01—Abstract
Summary
Summary of the 10-K filed August 18, 2023. Cited figures are marked; the original filing is the authoritative source.
Atlassian Corporation (NASDAQ: TEAM) reported fiscal year 2023 (ended June 30, 2023) total revenues of $3.53 billiona, up 26% from $2.80 billion in fiscal 2022, driven by subscription revenue of $2.92 billion (up 39%).
Cloud revenue rose to $2.09 billion and Data Center to $819.3 millionb, while Server revenue fell 24% to $400.5 million as the company stopped selling new perpetual licenses and plans to end Server maintenance in February 2024. The company had more than 260,000 customers as of June 30, 2023 (262,337 per the key metrics table). Atlassian reported a GAAP operating loss of $345.2 million and a net loss of $486.8 million, compared with a net loss of $519.5 million in fiscal 2022.
The loss was driven by $937.8 millionc of stock-based compensation, a $96.9 million restructuring charge tied to a March 2023 rebalancing that eliminated about 500 roles, and a $110.7 million reserve for uncertain tax positions related to Australian transfer pricing negotiations. Operating cash flow was $868.1 million and free cash flow was $842.5 million. Cash and cash equivalents were $2.10 billion against $1.0 billion of term loan borrowings.
The company repurchased about $154.2 milliond of Class A stock during the year and had $845.8 million remaining under its $1.0 billion authorization. Class B shares, held mainly by the Co-CEOs, carry about 87% of the voting power. A securities class action filed in February 2023 is pending.
The filing also covers the September 30, 2022 redomestication from Atlassian Corporation Plc, an England and Wales company, to a Delaware corporation, after which the company became a U.S. domestic filer that reports under GAAP rather than IFRS. Management says the company expects customer migrations from on-premises to Cloud and Data Center offerings to drive subscription growth, while gross margin is expected to decline because of hosting costs tied to the shift to Cloud.
02—Key points
Key Highlights
- Total revenues were $3.53 billion for fiscal 2023, up 26% from $2.80 billion, with subscription revenue up 39% to $2.92 billion.
- Cloud revenue reached $2.09 billion, up 38%, while Server revenue declined 24% to $400.5 million as perpetual license sales ended.
- GAAP operating loss was $345.2 million (operating margin of -10%), compared with operating income of $70.1 million in fiscal 2022; non-GAAP operating income was $722.6 million (20% margin).
- Net loss was $486.8 million, versus $519.5 million in fiscal 2022. Stock-based compensation of $937.8 million was the largest adjustment between GAAP and non-GAAP results.
- Free cash flow was $842.5 million on operating cash flow of $868.1 million; cash and cash equivalents ended the year at $2.10 billion.
- A $96.9 million restructuring charge followed a March 2023 rebalancing that eliminated roles affecting about 500 employees, and a $110.7 million reserve for uncertain tax positions was recorded for Australian transfer pricing negotiations.
- Class B shares held mainly by the Co-CEOs carry about 87% of the voting power, and a securities class action filed in February 2023 is pending.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2023, Atlassian lost $0.14.
- Revenue$3.53B100.0%
- Cost of revenue−$633.8M17.9%
- Gross profit$2.90B82.1%
- Operating costs−$3.25B91.8%
- Operating income−$345.2M9.8%
- Interest, other & tax−$141.6M4.0%
- Net income−$486.8M13.8%
04—Financials
Financial Highlights
Figures from 10-KFY2023filed August 18, 2023Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $3.53B$2.80B | +26.1% |
| Cost of Revenue | $633.76M$452.91M | +39.9% |
| Gross Profit | $2.90B$2.35B | +23.4% |
| R&D Expenses | $1.87B$1.29B | +44.7% |
| Operating Expenses | $3.25B$2.28B | +42.4% |
| Operating Income | -$345.22M$70.08M | −592.6% |
| Interest Expense | $30.15M$41.47M | −27.3% |
| Net Income | -$486.80M-$519.51M | +6.3% |
| EPS (Basic) | $-1.90$-2.05 | +7.3% |
| EPS (Diluted) | $-1.90$-2.05 | +7.3% |
| Shares Outstanding (Basic) | 256.31M253.31M | +1.2% |
| Shares Outstanding (Diluted) | 256.31M253.31M | +1.2% |
05—Questions
Frequently Asked Questions
What drove the change from operating income to an operating loss in fiscal 2023?
Operating expenses grew to $3.25 billion, up from $2.28 billion, led by research and development (up $578.0 million, or 45%), with increases in stock-based compensation and $96.9 million of restructuring charges. Gross profit rose to $2.90 billion, but it did not keep pace with operating expense growth, so the company recorded an operating loss of $345.2 million.
How is the shift from on-premises to Cloud affecting revenue and margins?
Cloud revenue grew 38% to $2.09 billion and Data Center grew 46% to $819.3 million, while Server revenue fell 24% to $400.5 million and maintenance revenue fell 19%. The filing says cloud revenue is typically lower in the initial year than on-premises revenue, and that gross margin is expected to decline because of higher hosting costs and migration support personnel. The company plans to end Server maintenance in February 2024.
What are the main risks to the tax position and how much has been reserved?
The company recorded a reserve for uncertain tax positions of $110.7 million in fiscal 2023 tied to advance pricing agreement negotiations with the Australian Taxation Office for tax years ending June 30, 2019 through June 30, 2025. The filing says the negotiations are expected to be finalized within the next 12 months. The company also maintains a full valuation allowance on its U.S. federal, U.S. state, and Australian deferred tax assets.
How much capital is available for share repurchases and how concentrated is voting control?
Atlassian repurchased about 1.0 million Class A shares for approximately $154.2 million in fiscal 2023, leaving $845.8 million under the $1.0 billion authorization. Class B holders collectively hold about 87% of the voting power, and entities affiliated with Co-CEOs Michael Cannon-Brookes and Scott Farquhar hold about 87% of the voting power, which limits other stockholders' ability to influence outcomes such as a change in control.
What legal proceedings could affect the company?
A putative securities class action was filed on February 3, 2023 in the U.S. District Court for the Northern District of California, alleging false or misleading statements during the period from August 5, 2022 to November 3, 2022, and seeking unspecified damages. Three stockholder derivative lawsuits were also filed in the District of Delaware. The defendants intend to deny the allegations and defend vigorously. The company says it has not recorded any liabilities for the litigation.
06—Continue