Q1 2022 Atlassian Corporation PLC Earnings Call

Ladies and gentlemen, todays conference scheduled to begin shortly until that time unless it can be placed on hold thank you for your patients.

Again, ladies and gentlemen, todays conference scheduled to begin shortly until about.

So again be placed on hold thank you for your patients.

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Yes.

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Right.

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Good afternoon. Thank you for joining Atlassian earnings conference call for the first quarter of fiscal year 2022 as a reminder, this conference call is being recorded and will be available for replay from the Investor Relations sections.

Flash into website following this call.

I'll now hand, the call over to Martin Lam Atlassian <unk> head of Investor Relations. Please go ahead.

Welcome to outlaw since first quarter of fiscal year 2022 earnings call. Thank you for joining us today.

On the call today, we have I'll walk ins co founders and co Ceos, Scott Farquhar Murray Kenneth books and Chief.

<unk> financial Officer, James Beer.

Earlier today, we issued a shareholder letter and press release with our financial results and commentary for our first quarter of fiscal year 2022.

The shareholder letter is available on the often work lifeblood and the Investor Relations section of our website.

Where you will also find all the earnings related materials, including the earnings press release supplemental investor data sheet.

With our shareholder letter contains management's insight and commentary for the quarter, but during the call. Today. We will have brief opening remarks, and then focus our time on Q&A.

This call will include forward looking statements forward looking statements involve known and unknown risks uncertainties and other factors that may cause actual results performance or achievements to be materially different from any future results performance or achievements expressed or implied by the forward looking statement.

You should not rely upon forward looking statements as predictions of future events.

Forward looking statements represent our management's beliefs and assumptions only as of the date such statements are made and we assume no obligations.

Such statements should they change or cease to be correct.

Further information on these and other factors that could affect the Companys financial results.

<unk> and filings, we make with the Securities and Exchange Commission from time to time, including the section titled Risk factors in our most recent form 20-F and quarterly form 6K.

During today's call. We'll also discuss non <unk> financial measures. These non Florida financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with I F. R. F.

So we actually in between a forest and non <unk> financial.

Financial measures is available in our shareholder letter earnings release, and Investor data sheet on the IR website.

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

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

Thank you all for joining us today.

When Scott and I started at last year, almost 20 years ago, we wanted to create an amazing company, where people love coming to work every day.

We were recently named one of the world's best workplaces for 2021 by the great place to work.

We're thrilled and humbled to be recognized among the top 25 companies in the world.

The industry in any country.

We've won a lot of choices over the years, but this recognition is special.

Going straight to the Poland as we saw in Australia.

In all seriousness, it's truly one of Scott and my proudest accomplishments.

It is a testament to the true stewards of our culture. So many thousands of Atlassian, we have around the world who live our values every day.

Resilience passion and commitment inspire us.

All of your Atlassian Brittany, thanks for making this possible.

As you've already read in our shareholder letter.

Momentum continues as we kept winning in Q1 fiscal 'twenty two.

We continue to deliver value to our customers and innovate across all three of our core markets.

A great example of this innovation zero service management.

In its first year in the market <unk> management was named a visionary and got in its magic quadrant for ICT service management.

And its customer base grew to over 35000 up from 25000, just one year ago.

This is the result of a steady drumbeat of innovation and R&D investment as we continue to win.

Better and better each and every quarter.

And we apply that same philosophy to our offerings.

Ill development and work management for all.

The continual improvement of our cloud platform is also what's driving our progress forward in the cloud.

This quarter cloud revenue was up 53% year over year.

We signed onto the trusted cloud principles, joining us initial signatories alongside Amazon, Google and Microsoft.

Our commitment to protect our customers' rights privacy and data in the cloud.

Underscoring this commitment to our customers we shipped out of residents in Australia this quarter on the heels.

Of delivering this critical capability in Europe last quarter.

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

Thank you at this time, if you would like to ask a question. Please press star one on your telephone keypad again to ask a question simply press star one on your telephone keypad.

And your first question comes from the line of Keith Weiss coming from Morgan Stanley. Your line is now open.

Excellent. Thank you guys for taking the question and congratulations on the great quarter.

I was hoping you guys could help dig in a little bit into the work management opportunity.

Yeah.

From the outside it seems like a massive expansion of the Tam for you guys.

I know you've been working on for a while but Theres also a lot of products that you have targeted.

Your core you have <unk> you have a confluence can you help us understand kind of the solution portfolio. What specifically you can work management are you trying to target and.

Like what's the competitive dynamic in terms of where you guys are going at.

Yes, thanks, clay, so I can take that one off the bat look.

Teamwork is very complex, we know that there is no one correct why or one single way to local collaborate.

That's why you see us in the book management role.

Space in the market, taking a multi product approach and investing heavily in our platform.

So you've seen us mentioned.

Mentioned Dear wealth management continues to go.

Go from strength to strength every quarter, we added a whole bunch of them.

Great New early customer UI path I've Alara seaworld by.

Who are taking the <unk> family well beyond the.

