Q1 2024 Atlassian Corp PLC Earnings Call
Good afternoon, and thank you for joining Atlassian earnings conference call for the first quarter of fiscal year 2024.
As a reminder, this conference call is being recorded and will be available for replay on the Investor Relations section of Atlassian website. Following this call.
I will now hand, the call over to Martin Lam Atlassian as head of Investor Relations.
Okay.
Welcome to Atlassian, it's first quarter of fiscal year 2024 earnings call. Thank you for joining us today.
Joining me on the call today, we have about <unk> co founders and co Ceos, Scott Farquhar, Mike Cannon Brookes Chief.
<unk> revenue officer, Cameron dish, and Chief Financial Officer, Joe <unk>.
Earlier today, we published the shareholder letter and press release with our financial results and commentary for our first quarter of fiscal year 2024.
The shareholder letter is available on Atlassian is work lifestyle and the Investor Relations section of our website, where you will also find other earnings related materials, including the earnings press release supplemental is accurate.
As always our shareholder letter contain management's insight and commentary for the quarter. During the call. Today, we will have a brief opening remarks, and then focus our time on Q&A.
This call will include forward looking statements forward looking statements include known and unknown risks uncertainties and assumptions, if any such risk or uncertainties materialize or if any of the assumptions prove incorrect our results could differ materially from the results expressed or implied by the forward looking statements. We make we should not rely upon forward looking statements as predictions of future events.
These statements represent our management's beliefs and assumptions only as of the date better treatments with Amit we undertake no obligation to update or revise such statements should they change or cease to be correct.
Further information on these or other factors that could affect our business performance and financial results is included in filings, we make with the Securities and Exchange Commission from time to time, including the section titled Risk factors in our most recently filed annual and quarterly reports.
During today's call. We will also discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to you and are not a substitute for or superior to measures of financial performance prepared in accordance with GAAP a reconciliation between GAAP and non-GAAP financial measures is available in our shareholder letter earnings release and Investor.
The Investor Relations section of our website.
Like to allow as many of you to participate in Q&A as possible out of respect for others on the call. We'll take one question at a time.
That I will turn the call over to Scott for opening remarks.
Yes.
Thank you for joining us today as you've already laid in our shareholder letter we can do.
We kicked off FY 'twenty four by executing well.
We continue to push hard on that cloud enterprise and Ikea fan and always does continue.
We're also shipping evermore, new product and innovation to our estimates this.
This quarter, we launched the compass into general availability.
On the heels of <unk> gyro product discovered last quarter, which is off to a fantastic start with several thousand customers already.
I was just at a high velocity items service management event here in Sydney, when we announced the general availability of perpetual license and Joseph management and debuted a host of additional AI capabilities, we have.
From some of our federal customers, who shared how they migrated their legacy.
<unk> did your service management and are now delivering exceptional service experiences box in the network.
Sure cloud platform thousands of customers.
This program are already realizing value from AI capability to introduce across that platform powered by unlocking intelligence.
Early feedback has been terrific and we're incredibly excited by the opportunity that it presents us.
Along with the organic innovation happening here.
Also announced that acquisition.
And the win.
<unk> builds on our previous investment management and will enable enterprises to better account for and trust all their critical assets within their organizations.
<unk>, which has a passionate customer base of 200000 will bring the power of asynchronous video messaging to the Atlassian platform.
We firmly believe distributed data site and William will allow teams across the globe or even in the same building to collaborate seamlessly deeply human Weiss.
People are increasingly turning to video as a way to collaborate and consume information and we're incredibly excited about the opportunity that video can be applied across that platform.
Our customers are looking to.
If you go back into that provide them solutions and the collaboration gives us an.
Net of opportunity to further unleash the potential of that team.
We're also playing offense on talent.
Last thing is are the cornerstone of our success and we're focused on adding and retaining amazing talent across the company, including great Senior leaders.
We recently welcomed <unk> <unk> as our Chief marketing Officer, and Vikram Brown as our Chief Trust Officer.
We promoted Kevin Hogan Chief sales officer.
All of whom bring great experienced leadership team.
I also want to acknowledge Cameron as this will be used last earnings call with us Mark and I are incredibly grateful for his 11 years of dedication impacts and most of our friendship.
With that I'll pass the call to the operator for Q&A.
Okay.
We will now begin the question and answer session.
You have a question. Please press star followed by the one on your fine. Thank.
If you'd like to withdraw from the queue. Please press star followed by the team.
Your first question comes from Ryan Macwilliams from Barclays. Please go ahead.
I appreciate you guys taking the question.
Wanted to just double click on the timing of our remaining migrations I would think at this point there might be a little more server revenue.
So on the model and investing you expected so any expectation for.
Like when does remain migrations will move over and the composition of those or many customers like the more likelihood of data center or cloud from here. Thank you.
Yes. This is Cameron I'll take the first Gary and then I'll have Joe follow up style.
As many of you know we have the server end of life coming up in the next few months mid February.
Cease all support for server customers after that date and over the last few years, we have been actively aggressively go out to all of our customers across server and data center.
And then to get them to the cloud and this has been very positive for us its gone very in line with our plans over the next few years, but obviously there are many customers out there that we'll wait until the last moment before they make this decision.
And we see that today in our enterprise pipeline is healthy pipeline with enterprise migrations.
Up over the next few months.
As far as well.
What I wanted to make sure that it's very clear here.
