Q3 2021 Atlassian Corporation PLC Earnings Call

Update or revise such statements should they change or cease to be current further information on these and other factors that could affect the Companys financial results is included in filings, we make with the Securities and Exchange Commission from time to time, including.

Including the section titled Risk factors in our most recent form 20-F from quarterly form 6K.

During today's call. We will also discuss non <unk> financial measures. These non <unk> financial measures are inhibition for you and are not a substitute for or superior to measures of financial performance prepared in accordance with <unk>.

The conciliation of between <unk> and non <unk> financial measures the available in our shareholder letter earnings release, and Investor day to shoot on the IR website.

During the Q&A. Please ask your full question upfront so that we can defer and easily move through to the next speaker.

I invite you to check out sessions from $10 21, our annual virtual customer conference, which runs through Tomorrow April 30 of which included a length of the $2 21 in our shareholder letter and our earnings release.

Lastly, I want to thank Michael Scott change in that from all of that locked in for the opportunity the lead Investor relations at the incredible long term customer focused company.

With that I'll turn the call over to Mike for opening remarks.

Thanks, Martin and thank you for joining today from wherever you are in the world.

As I've said in Australia.

Reminded that a national code of arms displays the kangaroo and the EMEA.

Why those two specific animals you might ask.

Because they are unable to walk backwards. They can only move forwards Australia as a nation must continue to move forward.

True to our Australian Heritage Atlassian only moves forward.

And we continue to do so at great price through a strong Q3.

We hope that you've read the shareholder letter when we describe our long term focus on delivering the innovation for customers.

Our investment in our World class cloud platform makes it possible to develop and deploy this innovation at an ever fast the pipes.

Highlights from the quarter include.

Doubling in customers cloud migrations versus last year right in line with our expectations.

Launching a new.

New product development program.

Yesterday, we announced five initial products from <unk> eight for technical and non technical teams of all sizes.

And continuing the continuous investment in leading edge innovation.

We announced the amazing updates for the gyro family of products. We're extremely excited about initiatives like open Dev ops and the whole neutral or the chip during the quarter as well as acquisitions of strength and chop IR.

We also posted strong results in Q3.

We saw a significant short term demand for on premise products.

As a result of customers purchasing ahead of both the discontinuation of new set of the license sales.

And price changes to on premises products that went into effect during the quarter.

More importantly, we made continued progress to our long term growth of becoming a cloud first company.

During the quarter cloud revenue grew 35% year over year and overall subscription revenue grew by 43% year over year.

Before we move to Q&A, Scott and I want to thank the more than 6000, atlassian, whose resilience passion and commitment to drive that innovation that we delivered to our customers and we continue to move forward every day.

Check out of session from $10 21 to see how we are building the future of evolving framework to unleash the potential of every team.

With that I'll pass the call over to the operator for your questions.

Thank you as a reminder to ask the question you made the current star one on your telephone to withdraw your question press the pound of hash key please standby, we compile the Q&A roster.

Your first question comes from the line of Michael current from Wells Fargo. Your line is open.

Hey, there thanks for taking the question busy week for everyone. It seems like with the team conference, which looked like a good showcase for some of the innovation of the product side of that cloud in particular opens up. So I was hoping you could maybe first touch on that what's your enabling for customers with things like the <unk> program and share of work management and then maybe James you could also comp.

On whether some of those recent innovations as well as things like cloud enterprise and the data center strength Youre showing here at all alter your view on the the mid 30 subscription growth target you've laid out given it looks like youll come in above there. This year at the very least thank you.

Yeah, Hi, Michael good.

Good to hear from you again.

It looks like and I can talk to point, if you've seen all of the announcements in the news.

The <unk> itself is as the program that we've launched.

To co develop some of our new products alongside of our customers.

The period in early product the innovation, where we know what we want to build.

But the.

The progress if you will likely of the the shape shifting of the product and the ability that is very rapid and so we need to notify customers that in the.

First the year or two of our products lots of it is likely to change for them very quickly.

In a volatile liabilities and it really sort of all the moving line.

That is done alongside customers and we are.

Sure the about force for you being open we're doing that alongside our customers and we're trying to be very clear.

Clear with them about that.

As we mentioned in the shareholder letter all of the products build very strongly on the Atlassian cloud platform.

So all of the things that we've talked about from machine learning and automation capabilities to the.

The compliance requirements and enterprise structures that we have heard of the collaborative capabilities.

Editors and reactions and all sorts of other things.

The appear in all of those new products. So.

Not only will they solve a series of new.

The challenges that our customers have and deliver unique value for them from.

From product manages.

In gear of product discovery through to broad scale of organizational.

<unk> and lifestyle for the use of directories and team Central obviously true gyro wealth management, bringing our business teams marketing finance and HR into the <unk> family and all of the tier of capabilities that are right for those business teams and a business friendly environment.

Not only do all of those things.

Yeah.

Robyn Hi.

All of the capabilities that we continue to bring to the cloud platform with the logging those products as well so.