Initial audiences that we had I suppose again about half about your audience is non technical change today, and we expect that to continue to improve and fuel our growth in that area.

At the same time traveler continues to do well confluence continues to do extremely well and as you've seen from our <unk> program with products like pain Central we really have.

Very comprehensive offering I would say in that space.

All built on a platform story, so we keep talking about our world class automation analytics smart.

That is our ability to invest in the R&D to make that platform amazing for every team and every company.

And continuing to fill out the.

The story across the products and making sure they work well together.

Obviously extremely excited where we where we sit and how we're performing in that in that market.

Thank you. Your next question comes from the line of Gregg Moskowitz from Mizuho. Your line is now open.

First of all congrats James and audio accomplishments in a very well deserved retirement and Mike just on a personal note I wanted to congratulate you and your wife on your Green pledge and thank you for all the help that that will provide.

My question relates to the cloud and product pricing. He recently made the decision to raise crab pricing, which isn't something.

Quite frankly that we've seen recently from Atlassian, what gave you the confidence to do so given that many of your customers are still early in their journey towards the cloud.

Great. Thank you very much for the thoughts there.

The first thing I'd say is it just really reflects the strength of the underlying growth of our cloud business.

And that of course is all driven by the very significant value that we're delivering for our customers as far as these cloud services you know that we've been putting very significant investment into our trial products for a number of years now.

And we always from a philosophical perspective want to be a terrific value nothing in that motion has changed.

But nonetheless, I think there is an opportunity.

For us to move pricing along as we have published just a few weeks ago.

The order of about 5% across the gyro software agricultural as in particular, so I think it's just illustrative.

Of the investment that we've put in and how that's working out well for our customers.

We had.

Now in a few of our shareholder letters.

Examples quotes from customers talking about the the savings that they enjoy when they implement our cloud products when they look at the total cost of ownership.

They're realizing that.

It makes sense for them from a cost equation and of course.

Oftentimes some of our important to these customers they are able to.

In essence take the people and have them work on higher value added tasks software is able to do so much of the lower value added for them.

I just think it's.

A terrific example of our long term orientation.

Two R&D investing.

Greg ill add some things to try and I.

I think the internet really well.

We've had a long term philosophy of optimizing prices and we've obviously used raised prices.

While wood prices, we've introduced new team is in addition, both at the low end.

Free at the high end with premium and enterprise.

And our philosophy has evolved over the years.

More towards frequent smaller price changes and someone that keeps a lot pricing.

Publicly available on our website, which is different to us.

Enterprise software companies, you can see those changes and what from.

From the outside in look like were making more changes than other people, but I think it's.

So that philosophy.

And the fact that we're public about how we interact with our customers.

Our philosophy is always to be sure that we provide the best value for and whatever price that customers have to pay them.

No Brian it for a lot of customers to engage with them by a last name I'm sorry, you'll continue to phase III. This is we have over the last 20 years.

Your next question comes from James Fish from Piper Sandler Your line is now open.

And then James Congrats on retirement ahead of time.

Wanted to touch upon the data residency youre offering it in core locations now across three continents. Yes. What areas are you guys expected to expand to or seeing the largest demand for this that you aren't addressing today and has there been any delays in customer decisions at all between.

And between data center versus cloud ambitions at all in any sense of the mix between data center.

<unk>.

<unk> kind of product lines.

Thanks, Tim So I can I can certainly take the first part of that question I'll take the second.

The mix shift part two to James.

Look.

For sure we once data center in Australia.

This quarter.

We had the example Commonwealth Bank one of the largest banks in Australia, and one of the largest banks in the world.

Move to our cloud.

Tens of thousands of users.

As a result of not just data residency in Australia, but all of the.

Performance and scale improvements compliance.

Compliance.

<unk> regulatory improvements we've made in our enterprise platform.

From access to premium and enterprise.

To support for all of our different standards that we support so that's I would say a generalized part of our enterprise cloud journey as we continue to make sure we can support.

The needs of our largest customers in the cloud.

We continue to build out our infrastructure platform that we can rollout new geographies faster and foster each one we rollout is a little quicker than the one before and unlock some portion of customers to move.

As always we continue to be R&D first so working on automating that.

But it works and secondly customer led so we build out those geographies as we learned from customers about ways, where the greatest Nader.

We expect to continue to have.

More data residency in more areas of the globe as we work with our customers.

On the cloud.

You see data center mix.

Cut through that one, but just a bit of background.

Liquidity is big.

No transitions and customer transitions like there's always a chance if you do them wrong you could end up in the doghouse.

But that's not what's happening here, we've done such a great job.

Our customers across our partners.

And just to give some stats out channel partner sales were up.

300% year on year in terms of selling cloud compared to what they were a year ago.

Things break demand from new customers on top of a migration.

Great customer stories like Catholic health to move 200 users, including 50 apps from server to cloud.

And Commonwealth Bank because you.

You mentioned is huge highly regulated.

Industry in Australia and banking.

Tens of thousands of users across from DC to cloud so.