Last February we still will have many migrations. So many customers between now and February will be going from server to either data center or preferably cloud, but for those customers that choose data center, we will continue to be migrating those data center customers to the cloud in the coming years. So the short answer there is yes, we do expect to see a flurry of activity over the next few months.
Would that be a compelling event in February but migrations will continue post the February date, Joe you have anything to add.
Yes, Thanks, Kamran, Ryan really no change from what we discussed last quarter in terms of the server under support dynamics that are baked into our guidance.
As Cameron mentioned, we added support for server products in 2024.
May be significant quarter to quarter variability as Cameron mentioned based on when and how those server customers ultimately choose to migrate we continue to assume the percentage split on migrate seats between data center and cloud will be relatively consistent with historical trends up to that and to support moment and then with vendor support we continue to expect most of those remaining server seats that migrate will migrate to data center and <unk>.
To hold prudent assumptions to account for customers, who will choose not to migrate in FY 'twenty four and Thats also factored into our guidance I hope that helps.
Your next question comes from call Q Stead from UBS. Please go ahead.
To just ask about your observations about the macro I think every investor on the line is seeing some challenges across the space with I'd say a bit of a skew towards some pressure in the SMB space could you talk about the trends youre seeing SMB versus enterprise and then perhaps elaborate on the <unk>.
Growth comment you made in the prepared remarks, thanks, so much.
Yes, great question Carl Thanks, Thanks for asking you recall by the end of Q4, we were seeing signs of improvement and stabilization in SMB and a very healthy enterprise environment.
Those trends continued into Q1 and played out largely as we expected during the quarter now keep in mind Q1 is typically not a big quarter for us when it comes to large enterprise deals and we have significant revenue mix from SMB.
Now, having said that there was really nothing unusual or noteworthy to call out in the relative Q1 performance between those two customer segments.
Yes.
Relation to the cloud aspect of Q1 the trends we saw in Q4 continued into Q1 and those were also largely consistent with what we expected. The cloud business does continue to be impacted by pressure on paid seat expansion and free to paid conversion at the top of the funnel.
Although we continue to see some signs of stabilization as the rate of deceleration in those areas continued to moderate slightly the.
The other parts of our cloud business migration upsell to higher priced versions cross sell customer churn. Those also all continued to be very healthy and perform in line with our expectations.
And then from.
From a linearity perspective linearity in the quarter was what you would expect to see and the trends and impacts were fairly consistent across products regions and verticals I hope that color helps.
Also I'll just add on there.
Answering one question.
One of the Taiwan sustained consolidation, we already seen that across the market more and more of the conversations I'm, having with customers large and small.
Then trying to simplify the number of tools.
Using out there and because of last minute sorry mission critical we are one of the agenda.
You to consolidate on a good example of that was on a domino's pizza that Ron wholesales installs across that advisory pipeline across the world actually.
<unk> consolidated fixed holes down to one service management installation and we're seeing that more and more across the customer conversations.
Your next question comes from Brent Thill from Jefferies. Please go ahead.
Thanks, Joe just on Carls question on the overall macro in terms of linearity was there anything different that you saw.
Throughout the quarter or does that also pretty consistent to your comments about what <unk> seen the last quarters few quarters between SMB and enterprise.
And also if you could just add on many are kind of.
<unk> about <unk>.
Close to $1 billion for Luna kind of what was the the magic sauce. If you will that that drove that type of price point and the desire to complete that transaction.
Thanks, Brent I'll address the first part of your question regarding linearity in the quarter and then Mike will pick it up on the loom balloon question.
Linearity in the quarter was exactly what you would expect to see so there was nothing unusual or strange about Q1 from a linearity perspective overall.
Mike.
Sure Jeremy I can I can handle that hi, everyone.
<unk>.
It looks from a financial point of view, we think Loon is a great acquisition for Atlassian.
The strategic rationale always comes first for us in this particular case.
It is a.
<unk>.
Our product is leaning into a lot of trends that we think are working really well.
From the point of view, firstly distributed work, an increasing desire for asynchronous collaboration across lots of different businesses.
Secondly, just the shift in the way that.
People are sharing and consuming video in the enterprise specifically at the younger generation become more a part of the workforce.
And thirdly, AI is changing the way that video can be.
<unk> created and consumed in really interesting ways that I think it will make it more.
Out of the formats that we all collaborate on work overtime.
From a financial rationale look the business itself and the product of Loon is going to continue as a standalone individual product as we've said.
As Scott mentioned in his remarks.
200000 customers now.
It's got a fantastic brand and instead leader in that in that space and as <unk> is a fast growing standalone business in and of itself.
Secondly, we believe for ourselves, there's obviously a lot of opportunities in video and combining our video infrastructure team with Loomis video infrastructure team. We have video as a first class citizen across our platform family products today.
But obviously the wound capabilities will improve that in each of our spaces, whether thats in service management.
In broad.
Business collaboration or of course in.
Our software teams and.
Lastly, there is obviously an opportunity for us to combine products as you've seen us do a little bit already with Atlassian together.
Two cross sell willing as a product into our existing base of more than.
265000 customers so.
We think of it as a fantastic deal we were super excited about the product would be.
Customers have been for a long time I don't really think it can do great things as part of the Atlassian panel.
Your next question comes from Kash Rangan from Goldman Sachs. Please go ahead.
Hi, Thank you very much.
Nice to see the stability in your end markets.
Curious to see.
What do you think about the datacenter growth rate at 42% of it seems to be outpacing the cloud probably should be flipped. The other way I'm sure you would like that and we would like that too.
