Q4 2024 Atlassian Corp Earnings Call

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Unknown Executive: Good afternoon, and thank you for joining Atlassian's earnings conference call for the fourth 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's website following this call. I will now hand the call over to Martin Lam, Atlassian's Head of Investor Relations. Welcome to Atlassian's fourth quarter and fiscal year 2024 earnings call. Thank you for joining us today.

Speaker Change: Good afternoon and thank you for joining Atlassian's earnings conference call for the fourth quarter fiscal year 2024.

Martin Lam: On the call with me today, we have Atlassian's co-founders and co-CEOs Mike Cannon-Brooks and Scott Farquhar and Chief Financial Officer Joe Binz. Earlier today, we published a shareholder letter and press release with our financial results and commentary for our fourth quarter fiscal year 2024. The shareholder letter is available on Atlassian's work-life blog and the investor relations section of our website, where you will also find other earnings-related materials, including the earnings press release and supplemental investor data sheets.

The shareholder letter is available on that lock ins work life blog, and the Investor Relations section of our website, where you'll also find other earnings related materials, including the earnings press release and supplemental investor data sheet.

As always our shareholder letter contain management's insight and commentary for the quarter, but during the call today will have some brief opening remarks, and then focus our time on Q&A.

Martin Lam: As always, our shareholder letter contains management's insight and commentary for the quarter. So during the call today, we'll have brief opening remarks and then focus our time on Q&A. This call will include forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, and assumptions. If any such risks 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. Therefore, we should not rely upon forward-looking statements as predictions of future events.

Speaker Change: This call will include forward looking statements forward looking statements involve known and unknown risks uncertainties and assumptions, if any such risks 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 you should not rely upon forward looking statements as predictions of future events.

Martin Lam: Forward-looking statements represent our management's beliefs and assumptions only as of the date such statements are made, and we undertake no obligation to update or revise such statements should they change or cease to be current. Further information on these and 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 metrics. These non-GAAP financial metrics are in addition to, and are not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.

Forward looking statements represent our management's beliefs and assumptions only as of the date such statements are made and we undertake no obligation to update or revise such statements should they change or seek ticket current.

Further information on these and 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 metrics. These non-GAAP financial metrics are in addition to and 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 data sheet on the Investor Relations website.

Speaker Change: We'd 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.

Martin Lam: The reconciliation Between GAAP and Non-GAAP Financial Measures is available in our shareholder letter, earnings release, and investor data sheet on the Investor Relations website. We'd like to allow as many of you to participate in Q and A as possible. However, out of respect for others on the call, we'll take one question at a time. With that, I'll turn the call over to Mike for opening remarks. Thank you all for joining us today.

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

Mike: Thank you all for joining us today.

Mike Cannon-Brooks: As you've already read in our shareholder letter, FY24 was an incredible year for Atlassian, and we're proud of all we've accomplished in a challenging environment. We generated $4.4 billion in revenue. Over $1.4 billion in free cash flow and surpassed 300,000 cards. We continued our steady drumbeat of innovation in FY24, shipping Atlassian Intelligence, Compass, and Virtual Agents for Jira Service Management into general availability. We also welcomed Loom into the Atlassian family and introduced Rovo, and announced an entirely new era for Jira.

Mike: As you've already read in our shareholder letter FY 'twenty four was an incredible year for Atlassian and we're proud of all we've accomplished in a challenging environment.

Mike: We generated $4 $4 billion in revenue.

Mike: Over $1.4 billion in free cash flow and surpass 300000 customers.

Mike: We continued our steady drumbeat of innovation in FY 'twenty for shipping Atlassian intelligence Compass and virtual agents for juror service management into general availability.

Mike: Also welcomed loan into the Atlassian family and introduced rigor and announced an entirely new era for <unk>.

Mike Cannon-Brooks: We closed out our three and a half year journey of winding down servers and successfully migrated millions of users to cloud and data center. As we continue to partner deeper with our data center customers, they understand that the cloud provides the ultimate Atlassian experience, with the power of our unified platform and innovations such as analytics, automation, and AI. We've continued to deliver enterprise-grade platform capabilities to this cloud, unlocking data residency in six new regions, increasing the scalability for Jira to support up to 50,000 users on a single instance, and achieving FedRAMP process designation, a Critical Milestone in Supporting the U.S. Public Sector during our Atlassian Collapse.

Mike: We closed out at 300 hockey a journey of winding down silver and successfully migrated millions of users to cloud and data center.

Mike: As we continue to partner data with our data center customers. They understand the cloud provides the ultimate atlassian experience with the power of our unified unified platform.

Mike: Innovations such as analytics automation and AI.

Mike: We've continued to deliver enterprise grade platform capabilities to this cloud.

Mike: Marketing data residency and six new regions, increasing the scalability for Jarrod to support up to 50000 users on a single instance.

Mike: And achieved fed ramp in process designation.

Mike: A critical milestone in supporting the U S public sector.

Mike: Atlassian cloud.

Mike Cannon-Brooks: These and more are helping pave the way for some of our largest and most complex data center customers as they map out their journeys to the cloud. We now have over 500 customers spending over $1 million annually. The progress we've made and the momentum we are seeing in the enterprise segment reinforces our conviction in our strategy to build and deliver solutions that help solve our customers' toughest team collaboration challenges. We have a massive, serviceable, addressable market opportunity across our three customer markets.

Mike: These and more are helping tied the way so some of our largest and most complex data center customers as they map out their journey to cloud.

Mike: We now have over 500 customers spending over $1 million annually.

Mike: Progress, we've made and the momentum we are seeing in the enterprise segment reinforces our conviction in our strategy to build and deliver solutions that help solve our customers' toughest team collaboration challenges.

Mike: We have a massive serviceable addressable market opportunity across our three customer markets, including a $14 billion revenue opportunity just within our existing customer base alone.

Mike Cannon-Brooks: Including a $14 billion revenue opportunity just within our existing customer base alone. And we are more excited than ever to seize this opportunity and accelerate our path to surpass $10 billion in annual revenue. Lastly, this is Scott's last earning.

Mike: We are more excited than ever to seize this opportunity and accelerate our path to surpassed $10 billion in annual revenue.

Mike: Lastly, this is Scott last earnings call.

Mike Cannon-Brooks: It is truly impossible to put into words the impact that Scott has had on me, on the thousands of employees, hundreds of thousands of customers, and Atlassian as a concept and as a company over the last 23 years. It's been an honor to lead Atlassian side-by-side with him over the last two decades, and I look forward to his many continued contributions to the country, as a board member and as his special advisor. Thank you, Scott. And with that, I will turn it over to you. Big Mind

Mike: It is truly impossible to put into words the impact that Scott has had on me.

Speaker Change: On the thousands of employees hundreds of thousands of customers and Atlassian as a concept and as a company.

Scott: Over the last 2030 years.

Speaker Change: It's been an honor to the way that last year side by side with him over.

Speaker Change: Over the last two decades and I look forward to his many continued contributions to the company as a board member and in his special adviser role.

Speaker Change: Thank you Scott and with that I will turn it over to him.

Scott: Thanks, Mike.

Scott Farquhar: I look back on the last 23 years with immense pride at what we've built in Alaska. We've always believed that only through teamwork can we achieve the seemingly impossible. This is why we spent over two decades building products that enable our customers to do just that. Our products have powered teams at the forefront of innovation, from the companies leading the next stage of space exploration to those developing groundbreaking medical discoveries that are saving lives. And it feels like we're only just getting started.

Scott: I look back on the last 23 years with immense pride about what we've built at Atlassian.

Speaker Change: We believe that only through teamwork cannot achieve the seemingly impossible.

Scott: This is why we spent two decades building products that enable our customers to do just that.

Speaker Change: Our prototype <unk> came to the forefront of innovation from the company's Lady next stage of space exploration to those developing groundbreaking medical discoveries that are saving lives.

Speaker Change: And it feels like we're only just getting started.

Scott Farquhar: Atlassian is incredibly well positioned to seize the massive opportunities in front of us across our three markets and an enterprise AI, and, of course, delivering innovation across the entire product portfolio. I'm more bullish than ever about our strong position to grow and deliver unparalleled value to our customers. Before I close out, I want to take a moment to thank every single Latvian around the world, past and present.

Alaska: Alaska is incredibly well positioned to see the massive opportunity in front of us across our three market and an enterprise AI and of course, delivering innovation across the entire product portfolio.

Speaker Change: Mobile has been ever about a strong position to grow and there was unparalleled value to our customers.

Speaker Change: Before I close out I want to take a moment to thank every single asking around the world past and present.

Unknown Executive: People say this place wouldn't be Atlassian without Mike or I, but the truth is, Atlassian wouldn't be what it is today without each and every one of us. You drive our mission forward, and your dedication and unwavering commitment inspire me and make me incredibly proud. I look forward to seeing if I can continue to pursue a mission of unleashing the potential of every team, albeit from a slightly different perspective. With that, I'll pass the call to the operator for Q&A.

Speaker Change: Hey will satisfy <unk> wouldn't be of asking without marks awry dot, but truth is now asking wouldn't be what it is today without any each and every one of you.

