Atlassian Puts Growth Before Profits

Team collaboration and productivity software provider Atlassian (TEAM +2.65%) reported its fiscal fourth-quarter results after the market closed on July 27. Revenue grew by more than 30% year over year, although rising costs pushed up the company's net loss. Adjusted profit fared better, but it rose slower than revenue. Here's what investors need to know about Atlassian's fourth-quarter report.

Atlassian: The raw numbers

Data source: Atlassian. IFRS = International Financial Reporting Standards.

Image source: Atlassian.

What happened with Atlassian this quarter?

• Atlassian had 89,237 total customers on an active subscription or maintenance agreement at the end of the quarter, up 46% year over year. Atlassian added 4,206 net new customers during the fourth quarter.
• Subscription revenue rose 66.3% year over year to $72.5 million.
• Maintenance revenue rose 21.8% year over year to $71.6 million.
• Perpetual license revenue rose 8.1% year over year to $19.4 million.
• Other revenue rose 48.7% year over year to $10.8 million.
• Cash, cash equivalents, and short-term investments reached $549.9 million at the end of the quarter, up from $503.6 million at the end of the third quarter.
• Atlassian generated $50.6 million of operating cash flow and $44.5 million of free cash flow during the fourth quarter.
• Atlassian CFO Murray Demo will be leaving the company on Dec. 31. The company has not yet begun searching for a replacement.

Atlassian provided the following financial targets for the first quarter of fiscal 2018 and for the full year:

• For the first quarter: Revenue between $184 million and $186 million, IFRS operating margin of negative 18%, non-IFRS operating margin of 17%, IFRS loss per share of $0.11, and non-IFRS earnings per share of $0.09.
• For the full year: Revenue between $826 million and $834 million, IFRS operating margin between negative 15% and negative 16%, non-IFRS operating margin between 18% and 19%, IFRS loss per share between $0.44 and $0.46, and non-IFRS earnings per share between $0.42 and $0.44.
• Free cash flow is expected between $230 million and $240 million for the full year.

What management had to say

Atlassian co-CEO and co-founder Scott Farquhar commented on the company's year:

Fiscal 2017 was an amazing year for Atlassian. Our continued success was driven by our commitment to building great products that help unleash the potential of teams for more than 89,000 customers globally. During the past year, we invested in our products and platform to support more cloud and enterprise customers, and complemented our product family with the additions of StatusPage and Trello -- the two largest acquisitions in our history. We also achieved strong financial results, growing annual revenue to more than $619 million, and generating more than $183 million of free cash flow.

In Atlassian's letter to shareholders, the company detailed its progress winning large customers:

Consistent improvements to our products and services for enterprises have propelled our growth with larger customers. At the end of fiscal 2017, we had 1,817 customers spending $50,000 or more with us annually, compared with 1,245 customers at the end of fiscal 2016. Additionally, we had 75 customers with spend of $500,000 or more over the course of fiscal 2017, compared with 37 in fiscal 2016.

Looking ahead

Atlassian closed out a strong year, with revenue soaring 36% and free cash nearly doubling. It should be noted that the company is still unprofitable on a IFRS basis, with the discrepancy due to stock-based compensation and, in the case of free cash flow, growing deferred revenue. Atlassian posted an IFRS loss of $42.5 million in fiscal 2017, down from a $4.4 million profit in 2016.

Atlassian's acquisition of Trello earlier this year added millions of free users, and the company now has the opportunity to convert those users into paid customers. Atlassian will need to keep up its double-digit growth rate, given its lofty valuation, in order to keep investors happy.