Q3 2020 Earnings Call
Good afternoon. Thank you for Johnny Atlassians earnings Conference call for the third 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 conference over to met sound. So.
She is head of Investor relations.
Thank you good afternoon, and walking to Atlassians third quarter fiscal 2020 earnings conference call. Thank you for joining exporting out on the call today, we have alaskans co founders and co CEO, Scott Farquar like Cambrex, Chief Financial Officer, James Beer, and our President Jason.
Earlier today, we issued a press release not sure we'll do better with our financial results some commentary from our third quarter fiscal 2020.
Items were also posted on the Investor Relations section of Atlassians website.
Our site you also posted a supplemental presentation datasheet during the call. We'll make brief opening remarks, you like spend the remainder of time on keeping an eye.
Statements made on this call include forward looking statements [laughter] that we noted it's not risks.
Oh, geez and other factors that may cause our actual results performance or achievements materially different from any future results performance or achievements expressed or implied 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 has today such statements are made we disclaim any obligation to update or revise them should that change your cease to be updated.
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 section titled Risk factors. Our most recent 20-F quarterly reports on form 6K. In addition, during today's call will discuss non life rest financial measures. These non I addressed financial measures.
In addition to no substitute for or superior to measures of financial performance prepared in accordance with <unk> for us.
There are number limitations related to the use of isn't going to address financial measures versus their nearest Irish equivalents, maybe different from non right for us and non-GAAP measures used by other companies reconciliation between IRS not enough for US financial measures is available on our earnings release shareholder letter and in our updated investor Datasheet on our IR website.
During Q <unk>. Please ask your question upfront so that we can easily move through to the next speaker also please be patient we encountered disruptions or count was able to six given we are individually dialing in for more homes across the world.
I'll turn the call over to Mike for opening remarks.
Thank you everyone beginning today for your continued support.
We want to stop but certainly hope you your loved ones upsides.
We are in unprecedented times.
More important than ever we embrace our mission, one loosely potentially very clean and support our style customers and community.
As you pay rate Im not sure hold a little you're completing this crisis hit him.
Rapid economic change shakes up industry leader boards, and we will continue to position the Watson to drive long term bugs in the coming quarters. Indeed.
We are leveraging the Canadian culture, and the strength of our business model to take share the massive pockets that Lisa.
Oh, the nearly two decades, we've learned to navigate and adapt the macro churn.
Well, we want to put all things in this cycle. We also acknowledged that the macro economy consensus series headwinds.
During Q3 performance is on Sky.
We posted strong results.
33% year over year written Doug.
6200, net new customer additions and solid profitability.
At the sites on the reality of serving over 170000 customers means we have exposure to the small business economy and called it impacted industries.
We provided much more detail and many other updates shareholder letter issued earlier today.
We are committed to emerging stronger from this dome and our culture will help offset that direction.
Before we moved to questions you want to thank our employees to demonstrate an incredible these millions and adaptability and becoming a fully remote team under pressure.
It has been difficult and your audience has never been more importantly, as we support millions of change across the world.
With that I'll pass the call to be applied to secure.
[noise]. Your first question. Thank you for call.
As a reminder to ask a question you need to personal one on your telephone.
Your first question one of my retirement with Wells Fargo.
Michael Your line is open.
[noise] or whatever and speechless with the results we've delivered this quarter.
Oh, Great and then let's come back for Michael.
Your next question why no margin Balky with William Blair.
Mr. But to your line is open.
Mr Bhatti.
And your next question come from the line.
Aaron Spotty.
Your next question might object Andrews.
Hi, Good afternoon can hear me okay.
Yes, Hi, Jeff Gordon.
Great. Thank you. Thank you for taking the question and I'm glad to hear everyone is doing well in this environment I would ask something about the something in your shareholder letter you mentioned that I think 23% of your attendees from recent remote summit came from you business teams, which was essentially doubled from 2019 as one of.
If you could just talk about what is really accounting for that increased their whether there's something that's happening organically or whether you pivoted your marketing message and then the second question would just be any early feedback on the new cloud enterprise product. Thank you.
Ill take the first one you know I think it's just an indication of the continued interest in how broad our products can be deployed in the diversity of audiences. They serve I mean remote summit.
You know lowered the barrier to entry just wanted to it you know could be that there's a lot of interest it from a line of business. All participants are probably going users of our product. If you don't want to travel over to San Francisco for an event, but we made it far easier for them to join an event meat or is it the southern I think that something that we'll continue to explore going forward and I think.
Michael tick universe called crushing.
Sure.
Oh clubbing applause to those who don't know without lightest addition.
Our cloud plus that was launched ads.
Some of the few weeks again, it certainly being one of them most important and challenging initiatives in R&D I'd today.
Last few years, it does give us a whole lot of nailed cloud additions.
To me any customer size, if you can breed standard premium and now enterprise the cool access for identity in content management across all the said.
Enterprise edition helps make the needs of the obviously the largest and most complex a antibodies don't want you know unlimited scalability, our daughter residency that public security needs to accommodate et cetera, but you obviously extremely hard to build to meet those requirements and I was wondering kind of report will be a for the law.
I just didn't apartments in the world as they move to the cloud.
We obviously had a very good reception to that announcement, albeit early access program summit.
We don't expect it to be a material contributor and it's why pointing out or even if it's what 21 as we get bodes logic customers ramp up but obviously in the long term, it's an incredibly important nikki.