Speaker Change: To drive our mission forward annual dedication unwavering commitment and climbing and makes me incredibly proud.

Speaker Change: I look forward to seeing you continue to see with mission of unleashing the potential everything, albeit from a slightly differently.

Speaker Change: With that I'll pass the call to the operator for Q&A.

Unknown Executive: We will now begin the question and answer session. If you have a question, please press star followed by the number on your phone. If you'd like to withdraw from the queue, please press star followed by the number two.

Speaker Change: We will now begin the question and answer session.

Speaker Change: If you have a question. Please press star followed by the one on your fine if you'd like to withdraw from the queue. Please press star followed by the key.

Keith Weiss: Your first question comes from Keith Weiss from Morgan Stanley. Please go ahead. Excellent. Thank you guys for taking the questions. And Scott, congratulations on a really remarkable career.

Speaker Change: Your first question comes from Keith Weiss from Morgan Stanley. Please go ahead.

Joe Binz: It's been a real pleasure working with you over the years. So coming out of a real building year in FY24, the FY25 guidance for total earnings at 16% is disappointing to investors. We see that in the aftermarket reactions. But you guys remain confident in the longer term 20% plus growth profile over the next three years. Can you help us bridge that equation?

Keith Weiss: Excellent. Thank you guys for taking the question and Scott Congratulations on a really remarkable career.

Keith Weiss: It's been a real pleasure working with you over the years.

Speaker Change: So.

Speaker Change: Coming out of.

Speaker Change: A real building you're in FY 'twenty for the FY 'twenty five guidance for total revenue rose, 16% is disappointing to investors, we see that and yet the market.

Speaker Change: Reactions, but you guys remain confident in the longer term, 20% plus growth profile over the next three years can you help us bridge that equation, where do you guys garner the confidence for like that 20% plus growth.

Speaker Change: Longer term what are the parts of the equation kind of turn off if you will as we go into FY 2016 up by 27 that we're not seeing today that give you guys take hospital could make that statement with today's results.

Joe Binz: Where do you guys garner the confidence for like the 20% plus growth longer term? What are the parts of the equation that are going to turn on, if you will, as we go into FY26 and FY27 that we're not seeing today that give you guys the confidence to make that statement with today's results? Thanks, Keith. This is Joe. I'll start, and then I'll pass it over to Mike for more color.

Speaker Change: Thanks, Keith This is Joe I'll start and then I'll pass it over to Mike for more color.

Speaker Change: Despite the macroeconomic uncertainty and the execution risks related to the evolution of our go to market motion. We believe FY 'twenty five will set us up with a strong foundation to accelerate growth in FY 'twenty, six and beyond and keep in mind mechanically there are number of difficult prior year Comparables in FY 'twenty five with the end of server maintenance revenue and event driven purchasing around.

Speaker Change: The server end of support.

Speaker Change: Longer term fundamental growth drivers for FY 'twenty six and beyond are very consistent with what we shared at Investor day back in May So it starts with the opportunities we have in our three large markets those being software service management and work management.

Joe Binz: Despite the macroeconomic uncertainty and the execution risks related to the evolution of our go-to-market motion, we believe FY25 will set us up with a strong foundation to accelerate growth in FY26 and beyond. And keep in mind, mechanically, there are a number of difficult prior-year comparables in FY25 with the end-of-server maintenance revenue and event-driven purchasing around the server end of support. Longer-term, fundamental growth drivers for FY26 and beyond are very consistent with what we shared at Investor Day back in May. So it starts with the opportunities we have in our three large markets, those being software, service management, and work management. Those are collectively growing at a solid double-digit rate.

Speaker Change: Are collectively growing at a solid double digit CAGR, we have a 67 billion dollar addressable market opportunity with $14 billion of that in our existing enterprise customer base alone.

Speaker Change: And then from there we can drive growth in several ways. We believe migrations from datacenter given the size of the installed base will continue to be a driver of cloud revenue growth in FY, 'twenty, five and beyond and we're investing and working hard to enable those customers to migrate to the cloud.

Joe Binz: We have a $67 billion addressable market opportunity, with $14 billion of that in our existing enterprise customer base alone. And then from there, we can drive growth in several ways. We believe migrations from data centers, given the size of the installed base, will continue to be a driver of cloud revenue growth. And we're investing in and working hard to enable those customers to migrate to the cloud. In addition to migrations, we have paid seed expansion within existing customers as we move to enterprise and enable more wall-to-wall adoption. Then, our opportunity to cross-sell additional products like Jira Service Management, Jira Product Discovery, Compass, Loom, and Robo to our over 300,000 customers is another great opportunity.

Speaker Change: In addition to migrations, we have paid seat expansion within existing customers as we move to enterprise and enable more wall to wall adoption than our opportunity to cross sell additional products like Gyro service management gyro product discovery Compass lumen robo to our over 300000 customers is another great opportunity, we have the ability to up sell to premium and enterprise.

Speaker Change: <unk> of our products, which is another significant growth driver and then there are other drivers in the model like pricing and new customer growth, which is not <unk>.

Joe Binz: We have the ability to upsell to premium and enterprise editions of our products, which is another significant growth driver. And then there are other drivers in the model, like pricing and new customer growth, which are not significant in the short term but are a longer-term growth driver. And then lastly, with AI, I'd say we believe we have a unique and differentiated position with data graphs around high-value workloads, and there's a lot of long-term opportunity in that space as well. So overall, we continue to drive healthy revenue growth over the next three years in the cloud. And from a data center perspective, that customer base is primarily composed of large customers with very high logo retention.

Speaker Change: Significant in the short term, but it is a longer term growth driver.

Speaker Change: And then lastly, with AI and say, we believe we have a unique and differentiated position with data graphs around high value workloads and Theres a lot of long term opportunity in that space as well. So overall, we continue to expect to drive healthy revenue growth over the next three years cloud and from a data center perspective that customer base is primarily composed of large customers with very high logo retention.

Mike Cannon-Brooks: So growth from the customers that remain on data center will be driven by pricing and seed expansion and cross-sell. So overall, risks and tough comparables to navigate in the short term, but big opportunity and fundamental customer demand are there long term, particularly in the enterprise customer segment, as you can see in the momentum and traction we're getting there. We cited we have over 500,000 customers spending more than $1 million with us, which is up 48% year over year.

Speaker Change: So growth from the customers that remain on datacenter will be driven by pricing and seat expansion and cross sell so overall risks and tough comparables to navigate in the short term, but big opportunity in fundamental customer demand are there long term, particularly in the enterprise customer segment as you can see in the momentum and traction we're getting there. We cited we have over 500000 customers spend.

Mike Cannon-Brooks: So we feel really good about that. And then I'd just say overall, we remain confident as ever in our ability to deliver revenue growth in excess of a 20% compounded annual growth rate over the next three years. Look, I think Joe's answered that incredibly well, Keith. Then, if I take his word for it, he's nailed the maths there, right?

Speaker Change: More than $1 million with us, which is up 48% year over year. So we feel very good about that and then I would just say overall, we remain confident as ever in our ability to deliver revenue growth in excess of 20% compounded annual growth rate over the next three years Mike.

Mike: Yeah look I think John <unk> answered that incredibly well case the.

Mike Cannon-Brooks: We are incredibly confident in our 20, Speaker, we've given over the next three years and continue to be so today as we were at investor day for all the reasons that he stated and how the math plays out. I will say from a qualitative point of view, the more customers I spend time with, the more confidence I have in that number on the non-mask side, I suppose. Most of the large customers I speak to, in fact, all the large customers I speak to, would tell you that the cloud is a when, not if, for them.

Mike: Okay, if I take.

Max: He is now the Max there right and we are incredibly confident in our 20% figure we've given over the next three years and.

Mike: And continue to be so today as we were at the Investor day for all the reasons that he started and how that how the math plays out.

Speaker Change: I will say from.

Mike: A qualitative point of view.

Speaker Change: The more customers I've spent time with the more confidence I have in that number from.

Speaker Change: On the non mass side I suppose.

Speaker Change:

Mike: Most of the large customers I speak to the impact of all of the large customers I speak to would tell you that cloud is a when not an X.

Speaker Change: For them so that.

Mike Cannon-Brooks: So that gap between the server migrations ending and the data center migrations picking up pace, we have high confidence that that will mature through in our engineering roadmap and in the deliveries we have in the cloud and how that's responding with the customers in the stories they tell. Secondly, increasingly, AI analytics and their platform are mentioned by those large customers as reasons for moving, as well as our cloud delivery. So our proven ability to deliver, as we saw with FedRAMP in the process, Porter is responding with those larger customers. As is,

Speaker Change: GAAP between the server migrations ending in the data center migrations picking up pace.

Speaker Change: We have high confidence that that will mature through in our engineering roadmap and the deliveries we have in cloud and how that's resonating with the customers and the stories to tell.

Speaker Change: Secondly, <unk>.

Speaker Change: Increasingly.

Speaker Change: <unk> analytics.

Speaker Change: Platform I mentioned by those large customers new reasons for moving as well as our cloud delivery. So our proven ability to deliver as we saw with federal MP and process this quarter.

Speaker Change: Is resonating with those larger customers.

Speaker Change:

Speaker Change: As is.

