Q2 2020 Earnings Call

Your company names.

[noise] Ita A.I.E.R.A.

And your telephone number.

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And your line will be and hold at delinquent France begins.

Thank you.

Good afternoon. Thank you for joining Atlassians earnings conference call for the second quarter fiscal 2020.

As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Atlassians website. Following this call.

I'll now hand, the call over to mass sauna felt atlassians head of Investor Relations.

Good afternoon welcome to it last in second quarter fiscal 2020 earnings conference call. It's great to join this incredible team.

On the call today, we have Atlassians co founders and co Ceos, Scott Farquar and my Cannon Brooks, our Chief Financial Officer, James Beer, and our President Jason.

Earlier today, we issued a press release in a shareholder letter with our financial results and commentary for our first for our second quarter fiscal 2020. These items were also posted on the Investor Relations section of the last scenes website on our IR site. We have also posted a supplemental presentation datasheet during the call. We'll make brief opening remarks, and then spend the remainder of time.

On QNX.

Statement made states statements made on this call include forward looking statements forward looking statements involve known and unknown risks uncertainties and other factors that may cause our actual results performance or achievements to be materially different from any future results performance or achievements expressed or implied by the forward looking statements you should not rely upon forward looking statements is predictions of future events.

Forward looking statements represent our management's beliefs and assumptions only as a date such statements are made.

Further information on these and other factors that could affect the Companys financial results are included in filings, we make with the Securities and Exchange Commission from time to time, including the section titled Risk factors in our most recent 20-F in quarterly report on form 6K.

In addition, during today's call we will discuss nine IRS financial measures. These non I FRS financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with I FRS. There are a number of limitations related to the use of these non I FRS financial measures versus their nearest I FRS equivalents.

There may be different from non IRS and non-GAAP measures used by other companies reconciliation between I have for us and non IRS financial measures is available in our earnings release, our shareholder letter and in our updated investor Datasheet on our IR website.

During Q and aim. Please ask your full question upfront. So that we can more easily move to to the next person with that I'll now turn the call over to Mike for opening remarks.

Thanks, everyone for joining the call today and for your continued support.

Q2 was a strong quarter, we grew revenue by 37% year over year and posted record levels of profitability and free cash flow.

We also added over 5000 net new customers during the quarter and now have well over 164000 customers.

During Q2, we made continued progress against our long term goals.

We are constantly focused on long term opportunities.

Including how we hope teams calibrated through our products, how we win in large markets and how we continue to scale a durable business.

This quarter's product highlights connected those things, we topped $1 billion in lifetime revenue through the Atlassian marketplace.

Driving customer value through a large developer ecosystem has been one about continued long term focuses.

The launch of forge, a new cloud App development platform reinforces the value, we create for customers by making it easier and cheaper for developers to build cloud apps on the at last year and platform.

We do have bittersweet news to share this quarter, a longtime president Jay Sergeants has decided to leave it last seen in July for New Adventures.

Jay helped us pioneer our unique low friction customer centric business model over the last decade.

He is also built an incredible sales and marketing leadership team to continue to drive that growth.

Jay is a permanent part of our culture.

And while we have a few months left to ensure a smooth transition will miss his presence in the office daily.

We provide more detail on these announcements and many other updates in our shareholder letter that we issued earlier today.

And with that I'll pass the call to the operator for Q and <unk>.

Thank you.

Ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q and a roster.

Your first question comes from the line of Derrick Wood with Cowen and company go ahead. Your line is open.

Great. Thanks.

James I wanted to ask about the comment in the shareholder letter about the pull forward effect.

And.

You did mentioned you pull forward from second half 20 in fiscal 21, but you did raise.

The fiscal year guidance by more than.

Your Q2 beach, so just trying to get a little sense of where that shows up I suspect maybe more on the bookings in deferred and billing side.

If you could give us any color on how to think about the impact to billings growth as we move into the second half that'd be helpful.

Sure well first of all a I'd like to stop by saying, how pleased we well with the overall level of demand right across the organization across our products across all our deployment options and indeed across geographies and.

So yes, there was some pull forward activity. The played out in Q2, but even with that we were pleased to be able to a record. The revenue result versus our original guide.

And in terms of.

The the guide for the full year, yes, Youre quite right, we were able to add both the degree to which we beat in the quarter.

As well as some additional monies and that's really reflective of our overall level of.

Confidence in the top line environment.

So.

In terms of Oh, the billings part of your question first thing is really like to also.

I remind you office as we've talked quite a few times in the POS we really focus on revenue as our primary topline measure and that's because our model is really quite different so that of the typical enterprise software company you recall, what a significant proportion of our business is booked.

