Q4 2020 Atlassian Corporation PLC Earnings Call

[music].

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

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

I'll now hand, the call over to Matt Sonnenfeldt Atlassians had been Investor relations.

Thank you good afternoon, and welcome to Alaskans fourth quarter fiscal 2020 earnings call. Thank you for joining us today on the call today, we have Alaskans co Packers and co Ceos, Scott Farquar, they might cannon, Brooks and our Chief Financial Officer James here.

Earlier today, we issued a press release and a shareholder letter with our financial results and commentary for our fourth quarter fiscal 2020.

Adams were also posted on the Investor Relations section of Alaskans website. Our IR site. We also posted a supplemental presentation and datasheet during the call. We'll make brief opening remarks, and then spend remainder of time on Tonight.

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 statement this predictions of future events.

Forward looking statements represent management's beliefs and assumptions only as of the date such statements are minute and we disclaim any obligation to update or revise them should they change there seems to be up to date.

Further information on these and other factors that could affect the Companys financial results are included new filings, we make with the Securities Exchange Commission from time to time, including a section titled risk factors in our most recent form 20-F recorded its ex cat.

In addition, during today's call he will discuss non IRS financial measures. These on I have for his financial measures are in addition to and not substitute or superior to measures of financial performance prepared in accordance with <unk> for US there are a number of limitations related to use of these non IRS financial measures versus your nearest I have parents equivalents maybe.

I'm not I for us and non-GAAP measures used by other companies reconciliation between IRS and <unk> for US financial measures is available in our earnings release, and our shareholder letter and in our updated investor Datasheet on the IR website.

During Q1 day. Please ask your question upfront and so that we can easily move through the next speaker.

Also please be patient, we encounter any disruption when challenging logistics, given where individually dialing in from around the world with that I'll turn the call over to Scott for opening remarks.

Thank you everyone for joining today and for your continued support we want to start by saying, we hope you in your loved ones I healthy.

The dynamic moment in time for everyone, including our customers and their employees.

Have you hopefully written a shareholder letter we had a strong business results in Q4 and the full you.

We now serve over 174000 customers, which 150000 use that cloud products.

For enterprise customers, we are increasingly important mission critical utility for enterprise is going through digital transformations.

Continuing momentum helped drive $1.6 billion in revenue in 2020, as well as strong preferred profitability and cash flow.

As we kind of thought to fiscal 21, we have three parties to help drive long term success.

First and foremost is to continue supporting our customers and help them style resilient unsuccessful.

Second is to continue driving transformation into becoming a crowd sourced company.

Third used to make significant progress my watch in markets agile development.

Sam and non technical work management.

How and banville, the two acquisitions highlighted actually hold what I'll do it all will help us across all three priorities.

Because of the macro environment to now crowd focus fiscal 21 will be a challenging you.

Who play offense for the long term through the short term headwinds.

Choices other companies May shied away from going on I popped experienced the guy that pop food.

And success, we continue our transformation into a 5 billion dollar global software leader.

We provided more detail and many other updates you know shareholder whether it be she's always today.

Before we move to Christian into Mark and I want to both Ah. Thank our employees, who remain a source of strength and inspiration for us. During these challenging times you make unleashing the potential teams possible.

With that I'll pass the call back to the operator.

At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad. If he would like to withdraw your question. Please press the town Keith.

Question comes from Keith Weiss with Morgan Stanley. Please go ahead.

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Excellent. Thank you guys for for taking the question and I appreciate all the detail and in some of the incremental detail that we're seeing give me the shareholder letter.

I was in shareholder letter you guys did a really good job framing out kind of any impacts that would that that we're likely to see from a more aggressive push to the cloud and the investment that you guys are making behind the new solution can you talk just a little bit about sort of beat the other side a of the value. If you will have what we could expect in terms of kind of average pricing per cluster.

Were they moved to the cloud what's the timeframe for realizing some of the high yields on these investments in sort of as we look forward to at by 22 enough by 23, what are the expected benefits out of each of these investments you're making right here.

[noise] Kaco, Scott first I'll, just looking out to the macro dues and then James from talking to the sort of specifics as as we sit in a shareholder with a movie on customers to the cloud is great for them and Greg Foss I'm in the cloud we can innovate faster for them, where you get a you know we can.

Make improvements and get feedback from customers or what fosco and for our customers its identified by not having to manage all the infrastructure and server. So there's there and if they do their total cost of ownership, reducing significantly even as though no. We take on watch or a percentage of of this workload and sorry, its quite for all of us and.

You know James can speak to the specifics I guess about how things might change over time.

Thanks, Scott I I, just had a that the lump sum economics in our view of the clouds are trying to as Scott indicated both to our customers.

But also to ourselves and.

We we see that in our ability to Oh price in a way that reflects the values that we creating for all customers of course, our customers enjoy the simplification that comes along with not have to having to operate the open software and services Oh.

