Q3 2022 Atlassian Corporation PLC Earnings Call

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Good afternoon. Thank you for joining Atlassian earnings conference call for the third quarter.

This coming year 2020 Q.

This conference call is being recorded and will be available for replay from the investor.

I'll now hand, the call over to Martin Lamb.

Yes.

Welcome to <unk> 22 earnings call.

Today, we are about lofty and co founder.

Co Ceos Scott Farquhar.

And Mike Cannon Brookes our.

Our Chief Financial Officer, James Beer, and our Chief revenue officer in the shareholder letter and press release with our financial.

Actual results and commentary for our third quarter.

The shareholder letter is available on that Washington's worldwide blog, and the Investor Relations section of our website, where you want.

Including the earnings press release, and supplemental investor data sheet.

As always our shareholder letter contain management's commentary for the quarter.

During the call today with 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.

Different from any future results.

First in or implied by the forward looking statements.

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

Statements right.

Statements should they change or cease.

To be current further information on these and other factors that could affect the company's financial results is included in filings, we make with the Securities and Exchange Commission from time to time.

<unk> the section titled Risk factors in our most recent form 20-F and quarterly form 6K.

During today's call. We will also discuss non <unk> financial.

Financial measures. These non <unk> financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with Ifr, a reconciliation between <unk> and non <unk> financial measures.

Billable in our shareholder letter earnings release, and an investor data sheet on the IR website.

During Q&A please ask your <unk>.

We would be able to accommodate the Mexican correct.

Mike for opening remarks.

Thanks, everyone for joining us today.

Q3 was yet another strong quarter for Atlas.

We continue to execute well and see great momentum.

We continue to see significant demand for our products across all three of our markets and now have line of sight to $10 billion in annual revenue based on our current markets and current products.

Atlassian has.

Okay.

We've never been more excited about the opportunities in front of us.

We had an amazing team 22 conference in Las Vegas.

It was incredible to hear all the customer stories about the mission critical workflows that with Cowen.

Our customer community and all of our mines.

Can you learn from our customers about how atlassian can help that team works differently together.

If you missed us at our Investor day in Las Vegas, and showed a catch all of the materials and the recording of the event on our IR website.

We'd love for you to learn more about atlassian and better understand our massive market opportunities platform strategic bets, where pricing and our future trajectory.

To the operator for Q&A.

Operator.

Mark do you want talk about the long term future of Atlassian and how well we have a mindset.

Sure.

Alright, I was thinking that shareholder letter may be answered all of the questions.

At this time.

Inform everyone in Oregon.

To ask a question press star one.

That is star one to ask a question. Please make your questions to one question.

We have.

Morgan Stanley Your line is open.

Excellent. Thank you very.

Very impressive results.

Mr focuses really on sort of.

Macro and durability of software demand.

One of the things Mike you talked to you about in the past.

It's kind of built for defect.

When you look at sort of the three.

Future results how much of it was just hey, listen just the demand environment you guys are executing any good demand environment. How much of this is that lastly inflection.

And that we're good at that equation can you help us kind of understand the operating environment you guys are in.

Okay.

Scott here.

But the way we operate as a company is really making long term debt and long term.

Vince.

So we made those investments or al.

Cloud infrastructure and migrate.

Getting our customers to cloud all of these things are.

Long term.

I think regardless of what the.

We played that long term guidance, so thats one.

Anything to think about the second aspect about that is that.

We have seen.

Kind of great demand for our products around the world.

Why is it about that like we've seen great demand in all of our geographies.

I think what we're seeing areas that we sell into a market.

That in.

In good times or bad times requires the products that we sell and we've seen that inventory.

Instead of the <unk> downtime, we've been around long enough to have applied through that and we've come out stronger on the other side of that and we grew throughout that downturn as well.

So I think the combination of those factors.

I think people sort of pandemic these coming off and there might have been pandemic tayo.

Fueling Alaska business that will come off after that we haven't seen anything to indicate that if anything the demand for digital transformation is kind of a structural change thats continuing to happen.

We have your next question is from Arjun Bhatia with William Blair. Your line is open.

Perfect. Thank you guys and congrats on a great quarter here.

I wanted to touch on the Ics market.

The progress that Youre, making.

<unk> service management, specifically, it's something that was a big topic of conversation.

Amongst your customers and partners at at $2 22, and I guess I'm curious how the.

Product market fit of that solution has changed over time I know in the past we've talked about maybe it'd be good for legal help desk for quick up and running.

More core <unk> use cases at large enterprises I would love to hear some of the commentary around that and maybe how the deal cycles.

<unk> service model.

I'll talk about the long term impairment can chime in with any color about deal size changes. This.

Florida is.

Huge advantages we have in the on TSN market.

One is that.

We're the only.

The company that can bring.

Together and that's.

That's very attractive to companies as IP and then do come together across the entire industry. So thats really attractive and then the other one is that we can play for the Fortune 500000 win not just pie in the fortune 2000 that price.