Mike Cannon-Brooks: The new products that Joe mentioned, so in Loom, Geroproduct Discovery, Rovo, Guard, Compass, we have the best slate of new products in the nascent phases that we've had with very high customer resonance when you do qualitative checks with customers. All of those exist in the cloud, and all of those are going to drive that migration journey. Lastly, I have huge confidence in our long-term ability to evolve and adapt as a business. We've shown that over more than two decades.

Speaker Change: The new products that Joe mentioned, some OXXO and learn gyro product discovery Rover God campus, we have the best slate of new products.

Joe: And the nice in prices that we've had with very high customer residents when you do.

Speaker Change: Qualitative checks with customers all of those exist in the cloud and all of those are going to drive that migration journey.

Speaker Change: Lastly, I have a huge confidence in our long term ability to evolve and adapt as a business we've shown that over more than two decades.

Michael Turrin: We're in one of those adaptation phases at the moment as we deal with the enterprise transition, I think, adroitly. And that evolution capability that Atlassian has will continue as we help those largest customers to go increasingly wall-to-wall across their enterprises. Huge bullishness for me that we will hit those numbers. Your next question comes from Michael Turrin from Wells Fargo. Please go ahead. Hey, great.

Speaker Change: In one of those adoption places at the moment as we deal with.

Speaker Change: The enterprise transition.

Speaker Change: Adroitly.

Speaker Change: And that that evolution capability that Atlassian has will continue as we help those largest customers to go increasingly wall to wall across their enterprises.

Speaker Change: Huge bullishness for me that we will hit those numbers that we've given out.

Michael <unk>: Your next question comes from Michael <unk> from Oak Hawkeye. Please go ahead.

Unknown Executive: Thanks. Appreciate you taking the question. Objectively, 30 plus percent subscription revenue growth, and 30 plus percent free cash flow margin. Not something we're seeing a lot of across software.

Michael <unk>: Hey, great. Thanks appreciate you taking the question.

Speaker Change: Objectively 30, plus percent subscription revenue grow 30, plus percent free cash flow margin not something were seeing a lot of across software but.

Speaker Change: But in the spirit of the question is Joe you guided proud to 32% for Q4 the reported number came in at 31.

Unknown Executive: But in the spirit of the question is, Joe, you guided cloud to 32% for Q4, and the reported number came in at 31. So just hoping you can provide some context around what drove the delta in Q4. And maybe just help us frame the approach to cloud guidance for fiscal 25. If there's anything additional you're taking into account, obviously, a lot of moving pieces and factors to consider. So any comparison and contrast with the approach to guidance here versus prior periods is helpful. Thank you. Yep, it's awesome.

Joe: Hoping you could provide some context around what drove the delta in Q4, and maybe just help us frame the approach to cloud guidance for fiscal 'twenty five if there's anything additional you are taking into account obviously a lot of moving pieces and factors to consider so any compare and contrast with the approach to guidance here versus prior periods is helpful.

Speaker Change: Thank you.

Joe Binz: Thanks for the question. You're right, revenue was up 31% year over year in the cloud in Q4, but that was slightly below our guided range of 32%. The variance to our expectations there was driven by two factors. One was the timing of high-touch enterprise deals, which landed later than expected in the quarter, and slightly lower than expected revenue from data center migrations. So I'll take each one of those and dive in.

Speaker Change: Awesome. Thanks for the question Youre right revenue was up 31% year over year in the cloud in Q4 that was slightly below our guided range of 32%.

Speaker Change: <unk> our expectations there was driven by two factors one is the timing of high touch enterprise deals, which landed later than expected in the quarter and slightly lower than expected revenue from data center migrations. So I'll take each one of those and dive in from a deal slip perspective deals closed and bill billings landed in the quarter just later than we.

Joe Binz: From a deal flip perspective, deals closed and billings landed in the quarter just later than we expected, and that impacted revenue recognition. There were a couple factors that drove that. The first is what I'd characterize as the evolution of our high-touch go-to-market activities. We are driving larger, more complex deals that include more products and require more approvals. And in some cases, we're targeting large, complex migrations, and all of that adds up to longer sales cycles than we anticipated.

Speaker Change: As expected and that impacted revenue recognition there.

Speaker Change: A couple of factors that drove that the first is what I'd characterize as the evolution of our high touch go to market motions. We are driving larger more complex deals that include more products and require more approvals and in some cases, we're targeting large complex migrations and all of that adds up to longer sales cycles than we anticipated.

Speaker Change: Second we did we would always take a very disciplined and long term oriented approach as we think through pricing and concessions on these deals. So we're not deadline driven we don't do anything unusual or a natural with deal on economics to close the deal at a certain time and we're willing to be patient and wait for the right deal for both the customer and for us and Thats, what we did this quarter.

Joe Binz: Second, we always take a very disciplined and long-term-oriented approach as we think through pricing and concessions on these deals. So we're not deadline-driven; we don't do anything unusual or natural with deals; we want economics to close a deal at a certain time.

Speaker Change: In terms of the migration vis overall migrations to cloud were slightly lower on an absolute basis in Q4 versus Q3, and you would expect that following a catalyst like server and to support.

Speaker Change: With migrations from datacenter slightly lower than our expectations as you highlighted.

Speaker Change: The driver there is the <unk>.

Speaker Change: Flexing of these migrations datacenter customers, our largest customers with the most complex environments to migrate very different from the one to two day migrations that we can do with our smaller customers.

Joe Binz: And we're willing to be patient and wait for the right deal for both the customer and for us, and that's what we did this quarter. In terms of the migration miss, overall migrations to the cloud were slightly lower on an absolute basis in Q4 versus Q3, and you'd expect that following a catalyst like server end to support. Migrations from data centers are slightly lower than our expectations, as you highlighted. The driver there is the complexity of these migrations. Data center customers are our largest customers with the most complex environments to migrate. It's very different from the one to two day migrations that we can do with our smaller customers.

Mike: Further many of these customers when they do migrate do so taking a hybrid approach over time and then lastly, many of these data center customers recently migrated from server, so theres going to be variability in the pace of these data center migrations quarter to quarter and overall, our customers are clear that their ultimate destinations in the cloud as Mike talked about it's the best and most secure experience and it's where all of our R&D.

Mike: And product innovations pointed.

Speaker Change: So they can see the value, we're delivering there and have a plan to get there. So it's just a question of what the timing looks like over the next several years the.

Speaker Change: The last part of your question was on the approach to guidance in FY 'twenty five.

Joe Binz: Further, many of these customers, when they do migrate, do so taking a hybrid approach over time. And, lastly, many of these data center customers recently migrated from servers. So there's going to be variability in the pace of these data center migrations quarter to quarter.

Speaker Change: And what I'd say here is we have taken a different approach to our guidance. This year and that we have taken a more conservative and risk adjusted view of our revenue outlook entering the year than we did a year ago. We believe this is prudent given two factors first is the uncertainty we see in the macroeconomic environment and second is execution risks related to the evolution and transformation of our enterprise go to.

Joe Binz: And overall, our customers are clear that their ultimate destination is in the cloud, as Mike talked about. It's the best and most secure experience, and it's where all of our R&D and product innovation is focused. So they can see the value we're delivering there and have a plan to get there. So it's just a question of what the timing looks like over the next several years.

Joe Binz: The last part of your question was on the approach to guidance in FY25. And what I'd say here is we have taken a different approach to our guidance this year, in that we have taken a more conservative and risk-adjusted view of our revenue outlook entering the year than we did a year ago. We believe this is prudent, given two factors.

Speaker Change: <unk> motion and so our guidance balances the trends we've seen over the last year with the uncertainty that is out there whether it's macro related or changes were making inside the company and it incorporates the assumption that macro gets worse and execution risks are realized to form a more risk adjusted and prudent view entering the year than we did a year ago. So hopefully that color helps in terms of what we're thinking.

Joe Binz: First is the uncertainty we see in the macroeconomic environment, and second is execution risk related to the evolution and transformation of our enterprise go-to-market strategy. And so our guidance balances the trends we've seen over the last year with the uncertainty that is out there, whether it's macro-related or changes we're making inside the company, and it incorporates the assumption that macro gets worse and execution risks are realized to form a more risk-adjusted and prudent view entering the year than we did a year ago. So hopefully, that color helps in terms of what we're thinking about from a guidance perspective. Your next question comes from Ryan MacWilliams from Barclays. Please go ahead, Ryan.

Speaker Change: He bought from a guidance perspective.

Speaker Change: Your next question comes from Ryan Macwilliams from Barclays. Please go ahead Ryan.

Ryan Macwilliams: Hey guys, thanks for the question. Maybe for Mike, what are your thoughts on what's next for your go-to-market organization? Like alongside a new head of sales? Does it make sense to go out and also hire more seasoned enterprise sales reps into Atlassian? And how has the sales team so far transitioned from the migration opportunity into selling into more enterprises or selling new Atlassian products? Yeah, hi, Ryan. I can certainly talk about that.

Ryan Macwilliams: Hey, guys. Thanks, taking the question maybe for Mike Love to hear your thoughts on what's next for your go to market organization.