In terms of existing feedback from Bose lodging apology instead of join the Oh, Yes. Its program. It's been very good obviously, we spend a lot of some of them before that making sure that we were building what it wants that they want to and I was just about what action that were on brought trusted.
Got it.
And your next question comes online.
Michael Turits with Raymond James.
Hey, good afternoon everybody.
[music].
You guys did slightly below the street for next quarter or and commented that covered it would impact fourth quarter more than current quarter second quarter. I was wondering if you could speak a little bit more specifically about where covered in the.
Emerging recession, well specifically impact business.
You mentioned that SMB for example.
You mentioned covered it back to industry. So again you can just.
Talk little bit more about that calculation.
My follow up question, what would be what you think the impact of all this will be on the pace of software development projects being rolled out kind of developer hiring and how that might impact you guys next 12 months.
Hi, Mark what Scott you're also to the broad opinion and James can talk about back to school impacts as you roll nor are we have 171000 customers around the world everything from Fortune and so most of the Fortune 500, and you know tens of thousands we talk about fortune 500000 being L markets a <unk>.
And we have nice due to customer concentration no one customer makes up more than 1% avail revenues. So does not sort of a specific area. There but of course, you expect from a you know such a broad market that we're exposed in the same way, but you would be kind of across all the different.
You know geographies and industries aware.
I do think.
There is.
Sure sure can benefit of people using our products intensely work from home aspect or using collaboration tools more in the short time I think the long term you know the aspect is that people are going to working remotely more than I have so you know to date, that's going to require more collaboration tools whether that is no.
Slide writing on what product in golf ones, whether that is managing more you know what foreign jurisdictions talking to the person next to him at the desk. So we see the there's some benefits of that over the long term.
You know in cancer types and software development in hiring I think we're no six weeks ended this would be too hard to to talk about gosh.
What industry trend, we haven't seen.
Anything that makes a site significantly times, a week to leave internally about that.
Hi, James do you want to talk through in either sort of specific financial you talk soon.
Sure. Thank scouts, yes.
So these are really a negligible impact from could release it factors in Q3, a week I have seen some impact in April.
HM claim despite the weak so such a highly diverse set of customers really across all business sizes juggle carries an interest rate is really one of all our major business model advances on the reality is that when you're when you're selling that many customers, we all going to have to expose.
Just to be the small business economy and so those.
Particular sectors that are being particularly impacted by Terabit. No of course. This is reflected in the got it.
Oh.
I would equally emphasize that Ah that tie ins or some very beneficial in aspects of all revenue model, a cold, but well over 90% of our revenue comes from existing customers or indeed.
Hi concerned about revenue is recurring in nature. So Oh overall, we're oh, we're we're pleased with how the business performed in Q3 feel like the guidance reflects the impact.
Becoming course.
Okay. Thanks, guys.
And your next question might have Orkin Bhatia with William Blair.
Hey, guys. Thanks for taking my question.
Yeah, I should Michel holder lightly, but cloud migrations were up 60% because here how do you think the pace of those migration like that'd be much of that you're getting worse in it but more of an uncertain environment, maybe actually departments rebuttal earlier. This year I'm, just trying to keep the white sand and sort of in later today.
I would just love to hear some early feedback that he's doing from a the cloud enterprise.
Program they launch.
Sure that can now I can tell me take that look in terms of my grandson or lease up there.
We continue to monitor and see how that will be affected I wouldn't say, we've seen much of an effect of than the normal growth in my question. So far.
It's probably worth noting the lot you are just as a company. It's obviously a lot of dr. transformation projects, but.
Once you've moved to the cloud you had reduced impacting tends to be operational load on your own team.
Effectively at Lucky and takes care of a lot of things that you would have taken care of and so.
Depending on your you know increase workload covered environment. It counts you reduce your work load quite significantly that ought to department.
Turn to let us handle a lot of the bits and pieces and data obviously, she gets more down the China can be more pronounced a you know if you're a 500 use a customer a 100 years a customer I'm sorry, we.
Remain vigilant mr., how that will affect the corporate training in my questions, which has been really good football on its worth noting that spring <unk> increased by the release of did your cloud migration system.
<unk> is a tool that should during the last quarter that allows a jury users predominantly jira software, but through a service desk to.
Pick up and moved that got into the cloud much more easily answer. It helps you threw a lot a bit more complex transition work.
That's obviously increased by the tights and the accuracy of does migration teachers, which has been really good.
From the cloud enterprise expected I'm done or the water to add to what I said before.
Obviously, the early reaction to the ERP from customers, who joined it had been very good lots not long ones that this is the addition, we're looking for this you know checks a lot of the boxes that we made from that the highest in most demanding customers. It's called performance and security requirements will will move into assessment mode and have a look at this and we.
Looking together with those early access program customers to make sure that.
Quite an busking to evolve to meet their needs.
Perfect. Thank you James just a quick follow up if I may.
Sorry, I lost you that.
You may now.
Yeah, you know.
Okay, sorry about that yeah, I, just asking about how you're thinking about price increases this year I wanted to what you plan and what are those plans have changed at all given the increased uncertainty.
Well, that's you know we have a very well pull a rigorous process to considering pricing moves or and we've been doing some he is now well when you think about what we've done in years past its been a balance between.
Lowering prices and in some instances raising prices are and to layer on top of the have us well that's important to think about the additions strategy that we've been pursuing in recent times. So now with the Rollouts are fully okay.
