Q2 2023 Atlassian Corp Earnings Call
And at the same time do so while making their businesses more efficient which is.
What our job is to help them become more efficient business, especially in these.
Difficult times, so I think we're really well positioned in that in that way.
All right very helpful. Thank you guys.
Your next question comes from Keith Weiss from Morgan Stanley . Please go ahead.
Excellent. Thank you guys for taking the question.
The shareholder letter you talked about.
Our focus and investments on a go forward basis, and the operating margin target for the full year comes out by a little bit.
But it doesn't really seem it seems like most of that came from sort of a better margin performance in the current quarter versus really changing sort of the investment profile for the second half if you could talk to us a little bit about kind of where.
There you are moderating investment is there a potential offset then and maybe it would be really to the point why not sort of more moderation considering the environment and work to drive the margin, perhaps back to where we saw them historically in the low twenties.
I'll start yes, Keith this is Joe I'll start and then I'll pass it off to Scott for additional thoughts.
You're right. Our overall view of H two margin does not fundamentally changed from the prior quarter, we expect revenue growth to moderate in H, two driven by macro impacts we saw in Q2.
In addition, we had some timing impact on the pull forward of Opex savings into Q2 that won't repeat in <unk> and we will continue to invest in higher against the terrific long term opportunities. We see so those are the primary factors you asked about the broader work that we're doing around re prioritization, what I would say there the work happening there comes in a lot of different flavors and takes a lot of different.
Shapes, sometimes its about stopping something it could be about sequencing of events moving something to a more milestone based funding model.
Structurally lowering the investment level based on a strategy adjustment. So as I think about the work we've been doing around focused re prioritization and resource allocation. It's really included some flavor of all these things to drive the right overall business outcome and so we will continue to invest against the long term opportunities, while balancing that and being responsive to the macro environment.
And managing cost in conjunction with revenue growth and I'll pass it over to Scott if you'd like to add anything.
At the risk of repeating you chart.
Thank you Monica.
The Lockheed story back in April .
We tried to do.
Our investors at our Investor day, and they talked about cluster for growth opportunities that.
Then we saw ahead of us.
We're around a cloud migration or Ikea at them opportunity to take market share there that are serving enterprise customers and launching <unk>.
Growing new product can be built on the back of large investments reviving the atlassian platform.
And what we've seen.
Those four areas are having great returns, we've got incredible momentum in those four areas and we set about a lack in terms of data and Ken Thompson thought that when you think about things for the long term and we want to invest.
The long term you can do to make the right choices as a business to get the rocket cans and so we continue to invest in those four areas. We're rebalancing from other areas of our portfolio into these great opportunities that we've identified and shared with you.
Of course.
Due to the current macro environment.
Commitments on margin targets that we've given out Keith.
Excellent that's helpful. Thank you guys.
Your next question comes from Brad <unk> from Macquarie. Please go ahead.
Okay. Thank you very much I wanted to ask.
Regards to just what you are talking about in terms of product innovation as youre investing during this period.
Certainly it's notable the focus on Ips.
Could you take a moment, perhaps talk about how you think of product innovation and development.
Just where atlassian can innovate and drive another leg of growth as we navigate and think about the other side of this macroeconomic environment.
Yes.
I can take that one look.
You mentioned like a boring answer to you.
I think the way, we think about product innovation in the current environment doesn't change to the way we thought about it a year ago two years ago with <unk> right. We have a job to unleash the potential of every team and that's all about making our customers more efficient in running their businesses again, we tell you. We can help them my causal rockets or drugs or <unk>.
Financial services whatever it is our customers are doing but we can make our teams more efficient.
We really try to keep that as our north star across all of our markets.
Yes.
At the same time, we continue to rebalance our priorities as we hear from customers.
And as we look at our Resourcing one of our advantages I would say is having a large investment in R&D, which is quite unique.
If we're able to move those resources around a little bit more fluidly than other companies may be.
So we continue to innovate we have a lot of new products that we built over the last couple of years and we continue to work with customers and testing and things like your product discovery encompassed in Atlas.
And a couple of upcoming months I think and that is in alpha and beta.
Those are examples of ability to ship new things.
At the same time, we continue to deepen our platform investment and one of the things as I just mentioned to Greg's question earlier when customers move to the cloud their ability to consume multiple atlassian products via the platform and connect them together things like smart lengths or analytics running across them.
Is a huge advantage of the cloud and that all comes from the innovation and investment in our infrastructure.
And ability to manage all of that sort of thing.