What we intend to do over the medium term is help smooth pathway for particularly our largest server customers as they are embark on that cloud migration journey, we talked in the shareholder lesser about how to date, we still have around three courses of up paid users.

Behind the fall.

And so we're looking to in essence provide discounts to.

To all cloud pricing.

To these launch a set of customers as they make their migration. This gives those customers time to adjust that budgets to be able to realize these benefits around cost and complexity.

So they mention.

So we're comfortable that over time, a this will be a a good outcome.

Not just for our customers, but very much for all shareholders. This and how long term growth.

Got it that's super helpful. It makes I guess can you can look one follow up.

So we can give us a little bit more color on some of the recent acquisition and in particular, how you think that changes your competitiveness, particularly in areas like idea Sam. Thank you guys.

Sure, Matt I can take that how you doing great.

Look we announced the Munnsville acquisition today or in a along with a a shareholder letter.

So you will see not and again help as Scott mentioned in his remarks during the quarter.

Look I think it goes through a both of these good about long term philosophy that there's.

A line between <unk> and software development, that's increasingly becoming fluid.

The teams and building software teams operating deploying in managing that software up becoming.

Ever more share or collaborating a lot more and you can see that in both.

Both acquisitions.

It takes us further towards being you know any company I suppose it has a a broad platform for all sorts of technical team workflows.

You can also looking at maranville specific ways as just a part of a sort of steady you know <unk> long term progress all delivering more value for customers in the New York City market, you know, obviously with Jira service desk, and ops, Ginny and them on Bill and ER and help there.

It is as we've mentioned before the fastest growing part of our business that is operating at large style and this will quote you know we think finally, we continue that trend in terms of mine built specifically.

You know asset management or or CMDB or was the most requested area by customers of all feature area I suppose in that offering as people were taking it beyond the service desk and were brought a lot service management offering.

And you know is a a very prudent decision, we know them on gold team well and I think we'll work extremely well together.

You can see that it also in the shareholder letter we saw the de example of Balyasny, which is a great customer example of large companies switching to a the atlassians platform out for they brought or.

Oh, I guess and needs.

That's what that's Super helpful. Thank you guys.

Your next question comes from Alex Kurtz with Keybanc capital markets. Please go ahead.

Yeah I answered the question guys. So I think there's a lot of the investor discussing inter quarter about whether you would raise prices. This fiscal year fiscal 21, given cobot a in the impact you saw the SMB space last quarter, so looks like in the shareholder letter you will be a.

Pricing will be used but maybe some additional color about the extended timing versus prior years.

Well I can jump in the tape out one the I. I think we should really start by focusing on how we have very mindful of the challenges that our customers are facing this macro economic environment. When we reflected that view in a variety of our actions over the last few months.

And pricing is another illustration of this point.

Ah so yes, there would be some benefit of price or in terms of overall growth rates in fiscal 21 year over year, but I would really describe this as a modest impact.

Suddenly versus Oh, the experience of the last three or so years. So I think that's that's very important to get context around.

And then I just saw the say, though where we do a move forward with pricing actions. It will be very much in support of our overall strategy that we've already been talking about today extensively around accelerating the move to the cloud for our customers given that.

And if it's a to them and given the benefits to our long sub model as well so only modest benefits from price in fiscal 21, and very much movements that will be consistent with our strategy.

Thank you.

Your next question comes from Heather Bellini with Goldman Sachs. Please go ahead.

Thank you. This is caroline on for how that I, just jumping on that different strategies that you're gonna be using to migrate customers to here I product I was wondering given that you listed a number of Dom I mean price discounts is one of 'em, we talked about partners R&D new products migration tools I was wondering if you're going to rank order those.

In terms in terms of like which one do you think you what happened like impact and then also on the discounts for enterprise server customers I was wondering again.

So little bit more color on the terms of those discounts and also like you know weighing that versus the fact that last year you did a number.

Great prices on server customers I'm trying to figure out how does that impact or the migration versus the discounts are finding together. Thank you.

[noise] [noise], Yeah, Hi, I can take the first course I've got a Caroline I'll leave the the discounting section to James in terms of the strategies.

By far the most important strategy is just building kick ass cloud offerings.

We've spent a lot of time and energy, making sure our cloud products or the additions to the offering we have all of the capabilities is the best that last seen experience that customers will get.

If we don't have that all the other strategies on antuna be a very very helpful.

Second most important strategy as we would say is reducing the friction that takes for customers to move themselves over there in the long term and also giving them quick guidance about where we are investing and how we see that that transition happening over time.

These are these are these are long term moves rather than customers make prudent investment decisions about how they're managing that but at the same time, there's a lot of.

Friction, we can removing the process you've seen that in our migration assistance that we've shipped and continually upgraded to allow you to keep.

Your server and cloud instances running and lives as you move your daughter over to allow you to do test runs of the daughter movements and all these sorts of single doing the purchase of customers moving their or their daughter and to those offerings, which as I said, we continue to make sure the best.