On an annual cycle, you the maintenance or annual subscriptions and in fact.

Cloud business recall more than three courses of that is recorded on a on a monthly subscriptions. So.

Very much illustrate saw orientation towards the revenue line.

That said a.

Clearly the deferred revenue accounts give you a sense for the degree of the pull forward. In addition to what I would put at about a $10 million beneficial effect at the revenue line.

If you look at said the deferred revenue lines in contrast historical activity sequentially quarter to quarter.

Pull out the there was a pull forward benefit.

In the actually live approximately 50 million five zero.

And I would expect that to most primarily a draw reflects that revenue would be drawn away from Q3.

But the long term deferred revenue results on the sequence of of that line item also gives you a feel for the amount of activity that we booked in Q2, the was relating to contracts that will become earned more than the.

From now.

So takes a setback, yes pull forward activity both in the revenue line and the deferred revenue lines.

But still very pleased with the as the underlying organic revenue growth rate that we generated across our product set.

Great certainly an impressive quarter and thanks for the color.

Okay.

Your next question comes from the line of Nikolay Beliov with Bank of America. Please go ahead, Sir your line is open.

Hi, Thanks for taking my question James I was wondering if it can comment on the behavior of the datacenter customers in the quarter, but I want this to your expectation in light of the.

That they had the purchase price increase there and lumped them D.R. came in probably a little bit higher than we fall then and my understanding was that you were cautiously trying to limit the number of multi year kind of like a grandfathering of deals I was just wondering what the so there. Thank you.

Yeah sure.

Certainly.

Our datacenter business had a strong quarter.

We recorded.

A year impressive volume of new unit sales, but you're right. Yes. This was the first price increase that we had rolled out for our datacenter products a few months back and so we did see pull forward activity related to our day to send to customers see these customers tend to be larger.

Than the average for us and I think the degree of second quarter activity in terms of a pull forward as the somewhat related to fight that those types of companies larger scale companies take a little longer to get through their a decision, making and approvals process.

I think it's also important to note that our partners had an important role to play in the pull forward activity generally.

And we've seen this in prior years.

I think we've talked in the past about we have a a significant or a proportion of our total partner base.

Located in Europe , and Asia, and so we saw quite significant so pull forward activity there.

Being driven by those entity is yes, we we had a reduced the lengths of a renewal a early renewal from three years, which was the case last year down to a two year maximum this year.

But the long term deferred revenue result, just really illustrated the depth of demand.

The interest level in committing to atlassians products for the longer term.

This was a.

Very much illustrated in the datacenter business in particular.

Thank you.

Your next question comes from the line Ittai Kidron with Oppenheimer. Please go ahead, Sir your line yourself.

Thanks, Congrats on great quarter, great results.

I again regarding to the pull in effect up I guess I'm trying to take a different approach here.

I'm sure that every year, where do you try to figure out what the price adjustments are you going to make before to calendar year end you have certain outcomes in mind and clearly this exceeded your expectations quite materially.

I guess, what what can I learn from the add on and what was your ultimate price adjustment could it be dead why can't I read this to me in your price increases were quite significant and just.

Forced a signal a greater portion not for a customer base to pull in them otherwise.

Well.

So we've spoken about before when we rolled out those price increases.

Fytwenty.

We expected the the total aggregate effect on our revenue growth rate in fiscal 2020 to be about the same as that that we saw in fiscal 19 and that breaks down across our deployment options a little differently.

So as we've just been mentioning this was the first year for datacenter price increases.

Server price increases were driving proximately similar outcome in fiscal 2000 see versus fiscal 19.

And on the trial outside we projected a lesser impact on revenue growth rate in fiscal 20 versus fiscal 19 and things continue to play out a along the lines of of our original expectations.

So nothing particularly to observe there.

I think.

The pull forward volumes that we saw a a really just illustrative of.

The effectiveness of our partners there clearly expecting.

The price increases that we rolled out three or four months ago now.

And they have.

Taken masses, a specific event that has allowed them to drive.

Well additional level of sales activity in their markets and again, we feel so that's just illustrative of the underlying demand for our products and the the desire to commit to them over the longer term.

And maybe the only thing to add I you know, we said it before like nationally any given year, there's lots of puts and takes like some products are going to move up some are going to stay the same and some tiers their products will move up somewhat moved down I'm sort of lots of different Dow that we're turning just a reminder, that pricing philosophy for us is bedrock and that doesn't change want to remain.

The high value low price.

Leader.