At the same time that innovation doesn't just come in new product form. So we continue to work on the.
The big enterprise aspects of our cloud in terms of scale and performance in terms of accessibility as you say this rollout new data residency raising this month and we continue to work with our customers on what regions. They want to see us that are resident in.
Things like Boston, and Hipper and all sorts of the acronym suite that comes with with the enterprise. So those are all examples of where we spend R&D dollars to continue to try to innovate on the things that customers want and are looking for.
At the same time, we are obviously responsive to the environment that we were just in that month.
Your next question comes from Michael <unk> from Wells Fargo Securities. Please go ahead.
Hey, there. Thanks I appreciate you taking the question.
Cloud targets can you just expand on what goes into the new range and what makes that the right range going forward.
Useful language in the letter just around some assumptions that the macro worsened in the second half of the fiscal year. So maybe just what those impacts are what gets worse in the letter calls out December is especially pronounced I'm. Just curious if theres anything you can say on whether those trends held consistent in January or if things are getting worse or better.
Any color there as we're just kind of sorting through everything that's going on is helpful. Thank you.
Yes, Thanks, Michael This is Joe.
We did take a fundamental change from our prior cloud guide in the prior quarter and that we.
We have three months more data points, including December , which you mentioned and we have a much clearer picture of the trend line and using that our cloud guidance range assumes the macro environment gets worse in <unk> and as a result, the trend lines from H. One continue into H. Two Youll also notice we have maintained a five point range on that guidance with the low end of.
That range not only assuming continued weakness in free to paid conversions and paid seat expansions that we've seen year to date, but also some macro impact areas that have held up really well frankly through the first half of FY2023 like churn upsell on migration. So the rest of the picture is largely in line or better than three months ago.
In terms of what we've seen in January I would say, we've incorporated that into the guidance and it's consistent with the assumptions that we.
Formulate the overall approach.
Thank you.
Your next question comes from Kash Rangan from Goldman Sachs. Please go ahead.
Hi, Thank you very much.
We've taken the right step in bringing down the cloud targets I think it's happened a couple of quarters consecutively.
What gives you the confidence therefore, how can we get the confidence that we're at the point, where we can assess what are the leading indicators for your cloud business than the rest of the business seems to be in pretty decent shape are you seeing any signs of stability at all it does look like December ended on a slightly worse note that September date.
Hence the downgrade forecast, but.
What are the.
Leading indicators that you are looking at that we should get for any signs of stabilization there.
That could help us get comfort in that.
Cloud forecast that have moved on thank you so much.
Hey, Todd this is Kevin I'll take that one so the two primary trends that we're seeing today that are headwinds are the free to paid conversion that we spoke about in Q1 continued into Q2, we still see plenty of customers coming to our site click and the Tri button and signing up for free versions of our products. They're just more they are converting to paid.
<unk>, they're taken out their credit card at a slower rate than what we've seen historic trends and Thats definitely continue from Q1 to Q2, but obviously, we can see as forward looking we know how many people are signing up for our products. We know the activation rates of those customers. We know they are out there and actively using the free versions of our products and we're just simply trying to get them to add their 11th and convert to a paid customer.
On the user expansion side, that's the other major headwind. This is basically people going from 20 users of gyro software to 30 users of zero software that to us.
Other headwind we are seeing we're seeing that largely it's slowed down across Q1, and Q2 and became more pronounced in Q2 within our smaller customer base.
Once again, we see that in activity rates, we see people, adding their users and we see that in the overall monthly billing going forward.
That said as we look into this particular quarter compare from Q2 to Q3, we've seen largely the amount of customers that we're downloading our downgrading from the paid plans down to our free plans, that's largely people going from 11 or 12 users to 10 or nine users.
Actually start to subside and Thats become come back in January a little bit more positively. So we believe those are still the two headwinds that we're looking forward into the second half of the year and we have plenty of telemetry across our customer segments geographies industries and so on to understand if any of those trends are changing going forward.
Got it I mean, how close are we to stability in those leading indicators you're looking at if you have a view that's it for me. Thank you.
Hey, listen there's plenty of the variability in the business overall today on the top of funnel people coming to our site and converted I feel they're very stable between Q1 and Q2. The end user growth is much harder to predict and that'd be hard to say, whether thats going to be leveling out or that we'll see some change in the variability in the future.
Yes.
Your next question comes from Brent Thill from Jefferies. Please go ahead.
Hi, this is not stood on footprint.
Thank you for taking my question.