Cost effective nature of our solution, but also just the time to value.

<unk> is up and running and so when you look at.

That's been recognized by Gartner Forrester and kind of the big people, who are recommending to large customers want to buy and why those advantages of being recognized talking down the customer size. Thank you.

What do you have a view that.

Okay.

Organised attainment and organization becomes a service team.

Your HR finance legal.

I would say.

Okay.

It's one like that everyone becomes a service organization and I think with the visions, we laid out at our.

Annual conference just a few weeks ago, we sort of articulated that quite well.

That part of ours.

Approach here is not to just go after the small customers are adjusted track for large customers from that.

We're very much in Alaska placements with over 40000 Euro service management customers today.

And that's a relatively new product and shows lifestyle type of volume.

The product market fit that you would say is quite strong.

Recently over the last couple of years largely due to our.

Cloud platform from an enterprise investment perspective supported by a variety of really robust features in the ICU service management market.

Each set of requirements that most dependent.

Price departments need and they're starting to really what the Joseph management It service management platform.

Companies.

Jessica.

I spoke with a customer yesterday that did exactly that and theres been an NGL service management.

For all of their ICU service management operations for over a couple of years now.

And no capital markets. Your line is open.

Thank you.

<unk> came in good transition from my question excuse me I wanted to ask about your work management.

And get your perspective.

Where you think the maturity curve is relative to some of what you think the opportunity is.

If I broke that down into the pieces.

<unk> has 40000 customers in China.

The maturity.

<unk>.

Turning to our work management.

How do you see the opportunity space interior work management as you look out.

Over the next.

A couple of years. It just seems like <unk> management has a tremendous opportunity.

For growth, but just wanted to see if you could put some.

Okay.

So tuck in Sydney, so to that one.

For sure.

I would echo your comments is it.

Okay.

There's also a tremendous.

So I'm sure there's some Brooklyn, just in general obviously, we have.

How long and proud history in large products in confluence controllers.

Newer products.

You mentioned about your wealth management, and Atlas, which we shipped in our team in 2015 conference.

<unk>.

Comments.

We started using the term work differently together and I think it's really really applicable in the world.

Youre welcome management control.

Lots of teams that want to manage their work.

It's really important as it allows you to have.

That autonomy among the teams to use different types of tools to manage work because.

Youre welcome innovation.

We can do that in various ways that you're.

Working in the gyro Menno I suppose.

With service management.

And then to your wealth management.

<unk> helps to bring them all together under the gyro families plus the wiser organization run by 18 months.

Similarly, with Atlas, we can now apply to you.

For wealth management together with shallow.

And lots of other third party wealth management tools to create better visibility.

Visibility.

It's very early in the year of wealth management.

Jeremy.

It's probably more like Terra service management. So we are spending a lot of time with customers at the moment to try to make sure. It fits their needs and continue to do that thank you are saying.

Tom.

John .

Investing in R&D and investing in products and listening to customers is something that we do very well and we're going to continue to run that play quarter on quarter Im very bullish about that Youre wealth management.

We have your next question from Greg Moskowitz Mizuho Securities. Your line is open.

Okay, Yes. Thank you very much I wanted to ask about.

The recent outage and just if you had any concerns that this could affect the rate and pace at cloud adoption going forward and then also I know that it only affected about <unk>.

0.3% of our installed base, but were any customer credits issued for the Q3 <unk> Q4 period.

Hey, Greg.

Look I can take the first half of that and I'll, let Kevin talk to the.

My question impact on customers and.

Okay.

Pretty clear, we understand deeply how mission critical our products out of customers.

And the teams are impacted massively when our services are available.

No no what I'm, saying is that it's not me Darin high standards that we hold.

As a percent or so of our customer base, one customer still too many.

Important to emphasize for any customer that I was saying not the result of cyber attack.

Unauthorized access to any data any of those.

Talk of things and.

The resilient against all types.

Lots of different types of data corruption events.

As have been in this case.

All of our customers at this stage been fully restored.

You'll be familiar Greg with the values of the company negotiated something that holds pretty highly and we run it very open and blameless incident management process and culture as.

As such we will be open.

Hey, Paul.

On our engineering book I believe by the end.

And that's what happened.

Our learnings and.

And importantly, there.

We will continue to change as a result of this.

Yes.

We believe that such a culture builds evermore.

Julian services.

It helps us emerge continually as a stronger company that can do that.

I can talk to Kevin both had pretty great customer reception from that openness.

Got you.

Yes, I can speak to the customer impact good or bad.

I've been Steven this is Kevin by the way.

And then speaking to many customers.

And now post the incident that were both directly impacted by the incident as well as customers that are looking to migrate to the cloud and.

Then they have questions and customer events as Mike said, one is too many and we really take this extremely seriously.

Tell me if any of you as well as lower.

We're doing about it to ensure it doesn't happen again, most customers completely understand and it turns into a collaborative discussion on moving forward.

And in fact, this morning, I spoke with a directly impacted customer.