Any refined thoughts on how you view the data central business growth profile and the things you might be doing incrementally in terms of functionality for the cloud product that would make it more of a compelling value proposition for the customer it is.
Gulf cloud as opposed to <unk>.
Several product. Thank you so much.
Yes, Kash. This is Joe I'll start you are right. It was another strong quarter for data center at 42% growth that was slightly ahead of our expectations and was driven by really strong renewals migrations from server and seat expansion within existing customers.
Worth, noting we are growing our significant installed base on data center, which is a great stepping stone to the cloud for those who are currently blocked for moving to the cloud at the moment and it's a good sign of how committed customers or to the atlassian roadmap and platform and having a big installed base on data center is a high class problem to have because that will fuel future migrations to the cloud.
Cameron.
Yes, hi.
Dozens of conversations with many of our largest customers about this exact decision that many of them are making.
And the reality is we see having both cloud and data center is a long term competitive advantage for Atlassian and we're providing optionality for these customers in the coming years.
As far as the functionality perspective, the good part is.
There is very few customers, where we have not been able to handle their scale their data requirements their privacy requirements their compliance requirements or the needs for customization and cloud. So rarely is there a technical conversation where customers can go to cloud. It's really just are they ready can we move to the migration.
The stat in your business and is there is a compelling functionality to move them over.
And everyone of those conversations the customers understand cloud isn't their future. It just comes down to the timing to get them over.
Either way and investment in data center investment in cloud is a longer term strategic investment and Atlassian to get some further committed to atlassian and I know when we've shown with our track record that we can and will move data center customers to the cloud.
Along with their business needs.
Your next question comes from Fred <unk> from Macquarie. Please go ahead.
Hey, Thank you could you be catching up on this call.
I wanted to focus in on how Youre thinking about AI overall, as an overarching strategy and can't fail, but notice of course of your new Chief Marketing Officer has a Phd in machine learning.
A number of your product offerings, Youre, describing of course, including loom and being able to integrate generative AI related summaries. Just it seems like there is an overarching theme here of course, you spoke to a part of it but from top to bottom and it seems like you are trying to become more of like an AI focused company as well so perhaps could you elaborate on that and just how you think of the ongoing.
Lastly, in branding and what value might be a box from perhaps being more of an AI first company. Thank you.
Thanks, Fred regarding take that first and then Scott can follow on.
Yes, certainly.
Great observation I'm not sure if you or chat GPT observed that but then it does have a ph D in machine learning.
She is also a CMO and fantastic that'll obviously be.
In addition to her capabilities.
AI marketing, but obviously not the singular reason.
We're bringing on board.
Look I think AI.
We couldnt be more excited by our enlarged language models at Atlassian.
We take the view that it's a huge opportunity for us.
For a number of different reasons I think in each of our markets.
Technology.
Technology transformation will be a huge change in the ability to deliver value to customers, which is where great software businesses are built.
We.
Have a lot of very valuable data from our customers that we are the custodians of.
And a lot of that data is textual and increasingly video and audio are effectively becoming text with AI. So we have a lot of their data, which is really important NII to be able to give them fantastic answers or magical experiences.
Secondly, we have a fantastic platform that we spent a lot of time building. So you see that in your last one intelligence features that we've already shipped our ability to ship those features to all the products in the family simultaneously is a result of nearly a decade of building a cloud platform, having a customers data centralized.
Singular editor and UI surfaces, so our ability to get features out to customers were incredibly incredibly bullish on beyond.
Our ability to build them.
And thirdly, obviously with our.
World Class engineering team and our R&D capabilities. This is a technology transformation and so you need to fundamentally build new products or build additions to existing products will build features will change. The way features are built.
That takes a lot of internal R&D and expertise.
And we have that in spades. So we feel incredibly excited about what AI can do for our customers fundamentally and what value. We can deliver look we are in the business of making amazing products and delivering for our customers.
Someone's given us a whole new.
Painting set to paint with a whole new set of materials that we can we can create out with and so we.
Were extremely excited.
We are certainly placing that at the center of our philosophies on building products I think that's what software companies are doing.
I'm not sure when people say AI first company exactly what that means but we are certainly heavily investing in.
Our AI capabilities.
All of the governance and privacy and responsible technology principles that are required to do that well for customers and give them. The right data provenance, when we give them answers of any form.
But also making sure that we deliver those capabilities and that we are investing in and how we can do that.
And this is going to take a few years to play out but we're certainly.
Really really excited.
Scot anything you'd add on to that.
Okay.
Just a couple of things.
We don't know that <unk> is driven by unique data assets and you can provide unique experiences when you have <unk>.
And if you look at what Atlassian has done over the decades, we've been in business and the data we have it's a real unique advantage for us.
Lastly, our products are open by default, which sounds like a simple thing but.
If you want to try and ion daughter inside your organization that data can be isolated to a few people and if you use <unk> you.
Many of our customers.
A decade's worth of data that's available to try in their eye on and helping make decisions. That's a really big part of our advantage. The second one is that we have breadth across what we do in 10.
The workloads and what people use our products for span the entire organization and that allows us to do very unique data sets to make good decisions across the entire organization and lastly that also includes third party products. We've talked about our open full time for a long time and if you're a single Linda.
One thing you can provide information about that wont be but because of our <unk> spend everything across an organization, we can provide experiences and insights.
Any thoughts that span the entire organization and so I think those are all really interesting and then.
And then one a little bit about their IR stages, whereas they're delivering them on our platform and we're super excited about what we what we deliver on a regular basis and we're just kind of cadence of openings coming out of our customers on a regular basis.