Best example of using Atlassians products, and then you had various although as you mentioned part in the strategies pricing strategies and all sorts of other things.

I think that you know how long term consistency on old those.

Area. This is probably the most important thing next to building Uh-huh just are really a consistent offering.

You've also seen us I would say incentive noting that card offering continued a ladder out the different additions to cater to our breadth of customers that exist on premise Ah. So obviously you saw the introduction of free in the last quarter, a quarter and a half a and then the launch of enterprise or at the end of last quarter in there.

Cloud to handle the needs of those biggest customers. It's still in our early access program, but it's going very well so far.

Got you know that addition map in the cloud is something we didn't have.

Two two and a half years ago, we've really worked hard to continue to build out to not to all the different customer segments that we have.

Sure I'll talk to James just a explanation of how cloud pricing discounts work.

Yeah. Thanks, Mike.

No I just say a as you look at our list prices fraud different deployment options, there's clearly a a significant delta between the stuff a prices and the cloud prices at different points, along the use of chip scale, a similar but less so.

In terms of the comparison of list price between datacenter and cloud.

On this a embodies the recent price changes that we've made over the last few years.

And so while there is this list price fell so it's really important that we work with our customers to make sure that they are able to focus on the total cost of ownership equation.

Which we believe this attractive for them.

Particularly when you add to that them very significant investment stuff.

Scott and Mike has been talking about us, making you know cloud products over a number of years now so the concept behind the discounting that we talk about today is very much to give those sort of a customers a multiyear lab to gradually get them.

To the cloud list pricing.

And finally within their organizations to sort through unlocking the cost savings the complexity savings from not having to operate there over the software, but instead tap into a high quality cloud services.

Got it thank you so much.

Your next question comes from Gregg Moskowitz with Mizuho. Please go ahead.

Okay. Thank you very much. Good afternoon, guys are in the shareholder letter you mentioned that you would be making several short term trade off.

In addition to the greater discount for migrating server users to cloud as well as the more modest pricing changes that you've been talking about are there. Other steps that you also plan to take over the near to medium term that would amount to.

Some sort of economic.

Yeah.

Well I can jump in to that one Greg or the other things I would just refers to really are the fact that as we continue to emphasize the cloud and best in the cloud help our customers migrate over to the cloud of course, they'll be a a reduction.

In the volume of Vascepa revenues, Oh, we talked in the last or about the license line.

Which is now a relatively small part of our overall revenue base and the $20 million.

In Q4 for example.

That license line during fiscal 2000, UAN, reducing by about half a and then the maintenance line. So the annual Mason those for sofa customers staying about flat.

And so this is very much what we've been talking about for a while now as we emphasize the cloud emphasize moving to the cloud from the behind the fall will products, particularly the several products. So this is pretty much the continuation of that up actually a theme.

And of course, the maintenance line has been heavily benefiting in recent years from price increases. So that's worth remembering it was well.

And I'd expect that that.

Seem around the license line and the maintenance revenue line to build gradually Oh, so more of an effect in the second half of the of US is the first half of the a and then the other thing just to remind everyone off and I'd say this is a smaller elements of the overall equation.

Ah thought we have been able to help a number of our customers.

Who have been under particular pressure economically in this co good driven environment I will continue to support customers in fiscal 21. So that's also a part of how were taking decisions that help our customers for the long term yeah impacts us in the short term, but we think that's apps.

Absolutely the right thing to do.

Oh, Thanks, and I was going to follow on from dry so don't follow on from training. There you know I just think you got to be getting to all the specifics of all the different things. We're doing the why we think about it is just we want to be good stewards of capital for the long term and the time horizon were comfortable making those investment decisions on doesn't fit necessarily within a and they corridor or an interest.

School year and no sorry, we we know through the I lied I know in downturn when we invested throughout that it really set us up for another decade of growth and whether it would start awesome. So she can those all you know we sold by 10 use it at last season and over the last a year in a bit we've had a water tenure lessons that we.

Hi of doing that right in line has been amazing people that you know went on the market beforehand and haven't been is not good for the last 10 years and so we'll continue to while I'm will continue to do things like free to set up that funnel really well we'll continue to.

The good partners, we got customers on generous with them in order to maintain a long term goodwill I'm sorry.

The which I think the meaningful I kind of a numerical impact that we are aware off every now shareholders letter, but that doesn't mean that there are the ones that were doing every single day.

Okay. That's really helpful. And then a follow up if I may because that's actually a good segue.

To the introduction in March of Ah, you know freehand version to cross Jira software confidently Ensign J S. T. A which clearly has long term positive benefits you already have talked about the the uptake and in a users have signed onto the three additions, but I guess the question is just around you know net new logos are menu.

Pay level, which obviously were much smaller than usual this quarter for that specific reason and I would just wondering.