Just wanted to ask.
Thank you Scott for laying out the stop footprint growth priorities going forward, I guess, where does Judah work management and Atlassian together ranked.
Rank in those priorities and what traction have you seen with that product suite. Thank you.
Okay, I can take that one.
Look we maintain incredible bullishness on our position in the wealth management space.
<unk> continues to be a monster.
Confluence continues to.
Really really strongly you see that with all of the enterprise importance in the cloud as well as automation and also two other things were shipped during the quarter. So we're.
We're very confident overall.
Position, we have and work management.
And especially with connection to both the software and our GSM spaces as companies increasingly get more digital it's a very unique position that we play.
A part of that workmen's in strategy as you pointed out is to have multiple leading vectors in terms of trella confluence and <unk> wealth management, depending on the structure people looking for and where they're coming from and what they already have.
We see great traction for gyro work management in terms of usage.
And people who are heavily into the <unk> world already if you're into the <unk> family and you have to a software as a service management, it's an entirely logical step for you.
To add your work management and obviously the congrats with all the rest of our products very well, thanks to the <unk> platform and the Atlassian platform.
It's very early days in that product evolution quite with sort of a year a year and a bit in.
And we continue to work with customers.
Recently gratifying to see forms of standardization, where people move in Nevada.
Project management vendors and collaboration vendors to standardize on <unk> and confluence and the Atlassian sleep.
And Thats why you see us investing in two things one is the platform story.
Things like smart links that I've mentioned beforehand analytics automation.
Being able to automate across our product set.
Is it is a big part of what customers are turning to <unk> and.
And secondly, you mentioned Atlassian together.
So those are new again atlassian together is.
A packaging offering which allows our customers to choose to take Atlassian wall-to-wall for wealth management and.
In exchange for getting a series of different products being zero wealth management trillo confluence.
And lastly in excess all in one package.
<unk>.
It's extremely early days for lessons together I would say.
It is still in.
Beta testing with our customers, but the reception. So far has been that has been really good logic for the customer reasons that we talked about earlier in terms of the platform and the product set.
Great. Thank you.
Your next question comes from Alex Zukin from Wolfe Research. Please go ahead.
Hey, guys. Thanks for taking the question so maybe just a two parter.
If we look into the <unk>.
Trends around.
Cloud revenue growth is there any way to get a little bit deeper in terms of the exposures for how many contextualize just the customers that are coming from the SMB side versus the enterprise side, and maybe parse out where.
The trends got worse or stable in December and January and then similarly, we picked up some anecdotes of server customers, maybe wanting to wait a little bit more closer to the end of their service support date before migrating to either cloud or data center. So would love to just get a sense of what you guys are seeing there.
Versus a year ago or a quarter ago in terms of your assumptions.
Once again, Mr Kamran happy to dive into both those so.
First and foremost on the what do we see last quarter when it came down to SMB or smaller customer growth versus enterprise as we've already stated the primary headwind that we saw more pronounced in Q2 was user expansion within our smaller customers who are largely on monthly contracts or we're looking for monthly down to our free tier so that was.
Definitely the new piece of information that we saw in Q2.
On the other side or enterprise side of our business remained exceedingly strong with migrations with cross sell with the Gyro service management and zero align as well as our addition upgrades standard to premium and premium to enterprise offerings continue to provide very stable growth within our enterprise customer base, obviously with more than 250000 customers, we believe that having.
Such a massive customer base and mix of SMB and enterprise.
Globally across all industries and geographies is a massive advantage long term for our business as those small business become big businesses or more importantly, you see people going from small companies into big companies and bringing the preferred tools and standards with them and that's been core to the Alaska and strategy for some time.
To answer your question on the service side of things that's more good news.
<unk> mentioned this whole transition.
Server customers migrating to either data center or a cloud is a multiyear journey and obviously the core focus there was to migrate customers to the cloud and we are largely in line with all of our goals that we've set for migrations ever since we started this journey a couple of years ago.
However, when we did this whenever youre announcing end of life of a product we know we're going to lose some customers through the transition and the good news here is over the last couple of years, we've seen increasing numbers as customers move to data center and you see that in the numbers, but as well as many of customers staying on server.
For longer than we had expected.
That's actually a good thing I would say that customers will continue to go up until February 2024, before theyre going to choose go into cloud or go into data center, but overall it shows our ability to retain our customers shows how sticky our products are and shows on mission critical applications are going forward and as I mentioned, whether it's your customer chooses server data center or data set.