So we're heads down delivering the value to our customers.
Your next question comes from Gregg Moskowitz from Mizuho. Please go ahead.
Okay. Thank you for taking the question I had a follow up on cloud migrations you mentioned in the shareholder letter that the number of easier migrations over the past year has.
Has risen by nearly 50% and certainly at the high growth rate, but I think the increase with more like to ask a couple of quarters ago.
So I'm wondering if the change in growth just a function of law of larger numbers and tougher compares or is it also reflective.
Much smaller opportunity set or even a slowdown in the appetite of customers to migrate to the cloud.
Yes. This is Kevin I'll take first half Thats My Joe add anything he deems fit.
Yes. The reality is we've had ever since we announced the server end of life, which was a little more than three years ago now we have increasingly quarter on quarter.
Raised our number of migrated seats to come across the board, but of course, we saw some huge.
Yes.
Depending on different times, along that journey, we've had based off of either our loyalty discount programs or price changes along the way as you remember over the last few years. We've built in these compelling events do you have customers reasons to migrate throughout the years and the customers that migrated earlier, we're financially incentivized to do so that's the numbers that we are.
Dealing with now are quite large and they continue to grow significantly quarter on quarter and I believe as we go into the next few months with server end of life. Many of the customers who have waited until the last moment, we'll be making these decisions to get the data center and cloud.
And there'll be a lot of energy around that the good part is all of our customer facing teams our partners our migration expert Q&A Amit.
Are more than capable of handling any influx we get in the next few months as customers wait till the last minute.
To make their choice on whether to go through data center or cloud.
And as I have already mentioned post February we will continue to have migrations.
EBITDA large part of our business as we move data center customers to cloud in the coming years.
Joe.
Yes, Ken the only other thing I'd add Greg is we do expect FY 'twenty four to be a very big year for cloud migrations.
We guided to 10 points of cloud revenue growth coming from migrations for the full year.
Just to reiterate what <unk> said Thats really driven by two factors, we do continue to invest and make terrific progress in enabling and unblocking more and more customers to the cloud our tooling or support our cloud capabilities to get better every day and then the second point to reiterate what <unk> said is we do have the server end of support moment in February 2024, and that will also contribute to migrations growth.
Okay. Thank you.
Your next question comes from Michael <unk> from Wells Fargo. Please go ahead.
Hey, great. Thanks, Good afternoon I appreciate you taking the question.
Joe maybe one on margin you raised the margin outlook fairly meaningfully 20% implied is now close to where you ended last year can you just help level set where.
You are from an investment perspective, how much opportunity do you see on the cost management side and if there are priority areas for us to be focused on as the server migration and approaches.
And maybe some resources freed up as a result, that's a that's also a useful thank you.
Yes, Thanks, Michael.
The stronger than expected operating margin performance in Q1, and our guide in Q2 was driven by greater operating leverage.
So we are seeing that primarily on the operating expense side.
In terms of operating expenses I would say, it's been a team wide effort focused on a few core principles. We are focused on maximizing the return on every dollar we spend making disciplined prioritization and resource allocation calls and driving operational efficiencies as we gain scale.
As a result, the savings are really broad based across all groups from developer productivity and cloud Cogs optimization to G&A and everything in between so it's happening across all teams and we've made good progress to date and I do think it's important to note. While we do this we continue to make the disciplined strategic investments in areas like cloud migrations and enterprise and AI.
In our core markets to drive durable long term growth and serve customers.
In terms of the long term trends Youre, absolutely right. We have made significant multiyear investments in building out our cloud platform and building out our enterprise grade capabilities, we do expect that those growth rates in those investments to moderate as we make tremendous progress against that over the next year or two so that is definitely an additional area of leverage that we should see it.
The model over the coming two years.
Your next question comes from Peter Wade from Bernstein. Please go ahead.
Thank you.
I think you did a great job of mentioning the strength and premium and enterprise edition Upsells, but I didn't notice any conversation about cross sells new.
New functionality and things like GSM and such.
Such a powerful growth engine recently.
How has cross sell has been progressing any change or propensity to adopt new product are we here.
I think from some other companies we're hearing some end of your strength with strong pipeline.
Do you see some increasing interest here and optimism for strength at the end of the calendar year or how are things going with kind of cross sell particularly GSM I would say.
Yes.
Yes, Thanks, I'll take the first part of that question and then Scott will chime in cross sell is absolutely a key driver in our cloud revenue growth rate model.
We see a lot of opportunity to sell cross to cross sell additional products into existing customers.
That continues to be very healthy I talked earlier about the fact that thats been one of the areas of our cloud business that has held up really well and been resilient through the macroeconomic environment that we've experienced.
In terms of pipeline I would just say in general our Q2 pipeline is very strong and that's a function of everything that we've talked about that's held up well to date. It's the migrations. It's the cross sell it's the ability to upsell our customers to premium and enterprise editions of our products. So we're excited about that and we're looking forward to a great Q2 Scott.
Sure I'll take that Scott this is Kevin.
Yes.
To reiterate the pipeline the strength, we see in enterprise today on our healthy pipelines does not just migrations. But is also includes duress service management, we continue to see gyro surface management's expansion within our customer base.
Nearly 50000 customers around service management today across all sizes, whether that small customers as well as we're increasingly seeing some large wins in larger enterprise customers with competitive replacements of legacy <unk>.
Believe this is only going to continue to be strong with we continue to deliver new innovations like we spoke about earlier today with the virtual agents and our merchant acquisitions to continue to.