Hey, with the introduction of free version for them.

I, if it's possible that sort of estimate roughly how much.

Your net pay that paid ads and they had been impacted by the pervasive present, a free perhaps by looking at the historical run rate until its net new customers, who are paying for for start or additions or you know anyway.

The way that him he might be able to what I can measure that perhaps.

Thanks, Craig It's got it will do Scott first and then trends can follow up look as you know I'm just being a phone watching for wall out new customer number bounces around a lot it's not something that we.

God to Ob I'm going to spend Oh, what it's on a day to day basis, you know trying to aim for and in this quarter. We had an unexpected impact a we know target had some impact in terms of.

It was 174000 customers were exposed to every industry I'm. Upon a you know every size company from large and small and you know some of those smaller customers trying to the result of co. Good. The other part is free on as we said the phrase opened the funnel, but yeah. It all sort of defers the time period.

Which people migrate and upgrade to out a paid.

Instances that products and so that's a lot longer conversion cycle also has some short term headwinds against our customer numbers, so, but we like what pretty it's about thought that you know afraid until we've got a 150% increasing sign ups as I mentioned, how shareholder window, so everything and that's on his so it's really positive and again speaks to how long term or.

The investments there and as I've said before sort of licenses. It seemed more program 10 years ago, a United States. The wife lost I Gotta cars, James anything you wanted to add to that.

[noise] just a couple of points first I'd note that our gross new ads of customers. So adds before any consideration of trends are they were remaining strong throughout the course of so we're pleased that are continuing ability.

To bring customers into our products and services for the post time up but yeah, China, obviously was a what drove the lower net customer add number or another I just really echo. The fact that it was very much a blend between kobin driven macroeconomic effects and.

And the Oh, the broadening access to free versions of Joseph a confluence and Jira service desk I note on the the Qubits driven impacts.

The we saw the greatest impact in April or less of an impact in May and then again less in June.

And so if you take a step back and think about the macro economic impact and free yeah. We believe the both of these drivers will add over time in sums up there are headwinds to customer growth. Obviously, we're not trying to predict the duration of the macro environment, but at some point that will add.

But having said that I would expect that enough to support 21 or the the customer addition, number I would show high variability or folk for both reasons Ur cobot drug on and free driven as we work to monetize those free customers gradually.

Your next question comes from Nikolay Beliov with Bank of America. Please go ahead.

Hi, This is actually Jacqueline Onpoint Nikolai.

A couple of questions I guess, just first on the spring chain in the past you've told investors to like that revenue growth that is billings growth and it seems like they graduates have diapers, even more recently can you talk about the puts and takes here.

Well, Thanks, James I'll answer the question, we do continue to believe or the revenue gross is the best way for investors to think about all business. When you consider the now around 90% about fruitful revenue is recurring.

In nature, Oh, we're very comfortable but the revenue as a a strong reflection of the underlying demand for our products and services. So Oh, one thing I'll suddenly note is that the cloud business.

Has a blend of a subscription terms so about three courses of our customers.

Take monthly subscriptions.

As a.

Several businesses being typically and meal type to tones or we noted in the show.

Right at this point.

But at the end of the fiscal year about 25 to <unk>.

What's cloud based.

But the revenue was cloud driven.

So that's if anything I would add but we still very much a folks.

Those are very fair a measure of our progress.

Your next question comes from Michael terrain with Wells Fargo.

Surety. Please go ahead.

Hey, there. Thanks, good afternoon, mostly investor questions, we're getting or around the guy that some of the color across revenue segmentation, you're providing James you mentioned the magnitude of expected impacts to license hot explicitly mentioning their subscription just wondering is there anything additional you can provide for us and just thinking through the related subscript.

And impacts the can just help us and thinking through the the overall mix and and and offsets here going forward and our models.

Oh well. Thank you for the question I I.

He subscription revenue line to continue should grow very nicely over time or both.

Sensor business for those who needed on Prem solution over the medium term yeah, a lot of opportunity in front of both of those are on the cloud side.

Well, obviously, we're primarily focused we're seeing obviously very strong adoption in terms of those new customers coming in 95% this past quarter.

And we're also seeing nice building volumes of migrations and we expect that to be continuing in the coming years. So Ah Ah that's really the the effect today of course remember we've talked about the fact that full those larger migrating customers we will offer discounts.

Oh, it's a smooth that pathways that I was referring to earlier.

I'm, sorry, I shouldn't that kept with William Blair. Please go ahead.

Hi, guys. Thanks for taking my question.

So it's probably for microscopic I read in the shareholder letter you know that seem to be a lot of focus on sir.

Perverse, our cloud migrations I'm, just curious war role eating at Alaska in long term and it was this a bridge skews until cloud.

I can handle some of these larger customers, which longer term even after customers are cuts are comfortable scaling and cloud.

Yes, Hi, Jim I can certainly take the look looked out as soon as a is there.

At the moment to make sure that you know the largest.