Really excited by that.

D C to cloud mix as we said this is a multiyear transition for our biggest customers and.

We still expect.

A large portion of our customers to move over the coming years and that is as our customers build up their capability and.

Engage with the transition.

<unk>.

And.

In the meantime, while that while.

Thats happening there is still buying DC, we're seeing water customers expand their usage of DC as I prepare and that speaks to the quality of our products and the demand for what we provide is that they are still.

Focusing kind of as they make the migration to cloud.

Can you give us some comfort around people not being stuck a DC like we're really comfortable with that transition point.

30% of our cloud migrations are coming from data center customers today, and so we do see OLED customers, maybe got conservative DC to cloud or I've been in DC for many many years in making that migration to cloud or not ready just yet still doubling down on their investments with atlassian.

What you can take away from that as our customers are just continuing to commit themselves to atlassian.

Yeah.

And if I could just pile on a little further with one of the factoids to support that.

When you think about the cloud business.

We're obviously pleased with the 63% growth that we recorded year over year in Q1.

We think about migrations, yes, obviously this is an important initiative for the company.

But I'm not expecting migrations to drive approximately mid single digit growth for us in that cloud.

In the subscription revenue line, so relatively modest growth driver for us and that just really illustrates how we're growing nicely in terms of user expansion.

Selling premium additions.

Free to paid funnel.

<unk> is working well and churn is.

It is working well as well.

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

Yes, thanks for taking the question Echo my congrats to your team.

You referenced in the shareholder letter just some tougher comps.

In the second half on the datacenter side I'm curious, how we should think about the trajectory of cloud growth from here, obviously, there's a lot of dynamics between the <unk>.

Cloud price increase and just some of the.

The things that and last year, So would you expect there.

The cloud growth has tougher comps in the second half as well or do you think that can kind of sustainably.

The rate that we saw here in Q1.

Thanks for the question I mean, what we've said this was a quarter or so ago for fiscal 'twenty. Two we would expect our rate of cloud the growth to be accelerating year over year full year over full year.

And certainly yes, you are right, we had a particularly strong back half for the data center business recall, how in Q3 of last year.

We had.

Quite a lot of customer activity.

They stepped in front of price increases both on the surface that data center.

Products.

And then of course Q3 was also the course of last year.

In which we see.

Ceased new license sales now.

We'll see how that plays out this coming Q3.

We've already announced of course this is coming.

But we will cease selling sort of a license upgrades.

So.

The trial business, so that was just saying.

<unk>.

Good shape.

Very much consistent with the significant divesting that we've been doing in recent years.

Plans to continue to do that so we're we're very infused as.

As to how the underlying business is performing.

And in terms of migrations I was mentioning that some smaller component of growth.

That will drive.

Take a step back.

Think about the migration time line I would say, we're very much on track with what we've been talking about now for the last year plus also.

So we're pleased by our progress there.

And.

We've talked in the past about how we have a good portion of that migration work to do in fiscal 'twenty three and beyond.

Thank you and your next question comes from Michael <unk> from Wells Fargo. Your line is now open.

Hey, there, thanks, and congrats on another impressively clean quarter here.

Youre still adding nearly 12000 net new customers appreciate the updated disclosures there could you help step through what's driving that continued top of funnel strength, how should we think about Q1, maybe relative to the pace you can deliver throughout the course of the year as the environment normalizes and it looks like your service management I know you commented about the Indians.

Set here added 5000 customers at least first prior disclosure could you just provide an update on some of the adoption trends or interest levels, you're seeing there.

The upcoming World tour looks looks interesting as well thank you.

Well I can start off on that one.

First of all yes bye.

By the incremental customer count number that we've published today.

Juan.

That reflects I think again how people are.

<unk> very much embracing digital transformation embracing remote work I think the the compatibility of our product set.

It's clear.

And so we're very encouraged by that.

Certainly.

Q1's number of over 11700 <unk>.

This contrasts to last Q1.

The number was a little over 6700.

So remarkable strength year over year, yes.

Yes, the number will move around courses of course, so we've traditionally said that.

But.

We're very.

Much focused on.

Two.

<unk> optimized our top of funnel activity.

I think last quarter in Q4 was one that particularly benefited.

Some of our free to paid optimization now thats ongoing process.

Look at that constantly.

And that's another driver of.

How do we continue to expand our customer base.

Recall now the new customers drive a relatively small proportion of our in period revenue of the order of around 10%.

Those new customers, where we continue to grow the user base quarter over quarter year over year.

For the future and we've done that very consistently.

It tends to do great job of entering into the specifics on the number I do want to call out one thing, which is curious service management.

Is that 35000 customers up from 25000, when it rolled out a year ago, and we're really pleased by the market goes.

I'm curious if this management.

It's really resonating with customers from very small.

But here and why it might be the only solution that has the feature set for them to the larger customers, who are really resonating and looking to move from.

Other other vendors out there due to the fact that it's just why do faster time to value. It Scott why wawa total cost of ownership and why easier more flexible for them to adopt can extend and so I was saying.