Innovates in the ICM space. So that is a major focus for US I also do want to highlight that many of our customers actually one of the most exciting things about talking about customers about getting to migrate them over in enterprise.
A lot of the new capabilities, we've been launched in our existing products, but thats whiteboard in confluence new automation capabilities analytics capabilities, but we've also launched new products. This year Europe product discovery is getting a lot of attention within our customer base and we've seen that getting a rapid adoption within kind of the early adopters and are.
So very excited about that and just over the last couple of weeks, we launched a new product called compass focused on really our core developer user base and really have a new innovative experience to help developers manage their complex services.
Platforms, So im really excited across the board strength inferior service management, but what.
We can't lose sight of the many other products that many of our customers are very excited about and in cloud. The reality is it's just way easier for them to adopt those products.
Can simply just turned it on add them to their environments and get value out of them. So by the time, we come around and how the sales conversation many of them are already understanding the value that these products are providing to them.
Your next question comes from Ari to Johnny and from Cleveland Research. Please go ahead.
Yes, Hello, Thank you for taking the question.
Notice some incremental karat so to speak during the quarter around.
Dual licensing.
Six month free trial for cloud could.
Could you just speak to some of those efforts and they are providing any lift or also maybe potential.
Dilutive impact on on revenue. Thank you.
Yes. This is Kevin again, I'll speak broadly just two <unk>.
We have done to incentivize customers to migrate in the past few years.
As I continue to say is when we announced the server end of life three years ago, we had a carefully engineered.
Programs to incentivize customers to migrate to the cloud sooner than later.
This was a combination of pricing incentives with loyalty discounts extended trials, so that customers can start using cloud.
Cost and get used to it and then I understand you're comfortable with the new functionality or of course when customers purchase cloud to ensure that they can continue to run their on premise environments their on premises environments like data center.
The migration experience, knowing that migrations take different extended periods of time.
So we have all of these were.
Well planned.
Engineered from day one.
And have been part of our migrations forecasts for the last few years. So.
We continue to roll those out.
All the way up to the server end of life in February the goal really begin to make it as easy as possible for customers, who want to get the cloud to get to the cloud as quickly as possible.
Okay.
Your next question comes from Jake.
Alright back from William Blair.
Please go ahead.
And your work and work management and do you ever see that.
The potential to combine that with Atlassian together. It seems like you are planning to operate as a standalone product off the bat loomed integrated into that suite over time.
Yes, Jason.
I think I missed the start of the question. So tell me if I'm answering your own question here.
I think I think the first half didn't come through the question is interpreted.
Could loom get integrated into some sort of a work management suite or bundle over time.
We've done with tier work management confluence analysis and Atlassian together, so I hope I'm answering the right question.
That certainly is.
A distinct possibility.
As I mentioned, there's a number of ways that we're looking to continue.
Continue to monetize and grow.
Room.
As a result of the acquisition one of those is certainly just Luna by itself as a stand alone product. It has a significant audience already.
Has some really good viral properties and growth factors to it.
And we think we can help continue that moving forward.
Second.
Monetizing video across our audiences and improving you might think of it as a competitive position of consequence of better video features right.
But thirdly is suddenly looking at different bundles and opportunities in our customer base.
I think you can be sure that we will do that thoughtfully when we come to looking at.
Work management.
Or <unk> don't forget there's a significant video component in knowledge bases, and helping employees too and potential to share.
Quick.
Things either from the customer to the agent also in the agent back to the customer. So we will continue to look at possibilities of bundling and putting it into things like Atlassian together, yes.
But our upfront goal will be to focus on integration and firstly continuing the.
Great growth rate employment, as a standalone product, which is a fantastic business.
Your next question comes from Keith Bachman from BMO. Please go ahead.
Hi, many thanks for the question Cameron I think this is for you if I could when you talk about the conversion help to cloud of 10 points.
I was wondering if you could offer some commentary around what is that same metric how much health is going to data center.
And then for each of those what happens after February 15th any kind of guidepost on how we should be thinking about the conversion help for.
The customers that may be ongoing past without 15th deadline any kind of commentary on how much conversion will help post 15, many thanks.
Okay.
Yeah. So I wanted to be part of clarity. So the 10 points of growth. We mentioned is for our cloud business.
That's just when it came to the migrations and being clarity on where that growth is coming so.
And of course that as Joe already mentioned, a large portion of the data center growth today is simply server data center conversions.
All of that pricing is actually available on our website you can see across all tiers, you can see but existing server renewals are and what the existing data center list prices are going forward.
Now that said once customers I'm, sorry, sorry, sorry.
Sorry, Kevin that wasn't my question. My question is how much what's the same metric for data center. So of the growth how much contribution are you getting from conversions.
Joe you want to dress up.
Yes, it's about 15 to 20 points.
And then what happens to those two metrics after the.
The end of life sort of or do you think in any kind of just directional barometers you would want to provide.
I would say in general what you should expect post server end of support is obviously the server to data center migrations will start to decline.
That's going to be a big driver of why we expect to see the deceleration in data center in the second half of the year.
We haven't quantified specifically what that curve looks like at a lot of it will depend on what the customer purchasing behavior is around that server end of support moment, how many of those seats move to data center, how many of those things move to cloud and the timing on that.
Your next question comes from <unk> <unk> from Citi. Please go ahead.
Hi, good afternoon, and thank you for taking my questions.
I wanted to talk about the cloud skew or in the pricing increases that you've undertaken in the broad suite of products and solutions. In addition.
The teams everybody October like Clockwork pricing goes up by 5%.