It's kind of customers as you said can manage their own environments, right, where they need to.

There's no doubt that we're continuing to build out the cloud.

<unk> enterprise volumes or to handle the obviously increased needs right Oh in terms of scale in terms of security in terms of data locality all sorts of sat space needs for the lodged enterprise customers.

[noise] as you can expect to the the slowest customers to migrate weeks, we we think over the long term will be the largest customers.

Which will mean that data center offering is you know is important for those customers for a long term front. It also has to be a part of their of their planning right. As we are CLIA waived the customers about where the best long term experiences and we help them to manage that migrations at the same time, we have to.

Equally with them that those offerings are or are important in and part of that planning right back on the data center side and on the cloud enterprise side I would say that.

As part of our continued.

Long term communications, we remain driven by customers in this right. We do with thing we do get a lot of requests from customers that our lives to move to the cloud running so it's it's not a one way traffic all we tend to be very very very customer driven and try to be.

Yeah prudent in how we think about helping them with that that movement over time.

Your next question comes from Walter Pritchard with Citi. Please go ahead.

Hi, Thanks, sorry to beat a dead horse on it on the cloud question I guess in the letter you talked about a 60% up tick in cloud migration living it on the server side.

Any anything you can tell us around sort of how much greater you'd expect that migrations to be in fiscal 21 versus 20, and any color you can give us around types of customers products and I guess, you've already kind of be answered. The question on additions, but just curious more more color there, especially on how we should think about the bag.

The two to the uptick of of migrate.

Look the first thing I would say is in terms of in terms of magnitude or in terms of migrations.

Obviously, we've continued to build out as I mentioned before the product quality and the depth and breadth as our offerings in the cloud. So one would expect that to increasingly point to larger skiles of migration right just as the she a quality of the offering is.

Is improved the biggest thing that we've done in the last years to continue to improve.

Our migration assistance.

And are working with partners both of which has had a positive impacts.

The confluence migration assistant for example shipped.

About 18 months ago I would get the first version we've had two or three version since then if we keep improving it.

It now has more than 90.

5% of all confluence migrations go through that migration assistance so.

As that as those migration assistance to do work, we have to keep tuning them and helping customers got a move through those my question assistance that really really helps that that journey become less friction cold and then it's all about out communication. The customers planning you know they're going to move this quarter next quarter next year, whatever that's part of their planning.

No I mentioned a conference migration assisting because it's our it's our oldest and most invested migration assisting the jira software migration says a lot newer so that shipped in March.

And you know we continue to work on how to improve that that's only about 50% of migrations at the moment.

So as you would expect as we improve that migration assistant in the longer without we'll see more jira software migrations in the year ahead than we have an idea behind.

And similarly, the Jira service desk my grossing system is in a I believe is it isn't based or at the moment and we'll continue to roll out throughout the year. So I think you will see increased.

Migrations in the year ahead.

Both through the offerings, we have and then the migration assistance, just continuing to improve as well as I would call out apartment network run a continuing to improve their capabilities their services their experience the history in migrating customers, because especially for those larger customers. We haven't Olson network of partners around the.

World that help them to manage that migration, maybe then moving things along the way we tuning the offerings to the businesses.

So that's you know that the human tower that helps.

But it takes some time to learn and get experience in managing as my question.

Your next question comes from E ticket drunk with Oppenheimer.

Thanks.

Correct.

Questions first on the on cloud enterprise.

Can you talk about what percent I know he probably clearly doesn't apply.

Well subset all of it.

But maybe you could talk about how much of your revenue, you're saying can be captured by cloud enterprise on and I'm trying to.

Gauge first of all what percent of revenue is exposed to this do you think that can be upgraded and also what we do use there are no an average.

A price increase I can think about religion enterprise reflects.

[laughter].

I'd take you back to I guess, I principles, which is we want to gotta, So old out customers you crowd and we have Alfred.

And so recently it was just frame standard and a you know as we look to make sure. We can handle as customers. We have gone to a premium and are now enterprise now.

Oh enterprise is still in a close beta with customers. So I would not at this stage, where we could talk to you know I broke customer demand or you know specific pricing on that product, but when we think about it you know enterprises.

Could it be largely to the customers that have very specific needs around data with Cowen and other things that are where we.

Its customers sorry, like it's too soon to be kind of answer specifically your questions I'd say, we're committed to handling.

Oh got customers, including very well I, just as customers a in cloud and as I said before that you know we save a lot of money for those customers you know by handling the total cost of ownership because we can run at a in a cheaper and better than I can.

Your next question comes from Robert Magic with Raymond James. Please go ahead.

Thanks can you share some feedback from the partner channel, which represents a quarter of total revenue how they are evolving their practices and you accelerate the shift towards cloud products.

Sure I can take that one there.

Look I think any any.