Give people ways customers easy easy ways to start and lots of great ways to grow with that Theres, absolutely no change there and I think maybe another question, you're not asking or or or maybe asking or someone will ask later customer response to all of the changes in line with expectation I think thats the results of.

The time that we put into planning these changes in the really customer centric customer friendly approach to how we deploy them.

Very good good luck on thanks, Jay good luck to going forward.

Hi, Thanks.

Your next question comes from the line of Keith Weiss with Morgan Stanley . Please go ahead. Your line is open.

Okay. Thank you guys very nice quarter.

Question.

I think question about sort of the.

Corruption growth as it relates to maintenance growth and what anybody that is.

[laughter] growth has been really good solid at 50% plus growth you guys continue to drive that really well maintenance growth hasn't diminished at all on because of the sustained really call. It 20% plus there I was always under the impression that sort of part of this price increases what's kind of a characteristic approach it trying to push guys from on premise into the cloud it doesn't.

It seems like there's any real good indication and that maintenance space.

And he's a subscription.

Income from maintenance customers switching over or will we see that at any time in the future. This become more of like maintenance customers pushing over towards more cloud solutions.

Yeah, Keith Thanks for the question.

You're right certainly the maintenance line continues to be quite steady now they're a a few things going on within that line first of all we continue to be quite pleased with the progress of the rate and pace of customers coming over from our behind the firewall options of our data center over to.

To the cloud.

And so.

Within that maintenance line that obviously is reflective of server renewals.

We are benefiting now from a three or so years of price increases and so that's offsetting the natural.

Gradual decline and then the unit volume of some of those customers move over to the cloud.

Absent that effect, we continue to record very high renewal rates for the rest of the customers who continue to Oh utilize our server products at the moment.

The other line I, just really more draw your your focus to is of course the new.

The license line for the revenue accounts, and that's where the new a server based activity is recorded either a brand new customer or a current customer, adding additional new licenses.

And.

While we certainly have a good number of those current server customers expanding a the license count with US a part of what we were doing with our pricing strategy is particularly this past year was to make sure that there was every incentive available for a brand new customer to attack.

I see and to choose the cloud and so not surprisingly.

You would expect to see that license line a gradually decline over time.

Now.

This past quarter Q2, we recorded.

Low teens growth in that line.

So that was really more of a driver from the pull forward activity that we've been talking about quite a bit on the call already combined with of course, the effect of recent years price increases.

Got it that's super helpful. Thank you guys.

Your next question comes from the line of Ricci jewelry deal with D.A. Davidson. Please go ahead, Sir your line is open.

Hi, guys.

My question today.

Following up on the previous question.

What kind of conversion rate.

Yes.

Hey, Reshoots Jay here no specific quantitative color other than qualitatively, we're really happy with how it's performing and how its opening the operator and more and more more more more customers beginning to try the free additions of products that we've introduced and over the long term. That's a good thing. It just means we're getting more people to try the product that we.

Can grow.

And while it's early we would continue to look to the guide that we.

Laid out when we started the fiscal year as to the impact of free on the revenue.

Economics of the company is here.

Thank you.

Your next question comes from the line of Alex Kurtz with Keybanc capital markets. Please go ahead. Your line is open.

Yes. Thanks sure. Thanks for taking the question. If we just look at the subscription growth to 50% in the quarter. Obviously spent a lot of time, you're talking about pull forward effect, but maybe.

Dive into expanded seats.

New product expansion different types of larger customers that anything else that we can kind of look at it beyond just the price increase in what may have happened this quarter.

I would say all of the things that you mentioned we're at play.

In the quarter as they should be I think for that type of quarter that we turned into an addition to the pull forward effect that James mentioned in just the underlying performance of the businesses with where we wanted it to be so.

No no specific rabbit hole to chase on any of those things. They were all working in the way that we want it yeah and just a on the pull forward a there would be a modest element of that 10 million dollar revenue total that I mentioned earlier.

From the pull forward the would accrue to the subscription line because recall that the datacenter business is accounted for that.

And so that's what drives a little bit a pull forward effect, there, but the larger as single beneficiary of the pull forward revenue effect was of course the license line.

And then I think as we've talked about in the past the other revenue line, that's where we record our portion of our App vendor partners sales and often times, we see customers when there when they're recommitting to our products extending the the term of our products. They tend to do the same thing.

With their different App vendor partners as well and so that can drop some additional revenue into that other line.

Okay. That's helpful. Thank you.

Your next question comes from the line of our bodies with William Blair. Please go ahead. Your line is open.

Hi, guys. Thanks for taking my question.

