TEAM is a monster

Investment Analysis Clubs Saul’s Investing Discussions
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I starting to look at TEAM because of their absolutely dominate market position. Initially I was put off by their relatively “pedestrian” grown(i say that a little tongue in cheek) of 36-39% in combination with a relatively robust EV/S of 20. Then I noticed TEAM puts out HUGE amounts of free cash flow.


              Rev         FCF    FCF margin    Rev Growth + FCF margin
2018 Q3     223            86           38%              78%
2018 Q4     243.8          64           26%              66%
2019 Q1     267.6          74.2         27%              64%
2019 Q2     299            122          40%              80%

Rev Growth + FCF margin is a rough way to compare a company that is growing really quickly. Think MDB, AYX, OKTA but may not have as much free cash flow generation…i.e they are burning money for that revenue growth. NTNX was talking about how rare it is for a company to hit the rule of 40…well for TEAM you might was well call it the rule of 60!

For example from their latest quarters
Rev Growth + FCF margin
AYX 68% 58% revenue growth and 10% FCF margin
OKTA 59% 58% revenue growth and 1% FCF margin
MDB 42% , 57% revenue growth and negative 15% FCF margin

Not only that but team has been a good steward of their shareholders.

Weighted shares outstanding have grown on average a little over 3% year over year. (note, was easiest to find weighted shares outstanding. Ok to use in this case as the share count isn’t changing dramatically within a quarter)

Share count starting at q3 2018 and going to q2 2019


Share count   YOY% change
232221           3.9%
234206           3.7%
236219           3.5%
237740           3.2%

Anyway, I was pretty darn impressed by their cash generation, their market position, revenue growth, and acquisitions along the way. Worth a good look.

-e

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2

Interesting, Ethan. Hmmm. I haven’t looked at TEAM yet. Is the company’s deferred revenue balance growing to make up the gap or is there another?

Chris

3

Being an Aussie boy what can I say about TEAM but wohoooooooooo !

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Regarding TEAM, their products are great. The people I know who use them, love them, and you’d have to pry Jira from their cold, dead, hands.

I struggle some with its valuation but I’m probably going to buy it soon.

Rob

5

TEAM’s products, including Jira and Trello do look like monsters. Everywhere and loved. TEAM would have been (another) great stock to have been in over the last year. Many have done well with it.

They are very important to the enterprise world as that Okta report clearly laid out.

Growing at 39%, Should they be in the P/S 25(ish) club?

Here’s what TEAM says about their revenue from the shareholder letter.

https://s2.q4cdn.com/141359120/files/doc_financials/2019/q2/…

Subscription revenue primarily relates to fees earned from sales of our Cloud products. The remainder of this revenue relates to sales of our Data Center products, which are Server products sold to our largest enterprise customers on a subscription basis. We typically recognize subscription revenue ratably over the term of the contract. For Q2’19, subscription revenue was $152.5 million, up 56% year-over-year.

• Maintenance revenue represents fees earned from providing customers updates, upgrades and technical product support for our perpetual license products. Maintenance revenue is recognized ratably over the support period, which is typically 12 months. For Q2’19, maintenance revenue was $97.2 million, up 21% year-over-year.

License revenue is related to fees earned from the sale of perpetual licenses for our Server products, and is recognized at the time of sale. For Q2’19, license revenue was $25.8 million, up 20% year-over-year.

• Other revenue includes our portion of the fees received from sales of third-party apps in the Atlassian Marketplace, and for training services. For Q2’19, other revenue was $23.5 million, up 58% year-over-year.

So they break it out in 4 segments: subscription, maintenance, perpetual license, and “other”.

Subscription is the growth story at 56% yoy down from 70% growth in Q2 2018. It makes up 51% of total revenues compared with 45% of revenues 1 year ago. Not rapidly becoming the majority, but gaining ground.

Maintenance revenue may be considered “subscription” to some other companies as it’s ratable over time, but it’s slow growth because it’s related to perpetual license which is also lower growth.

Other is lumpy with growth rates ranging from 39%-58% over last few quarters and is a smaller base. Helpful but unclear if it’s a driver.

Clearly a good company that will continue to grow and beat the market. Not sure whether their story justifies the high multiple or multiple expansion from present levels. May be something to watch and reconsider on a pull back.

Just my .02

Darth

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My software company uses Jira, Confluence and Bitbucket. Jira is the nerve center of our development change control process. I know lots of other companies that use Jira in a similar fashion. Those that I know who use Jira are totally committed and bound by it. It’s very versatile and easy to customize to individual needs, and has very flexible reporting capabilities, so it is a very powerful tool. Best of all is that it is very easy to learn so people can get up to speed very quickly.

I’m not a shareholder yet, but it is on my radar for next opportunity to deploy available cash. The stock is on fire, with price still rising while volume is declining. That worries me a bit since all the indicators are suggesting it is overbought right now. A slight pullback to th 20-day MA would be a nice entry point, but probably unlikely.

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Ethan, I totally agree and am long and have posted on this on and off. I have also mentioned it in a comparison we are doing vs ServiceNow (another great SaaS that does not get enough attention here).

Users love this company and its products and it generally grows by word of mouth. It subscription service is growing organically and by conversion of licenses. It has great prices to lower-user trials that let you see how great it is before you expand your user licenses and and expand the components you purchase.

Its growth ranks are top notch and should pique some interest on this board

Checklist…Rating
Composite Rating 99 Pass
EPS Rating 99 Pass
RS Rating 98 Pass
Group RS Rating A+ Pass
SMR Rating A Pass
Acc/Dis Rating B+ Pass

Some stats
FUNDAMENTAL PERFORMANCE FOR TEAM
Current Earnings

EPS Due Date 04/17/2019
EPS Rating 99
EPS % Chg (Last Qtr) 92%
Last 3 Qtrs Avg EPS Growth 63%
# Qtrs of EPS Acceleration 3
EPS Est % Chg (Current Qtr) 80%
Estimate Revisions
Last Quarter % Earnings Surprise 19.0%

Annual Earnings

3 Yr EPS Growth Rate 27%
Consecutive Yrs of Annual EPS Growth 4
EPS Est % Chg for Current Year 58%
Sales, Margin, ROE

SMR Rating A
Sales % Chg (Last Qtr) 39%
3 Yr Sales Growth Rate 39%
Annual Pre-Tax Margin 20.4%
Annual ROE 13.7%
Debt/Equity Ratio 92%
TECHNICAL PERFORMANCE FOR TEAM
Price And Volume

Price $103.91
RS Rating 98
% Off 52 Week High -3%
Price vs. 50-Day Moving Average 13%
50-Day Average Volume 1.7 Mil
Supply And Demand

Market Capitalization $24.7 B
Accumulation/Distribution Rating B+
Up/Down Volume 1.3
% Change In Funds Owning Stock 8%
Qtrs Of Increasing Fund Ownership 7

Pete’s secret stock to watch: Paylocity (PCTY). Very strong growth numbers, SaaS, Pay/HR (like Paycom, Ultipro, etc).

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Hi Ethan -

What is the “rule of 40?”

Thank you for a great write up.