I was actually with standardizing our actuals over last year.

Incredible uptime incredible lesser lines for many years with them and this was the first kind of big incident that caused them to have.

Are there concerns with us.

And we talked about the mission criticality of our applications, we've talked about how they did work around in the interim.

Actually one just starting tomorrow applications with us.

And so there was out but the reality is by the end of the conversation. We had moved forward and they were talking about upgrading to the premium version of our products, which just shows how much goodwill customers out for us and our products.

Andy I'll speak to credits.

Yes, Greg just to address the compensation part of your question, obviously, we want very much to do the right thing for the customers.

So I would expect.

That would be compensation begins in Q4.

To be clear nothing in Q3.

But I would not expect the level to be material to the financial statements.

We have your next question from Michael <unk> with Wells Fargo Securities. Your line is open.

Hey, there good afternoon, thanks for taking the question.

Growth remains impressive.

As always be EMEA number at 25% growth such lowered the letter carefully characterized this is event driven.

It's all of the tougher comp not demand driven and we are also providing no material change in fiscal Q4. Thus far is there any additional context, you can add around the signal you're watching there and what informed those observations. It's certainly top of mind for all of us across software and useful. Thank you.

Yes, Michael I can address this first and then perhaps Cameron you can add on behind me, but.

Alluding to there Michael as you framed the question, 25% growth year over year in EMEA, but very much a tough comp.

Is Q3 of fiscal year 'twenty one.

Which we had very significant EMEA growth of 45% year over year.

Recall that last year, we had the event driven activity as a result of having recently announced the sort of end of life.

And then also price increases associated with both server and data center and a year or so ago.

It was a European partners, who were particularly adept at working with our customers to get ahead of some of those changes.

Really.

Explain the reason for the tough comp.

I would just further nodes.

In Q3.

EMEA represented 39% total revenue.

So that's actually up a point sequentially versus the previous quarter.

So not seeing anything unusual there.

Pleased with our growth rate in EMEA as we are in other parts of the World and then Q4, yes.

Ali, but not seeing.

Any material change in our sales activity day to day.

Kamran juice.

If anything extra there.

Yes.

When I speak with our teams located in Europe as well as our partners. The short story is we have the war in Ukraine is very much present in everyone's conversations but it has to date had no direct impact to the demand for what Atlassian does and Thats kind of the short story here is because of the digital transformation because it continued to remote work from home.

M. Because companies are trying to be more agile and responsive to this changing world.

Yes.

Provides constant demand for whatever that alaskans applications view.

And that seems to me to a couple of weeks ago I met with a variety of our European solution partners. Their biggest challenge remains being able to hire enough people to satisfy the demand that they see in the market.

In addition to that we focused pretty heavily on the European market just from any cloud capability perspective, as you know last quarter.

We released the <unk>.

Forbes, A&P, which essentially financial services standards in Germany for our cloud products and that has opened up.

A variety of new cloud opportunities in very large financial services firms for cloud migrations. So we continue to see that demand there.

If everything is looking good this quarter.

We have your next question from Ty could one with Oppenheimer. Your line is open.

Thanks James.

James a couple for you just on the financial side data Center continues to perform very well for you I believe that in the <unk>.

You actually mentioned a few instances where data center customers were actually Mike.

Cloud how do we think about the growth in data center going forward is there a point in time do you see this kind of rolling over and transitioned to the cloud starts happening.

A bit more.

Diligently on that side of the equation is there any way you can help us get a framework around that that would be great. And then just another just household question regarding Russia 1800 customers that has been I guess turned off because of the sanctions or inability to pay can you tell us what's the annual revenue impact of that customer base.

Okay.

Let me take the first one data center.

Very pleased with the growth rate of the business there.

And as you alluded to in your question.

In the context of the fact that when you look at our cloud migrations.

Third of those volumes.

<unk> from data center.

This is one of the important stories here around the migration journey.

Obviously, we'd be talking a lot about server to cloud data center.

But also the fact that.

Good number of our larger customers that generally are on the data center products.

Migrating to the cloud I think is going to be.

Our team continues to play out for a number of years.

It was very much reflects.

Our theme.

Pieces that the cloud is very much the best experience for the customer that's obviously, where we feel good again, just proportionate amount of the bond investment over recent years and so I would expect that to continue over time, so as it does.

That would obviously represent a headwind for data center growth.

But.

As we've discussed in the past for some customers.

Yes, so move to the cloud oftentimes, it's a matter of.

That customer fishing in this migration projects there overall.

Slow and so forth.

And so where we are delighted.

Customers continue to look at our data center products of high quality, good value and so forth.

And so I think those are the dynamics that will play out gradually over time.

In terms of the 18 hundreds.

Estimates.

Resided in Russia dropped out of the customer account of this past quarter.

We noted.

Analyst Day, Russia has represented about a percent of our business.

So those 18 hundreds customers reflect.

A fraction of that point.

We have your next question from Fatima <unk> with Citi. Your line is open.

