Atlassian Corporation Plc (NASDAQ:TEAM) Q4 2023 Earnings Call Transcript

Atlassian Corporation Plc (NASDAQ:TEAM) Q4 2023 Earnings Call Transcript August 3, 2023

Atlassian Corporation Plc beats earnings expectations. Reported EPS is $0.57, expectations were $0.43.

Operator: Good afternoon and thank you for joining Atlassian’s Earnings Conference Call for the Fourth Quarter of Fiscal Year 2023. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Atlassian’s website following this call. I will now hand the call over to Martin Lam, Atlassian’s Head of Investor Relations.

Martin Lam: Welcome to Atlassian’s fourth quarter of fiscal year 2023 earnings call. Thank you for joining us today. Joining me on the call today, we have Atlassian’s Co-Founders and Co-CEOs, Scott Farquhar and Mike Cannon-Brookes; our Chief Revenue Officer, Cameron Deatsch; and Chief Financial Officer, Joe Binz. Earlier today, we published a shareholder letter and press release with our financial results and commentary for our fourth quarter fiscal year 2023. The shareholder letter is available on Atlassian’s Work Life blog and the Investor Relations section of our website, where you will also find other earnings related materials, including the earnings press release and supplemental investor data sheet. As always, our shareholder letter contains management’s insights and commentary for the quarter.

So during the call today, we will have brief opening remarks and then focus our time on Q&A. This call will include forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make. You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent our management’s belief and assumptions only as of the date such statements are made and we undertake no obligation to update or revise such statements should they change or cease to be current.

Further information on these and other factors that could affect our financial results is included in filings we make with the Securities and Exchange Commission from time-to-time, including the section titled Risk Factors in our most recently filed annual and quarterly reports. During the call today, we will also discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and are not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures is available in our shareholder letter, earnings release and investor data sheet on the IR website. Please keep in mind that we would like to allow as many of you to participate in Q&A as possible.

To facilitate that, we will take one question at a time. Please rejoin the queue if you have another question or a follow-up, and we will do our best to come back to you later in the session. With that, I will turn the call over to Scott for opening remarks.

Mike Cannon-Brookes: Thank you all for joining us today. As you’ve already read in our shareholder letter, we delivered a strong quarter of financial results. We closed out FY 2023 with great momentum in cloud migrations, in enterprise, and across all our three markets. We generated over $3.5 billion in revenue this year, and over 250,000 customers now power their collaboration on our world-class cloud platform. Amidst a challenging year, we’re extremely proud of all that we’ve accomplished. We said we play offense in FY ’23 and that’ exactly what we did. We migrated millions of users to our world-class cloud platform, we built game changing innovations such as Atlassian Intelligence, launched new products like Jira Product Discovery, delivered increased scale on our cloud platform, and unlock data residency in new locations like Germany and Singapore for our global customer base.

Working deeply with our customers, we’re more and more excited about the value Atlassian Intelligence will deliver by leveraging the latest advancements in large language models, combined with each customer’s unique data, and our world-class cloud platform, with our two decades of data driven insights into how teams work, we’ll be able to further unleash each of our customers’ potential across all our three markets. Today, we’re seeing our bets pay off and that’s strengthening our conviction in our strategy. As we enter FY ‘24, we’re eager to get after those large opportunities and believe we’re well positioned to come out of the year even stronger. With that, I’ll pass the call to the operator for Q&A.

See also 15 Most Peaceful Countries in the World and 25 Richest Women in the World.

Q&A Session

Operator: We will now begin our question-and-answer session. [Operator Instructions] Your first question comes from Michael Turrin from Wells Fargo Securities. Please go ahead.

Michael Turrin: Hey, great. Thanks, I appreciate you taking the question, Joe. Given it to your first full-year guide, maybe you can start by walking us through the process there, the visibility into and confidence and framing those cloud targets for fiscal ‘24, and there’s some commentary in the letter just around the proportions you’re expecting between data center and cloud and just some details in there, I think it’s useful to bring to the front of the call. So anything on just the signals you’re watching and how the end of life event is taken into account, all very useful. Thanks.

Joe Binz: Great. Thanks for the question. I think I’d like to start with our cloud revenue guide of 25% to 30%, that assumes the macro headwinds in FY ’23 persist into FY ’24 and that migrations from server and data center will continue to be strong contributors to cloud growth approximately 10 points. So we do expect the momentum that we’ve seen in ‘23 on that front to continue. The low-end of our cloud guidance range assumes continued macro weakness throughout FY ‘24, as well as some macro impact areas that have held up really well in FY ‘23, like churn, upsell and migrations. Finally, we do expect cloud revenue growth rates to gradually improve throughout the year, driven by the easier prior year comparables that we have in the second-half of the year.

Now you mentioned data center. In terms of data center, we do expect decelerating revenue growth rates in FY ‘24, driven by a few things: first and foremost, lower migrations from server following the server end of support. We do expect greater migrations from data center to cloud as we remove migration blockers and enhance our cloud offering, and then of course, data center has difficult prior year comparables in the second-half of the year. And then finally, we expect a steep decrease in our server revenue up to end of support in February 2024, at which point we’ll no longer recognize any further revenue. So that’s a general outline of how we’re thinking about that for next year.

Operator: Your next question comes from Keith Weiss from Morgan Stanley. Please go ahead.

Sanjit Singh: Thank you for taking the questions. This is Sanjit Singh for Keith. How does, you know, one of the challenges in the last couple of quarters is sort of the screen to pay conversion. The letter suggested that was still, sort of, an impact again this quarter. Just wanted to get a — as we go into next year, just wanted to get a sense of, what it would take to sort of reignite growth in that segment of the customer base. Is it something just a better macro, or there’s things on the funnel side, the sales side, the execution side that could help create bigger rates in that part of this.

Cameron Deatsch: Yes. This is Cameron. I’ll speak to the new customer number. So in Q4, we definitely saw, that continued downward pressure on our free to paid conversion that we’ve been speaking about largely through the last four quarters or so. And although we do continue to increase the total number of free customers out there in the pool and service those customers year-on-year, simply those customers are slower to take out credit card and purchase our software, which is fine. We can be patient and convert them over a longer period of time. The bigger shift that we saw between Q3 and Q4 was actually due to something that we had full control of. As we look to our budgets, and we are very diligent with all of our budgets this year, but we really went into our marketing campaign spend and marketing campaign budgets and looked at ROI of those investments.