The question is for you.
That being contemplated in your guidance for the year.
As an added layer can you speak to customers who migrated to cloud in the past in the recent past who are perhaps on loyalty discount.
Cadence and getting the customers on the royalty discounts.
MSRP if you will.
How that's being considered in your comp guidance and then a quick follow up.
Okay.
Yes. This is Karen let me just address pricing.
On the cloud as you mentioned, we did have filed price increases go out this October.
In line with the previous cloud price increases that we've rolled out in October.
As you mentioned for our customer base. This is largely granted no customers like price increases, but it is from other purposes, a non event customers are.
Understand that these are irregular price increase that comes from Atlassian and regularly relatively minimal at the <unk>.
You mentioned, 5% rate.
Going forward.
Of course, we have many customers. Our primary goal here is to continue to migrate many of our existing on premises customers.
Over to cloud so it's always allowed us or.
You've always been very considerate about what does that pricing dynamic on our cloud list prices compared to on premises customers.
As you already mentioned as well as part of the last few years, we offered loyalty discounts, which basically discounts off of list price for cloud over the last few years and customers are on many of our customers are on one year or two year contracts in cloud.
When those contracts come up for renewal they will be coming up at list price whenever those prices at that time.
The good news all of those customers understand that dynamic when.
When we speak to them about the loyalty discounts and its programs and more importantly, most of them are on.
Plenty are on annual or Neil.
Two year contracts they have plenty of time to plan accordingly for what their renewal will be.
And then thanks Kim the question in terms of the guidance as Ken mentioned, the effective price increase is roughly 5% blended that's a good rule of thumb to use as you think about the impact that is built into the guidance and do keep in mind whenever we make these price changes it takes a while for it to layer into the model simply because.
Does the effective when the agreements are signed and that happens over the course of time for our annual and multiyear agreements.
Your next question comes from Derrick Wood from Cowen. Please go ahead.
Oh, great. Thanks for taking my question in the shareholder letter you guys mentioned that cloud sales from your channel was up nearly two <unk> year over year.
And when I look at your total cloud growth of 27% that suggests that your partners are really generating a tremendous amount of of your cloud growth and perhaps.
Your own channels are a bit softer as there been a shift in go to market strategy to call out that's causing.
A higher mix of growth coming from your channel partners.
Yes, I'll take that one this is cameron.
So first off we see that as a very very good news as all of you know Alaskans channel power solution partner network is a critical part of our overall go to market and has been for all 11 years I've been here and even longer than that.
The dynamic youre seeing with the partners.
Cloud growth in the recent months largely comes down tied with our enterprise business.
We have many of our enterprise customers have large enterprise migration needs all of them usually when they take on a large migration are looking for some sort of technical consulting help.
And that's where our solution partners can.
Can provide direct access plenty of expertise and honestly derisked the migration when it happens. So we have very much tied much of our enterprise go to market not just with our direct sales, but joint sales with our solution partners to make those migrations happen and Thats why youre seeing the outperformance in our channel cloud sales over the last couple of years.
I also want to add not just the channel. It's the reality is we've unlocked a ton of new capability and cloud as well as unblocked, many customers because of the scale data privacy and compliance capabilities that we've released in the last few years, which only opens up our channel partners and the biggest customers.
They are serving.
Continue to open up those doors to have them sign up for new migrations contracts.
Makes sense. Thank you.
Your next question comes from Matt cash from Raymond James. Please go ahead.
Hey, Thanks for taking the question. This is mark on for Adam I wanted to circle back to the consolidation trend in the last thing together, we're now a couple of quarters after announcing the offering so could you first comment on the adoption is helping to drive cloud adoption and the plan of seeing organizations expand seats across buying centers.
<unk> is actually playing out so far thank you.
Yes.
Sure.
Yes.
Yeah.
Scott go ahead.
Okay. Yes. This is Cameron here I apologize for the confusion there.
Yes, listen Atlassian together as a key strategy to address what we see out there in the market.
A variety of project management tools.
And used by different departments and different teams across the board and we went and met many of our.
Customers many of them are looking to try and standardize.
And consolidate on a single vendor to manage their teamwork and needs and when we looked out to the competitive offerings and what our customers are looking for we realized we had a massive advantage with the.
The broad suite of Atlassian products, not just your wealth management, including confluence new products like Atlas.
To allow for customers to have a broad set of use cases.
<unk> by a variety of tools versus having.
From a from a single vendor at a significantly lower cost. So we come out of many of those customers over the last year have made those decisions and are very happy migrating off of the other federated sets of tools to the Atlassian work management set of <unk>.
Solutions now that said we are still as you mentioned a few quarters into this.
Still relatively early days in that offering, but we are definitely resonating with the overall.
<unk> for consolidating on teamwork tools and platforms and going into last year and has been a massive advantage there.
Yeah.
Your next question comes from Keith Weiss from Morgan Stanley. Please go ahead.
Excellent. Thank you guys for taking the question.
I wanted to squeeze in two if I can on different topics. One on just overall customer count it seems like another relatively smaller than what <unk> seen historically customer add quarter can you talk a little bit about kind of the trends that youre seeing with customer accounts and ended the free to paid migration.
But also you took away the disclosure, but actually like a point number of the number of customers.
I was asking been a like a price times quantity.
You add a lot of customers and then you make those customers bigger overtime, just wondering about like why should take away that disclosure, you're only halfway to your 500000 customer.
Our goal why why why not give the specificity on a go forward basis.
So his kamran I'll address the first half of that and then hand off to Joe.