Good afternoon, and thank you for taking my question.

The films for you.

Calculated billings or billings is not in match rates.

Focus on neither DRAM statements on the metrics and I'm curious if you can just give US a reminder, on some of the points of volatility in that metric, particularly given the pricing changes.

Life of certain products and then just with respect to doing larger enterprise transactions in enterprises generally preferring to take on maybe more longer term oriented contract I'd love to get your perspective on how we should put some guardrails around that the reported our calculated billings metric.

Thank you.

Sure.

Oh really.

Deferred revenue here because when you think about calculated billings is fairly revenue plus change in <unk>.

And so.

The first part of your question around.

The volatility in that metric.

Think back to Q3 of last year.

And you saw a very substantial.

Increase in revenue.

We referred to as event driven as I was mentioning in one of my earlier answer related to the several end of life activity that we have just announced previously to that point.

As well as price increases.

But server and data center and so that drove.

Our revenue level pre announcing you may recall a year ago.

But it also drove a very significant deferred revenue increments at that point in time.

Now fast forward.

Year.

We had some similar level of activity, but significantly less.

This event driven activity in this past Q3, we finished selling server upgrades.

And then somewhat similarly to the previous year also had price increases.

Both.

And data center businesses again.

But when you look at the differ.

Deferred revenue balance and the percentage growth.

In deferred revenue on a sequential basis, which I think is the right way to look at it.

Youll see that the increments.

Third revenues the growth rate of deferred revenue in this past Q3 was less than half of what we were seeing a year ago. So I think that's the primary thing to really focus on in terms of volatility of deferred revenue.

In terms of the enterprise activity.

Certainly some of those larger customers are interested in multi year commitments.

And you see quite clearly in the long term deferred revenue line.

The impacts of that effect now again, if you look at the absolute dollars here there actually.

Long term deferred revenue they are actually down year over year, and obviously with growing substantially in the last year. So while it is I don't know effects I wouldn't say that it's a terribly large effect.

Sums of how our business model is evolving.

So you guys have some enterprises, who.

Looking to commit to us for longer.

But in the overall scheme of numbers I'd say this is relatively modest.

We have your next question from Fred had been minor with Macquarie. Your line is open.

Alright, thank you.

Firstly, congratulations on another very strong quarter and I think also importantly, thank you to the whole atlassian team for addressing the outage right upfront in your shareholder letter.

Certainly we were tracking what many were staying online and I think the transparency that you are bringing to the table is.

Really quite important when youre working with developers.

Consumers and enterprises globally now.

A higher level question, James Wow, I really don't want to see you go it's always a pleasure to work with you.

Or anticipated retirement date is on the horizon here and I just wanted to check in.

How is it last year and thinking about the CFO transition at this point and where are you.

In terms of considering our finding a potential successor.

Thanks Vanessa.

Turning to 74th earnings call, we'd like this out.

<unk> background 74 at the moment celebrating James do you want to know how all of us, but we're celebrating.

Earnings call numbers soon you'll be.

What are you applying that.

So the instrument.

If I can go on and soon will be fine to remote islands going for a swim going for a snorkel.

Just enjoying retirement and so.

Sorry.

Great.

Beside the same guidance can be big shoes to fill I know how much you will enjoy working with Zions bank.

It's been great research that we've had ongoing we've had a lot of interest from people.

Ross the industry and even beyond into other industries, who are super excited to come work at Alaska.

As you would expect we want to make sure we could be.

So whoever new steps into James issues.

<unk> all been sorry.

Not ready to kind of share any names or.

Any details about that at this time.

But youll be the first to know once.

Once we've landed.

Suitable candidates.

We have your next question from Brent Thill with Jefferies. Your line is open.

Hi, This is lot sooner on for Brent Thill.

Thank you for taking my question.

Wanted to ask.

Question on the cloud migration demand and how we should think about it.

Especially as we have a loyalty discount.

Exploration coming up in next quarter on June 30, and you have achieved HIPAA compliance or software.

Software and confluence cloud this quarter. So how should we think of these two then could you maybe give us some historical context as to what you saw last year. When you had a similar loyalty discount exploration. Thank you.

Yeah I'll take this one it's Cameron.

Migrations continues to be very much on track as we planned.

We continue to say is that this is very much a multiyear journey.

Yes, we have different steps along the way.

Whether it was the elimination of server upgrades back in February or the loyalty discount coming off in July or.

The server end of life in February of 2024, we have multiple stages, where over the next few years that will give customers. A reason to two component event to go off and migrate and this has all been planned out but once again. This is on track it's important to say that migrations as well is it multiyear journey and that doesn't end once the server end of.

Life happens at that time, we will still be migrating datacenter customers to the cloud for many years to come. So this will be a constant journey for us.

Thanks Jay.

Every day.

Get better at helping our customers through this migration journey, whether it's them assessing our cloud assessing the financial impact understanding Hey, if we go earlier, we get this discount if we go later when you can get a different level of discount, but we have many different empower teams to have those conversations as well as our solution partners, having those conversations and it gets better every day in addition.