Mike Love: <unk> hired a new head of sales does it make sense to go out and also hire more students and more seasoned enterprise sales reps into Atlassian and how's the sales team so far transition from migration opportunity and be selling into more enterprises or selling new atlassian products at this point.

Speaker Change: Yeah, Hi, Ryan I can I can certainly talk to that it's a great question.

Mike Cannon-Brooks: It's a great question. Maybe I should start from the high level. I think I would categorize this as... another revolution in Atlassian's go-to-market motions overall. You've seen us do this before many times, and Atlassian has a pretty proud history of adapting to the environment, adapting to technological advancements like AI, but also changing the way we service, support, and make successful our customers. Our current go-to-market... Motion Engine is obviously highly successful. We have a highly effective flywheel that serves the SMB and our enterprise customers well, resulting in best-in-class efficiency and the financial profile that you're all aware of, and has given us a huge volume of customers and an enviable margin and cash flow profile.

Speaker Change: Maybe let me start from the higher level.

Speaker Change: I think I would categorize this as a as.

Speaker Change: Another evolution and it <unk> go to market.

Speaker Change: Motions overall.

Speaker Change: You've seen us do this before many times and Atlassian is a pretty pretty proud history.

Speaker Change: Adapting to the environment adapting to technological advancements like AI, but also changing the way we service support in Mexico for our customers.

Speaker Change: Our current go to market.

Speaker Change: Motion engine is obviously highly successful while we have a highly effective flywheel.

Speaker Change: So as the SMB and our enterprise customers as well, resulting in.

Speaker Change: And cost efficiency and the financial profile.

Speaker Change: You're all aware of.

Speaker Change: And has.

Speaker Change: Giving us a huge volume of customers and an enviable.

Speaker Change: Margin and cash flow profile.

Mike Cannon-Brooks: We have made a series of evolutions in going to market, I would say over that 20-year period, when we introduced data center, we added enterprise advocates, and obviously, we've shown a history of building a significant business, Dodd-Sinner-Wold. When we added cloud, we learned to sell and migrate. [inaudible] Proof points of that in the strong adoption of premium and enterprise. So a series of evolutions we've had over time gives us confidence that we can continue to evolve and adapt, as we have done, as we've talked about the more than $14 billion revenue opportunity in our existing base.

Speaker Change: We have made a series of evolutions and go to market I would say of.

Speaker Change: That 20 year period, when we introduce data center.

Speaker Change: We added enterprise advocates and obviously, we've shown a history of building a significant business in the data Center World.

Speaker Change: We added cloud, we learn to sell and migrate.

Speaker Change: And support customers in the cloud and built a very significant cloud business or the over time, you've seen us do that and then more recently as we added additions and premium and enterprise editions in the cloud.

Speaker Change: We've added the muscles to be able to upsell customers and explain the success of their moving and we have.

Speaker Change: <unk> pointed out in a strong adoption of premium and enterprise. So a series of evolution that we've had over time gives us confident that we can continue to evolve and adapt.

Speaker Change: As we have done as we've talked about that.

Speaker Change: More than $14 billion revenue opportunity in our existing base.

Mike Cannon-Brooks: We've spent a lot of time evolving R&D over the last three or four years to better serve enterprises in the cloud, and we've got great proof points of delivery there. And now we're continuing to evolve our go-to-market strategy too. Sales, Support, and Services, Largest Enterprises

Speaker Change: We spent a lot of time evolving R&D over the last three or four years to better serve the enterprises in the cloud and we've got great proof points of delivery there and now we are continuing to evolve our go to market motion too.

Speaker Change: Sell support and services largest enterprises.

Mike Cannon-Brooks: As we said, we've got more than 500 customers that are spending north of a million dollars, and that's great. We think we can continue to grow that portion of the customer base strongly, and that evolution and that desire to keep changing, adapting, and improving is one of the things that keeps Atlassian a very special place to work. I do think it's worth... Singh at the highest levels too.

Speaker Change: As we as we said we grew more than 500 customers that are spending north of a million dollars and that's that's great.

Speaker Change: We think we can continue to grow that portion of the customer base.

Speaker Change: Ah strongly.

Speaker Change: That evolution in that.

Speaker Change: Desire to keep changing and adapting and improving as one of the things that case that I've seen a very very special place to work.

Speaker Change: I do think it's worth.

Speaker Change: Staying at the highest levels too.

Mike Cannon-Brooks: It's important that what you can expect not to change in that evolution. First, I would say there is a discipline as a company. We've always prided ourselves on making economic decisions, understanding the deal economics in the enterprise as we do now better than ever before, and being continually capital efficient as we grow that, as you've seen us do. Secondly, the long-term focus doesn't change. Part of this evolution is looking forward to multiple years.

Speaker Change: It is important that what we can expect not to change in that.

Speaker Change: At evolution.

Speaker Change: First I would say there is a our discipline as a company, we've always prided ourselves on making economic decisions.

Speaker Change: Understanding the deal economics, and the enterprises, we do now better than ever before.

Speaker Change: <unk> continually capital efficient as we as we grow that as you've seen us do.

Speaker Change: Secondly, the long term focus doesn't change part of this evolution is looking forward multiple years and seeing how that enterprise part of our business is going to continue to grow and evolve and how we serve those largest of the of the fortune 5000, with an incredibly complex needs and our opportunity to do so and to help them out.

Mike Cannon-Brooks: Seeing how that enterprise part of our business is going to continue to grow and evolve and how we serve those largest of the Fortune 5000 with incredibly complex needs and our opportunity to do so and to help them out in their business, and lastly, maintaining a flywheel as our primary land motion for all customers. From the S&B customers in Fortune 500,000 to the enterprise customers in the Fortune 500 and Fortune 5000.

Speaker Change: In their businesses and.

Speaker Change: And lastly is.

Speaker Change: Maintaining a flywheel as a primary land motion for all customers.

Speaker Change: From the SMB customers in the Fortune 500000 to the enterprise customers in the Fortune 500 Fortune 5000.

Mike Cannon-Brooks: I point out that this enterprise focus is additive, right? Our S&B and product-led growth motions are incredibly important and efficient and will remain so for the business as we keep evolving. Now, to the second part of your question, look, we will. We will continue to focus on the talent levels we have as well as grow. Talent within our business. There are a lot of areas that we continue to grow. As we strengthen, I'll go to Michael Moskowitz to focus on the needs of our largest enterprise customers. We have a proven ability to manage multiple go-to-market machines, I would say, and thread them together carefully. And I'm sure we'll continue to improve and grow that. I'm really excited about this evolution.

Speaker Change: I'd point out that this enterprise focus his attitude right our SMB product led growth motions are incredibly.

Speaker Change: Important inefficient and will remain so for the business as.

Speaker Change: As we are.

Speaker Change: Evolving.

Speaker Change: Now to the second part of your question look we will.

Speaker Change: We continue to focus on that.

Speaker Change: The talent levels experience, we have as well as growing.

Speaker Change:

Speaker Change: Talent within our business there are a lot of areas.

Speaker Change: Areas that we continue to grow as we as we strengthen our go to market muscles to focus on.

Speaker Change: The needs of our largest enterprise customers.

Speaker Change: We have a proven ability to manage multiple go to market machines, I would say and spread them together carefully and I'm sure, we'll continue to improve and grow that but oh.

Speaker Change: Really excited about this disable if your garage.

Arjun Bhatia: Your next question comes from Arjun Bhatia from William Blair. Please go ahead. Perfect. Thank you for taking the question here. If we can touch on FedRAMP, the opportunity, it sounds like you're making progress there. I'm curious how long it might take before you can unlock some more federal deals in the cloud.

Speaker Change: Your next question comes from Arjun Bhatia from William Blair. Please go ahead.

Unknown Executive: I assume you have a lot of existing federal customers on DC. Are those customers that you can start to migrate over to the cloud? Or is there still a little bit of a process to play out before the buying cycle occurs here in calendar Q3?

Speaker Change: Perfect.

Arjun Bhatia: Thank you for taking the question here.

Speaker Change: If we can touch on the fed ramp.

Arjun Bhatia: It's all the opportunity it sounds like Youre, making progress there I am curious how long it might take before you can unlock some more federal deals in cloud us and you have a lot of existing federal customers on D. C or are those customers that you can start to migrate over to cloud or is there still are.

Arjun Bhatia: A little bit of a process to play out.

Speaker Change: Before the buying cycle occurs here in calendar Q3. Thank you.

Speaker Change: Hey, John I can certainly take that look there is no doubt we have.

Speaker Change: A huge volume of very large.

Speaker Change: Government customers.

Speaker Change: In data center.

Unknown Executive: Thank you. And I would also say we have a large number of, and I will say Cloud Roadmap Delivery is really important. Talk to compliance, to scale, to performance, and to all the other things that we're building into that roadmap for the next couple of years, favorite for Data Center Customers Migrating is a multi-year journey for a lot of these very large, driving interest across those two audiences. Luke Sidney, great question.

Speaker Change: And I would also say we have a large number of <unk>.

Speaker Change: Customers, who service government entities, who are also in data center, who might not necessarily be government entities themselves, but obviously in a lot of working with the government need.