Our server to cloud all of this shows future investment within Atlassian and commitment to our products and I feel increasingly confident in our ability to get those customers to the cloud over the long term regardless.
Yes.
Perfect and maybe just.
Small small follow up but is it possible to is that percentage of SMB enterprise for cloud is that 50 50 is it.
From a revenue basis is it much more weighted towards SMB and enterprise any any kind of quantification there.
Yes, we do not breakout the split of SMB versus enterprise as I mentioned before the one uptick in headwinds. We saw in Q2 was the SMB user expansion our enterprise business continues to remain strong.
Perfect. Thank you guys.
Your next question comes from Michael <unk> from Keybanc. Please go ahead.
Yes.
And I think I'll just take your question regarding.
Developer head count because obviously there has been large numbers of head count cuts in tech for the most part you don't here.
A discussion of it being better or worse for development engineering.
What are you seeing out there since.
Where you came from is still on developers' side. What are you seeing in terms of you are selling into that user case.
The development team is that getting impacted.
<unk> are disproportionately and others as people maybe slowdown on new development projects, if that's what we're seeing.
Yes, we've taken so as I mentioned leather back to the the one primary headwind we have seen that was different in Q2, which is user expansion within our smaller customer base.
When we look into that there is no competitive differentiation. There is no competitive dynamic that's changed so it's not like people are choosing other options or turning to other products. So we see that some new competitive offering.
It's largely these customers slowing down their hiring potentially trying to consolidate some of their licensing and royalty software. The first over the last couple of years, but we believe long term.
Technology is still a major driver of growth across many different companies in many different industries and that will only continue to grow across all geographies. So we look across our entire customer base.
We see if not just the ticket or engineering focused companies, but it's into companies in every industry every geography have adopted technology and we see that why whenever you look at these trends that are happening that happens broadly across all of these different customer base. So long term. We believe is there going to be more technology more developers in the future that are going to use our products to get.
Their work done and collaborate with the rest of the business absolutely and we are set up with our multiple offerings to take advantage of that growth.
Okay, but no relative difference in the T cell between serving teams for developed software developers versus versus four work for enterprise and for business.
Is that correct, yeah, it's Scott here obviously.
Michael on that one.
Just a modeling we only started early on serving just the developer in an organization.
In writing.
We've long been around helping anybody developers collaborate with the rest of the organization.
I believe I'll ask number something like a quarter of the ACG J software.
Help us writing television and the right data easier product 90 days, all the way its rate of designers.
What is our benefit we get is carefully coordinating the work of the broader software and technology organizations.
Sure Alethia him offering that now goes into the oxy teams out there and so.
Walter it's sort of a color what we gave is helping developers like <unk>.
Probably it's all of it is actually how people get work done across their organizations.
<unk> remained strong engagements maybe point in development products that are being adjustable developers.
And the other part of this decade Kamran.
No one.
It's still early days of last night, if you can give on the company thought.
Haven't heard that needs to go because im not getting other jobs elsewhere. What I'm. Finding is there are companies that struggled to high developers previously are now able to pick out people with I couldnt before and so I think Thats fair.
Please point that development is not in software more broadly not going anywhere as the long term trend and so yes, Tim bumps up and down market.
<unk>.
<unk> got five developers sitting on unemployment.
Okay very long just because the long term trend is more and more software.
Thanks.
Your next question comes from Arjun Bhatia from William Blair. Please go ahead.
Perfect. Thank you guys for taking the question I wanted to touch on GSM.
It has some opportunity you certainly talked about that.
A lot in the shareholder letter and from what we can pick up there is a lot of customer partner excitement.
About the product.
How are the capabilities that you've developed with GSM compare to some of the larger incumbents that are in that market and as you are increasingly selling GSM. How are you positioning it to larger enterprise customers that may already have an <unk> solution.
Rice.
Thanks, Todd and Thats a great question.
Yes.
We built our ICD 10 solution in three areas.
We remain the reasons why our customers buy one is like I can see <unk> offering out there and.
People will choose to somebody else at the backend and installed J P. M. At the front end because of its <unk> offering in sorry in some situations in very large organizations, we find kelley systems with existing solutions, where we can get put in at the front end to all systems, there I guess.
That's just started three pointed out would be great.
For us the second is our time to value.
And that time to value means that we can target the fortune 500000 without solutions, whereas many competitors talking to enterprise.
Smaller subset like Illumina device of the financial services and 8%.
Month on boarding and all the stuff that goes along with that and so that's how thick and value prop.