And to that what I am very happy about is once we convince customers move to cloud and we get better about actually getting them to the cloud moving their data moving their systems on boarding their users and that's the journey.

<unk> are mission critical that that transition is a.

A.

It's different for every customer and we have many different teams and solution partners, helping with that.

That's what I'm, saying is yes.

Yes.

Cost of moving thing and you also mentioned HIPPA.

And HIPAA is one of many compliance requirements out there that I mentioned <unk> as well that.

We are continually working on we have a whole dedicated compliance teams that are largely you named the acronym in the industry, we're knocking them off in opening up those cohorts of customers. So yes, we have that we can start talking to health care.

Organizations.

We're working on fed ramp, which allow us to open up the government markets and so on so far so MSI last year now, but now more financial services. So think of it as a continuous set of improvements both on the product side as well as financial improvements on the over the next couple of years that will continue this journey for our customers.

We have your next question from Alex <unk> with Wolfe Research. Your line is open.

Hey, guys. Thanks for taking the question. So I wanted to key back in on the data center revenues and just understand.

Either.

If the outage is driving increased interest in data center or how youre thinking about the seasonality, particularly for for Q4, and maybe next year around the data center business the trajectory there and just remind us obviously the guidance for margins for Q4, you have kind of looked like several more of your.

Out year Targa.

Targets, where where does that incremental spend mostly coming from four in Q4, and I think that'd be super helpful.

This is Cameron again, I will just the data center demand.

I'll, let Jamie speak to the spend.

Ben.

On the on the datacenter side as Jim as already mentioned on this call. It's a great product offering for our customers who are looking for performance scale stability full control of their applications in their environments.

Off customers makeup doesn't go into data center as they do not get all of the innovation that we're launching in cloud.

And customers, we speak with customers every single day about this it's a sure trade they have they know very much that many of the new features a lot of our new products coming from our <unk> offerings.

Natively in the cloud and will only be available in the cloud.

Many customers are running towards the cloud right now to make that decision. Many customers are saying, okay. We can actually go stay on data center for a year or two where many customers say, hey, I'm going to say on data center for the time being knowing that cloud is always going to be an option for them.

That said, we will continue to focus on cloud cloud on the front foot.

<unk>, we are incentivizing customers to choose our cloud first and foremost but for customers for whatever reason need to stay on data center that if that is a great option for them. They are very high satisfaction for those customers and we have a good track record with that product line.

And then in terms of the operating margin part of your question.

Q4.

This is very much illustrative of the theme that we were talking about it at Investor Day recently in terms of the very significant opportunities that we believe that we have right in front of us.

Last year and that we're looking to.

Best against those.

That will be the right thing for shareholders free cash flow generation at the time and so forth.

Now one of the points that we noted in the lesser.

During Q3, we had.

Net new Atlassian, it's total of 791.

That is significantly higher than the previous quarterly high which is 479 net new atlassian.

And you will see the full quarter effect of those additional folks in Q4.

And we're delighted.

Our talent acquisition engine, if you will.

Is April two.

A trend that many talented people from all around the world.

Our team anywhere strategy as an element and important element of how we're able to do this.

And I think that just positions us very well indeed for the future one other item to remember in Q4 in terms of the expense side of the equation, we had our team 'twenty two event as we've been discussing.

And so that would have added particularly to some of the sales and marketing expenses in the current Q4 quarter.

We have your next question from Jim Fish with Piper Sandler Your line is open.

Hey, guys. This is quentin on for Jim fish, Thanks for taking my question.

Really we wanted to circle back to work management. The team said at the analyst day, and actually reiterated today that there is of course to greater than $10 billion of revenue with work management as the most significant opportunity.

How much of that $10 billion would work management have to represent for you to hit that goal and then as we think about the opportunity how much of it is penetrating the current installed base as a greenfield opportunity versus replacing competitive solutions. Thank you.

Yes, I mean I can answer that.

And.

Look if you few comments firstly.

Okay failing so.

Okay.

But.

I would reiterate that $10 billion.

Number that we've put out there and we feel really confident and bullish on is across all three of our markets. I think we've said that logically work management would have the most number of users Brian If you think about.

Tens of millions of developers.

Millions of millions of technology professionals. Once you start talking about it and then 1 billion plus knowledge workers.

Wealth management space, obviously, cognizant, which has the most volume.

Because of our behavior of growing up to a 100 million monthly active users.

Logically connected that it is likely that the majority of those that come from the broader work management space, but there are many more people working in finance and HR and marketing and all sorts of different departments and there are working I would say the permanent most companies.

So that's from a user perspective that may not necessarily be reflected in the.

Revenues perspective.

Because obviously the dollars per user.

<unk>.

The more technical tools are generally going to be higher.

High level directional commentary over the multiple years ahead, but it sort of seems quite logical to me that thats.

The way that it would.

It would work.