We thought it was a very good example of.

Of the innovation that we've been building of the platform, that's not just for our existing customers and existing products, but it's as much for the.

The new things that we can continue to build and the advantages of moving into the cloud both for us in terms of creating things and for our customers in terms of the value that they can get.

Once they have moved there or if they are already there. They are obviously very large amount of tonight.

I can talk more of if anyone has any other questions, but let me hand off the James.

Look about the subscription growth part of your question.

Yeah sure. Thanks, Mike.

Certainly we were very pleased with the ongoing momentum building right across our cloud business.

You mentioned in the question enterprise of very early days for that addition were very pleased though that it's off to a good start but early for that to be a material revenue contributor.

But I would certainly points to our premium additions of continuing the <unk>.

Very nice momentum and I'm also really pleased by how our partners as the group.

Really developing the business practices around our cloud business.

Very encouraging for our future.

And then you mentioned the.

The event driven data center volume of activity.

We discussed in our pre announcement press release of few weeks ago.

So given all of that yes, we are.

The project team.

Would beat the FY 'twenty one.

Our previous target of subscription revenue growth in the midst of 6% year over year.

And.

And then sorry, FY 'twenty to the.

The.

Subscription revenue growth target will address that in 90 days time.

Your next question comes from the line of origin the path from <unk>.

Your line is open.

Perfect. Thank you for taking my questions I wanted to touch on the some of the new product announcements you made specifically around zero work management and it sounds like you made some changes to travel as well, but as youre going after the business user market.

Yeah.

I think we're all aware of that there was a lot of incumbents in that space.

M a lot of fast from happening, but I would love to hear how you think that space evolves over time and if you think there is consolidation in the number of tools that business users are using us for work management and then how does <unk> work management strategically kind of position itself in this market of something unique and compelling to <unk>.

Offer compared to some of the other players that are in the space.

Sure Matt.

Sorry, Michael.

Like that.

Look.

Let me start with the latter part of your question first.

A huge number of business teams already use tier of software.

For the formulary on an <unk> of coal to manage their work. So this is not a new area for us.

This is about us doing what is.

Classic Atlassian innovation listening to our customers seeing what those business teams that used gear of software already are doing and how we can deliver further capabilities to improve what they're already doing in the new and better offerings tailored to their needs we.

We are very confident there are lots of other business teams in our customers that could therefore benefit from that if we can deliver of really good and compelling experience for them.

So you can see that in some of the features.

Things like calendars and timeline views most of the business friendly ways of looking at things.

A lot of.

The new gyro of family templates that shipped as.

As a part of the <unk> 21 for the sort of project set up in.

In very specific ways for lots of different circumstances, you kind of if you think about those for some for things that both of the methodologies and ways of the teams want to set up of that project, we can do that for the upfront.

But we shipped 20 different business templates for different.

<unk> in finance and marketing use cases.

That take advantage of the features of <unk> wealth management.

To deliver for those particular customers.

There.

Yes.

Zero is a very structured system for wealth management. So it has a huge amount of power of huge amount of capability.

And built into the <unk> platform and the broader Atlassian platform.

For customers that have chosen zero in a deep way across their business. This is a very logical choice to continue to expand debt to business teams are specifically where does the business teams have the work as they increasingly do we obtained in the technology parts of the organization. So when Youre working with software teams when you're working with ITT teams are up for.

<unk> teams.

You can see a lot of things around legal and compliance for example, or finance and the AWS billing, which can be quite challenging.

They are of marketing teams shipping software and have to understand how to work with designers and software teams and when things are going to arrive in what they are going to look like and how thats kind of go together. So the fact that it's all inside of the gyro platform provides a lot of the data integration capabilities, not least things like automation.

<unk> learning of smartphone Jarrod itself gets smarter at the family of products.

We can we can do a lot of things in terms of of cross linking between so.

All of that shows a little of reasons why we think of lot of business teams will be excited about your wealth management I would point out.

I know, it's very early days right again part of the <unk> co developing with.

With the customers.

And we will continue to do that I think this the space in general as you asked for the start of your question is.

<unk>.

Is very very large as we've pointed out is close to 1 billion knowledge workers at the.

As we look at the continual knowledge worker productivity improvements over the next decade, the cum theres going to be of lots of work around how do we take.

Things like machine learning and automation.

And all sorts of data of resources as we have in the Atlassian platform and bring them to knowledge worker productivity in terms of project management task management and the flows around how do we coordinate groups of people, which we call teams across large organizations and different functions.

We obviously think the the broader atlassian platform and the different offerings in the <unk> family, we are very well positioned to take advantage of those of those trends.

Your next question comes from the line of Rob Oliver from Baird. Your line is open.

Great. Good evening guys. Thank you very much for taking my question.

I wanted to just ask about the enterprise conversions.

You guys mentioned the Splunk in your.

In your letter and particularly I think compelling example, when you look at the company like of Spark I think you guys mentioned, maybe northwest mutual as well.