Customers like ups.

If I might just add something on a philosophical level data.

Sure.

Two two and a half years ago I think we wrote in our shareholder letter that we were going to double down on the opportunity we saw in <unk>.

And since then you've seen us do what we classically do which is deliver against those words that we told you we were going to do.

Through the acquisition of <unk> journey.

The integration of <unk> the improvements in asset management, and then the launch of tier of service management, bringing software and I'd say closer together.

As a proof point that Scott mentioned of delivering against that opportunity and I would say.

We have many many more opportunities in front of us that we're investing against as we said.

But hopefully it's a proof point that that we do what we tell you we're going to do.

Thank you. Your next question comes from the line of Alex Zukin from Wolfe Research. Your line is now open.

Hey, guys. Thanks for taking my question first of all it's a pleasure to be covering.

You guys.

Maybe just the big picture question around cloud.

From the perspective of cloud might start.

Start thinking about your original expectations, specifically for your enterprise cohort can you help us understand how you feel differently or any level of incremental confidence in potentially migrating that cohorts sooner than you planned or any guidance on that progression from a timeline perspective and separately as we think on a broad.

Spectrum, you're offering being so much more broad based.

And the cloud what are you seeing with respect to cross sell and upsell opportunities.

Within that within that cohort in customer base versus maybe your initial plans.

Alright, I'll cover the first one.

In terms of the enterprise cohort and migrations.

Nothing has changed from what we've outlined previously which is it's going to take it's a multiyear journey.

And.

We need to do some work on our end too.

Culminate different regulations and different areas in data residency and some engineering team going outside.

And customers for them moving some of these large systems can be.

Among multi month long process.

I need to do to make sure that they can do to change management for their employees and so nothing has changed.

Those lines, we are seeing great customer demand.

All levels in terms of migrating to crowds on dyno multi cloud as the destination. They are really excited by it.

Okay and can I just mentioned the total cost.

Is that significantly wella for them. So I would say that we're attracting as we've as we expected.

Really pleased with that progress.

Mark do you want to talk about the cross sell upsell.

Sure Alex.

Look the way we think about this is cross sell and upsell expanding their users and the penetration of the use cases within our customers.

And in.

Inherent in deeply built part of our DNA and it has been we've been a multi product company for an awfully long time now.

When you hear us talk about our three markets in terms of agile Dev ops and.

And what convention control there are lots of overlap opportunities both in the customers between us and in the products. So you see obviously Jura service management working alongside your software to get developers and.

Edmund closer together in delivering value that is both.

<unk>.

<unk> strategy on our behalf and also <unk>.

It's really built into the platform and all of the shared infrastructure that we use so.

Things like automation.

<unk> and connect extensibility platforms.

All of the.

User experiences.

Things like the editor and other things that are common across those.

<unk> products is an intentional part of that journey.

Youll also see us in our <unk> program.

Continuing to innovate and deliver new offerings, you can see that encompassed in the agile developed space and team central in the book management full space looking at.

<unk> and status updates and help and the cultural and humanistic side of teams and people and how they come together how work is actually delivered across projects calls matrix strategies helped and the team that should deliver that.

Our platform enables us to move our uses around to where they get most value from our product family and we continue to get better and better at that.

Every quarter I would say, we improve how we do that.

A lot of parties.

<unk> tied into.

Philosophies around pricing.

We talk a lot about free and how that's changed and obviously accelerated the movement of new customers. It also has a huge effect on cross flowing of users because you can move from product.

To product B, but theres no payment, there's no charge for product until you started to see value to deliver value.

Always talking about getting value to customers first please.

<unk> second the value of that being delivered.

So free actually plays into both the platform story and the cloud and also the three major markets and all the new innovation of products, we have coming out targeting those market. So.

Hopefully that gives a sense of how it holistically all works together or not and I think.

Thank you. Your next question comes from the line of Fred <unk> from Macquarie. Your line is now open.

Hi, Thank you and congratulations.

I think what most others have said on a very solid quarter here and James it's been a pleasure working with you and looking forward to continue working with your transition and all the best with.

Retirement so.

Like to ask you about cyber security here during the quarter there was that confluence exports there.

They are older on premise version of confluence and wish you quickly mitigated all software eventually you'll have an exploit discovered but it was notable here is that atlassian is cloud products we are immune.

To the expert there was in the Wild I'm curious did you see and customers accelerating their server to cloud migration pathways around this event and then also more generally.

How do you think about Atlassian is approach to cyber security across your different deployment models.

Patrick.

Obviously that.

Security in software and technology is an incredibly hard challenge one that continues to get harder all the time.

One of the ways, we can flip it in by having an absolutely world class security team, which we do have continuing to work day in day out on behalf of our customers and securing them.

The.

Confluence.

Incident that you talked about again had already been patched. It was already we had shipped the updates and everything else in time and it was a question of how fast the customers updated their own software one of the benefits of the cloud as you point out is that we do that for them.

So we had done that instantaneously on behalf of all of our <unk>.