James maybe since probably for you, but I think you had mentioned a 1% headwind from some of the cloud initiatives that.

They were rolling out this year.

During the Q4 call last year.

If I look at the growth rate in the first half the year. It's obviously held up very well definitely I imagine to some of the demand trends you've been talking about but is there any reason that we should think that that 1% headwind.

And the cloud initiatives plays out in the back half of the year or should we think of that is being embedded in the in the first half numbers that youve that youve put up already.

Well. Thanks for the question just a reminder, as to the three elements of that one point.

Revenue growth headwind that we talked about when we did our initial fiscal year guide.

So the first point was that we saw something up a change in our mix as we saw a as we expected more cloud growth relative to our other deployment options. So that has something of a Rev. Rec effect, particularly when you think about one of my earlier points in that more.

Than three courses of our cloud customers take a monthly subscription. So that was the first thought second the we were rolling out free additions of both Jira software and confluence and then also that we were offering free trials of our cloud products.

To customers, who currently utilize our server products and so forth. So those would the three drivers and.

I think it's fair to say that the free elements of those so two to three drivers would be more relevant to the back half of the year.

Because the free additions have been gradually rolled out.

In recent times.

And we would look to continue to.

Build up that gradual roll out as the year proceeds.

The mix effect, that's really much more of a gradual effect felt throughout the year.

Great. Thanks for taking my questions and congrats on a quarter.

Thanks.

Your next question comes from the line of Heather Bellini with Goldman Sachs. Please go ahead. Your line is open.

Great. Thank you and Jay Congrats and best wishes on your future endeavors.

Good question I wanted to start with Mike I was wondering if you can give us your view of how you see the market for collaboration software evolving and there's a lot of companies going after the market from different parts are different angle I guess I'm wondering can.

You know how do you see these converging at some point down the road do you see that happening and if so how do you see it playing out and also how are you feeling about the pace of adoption that you've seen as you start to add some of these adjacent offerings such as Trello, an opportunity how all of them. They they've been doing kind of versus what you would have it.

Back to it and then I've got to follow up for James.

Heather It's it's got great to get a question your tangible break.

[laughter] look I mean on a market sort of thing for collaboration I still think are in very early innings right. If you think about knowledge workers how much work is still down in.

Spreadsheets and email and other Documentations is Ah boy knowledge worker digitize business processes digitize in all departments in companies around the world.

There's a reason that we talk about targeting new fortune 500000, and the 800 million into a billing knowledge workers on the planet today, let alone that number itself growing.

We obviously feel very good about where we're positioned and how that market is evolving in lots of different devices from from charla, all the way out through a jira software across confluence ingest the horizontally et cetera. So.

I think we're incredibly bullish on on the overall spicing opportunity.

If I heard that spread between that and your question on opportunity in Trello and other things in terms reduction across our base I would go back to a long term philosophy right as pro James's answer on free on the previous question, we're rolling that out pragmatically across the basin across the products.

Oh, I've Q2, and then through Q3 in Q4, as we learn right with big on test measure learn I'm, taking slow steady steps and learning and moving forward.

It's no different when it comes the integration of acquisitions, it's no different when it comes to new products part of the durability and strength of our business has been.

You know, creating a very efficient business over a long term that patient and thinks about the future. It's no different when it comes to integrating charla integrating offs Genie et cetera.

Obviously, we've got some great great throwing numbers and obviously any numbers in a in the letter we're very excited about where both our in both for great.

Great product additions to our family for the for the long term.

But at the same time, we think about them over a five to 10 year timeframe and doing a rising by the customers over the long term.

Okay, great. Thank you and then James I had a follow up for you you gave some very helpful. Color. So thank you in regards to the you know the pull forward on on revenue and on the deferred revenue line as well.

So that was helpful. I just want to make sure just kind of thinking through expectations here and.

Based on some of your comment about.

The pull forward it is going to impact the second half of this fiscal year and the next year is it reasonable for us to be assuming that the sequential growth in short term de are in the March quarter is going to be less than what you experienced in Q3 last year and I bring it up just because that was it.

Period were similarly, you obviously had a great December and I know you guys measure yourself on a revenue basis, but then there was a lot of confusion in March I'm, just trying to think through kind of where where would you kind of be helping us think through.

Expectation just given how enormous this quarter was.

Yes Heather.

As you said, we don't guide to that line, but directionally. The the deferred revenues sequentially in Q2 was obviously very strong.

And so.

Of the order of about $25 million more than was the case in Q2 of last year.

And recall the Q2 of last year was the quarter in which we saw effectively the totality of the pull forward effect yep.

And so.