A large scale shift in our business like this is going to impact upon a channel right. So so you you clearly he that in that feedback they used to working on how to help customers in a certain mina and they're having to evolve and helping them in a different menno this creates opportunities and creates challenges for them.

And then you get both in the feedback.

For example, as I mentioned migration services for a you know the last year or two in the next few years will be a good source of revenue for our partners in terms of helping our customers to move I'm, not just Chile picking up the daughter and running that migration assistant, which the customers can probably do themselves, but in terms of how should they think about.

Their business, which is probably change even the cloud like do they need to think differently do they need to set it up differently that they need to.

Manage it differently.

In terms of doing that.

Second.

The offerings like cloud enterprise and the new Extensibility Keds partners. They create a lot more to manage the customers instance, <unk>.

This is a manage how they do think.

Multi instant so you can set up.

As many juror in creates a lot more flexibility for the customer in terms of data management or how they want to manage projects I didn't mention content and confluence and the partner can help them it seems that to method closer than ever.

Before to their business and they get it benefit so I would say, there's a whole although the partners have made huge strides already in managing that transitioning their business you know that they continue to work with us and I'm very much so how that's.

How that's going to change and work along.

Just want to add something that partly to gradually expanding but it's sometimes gets lost how much of an asset al Gore of apartments.

I don't use you know we have just a huge range of partners in tackling verticals and those partners are also key you know marketplace, which has been a huge strength for us and creates stickiness in our product and they've done a great job of building a those marketplace apps you know cloud.

And of course that allows them to be more sticky. So I'm glad you brought up the question because it does speak to the huge benefit we have as its global part in the kind of and particularly where we don't have to have you know probably styles or you know professional services people on the ground around the world than we can leverage out partner channel to do that is a huge source of strength.

Yes.

Your next question comes from friends dealt with Jefferies. Please go ahead.

Hi, This is love soda on for Brent to I had a couple of questions first one for making Scott.

Was around you know the R&D investment a it sounds like you guys are still going to keep the hiring speed up being fiscal 2021, and you know this year you guys had an impressive you know you had three cloud additions you launch premium so like what is sort of the feature.

Sets that you know this R&D investment is gonna be focused on going forward.

And then the second one was around the demand pipeline.

So I know James you provided some color around or you know the design pipeline being the most impact them, culminating in April and then improving sequentially.

So what what she has been implied in the guidance for the first fiscal quarter that you provided thank you.

Yeah give him a great great question.

Look I think we've obviously got the the because of his background as we've talked about right and whether the recovery like a marshmallow or snaps back quickly like a rubber band that is you know that that's out about control.

However, what is in control is our ability to to continue to invest prudently and for the long term.

So I think we can you know, but we can come out of this strongly however, however that happens.

In terms of where the R&D dollars are going.

That that doesn't doesn't change right I mean, it shouldn't change because of because of covered or any or any background circumstances. So as we continue to say, we're trying to build an amazing platform. So helping teams work across lots of different markets.

You see that obviously going into the cloud platform continuing to build out enterprise capabilities, there as well as on things like free and helping the smallest group customers get started and just make their teams more efficient right that that doesn't change we continue to have some amazing opportunities in terms of.

Markets ahead of us and software in in IP and connecting those two markets as well as you've seen that them on go acquisition that we announced today as well as in the broader work management for all teams.

Aspect or Trello. It continues to power, along really well and we're happy with how that's going conflicts continues to become a broader offering.

Overall platform of uptime things together, so I just high level, we're really excited about way with investing our R&D. We do think about doesn't a long term and it's got mentioned earlier you know, we're continuing to to invest in hiring in acquiring the best talent that we can into the business. So we can we can build things for our customers.

And I can just add on to the second part of your question in some so but could that impact that we saw in Q4 I take that I've around $10 million in revenue up in the course and that was predominantly on the cash outside of our business, which you would.

Expect so that's where we tend to serve our small medium sized business type customers Oh, we saw a some weakness there, particularly around some of the small tech companies that we so.

And then of course, a particular interest rates were heavily impacted by Cabot 19 than we saw a impacts right across the customer size spectrum within those impacted sectors. So around 10 million for the quarter that includes a subset of fat.

And relates to some of the help that we gave to certain about customers. So although all notes. It was a relatively small proportion less than 2% also of our customers came to us for one form of help or another.

Looking to fiscal 21, where assuming a game, where obviously not trying to take a coal on on the macro or or the timing of the trajectory of coated but we're assuming that they would be effects.

Throughout fiscal 21, so net net it wouldn't be a big effect in fiscal 21, a than what we've seen to date.

Your next question comes from Pat Walravens with JMP Securities. Please go ahead.

Thank you. So much this is Jerry on for Pat I, just two quick ones for me first how do you think about M&A going forward and then maybe on the covet intact.

A few maybe touch on what you saw in July and how that compared to June. Thank you so much.