Hundreds of thousands of customers without even having to wake up. So we can do that overnight. We can do that for them, we can roll it out instantly and fast.

Can also do a lot of other analysis, obviously in the cloud and that's one of the benefits of SaaS software. In General is we are really really really good at running our own applications. As you would expect us to be we are the best in the world at running our own products securing them scaling them and that is the benefit of our cloud for those enterprise customers.

I don't have any.

Directional data on whether that's affected the general migration timeline, but I can tell you that it is certainly one of the advantages that our customers see especially the larger they get.

But also on the small ones, we should we often talk about security and large companies small companies.

I mean is far better than one of our security team. They have in house, because I agree with Ken will 20% company that stuff's really really really hot and so.

It's baked into our DNA and I think it's yet another advantage of.

Of the migration to Atlassian is cloud.

Thank you. Your next question comes from the line of origin <unk> from William Blair. Your line is now open.

That's perfect. Thank you very much and congrats on a great quarter again.

I want to maybe dig a little bit deeper into general service management, when we called out the strength.

And customer growth.

Since you've launched this new offering bundled in.

Serviced as an ox genie and other functionality, including would seem to me, but have you noticed a change in the type of customer.

Adopting.

Service management versus the prior year.

Certain staffing our more sophisticated customers more enterprise deployments there.

This offering has scaled.

Yes, Thanks, Jim Great question.

Obviously in the TSM space, we think we are extremely uniquely positioned.

We are the only vendor that can bring together software teams with your I'd say teams into a single plan of glass.

And our singular platform, that's both comprehensive and modern.

And that gives us a real leg up into customers.

Managing the workflows, but also managing the workflows that it is responsible for on behalf of other teams in the business. So one of the biggest changes we've seen since tier of service management.

Relief is not only I'd say team is adopting an ever greater numbers with things like forge and automation and all the other things that come in the box as well as obviously the asset management, the inclusion of <unk> and <unk> for modern service management and packaging operations.

We continue to see that resonating really really strongly with I'd say teams. What we're saying is the family of products that we deliver the increasingly.

Sienna's visionary by as.

As noted earlier by Gartner and others.

In terms of how we play out across not just tier of service management and even to your software and <unk> service management, but in things like confluence and how that comes together and gyro work management to enable <unk> to deliver applications at very very low cost on top of the platform already.

Familiar uses and obviously in things like Compass and I appoint a program for managing the software components and digital assets, which is incredibly complicated for customers to deal with at the moment.

And then through things like team central to the mall cultural aspect.

I think what's resonating with I'd say things does not just your service management, although obviously, that's doing extremely well at the moment is the offering that we offer.

We can show to.

Administrator, or CIO or CEO about how we can help them across the digital transformation.

All the things the team is that is responsible for not just their own data they work.

And the HEICO team.

Add on one thing to what Mike was saying.

We've spoken earlier about pricing philosophy has always been oriented on excellent customer value.

I think <unk> service management is a classic example of where we are an exceptionally good value.

And customers are recognizing that.

Thank you and your next question comes from the line of each hike had drawn from open Hymer. Your line is now open.

Thanks, and congrats on great quarter, and James all the best and good luck.

I guess I have a question regarding the data center growth this quarter, which was very strong and I'm trying to think about weather.

The growth there really reflects more.

Server customers, preferring to stay on premise and shift to data center, rather than move to the cloud. So maybe you can talk about what's driving the data center grow but how do you think about the tradeoff from server to cloud versus.

Data center.

So with regard to the transition to the cloud.

In the past you've kind of talked about.

The transition being likely.

Backend loaded and then it sounds like it's going to track.

But you're also talking about medium and large size customers being more to back handled this transition rather than the front of it does that still hold or are you seeing.

There are larger customers actually move early rather there sooner rather than later.

Hi, Scott.

Scott you jump.

So I'll do something first of all the time to answer the more specific sort of.

Next question.

Just to add that beyond sort of the area and so we chose that.

Our customers want our products when we see really strong demand for our products and the customers.

Move to our cloud, they're choosing to invest in our DC products.

They can go straight to the cloud, we're seeing increasing demand for DC crowd, you customer numbers and our cloud revenue numbers showing great strong demand for our cloud offerings.

D C.

The banana into that and it is.

Basically a stepping stone towards cloud am I, saying that with certainty.

Senegal cloud migrations coming from DC, So I feel really great about that.

I think they see growth, we will continue to be strong as our customers continue to adopt the vaccine products and make the choice to move to the cloud.

So I'm Super excited through some specifics.

Yes, just to add on a couple of things.

<unk>.

Recall that we have raised prices on the data center products around 15%.

That got implemented in Q3, so as the quarters go by you see.

That effect coming through.

The other thing.

Is that.

We did see that unusual volume of data center activity in Q3.

Now much of that showed up in the revenue results in Q3.

But also.

There was a significant deferred revenue balance.

It generated in Q3 and so the subsequent quarters Q4, now Q1 <unk>.

Also benefited from some of the roll off of that both revenue balance as well.