Free additions of Jira software confluence of Jira service desk.
That complements standards additions to premium additions and as Mike was speaking up earlier now a role beginning to roll out the enterprise additions as well.
The right edition and so that will be an ongoing part of our strategy in a in the years ahead.
And then in terms of a specific price will always obviously be thinking through all of the different roll up and type to both competitively ah and to and relevant to our customers. So will always be looking to find the right balance between a beep.
Compensate default value that we offer to our customers well being <unk> doing the right thing for for our customers tests as well, so we'll keep having that perspective around pricing and we'll we'll update you in the months ahead.
Okay. Thank you.
Yeah next question might of Russia, <unk> Davison.
Hi, Thanks, <unk>. This is where she lives can be a Davidson I'll think she'll take on my questions by to to first wanted to you know appreciate the commentary about that you know more resilient auto because 90% of your comes from existing customers I, just want them drill down a little bit more in the bomb you know.
<unk> kind of take a snapshot of I've only giving you work you know how do we think <unk> of the new business within a year or how much comes from a existing Bush's new and and <unk> you know following up on that they go back.
Penetration within you know existing customer base I'm I'm sure you are pretty underpenetrated right by by directional. The you know what do you think an opportunity just within the existing costs more something outside and I've got a follow up.
Well certainly we've we've noted that 90% of activity a revenue each course that comes from our current customers. So we tend to as a lot of new customers. Each costs two three was another.
Example of a very nice number of additional customers, but those tend to represent a relatively small portion of the dollars that we generate each quarter. So it's very much the bulk of dollars coming from our expand.
Motion and of course, we have a variety of ways in which to expand across products across additions that I was just referring to end. The I'm. Your question in terms of expanding across a broader pops off that customers, serving more groups outback customer and so forth.
So we routinely talk about the fact that we believe <unk> early in in all walk to address these very large market. So we so so we we continue to be very focused on the long term opportunity and very confident about our correlates seats too.
To address that that real opportunity.
Okay grants that top on that and then just as a follow up you know you can talk a little bit about you know what you think tied into the S.N.B. side of the equation, but but wanted to think about industry exposure ready, obviously, you're very well diversified across industries, but if you're to think about just your exposure again directional neat to something.
Are impacted industry is like travel hospitality retail energy.
<unk> for how they got <unk>. Thanks.
Sure. Okay, We really cup all industry is old sizes company is an old joke or <unk> Oh, it's one of our terrific business models from and so yes. We obviously so some of the company is likened the travel sector other looking particularly high.
Hit in the last several weeks.
But really the the focus of where we seen an impact is on the smallest size company and of the spectrum.
In fact, it was notable to me how one of the larger for US deals of a of March Oh. It was with an important travel services company. The deal took a few more days to close it <unk> rolled into the early parts of April.
But at the end of the day I was very comfortable with the the terms that we settled upon and the customer was very appreciative of the fact that we had worked with that and to to help them through that particularly difficult time.
On the small around the spectrum.
Obviously, that's where we have more of <unk> customers recall that we've spoken now couple of course, it's ago about what kind of that we have more than 125000.
Cloud customers out of a total of most recent pig the day report it 171000 so.
We do skew enough how business to pull the size of organization.
Taking a step back from that more broadly I'd say, we're holding steady across the enterprise and large enterprise portions of our business.
And on the cloud side going back there for one last thought I mean these.
While as I say there are some customers who are seeing an impact.
Hmm very pleased by the number of new cloud customers who's been coming to us both in the month with much and thus far in April in fact, much was the strongest month for Q3 for the addition of new cloud customers and of course that's.
That's lining up with a a month in which we had fully rolled out all three offering this as well so really a acquaint encouraged by the developments there in terms of continuing to attract new class customers.
Right.
Thank you.
Next question of White a microphone.
Hey, there. Thanks, good afternoon, I I was hoping to hear more around the decision to play offense here in this backdrop it it sounded pretty clear in the letter and then you're planning to keep pace in terms of hiring and play offense here in the coming months can you just spend a little more time in terms of what that means from your perspective are there any specific.
Areas, you you see yourself, maybe pushing even a bit faster behind it or any of those impacts showing up here in the free cash flow guide, which saw somewhat of a a reduction here as well. Thank you.
Sure Monica, Let me, let me take that from the start and it's kind of germs can jump in.
I think we felt it was really important in line with values. So one of our company values as I can company no bullshit, we wanted to be very clean with with investors in palm was about how we were approach and you know the current current environment, which is obviously a unusual it's not small businesses to go look money.
And I think with a company you have to choose a loan tentatively possibly very quickly thought as to why one is choosing that pop because this is going to play out are there. Many many quarters when we sit down and think about it might soon strings. Besides the fact that we are in.
Very large markets you have a type ability to actually game shed through these quarters activity. Once however, they they come at us and we might not very adaptable and vocal about being.
Our culture is extremely strong and adaptable, obviously I I'll go to market model do presumably well familiar with suits.
Flexibility of these talk with.
Top of environments, we we don't have to get on a lot of planes with self now.
We have you know product innovation and you have an extremely strong obviously financial position in terms of generating free cash flow as well as yeah. Obviously, the cash we have on the down cheap in the business and the stability of about revenue streams. So I think when you're when you put all that together huh.
<unk>.
Hopefully show some of the background why we feel confidence take that strategy as we as we selling to the coming quarters and use about how we are planning to approach set him why we are trying to communicate that.