Speaker Change: Fed ramp or RAC for them to new businesses, if they have fit around capability. So it's not just about the government its the businesses around the government as well, which is a very large segment as I'm sure you're aware.

Speaker Change: We have.

Speaker Change: We continue to work with a lot of those customers is we've developed a bedrock capabilities to keep them on.

Speaker Change: The journey and aware of where we're at.

Speaker Change: And I will say our cloud roadmap delivery is a really important point that the last couple of quarters, we've hit 100% of items on our roadmap at or before the time and this resonates with customers. So you can.

Speaker Change: Just as I, Canada future cloud roadmap.

Speaker Change: That is online.

Speaker Change: Two.

Speaker Change: Talk to compliance to scale to performance into all the other things that we're building into that to that roadmap.

Speaker Change: We have a.

Speaker Change: A series of customer examples who have cited as they've moved to hybrid Eli I can think of it very large global.

Speaker Change: Aerospace and defense company.

Speaker Change: Sort of a 20 year customer of Atlassian.

Speaker Change: That signed a hybrid <unk> this quarter for.

Speaker Change: For the next couple of years.

Speaker Change: And stated that fed ramp and the inroads we've made in cloud security on the roadmap.

Speaker Change: Called out reasons as to why they saw in such a deal and move forward. So that gives us great confidence.

Speaker Change: <unk>.

Speaker Change: We move to the in process designation of headroom, but also paper and all the other compliance standards that we've shipped.

Speaker Change: As well as data residency it gives great confidence that we can move there and obviously b Y okay as well bring your own cake encryption capabilities to this customer segment.

Speaker Change: Sorry that for data center customers migrating.

Speaker Change: It is a multiyear journey for a lot of these very large customers.

Speaker Change: Again, the reason that that company stocks.

Speaker Change: Hardware to Eli is to enable them to up moving some workflows and loads to the cloud.

Speaker Change: The workflows and loads to have on premise will continue there and they'll move.

Speaker Change: Into a great site for probably a multi year period.

Speaker Change: Before being entirely in cloud.

Speaker Change: We tend to do that and that's in test and learn about cloud that can see the strength of cloud.

Speaker Change: And they will move that over time.

Speaker Change: Thats the patent will see with a lot of these largest data center customers that can have tens hundreds.

Speaker Change: 100, and sometimes it <unk> thousands of <unk> and confluence service running across their enterprise. This is a huge ability. This lightened demand for atlassian products and lightened demand for cloud to kind of think about it that way.

Speaker Change: Is a big strength of Atlassian is we look for whatever the next.

Speaker Change: A few years.

Speaker Change: And I'm confident in our ability to unlock that and et cetera. It will be a huge unlock for our government and government of Jackson customers.

Speaker Change: Your next question comes from DJ Hynes from Canaccord go ahead.

Speaker Change: Okay.

DJ Hynes: Hey, guys. Thanks for taking the question Luke on for Vijay.

DJ Hynes: So I was hoping to get some insight into the response you've received from customers in Q OLED <unk> and the <unk>.

DJ Hynes: Just anything you've heard from both technical and nontechnical keys regarding that changing and whether it's been a positive from a marketing standpoint in terms of driving interest across those two audiences.

Speaker Change: Look suddenly great question.

Speaker Change: Look I can say categorically its been a positive from customers point of view.

Unknown Executive: That one is a very, very easy answer, continue to communicate and being The reason is a lot of our customers are incredibly technology driven companies, they realize that technology is their core competitive advantage going forward in their business, whether they're building cars or, Rockets or to exchange data back and forth and to be able to work in a common set of tools and a common set of patterns is incredibly important for them to win in that technology driven, Firstly, it allows the customer to consolidate on Atlassian off other work management tools because they have a singular cloud platform, because the technology teams within an organization are a relatively small proportion. Depending on the organization can be from 5 to 25 or 30 percent of an organization. Your next question comes from Fatima Boolani from Citi. Please go ahead. Yeah, look, Fatima, great question.

Speaker Change: That one is a very very easy answer.

Speaker Change:

Speaker Change: The system of work that Atlassian has.

Speaker Change: Continue to communicate and being sharper on over the last few quarters.

Speaker Change: It is very resonant with customers.

Speaker Change: And the reason is a lot of our customers are incredibly technology driven companies. They realize that technology is there.

Speaker Change: Core competitive advantage going forward in that business, whether they are building causal.

Speaker Change: Rockets or.

Speaker Change: Fantastic well healthcare advancements or whether they are building databases, right, where there are technical or non technical company. They realize the technology as a core fundamental advantage and.

Speaker Change: And in doing so they realize that getting their technology teams to work closely to their business teams and to exchange data back and forth to be able to work in a common set of tools and our content patents is incredibly important for them to win in that technology driven era.

Speaker Change: That's one of the reasons why.

Speaker Change: Although deere what management was doing incredibly well as a product and we're very bullish on it.

Speaker Change: We took the decision to merge the two into a single jarrod to allow technology and non technology teams to work together.

Speaker Change: That has been incredibly well received by customers.

Speaker Change: It is.

Speaker Change: Allows us to achieve those goals that they have right now we have a series of stories, where it also leads to two.

Speaker Change: Two factors for Atlassian.

Speaker Change: It allows the customer to consolidate on Atlassian off other work management tools, because they have a singular cloud platform.

Speaker Change: And in an era, where consolidation is incredibly important.

Speaker Change: <unk> works very well for us and for them.

Speaker Change: We can talk to a company like radian that took five different.

Speaker Change: Work management tools and consolidate on the Atlassian cloud due to the combination of Cura wealth management, and <unk> software save them over two and a half million annually and.

Speaker Change: And expanded their use cases for <unk> into many other business teams.

Speaker Change: And secondly for a vaccine it allows us to expand our seat count.

Speaker Change: Because the technology changes within an organization or a relatively small proportion depending on the organization can be from five to 25 or 30% of an organization. The other 95% 70% of the organization is our business teams that still have workflows and project our capabilities they need.

Speaker Change: And we're getting is a good example, where we've seen that where we've got both consolidation and seat expansion for atlassian due to the system of work.

Speaker Change: And the platform that underlies all of our products.

Speaker Change: Incredibly good customer reception from this mode.

Speaker Change: And as we continue to do it last year over the long term, it's about listening to customers and understanding what they need and trying to deliver that in our product portfolio.

Speaker Change: In our R&D and also in our go to market motion somehow explain to customers. What it is that we do and help them with.

Speaker Change: Your next question comes from the team at the Ronnie from Citi. Please go ahead.

Speaker Change: Yeah.

Ronnie: Hi, good afternoon, and thank you for taking my questions Joseph.

Speaker Change: Your next question is for you and earlier you were very explicit in the variables and assumptions you are taking into consideration for that clarity.

Speaker Change: Cloud backup business for fiscal 'twenty, five and you need a specific reference acute execution risks.

Speaker Change: Some of the enterprise go to market motion changes that Youre, making I was hoping we could go a couple of layers deeper in Q1.

Speaker Change: Specific variables or functions.

Speaker Change: Considering or slack, saying kind of arrived at that conclusion.

Speaker Change: Lee.

Speaker Change: Changes in the sales organization and kind of a departure of Kevin.

Speaker Change: How is that flowing downstream in the way you're thinking about them.

Speaker Change: Just.

Speaker Change: Well productivity and and quota attainment and things like that it really appreciate from our granularity. Thank you.

Speaker Change: Yes. Thanks for the question I'll keep it at a fairly high level in terms of the execution risk we see in that transformation of evolution of our go to market enterprise sales motion.

Speaker Change: You pointed out there is leadership transition there and so that's always something you want to keep in the back of your mind as you think about forecasting over the next year and then I would just say, it's a nascent capability that we continue to build and develop over time and we Mike piloted. The fact, we've been investing in this space. We have a foundation that as we continue to make more and more progress.

Speaker Change: We're going to continue to evolve and build that and whenever you're doing that that involves risk and our execution against that level of change so.

Speaker Change: From a high level those are the two big factors and I'll, let Mike fill and fill in the details.

Mike Love: Yeah look containment Greg question I want to I guess I'm Gonna start from my point of view, but nothing but gratitude and thanks for Kevin and they're always Playa front has been an incredibly.

Fatima Boolani: I want to, I guess I want to start from my point of view, but nothing but gratitude and thanks for Kevin and the role he's played. Right, a dedicated leader of the sales function for a number of years, built an incredibly strong sales leadership team. And has set up the foundation for us to make this continued transformation and evolution. I just have to have to call him out, with great thanks from myself and from Scott in that context. As I said, we are searching for a transformational CRO. We can continue to drive that next phase at an ever increasing scale. That search is well underway.

Mike Love: Dedicated later of our cell function for a number of years has built an incredibly strong sales leadership team.

Mike Love: And.

Mike Love: Has has set up a foundation for us to make this this continued transformation.

Mike Love: And evolution. So just have to have to call them out with great. Thanks from from myself and from Scott in that in that context.

Mike Cannon-Brooks: And in the short term, look, I personally led and built the go-to-market engine we have today for our first 17 years, I guess, and continue to be incredibly heavily involved there and with the customer. I will say we have an incredibly strong executive team. I would argue the strongest we've ever had across the business, incredibly confident we can lead the business strongly through that evolution. I think Joe has spoken well to the prudence of our guidance in light of this transformation, but more in light of the other things he's and the other factors that go into that there. And I think, you know, you've seen that from us.

