Confluence to cloud. Atlassian was named a Leader in the 2022 Gartner Magic Quadrant for IT Service Management Platforms.
Guidance points to continued macro caution. For the third quarter of fiscal 2023, Atlassian guided non-GAAP operating margin to approximately 15%. For the full fiscal year 2023, the company guided total revenue growth of approximately 25% year over year and cloud revenue growth of 35% to 40%. Full-year non-GAAP operating margin is expected to be approximately 17%. The company expects maintenance revenue to contract over the course of fiscal 2023 as Server reaches the end of its life. Other revenue is expected to be approximately flat compared with fiscal 2022.
The quarter showed clear macro pressure. Existing customers expanded paid seats at a slower pace, and free-to-paid conversion slowed, particularly in the SMB base. The company said these headwinds were more pronounced in December and across geographies, industries, and products. Management is rebalancing investments toward cloud migrations, IT service management, and enterprise customers. Server remains a drag. Atlassian plans to end maintenance and support for Server offerings in February 2024. Tax risk is also in focus. The company recorded a reserve for uncertain tax positions related to transfer pricing and expects negotiations with the Australian Taxation Office to finalize within the next 12 months. It maintains a full valuation allowance on U.S. federal, U.S. state, and Australian deferred tax assets. The Tax Cuts and Jobs Act's requirement to capitalize and amortize research and development expenditures beginning in fiscal 2023 may materially increase future cash taxes. In January 2023, the board authorized a share repurchase program of up to $1 billion.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $872.7M | $807.4M | +8.1% | — | — |
| Gross profit | $716.8M | $668.0M | +7.3% | — | — |
| Gross margin | 82.1% | 82.7% | -0.6 pp | — | — |
| Research & development | $473.7M | $399.0M | +18.7% | — | — |
| Sales & marketing | $186.2M | $160.1M | +16.3% | — | — |
| General & administrative | $156.1M | $142.9M | +9.3% | — | — |
| Total operating expenses | $816.0M | $702.0M | +16.2% | — | — |
| Operating income (loss) | -$99.2M | -$34.0M | -191.6% | — | — |
| Operating margin | -11.4% | -4.2% | -7.2 pp | — | — |
| Net income (loss) | -$205.0M | -$13.7M | -1392.1% | — | — |
| Net margin | -23.5% | -1.7% | -21.8 pp | — | — |
| Diluted EPS | -$0.80 | -$0.05 | -$0.75 | — | — |
| Customers | 250,000 | 240,000 | +4.2% | — | — |
Risks
MD&A says growth from existing customers began to moderate in fiscal year 2023 and became more pronounced in the quarter ended December 31, 2022, largely because customers were impacted by weakening economic conditions. This could reduce renewals, expansions, and new customer spending even though current-quarter revenue rose 26.7%.
Gross margin fell 1.9 percentage points to 82.1% in the quarter ended December 31, 2022 from 84.0% a year earlier, and MD&A expects gross margin to decrease further as sales mix shifts from Server offerings to Cloud offerings. The company also plans to end maintenance and support for Server offerings in February 2024.
Operating income swung to a loss of $99.24 million in the quarter ended December 31, 2022 from income of $23.04 million a year earlier, and operating margin fell 14.7 percentage points to negative 11.4%. MD&A attributes pressure to large increases in research and development, marketing and sales, and general and administrative expenses.
The quarter ended December 31, 2022 included a $100.5 million income tax provision on a $104.5 million pretax loss, primarily from an $83.0 million reserve for uncertain tax positions related to Australian Taxation Office transfer pricing negotiations. Resolution or changes in estimates could materially affect future tax rates and cash taxes.
Operating cash flow decreased 27.1% to $150.52 million in the quarter ended December 31, 2022, and free cash flow decreased $47.4 million versus the prior-year quarter. MD&A cites higher cash paid to suppliers and employees and higher cash used for income taxes, partly offset by higher cash received from customers.
The markets are described as fragmented, rapidly evolving, and highly competitive with low barriers to entry, and competitors include Microsoft/GitHub, IBM, Alphabet, ServiceNow, GitLab, and others. Lower cost or free competing products could harm the company's ability to generate new customers.
The company derives a majority of revenue from Jira Software and Confluence, so market acceptance of these products is critical. Any failure to keep pace with customer demands or competitor alternatives could harm results of operations and financial condition.
The company has fully drawn a $1.0 billion Term Loan Facility and access to a $500 million Revolving Credit Facility, with floating interest rates tied to LIBOR and a planned transition to SOFR. Restrictive covenants and higher interest rates could limit flexibility and increase financing costs.
SaaS KPIs
All quarters →Total customers
Non-GAAP Operating Margin
Jira Service Management customers
Summary, forecast, risks and KPIs are extracted from Atlassian Corp's SEC filings for Q2 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.