<unk>, maybe you want to go into a little bit about the actual effects of what that means we lived at a <unk>.
Yeah understood plus again on them again, you know.
The things that we've done in the past and put a mark and I would hope we consider a still still feel young in the in the business sense, if it'd been running wild soon since the you know we could start in the middle income crash in 2001, and we remember the global financial crisis in alright, or non pretty clearly you know and some of the things. We did back then and what we're doing again now is no picking up a great.
Kitty highs and talent that's available and you know that we could maybe wouldn't be on the market otherwise I'm. So that's doing well customer acquisition.
We've you know in.
12 years ago now, we released you know startled licenses and I reduced up rods from a thousand dollars down to $10 for many of our products. A few months ago. We you know <unk> free and those you know in free effectively you know <unk> for $10 tend to zero.
Too aggressively.
Try to acquire customers and you know also I think that you know <unk> proxy innovation, continuing the r. and B. investments that way I know in four and a yield great value for our customers and you know if there's any opportunity <unk> that turns up when not necessarily going hunting for it but like there's often.
Opportunities in this particular market environment, where you can pick up things that are very attractive, but otherwise again wouldn't be available. So the all those things that we are considering and we're discussing weekly basis in terms of how to.
The.
[noise] more.
Choose take an X. times Jens can talk to have it flows into free cash for guidance.
Yeah on the the Guy I would just observe obviously, we've laid out saw risking you guys. The free cash flow guides direction Likud system with that but then also from watching capital perspective.
I expect to say that we are working with a a small subset of our customers who requested help in in these extremely challenging macro economic times now, it's just a relatively small propulsion about several customer base less than half in the sense above we feel.
So that's the right thing to do I need some illustrations gain of the longtime orientation Scott My cooking talking about on this call already just another illustration of that mindset that will work out a wealth of those components and well for us.
It's great color from each you much appreciated thank you.
Your next question time line up <unk>, Keith <unk> I'm going to hammer.
Thanks, Good numbers guys I guess, what's it to follow up on a couple of things first of all.
With respect to the free cloud additions great to see that out, though maybe you could tell us into how how many download you probably have or any statistics did you can have their that helps us understand you know uptake interest level of interest or conversion rate anything on on that front and I know it surely but.
Some color would be there would be appreciated in Denver for James and a perpetual license rubbing your decline.
Clearly I'm, assuming this is demand related but maybe it can help me.
Think about doubts into conflict. So how much of that was perhaps customers shifting to cloud versus true reflection of you know softer business activity and and would I should I assume that that also used the main area, where you know with respect to your Guy that's that's where we see most of the weakness near term.
I will probably about a month I can I can <unk> Christian it's good to say something after the tricky nine besides us from Atlanta to.
<unk>, it's still it's still very early right. The the results are in.
<unk>.
Or.
And started rolling what I'm.
How about any very limited senses <unk>, so sort of looking at five and 10% of crappy thing, saying, but that's where I will agree thoughtful with.
I'd be in parts of trying to do might depositing them and try to consider the long from one of the <unk>.
<unk>, obviously would.
<unk>.
Process, we decided to settle at that some of them were all that out fully much.
Which is now Bible, what's your software juicing and stuff and confidence obviously, that's along side cello and good luck. It on other products that are really had a free elections and that's a large part of their model already being the cloud.
There's also that have been.
<unk>, we can say <unk>, we had 125% off lake.
Valuations.
Which is obviously actually a little bit ahead of what we expected but is is looking really really positive feedback inspected.
Reiterated is extremely early did that I believe but we can get now the level four weeks ago. So you'd expect a a pop up off off the bat and then it's settled down to a a mando, but it's it's mainly in a good spot where we think it should be we haven't seen.
Oh Wow limited evidence so far I would say, but certainly some evidence that it's helping of getting to even ball marketing, which uses we would not otherwise have been able to get to which is our goal of of heading towards the fortune 500001 sort of the quite step on malts.
<unk> just reading writing you know the long can <unk>, which is the crowd step on that journey.
Johns I don't know if you Wanna piping financial talks about.
Well, a a speak to the the license part of the question in particular first of all recall that in cute too. So 90 days ago, we reported quite a significant pull for what effect.
That was driven by the price increases that we had announced previously so what we saw in parts in Q3.
Was the effect of having activity that otherwise would have according to three actually get cold for it it's cute too.
Now second point, that's really important though is that and as we've been talking about the steam now a number of course.
Is that with very much orienting a business towards continuing to grow two subscription revenue businesses, the cloud business and the data center business. So you saw subscription revenue growth switches, 70% year right at the yeah.
Very much subscription the primary drive up the right in your line for the company now and I would expect that will continue and commensurately, you'll continue to see your license motor racing over time in fact, a real cool and the license line now isn't.
<unk> small component of our overall revenue structure. So this past quota.
The absolute dollar figure is $21 million.
So.
I I would continue to expect that we'll see less license activity.
Over time, and <unk> subscription revenue growth.
<unk>.
Thank you.
And your next question online I've Nikolai Bell Alfie from Bank of America.
Hi, This is Nikolai belly all from Bank of America. Thanks for taking my question.
I want to double click on the 60 per cent in crazy migration from silver cloud just want that Ain't called you measure that is that based and users customers are having you know et cetera.
As you saw that optic this fiscal year.