We'll see how how demand plays out in Q3 as I've said, yeah, we've been quite pleased with the underlying strength generally your absent this pull forward effect.

So.

But but clearly we do believe that there was a material volume that 50 million type figure that I referred to a little earlier.

That is sort of outside the normal sequential deferred trend line.

And one of the other things that I thinks relevant to how you're asking the question is that.

Whereas in some years past a this pull forward effect has been really very largely.

Renewals effect.

This year, we saw more of a balance I would say between renewals accounting for about two thirds of the total and about a third of the pull forward effect really in our judgment.

Coming from new activity.

It's easier for us obviously to tag the renewals, we know exactly when a customer is due to renew and so we can contrast that with when they actually do renew.

But we also looking great detail, let the trends around on new business.

And so hence my comment about two thirds renewal one thirds new activity.

With that that latter element is harder to predict so we'll see how much.

Typically our partners.

It was really driven this pull forward activity pretty consistently over the last three years, it's really not driven by our direct to the website type business, we'll see how that activity plays out.

In the in the phones of time.

Great. Thank you very much.

Your next question comes from the line Brent Thill with Jefferies. Please go ahead, Sir your line is open.

Hi, This is love soda on for Brent So.

Congrats on the quarter and congrats to Jay.

It's been great to speak with you over the years I had a two quick questions one.

Was on the M&A strategy. This quarter has been a solid quarter in terms of cash flow generation.

So could you maybe talk about how you are thinking about deploying that cash.

Over the next few years and whether the philosophy is still doing tuck ins or whether you're sort of thinking about doing something really transformation on that side.

Right. Thanks for the question it's spotty.

If you're modeling we haven't really crowded Atlassian we have built out in the capability to build products internally, which we shine over long period of time, we had an ecosystem marketplace that allows us to augment our products Weve integrated outside last you need a billion dollars lifetime style.

One of my proud moment.

Doing its job is when you make people outside of the business to a built in time to reuse building My last June .

Of course, we had the ability and track record of bringing acquisitions and successfully.

Listen to our existing customer base and integrating with our products to create a solution and an experience that it's harder to do you know outside or having to products unrest idle.

We.

We've got a pretty good track record of M&A and we've done dozens of acquisitions on a timely writing here and I'm always reminded that you know the statistics are against companies.

Have you, creating shareholder value through M&A. So we're always very careful about how we think about it and culture fit the most important thing that we think about in first and foremost.

Then we will add did I share our mission and vision to only potentially repayments I can retail right damnation properties to get our and then we will get did obviously more business model to US and then afterwards, we didn't work out you know geographic footprint in technology, and so forth sorry that the fourth we've taken I think we've done a really good job and.

Looking forward.

As you would know we wouldn't be talking about any potential candidates on our optical might be.

But I just know that all the time, we'll continue to do M&A more fashion to what we've done historically.

Great. Thank you and just one quick follow up I.

No margins were really strong and obviously some of that was because of the headcount.

Thank you.

You guys in our pushing that.

Into the back half of the year, but over the longer term.

Should we expect to see sort of more leverage on especially on the R&D side in terms if you know.

On the margin expansion.

No I would just reiterate really what we've been saying now for some time and that over time.

We would expect the opportunity to expand our free cash flow and operating margins.

But we're very focused on this.

Very large market that has in front of us.

Were exceptionally well positioned to go after it and we want to make sure that we're making the right moves.

That will allow us to do so to the best of our ability on and that will be a very good outcome for our shareholders in our view so no change in our perspective around margins.

Got it thank you.

Your next question comes from the line of Michael Turits with Raymond James. Please go ahead, Sir your line is open.

Hey, guys good evening of course.

Hey, congrats and.

Good luck in all things.

To a two questions first one for Mike It's got a lot of the development and acquisition has been let's call it on the upside and yet.

You do have lots of products within more technical depth side would you call cold building ships Bitbucket sorcery bamboo and there's been a lot of visibility of companies.

In that space building consolidated platforms can you talk for a minute about your strategy.

In that more developer centric side of the business.

Thanks to the question. So Sikorsky, yes, its national Dev Ops is a you know the trend nine that people will give you to that and just to remind people who've already familiar with exactly what that is a you know you've seen a training companies. A you know over the last 10 to 20 years, where due to changing.

Hi, it's a business you see more and more departments working hand in hand with each other when we thought about 20 years ago, agile, which was software developers working closely with business analysts and then that business side in order to make things happen faster and more effectively.

Turning now use that as customers and crowd and they start building more and more software becomes part of.