So.
As you mentioned and as we saw over the last year or so we saw the new customer number declining largely as we saw free to paid conversion rates slowdown now that said, we still continue to get plenty of customers coming in through our website. Many of Youre signing up for free instances are using free versions of our products and that only continues to grow year on year.
But we just saw them being slower to get out their credit card or hit their 11 user market to get into paid.
And to that pay at cohort.
Good news.
As Joe already mentioned earlier, we are starting to see stabilization in that overall impact and actually we saw increase from Q4 to Q1 in that net new customer number largely due to improvements that we have made in our funnel specifically around.
E Commerce and conversion experience, just simply making it easier for these customers to purchase our cloud products now that said there is still plenty of uncertainty out there in the market, but seeing that stabilization and slight improvement quarter on quarter, we see it as a largely positive.
In Q1.
Joe do you want to speak more to the numbers themselves.
Yes, Thanks, Kim Keith we will continue to provide the total customer number on a directional basis. So that will continue to be provided we are also adding a new kpis that really goes to our strategy and we believe this will help investors track progress against that strategy.
We are increasingly focused on moving customers existing customers to the cloud and driving expansion within that massive base.
And as we pointed out in the shareholder letter. This goes hand in hand, with our strategy of driving breadth and that total customer number. So we are introducing an additional customer kpis for investors that we will report on a regular basis and track our progress against this and that's specifically the number of customers with over $10000 in cloud.
At the end of Q1 as you read in the shareholder letter we had over 40000 customers that met that profile growing 18% and the reason. We think this is a valuable metric is because this represents over 75% of our cloud revenue, so giving investors both the breadth and the secondary metric around shift to cloud and expansion we think.
I'm, a great picture holistically of our strategy and our execution against it.
Your next question comes from Michael <unk> from Keybanc. Please go ahead.
Yeah.
Hey, guys, maybe you can talk about Joseph one of the things that I thought it was interesting.
Team 23 was that movement to templates as a way of taking J S. M. Beyond just the it department and other areas of enterprise. It perhaps you can talk a little about the success, there and how much non it.
Take rate Youre, starting to get with J S M.
Okay.
This is Scott here.
Definitely we are very excited by it.
The fact that.
We get really excited thinking about how health happens across an organization.
It's.
Typically a frustrating experience for no matter, what you said in an organization getting help from another team can be quite a frustrating experience it's often.
Media edited slack or emails and you have to search for that information to actually get something done and what we see IP teams being sort of at the forefront of making that a better experience than more Florida that customers are saying well why is that not the case also for our legal department do you get a contract that's why.
Why is that not the case and I want something to my HR departments and.
So as a result of that.
Brookfield interfaces as you mentioned with templates.
60% of that Jonathan customers now use them.
Outside of IP.
And I think you can see more and more of that.
We're particularly excited because that out at a price point and without usability I think we have a better opportunity than any other vendors in this space too.
Going beyond the traditional IC Helpdesk I'm sorry.
Have you thought about that and I'm glad you recognized it.
The next question comes from <unk> Kidron from Oppenheimer. Please go ahead.
Thanks, a couple of questions for me first can you give us an update on our work management and your progress there in the field.
And where does that part of the business is affected more by.
Slower free to paid conversions and the second question relates to the migration it seemed like as part of your prepared remarks.
You suggested maybe I got this wrong that.
You expect some customers not to migrate.
Give you a little bit more color on that is have you already heard from customers.
We intend to not make great at all.
And just move elsewhere or leave without support if you can give us some more color on the magnitude of that cohort will be greatly appreciate it. Thanks.
Yeah. This is Kevin I'll speak to the work management side of this and slightly to the migrations piece, then handoff to <unk>.
So yes. This would work management is a key part of our overall offerings and just remember the products that we.
And there are confluence our second largest product in can we has massive adoption across our customer base and massive usage and has been a key part of our SMB as well as our enterprise business and many of the new functionalities, we drive in confluence whether that's the <unk> capabilities automation capabilities you name it have been key compelling drivers for.
Patients themselves and in our other offerings like zero work management, which allows for a much simpler business friendly projects tied to your gyro usage is a great way to extend from those technical development and it teams into these other business use case, some projects and we've seen significant adoption of those Genworth management project templates.
We have a new product called Atlas, allowing you to basically communicate the status and updates and who was working on projects and the status of those projects and the goals in <unk> associated with them, regardless of where the work is happening and as we already mentioned and I'll ask them together, bringing all of those products together in a single offering at a competitive price.
Boeing.
Customers, who are looking to consolidate their work management tools onto a single platform for Atlassian. So absolutely a critical part of our go to market going forward.
And part of our overall financial picture over the last year.
As far as the migrations themselves.
The server customers. There is a significant portion of server customers, who have yet to decide to move to data center or cloud.
And we are working with every single one of them I will tell you right now is definitely aware of this February date.
And we will hopefully ensure that we guide them to either a cloud or data center decision post February.
As far as.
Going to alternatives or so on really we haven't had many of those conversations or see any spike. The migration process has been very much in line with our plans and continues to be month on month, Joe Mike do you have anything to add.
Yes, Thanks, Kim in terms of the question on guidance.
As Cam mentioned, a server cohort that will not migrate to datacenter or server in FY 'twenty four and we've factored that into our guidance. We based on an analysis of our server customer base. The trends, we're seeing the customer profile. The surveys. The Cam mentioned, so we have accounted for that we have a prudent assumption to account for that and that is in the guidance itself.