Watch trends did you see on the cover in terms of customer side is a moving from sort of our plowed did you guys take advantage and more up cell and lovely on what has been the <unk>. The partner feedback on migration towards that got lost a couple of month back as customers more from manual migration to more ultimatum migraine.
<unk> are we talking about significant decrease in the final migration, maybe for a month or <unk> or whatever you're saying what was off to get the to hear from you guys think so much.
So nicolaisen set us some of my colleagues will jump in as well, but in terms of a your first part of the question. The migration statistics that we mentioned seven seqlab activity that that sort of an off to use accounts and in terms.
Ah custom the size that these migrating what we are seeing is that step by step as we continue to add more capability to off Klaus products as we continue to roll out and a increase the capability of the different additions that we.
Talking about illness coal then we're seeing more larger companies, making that move and I think we'll continue to see this trend play out that way over the coming years, Mike spoke earlier to the rolled out of enterprise additions, So now where in a position where are we can.
Dress the needs of a of any customer size and I was going to refer to the helpfulness of those migration tools before you added that to your question I think that has been an important aspects of us continuing down this path way of of making it.
Easier for a custom as a of all sizes to migrates that pop.
Change over to you Yeah, I I just jump on Nikolai with with the back part of the question I mean, the migration tools are don't both for customers that can migrate without a partner systems.
Also for partners to basically enable you know a better more reliable migration and remember like in in the in the partner case, there's a bunch of work 'cause they're going to do around to make Russian that doesn't involve just moving data from server to cloud in many cases, they want to reconsider their work for they want to reconsider how their projects are structured so we'd taken.
You know the the work out a basic on moving data from you know 0.8 appoint be but in point b. They have an opportunity to rethink what they really want to do or how they want to change the product in many cases the server customers have been using you know the server product for five or six years and says or maybe some kind of application that they want a partner to help them moved past.
And and and I think you know we're going to measure that just in terms of velocity over time like constantly both with a partner with the customer directly we want to make sure that that movie is ever ever easier.
Got it and just one clarification question question, if I might <unk>, you mentioned I believe that you're still some <unk> impact in the month of April can you. Please give us some color wearing the businesses you saw that exactly thanks, so much that Superman.
Yeah, I'd be quite nothing really to to add to a a previous so the the April impacts a really in the S.N.B. space with more of an orientation of S.N. bees to cloud products and then obviously.
The most heavily impacted industry has in terms of the macro impact from code of it seeing some tank to that but at some bass nothing no supposed to report across industries or or across jogger up is.
Thanks, so much.
And your next question line of T. to rise with Morgan Stanley.
Excellent. Thank you guys hurry for taking <unk> and very nice quarter, Oh, I I wanted to follow up on I think this is a question that <unk> was trying to ask maybe a little bit more direct about it one of the things investors are trying to understand is like which solutions.
Do customers fine most strategic and most mission critical and <unk>, where you're most likely to sustain demand even through difficult times in which ones are are are perhaps less energy and less mission critical and at the question. We were trying to ask is like we we look across the solution portfolio is there.
The portfolio that people find to be more mission critical you expected the man to sustain better in <unk> <unk> <unk> <unk> is your software last mission critical into your service costs more or is there any way you get kind of help us out in terms of how.
How the customers are thinking about the mission critical already of of of the Sweet number one and and number two for for James on the I I know, it's a very small percentage of customers, but the customers that are asking for help is is the form of the help that you guys are willing to give is that just on payment terms and the like where are you guys actually kind of modifying.
Existing contracts.
Lisa costs here, so it's been about sort of well I'll products most mission critical.
Now what we've found is that I products because they are you know work products. You know that are embedded in a custom as well as far as in almost all the cases of what we do whether it's true or it's consequence or bitbucket.
Or it's a consequence for doing collaboration North <unk> customers you know your internal help desk like all those things are baked into our customers work flows and so we don't really see them as discretionary expense that you know it gets turned off when you you know when I want to save money on like it's key to people being productive.
I mean, I think we haven't added benefit, but we're a relatively.
Compared to I've got pews or competitors, we would be a will cost could provide that that that outcome and so we you know in 2000 right. We saw some benefit to us because you know people switched to a lower costs provided to you know to provide those things where it maybe they had to awaken see provider and they wanted to move.
No you know so that's the way I think about it there's been an area, where I'd say, we're particularly strong or weak. There. Obviously, you know custom base that more and better we are in our customers you know the the sticky sticky we are and saw it to the extent that <unk>, yeah, but people to customize that products more.
I'd say, probably or maybe in a larger sized customers you know as customize their products more and what people use house. So potty marketplace. You know so on on these two companies local life I'd say the ones that have customized more and if you use most of the <unk>, we know a sticky right now in in the numbers.
Changed you know smoke so next time, yeah Shaw.
The the bulk of of where we're working with our customers a a really around payment terms and I I know the those changes to our arrangements that a temporary in nature on that's quite true.
In a dialogue with those customers.
Excellent Super helpful thinking yes.
And your next question line of Heather Melanie with Goldman Sachs.
Great. Thank you. So much just had a couple fall a lot and thank you I know the shareholder let her last no longer this quarter, but it was very helpful.
Two questions relate to a little bit what what other people have been asking just looking at what she thought about about April.
He was assuming that spending levels from those affected companies in industries stay Sane stay the same throughout the quarter or you know in your assumptions are are you expecting business to actually get better for those affected companies industries in May and June.
Nice all up it's just you know again you also highlighted 90% of the revenue comes from existing customers from the industries that aren't impacted what assumptions are you, making about you know net expansions if you all versus versus prior period for G.N. Thank you.