That said, obviously, we have two fantastic products in confluence and <unk> that are at scale and continued to grow strongly at scale.

Both have okay.

Very hard and both of those.

We also had a series of new products that you're seeing you mentioned Youre working management, taking advantage of the <unk> family in tears.

Constructor in control.

Is it work that way and finance teams for example, often.

Want more.

Details and control them.

And ordering processes and things like this.

Okay.

And Atlas, obviously being our newest offering.

Launching a $10 22, and I think it's in looking at a lot of things in terms of.

Good stress that all of our products in wealth management are built on top of the Atlassian platform right. That's the.

The platform that helps people work differently together, but in this particular case. It allows our work management products to work very well.

Both the <unk>.

Develop a spaces one of our advantages is that although we.

In three different markets. Those three markets are connected and for customers Scott mentioned earlier, how developers and <unk> work very well together and Thats continues to be a strength of our J S and GSM market. Similarly in wealth management, you are increasingly seeing but.

We have an advantage in customer adoption in the early phases, because all of them come from the software and I'd say spaces into what mentioned.

But as we continue to grow helping your technology teams work together with the non technology teams.

And to have visibility across that.

Can.

You can put on your snorkel and look under the water, where you can look above the water IV visibility can be across both.

Sides of that so.

I guess that they were just were just incredibly.

Incredibly bullish on the space.

We are.

Very strongly you have great customer reception to our wealth management markets and I think our strategy is.

We saw it as we look at the.

Cambrian explosion of automation tools.

We have your next question from.

From Rob Oliver with Baird. Your line is open.

Great. Thanks, guys I appreciate it.

Mike Scott just a question for you guys.

Guys around.

And some of the <unk> products. So it was a good buzz at the event and certainly around at Lewis.

Peter workflow collab in Gist.

As well I just wanted to get a sense.

For what you guys are seeing there.

Seems like a lot of the activity is still on the free trial side, but just what.

What sort of interest from from from customers and then.

So.

How you see partners your partners.

Fitting into that equation.

As forward starts to work up to scale. Thanks, guys.

Okay.

Yes.

There were two two questions and narrowed somewhat taken separately if that's all right.

On the point I'll take point out first and then ill say towards second and then maybe.

Scott.

And honestly, if I Miss anything look on point.

Incredibly positive reception from from $10 22.

It was the first sort of adding for.

Atlas encompass.

Both of which have similar goals in terms of helping people work differently, but together and providing that aggregation by out of a lot of different areas and a very innovative way. So I'd say both companies on the technology side.

And Atlas on the broader cross company.

User work team.

Directory level.

Very very positive reception to boat so.

Now it's the <unk>.

<unk> is doing what we do which is working with those customers seeing their adoption of learning from their activity and also working with them and collaborating with them as we said in the <unk> program that that's one of our strengths that's where he can put RMB expertise together with our customer.

Central by Gyro product discovery.

At $2 22, so that's us getting more into their created discovery space since the start of the software processes.

That also had great reception, sometimes gets missed but the.

Jack.

<unk> is doing an amazing job and again bolstering out megaera product family and getting more into the discovery and credit processing engineering cycle is there is a new space for us with a lot of partners and also with our own products. So that's.

That's fantastic.

What we said we're going to do.

Talking about <unk>.

Repeatedly.

On the flip side of things customers continue to be very.

Happy with <unk>.

For US again is our extensibility.

Framework.

That allows customers and partners to build apps integrations extensions that run in our infrastructure.

And a lot of pod is really key there what makes it differentiated against almost any SaaS based extensibility framework out there.

Then if you have got a residency requirements compliance requirements.

Security requirements.

You run in our infrastructure, even the third party apps or your.

Customer written extensions accustomed drive for them for themselves.

It runs in our infrastructure one of the things customers like the most about it is we provide the service and everything else to them. So they just focus on riding the extension riding the integration they need we handle all of the running and keep the.

Yeah.

Compliance and security requirements.

Monthly run that data that saves them a lot of times much higher ROI extensibility method than having to run their own service at my time and operate them and keep them running et cetera. So.

It's going very well so far.

When you're continuing to invest in <unk> and improving it.

Every single quarter, you contains quite a rapid pace of innovation and incremental improvement in <unk>.

And.

India to build better.

We have your next question from Avi <unk> Cheng with Cleveland Research. Your line is open.

Yes.

Great.

Hello, Thank you for taking the question.

Okay.

Just had a question regarding the <unk>.

CTO transition.

So a ton of great progress.

Two years scaling the crop cloud products.

Nothing different.

What do you view is.

Rajeev will be working on over the next couple of years.

As CTO.

Of that last year.

Thank you.

Yes, Thanks, Matt.

Super excited about Rajeev.

Coming onboard personally been leading that search for a loan.

Share them with you.

Very sad to see Shri.

But happy we'll have an overlap between the two so there'll be some niche handoff of the baton there.

And I think our engineering teams will be.

Continue to be to be incredibly well led.

