Enterprise productivity software company Atlassian Corp. Plc. posted strong second-quarter financial results today, easily beating expectations thanks to a surge in demand for its products.

The results come at a delicate time for Atlassian, which sells project management and collaboration software for developers and engineers, including products such as Jira, Confluence and Bitbucket. The company spent the best part of last year warning investors that the coronavirus pandemic could hurt its business because of its exposure to small businesses and monthly cloud contracts that could be canceled at any time.

The company is also evolving its business model by ending server license sales to try push its customers to cloud subscriptions.

Nevertheless, Atlassian reported a profit before certain costs such as stock compensation of 37 cents per share on revenue of $501.4 million. That’s up 23% from the same period a year ago, smashing its own targets from three months ago. It easily beat Wall Street’s targets of 32 cents per share in earnings and $471.66 million in revenue, too.

Atlassian co-founder and co-Chief Executive Scott Farquhar (pictured) said the strong results reflect the company’s progress toward its long-term goals. “We crossed $500 million in quarterly revenue for the first time and drove subscription revenue growth of 36% year-over-year,” he said.

He added that Atlassian’s total customer base “rose to 194,000, an increase of over 11,600 during the quarter.”

During the quarter Atlassian launched Jira Service Management, which is a cloud-based offering that integrates its Jira Service Desk product with various incident management, real-time-communications, and configuration and asset management tools. Atlassian will end new server license sales for Jira Service Desk and other products on Feb. 2 and end its support for all server products by Feb. 2, 2024 as part of its push to get customers to sign up for that cloud-based service.

As a result, Atlassian said in a letter to shareholders today, it’s expecting some big changes:

In Q3, we continue to expect the overall server revenue growth rate to decline from Q2. That said, with the end of new server license sales and on-premises price changes effective February 2, 2021, we expect some server customers will purchase additional licenses and early renew their maintenance contracts. We did observe a modest amount of early renewal activity in Q2.

Subscription revenue will be the primary driver of growth. We expect to achieve subscription revenue growth in the mid-30%s consistent with the mid-term fiscal 2021 and fiscal 2022 targets articulated at Investor Day.

While the initial leading indicators are encouraging, migrations will have only a modest impact on fiscal 2021 revenue. We continue to expect this revenue driver to build steadily over time. As shared at Investor Day, we expect half of our server customers will migrate in fiscal 2023 and beyond. It’s important to note our assumption that medium and large-sized customers, which have a greater impact on revenue, will take more time to migrate than smaller customers. Of this cohort, we estimate that approximately two-thirds will migrate after fiscal 2022.

Analyst Charles King of Pund-IT Inc. told SiliconANGLE that Atlassian’s quarterly results show that it has executed well on its cloud subscription-focused strategy, with the growing demand for its products most likely the result of the coronavirus pandemic that has forced companies to support employees working from home.

“That trend seems likely to continue even after COVID-19 begins to fade,” King said. “As we’ve seen with other collaboration and productivity players, cloud-based subscriptions appear to be the future of these solutions. If that’s correct, Atlassian should continue to profit as one of the vendors that businesses engage to support employees and teams wherever they work or reside.”

Atlassian said that it’s projecting a third-quarter profit of 20 to 21 cents per share on revenue of between $475 million and $490 million. That compares with Wall Street’s forecast of earnings of 25 cents per share on revenue of $472 million.

Atlassian’s stock was up by about 2% in after-hours trading.

Photo: Atlassian/Facebook