Hey, if I can just add one or two more points on work management and die.
Firstly I think we.
We continue to see value in being.
Quite unique in the market and bridging technical and non technical teams across the wealth management space.
It's important to note that our three markets don't exist in isolation.
Each have unique sales motions and unique target personas, but they are intimately connected in a lot of different ways.
For example, you might have marketing teams controller that need to connect to engineering teams and operations teams that live in juror software for example.
That uniqueness is it really good.
A differentiator for us at the moment in the market.
Secondly, with things like Atlassian together as we mentioned earlier in the call.
<unk> on those spaces.
Is is a big part of things and you're seeing that with.
Our execution, so far but also with the loan and with the other things that we are doing.
Delivering and adding into that space again, Boonville, Sidney you work management area as far as Atlassian.
Concerned so.
Just wanted to be clear that way.
You know pretty pretty steadfast in our commitment to work management. We think it is a huge opportunity for us and we're not not waffling around at all.
Your next question comes from DJ Hynes from Canaccord Genuity. Please go ahead.
Hey, this is Luke on for DJ Thanks for taking the question.
I'm going to dovetail off of the other questions around migrations.
Migrations after end of life I'm wondering if you can comment.
Sort of how much flexibility do customers have to extend beyond that deadline, how difficult is it for them to continue using those products.
Once they are no longer supported and then how long could it take care of those remaining migrations to actually play out.
Okay.
This is Cameron here, a couple of different dynamics of that question, but.
First off with customers, where we extend support to server customers post the server end of life and the answer there is no.
Some of those customers those customers basically three and a half years heads up to make this decision and we are definitely holding by that.
That said if a server customer comes by.
The server licenses are perpetual licenses. So their software will continue to work. They just simply will not be able to get maintenance patch updates new functionality or any support from atlassian support teams.
We will continue to function.
Just fine.
Once again those customers eventually youre going to want to have new capabilities or add something that they need support from and they'll call us up now if a customer does call us up a few months. After the server end of life or on a server unsupported license and need help move into the cloud we absolutely will help them move to the cloud as long as they decided to participate cloud license and with.
There, we're happy to have the technical conversation with them to help them move their server licenses up to cloud and whatever technical discussion is required but that is the only place where we will to engage those server customers. If they have decided to purchase cloud itself.
Hi.
Okay.
I'd answer that stepping back at the macro level.
We've had a couple of years now where we've been focused on.
And our customers with a compelling event.
So over.
End of life.
I had a bit of.
Macro level half of migrations, we're getting from data center.
Like doesn't turn off Com February next year, that's going to continue to be there and we're continuing to invest in migrating customers at cost and continue to invest in making our cloud platform better and better.
Both attracting new customers to crowd and of course, continuing to migrations from in data center, but there is an investment but like all the time, we will apply.
And everybody will start getting a peak in our migrations investments will come down.
That's a great thing.
We also are doing more and more of our customers are in the cloud and if you think about the innovation that we can bring in cloud because of the platform. We've got there that's what I get really excited by.
Our ability to bring new products to market is way way way faster in the cloud and you've seen that with your product discovery, where you've seen that with Atlas with compass.
With your work management, which is easy for us to get our customers to migrate from <unk> software and.
<unk> use in the HR Department and the marketing Department decided you can hear what management to try and work.
But curious Dennis management into these customers and cross sell there so the ability for us to build a new innovation in the crowded Whitehall.
Particularly because we built this cloud platform that we've talked about and you've seen and.
The reason we could bring.
All of our customers in all of our product so quickly you'd be investments we've made in this cloud platform and.
We hit peak migration like we'll be at a bit more and more effort behind building new things.
<unk> and its platform and of course.
Acquisitions work really well.
The fact that we've got these customers in cloud <unk> to introduce them to win.
Then it is for a behind the firewall customer out there and so on.
I'm Super excited.
We focused a lot on migration historically and I know, it's really important.
It drives a lot of.
Capital Spreadsheets about how they think about the business, but the more copies. We haven't followed the more innovation that you can deliver the better we can cross sell our customers.
The easier to use for us to get more incremental uses in thought out.
So on a product and go to wall to wall, and so I'm really sorry to like more I walked around the opportunities we have and particularly in this moment, where customers are coming to us to consolidation and they're talking to us and saying, Hey, I want to get rid of plenty of other vendors out there because you are mission critical and you do things that no one else can and you've got a lot of analytics that allows me to start that work moves across my entire.
Organization.
They're great conversation to have and.
My question would be great, but the real benefit is going to come on the pop out of those migrations and I think that's worthwhile pointing out.
Thank you that's all the questions. We have time for today I will now turn the call over to Mike for closing remarks.
Yes look thanks, everyone for joining our call today.
<unk>.
As always appreciate your.
So four questions and continued support.
It would be a bit remiss of me not to.
Thanks, Kamran for his 11 years of amazing dedicated support friendship and everything else.
Ending as Chief revenue Officer Adroitly over the last few years so.
Just from me and from all of the team. Thank you to Cameron before he heads off to us.
Rocking chair in his portion in retirement and we hope he really enjoys that.
Secondly on the heels of a high velocity event that Scott talked eloquently about earlier.
We have unleashed, which is our agile and Dev ops market event next month in Amsterdam.
And we will be hosting a virtual ESG for them both of which.
Investor sorry, the virtual ESG performance later this month, both of which investors are welcome to place we hope to see you there.
And beyond that we hope you have a kick <expletive> rest of your day.
Thank you Virginia.
Yeah.
Yeah.