The third value props philosophies that we bring <unk>.
And development closer to get ops and no one else can.
And again, that's been the history.
Long Association with our developers work and deep unit.
Integration with all of their tools and so our approach to this market.
Long term, we're not going to take the largest.
Customers in this market to start with because if you do that you end up with a checkbox feature delivery mechanism, where you need to check every box in order to keep something out.
That's not the price, we want and we want to build a product that has lots of people long term and serve the fortune 500000, I'm sorry, looking the largest of instances, we find a coexistence where people want the things that we can bring to the incumbent is comp, but I haven't got the dynamic door.
Desire to break out some of the core systems of those large incumbent providers and in other cases, where you just don't operate in that space at all but we're very happy with the small and mid market sales that we make and metrology students in those large areas for us. It's a long term gain and we believe those trade bandages will plateau on.
Yes.
Got it.
Go ahead, Sir I will just add a couple of other items I was just from our go to market side of the house.
Obviously reverse stock split of benefits sort of expansion for some time, but even the last months, we have taken advantage actually of like listen there is macroeconomic uncertainty people are trying to save money and Joseph mentioned, we actually increased the entry level from three agents for free to 10 agents for free which actually is for like if you think.
About at a company of 200 people will largely have 10 agents at most so we're helping really get many many many of our existing customers or new customers coming in the door to start using <unk> service management and anger at no cost whatsoever and of course over time, we will continue to get them to upgrade to paid plans or move to premium versions of our products.
So once again in this downturn, we're taking advantage to capture market share.
And then on the larger side of the house.
While we absolutely go into Hey, how do we started a team or an it department out where can we basically helped.
A little bit more nimble a little bit more fast and not have to think about ripping and replacing the entire platform. That's been our primary strategy. However, there are many companies out there that are trying to save money trying to consolidate spend and gyro service management is a massive.
A massive savings compared to many of the alternatives in the industry and we give a great compelling offering for customers to move to so we've seen the strategies across the board pay off in the <unk>.
Quarters.
Perfect. Thank you very much very helpful.
Your next question comes from Ryan Macwilliams from Barclays. Please go ahead.
Thanks for taking the question.
Data center continues to gain share as a percentage of your sales are you seeing stronger than expected migration to data center instead of cloud at this point and what is driving the commentary for moderating data center growth in second half. Thanks.
This is Cameron again, and yes datacenter is a fantastic offering I just have to say that.
There is a reason people use data center is.
Provides the scale and mission criticality of performance that many of our customers demand, especially in many of our largest enterprise customers.
As I mentioned prior this is all about a multi year journey away from server and to cloud and data center and we've been making cloud the primary destination for these customers and we've been seeing those migration rates to cloud hitting very much in line with our expectations. However, many of the customers that potentially you might have seen say on server longer or.
Potentially go to alternative solutions are choosing data centers. So we have seen data center continues to be an increasing space demand for many of our server customers in the interim.
Also need to call out that the path from server to data center. It is not a dead end, we continue to see many people moving from data center to cloud in fact half of our migrated paid seats that go from on premises come from data center customers to the cloud. So we see this as just a moving to data center is a great thing for future investment and last thing, it's more commitment to our products.
And absolutely sets us up for future cloud migrations in years to come.
Hey, Brian to take the second part of your question in terms of the guide we continue to expect data center revenue growth to moderate in <unk>. That's primarily because we are lapping some of the event driven growth in the prior year I would also highlight though our outlook is better than we expected three months ago, driven by the strong Q2 billings performance that we saw.
And lastly, Ed it's always good to remind everyone. The datacenter revenue growth can be volatile given the portion of upfront revenue recognition in DC sales. So.
As you think about the DC business performance keep that in mind as well as some of the pricing changes that are being implemented this month.
This is Taylor.
Yes.
Your next question comes from John <unk> from Oppenheimer. Please go ahead.
Thanks, I want to go back to work management.
At the last Investor Day. This was one of the three key pillars of growth for you going forward.
And not mentioned even once in your press release, which I find quite strange.
Can you outside of confluence can you talk about the rest of the portfolio there.
Would it be fair to say that growth over there perhaps.
Underwhelming.
The competitively.
Youre not getting the win rates that you'd like to see again, yes.
Yes, Jonathan the Monday of the World help me understand why such an important area of investment in growth is not mentioned even once in your press release.
Okay.
Yes.
Mark Hughes.
No it wouldn't be fair to say at all.
I think we're incredibly bullish on wealth management.