Got here I thought the M&A question, James can take the covenant like one the look I mean, I mean, I haven't changed for US we've always viewed M&A as one of the areas that we are a great at along with building developing new products, along with al marketplace of third party absolutely provide too.

Customers, it's sort of because one area when I believe it or we can deploy and nothing strange way. He believes that the most important thing companies need to have that were interested in <unk>.

Oh on without mission or that they.

Around at least in the potential of everything and then its culture fit and another area. So we're really proud about I mean, I and we've always been prudent stewards of capital and a that hasn't times through coverage. Likewise, if there's opportunities to buy things at a reasonable price that make sense and add to I caught up.

Foleo in areas that we're already looking at we will do that I will say that the valuations haven't come down as much as many people expected. During this time and you know where no rush to go and deploy capital in areas, where we don't believe we can get a great return.

Thanks.

Hi, I just at a the we've been discussing how the the challenging impacts of coated lessened as Q4 progressed.

I would just observe that in July so far.

We've seen a a continuation of that theme, but I really would want to emphasize Italy and of course or an IP or not looking to draw too. Many conclusions here, obviously, the oh, the macro factors or are really hard to predict and we've seen a economic openings in certain geographies followed by.

Less or more restrictive economic conditions so.

That's what we've seen so far but I I would be very cautious about Oh go too far with that.

Your next question comes from Garik blood with Cowen. Please go ahead.

Thanks for taking my question I wanted to ask about business outside of SMB outside of distressed verticals or may be lucky in that you're more stable verticals and you're more enterprise type customers. I'm curious you know given to the impact from.

Kind of the work or displacement and and supporting hybrid work enable then.

No.

What you're seeing from minute or the demand perspective, you could argue maybe yeah investments in collaboration and work flow.

Good what would rise, but you could also argue companies still are very much and tactical nutshell would really like the here, how you're seeing conditions in and you know better performing verticals.

I I can stops on that one and that it's got my perhaps you want to jump in but we feel as though we are very much in the center up important transformation digital transformation is only being accelerated by the macro each.

Economic developments that have played out in recent months and are we feel that our products and services fit that need for where our customers are going and I.

We're just also adds or how we were very pleased about the large enterprise and of our customer base.

As to the large spending statistics that we published we've traditionally published a numbers for customer spending more than 50000 and $500000 with us.

And those customer accounts grew by 44% and 56% year over year, a and then a new statistic for US as we continue to scale is the number of customers spending more than a million dollars with us and so we were delighted with that number increasing by 70.

6% year over year, So I think illustrative of Ah Ah the breadth of what we have to offer the relevance of what we have to offer a I'll leave about that but.

Your next question comes or <unk>.

Hey, guys. Thanks, so much for taking my questions I, just two quick ones I'll first diving a little bit more in into the churn discussion.

<unk> retention rates are about 98% can best customer spending over five K has that been consistent a you know dairypure and quite a bit or has there been changes, but then again the customers was larger deals versus just a total customer a whole kind of a halt and then.

<unk> cloud revenue side and the shareholder letter I said slightly less than half of revenue is cloud to be clear. That's just the actual cloud revenue, that's not including marketplace correct, because that's telling us that about 80% of subscription bucket would be OSL cloud, which is a whole lot higher than I expected, but just wanted to get a sample.

That directionally right way to think about that thanks.

So in terms of the Oh, the last part of good question the cloud commentary.

You know obviously.

Directional rather than terribly specific recall, obviously, the the marketplace has been growing nicely for us on the cloud, but traditionally the marketplace is growing up around suffer on the datacenter apps were a growing very nicely in the last year in half also a week.

Spent more growth to come on the cloud side of our market place, but that's a a smaller components today if that overall our top line revenue mix.

And then the other elements of your question, if you want to come back to them.

Your next question comes from Arete, Virginia, Cleveland Research. Please go ahead.

Thanks for taking the question appreciate it.

Wonderful and on the large deals or growing.

Ah customers spending more than million could you give an update on what's driving that any update on zero line and yeah. As you look on slide 21.

No its Cameron as Chief revenue officer, any any changes to go to market strategy, you're contemplating with your own.

Direct salesforce or with partners. Thank you.

Thanks.

There's nothing changed I go to market strategy or no.

Over the long term I don't expect it to have any you turns in the new Tim either I go to market strategy is always thing when customers bottoms up and where they need help assistance or you know we provide that for them I'm you know over time as the deal sizes get larger I'm you know their engagement with us.

They then when I sort of person to talk to but that engagement is almost always after they're already a longtime customer velocity and they're looking to expand either do no mission critical data Center, a instance, or you're aligned so you know reporting up into the C suite.

And Oh, what a time with your customers recently.

You know weve veteran gauging the digital on product and what we're saying there is a digital transformation views I C O level and board level concern amongst money about customers and they are you know it's still very early in the digital transformation Roadmaps I'm you know that many have engineering teams, but they've gone through.