Eight of our their patterns of markers that you see for companies like that that are leaping at the opportunity for me.

My Great early I know you guys have said debt.

It would be mostly smbs early in the enterprises later, but clearly there is some enterprises multi product platform type users.

That would leave with that opportunity.

The use of data that you guys are are famous for.

True to some patterns you identified there whether it be GSM users or whatever with low or whatever how youre approaching that.

Robert side of costs here I appreciate the question.

As we've mentioned before it's migrating potential of thousands of customers. We have from our server and data center offerings across the cloud is a multiyear process and we still expect the majority of our largest customers to move kind of in the subsequent use in solar.

We're really excited by the.

Some early movement of customers, but it doesn't represent any I guess quite changing the.

The estimates that we've put out previously.

When I look of the customers that new the Cros in general without speaking to those the recent examples.

The largest companies can be thought of events will all agree that the cloud is the future of for them, but I don't want to be in the business of managing infrastructure. They will get the features that we're offering in the cloud whether it's the security features we can offer them or it's the management features or the end user facing features in the ROE.

They all want to be there and so it kind of kind of discussion of win.

In some cases, the highly regulated industries.

Haven't yet got the certification required.

Or when the very ready, which they might be down to the.

The timeframe of which they can schedule of that project alongside of the projects of the house going on internally and so we're really happy with the momentum that way of saying with customers large and small it doesn't represent any change in I guess you know.

Low cost it was multi use of multi year process.

Your next question comes from the line of Keith Weiss of Morgan Stanley. Your line is open.

Excellent. Thank you guys for taking the question and very nice quarter.

The number in particular that really stuck out to me was that the new customer add number.

And then some of it's related to the kind of single use of <unk>, but even when we take that.

Well ahead of what you guys have added.

Historically.

And for some of its related to sort of end of new server of licensing but.

The only makes some sense because the customers didn't realize they need it.

The year before and then all of sudden because the pricing changes that they do that doesn't make a ton of sense.

All of us understand like what caused that low gross such a big.

Spike in new customer ads and are these customers are there any like of the same ilk as like historical customers like do they have the same growth potential as what you've seen historically.

Chris It's Scott here I'll take that question.

<unk> been around long enough.

Lastly, we don't spend a lot of time looking at our customer numbers on a quarter to quarter basis, just because.

The customers quarter brings very low revenue at the start and the.

There's just so much variation in quarter to quarter, it's not something we manage to it internally.

You mentioned the troll of single users.

About the kind of fits in the broader trends, we've done a lot of changes to our funnel or the.

The last year.

And we've now introduced free versions of the products.

And the.

And so that's changed our funnel.

You've done more optimization of on trailer, which has led to more single users also more small teams there and while customer numbers are a huge indicator of our long term potential.

We don't kind of really get excited by large numbers all small small amount of its in any particular quarter and so I think it's too early to say.

What those customers look like over the long term as we've made these changes to our funnel.

You want to pull out the choice of single use them because we.

We believe were entertainment platform and the single users of it yet ethane they.

They might turn into its been pretty quickly, but not at this stage and so we wanted to give you some indication of that.

But yes, I think it day to say that there is.

<unk>.

Our customer numbers as we've made changes to the funnels.

Too early to say what the long term potential of those look like is the same as previous ones again.

Our model of Atlassian, Atlanta, New fan, so obviously lending volume more companies across the world. The gives us a huge opportunity for us too.

Standard of those customers over time.

Your next question comes from the line of Gregg Moskowitz from Mizuho.

Your line is open.

Okay. Thank you very much for taking the question.

Curious to hear what youre seeing with respect to demand for share of service management, including the premium option that has the <unk> technology and then for <unk> I apologize in advance for throwing out a baseball analogy too.

Australia, and British management team.

Inning of of products development are you engaging your customers and how broad.

Of the level of anti or are you going to be soliciting from your customers.

Hi, Yes, hi, David from cloud.

Both of those.

Look on the GSM spike.

We continue to be extremely excited.

As we've demonstrated.

<unk>.

Two years ago, we told you in our shareholder letter, which I know you will rate sort of moving forward that we were doubling down on it and I think you can say out of the last two years that we've really done that.

The CMV the capabilities you referred to adjust the lightest of the series of additions.

You've seen us make both from internally generated the other things.

And external acquisitions.

Outstanding for the Bill of Lading sort of world.

The real time rosters and capabilities because of lot of things the 19, nowadays come down to milliseconds of matters.

All the way through to this quarter of adding a pro forma for <unk> from <unk> to continue to drive.

Automation and low code non coding of really negative.

Zero way.

Overall.

The traction amongst the customer base is really phenomenal and the <unk> space, we're really excited about where the going.

We believe we're very uniquely positioned with the.

The only company that gives you a single pane of glass across software operations and it staff.

Staff for modern enterprises that are moving at modern space as we like to call it high velocity.

That's a very unique position right. The atlassian cloud platform continues to deepen its capabilities, which we bring to all of those <unk> customers.