There are you know that business that youre seeing the development teams and the operations teams of people supporting software, that's running very coming closer together in order to make faster cycle times and as a sort of any relatively nice in market isn't one of a you know noise around it doesn't want to different people doing very small point things.

And the Department, we played really well in which is what we've always quite willing to having a broad portfolio of products and they wanted to that is the guys portfolio products touch people across the entire life cycle and so when we will get Denmark, Sweden, just looking at how to do not get together, it's okay, well, how do you I'm being.

Hi business I understand what is happening and bringing all that together and if you will get out product portfolio. It runs all the white from business people using confluence to requirements and you know discuss what you know the customers need all the way through to opportunity, which is waking people up and overnight or something.

Goes wrong and because we can't do that broad base, that's why customers turned off because our customers aren't looking for 234 points solutions.

Whether new things in the market unit, because it's changing we had an ecosystem on integrations and apartment network I'm all that allow us to you're working quite right. We've always point solutions that I don't make sense for us to build out or they're nice and and customers. What do you know last industry to backbone to how well Ms across the roadmap.

Nation, even if it and I just want to get to that work, but get used in niche products.

Okay. Thank you and then very very quickly.

James I think you made similar commentary on this last year, but you did say pull forward out of physical 21 as well. So so how should we think about that at this point, which is obviously early.

Yes so.

Obviously, the long term deferred revenue kind of gives you a sense for what will play out in the second half of fiscal 2000 to you on in terms of that said that roll off activity.

And then.

In the short term deferred revenue line again, I'd think of Q3 as being the primary donor quarter of revenue into Q2.

And then.

Other effects.

Lesser effects in Q4 of Fytwenty and the first half of fiscal 21.

Thanks, James Thanks, everybody.

Your next question comes from the line of Jack Andrews with Needham. Please go ahead. Your line is open.

Hi, its condo filling in for Jack This afternoon. Thanks for taking my question you guys made some previous comments or you don't expect material revenue enough why 20 for cloud premium for Jira software can you private can you probably an update impact on the quarter of called premium and separately for those that do it yourself right was it typical uplift.

So I'll take the first part so.

No change to our view that cloud premium products Jira software a confluence GST, we're very pleased with our launch of those products, but I wouldn't expect those to have a material impact on our fiscal 20 revenue and any uplift is to exit basically the entry point and then it.

It diminishes there as you add have more volume, we get into higher tiers and have more volumes and users.

Great. Thank you.

Your next question comes from the line of Gregg Moskowitz with men, who sell. Please go ahead. Your line is open.

Gregg Moskowitz with missing Mizuho. Your line is open. Please go ahead.

Thanks, very much how congrats everyone in the quarter and Jay even a tremendous asset to Alaska and best of luck on whatever you do next.

So for micro Scott given that were beginning a new calendar year.

Summer budgets being reset strategic strategic priorities being mapped out et cetera, I'm curious to hear your expectations as it relates to adoption of Dev ops as well as broader collaboration across ITD are you expecting continued steady progress or are there any changes in trajectory I did you think we could see in 2020.

Yes, good comments Mike.

Look I think continued steady progress is what we.

We expect to see.

Obviously development as a whole creation of software technology, driven businesses extending into Dev ops and how that flows through the rest of the business is a growth area of investment for companies large and small all around the world. So that's great spice to ban and our products. It then work.

Of that as we work to more and more teams is.

As a very strong spice, but I don't expect to see any major changes in that at a broad scale from our perspective, obviously are we continue to.

See advocate for and feel pull from the customers over the move from a server or an on premise products to the cloud and it's something that we continue to talk about continue to see and continue to work with customers to manage that sort of decade long transition. That's happening there I think we're doing a really good job at the moment, but there's a with work to be done and.

You can see that in our continued enterprise releases on the cloud side continue relations of migration tooling for our customers and our partners to help those companies to move.

To the cloud and get access to all those features and the benefits of running a software in the cloud and you know you've seen us over the years continued to I really spiked premium as we just talked about access which is a great product for atlassian and for the customers in terms of protecting their uses and content across a large number of concepts is and things like pushing a discount.

Limits and other things in the cloud as well as our channel on other things moving into production. So that's probably the biggest move we're right we're going through and expect to see continued momentum off this year.

Okay. That's great. Thank you and then just maybe a quick one for James I, It's hard frankly to find much to pick out this quarter, but your net new logo is 5000 worry a little lower I believe in a year ago period I. Just wondering if there's anything that you would attribute that to.

I might take that Greg I mean, as we said before customer count can fluctuate quarter to quarter, but you know its deceived this quarter's in the range with where we're really pleased and utility growth year over year at 17% some of the fluctuations in any given quarter up or down can be influenced by pricing and packaging changes, we've talked about things like new monetization levers and trello.