Looking at a wonderful fashion, they not moving fast enough to keep up with today's demands and so they will come to vendors like al cells to help them. A you know unify all that their teams from sometimes they come up with an idea all the way through to launch in maintaining and running it and so that involves arent talk products like and you know as I looked at.

With that at large scale. They made a product like a drew a line can manage their portfolio as you know often thousands if not tens of thousands of develops as I have not building products for them. So <unk> no no changes to rail or go to market and Ah, We say again, all that product before applying.

As we expected, which is we are the only vendor they can handle both end to end and the scale that our customers are operating at.

Oh, Hey, I just wanted to circle back.

I would agree she's question we'd be.

We've done in the next question will quickly, but it does dovetail nicely into.

That would go to market.

Evolution and how we continue to look you know.

Rishi off the but the retention right for custom is north of $50000 and I just want to decide it's been holding steady.

Through through the code.

Well good challenges so so [noise].

Continued retention among the large customers we were happy with as we continue to be a mission critical part of their infrastructure of there how they run their companies as you'd expect that that retention radius is holding well.

As a reminder, if you would like to ask a question. Please press Star then the number one on your telephone keypad and your next question comes from Jack Andrews with Needham. Please go ahead.

Good afternoon. Thanks for taking my question during the quarter, you announced a variety of integrations between some of your products and third party Devops tools and so just philosophically speaking I mean, how much do you think of the Dev ops lifecycle that you're interested in addressing directly versus partnering with other third parties.

Scott here I appreciate the question Tech if I look at a you know chat with customers and explain what we do does Oh one of.

Do you think about the broad market I'm very plain and manage I kind of what are we going to get done across our organization and not space you know Jira and now you know your lawn and other products are totally ubiquitous.

There.

You then have a what kind of writing code testing code deploying card.

And in that space, there are thousands of different vendors and Ah different startups happening every single die and Alaska implies a really important part there with or without cutting tools with al deployment tools and solid fourth but there are on our commitment to our customers in that space is that we will integrate with it.

Anything in that space and everything that's nice because of al market presence and I've got somebody says I are incentivized to integrate we'd Austin, sorry, I Brown for our brand promise not spices. You know we have things for you I may have some of the most important paces in that space, but I think until the end if any vendor to promise to be openings to all people in that space given how quickly technology change.

Isn't how people write code evolves over time.

And then at the other sort of into that when we say, okay I want to manage run in support of these products, that's where we increasingly being spending time with all of the IPO Sam.

Baskins with Jira service desk with opportunities that will once people a you know when you have a issues im sorry.

In that area, we know we're still in the stage, where every time, we gotta feature we we gained market share there. It's still very early but what customers look to us across all of this is that they want I'm afraid to a single pane of glass to tells them where they spend any time you know how they managing these huge amounts of people that are involved.

In a digital transformation with their writing code or their designing user interfaces over there you know frontline support people you know when the products go down in the middle of the night, they want something that coordinate all that work and we're the only vendor that can do that end to end and sorry, being the integrations, we announced in Dev ops, where.

You know pot to that and like you know effectively demonstrating again like no other than they can do that we all that seem to kind of Boston matter. What you use Edison a detailed level Dev ops, whether you use how products are used to third party I don't know what I think the only thing did they tend to sort of go out to the C suite and then it down to the people writing code in the trenches.

Jack I just wanted to add one thing there you know just gotten I've always believed it's incredibly important to communicate our philosophies of how we think about the world as much as the actions, we're taking on a quarter to quarter basis. I Hope you can say that in a you know shareholder letters weird.

You know where long term thinking people, we've built a long time thinking business and we believe that the shareholder letter as much as anything else is about philosophy of how we think about the world.

I think you can see over the last almost 20 years now and you will see continuing on were extremely pro interoperability.

So you asked about integrations and how that that works, while we obviously make sure our own applications work incredibly well together.

We are we think it's incredibly important as software continues to involve that interoperability between the best of breed.

Vendors between all vendors that customers show up with you've seen that in our partnerships continue to evolve with slot.

Sure I believe you had announcements within this quarter.

And continue to work well with the thousands of different integrations that we have.

This also plays well into our cloud journey because integration interoperability in the cloud is even easier than it was on a in the on premise world because of the standardized endpoints and no. One has to upgrade their there there are software. It's all running on the latest versions. So we think that's gonna be an increasingly import.

And part of our story as Scott mentioned in Ah development in IP areas, but increasingly in work management role in every year.

Korea, and I think that's a really good philosophical stands for us the having only increasing as a strength of all its going forward.

There are no further questions at this time I'll turn the call back to Mike for closing remarks.

Just wanted to say thanks, everyone for joining on the call today appreciate all the time and thoughts in your ongoing support as a as investors and shareholders and stakeholders in our business I Hope you and your loved ones are our sites and stay safe throughout the quarter and will I will talk to you.

Shortly.

This concludes today's conference call. Thanks for joining you may now disconnect.

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