And no matter, whether you are a small company or a large company. We continue to see really great traction for those offerings. So I don't think.

Demand continues to be strong the sandy the capabilities that went during the quarter in the cloud.

Honestly, what we will continue to get customers excited as we as we move through that.

I would point out the.

The low code no code additions that we've.

Added and will continue to do so it's new.

The new automation, that's been a focus for us for longwall now and I think in the quarter, you're just seeing us bring that and as we continue to add.

For all of these capabilities together. So you can take the machine learning the automation of the forms and the CMV the mentioned and the.

It's just an amazing operating profit of 10, so we continue to be really excited about the space.

In terms of baseball analogies of I've sat through many of those programs of <unk>.

It's very similar to cricket in terms of thinking been watching for a long period of time.

I would say that generally we are sort of in the maybe the first or second inning, maybe bottom of the first top of the second when we stop reviewing products the customers.

I'm very confident of the direction that we're moving in.

We have enough of the product built.

Such that we are clear on the boundaries and what's the problem. We are solving for customers. There's a lot of customer research that happens before that.

Once it then gets out there are a lot of tailoring today of needs integrations that they made.

And how the the user experience is going to impact things like the Compass for example, a very.

The new ways of looking at the sprawl of ones.

Modern software architecture.

And customers. The same yes. This is a huge problem, but I don't know how to solve the because we don't have any tools to solve that and so we're trying to build the tool for solve something that is the problem. They clearly have an of very very new area.

<unk>.

We hope that by the third or fourth inning.

Very clear the customers the boundaries get very well defined and that's when you start saying.

Attraction and monetization in the early days, it's really just about finding net.

Problem with the customers.

Your next question comes from the line of Brad Hoffman from.

Matt Cohen your line is open.

Yes.

So I'm also interested in year of work management I'm wondering about how you are helping generally less technical users do work, especially in these more modern the noteworthy or hybrid work model. So.

Understanding that it's early days do you think the Bureau of work management is a product that non technical teams will pick up on the self serve basis or do you anticipate it meeting an assist from out of your conduct sales force here of more of your channel partners.

Yes, correct.

Look I think of like all of Atlassian products there'll be a large amount of self serve involved I think one of the things Thats interesting about your wealth management, especially when combined with our.

Land and expand model.

Obviously, the free program ex talks about a lot over time.

That has great potential not just the land new customers, that's the land new parts of existing customers. So of <unk> software customers Thats broad cash.

Can easily start of new free tier of work management account alongside that.

The.

For a product offering alongside of that Youre of software for the <unk> for the second team to really get started.

That said I have no doubt that because of all the capabilities of the broader atlassian platform.

Automation a lot of things for investing in the data and insights sites that we haven't talked about as much but theres a lot there for.

Partners for both explained two larger customers mapped to their organizations, which is often a facility that they bring or understanding those larger customers challenges in the business problems and then say hey, jure work management could be of pieces of the solution to that problem and obviously bring it along to them. So I will.

I mentioned that the the.

The channel split that the.

Self serve motion et cetera could you look management.

The equally different to our other products in size and scale.

Obviously.

We think it's incredibly large market and the continuing to invest against that I would point out as we've as we've talked about it for probably.

Call it 50% of the broader gyro family audience of technical which means about 50% of the audience today of non technical.

As the year wealth management continues to grow you could you could say that.

Of that blend and getting even further of pod, it's usually surprising to people when they hear it is 50 50 at the moment.

And obviously this has the potential to continue to grow that.

We've made no bones at out of machines to unleash the potential of every team and every time means we're going to have to work out how to help solve problems for.

The marketing HR finance sales lots of other teams that need to manage projects around.

Around the building.

But to your work management is.

Is there anything that inside the <unk>.

Slide the capabilities and structure and culture.

Your next question comes from the line of Tom <unk> from Oppenheimer. Your line is open.

Thanks, and nice quarter guys.

I guess I wanted to just make sure of double down on and understand the transition to the cloud clearly you had a massive quarter, where customers kind of pull the eon purchases I guess the question is going back to the 30000 of server customers you've talked about net should transition over time does that number actually increased in this past quarter of rather than decrease.

And perhaps you can talk about.

Churn that you've seen in the conversion of how does that shape and then lastly, given the magnitude of this pull in effect.

Do you get a faster perhaps customers are really unhappy with your cloud pricing.

Does this does this put this this magnitude of foreign make you feel more comfortable of bunch of transition to the cloud or makes you question the pricing that you've set up for it relative to the.

Historical products.

Yeah.

Scott Great question I appreciate you asking it.

If there's no nothing about this last quarter that has changed our belief or our timeframe internally for our customers moving out of Dol and Barry.

Again, it may exceed weighted to say, we're hanging we've had a huge amount of pull forward on the service side of things how does that affect our cloud transitions all of our internal cloud transition numbers are looking dealings of.

On track as what we had forecast that before this what you have.

Really saying these people take advantage of okay I'm not sure.

Bob the here for a year or two I want to buy that now and get ahead of any price increases that are happening at all.