Mike Love: As I said, we are so.

Mike Love: For a.

Mike Love: Sarah if we can continue to drive that then exercise.

Mike Love: Our increasing scale.

Mike Love: Such as is well underway.

Mike Love: And.

Speaker Change: In the short term look I personally.

Speaker Change: Led and built that go to market engine that we have today for our first.

Mike Love: 17 years I guess.

Mike Love: And continue to be incredibly heavily involved there and with the customers.

Mike Love: I will say, we have an incredibly strong executive team.

Mike Love: I would argue the strongest we've ever had across the business.

Craig: And Craig.

Mike Love: I'm incredibly confident we can.

Mike Love: Ladies business strongly through that that evolution.

Mike Love: I think Joe has spoken well to their prudence.

Joe: Our guidance in light of this transformation, but more in a lot of the other things. He has mentioned and the other factors that go into that there.

Speaker Change: You've seen from us.

Mike Love: Prudence and.

Mike Cannon-Brooks: [inaudible] Careful thought as well as hopefully openness and explanation about what it is that we are going through as we focus on the long term. And lastly, I would reiterate my deep belief and confidence in the 20%, multi-year revenue KV that we gave out at Investor Day, and we would maintain targets both on the revenue side and on the return to historical operating. Your next question comes from Brent Thill from Jeffries. Please go ahead.

Speaker Change: Careful thought as well as hopefully openness and explanation about what it is that we are going through as we refocus on the long term.

Speaker Change: And lastly, I would I would reiterate.

Mike Love: Deep belief and confidence in the 20%.

Mike Love: Multiyear revenue guide that we've given out at Investor day, and we would maintain those.

Mike Love: It's both on the revenue side and on the returning to historical operating margin side.

Speaker Change: Your next question comes from Brent Thill from Jefferies. Please go ahead.

Brent Thill: Thanks, Joe. As you know, the central question investors are asking us is the cloud guide and, ultimately, you know, are you putting a little more conservatism into this forecast to give yourself more wiggle room. And, yeah, Brent, thanks for the question. In terms of the revenue guidance, I'll just reiterate what I said earlier, in terms of our approach, we are taking a different approach to our guidance this year. It is a more conservative and risk-adjusted approach.

Mike Love: Thanks.

Brent Thill: Joe as you know the central question investors are asking US is is the cloud guy than in ultimately.

Brent Thill: Are you, putting a little more conservatism into this forecast to give yourself more wiggle room. It it's been a I know it's been a challenging thing to forecast given a lot of different factors, but.

Speaker Change: Has your approach changed here as anything.

Speaker Change: Change in the underlying assumptions to get investors more confidence that they can they can really believe in that number.

Speaker Change: The second one was just to follow up on two months ago, you guided to 20% top line, you're guiding to 16.

Speaker Change: Should we think differently now about the long term growth or is this more of a tactical pit stop and you still believe in 'twenty over over a period of time.

Joe Binz: And the reason and the drivers for that are, you know, the risks and uncertainties that we talked about. One is that we see uncertainty in the macroeconomic environment. And second, the question earlier, you know, we do see execution risk related to the evolution and transformation that we're undergoing on the go-to-market side. So, we've taken all of that into account. And the net result of that is we have a more risk-adjusted and prudent view this year going into the year than we did last year.

Speaker Change: Yes, Brian Thanks for the question in terms of the revenue guidance I'll, just reiterate what I said earlier in terms of our approach we are taking a different approach to our guidance. This year. It is a more conservative and risk adjusted approach.

Speaker Change: And the reason and the drivers for that are.

Mike Love: <unk> and uncertainties that we talked about one is we see uncertainty in the macroeconomic environment and second to the question earlier, we do see execution risk related to the evolution and transformation that we're undergoing on the go to market side. So so we've taken all of that into account and the net result of that is we have a more.

Joe Binz: So we have adjusted slightly to that. In terms of cloud revenue, and revenue overall, we are still committed to a three-year 20% plus compounded annual growth rate on revenue. We talked earlier about the drivers of that.

Mike Love: Risk adjusted and prudent view this year going into the year than we did last year. So we have adjusted slightly to that.

Speaker Change: In terms of the cloud revenue and revenue overall, we are still committed to a three three year, 20% plus compounded annual growth rate on revenue.

Speaker Change: We talked earlier about the drivers on that now.

Speaker Change: Nothing has changed in the last three months since Investor day, when we made that.

Joe Binz: Nothing has changed in the last three months since investor day when we made that. We continue to reiterate, you know, our confidence around that. And we talked earlier on the call about the drivers behind that. Your next question comes from Aleksandr Zukin from Wolf Research. Please go ahead.

Speaker Change: We continue to reiterate our confidence around that and we talked earlier on the call about the drivers behind that.

Speaker Change: Your next question comes from Alex Zukin from Wolfe Research. Please go ahead.

Alex Zukin: Yeah, Hey, guys I think maybe it would be helpful to just unpack kind of similar to how you at least commented in the letter on the margin side around the headwinds that investors should refer the tailwind that investors should recall that were onetime in nature on operating margins in fiscal 'twenty for such that ex that the fiscal 'twenty five margin.

Speaker Change: <unk> is actually flat similar to that framing if it's possible just to understand if you look at the guide that you gave for 16% total revenue growth, but that's in light of these one time tailwind as of end of server.

Speaker Change: Conversion, because I think if I adjust for that the guide is actually closer to 19. So just help us frame that because that's obviously not going to recur.

Speaker Change: And.

Speaker Change: Presumably it appears from your commentary that the guidance is more incorporating timing of certain deals closing on the enterprise side, maybe migrations on the enterprise side, that's informing the conservatism, but just maybe help.

Speaker Change: Maybe help me better understand that a little bit.

Speaker Change: Yes, Alex this is Joe I'll take a shot at that I think first of all you started from an operating margin perspective, and what are the factors there that are driving the lower year over year operating margin.

Speaker Change: As you pointed out we expect our non-GAAP operating margin to be 21, 5% approximately in FY 'twenty five that's about 200 basis points lower than FY 'twenty four keep in mind as you pointed out our FY 'twenty four non-GAAP operating margin benefited from the significant outperformance in data center and marketplace revenue related to server and.

Speaker Change: To support an H too that impact was about 200 basis points and so when you normalize for that impact our FY 'twenty five operating margins will be roughly flat year over year.

Speaker Change: In terms of the cloud revenue deceleration and the comps there we do believe cloud revenue growth will decelerate in FY 'twenty five and the primary drivers we expect less contributions from silver migrations now that we're past server end of support and while data center migrations will increase they wont make up for the decrease in server migrations given the mic.

Speaker Change: <unk> path for many of those customers as we've talked about earlier will play out over a multiyear period with many involving hybrid deployments. We've also incorporated as you pointed out prudent assumptions to account for the impact of worsening macroeconomic environments and execution risks in our enterprise go to market motions.

Speaker Change: So those are the some of the factors that are driving that year over year diesel and cloud revenue now having said that as we pointed out on the call. We remain optimistic long term and expect cloud revenue growth to accelerate in FY 'twenty six as we lap the drag from server and to support and drive improving seed expansion cross sell of additional products and up sell to premium and enterprise editions of our products that way.

Speaker Change: Talking about earlier.

Speaker Change: Your next question comes from Gregg Moskowitz from Mizuho. Please go ahead.

Gregg Moskowitz: Okay. Thank you for taking the question I had a follow up on a couple of the coated market questions from earlier.

Gregg Moskowitz: Youre looking as you said for our new CRO with expertise in leading enterprise sales transformation, but how do you define an enterprise sales transformation and more specifically how much do you foresee your go to market changing atlassian, both in fiscal 'twenty, five as well as over the longer term.

Aleksandr Zukin: Hey, Greg.

Gregg Moskowitz: Yes.

Speaker Change: How much is an interesting question.

Speaker Change: Look I would say that we are.

Speaker Change: <unk> continued to be a very long term thinking company and when I say that I mean are you know at.

Speaker Change: At Investor Day, we talked about our R&D spend as a percentage of greater revenue moderating run against our long term targets and our sales and marketing spend increasing from roughly that sort of <unk>.

Speaker Change: <unk>, 16% range.

Speaker Change: Moving moving north of that so you can see implied in that that there'll be increasing spending, but I would argue in AR.

Aleksandr Zukin: In a cautious and careful way, and we're very good at capital efficiency, and comparative. [inaudible] in how we are helping them transform their business. Now, we're a long way from that nowadays, but this is something that we are familiar with. It is a history of evolution that we have had.

Speaker Change: In a cautious and careful way and we're very good at the.

Speaker Change: Capital efficiency.

Speaker Change: The.

Speaker Change: The calculation of where the ROI on that spend is and it's a relatively moderate.

Speaker Change: The increase in spending, especially when you compare it to our comps.

Thompson: Thompson and market and other companies will still be.

Aleksandr Zukin: After that transition.

Speaker Change: Comparatively.

Speaker Change: Efficient on sales and marketing to most other software companies and still comparatively high spending on R&D.

