Collaboration and productivity software company Atlassian (TEAM +8.26%) reported its fiscal first-quarter results after the market closed on Oct. 18. A massive non-cash charge knocked down reported earnings, but both revenue and adjusted earnings grew at an impressive pace. Here's what investors need to know about Atlassian's first-quarter results.
Atlassian results: The raw numbers
|
Metric |
Q1 2019 |
Q1 2018 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$267.3 million |
$195.5 million |
36.7% |
|
IFRS net income |
($242.4 million) |
($11.5 million) |
N/A |
|
Non-IFRS net income |
$49.2 million |
$32.5 million |
51.4% |
|
Non-IFRS earnings per share |
$0.20 |
$0.13 |
53.8% |
Data source: Atlassian. IFRS = International Financial Reporting Standards.
What happened with Atlassian this quarter?
- Atlassian reported a large net loss due to $244.7 million of non-cash charges related to marking to fair value the exchange feature on the company's exchangeable senior notes and related capped calls.
- Atlassian ended the quarter with 131,684 customers on active subscriptions or maintenance agreements. The company added 5,888 net new customers during the quarter.
- Subscription revenue was $134.1 million, up 55.2% year over year.
- Maintenance revenue was $92.7 million, up 21.7% year over year.
- Perpetual license revenue was $21.8 million, up 12.3% year over year.
- Other revenue was $18.7 million, up 39% year over year.
- Cash, cash equivalents, and short-term investments totaled $1.8 billion at the end of the first quarter, up from $1.73 billion at the end of the fourth quarter of 2018.
- Atlassian produced operating cash flow of $84.9 million and free cash flow of $74.2 million. Free cash flow was up 18% year over year.
- Atlassian announced the $295 million acquisition of OpsGenie on Sept. 4. The transaction closed on Oct. 1.
Atlassian provided the following guidance:
- Second-quarter revenue is expected to be between $287 million and $289 million, up 35.5% at the midpoint from the second quarter of 2018.
- Second-quarter gross margin is expected to be roughly 86% on a non-IFRS basis, with a non-IFRS operating margin of 22%. Non-IFRS earnings per share of $0.21 are expected.
- Full-year revenue is expected to come in between $1.175 billion and $1.183 billion, up 34.9% from fiscal 2018.
- Full-year non-IFRS earnings per share of $0.78 are expected, driven by a non-IFRS gross margin between 85% and 86%, and a non-IFRS operating margin of 20%.
A screenshot of Atlassian's project tracking software Jira. Image source: Atlassian.
What management had to say
During the earnings call, CFO James Beer reiterated that he expects the company's shift to the cloud to put pressure on gross margins: "We do still believe that over time as we have more and more of our mix of business move to the Cloud that we would see a gradual pressure downward on gross margins. ... I would expect a lower gross margin over the remainder of the year."
Co-CEO Scott Farquhar provided some details on the company's acquisition of OpsGenie: "They have about 3,000 customers at the moment, and the biggest thing we can do is introduce our 130,000 Atlassian customers to OpsGenie. The product itself is a fantastic product, fully featured, and we're really excited [to] introduce our customer base to that product, and it's definitely a big need in the market."
Looking ahead
Atlassian continued to produce consistent revenue and adjusted earnings growth in the first quarter, and its guidance calls for more of the same in the second quarter. Beer expects "modest annual increases in our operating and free cash flow margins over time," meaning that those cash flow numbers should grow a bit faster than revenue.
Atlassian's OpsGenie acquisition isn't quite as big as its acquisition of Trello last year, and it doesn't come with a large base of non-paying users that can be converted into paying users over time. But it does further fill out Atlassian's portfolio of products, which should help keep the company growing.