Okay, I have I'll I'll take that one [noise].
So in terms of of the guidance that we've offered.
A few thoughts festival I I'd say that the philosophy that we brought to settings.
In terms of setting the range policing the range, it's quite consistent with what you've done historically.
We we have laid out a broader revenue range clearly with this macro economic uncertainty there is a great potential variability in in results I mean, certainly challenging to accurately estimate.
The the current environments impact to cross stitch, a lodge customer base.
So we we have looked carefully at our experience in April.
And considered that and various leading indicators I'll talk to funnel type into cases, and assume that that sort of situation plays out cross the balance of course.
So hopefully that's helpful to that part of the question in terms of a round. The the 90% also have a a revenue that comes from our existing customers I I wouldn't add anything other than obviously, we we factor in.
What we've been seeing in the the last few weeks under gain pink specifically about the relevant full worth looking into cases for that type of elements of the overall revenue structure.
Great. Thank you game.
And your next questioning line of crack muck housewife with.
Hello.
Okay. Thanks, <unk> I guess my my first question in the shareholder letter you mentioned that you had over 150000 organizations on starter licenses or subscriptions and clearly it's a very large number. However, they were over 175000, a starter account a year ago.
And just giving you are very strong type of final and I'm wondering why that has declined in in other words have you converted a lot of these two paid accounts or are there I think and then that are just gone away for one reason or another.
Hello, Hi, guys I think drag wouldn't you think that one.
Yeah, <unk>. So I I think the then the microphone is just a ship the clock I remember like it's her license largely talks about the the server 10 user license for $10.
And you are increasingly more attractive value proposition even at the pre free price was to move to cloud and that was like the macro trend people are going to install the piece of software. If you can get it you know get it for for effectively equivalent price running Macleod. So that's been some pressuring than free you know is far more attractive place to start on any product.
That's sort of the I think that you know the macro factor on the server starter license.
Right. Okay. Thanks, Okay, and then just as a follow up curious about what kind of demand a you sign a quarter for data center subscriptions as well as your Ah clapping and skew. Thanks.
Good we were pleased with both you know I think Jane Dan's mentioned this but you know largely the enterprise segment on both just in terms of how we performed in the quarter and then the overall pipeline attraction.
We saw the through the quarter and you know headed into this one with positive both across data center, but directly and then in in with our our indirect global channel and from standard upbringing as an upgrade pattern in class.
Terrific. Thanks.
Oh.
And your next <unk> deal with Jeffrey's.
Hi, This is buffs soda on for Brent too.
Oh. Thank you again first meeting then first of all congrats to J. given it's his last quarter and wanted to ask maybe a couple of questions. One was you know now with the release of the at lasting cloud Enterprise you maybe talk about the investment in enterprise advocates.
I know you guys have a viral go to mark and motion.
Price advocates have been helping in terms of fishing at last seen as a.
I just solution sets so what about the investment in in that team going forward and then the second one on the on many fronts I I know you guys mentioned that you would be more offensive there sort of any anything in in your in your portfolio, that's lacking right now or.
You know how how would you think about this radically going forward. Thank you.
Yeah I'll take the first one so you you know we'll continue doing definitely enterprise advocates as as we have to support you know the data center upgrade motion and server both the migration motion from server to enterprise cloud and the the upgrade motion from standard private enterprise crowded really similar and so I I think will you know.
Continued to expand that team to serve the the opportunity that enterprise presents us both for existing corporate customers that are moving in for a big enterprise customers that are growing remember that we can a lot of <unk>. We got a lot of leveraging the enterprise advocate group, both from or indirect channel that we we the you know is is pretty large then.
And deeply connected to our our product for customers in market and we work hand in hand with them on that bigger enterprise upgrade motion instantly motion. So we get leverage their you know, which which is why the enterprise advocate group can grow modestly over time, and we get a lot of lever just on the fly will you know we're landing inside of these biggest customers.
With a high velocity starting point that you know I think we're really well known for and then we can use that as a as a more efficient leverage point to grow customers. Both as we haven't data center and it's certainly you know up the second cloud Enterprise club.
You know handed over to Mike on the Internet question first got an eminent question, Yeah, Oh numbers here so the.
I mean, I again, we've been really proud of how we've we've done that you know.
You can build products you can partner you can have a marketplace you can acquire and I think a watch them as a company that have done all those you know very successfully over almost 20 years, there and when we we could you know acquisitions you know the things. We always look for is universally available you know mission to at least.
Potential of every team to help us get too well big hairy goal at 100 million active users Dude I you know if it was the values of our company.
Device it without business model and then you know who's older won't tell other things, we really look for and I think we've been very successful with that approach and <unk>, making sure that we bring on the companies that are really quite fit for my sin.
You know as marking on being the biggest share holders of Alaskan you know, we're aligned with a old view on the school and all of the shareholders listening you know intensive thing good stewards of capital and making sure that we invest wisely to get the returns, but Oh this would one.
That's great. Thank you.
And your next question line of keep document with <unk>.
Hi, Thank you very much I won the last two questions. The first ones on mix and the segments on coded.
Question is probably for teams.
To build on something else pass before but perpetual was was down a year over year. In you indicated you had some cool and it's actually hasn't been down previously despite some pricing changes and says when you look out you <unk> you said growth with moderate would would it still be you think a positive numbers. We we we look out over the next.