Speaker Change: Because we believe that that's where our fundamental advantages I think.

Speaker Change: Think about this is an evolutionary or an adjustment.

Aleksandr Zukin: In that in that manner.

Aleksandr Zukin: Now.

Aleksandr Zukin: The transformation is about how we continue to take those 500 customers spending more than $1 million and the huge lightened demand we have.

Aleksandr Zukin: In data center and increasingly build deep partnerships with some of our largest customers.

Speaker Change: And how are we helping them transform their businesses.

Brian: This is a part of our evolution Brian.

Speaker Change: Talks about when you.

Aleksandr Zukin: No.

Aleksandr Zukin: 15, 17 years ago. When we started the data center business, we were talking about moving parts of that dollar customers to be $50000 customers and now we're a long way from that nowadays.

Aleksandr Zukin: But this is something that we are familiar with it has a history of evolution that we've had and I think it is a very.

Unknown Executive: And I think it's a very important thing for them to roll out to ever-increasing numbers of scale, and they want to understand the philosophies of how we work together and build a partnership across our portfolio of products. And that's what we mean by that enterprise transformation and how we sell. Thank you very much.

Aleksandr Zukin: You know.

Unknown Executive: Small example of how Atlassian continues to evolve through the years in ways that benefit our customers in this case, we're looking at our largest customers.

Speaker Change: You know when you spoke to them, they're betting incredibly hard on Atlassian.

Unknown Executive: I think that we are transforming the way that the company works they want to rollout to ever increasing numbers of scale and they want to understand the philosophy of how we work together and build a partnership across our portfolio of products and.

Unknown Executive: And that's what we mean by that.

Unknown Executive: That enterprise transformation in how we sell.

Unknown Executive: Support and ultimately might be successful those largest customers.

Speaker Change: Lastly, I will point out that we believe this is additive to our model.

Speaker Change: Not a swap or a switch.

Speaker Change: We have a great.

Speaker Change: Capital efficient flywheel in the product led growth motion that we have at landing large numbers of SMB customers, but also landing in those enterprise customers, which is what makes.

Speaker Change: That enterprise motion more efficient for us than other companies.

Speaker Change: They work together in harmony.

Speaker Change: Your next question comes from Kash Rangan from Goldman Sachs. Please go ahead.

Unknown Executive: So Mike, a question for you with these transitions can be very hard. And certainly, the goal is to come out more successful as a company. Clearly, you're on the way.

Speaker Change: Hi, Thank you very much.

Unknown Executive: But as you come out of the transition, what are the lessons learned? And how can there be further tweaks to the product strategy to go to market? I guess we all learn from the most difficult, challenging times, and we come up mostly ahead.

Kash Rangan: Mike a question for you with.

Mike Cannon-Brooks: These transitions can be very hard and certainly the goal is to come out more successful as a company clearly you're on the way.

Mike Cannon-Brooks: As you come out of the transition what are the lessons learned and.

Mike Cannon-Brooks: How can there'll be further tweaks to the product strategy go to market I guess, we all learned from the most difficult challenging times and to come out mostly ahead. So one of the things that you have learned that you're going to adopt to the strategy of the company the company going forward and also for bandwidth perspective.

Unknown Executive: So one of the things that you have learned that you're going to apply to the strategy company going forward and also from a bandwidth perspective, you're in an unenviable position. You're now twice the CEO that you were before. With Scott, of course, he's on the board now. And then you're looking for a CRO.

Speaker Change: You are in an enviable position.

Unknown Executive: Now twice the CEO that sure before with Scott.

Speaker Change: Scott of course equaled the board now and then you were looking for a CFO I mean these are some big shoes to fill.

Unknown Executive: I mean, these are some big shoes to fill. So how and you talked about Joe very eloquently talked about a lot of the different levers that exist in place to get the company to potentially accelerate. And one of the very first questions I had, I'm more curious about how you get there. What are the things that are that are being done internally differently?

Speaker Change: And you talked about Joe very local to you talked about the <unk>.

Unknown Executive: Or what how the different leverage fixes in place to get the company to potentially accelerate and one of the very first questions I had but I'm more curious about the how you get there what are the things that are that are being done internally differently.

Speaker Change: I know, it's a long rambling complicated question, but I just wanted to hear you out.

Speaker Change: More than that as you sort through all this stuff. Thank you so much.

Unknown Executive: It's just I know it's a long, rambling, complicated question, but I just wanted to hear you out a little bit more in depth as you start to think about all this stuff. Thank you so much. Sure, Cash. I'm guessing I'm going to take that one.

Kash: Sure Kash.

Speaker Change: I'm going to take that one.

Unknown Executive: Sure.

Speaker Change: Look I'll say a few things firstly.

Mike Cannon-Brooks: I think I would start by saying we have an incredibly strong executive team. But at a high level, look, we have a great executive team; we have a great sales leadership team at the moment. This is not something that starts on July 1.

Speaker Change: I would start with saying we have an incredibly strong executive team.

Speaker Change: A lot of the implication of your question is it's all going to pull on my shoulders, and there's no doubt ultimate accountability does I'm very comfortable with that.

Mike Cannon-Brooks: But at a high level Luckily, we have a great executive team and have a great sounds leadership team at the moment.

Mike Cannon-Brooks: And we are well familiar with this evolution and transformation motion and having it play out over the quarters and the years.

Mike Cannon-Brooks: This is not something that starts on July one.

Mike Cannon-Brooks: Of this of this quarter. This is something that's been going for a while as you can see with more than 500 customers north of $1 billion. This is not an entirely new motion crossroads thesis.

Ryan Macwilliams: And evolution, there's nothing broken Hey, Ryan, we're just continuing to improve and grow and stretch as we have done for a long time.

Speaker Change: The mix shift being more and more attitude in the enterprise as we said have come on the back of a huge amount of R&D investment into everything from data residency and B Y <unk> to scale in the cloud to fed ramp.

Speaker Change: Now we believe we have.

Mike Cannon-Brooks: The opportunity to.

Mike Cannon-Brooks: Increase our footprint in that enterprise customer base.

Speaker Change: In all of our customer markets I would say from.

Speaker Change: Software teams.

Speaker Change: And at TSM, and you're seeing how strong is your service management businesses at the moment.

Mike Cannon-Brooks: and through... to go off to, when you talk about, continue to see great sales execution as we go through. I would say that our strength as a company has always been our ability to learn and evolve. Your next question comes from Nick Altmann from Scotiabank. Please go ahead.

Mike Cannon-Brooks: And through.

Speaker Change: Wealth management and collaboration that's the system, where it rolls out and we get a hot footprint. So I think we feel the opportunity is there.

Speaker Change: And we're going to go after that.

Speaker Change: I think.

Mike Cannon-Brooks: When you talk about.

Speaker Change: What lessons that we learned look.

Speaker Change: We continue to see.

Mike Cannon-Brooks: <unk> sales execution as we go through 2000.

Speaker Change: <unk> 24 was a huge.

Speaker Change: And for US in terms of a lot of things product launches, but also in terms of pipeline builds it was our largest enterprise event, we've ever held in.

Speaker Change: And the confidence that comes from those customers often informs us in making these days.

Speaker Change: These evolutions and movements.

Speaker Change: I would say that.

Speaker Change: Strengths as a company has always been our ability to learn and evolve.

Nick Altmann: I'm less worried about personal workload and personal bandwidth.

Speaker Change: Then looking at the team of <unk>.

Mike Cannon-Brooks: Yeah.

Speaker Change: And then on paper, we have on the executive team I guess Italian then through the.

Speaker Change: <unk> thousand liters, we have through the business and that the 12000 tomorrow last year in stock and our ability to collect it.

Speaker Change: To go after this mission not feeling incredibly confident that we can we can get after that and do that and that's what we intend to go to.

Speaker Change: Your next question comes from Nick Altmann.

Nick Altmann: <unk> Bank. Please go ahead.

John <unk>: Hey, guys. This is John <unk> on for Nick Hoffman, Thanks for taking my question.

Nick Altmann: You guys outlined some interesting examples at the analyst day in terms of the product adjacencies with Loom and the core. So now that Loom has been part of Atlassian for a couple of quarters now, can you give us a better sense of cross-selling traction there? And as it pertains to FY25, do you have any goalposts for how we should be thinking about the Loom contribution? And I'll turn it over to Mike on the cross sell. I would say a few things I've learned. Firstly, what an incredible product, right? The customer section, I would start there, is fantastic.

Nick Altmann: You guys outlined some interesting examples at the analyst day in terms of the product Adjacencies with loom in the core.

Nick Altmann: So now that loom has been part of Alaska for a couple of quarters now can you give us a better sense.

Mike Cannon-Brooks: Cross selling traction there.

Speaker Change: And as it pertains to your FY 'twenty five do you have any goalposts for how we should be thinking about the loom contribution.

Nick Altmann: Yes. Thanks for the question I'll take the first part of that and then Mike will follow on you asked about the FY 'twenty five impact that loom will have.

Speaker Change: Within our overall revenue and operating margin guidance for FY 'twenty five we expect to have about one five to two points of impact on FY 'twenty five cloud revenue growth for the year.