And so it hasnt really changed their debt.

The phone kind of timeframe that really just decided to transact ahead of certain events. So we haven't seen that.

You also have kind of new customers new car pricing.

Luke on churn numbers are actually I think we spoke of it thats before actually the numbers across.

Our cloud and across the entire eyes are better than we.

We had forecasted.

Through this transition so that is going really well and.

There will be from customers, who will turn through this process, but we believe that it's better for offense.

Customers over the long term Mike M.

So that's all going on track.

And on the cloud pricing.

Discussions with our customers obviously, the sticker prices is larger in cloud from any of our customers thought when you look at the.

Both of the features and benefits they get from that day.

Reduction in the number of head count that they require.

To move across.

The clouds I've kind of customers are super excited about the cloud offering and.

Very happy with the price that.

When providing net ads and.

So are we.

I guess when you're looking at the numbers on our website on sometimes the require a bit of expanding the customers, but once we've done that better all finding out and it really just kind of down to the timeframe that they only want to make the cross stock.

Your next question comes from the line of Brent Thill from Jefferies. Your line is open.

The on for Brent Thill.

Thank you again for the time in taking my question.

Wanted to ask one quick one on the.

Take a little bit deeper on that last question around the cloud migration.

Could you talk a little bit about the enterprise cloud.

The Atlassian enterprise cloud and how that might give some comfort to maybe the larger customers, who are maybe waiting to make their decision as to whether or not.

Commit for the transition early on and then the second.

Question around the acquisitions chart here.

I wanted to ask like.

Are you planning to get into the space or is this just giving you some basic reporting functionality the Dan.

The two of family. Thank you.

Alright, Scott the elder of the first one of the Mark can chime in on the side of the other one.

If you look at our migrations, we said that.

Small customers can move faster and we've seen that analogic customers just have more of an azure and plough it.

It takes the more time to meet the Cros and the logic customers, we've done lots of them out of.

The losses.

Since we started the cloud, but it's accelerated over the last period of time, we've been for.

Scalability of requirements and the continued to tick down the size and scale of the <unk>.

Instances that we can support and cloud.

Looking on compliance and the certifications in the way you can ticking off the compliance requirements for heavily regulated industries.

We are.

Data resident fees and other one particularly for customers in Europe, and you saw I think we talked about turning.

On the net shareholder letter of defaults bank is the.

The fourth largest bank in the Netherlands, who have chosen to move across.

The their European customer and got the residency of let's say something of that I consider out of there.

You look at the daughter isolation, that's our enterprise offerings allow people who want to make sure that the data is not intermingled with other other.

Customers.

Security, we've improved and continue to improve our access on product.

Allows effectively integration with the security providers and the high level of security and access control I could go on for a very long time here.

We are continuing to improve our enterprise offerings, whether it's in the price product.

It shows EBITDA and the residents the enterprise product for every single customer that we have a premium of premium offerings that provide more and then for the largest companies from the world We have enterprise.

Dozens of our product that the.

Cater to the specific needs are.

All of those are improving in a very very rapid clip.

So yes.

Yes, we're really happy with the progress of our 100 Atms some of those lumps monster.

Mark can you talk about China.

Sure.

Thanks for the question Bryan look.

<unk>.

There is no doubt the data is incredibly important to our customers.

And we have an amazing.

Depth and richness of data that is incredibly important to them the more customers consume atlassian products across the family the more data about the history of project in cask speeds.

How that connects into the documentation, who is collaborating with who we.

We have the phenomenal.

Got upset when we put it all together across our products.

We are exposing that for customers in various different lives.

Firstly this quarter, you've seen well firstly I would argue is the thought was.

In the platform infrastructure Lee we continue to growth.

A large data like where we are cross referencing and connecting all of the different data points that we have across multiple products and across third party products I would say.

In the various different markets and workflows that we're involved in so in software and 19 operations and through to the broader knowledge management and wealth management.

That data Lake of base of all of the principal that Scott just talked about so it's not that this is not a trivial engineering exercise.

The Cros.

Billions of data points, but to do it with data residency in mind with all of that.

The different enterprise compliance in mind as is the non trivial exercise that the part of what the Atlassian platform does in terms of the downturn.

In such features keeping non compliance and privacy in mind at all times.

We then take that data like we can expose it to customers in the direct way we have an early access program going on too exposed debt directly to customers to put into the broad scale of AI tool and mix and match with whatever data. The diverse that's one potential way that that is emerging for customers. The.

The second way is we are increasingly shipping data and insight features so usually thats, where we take that data lake.

And we combine it with some sort of machine learning capabilities and tried to provide insights.

In a particular customer uses workflow to help them manage what they are doing at that particular time. So we ship. The series of features inside of software this quarter, where that emerged inside of the software aboard.

So for example, we can look at your organizations General task completion rate in terms of how you do agile software. We can look at a particular of teams task completion rate how much work they tend to get through in a given sprint for say two weeks and then as they are doing spring planning, we provide real time.