As to.

The timetable part of your question.

I would expect that.

We would continue to see.

The bigger proportion of.

Migrating customers be the the larger medium sized customers migrating in fiscal 'twenty three and beyond.

They have the most complex requirements and so forth so.

That continues to be our expectation that we're very much tracking along to the operational sphere that we gave you on the migration timetable.

Yeah.

Thank you. Your next question comes from Brent Thill from Jefferies. Your line is now open.

Hi, This is <unk> on for Brent Thill.

Congrats on a great start to the fiscal.

And congrats James and Amazing run.

Wanted to ask a couple questions one was.

Part of the price changes here.

You also offering some incremental pricing discounts for the enterprise customers.

I wanted to ask whether that is to incentivize more enterprise customers to move to the cloud.

Have a bigger impact on the migration pace or should we expect the discounts that you have in place to have a bigger impact and then my second question was around the opportunity.

From standard to premium.

Could you help us think about that opportunity set.

What percentage of your customers are on the cloud standard emission and.

How would you move that into premium thank you.

Well thanks for the question.

In terms of.

The enterprise.

<unk> customers and pricing.

We've got at least a couple of things going on in recent months back.

Back in July what we published.

In essence extinctions of our pricing cuts previously the pricing curves have accommodated small medium size type customers, but increasingly we're seeing larger customers looking to move to the cloud.

So we extended those pricing cuts to larger user levels very much consistent with the way our pricing hubs in the data center business server business has been designed.

And so that's kind of a surprisingly large.

Number of users you commit to.

<unk>.

Somewhat lower would be the Pope use a price. So what you saw us publishing in July it was just reflecting the reality that larger customers are now moving over to the cloud so we needed to update our pricing.

Do you have a theme that's relevant in terms of migrations for these larger customers of course are the loyalty discounts.

We've had in place now for quite a while.

And as of July one just passed.

You're trying to tell us if those discounts, but still very attractive so 40%.

Yeah.

Discount for.

Set of customers moving over to the cloud for example.

And.

Those stepped down overtime.

Will be another step down next July one.

And so those have worked I think quite nicely to encourage some of the larger enterprises too.

Begin their movement to the cloud.

System with how we've expanded the capabilities of our cloud offerings.

In terms of the second part of your question around <unk>.

Standardization and so forth we've been really pleased with the take up of our premium edition more recently now enterprise edition is also off to a good start.

So we're pleased with that strong premium adoption, we've noticed perhaps not surprisingly is that a premium edition customers have lower churn rates and so forth.

So we will continue with.

<unk> philosophy, and history of adding more functionality more making those premium additions more attractive to our customers.

So.

Obviously at the end of the day, it's their decision but were infused by the future for our.

Premium and enterprise editions.

Thank you. Your next question comes from Steve Cohen AG.

<unk> Your line is now open.

Hi, there thanks Atlassian.

I'll Echo my congratulations as well on a real solid quarter.

So I'm newer threat lapse in but.

I haven't seen the disclosure on revenue by the climate.

If thats new is I think it is my kudos to you for <unk>.

And that revenue by deployment really very helpful.

I, you've given plenty of color around why data center.

Trend.

I'd like to ask a question focus more about cloud here as you look to customers moving to cloud are there particular products and capabilities that will be.

More instrumental that'll be key to driving customers to cloud and particularly larger customers later in time.

And our pricing and packaging options that you might be considering as well thanks very much.

It's Scott here.

Michael has some stuff to add on here in terms of products and capabilities.

We're really excited by crowd, which.

We will have a 90 presented on your customers are choosing our cloud products today and so on.

We feel like that's the default choice for for anyone investing in Washington today for us.

Some of our existing customers the areas and I think we talked about it before is that you.

Do you.

Our ecosystem.

Effectively there's a lot of apps that people have behind the firewall and our existing have jumped on that and build outs for the crowd and so forth, but there's a bit of a more of a stickiness and sort of moving people across from that like our cloud vendors made to provide a migration path. So that's an area of investment for us.

As Mike mentioned earlier in the call data residency.

Certifications in certain areas are.

An area that we continue to invest and I don't think you may have.

Data centers close enough to your customers with performance and regulation reasons, and so that will probably never be done but.

But we're continuing to invest in those areas and certifications with specific.

Vertical is that our customers are after.

We have continued to improve scale over time.

When we started this journey and talking with you we would sedan in single digit.

Supporting in cloud we are now.

Thousands and well on our way to one hundreds of thousands in terms of vertical scale in the cloud. So that's some of the areas of continued investment and the great part about that is that.

Customers are partnering with us on all these investments and so we know that Theyre go great ROI for the investment.

The investments we're making.

There's like unique packaging or.

Abilities, some great benefits of being in the cloud that we.

We have one user management system across all of our cloud products and that allows us to put things like I pointed out new products in front of new customers on what easier than having to download and install and configure something new and so.

That gives us a lot more flexibility with how we.

Price and package, our products together and as Mike alluded to earlier with free that's given us a lot more opportunities to get things in front of customers without them, having to make a purchase decision before they're getting value. So we are seeing.