To your tier supposing, there I don't think so.
It's.
I would say it's at a different point in its lifecycle as a market currently.
Two <unk>, which is why it is calling that out particularly.
In the press release.
<unk>.
There are no fiber children at Atlassian deadline.
Atlas is doing really well, but it's a very new product. We always say it takes it takes 2345 years to build a great product and a franchise and we have patient long term investors towards doing that.
Everything in wealth management is targeted towards a fortune 500000.
So atlas in wealth management, both of which are our newest offerings in that space.
It's early in that journey concert that enough, but we're pretty bullish but Scott.
Been around two decades, now and same plenty of one of our products in one one products and to put in our products and understand how product.
S curve of adoption work in our customer base and so we are.
Working diligently on that but the teams are working really hard there.
Confluence continues to go from strength to strength.
Ben.
A shining light in the Atlassian portfolio and continues to be so.
Doesn't mean from the press release or anything else that we.
<unk>.
Onto again, we continue to get analyst recommendations and plaudits in various different.
Wives and jobs and all the different bits and pieces, there and we continue to get great.
Encouragement from our customers that way are the only work management agenda at scale and we're one of the largest scaled worth management vendors out there that combined their technical and non technical teams. This is increasingly a challenge for customers that says look across all sorts of different work that they're trying to manage justice Cameron and Scott we're talking.
About <unk> being close to the modern ways of operating Dev ops Dev ops and everything else same with wealth management, how do you get your marketing and finance and business teams closer to your engineering and operations teams.
Huge strength of ours in there that we continue.
To do well from.
Alright, great I appreciate it thank you.
So I guess, Tom any there just before we move on the ASR one thing we've tried to daily, but so much great news at Atlassian.
Wondering if rajiv.
Shareholder letter a deep focus on wanted to ask for a market at a time and place last quarter, we focused entirely on wealth management.
And this quarter, we chose another market.
Hopefully, we don't confuse you gain.
Gain yet, but what we really wanted to get deeper on one market at a time.
You are investors and so I think thats it.
I wanted to get across to people maybe next quarter.
Hey, guys, sorry about something else in there.
That was the intent behind it.
As far as the way for collaborative work highlighted were a strong performer.
That was in our press release, and so forth, but our intent is to go deep one once a quarter, we saw <unk> one market.
Thank you so much.
Your next question comes from Cindy Francis from Citi. Please go ahead.
Thank you <unk>.
Thank you for taking my question.
I guess for Jim Cameron I wanted to ask a broader question about your pricing strategy.
I appreciate you've been very consistent and transparent with your pricing increases in the base as it relates to the server offerings.
Maintenance offerings as well as data center.
Yes.
I'm curious to get your perspectives on what type of customer feedback youre getting clearly because we're kind of in a different state of the market environment the macro environment.
Yes.
If there is maybe potential fatigue from customers.
And in terms of the discussions you are having on the spot.
Price is often as it related matter and you raised the slow order on the pricing on these predecessors of form factors relative to cloud.
We're not necessarily seeing any more.
Pronounced follow through in cloud migration. Thank you.
This is Cameron and happy to talk about pricing strategy. It is a large portion of my day.
So effectively I think you nailed one of the key points is consistency.
Largely we have been very consistent in the last few years and the size quantum and timing of both our cloud price increases as well as our server and data center price increases.
And that actually is to our advantage many of our customers understand they expect and they budget ahead of those pricing you also realize from a macro pricing perspective atlassian. Our overall strategy is still to be the value leader.
We are when you look to a potential alternatives that have any that are close to the feature comparison, we are a fraction of the price of those competitors. So we always maintain that from a from that perspective.
I'll be perfectly honest going into this fiscal year and planning out our price increases the cloud price increases on October and the server data center price increases in February that I had my concerns I met with many of my customers customer facing teams are renewals seems and so on to discuss how we are going to address potential customer feedback and of course, how are we going to plan and address that.
I am very happy to say that actually the price increases that we've done recently, both in October and now actually it had no material different feedback from our customers than we've seen in previous years. So I have to say that that's a very big positive for US right now and once again shows the value that our products deliver.
Tom on your next piece says Hey, Youre doing this price increase that youre doing larger price increases on on your server and data center products to effectively more incentivize the customers to choose cloud and I have to say actually that is driving exactly what we've expected on our card migrations and thats why our cloud migrations are going driving that 10% growth that we have.
Communicated over and again.