Insights to them.

Rather than having to go look at some sort of reporting tool to work out of the insights in real time, we say Hey, you know you might be trying to do too much this new.

Two weeks based on our analysis of your.

The last.

However, long they have been using it lost two years' worth of work. This particular team. This piece of software. This code base, we know of law about what's going on so that is starting to emerge inside of the product itself and then lastly, you will get to.

You mentioned reporting in other areas.

The chart iOS strength.

It's rich.

The reporting industrial with the capabilities.

For the start to emerge I imagine in the Atlassian platform is a broad scale capability much alongside automation and machine learning out of the things we look of platform wide across multiple products.

And also potentially seeing those reports and dashboards appearing inside.

The other products where that makes sense.

It's a fantastic team for the huge amount of experience in this area of dealing with large scale datasets and presenting them. It also has a lot of capabilities to continue to look at third party data.

Often it's not Youll know youll hear of software that are alone that helps with sprint planning, we need to look at those code data and data from other other providers as well so.

The excitement about the space and the team that has joined up there in shadow and.

Lots of potential huge amount of work that we're already doing their debt future looks good.

Your next question comes from the line of Tyler Radke from Citi. Your line is open.

Hey, guys. Thanks for taking my question could you help us understand how how youre thinking about the data center.

Strength kind of continuing into Q4, obviously.

Really strong number in Q3.

And obviously with the end.

End of life of surgery, but you would expect the customers who aren't ready to go to the cloud kind of.

When we have.

Data centers there the only non credit options, maybe just help us understand how you're thinking about that.

Growth heading into Q4, and just overall subscription growth.

And the Q4, thank you.

Yeah. This is James.

Just that one.

Clearly in Q3, we did see this outsized event driven data center volume.

And of course, the Pos of that was customers stepping in front of the price increases we implemented in Q3.

So you wanted to have that sort of dynamic.

Playing out in Q4, as I mentioned, a little earlier, though.

When we look at our subscription revenue growth target now for fiscal 'twenty. One we have previously said mid 30% growth year over year.

Cost of debt that we're going to beat that now we're very much encouraged as we've been discussing on this call by the momentum that we're seeing on the cloud business.

And then as you say the data center business remains strong as well.

The next question comes from the line of Robert Magic from Raymond James Your line is open.

In my checks I picked up that some customers are planning to convert the cloud last minute in June while they are still able to lock in the 55% discount level is that something that you've heard or expect more broadly across the base and if so should we expect some new cloud wins to get pulled forward into Q4.

Well this is James again.

Right.

Do have the loyalty discounts that we've been offering to enterprise scale, So 1000 plus users.

Server customers looking to migrate over to the cloud.

So there could be some additional volume there.

Our head of that reduction in the the discount rate.

But we're certainly not of the mind the that would drive for the sort of scale of event driven activities that we saw in Q3 Q3 was.

Really.

Historic for Atlassian unusual event in terms of us.

She is seeing the sale of use of licenses and then also raising prices on both the serve other data center side of the business. So yes that will be.

Examples like the one of your framing and the question that we will continue to.

Fine tune.

Our various business the incentives.

Of the drive our cloud migration timeline.

But not of the view that it would drive for the same sort of outsized level of activity that we saw in Q3.

Your next.

Comes from the line of Jack Andrews from Needham Your line is open.

Good afternoon, and congratulations on the announcements this week I wanted to ask a couple of questions about <unk>.

I guess I was curious given the launch does this change your framework at all in terms of how you're thinking about building new functionality organically versus maybe making potential acquisitions and then I was also just wondering if you could provide some color on just in terms of how we should be thinking about what types of what is the portfolio of new products that may.

Come out of <unk>.

They look like and how far field do you think that you might go from your core mission of improving work management under this new initiative.

Good day Jack.

Look on the on the first part of your question we've always maintained.

The repeatedly I think we've been very very consistent.

Philosophical stance.

I was going to say since we've been public debt.

Actually the consistent level of for that.

In terms of we don't believe all of the innovation exist inside of the building. We don't believe all of the innovation of this outside the building.

So we try to be extremely pragmatic and thoughtful about whether we build or buy.

The new capabilities that we need or new products or teams.

In terms of groups of people.

And.

But it's always been the strength of us I think to be pragmatic about both of those equations.

<unk> is.

Of particular example of internal innovation and programs that are starting to hit the outside world, which is always the very exciting time.

Part of that is driven from the cloud platform investments that we've made over the last.

Five years of more so.

Those investments have taken a large amount of that R&D spend line item that youre always sort of excited to find out about as at the group.

And building on those platforms.

The platform itself with the enable us to create new products.

Foster and with less resource spend than they would have otherwise done in past periods. That's why all of those products are in the cloud.

We believe all of those products will be also a.

Our carrier to an advantage to customers, who are considering moving their existing products to cloud of lot of the new products that they can work with in the cloud online because of that natively built on top of that cloud platform.

Each of those product the benefit from <unk>.

All of the.

