Q1 2025 Atlassian Corp Earnings Call
Good afternoon and thank you for joining at Lassian's earnings conference call for the first quarter of fiscal year 2025.
As a reminder, this conference call is being recorded and will be available for replay on the investor relations section of at LaTien's website following this call. I will now hand the call over to Martin Lam at LaTien's head of investor relations.
Welcome to at last the first quarter of fiscal year 2025 earnings call. Thank you for joining us today. On the call with me today, we have at last the CEO and co-founder Mike Cannon Brooks, and Chief Financial Officer Jo Kn.
Earlier today, we published a shareholder letter in press release with our financial results and commentaries for our first quarter of fiscal year 2025.
The Shareholder letter is available on the lock-ins 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 sheet.
As always, our Sherholder Letter contains management insight and commentary for the quarter, so during the call today, we'll have brief opening remarks and then focus their time on Q&A.
This call will include forward-looking statements, involved known in the unknown risks on certain
Danny Fetchrister on 30th, interiorized or if any of the assumptions proving correct, our results could differ materially from the results expressed or implied by the four in the confitments we make.
and the WIAPON for the Confidence as Predictions of the Future event. For the Confidence, represent our management's beliefs and assumptions only out of the date such statements are made. We undertake new obligations update or provide such statements should they change or cease to be current.
Further information on these and other factors that could affect our business performance and the financial result is included in violence we make with the security and exchange commission from time time.
including the section titled Risk Factors in our most recently filed an report in quarterly reports.
During today's call, we will also discuss non-gap financial measures. These non-gap financial measures are in addition to and are not accepted to four or superior to measures that are available for most of the period in accordance with that.
Reconciliation between Gap and NonGap Financial measures is available and our shareholder letter earnings release and inducted data sheet on the investor relation section of our website.
We'd like to allow many of you to participate in Q&A as possible out of respect for others on the call, but 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 here today.
Mike: As you've read in our SHOWed letter FY 25 is off to a good start.
with Crashoff R1024 Europe event in Barcelona where we heard how customers like voter phone, Lloyd's Banking Group and Mercedes Benz, leveraging our products in powerful ways to drive 10 productivity and deliver superior service.
We are really energized by the excitement from our customers and pibles in response to the innovation that we're delivering.
Over the last few months, I've met with dozens of CEOs and CEOs from our largest customers and listen to the challenges that they face.
Mike: Technology is increasingly becoming critical to the success of every single organisation. And with a platform that now spans software, IT and business teams, I think at last unit's uniquely positioned to break down the silos between those teams through our system of work.
Speaker Change: If we're interested in hearing more about the system of work, we are always innovating here at last year. Check out the loom I just posted to our IAR website to give you all a sense of how loom works and give us any feedback from how you like it.
AI, of course, is also going to play a pivotal role in how we'll get done.
with the power of our and the engine and more than 20 years worth of data and how teams plan, track, and deliver work. We have incredible competitive advantages in the AI Europe.
and we're not just marketing AI, we're shipping it.
We've made Rosho and newest AR Tower product generally available for all customers just five months, months after announcing it at Team 24 in Las Vegas.
Rowo is delivering differentiator value our customers. Through our powerful teamwork graph, allowing customers to unlock their existing organization on knowledge at ever increasing scale and pace.
We also continue to thread our AI capabilities throughout the entire cloud platform with the last year intelligence across premium and enterprise additions of all existing products.
This is driving increased customer adoption of higher value additions and of course driving migrations to the cloud.
The Bill of Miss Nencent, which introduced your product discovery premium, compass premium and God premium, and an even more advanced and enterprise-grade capabilities to a newest cloud offer.
and lastly, with our increased focus on serving enterprise, we introduced at the vaccine focus that you as products in our enterprise strategy and planning solution.
This continued product innovation is paved way for our largest and most complex customers to unlock incredible value from the Atlassing Cloud Platform.
Our customers understand that the ultimate cloud experience, the ultimate at lasting experience is in the cloud. But our increasingly expressing their desire to adopt our cloud offerings.