However, whenever we do a price increase on say server data center, we also see customers having the option to go Hey, we are thinking about data center will know is a very very good time, let's do that before that price increase goes fully effective and we will see that uptick as well.
Really impossible to understand exactly those dynamics of who's going to choose cloud or data center through all of that but in general what we have seen overall is much more customers sticking with us either choose excuse me very new server or move to data center or move to cloud than we originally expected. When we started this journey a couple of years ago. So overall no major pushback on our pricing strategy and our.
Our pricing strategy is delivering exactly what we engineered it to do which is to incentivize our customers to choose cloud.
Okay. Appreciate it thank you.
Your next question comes from Peter <unk> from Danske Bank. Please go ahead.
Thank you for taking my question today.
And all the detail you've been providing on all those other questions.
Could a piece together a couple of comments that you've made so far in <unk> number one if I'm understanding this and what the implications might be.
Correct me, if I'm wrong, but it sounds like more of the head count headwinds even seen are really more on the non technical side. I think you had a good case around developers are finding jobs easily and the strengthened GSM in things like <unk>.
Suggesting strength there so correct me, if I'm wrong, but that's where more of that.
The head count headwinds are on the board.
Technical side.
Then I'm trying to square that with what I have continued to be a very understandable story for these non technical people being a very natural and important part of delivering products.
Are you seeing that's driving the weakness in those employees and how your customers are working are they changing how they work how they work and what confidence do you have that.
After this macro theyre going to go back to having the scale of teams that they might have had before.
On the non technical side that will bring back the growth.
On that side of the business.
It is Scott here.
And I think what Youre asking.
Autocatalytic behind software.
Couple of years, what does the future look like in those areas and.
I get confidence around that Lockheed for a whole bunch of ratings one is debt.
Software as a general category and going anywhere markets.
Every area.
Or.
Delivery or the AI ml.
Chad III and stuff like that that's all going every which way that we gave like OLED.
Innovation I think you require software it at all.
Okay.
Mark that time table.
Table rebalancing software things at the moment about the long term trend is strong, but I think we need more and more people there.
Is that because atlassian helps connect entire organization to get work done.
Thank you Glenn.
Across the entire organization, we are not beholden to just the R&D head count I'm sorry.
Company all the people involved.
Nickel areas or nontechnical areas, we are there to help them collaborate and so on.
Two well also if you look at our penetration inside the company.
Our largest accounts our smallest accounts quite we still have large AG.
It seems like we're very well penetrated in your organization and so I guess I'll take that all the time.
I'll sleep per customer will go up.
We're not any sort of point of saturation, there and lastly, if you look at the products in our product and customer product.
It's still relatively low.
<unk> gave the opportunity ahead.
Awesome.
We've always tried to focus on notwithstanding a giant.
Game change over the long term and so I know <unk> talked about Amazon. That's one thing that I focus on is the bulk of the veins.
Investments on areas that don't change and it came with a union working together almost always guarantee.
I think a long time, and that's where our investments have gained so I can't predict the next 18 months.
So quiet.
Broader macro economy, but I will get off and I feel we're very well placed for the long term.
Thank you.
Your next question comes from Mark cash from Raymond James. Please go ahead.
Yes.
Thanks for the question Mark on for Adam I kind of wanted to follow up with the chemo is asking and I was wondering if you could expand upon the impact of migrating data center and server advantaged pricing customers to list pricing.
How that's baked into the revenue and margin guidance you just provided thank you.
Well I can speak this is Cameron again I'll speak to the overall.
How do we think about the pricing strategy broadly.
The idea here right now as you May know many of our server to server pricing that we have today, especially for higher tier customers above 500 users on our 2000 user 10000 are limited theres, a significant price difference between server and datacenter or cloud today, if a customer chooses cloud over data center for those customers cloud is a less expensive.
Sure.
However, the bulk of our data center customers are sitting on pricing that is significantly less than our cloud list price today, and what <unk> seen over the last few years is us doing incremental price increases to effectively close that gap and all of that pricing is available online we expose all of it to our customers. None of it is hidden all of our customers get the same price.
And if you look to our historic price changes or last few years, you can see that we're slowly closing that gap between legacy data center pricing and our cloud list price. So within the next few years eventually all customers. So at least from a pricing perspective have the incentive to choose cloud regardless as far as how much growth thats driving for our business once again.
That goal of 10% of revenue growth in the cloud is coming from these server or data center to cloud migrations.
And then Mark this is Joe the guidance the revenue guidance incorporates what <unk>. Just said, we continue to assume that migrations will remain healthy.