In that way.

On the <unk> book.

It's been that we've.

As communicated to you at $2 20.

Okay.

Our investing.

Very much so in ourselves that results in scaling the company up.

Adding thousands and thousands.

We have new employees obviously.

Engineering, and R&D and design continue.

Continuing to Kate.

World Class R&D team and the efficiency of that continuing the innovation that's a non trivial exercise. So this is not just something that.

It continues to be exactly the same as we go through levels of scale.

That continues should we thought and a lot of different.

Processes and human factors right in terms of how we.

Continue to make Atlassian fans.

Fantastic place for engineers to come into.

The best work of their lives, that's obviously going to be a big part of that.

<unk> goals over the next few years is handling that scale and continuing to make that the case as well as all the things that we are working on in terms of demand.

We're continuing to improve and taken our cloud enterprise compliance scale performance.

All of those types of things so no shortage of challenges and.

And the growth opportunities ahead, and Thats the size of what it would be working on continuing to bolster the.

Identity of Atlassian engineering being World class as we go to other verticals.

I should also point out he is.

Pretty big shoes to fill obviously.

Gary.

Who has taken us from 400.

Engineers too.

Thousands and thousands of engineers got us into the cloud built a world class cloud platform and scaled infrastructure as well as built a fantastic leadership team. So.

Just related to obtain remains in place.

<unk> has some pretty decent should have set in motion.

We have your next question from Steven <unk> with F&B seats your line's open.

Hey, <unk>.

With Banca Steve Thanks for taking my questions and congrats on the nice quarter.

Im wondering if you can rank the buying motion for tier service management at this stage today is it more of a greenfield customers that don't have the service that sort of been a line of business within organization spanning something maybe in tandem with their enterprise standard or our organization is coming to you looking to make a larger scale replacement and went back to what extent are you getting into service now accounts.

Even when service now already largely an enterprise standard and if I can sneak one quick one in.

I believe <unk> software confluence and travel have been the most common land products today in the cloud.

Jason I'm trending up in the mix of lands or is it more commonly in expansion. Thanks, so much.

Yes.

This is Kevin I think I can address all of that.

So first off.

Who's buying it.

Do you guys think.

We're going with 40000 customers, we have small customers mid size and large on the small size very much of a replacing email and spreadsheets, but there might be one or two people in it.

They're handling at <unk> than they needed to get a little bit more mature and actually this is one of the great things we offer three agents for free with service management. So it's actually a great pipeline into those small businesses small business EMEA 19 service management.

It help desk solution.

Get a free one from US Ben as you grow your it department you can turn to paying customers so that as far as the other place on the very small size in the mid size. There is a variety of different vendors.

Established different solutions out there, but we continue to see that with those organizations the core value prop.

Do you see your development teams your engineers and your it department's your operators.

I think it helped us people working closer together in the future. So they are looking to a single platform to solve the needs and connect those teams and CRM software and <unk> service management is that kind of perfect unification for many of those midsized customers.

A sweet spot over the last year.

In the enterprise.

Our.

<unk> strategy of what we're seeing is very much go in there and knowing that most will have at least one or multiple different.

The movement is NIM their engineering teams need to move nimbly with their IC organizations, we see things like security teams or small subsidiaries in these large organizations when we come in and we largely get small small little beachheads, where organizations want to move there.

Okay very quickly.

From that we absolutely start seeing the big renewals come up for the big platforms of which there are a few out there.

We tend to be increasingly have a seat at the table and have those conversations.

Additionally, what Alaska has been able to do over the last few years outside of just beyond Nike Service management is really establish our enterprise credibility. We have executive advisory boards, we had many CIO council. So the good part is now those top leaders, who are making those big platform decisions, we have relationships with and they understand that this is very much a area that we.

Can support for them going forward. So we're very much.

And again the incredible there.

Plenty plenty of enterprise customers to go after.

Your next question is which customers, which products are landing with which one are expanding with the ones that you called out were very much their products, we land with NGL service management, we're still very much going after the current existing customer base.

But that said it is not always the software development teams and the existing customer base, we need to find was it departments of those use cases, and Thats, where we turn on a lot of the marketing machine to drive that awareness, but today, we still very much consider gyro service management that are very large existing customer base.

We have your next question from Kash Rangan with Goldman Sachs. Your line is open.

Hello. Thank you very much it's great to be a first time participant on your earnings conference call.

Congratulations on everything that you've accomplished I'm curious to get your perspective on how the platform evolves.

There is some merit to be to be exposed.

And having the three pillars Dev ops Icf's work management.

The interconnector from market perspective, and also have the technology platform that brings it all together.

At the same time, how do you weigh that against the innovation in each of these pockets still.

Going through a pretty rapid cycles, you've got best of breed companies that you probably run into or maybe Don.

The high end of these markets. So this market is still going through a period of growth in Nokia debt maturity. So how do you trade off having to bring together these disparate markets and products.

Out of the cloud unification, which is it.

