Solid cloud revenue drives Atlassian's total Q1 revenue up by 34%

Atlassian has reported that its customers have continued to transition from its server products into the cloud.

Atlassian has reported that the "ripper close" the company experienced in FY21 continued into Q1 FY22, with total revenue growing 34% year-on-year from $460 million to $614 million.

The company attributed the total revenue growth to the 57% year-on-year uplift to $435 million in total subscription revenue. This compromised of $318 million in cloud revenue, which was up 53% year-on-year, data centre revenue contributed $111 million, server pitched in $139.5 million, and the remaining $45 million was marketplace and services revenue.

During the quarter ending 30 September, Atlassian said its net loss was $400 million, or $1.59 a share. The net loss was due to Atlassian's exchangeable senior notes and related capped calls.

Operating income for the three months was $39.6 million, compared with the $11.9 million during the same period last year, while operating margin doubled year-on-year to 6%.

"A year after announcing the end of sales for our server products, migration momentum continues to build steadily," co-founders and co-CEOs Mike Cannon-Brookes and Scott Farquhar told shareholders on Thursday.

"Revenue from our cloud products grew 53% year-over-year with the help of strong premium edition adoption and the steady drumbeat of continual improvements to our cloud platform.

"All that said, migrating our server customers is a multi-year journey, with much of it still ahead of us. To help smooth the way, we consolidated all our migration content in our updated Atlassian migration centre this quarter. This hub serves as customers' one-stop shop, providing clear steps for progressing through each phase. Our original migration centre generated thousands of cloud migration trials in FY21, and we're excited to watch the updated version build on that success."

Atlassian ended Q1 with a total customer count, on an active subscription or maintenance agreement basis, of 216,500 customers, after adding 11,746 net new customers during the quarter.  

Meanwhile, total employee headcount was 6,912, an increase of 479 employees since the end of Q4 FY21.

"We hired across all major functions, with the largest number being added in R&D," Atlassian CFO James Beer stated.

Looking ahead to the next quarter, Atlassian said it expected to achieve total revenue in the range of $630 million to $645 million, gross margin of approximately 82%, operating margin in the range of -15% to -14%.

Additionally, it outlined it expects that subscription revenue growth year-over-year in percentage terms to be in the mid-40s for FY22, with subscription revenue growth rate to be higher in the first half of FY22 relative to the second half, plus cloud revenue growth rate to accelerate relative to FY21.

"While our cloud migration progress is tracking to plan, we continue to believe we have a multiyear migration journey ahead of us. As a result, we continue to expect variability in our revenue growth as customers choose the timing of when to migrate to our cloud or data centre offerings. We believe this variability will be transitory as we work through our cloud-first transformation," the company said.

The company also took the opportunity to remind the market of the discontinued sales of new server licences in Q3 FY21, with upgrades of existing server licences to continue to be available to customers through Q3 FY22.

"We will continue to offer maintenance and support to server customers until February 2024," Atlassian noted.

Atlassian also added that the server business will be the primary driver of any variability the company experiences in this year's results. 

"We are assuming maintenance revenue slowly contracts over the course of FY22. In Q4'22, we expect maintenance revenue to decline to approximately $100 million," the company said. 

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