Expectations were high going into productivity-software provider Atlassian's (TEAM 2.18%) fiscal 2019 second quarter. The company has had an impressive run since its market debut just three years ago, with its stock more than tripling in value.
Atlassian delivered across a wide variety of metrics that show that the company's strong growth is still on course. Let's take a look at how Atlassian delivered on the most important of these benchmarks and what it reveals about the company's future prospects.
1. Revenue grew 39%
In the company's earnings report released on Jan. 17, total revenue grew to $299 million, up from $214.6 million in the prior-year quarter. This 39% increase is all the more impressive as it's on top of a 43% year-over-year gain in last year's second quarter. This came in significantly higher than the company's forecast, which topped out at $289 million and was ahead of analysts' consensus estimates of $288.3 million.
These gains were driven by subscription revenue of $152.5 million, up 56% year over year, while maintenance revenue grew to $97.2 million, an increase of 21%. Sales of perpetual licenses and other revenue grew by 20% and 57%, respectively, against the prior year.
On the company's earnings conference call, CFO James Beer was quick to point out that, due to upcoming price increases on Atlassian's Jira Server, numerous customers opted for early annual or multiyear renewals. "We did see a significant volume of Q2 transactions coming in ahead of the server price increases taking effect." This may result in some slower sales later in the year.
2. Adjusted earnings per share nearly doubled
Atlassian reported net income of $61.7 million, an increase of 93% year over year. This led to adjusted earnings per share of $0.25, up from just $0.13 in the prior-year quarter, exceeding the company's ambitious estimate of $0.21.
The spike in earnings was driven by adjusted operating margins of 25%, which increased by 300 basis points year over year, exceeding the company's guidance of 22%.
3. Added 6,551 new customers
The company continued the strong customer growth it's notched in previous quarters. Atlassian ended the second quarter with 138,235 customers holding an active subscription or maintenance agreement. The acquisition of Ops Genie during the quarter added 1,396 to total customer count, while organic growth added 5,155. Atlassian co-founder and CEO Mike Cannon-Brookes also observed on the conference call that Jira Software alone had surpassed 65,000 customers. "This is more customers than the entire company had when we went public three years ago," he said.
Cannon-Brookes also sees a sizable ongoing opportunity for growth among the company's existing customer base. "So if they've got 10,000 employees, they might start with a 50-person team somewhere. And our job is to continue to deliver value to them over time so that they will grow into [a] 100-person customer for us, then 1,000-person and hopefully to a 10,000-person customer."
4. Cash flow is soaring
Operating cash flow for the quarter was $130.4 million, while free cash flow grew to $122.6 million -- up a massive 81% year over year. This added to Atlassian's stockpile of cash on the balance sheet, which topped out at $1.6 billion, even after its $295 million acquisition of OpsGenie.
CFO Beer expressed confidence in the company's cash position. "Our ongoing free cash flow generation provides us with substantial financial flexibility. So we're very pleased by that given the scale of the market opportunity that we have in front of us ... [and] the continued progression of our cash flow results."
The investor perspective
The company delivered on all the metrics that matter this quarter. Only about half of Atlassian's customers have upgraded to Jira Software, leaving a significant pool to draw from. Add in the recent acquisitions of OpsGenie and Trello and it's easy to see the broad runway Atlassian has to continue its growth streak.
Check out the latest Atlassian earnings call transcript.