Couple quarters.
In the related part of that is is on the main inside maintenances been studying <unk> 20 per cent, 21% growth for some time.
If perpetual wings should we start to think about.
The maintenance side also perhaps slowing I would think that would be a long process, but I just wanted to hear a little bit about that and then I'll ask my covert question as a follow up.
Sure. So in the the special license line, Yes, we have you seen those put forward effects into Q2, 123, and I would expect other of outcomes and courses. The next couple of courses for example to see similar.
Types of whole, Florida pets, when we record those results so up.
That will drive the dynamic whether it's a a low up the same teach growth or whether it is inside and say hey, <unk> shrinking of the absolute doll, let's say that again be the dollar figure is a relatively small one at this point in time.
Has so much of the new and services.
It is is taken by a customer's going straight to one or more up our child services.
Now also in terms of the maintenance line.
Clearly we have spoken a great deal about our efforts to migrate customers from <unk> plowed and into some of us have a customer's migrate up today's the same set as well. So it's that continues to happen and continues to build over time, then yes there'll be.
Fewer customers executing that renewal of this several contracts instead there'll be taking on data center all plowed contracts. So yes, you would see that affect the main line over time, but I think you're rice and characterizing that as a a more gradual effect.
Than that that you see in the license line because the license line slept reflect brand new activist and ease a new company coming to Bios of our products or it could reflect current customer buying additional licenses more uses for the <unk>.
It's just that sort of thing and so I would expect you to see.
The drawdown most pronounced on the license line, but also a similar effect over time on the Masons line.
Okay, Great. That's very helpful. And then J. maybe in the spirit of this is your last call direct to swim to you when when you think about or talk about cold, but in the interactions with the customers.
<unk> is there any sense about you could give us some good dollar exposure to S.M.B. in other words is that x. percent of your wrapping his.
<unk> when you say that you're having some impact what's the behavior. There is it last up cell is it not renewing the month. Please is there any.
Feedback you can give them what that means in terms of behavior. When you say, you're being impact and all all the best in your future endeavors.
Thanks case, you know Oh, Oh, starting James <unk>, maybe one of the second one I think we've we've addressed with a bunch of of course the call like you know we've seen largely the in fact that we've seen as Ben from.
You know the small to medium medium business segment in cloud, we saw that emerged from getting a little bit in April and mostly that is around customers either not expanding at the rate that we wanted them to or in some cases, reducing their license counts because they reduce the size of their employee population. You know you know we're huh.
<unk>.
Outside by the way, we're also happy with the read a new customer acquisition has been where when you want it to be and so I think that's a good positive signal and then as I mentioned you know the enterprise segment, which you know is a growing proportion of our business you know remain healthy both the just in terms of what we didn't a quarter and pipeline that were building in James you may want to tack on firm colors.
Oh.
Not dingy coveted Joe.
Alright, thanks tending.
Thanks.
And your next question on line of all retired Jane.
With the Cleveland Research.
Thank you so much for me on the call you're out some result.
Two questions.
First.
You could give a little bit more impact touched upon it on the shareholder <unk> shareholder letter, but.
I'd, probably got collaboration but any more examples of how customers maybe.
Using your tools and solutions to help address coded and you think you guys will make more templates are more kind of pre packaged applications to help.
And second Yeah, you talked about.
Shake up of the leader Board are there any areas, where you see potential for.
The greatest share gains over the next six to 12 months across your portfolio. Thank you.
Let me take the first one you know Scott mention the bunch did use cases about I mean, we become you know way to coordinate.
Project activity.
Content you know in the case is covered where everybody's gone remote I think our our products become you know pretty critical as as a way to connect people to what they're trying to do and sorry, I think there was a bunch of great use cases highlighted in.
You know when the document even when you think about you know something is is you know maybe that seems a little mundane is how do we get people back into our offices me nuts that is a fairly can be a fairly complicated amount of work with a whole bunch of considerations you know as we emerge from this and you know maybe people people go back into an office into work and they've got to do things like you know get on an elevator.
You have to consider like how desks desperate.
Spaced out differently that that involves a ton of human coordination and action and you know that's that's typically where our products. Good brought into the you know help customers and help teams.
Maybe.
Let's take a second part maybe Mike.
Yeah, I can I can send me take the.
The second part of that look.
The question is where do we expect shared games et cetera, <unk> <unk> all of the markets were up writing where do you look good agile and develops in a in the software teams market, where do you look at I.T. and that brought a sort of like G.S.M. Enterprise service management spices or whether you do so could collaborative work management tools, you know where the change their remote or not.
Right people are going to change their works dolls as a result of this so I would say all all sort of three about major markets.
We have very small shares an old three of the markets are growing by themselves. So we expect that to be a lot of opportunities.
To to to look there Scott mentioned talent.
Quite likely that becomes a period of the next couple of years, where there is a higher availability account you can marketing report in geographically that's very important <unk>.
And I think you know what what's important is to see I've just constantly optimizing not business again, it's got mention a little bit in 2000 19009, we introduce the startup program, which is a little bit isn't an allergy to what we've done in free and cloud.
Oh really except the platform to drive a decade of growth across a lot of different markets that brought in you know tens of thousands of businesses to the at last name experience that are good time do up into different parts of our world and those are the companies you save the money moving from so that the data center or evaluating cloud premium.
<unk>.
Talking about playing along Tim Gunn that that's exactly what we name. We believe this kind of an opportunity and three very large markets that we could and you'll see has continued make moves to to try to.