Naturally free plans in cloud and we talked about the head when effect on revenue and so those things can be put your Texan in customer count we're pleased.

With the early signals from some of those long term is like free plans as we mentioned earlier and that is ultimately going to add to the long term growth growth opportunity that we focus on it last year.

Perfect. Thank you.

Okay. If he would like to ask a question press star one on your telephone.

Your next question comes from the line of Keith Bachman with Bank of Montreal. Please go ahead. Your line is so.

Hi, Thank you very much James I wanted to target. This question do you if I could and it really relates to the March quarter revenue guidance and the question is what's different from last year and what I mean by that in the context of if I think about the December 18 quarter, the timing of the price increases with roughly the same the.

Impact to the price increases was roughly the same probably a little bit higher in the December 18 corner.

And yet if I look at the end and if I look at the revenue sequential growth in December 18. It was about 12% you guys did a little bit better than that in this quarter.

And yet you're guiding revenues to decline sequentially in the March quarter.

March This March 20 quarter last year, you actually grew sequentially off the same center attributes I just described over 3%. So I'm trying to understand why you think revenues will be down 3% when in similar circumstances last year revenue is actually grew sequentially 3%.

Yeah, Keith I, I really bring us back to this discussion of the portfolio activity.

That we've been talking off yes, we have that one point of revenue growth headwind that I referred to and broke out on one of the earlier questions but.

The the pull forward activity.

Is it.

Significantly more a material to answering your question.

And so.

Really.

That's what I would point to a recall that this was the first year, where we had raised prices on our datacenter business.

And that as a indicates a little earlier was really quite strong.

Partners.

Around the world, but particularly those in the mayor and a PJ really.

Took that on board.

Hey, thanks.

We have given them additional incentives to drive datacenter business as we think about the margin structure that we share with our partners.

So the really that's.

What I'd point to as a as to the.

Q3 guide again, we're very pleased to from a full year guide perspective of being able to add to our previous guide the full beat that we.

We're able to record in Q2, plus additional money is beyond that as well so I.

I guess why James interacting with the overall.

Yeah, just to interject, if I could it appears again last December quarter, you had pretty material pull throughs.

In addition to the numbers.

Just would seem to suggest that the guidance even with those pull forward since the situation with similar last year does seem attack Conservative I'm just.

It may be what you said in terms of there was more new customer activity this year than than perhaps renewals, but otherwise it just seems extraordinary conservative for the March quarter.

Yeah, well a as you say the the the new activity was a larger proportion of the pull forward total than we have seen in the past and so.

That's our judgment and we'll see how much of that new activity.

In essence in Q2 was a replacement for what would otherwise have played out in Q3.

But also.

You consider that the deferred revenue increment the we recorded in Q2.

Sequentially, it was really quite substantially different to that.

But we saw in in the prior year as well so.

Those are the things that have.

Helped us arrive at our.

Expectation and therefore guide for Q3.

Okay chain, Okay. Good luck to thanks very much.

Thanks Keith.

Your next question comes from the line of Ari Tour, Johnny and with Cleveland Research Clinic. Please go ahead. Your line is helping.

Yes. This is already from the Cleveland Research company. Thank you for heavy on the call and congrats on the great results.

Two questions. If I may 1st just any update on demand for Jira aligned and if he'd seen any deployment, there and how you're thinking about it for 2020, and then just a bigger picture question.

We'll hear more about our work just people partners using at last seen this kind of thought more generic low code App development platform.

Can you just gave your thoughts on how you view at last seen in that regard and.

Maybe forges further step in that Pat Thank you.

Yeah, Hey, this is Jay I'll take the aircraft or the edge airline question and handed over to Scott.

We're really pleased I think with the result in the quarter and the continued demand that we see as we've said before we feel like we're in a really good position to own a large scale agile transformation. It is initiatives that are bubbling up at some of the world's largest companies and this is the segment that we target with your line is already a segment that is ripe with.

Massive adoption of Jira team and tribal level and so I think connecting all of that collaborative work that exists in jira up to the strategic level of these big organizations is a huge a really important opportunity for us to maybe one anecdote.

Just a couple of weeks ago.

We hosted for companies that were all Fortune 100 companies that took a day out of their busy schedules to just spend time with.

With our fuel operations teams and talk about the work that we're doing with with without lastly, and broadly, but also with Jira line and the role that I just described so.

Short answer is it's going great.

Hi, Scott.