That's sort of critical to how we.

Functionality in front of out in front of our customers and so you'll see us continue.

Processing and packaging and.

How we put our products in front of our customers to deliver value to them all the time, whether it's additions pretty standard.

Or if you make bundles of how we put products together.

Customers that want to buy multiple products together youll see us continue to innovate.

Over time.

I just wanted to Scott covered a lot of the nuts and bolts and I. Thank you.

We're well known for our execution against all of those things from additions all the way up to all the other bits.

Patient Scott talked about.

Especially if you're new to Atlassian, Steve one of the things I wanted to reinforce that you talked about the opportunities in cloud beyond migrating customers to it I would reinforce that I think the opportunities in front of Atlassian has never been greater.

Across all three of our markets.

We sit in at the moment and we have been as clear as we can be that we intend to invest in playing offense across all three of those markets. We continue to invest heavily in the cloud platform everything from the big end of town with the regulatory and legal and compliance changes that we think will be a great. Most of the time, because it's very very hard to do at scale.

All the way down to investing in new products that youre seeing in <unk>.

And continuing our culture and DNA of delivering innovation on a continued drumbeat to our customers to serve their needs.

And lastly, we've indicated we continue to invest in talent.

It's an incredibly tough market out there if you talk to any other company the market for talent has never been hotter.

And we just had a record quarter for hiring people are choosing to come and work for Atlassian and we are investing in that talent to continue to go after those opportunities and that is a really good thing.

Thing to understand about where we currently see it.

Yeah.

Thank you. Your next question comes from Amit <unk> from Cleveland Research. Your line is now open.

Yes, Hello, Thank you for taking the question and congratulations on the result.

[noise] had noticed a couple of management changes in the shareholder letter in addition to James's announcement.

Leaving but yes.

I was just wondering if you might be able to expand upon the promotions.

Our new and Jos to Chief operating and product officer, what their roles will entail as well as.

Bringing on Kevin Eagan to head up global enterprise sales above any more color you could provide on on those changes. Thank you.

Look at this.

Plenty of time to celebrate James's achievements and he is.

As I think Scott said always that is not in that Doug has there he is leaving on a high to retire.

To greener pastures of.

His flying I suspect around and lost one during the day of autopilot.

But we are.

Ultimate thinks in DC.

Given us plenty of notice. So I think you can see his achievement has been amazing.

On the management team broadly I think one thing I would some of it is we have we have a very stable management team. We've long been believers that the best technology companies have stable management team that learn and grow together over many many many years. So the stability of our management team for a long time now has been incredibly good.

As such it's amazing to be able to give both our new and <unk>, who are both styles and her team.

Huge new opportunities and giving them opportunities and promoting that growth of internal staff.

<unk> is fantastic and something that we've always.

Prided ourselves on is the company.

In terms of those roles.

We've never had a chief operating officer before operating our business, we have an incredibly complicated business across multiple markets multiple deployment options.

Globally distributed talent and operations and planning and our business is not a simple exercise.

At the same time, we clearly operating a large scale transformation to migrate our customers.

We are continuing to transform how we serve our enterprise customers as best we can.

We are also continued continuing to grow.

<unk> economy is we call it all of the parts around Atlassian from forge in the marketplace through.

Partners and everything else.

There's a lot of.

Complexity that needs to come to operating all of those transformations in sequence and then synchrony synchronized with each other.

<unk> is perfectly.

Skills to do that and I think improve how we actually operate.

We are not satisfied with our current operations and good luck to continue to improve.

On Josh we've never had a chief product officer, Jeff has led to a welcoming and control.

Group of products in confluence controller for a long time and does a phenomenal job of that taking on the other two markets.

<unk> progression and growth opportunity for him, especially as we look at as I talked beforehand timing the different markets together for our customers in certain way, so whether that single pane of glass across development teams and it teams, whether that's I'd say team serving the wealth management for all use cases and apps and workflows.

Non technology teams.

<unk> not only our technical platform, but the products have to be started together, which is part of the reason behind that so look just.

Just really excited with the team we have all come to work every day I think our whole management team do and.

We're doing an excellent job Oh, Kevin sorry, yes.

Kevin has been a huge add.

Two.

The revenue function in general leading our sales efforts.

As we continue to expand again, we grew customers more than $1 billion over 70% and our lost.

We talked about last quarter. So we certainly need to continue to do that.

Kevin brings a wealth of experience from Sears and the best Technologic companies in the World.

Continue to be excited about how he helps us evolve our model and our business as we.

I will forward.

Thank you and your next question comes from Pat Walraven from JMP Securities. Your line is now open.

Hey, guys. This is joey on for Pat. Thank you so much for taking the questions. So just.

Two from our end.

First congrats to James on the promotion on the retirement.

So how are you thinking about what you're looking for in your next CFO and then lastly, just on forge I'd love to get an update there and your ultimate vision there. Thank you.

Yeah.