You know be opportunistic where we see that you've seen that we already have you seen that in hiring will continue evaluate acquisition opportunities as we looked through that.
But.
We're very publicly but <unk>.
Great. Thank you so much.
And your next question line I'm, Alex cars Keybank.
Hi, This is Steve vendors on for Alex Thanks for taking a question.
I just want to get a a better saying so.
Of how your partner's until seems or adjusting to to work from home initiatives and and their ability to to drive expansion within but then you're largest customers and secondly, when get a better understanding of.
You mentioned that you're looking up hire more people in focus more on the already aside but where are the biggest opportunities for investment and the product in R. and D. teams now thank you.
[noise] basically I'll take the first part I mean, our our sales teams are <unk> are are are largely inside and so are inside teams and so you're not there you know working.
Largely either from home they didn't work from home in the past where they work in offices engagement the customers. So I think that within hasn't really changed.
You know partners or in market with with customers and so I think there's an intact there for partners that can't meet with customers, but yeah. We've been working over the past 10 years to help digitize like our solution partners and so the way that we market co market with them the way that we and help generate demanding market combines both offline.
Which may have a little bit of a pause until we you wouldn't get back to a different you know they the old normal, but we complimented that with a whole bunch of of online digital demand capability that will work with them to just just in terms of building pipelining letting them sort of customers that don't they don't anticipate the we'll have too much of an impact.
Yeah, if I could just briefly into Jack until nine J. just to support that I'd be pleased with as I said earlier, we'd been tracking very closely all aspects of of a financials in April and.
And it's just being tracking while.
What am I guess.
<unk>.
Caught up in R. and D.
Ice or I can take the second part of that <unk> look.
We still believe they have the massive number of opportunities to invest in our <unk>.
Highlights it certainly be be things like trello until they're taking advantage of the the changing workstyle as more companies are working from home tools like that obviously, becoming more valuable <unk> communication things like this so obviously in the products that there's a lot of opportunities.
Secondly, you know we're in the midst of the of a decade long transition to senior at last me a lot form the teamwork platform, that's not a single exercise.
Continue to take us to use to build out even though we try and really good progress <unk> you've seen lots of examples of that you know the new collaborative editor rolling at incompetence, which is a huge changes balls water turns in identity and the k. positive our platform if they've all through different products.
And then they would be in the enterprise segment right. We've we've talked about clad enterprise on the New addition that and put into early access program. If you. That's that's a massive amount of infrastructural and calculated changes in how we operate out products to make demands that while you know largest customer.
<unk>, that's not a wanting bomb exercise that's that's a continued r. and b. investment required.
You know large scale changes in our infrastructure and how we deployed one ox how we work without a residency how we work with security how we work with our company then networks et cetera, and still provide they flexible clad products that we do <unk>. So you know you'll says continue to invest it wisely all across the board, but does a three.
Useful examples of very rarely are investing.
Yeah very helpful. Thanks, guys.
Yeah and <unk>.
Great Great. That's we're squeezing it first question James with respected guidance, but if I look at the mid point. It does apply sequentially down revenue for Q4, and I guess I'm just trying to understand that the kind of vigor leverage and driving that is it is increasing dollar.
Sure.
Or should we think maybe there's a there's more trade down to pre skews or perhaps acceleration of on <unk> to the cloud. If you can get some some color there and then I've got a follow up.
[noise], So just point to really three different courts. So postal recall my earlier comments about pull for that sort of see so I would expect so what we benefited from it in key too in terms of a pool for the fact that's true.
Boring from was cute three to four and probably the next two courses of fiscal 21. So I think that's important to bear in mind, yes, It's Mike Tostado, Yeah, we have so fully rolled out free as the people auction for.
Entry level customers. So I wouldn't say that the effect there is quite modest we guide it has the starts at this yeah.
To the impacts there'll be colt would occur from free during the air and and say it was one of three components, one point headwind to revenue growth and I I feel as though we're tracking well shoot back.
And then all the say we've been talking about the impacts coded generating a the macro economic sort of circumstances that are impacting some of S.M.B. a tile customers in particular.
Okay, I guess, a broader question and then I would imagine.
A lot of people that are looking for cost optimization right now maybe that gives you a window to attract more I.T. people cure platform, you've got low cost.
Particularly around <unk>. So can you talk about maybe some new initiatives you guys, you're thinking about doing the target the I.T. buyer more aggressively in this environment.
Yeah, I mean, Derrick we <unk>, we it it's an ongoing focus for US you know I. T. is is is we've talked about as an increasing place that we can language S.D. and to your point like we agree. We are you know I think a value choice and or a high product quality choice in that combination.
I think sets a sub wellness environment will continue to to talk about you know the I.T. service management and I T. I kind of broad collaboration service collaboration in areas that we focus on both across J.S.D. and without <unk> in Wisconsin Centrella I mean, there's there's you know we've got I think really rich portfolio that we can time, we can talk.
T about both help serve the problems that they're trying to solve internally for themselves, but more importantly for the problems that you know the they're in charge of for for their their companies.
[noise] makeup.
Okay, now and I tend to call back over to Scott first car for closing remarks.
Thank you run for joining a cold today, where you appreciate your ongoing support and we hope that you and your loved ones remain sys unhealthy.
<unk>.
Ladies and gentlemen displays today's conference call. Thank you for participating you may now disconnect.
[noise] [noise].
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