To the different challenge versus actually.

Horizontal challenges as opposed to vertically scaling these products and still keeping up with the cutting edge features how do you weigh. These two things because if the market does not look like it settled it's entering a next generational shift if you will right.

From a financial question James I know.

This is probably the last couple of quarters or so.

As the dust settles on the migration.

How do we think about the longer term structural growth of your end markets and athletes unit. So thank you so much.

Yeah high cash flow.

Welcome to the investment call it to a hell of a set of questions about that.

Let me start with the platform and ill leave time to answer the finance question in a second.

I think so.

Lastly, a few comments.

Our platform enables us to be best of breed in each of our three markets and to do so efficiently.

So.

We definitely don't think about ourselves as competing against best of breed, we have a best of breed in each of the markets that we participate in and intend to continue to be so.

And the platform allows us to do that with efficiency and scale as well as preparing for the future.

A few ways it does that.

We are able to be best of breed in TSN and agile develops because of the investments, we're making edits that driven by the work connection pro market is the singular singular example, but because we can afford to build an absolutely world class text editing environment, which is a very non sugar.

And then run that across a series of different markets now a single competitor in a single market in the space can't afford to do that.

You can look at that in reverse if you go to the bottom of the stack in terms of infrastructure. The same thing occurs in terms of compliance enterprise scale.

The SaaS World is increasingly difficult every geography around the world prices, new laws and new rules about how.

Data needs to be stored in the industry talks et cetera, that's a very non trivial exercise to serve as enterprise customers and different global geographic customers in different ways.

Putting all of that into the platform allows us to have that across all our markets and spices allows point type products that are shipping in new and innovative areas too.

To have all of that enterprise and compliance support.

And similarly, as the markets change you talked about the future our platform.

Is it very long term investment not just because it takes a long time to build a really world class platform, but as we look at the future. We believe there will be more compliance will be there more.

Cambrian explosion of different SaaS apps, hence our focus on integration and bringing them together.

Our platform is hard to build it's also very hard to replicate so we believe it's a huge competitive advantage in each of our spaces as you've mentioned it obviously helps us bring the spices together you can see that in <unk>.

Lastly, in daylight and Atlassian analytics tools that we shipped on top of the platform at $10 22, and I don't have the type of data from disparate applications and bring them together for customers in a way that it couldnt have done beforehand.

And then content.

We're also focused on building out in the platform the stuff that doesn't change.

I think Jeff Bezos once famously said that he was more focused on the things that wouldnt change in Kenya, and the things that would change and it's a really interesting philosophy.

What doesn't change is the collaboration.

Teams and people are going to need to come together and each of these three markets to really be efficient and that does offer assistance in corporate world. We're going to continue to go up and so collaboration is it going to become ever more important attainment anywhere world where people are distributed a collaboration tool is largely built in the platform. So you can see this in commentary and reactions sharing notifications.

Searching over different bits and pieces of bringing data together connecting it linking it.

And then connecting with colleagues and people.

That collaboration being built into the platform is a huge.

Competitive advantage I believe for Atlassian in each of our markets and then even more so when you start putting the market together.

Collectively so.

We've tried to talk about this for many many quarters. It's an area that I think is a huge strength of atlassian and <unk>.

And you'll see us continuing to invest in in the <unk>.

Going forward.

Okay.

I am showing no further questions at this time Bruce in terms. Please continue for any closing remarks.

So I think James is lower than our finished up yes, let me just jump in.

Last question, just very briefly good to hear from you again cash.

A number of things in your question you kind of alluded to.

<unk>.

The end of migrations. If you will the first point is I just wanted to make is just to reemphasize something that we mentioned.

We will make that move in.

In the next couple of years.

We're very encouraged.

First by how many of the data center customers.

<unk> continued to be moving to the cloud already.

Third of migrations to the cloud coming from data.

Data center.

Beyond that.

Generally.

We are addressing very large total addressable markets, we went into some detail.

I would hope the scale of around 29 billion well less than 10% of that today.

I think.

Generally well placed.

And those needs.

In this.

Regard.

Yes.

So that we can.

Drive more value for our customers in these different ways in which we have.

Growth rate over the long run.

We always are.

Yeah.

But that will be an important theme for our growth rate.

Just the last half of the Atlassian funnel.

We talk about.

Our net new customer count each quarter.

Always in the thousands of customers.

And I think the net expansion.

Indicated.

Yeah.

Today three weeks ago.

130%, 140% for our larger customers, we gradually get larger.

Roger in terms of what we do for our customers.

I think.

Lot of runway for long term growth.

And I'm showing no further questions at this point.

No closing remarks.

I just wanted to thank everyone for joining our call today.

Right.

That particular, thanks to change there for his partnership over the last.

For almost five years with Atlassian and <unk>.

Just congratulations on such a incredible career and wish you partners investors everyone wants that.

Thank you for all your ongoing support and <unk>.

The rest of your weekend your weekend.

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

Thanks.

Okay.

Okay.

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