And then I would also say from a pricing impact on the model just keep in mind, we do have ratable recognition on subscription which is over 80% of our revenue so.
The timing on the renewals that happened throughout the year you won't see an impact when we go through those types of pricing changes. So we've also included that in the guidance as well.
Your next question comes from Jonathan from Cleveland Research. Please go ahead.
Yes, Thank you for taking the question.
Wanted to.
Double click on some of the investments, we're making around the enterprise strategy.
Can you just give an update.
What youre doing there to drive traction maybe speak to some of the partner consolidation Thats occurred recently.
And if theres anything youre doing differently there to dry.
Further migration and maybe speak to some of the multi year contracts that were called out.
Most recently to exit this quarter. Thank you.
Yes, Hi, let me take the first half of that and when all of these.
Came into the second half on the multi year contracts.
Point of view of what we're doing.
We've been on a long and consistent journey right. We continue to be long term oriented and thoughtful about how we approach the enterprise space.
One of our major transformations as business over the last decade, you would argue.
In terms of specifically, what we're doing look you've seen us continue to work with performance and scale. So the skywalk. When we've continued to move up in the cloud we now have 35.
Uses in Gi and 50000 users in AIP and you can bet that we have teams continuing to work on those sorts of aspects at the same time, our performance or individual customers is massively improves at those lifestyles overtime. So its not just the ability to handle user volume. It is about the performance of those customers.
<unk>.
Especially in.
Lower spec to desktop environments with.
The Internet connections as we continue to get more and more global and helps our customers and users all around the world.
We continue to work on governance.
We have long believed us that.
If you look forward, you're going to have more governmental regulation and different countries different geographies different industry areas and that our platform and our infrastructure has to handle that you saw that this quarter, we shipped with data residency in Germany. We continued testing in other regions.
To do things like Boston in financial services compliance in different areas of the world and.
And we will continue to add more.
More in those areas as we built them out over time.
You can see all the details in the absence that would give us Tom and the third part of what's known as continuing and extensibility in the cloud. The reason that that's an enterprise concern is because obviously the lots of our customers are.
The more they customize our software for themselves.
<unk> is a fantastic mechanism to customize our cloud offerings for themselves.
Our customers tend to have very bespoke things they want to integrate with various internal systems.
The ability to do that have us run it for them have us handle things like data residency and handle the silver loads and everything for.
Gordon is a huge benefit of the cloud and we see customers.
Moving for reasons like that and it simplifies their offering is one of our goals with the cloud right. We do all the hard yards. So they can just focus on the businesses.
Kevin.
Yes.
In addition to all of the R&D investments, we've made to better serve our enterprise customers.
Excuse me happy and proud of what we consider our enterprise transformation on the go to market side of our business, we've invested heavily to get closer and.
Closer to our largest customers and help them through this strategic transformation to the cloud while maintaining some of the most efficient sales and marketing spend that you see in the industry and that's the balancing act that we've had over last couple of years, but do you think we've had much more enterprise account managers to take care of our customers. We invested in technical account managers and solution architects to have more.
Strategic conversations about the roadmap with our products longer term.
We have things like executive advisory boards, and deep dives and CIO Council. This has actually allowed us to have stripped.
Strategic relationships with our customers I think much more long term about how our products will be used in the future in their businesses.
You also mentioned you saw the Sendai and our channel with our partners that we've seen significant outside investment as well as consolidation in our massive solution partner network. While we have over 700 solution partners. We see many of these customers are many of these partners starting to consolidate I see this as a massive advantage for our customers as these companies.
To provide more scale and more optionality for our customers and once again deliver more value, but also good for our ecosystem like any additional investment in our ecosystem will only drive higher better outcomes for our business and for our customers.
And lastly on the multiyear piece, it's simply the nature of larger more strategic deals. If we're going to go into one of the largest banks in the world are large.
Pharmaceutical or telecommunications firms and we're having a conversation with the CIO about transformation to the cloud or enabling it service management or workmen's for their organizations. They are going to want a longer term commitment and that's where you see these multi year contracts increasing in the enterprise.
Thanks.
Thank you that's all the questions. We have time for today I will now turn the call over to Scott for closing remarks.
Thank you everyone for joining our call today.
As always we appreciate your thoughtful questions and your continued support.
Thank you to all the <unk> all over the world for your dedication and resiliency.
We hope that Youre able to join US next week, either in person in billing or virtually at our agile and Dev ops event.
Wish.
Yeah.
Okay.