Speaker Change: And consistent with our prior expectations, we expect <unk> to be slightly dilutive to FY 'twenty five operating margins.

Nick Altmann: I'll turn it over to Mike on the cross sell.

Nick Altmann:

Speaker Change: I would say a few things on loan firstly.

Speaker Change: Uh huh.

Nick Altmann: What an incredible product right.

Nick Altmann: The customer reception I would stop there is fantastic.

Speaker Change: It is.

Mike Cannon-Brooks: Saving our customers a lot of time and meeting. So our bullishness about the product and the product sector is still very strong. As a product, it continues to sell very strongly independently of Atlassian. That's always the first step.

Speaker Change: Saving our customers a lot of time in meetings.

Speaker Change: Just a fantastic way to communicate any you haven't tried it I would encourage you to do so.

Mike Cannon-Brooks: We truly believe it can be transformational to the way that organizations work the way that they work through video and an asynchronous manner and an increasingly.

Mike Cannon-Brooks: Distributed workplace that we live in.

Mike Cannon-Brooks: Our bullishness of the product and the product sector is still increasingly is still very hot.

Mike Cannon-Brooks: Secondly.

Mike Cannon-Brooks: As as a product.

Speaker Change: It continues to sell very strongly independently of Atlassian and that's always the first step.

Mike Cannon-Brooks: I would say we've added a small amount of top spin to the business in terms of how it actually edits video just as you would edit a text document. True, both with customers and also. The role applies in the system of work. Maybe lastly, I would say that the Loom team that's joined us and the additional Loom mates we've added to that continue to deliver a very strong product roadmap. If you look at the recent launches, you can loom around integrations with your own confluence.

Speaker Change: I would say we've had a small amount of top spin to the business in terms of how it actually.

Mike Cannon-Brooks: Holly.

Mike Cannon-Brooks: Sales in Mumbai continues to sell.

Speaker Change: Drive change inland in and of itself.

Mike Cannon-Brooks: As.

Mike Cannon-Brooks: Our ability to.

Mike Cannon-Brooks: It had video just as you had added a text document.

Mike Cannon-Brooks: This is true both with customers and also.

Mike Cannon-Brooks: With.

Mike Cannon-Brooks: In the delivery of the product.

Mike Cannon-Brooks: We are continuing to integrate <unk> into our business practices as we as we do so into the Atlassian cloud platform.

Mike Cannon-Brooks: To our board.

Mike Cannon-Brooks: And marketing execution machine.

Speaker Change: <unk> does take some time to get better at it with H evolution.

Mike Cannon-Brooks: Two two streams one is the product continuing independent nature. So strongly by itself and secondly is the integration into our broader platform.

Mike Cannon-Brooks: They were all applies in.

Mike Cannon-Brooks: This system of work.

Mike Cannon-Brooks: Maybe lastly, I would say that the team.

Mike Cannon-Brooks: The Luna team, that's joined Us and any additional limits we've added to that continued to deliver very strong product roadmap.

Mike Cannon-Brooks: If you look at the recent launches and loom around integrations with CRM confluence.

Mike Cannon-Brooks: But also in that Luna AI, SKU and continuing to work on.

Mike Cannon-Brooks: You can just seamlessly added video.

Mike Cannon-Brooks: I think the product delivery there is going to continue to be important.

Mike Cannon-Brooks: As we build the momentum in the business.

Mike Cannon-Brooks: Your next question comes from Keith Bachman from BMO. Please go ahead Keith.

Mike Cannon-Brooks: Hi, many thanks for the question Joe I wanted to direct this to you.

Mike Cannon-Brooks: <unk> in your comments.

Speaker Change: One being a bit more conservative on the outlook and I wanted to tie that to some of the conversations we had in Vegas, and particularly as we think about the outlook for the year.

Mike Cannon-Brooks: In the cloud and data center, just how are you thinking about two variables that would contribute, amongst others, but in particular, as it relates to seats and price? How are you thinking about, you know, the contribution from those in order to realize the targets that you've laid out for the year? Yeah, thanks for the question, Keith. From a paid seat expansion perspective, our expansion rates in Q4 were consistent with those in Q3. That's an encouraging sign, but one data point is not a trend to make.

Mike Cannon-Brooks: In cloud and data center.

Speaker Change: How are you thinking about two variables that would contribute amongst others, but in particular as it relates to seats and pricing.

Mike Cannon-Brooks: How are you thinking about.

Mike Cannon-Brooks: You know what the contribution from those in order to realize the targets that you've laid out for the year.

Mike Cannon-Brooks: Yes.

Joe Binz: And so we are assuming that we'll see continued pressure on paid seat expansion in FY25, and that speaks to the risk-adjusted approach we took around macroeconomics. In terms of pricing, we continue to expect to have pricing increases throughout the year. That will be a driver of cloud revenue growth as it was in FY24 and prior. And so you should expect, you know, to see a similar impact in FY25 and going forward.

Speaker Change: Yes, thanks for the thanks for the question Keith.

Speaker Change: From a paid seat expansion perspective, our expansion rates in Q4 were consistent to Q3.

Joe Binz: That's an encouraging sign but one data point does not a trend make and so we are assuming that we'll see continued pressure in paid seat expansion in FY 'twenty five.

Joe Binz: And that speaks to the risk adjusted approach we took around macroeconomic.

Joe Binz: In terms of pricing, we continue to expect to have pricing increases throughout the year that will be a driver of cloud revenue growth as it has been in FY 'twenty four and prior.

Joe Binz: And so you should expect to see a similar impact in FY 'twenty five going forward.

Joe Binz: Yeah.

Mike Cannon-Brooks: Thank you. That's all the questions we have time for today. I will now turn the call over to Mike for his closing remarks. Thanks, everyone, for joining the call today. I appreciate all of your thoughtful questions and continued support. I guess I just want to add a small note on a personal level at the end here. It is Scott's last earnings call, and you've all spared him some questions today, which I'm sure he's very grateful for.

Joe Binz: Thank you that's all the questions. We have time for today I will now turn the call over to Mike for closing remarks.

Mike Cannon-Brooks: Thanks, everyone for joining our call today.

Mike Cannon-Brooks: Appreciate all of your thoughtful questions and continued support.

Mike Cannon-Brooks: I guess I just wanted to add a small note on a personal level at the end here.

Mike Cannon-Brooks:

Mike Cannon-Brooks: It is Scott's last earnings call and you've all spread into some questions today, which I'm sure is very grateful for.

Mike Cannon-Brooks: Yeah.

Mike Cannon-Brooks: One of.

Mike Cannon-Brooks: What one thing do you want to leave them with? When Scott sits down with graduates, when they join Atlassian, or with any new staff members, one of the things he's said for more than two decades now... Is it the one thing you want to leave them with? is that they should leave Atlassian a better place than they found it... [inaudible] Anutthara Bharadwaj I say that because I think if there's one person who's left Atlassian better than he found it, it is Scott. On behalf of the leadership team of the 12,000 current Atlassians and the past and present add together.

Mike Cannon-Brooks: When Scott sits down with graduates when they when they joined US you know with any new soft brand as one of the things he said for more than two decades now.

Speaker Change: Is it.

Speaker Change: The one thing you want to leave them.

Speaker Change: Is that they should leave Atlassian, a better place than the standard that they should not traded as a finished object, but rather a continued construction projects it gets better and better and that if they leave the company better than they founded in FCA anything they walk away with.

Speaker Change: We will all benefit and I say that because I think if there's one person who has left atlassian better than me.

Speaker Change: And did it.

Speaker Change: It is Scott.

Anutthara Bharadwaj: On behalf of the leadership team of the 12000 current Atlassian.

Mike Cannon-Brooks: The.

Speaker Change: 21000, I, even know how many atlassian, they're our partner and president add together.

Mike Cannon-Brooks: We all owe him a huge debt of gratitude and thanks for leaving Atlassian. Better than he found it is an underestimation, but just a magical place to work and a fantastic and different... Company, and from me personally and from everybody else, thank you, Scott, for..., for everything you've done to contribute to the business we have today. We are all lucky enough to get to work every day. Thank you very much from me. We love you a lot and wish you the best. Did that have a? Great day, everyone, and have a kick-ass week. (inaudible)

Mike Cannon-Brooks: <unk>.

Anutthara Bharadwaj: We all owe a huge debt of gratitude and thanks for for leaving Atlassian.

Mike Cannon-Brooks: Better than he found it as a as an underestimation purchased.

Mike Cannon-Brooks: A magical place to work in a fantastic and different.

Mike Cannon-Brooks: Company and and for me personally and from everybody else. Thank you Scott for.

Mike Cannon-Brooks: For everything you've done to contribute to the business we have today.

Mike Cannon-Brooks: And the place we are lucky enough to get to work.

Mike Cannon-Brooks: Every day and.

Mike Cannon-Brooks: For a long time to come so thank you very much for me.

Speaker Change: We won't be a lot and I wish you the best in a.

Mike Cannon-Brooks: For future endeavors.

Mike Cannon-Brooks: But that had a.

Mike Cannon-Brooks: Great to everyone and have a kick <expletive> a weekend.

Mike Cannon-Brooks: [noise].