<unk>.

All of the capabilities that we've already put into that cloud platform. So.

We've had a lot of feedback on <unk> central from customers that are already using it at.

The amazing breadth that it already has low a lot of that has come from.

For years of investment in an absolutely world class anything experience and the linking experienced to tie all of your SaaS objects and data together into various forms that's being repackaged into a very different method of looking at goals.

Data updates and.

And the company directories insights in central but it comes with all of that powerful from from day. One. So it's an incredibly full featured capability set.

If you look at Compass in terms of looking at the the sprawl of the massive amount of software assets that are being traded by software team. So the output of all of your software teams pay debt websites all of micro services or apps.

<unk> whatever it is that is is very natively tied into the services you have into your service management and all of the <unk>.

Capabilities, we know about your deployments, you'll source code youll roster as the real time sort of arrive as part of the platform encompass so although it's sometimes the repackaging of functionality.

There can be very full featured from the Scott. So no change in summary in our approach to building organically versus M&A, We think we have strength in both.

Areas and continuing to look.

On on both sides of the house.

In terms of moving further afield from our mission I think you've seen that way.

<unk> I think really good stewards of capital.

As the founders and the leadership team had been other.

Heading towards two decades now we're also incredibly focused on our mission and focused on the long term I.

I don't say point high has been any any departure from that if you look across the offerings that we are announcing losses.

To the liberal directly in the the <unk>.

Hitting zone.

The meeting of baseball analogy of directly in the hidden zone of.

Sure.

The mission that we've we've talked about for a long time and exciting to us to be moving moving forward continuing like the earnings moving forward.

The.

Towards that mission.

Your next question comes from the line of Orange Susana <unk> from Cleveland Research. Your line is open.

Good afternoon, and good evening. Good morning, Thank you for taking the question.

Just wanted to see if theres any change in thoughts or philosophy around how youre thinking about cloud versus data center.

And any feedback from customers.

The data center is something given the recent strength you plan to maybe increase R&D of investment around maybe versus the previous thoughts or.

The continued to intend to invest the disproportionate amount of.

The focus towards the cloud longer term. Thank you.

Scott Farquhar here.

The way.

Credit with with our customers from that.

The cloud is the future and the long term future for our customers to get the best experience of Atlassian.

And it.

It will take some time for <unk>.

For our customers community Cross both I will understand that that is the best place to get the best experience from Atlassian obviously.

Obviously, we're continuing to invest in data center. So the small number of customers that aren't ready to go to cloud or who aren't yet ready to go into the cloud and so we're continuing our investments there but.

<unk>.

Long term.

The fact that customers know us none of it but thats the experience that will get moving to cloud.

Your next question comes from the line of Jim Fish from Piper Sandler Your line is open.

Hey, guys. This is clinton on for Jim.

You touched on it briefly already but on the data residency capabilities. I think you mentioned during yesterday <unk> 21 of them.

The capabilities for paid customers with focus on just a few areas of the geos to start other planning to roll that capability out to the larger global scale or is that plan to follow based on customer demand. Thank you.

Yes.

I can take that look we support.

A series of geographies at the moment for data residency. The plan is to continue to roll that out.

I would say, yes with the past.

On the demand.

We have strong demand as we've talked about it the team.

The $2 21 for.

Various.

The more specific regions in Europe.

<unk>, Canada those are all in.

Some sort of engineering of testing today and will be rolled out by the end of the the calendar year of at least some of the American by mid year.

As customers continue to go into different regions.

Given our platform it is relatively easy for us to rollout of new geographies. If we see the demand while we see the legal privacy compliance reasons, why we need to roll that out in a particular area for customers. So it's both driven by market forces as you walk in terms of the the governance and regulatory regimes and also of Ipass.

From the demand in those areas, but what we are investing in the platform being able to do that.

The relatively rapidly and economically for all of our customers.

We continue to believe that.

Broad scale compliance.

All of the different parts of the world around data privacy.

Regulated industries in terms of the from financial health care of whatever it May day will continue to evolve over the next five to 10 years.

We made the R&D and our engineering to be prepared for that and our platform to the prepared for that because I think it will be <unk>.

<unk> advantage and will be increasingly difficult for the SaaS companies to be able to keep pace with that for the customers.

We are prepared and investing in that future do you see that in our recent announcement in the last quarter. The data residency will be available for customers that are untied additions so standard premium and the enterprise. We don't believe the data residency is.

A large scale sort of capital a requirement it has a small customer requirement as well.

For the smaller German organizations that need the data to be in Germany. It's not just large German banks for example that have that requirement that is.

Kudos to our engineering and infrastructure team, that's a non trivial thing to do in a very large scale of SaaS platform and SaaS application, but that is that it's the future that we are building to be able to have those capabilities for customers. The Miami has 11 of 12 or 13 new.

Users and to be able to do that economically for both them and for us.

Your next question comes from the line of Pat Walraven from JMP. Your line is open.

Thank you so much team. This is J M rancic on for Pat I. Appreciate the question. So first I wanted to dig in on it.

