Atlassian Corporation (NASDAQ:TEAM) Q2 2023 Earnings Call Transcript

Atlassian Corporation (NASDAQ:TEAM) Q2 2023 Earnings Call Transcript February 2, 2023

Operator: Good afternoon. And thank you for joining Atlassian’s Earnings Conference Call for the Second 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 second 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 second 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.

Photo by Juanjo Jaramillo on Unsplash

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, assumptions only as of the date such statements we 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 quarter and quarterly reports. During today’s call, 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, 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 Mike for opening remarks.

Mike Cannon-Brookes: Thank you all for joining us today. As you have already read in our shareholder letter, we closed out 2022, proud of everything we have accomplished in yet another unpredictable year. Despite the current macroeconomic environment, the massive opportunities in front of us has not changed. We continue to make great strides towards our long-term goals and we are ready to execute with relentless focus in 2023. We have achieved a ton this quarter, shipping many platform enhancements and product features that deliver incredible value to delight our customers in the cloud, including delivering data residency in Germany, launching automation in Confluence, helping our customers to the cloud with migrations up nearly 2x from the prior year and completing several of our largest migrations to-date and showcasing our unique position in the ITSM market with impressive customer growth, multiple large swap-out stories and recognition as a leader by industry analysts and these are just a handful of examples.

We have always prioritized putting our customers first and we are seeing customers increasingly turn to Atlassian as a trust vendor asking how to operate their businesses better. 2023 will be all about helping our customers navigate these challenging times, absorbing the downstream impacts on our business and setting ourselves up for continued long-term success. With that, I look forward to your questions and I will pass the call to the Operator for Q&A.

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Q&A Session

Operator: Your first question comes from Gregg Moskowitz from Mizuho Securities. Please go ahead.

Gregg Moskowitz: Okay. Thank you very much, and good afternoon, everyone. So it sounds like the macro has had no impact on migration activity so far, even though really, you are seeing it in some other areas. You are still expecting migrations to add 10 points of cloud revenue growth this year. But in an environment where customers are clearly tightening their belt, why is it that you think migrations will continue unabated? Is the TCO advantage strong enough to compel customers even though they have to make a financial commitment, is the end of support date having a real impact there as well, any color would be helpful? Thank you.

Cameron Deatsch: Hey, Gregg, this is Cameron. I will start off with some details and then I will probably let Mike add some more from what he’s seeing. So, as you already know, more than two years ago, we announced the upcoming end of life of our server products, and ever since then, we have been on this migration journey, helping our on-premises customers move from both server and data center to our cloud offerings. And I have to say that even in the uncertain macroeconomic times, every day that goes by, I am more confident in our ability to not only attract our customers to the cloud, but convince them of the additional ROI savings that going to our cloud, the additional benefits from a feature perspective, from there we have been able to get increasing our ability to get through the contractual, legal and data privacy aspects and move to our customers to the cloud.

We made huge strides in actually migrating their data and their users to the cloud and then from there actually onboarding their users so they understand the new experience. This obviously can be an extremely complex exercise. But once again, we are two years into this and every single day goes by, we have been getting better. I also want to recognize that we purposely built an engineered kind of this path over this three-year timeframe, using loyalty discounts, improvements in our products, so it would provide compelling events along the way for our customers to move. And this just further establishes the demand for our migrations and we continue to feel strong about that additional 10% growth that we see coming from migrations going forward.

Mike, do you have anything to add?

Mike Cannon-Brookes: Yeah. Thanks, Gregg. Look, I just wanted to say, it’s incredibly important in this environment to help our customers through as well and you talked about the TCO of moving to the cloud. I do think in an environment where customers are looking to get efficiency to optimize their spend, there’s increasing recognition that the cloud itself is a great ownership model for them. It’s a cheaper way for them to run and own and operate their software. And secondly, the benefits of the platform that we have built and the integration across our products, especially as they are experimenting and trying new things, allows them to consume more of Atlassian’s products, and at the same time, do so while making their businesses more efficient, which is what our job is to help them become more efficient businesses, especially in these difficult times. So I think we are really well positioned in that way.

Gregg Moskowitz: Okay. Very helpful. Thank you, guys.

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