Thanks for the questions I'll answer about science, and Mike can answer about <unk>.

Firstly, thanks to some incredible job like is by far the best that we've had at Atlassian.

We've been around 20 years, you've had even though we've had great stability.

Five or six over that period of time.

Think we do we do well to find someone that works very much in Jameson footsteps.

To be specific about some of the things I think we need as we grow.

Capital allocation as a company we have so many opportunities in front of us.

How to make sure that we allocate capital in the right Y scalable way that we'd do it looking over the long term and we don't optimize for short term returns that's going to be really important and not just sort of making those decisions.

Building the systems to allow the company to make those decisions at all levels of last year and that will.

Things like how we.

Cost value to their projects and as you move to cloud, we're making sure that we understand where our commscope and the micro services, we build and how we actually make a particular decisions.

Round around motor carriers and so.

I think James has done a great job of understanding how business as Mike mentioned it's.

Angela for different areas, and so I think that.

Finding someone that is a systems bank of Montreal I changes.

Can help us grow and allocate capital and really tackle the huge opportunity we have.

Front of US is what we're after.

Thank you Kim.

I can answer the question on <unk> I think there was a second part just on the sorry operator.

We talked a lot about about <unk>. It is our next generation extensibility and development platform.

You'd add capabilities around security and data residency and all the other things that is fairly unique I would say in a whole set of ecosystem in terms of how do you deal with all of the enterprise compliance and regulatory requirements in different geographies of the world and still allow extensibility of your SaaS applications. This is a huge technical challenge.

And I'm really really proud of how the <unk> team.

Is it attacking that.

It lets us run the application. So we can continue to tune and improve them, but the third party developers all customers get a very stable and simple extensibility and development platform.

<unk> performance, but also secure.

With noting I know it is often talked about the the marketplace and the vendors in the economy, we have around Boston, which is fantastic.

As as much for our customers.

Well a lot of the fantastic early use cases that we're seeing.

Customers using <unk> to extend applications to integrate with their own services.

Applications together in unique ways alongside all of the other things like our smarts and automation.

Different facilities and the platform really excited about what it is that.

Again with the platform at this stage, but we will continue obviously as we do to improve it.

Every single quarter.

And I believe we've now passed 500.

Forward and continue to head honestly again have one of the largest.

Marketplaces in the unit.

We continue to to grow that and I think George has a huge potential going forward.

And your last question is from Keith Bachman from Bank of Montreal. Your line is now open.

Thank you very much.

Wanted to revisit on.

Upsell and my specific question is can you get any directional or specifics on the difference on cloud versus what was server and data center and the two thought process. Here is one you are getting a lot of information.

Conversions and.

At that time.

The step up in terms of.

Total value that the customers.

Subscribing to a vaccine in terms of either capacity or cross sell.

And then the second would just be as you mentioned theres a lot of customers that are going straight to the cloud how does their upsell rate over time compare that data center <unk> server. Thank you.

Okay.

Oh.

I'll start off here.

He wants to add anything to it.

As we know.

And have said that in the cloud we provide more value for our customers in terms of hosting it for them. They are upgrading it for them.

Allow them to return to a whole bunch of their staff back doing high value opportunity opportunities for themselves and so we do capture a portion of that commensurate value without cloud pricing compared to two D. C and so that's the important thing I think you are all aware of.

You look at our.

Our product behind the firewall.

There's a lot of friction involved in expansion.

Many other software vendors, but if you excluded the Washington still have to contact us.

How does the mall.

This order and that process is just a little more friction than having a credit card on online.

Our.

It uses and digest kind of ups right away and so I think the reduction of that friction at all areas of the product journey is something excited by with that that is starting to frame with a quick logins on our download and install.

Whether that is being able to in box.

Your colleagues because we can tie into the single sign on solution all of that company and so it's much easier to add and semiconductor uniqueness there.

So I think you guys.

Probably about half an hour on all the different opportunities that are there and I think as he said cross sell is a lot easier because that second and third product.

Can put it in front of customers, where what do you believe that.

They have value and not in the final one so are we done. So we don't we can be much more specific and targeted and a great example of guidance. If you were inside zero now.

<unk> products and.

We have a tag one more consignment because you want to write a specification stuck in a requirement document or what some documents associated with your project. We allow you to instantly start a trial confluence.

So doing that tough and it is a great experience and that's something that is just not possible to do.

Behind the firewall so.

You too.

I'm going to continue to invest and we're going to get better over time I wouldn't say, we're I think we're really good at the moment I don't think I think there's a lot of areas, where you can still improve on all of those different areas and so on.

Just talking about what our team has come up with week in week out and improving that sort of cross sell up sell and customer experience that we have.

Thank you, ladies and gentlemen that concludes our Q&A session for today.

Hand, it back over to our presenters for any closing remarks.

I just want to thank everyone for joining our call today, we really appreciate your ongoing support and we really hope that you and your loved ones remain safe and healthy.

Have been quite weak.

Thank you, ladies and gentlemen that concludes our call for today. Thank you for participating you may now disconnect.

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