And maybe just from a high level why those makes sense as a focus area.

And then secondly, what have you learned in the early days of their premium and enterprise SKU strategy. Thank you.

Yes, I can.

Gross.

In terms of one of our TNI TSM makes sense look.

We're obviously have a long term multi decade now of core strength in.

Software teams.

We're an engineering teams and.

And the expanding out too.

Designers and product managers and the people around the software creation process.

Increasingly that has.

Both in terms of the hour moving.

Movement as a company, but also of the larger industry scale trends.

And software are increasingly blurring of lines between those two product development and IP those loans are increasingly blurring as they come together.

It used to be the software things built something in the <unk> ran it now.

Now you have software teams that are running services for themselves and you have teams that are building new capabilities as the world becomes ever more digital and software driven.

We think it's an incredible strength.

All of our company to be the only company that spans development.

And the operations that exist between the two or across all of those groups.

As they as they come together you see that in.

Your service management and all of the changes that we've made there and increasingly driving the.

The.

More rapid pace of it as.

As modern IC organizations move is where you like to say you know at high velocity of the different speed and cadence to modernize.

The operations that we really helping to drive that.

One of the legacy and ultra low vendors done done thing to understand.

The strength of having the software teams the.

Shouldnt be underestimated because all of this is coming together into a into a single spot. So that hopefully explains why we think it's a large and transformative area and while we have some strength to play the it goes without saying I hope that the digitization of everything software and technology is the core competitive advantage for.

Every single business Nowadays we.

We've seen that never more than in the last 12 months through the pandemic credit, but we had vaccines created digitally huge logistical operations of lots of businesses in all parts of the world.

The becoming more digital or using the digital transformation to adapt.

An incredibly fluid and challenging environment as we've had in the last 12 to 18 months. So you don't need to look any further than that to see wide digitization and <unk>.

Software as an advantage for any business in any industry.

That puts us in a really really.

The core and strong position and we continue to lead.

In that area.

I can take the premium part of the question as well, but the premium is obviously for our more advanced customers in whichever product line will skew there in or an olson.

Continues to have good traction in terms of there is a clear strategy as to why customers want more capabilities as the usage becomes more advanced.

And again, it's part of our additions to the strategy that we've talked about both on the free and we should remember that debt free as part of the edition strategy to continue to make it easier for customers to land.

For a new product of with Atlassian.

For the first time.

And we have been the.

The journey of that that can go on this day stay with us for hopefully a very long period of time for <unk>.

Standard and premium and then up the enterprise except for what the company needs again enterprise went.

Last quarter and continues to get there.

The early but very encouraging traction in the the largest organizations of the call.

Your next question comes from the line of Keith Bachman from BMO. Your line is open.

Hey, guys. This is Dan on for Keith. Thanks for taking my question I wanted to ask quickly about the marketplace business. Obviously this quarter benefited from the server and data center dynamics.

The next where it sounds like the oil continuing to be impacted by some lower take rates. So how do you think about the marketplace growth in a more normalized environment. Thank you.

China is just.

I'm rooting for them so from the moment.

Yeah.

We just talked about wanting kind of get in China chicken net.

And clearly this quarter we had the.

The pull forward effect.

When we knocked the price revenue is recognized for 100% that's the point of time when when.

It is sold whereas other revenue is spread ratably across the different time periods, depending on if it's sort of of data center or cloud but.

Because we don't have ongoing obligations from the marketplace revenue is recognized upfront so what you're going to see more variability around market price sort of swings in the in the revenue on it that we have.

Then you would see in other areas primarily in terms of the marketplace growth.

Have a amazing market price in all behind the firewall on premises.

So we have an amazing a marketplace you know cloud products as well.

<unk> seen a huge number of our vendors moved from I guess, there behind the final business to cloud along with our customer transition. So as they are being led by our customers as well who are moving across end.

As you mentioned with net new.

Temporary for reduce the take rates for our marketplace to incentivize some other vendors to net across some of that has worked and we've seen vendors.

Both of the transition of business across all of this thing of how much of new.

And as sort of building <unk> for our cloud platform.

The market price continues to be a huge source of strategic strength for us at Atlassian, we know the customers who use the marketplace products are stickier than ones that don't.

The benefit of the ecosystem that is built around it we know that we count the old everything of products could you so widely.

200000 companies around the world.

And the council of every use case for them in sort of the marketplace manage to fill in areas that.

But we can't do and so again that the customers benefit from that sorry, I said the marketplace to be just as a <unk>.

Important to outline it is just an important cloud business as it has been historically and that behind the firewall business.

And there are no further questions at this time I would like to turn the call back over to Scott Farquhar for closing remarks.

Just a huge thank you for everyone for joining our call today, we appreciate your ongoing support.

All the holiday with my family mixed earnings call, maybe correct me for any new user growth Australia.

And so the market James will be holding down the fourth for the Q for coal I Hope you and your loved ones remain safe and healthy.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Good day.

[music].