Just continue on the question I won't say, you know and forge, we've Oh, you mean business for a while now and one of the Palestinian particularly jira that.

Most of that product is the flexibility that they all fall and you know we were cutting we buy well I just try and bank just last week and their workflows across the bank. Our mission critical all implemented inside Jira I'm, not I would point to human workflows. The bank remains at their entire dues.

Yes, and you know course battle for helps you know injected your line I won't be more work that in those products. The more you Wanna get I.

Kind of top down view on how long way, what is happening and everything really whereas we're investing there I got another huge opportunity for us to take more of that business what photos on we've invested in a similar to your enterprise we pull back a few next generation Jira and a you know on delightful to.

As for everyone. It's a you know diseases can create dragging up workflows fields going really quickly, but extent annuity if you're right, where you know technical things turn to because they can use it as I noted environment, you know drag and drop on vacant and augment that with you know one code as in.

By writing functions or integrations to all the systems and Ah you noted that we improvements we've made me as I said with a you why ones on unifies. We've also I have you seen we've acquired a product in automation.

And that's with increasingly as customers are more and more work you do that products. They want to make sure how do they reduce the amount of time, it's been on that work and so what am I, saying I'm I spent a lot more appealing thing for our customers like John for very long time, but that is an area that we the refunds on of course, when you graduates and actually coding or we have all the products that are available.

Hi, Jira and Oh, I do not products a lot of people that need to right you know kind of targeting integrated development Bonnie.

Awesome. Thank you.

Your next question comes from the line of Jonathan Kees with somebody insight group. Please go ahead. Your line is open.

Great. Thanks for taking my question and I'll add my kudos to them congrats for the quarter I.

I guess I wanted to do a among other things get 'em a confirmation.

Turning to how are.

You guys are talking about the quarter on both the market do you know where you are with the with the demand you're you're talking about a it's it's a bullet here your bullish in terms of the a market you feel good in terms of where your position you're confident trimmed to that or the strong demand.

And you know it is it's fair to say then that you haven't seen much competitive.

For us or changes from some of your peers, including every big went out and or Redmond, a and then also you know it especially since your is also talking about the you're still seeing a lot of up spreadsheets.

Lot of users source spreadsheets is so although fair to say that them.

You will see a lot of greenhill opportunities and lastly.

And now the same which is.

Probably a challenge with other software companies, especially for companies like cloud is technicals are getting technical staff, you're looking to ramp up and yourself, saying your Sheryl let is ambitious.

R&D Easter staffing for the second half.

Yeah, I can make any changes in terms of we R&D centers into your heart R&D hiring a our plans are going to before the second after that them that also fair to say thanks.

Jonathan.

It's Mike here there was a there's a lot in a question.

Let's start from the from the back forwards are absolutely look where where.

If there are few things that are defined that life in it's a combination of our long term focus patients.

Openness with shareholder stuff and everybody else in our ambition to to unleash potential of everything.

This was a good example, if we as we wrote in the shareholder letter you know we missed on execution this quarter when it came to hiring and some of the things inside the business.

And that's you know that that's not everything it's something we've got to improve and we were committing to continuing to do that and were open about doing that the R&D hiring environment. I think any company will tell you is not simple not an easy thing to do we're trying to scale the company patiently, but urgently at the same time and are you know, we're just being open about sometime.

We don't hit that we Didnt this quarter, we got to redouble our efforts through next quarter in a quarter ahead doesn't getting easier for me.

But sometimes it is going to happen and were pretty honest about that from a competitive standpoint look like Seattle has probably coffee that's important.

We continue to trade competitors the same way we always have.

We're very aware of what they're doing the same time, we focus on the customers and the value we delivered to them and Weve long believed if we continue to live a great value products and we're patient to show value to customers. It will come back to Washington value for shareholders.

And for employees over time, we've demonstrated that over almost two decades now we don't intend to the change that stance, it's baked into our business model. It's back into the ethos in thinking of the found is and enhance its been baked into the company and I'd and I had a very deep level.

Competitive arent always shift development software development is a very competitive area. The collaboration spices very competitive area were very positive on where we stand and we're going to attack that by focusing on comes from isn't making sure we're delivering value for them in their needs whether those competitors a large companies small company startups open source projects.

Yeah, we continue to be aware of what they're doing and focus on delivering cotton valley.

Okay great.

Thank you.

There are no further questions at this time I will now turn the call over to Scott Farquar for closing remarks.

Thanks, everyone for joining the call today, we really appreciate all your fluent and look forward to keeping you updated on a progress how do we have a great rest of the weaken a matching weekend.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating may now disconnect.