The progress of making against that top strategic priorities of serving the enterprise delivering on AI innovation and empowering teams to work better together with our system of work is resonating incredibly well with our customers.
We look forward to building on this momentum in order to seize the incredible opportunities that lie ahead of Atlantis and make further progress on our mission, at least the potential of every team.
Speaker Change: with that I'll pop to the operator for Q&A.
We will now begin the question and answer session.
If you have a question, please press star, followed by the one on your phone.
Speaker Change: and Michael Cannon. If you'd like to withdraw from the queue, please press star followed by the two.
You'll find a question from Casparan Gond from Golden Tucks. Please go ahead.
Speaker Change: The
The End
Parkly which we saw a team and just a few months.
and I have a question that you'd release it. What are the proof points that you can offer to us that AI?
Speaker Change: Contribute a lot of fears of law street that might take away jobs and development and service. What is support can you offer as a base on your customer conversations anecdotal of the, that it could be just the opposite. Thank you so much. If it is the opposite. Thank you.
and the other.
The End.
Speaker Change: Look, I can tell you in terms of both.
Speaker Change: Let me step back. We have a superong to AI strategy as you're probably all aware.
We have it lasting intelligence threaded throughout our platform for all the existing cloud products The brings out capabilities to every single product we offer.
and we have Robo, which is a separate product built in and for that AI era and all that is in is now in general availability and we keep it around and building on it every single quarter with our R&D engine.
Speaker Change: In terms of three points
I can tell you that both.
Speaker Change: and the last year in intelligence customers and the people in the Rowo Fulioxist Program have seen incredible benefits for their business growth in terms of how much time they can save every week and how much faster their business can move so that you'll just buy our needs investments.
at the last time the children's usage has increased more than 10x since the start of the year.
and those customers continue to adopt more of their at last year's products as a result that they're seeing increased ROI from them.
and it's also driving for us not only premium and enterprise addition upgrades but my creations which is a big part of obviously our continued evolution as a business.
One of the world's largest investment management companies signed an agreement recently to move from data center to the cloud for the next three years to huge agreement process and started their primary reasons for moving as it lasting intelligence and analytics.
I think it's been a bit of a day.
Speaker Change: In the question there's an implication that it will do the opposite of take away from jobs and I think that's entirely correct. I'm a big believer that the amount of...
Cuman Creativity we have is largely unlimited, and AI is a fantastic tool to enable us to get more of that creativity out faster.
Speaker Change: People were unable to business this that they had adopted.
and adopt the Afronauts to compete more effectively.
With other businesses and that will force everyone to have some sort of adoption of this.
Speaker Change: and Daniel that efficiency.
We're certainly not saying at the moment any.
C. Cannon Ballization, again I would.
Cavity this is all tall, it's but all we're seeing at the moment is it's custom re-excitement.
Custom Reduction, they're playing with these tools and learning how to use them.
and really working on how to increase their business velocity in a highly constrained time. So we maintain by excitement. And we do also have a series of elements of consumption based pricing as you can see from our pricing at virtual service agents.
Speaker Change: and some of the roads are in icing intelligence capabilities. So I think we're well placed for any future that might emerge, but maintain high confidence environment about how AI is changing our customers and helping us achieve the mission.
Super, thank you so much.
Your next question comes from Kate Blast from Morgan Stanley. Please go ahead.
Thanks for taking the question guys and congratulations on a really solid quarter.
Speaker Change: and I thought something you guys could help me with my research process.
Kate Blast: Sess being completely self-ish here. So I made a last year my topic and my thesis was moving to the clouds just a better platform for up-sell on Cross-Sail, you guys have a broader solution portfolio and that's going to help NRR expand.
So when we look at the cloud performance this quarter, you talked about seed expansion, you talked about...
Mike Grayson benefits.
Speaker Change: is...
He'll understand how much of this is just like the environment that maybe stable as they're slightly improving. There's as much of this, do you think it's stemming from?
Now that you're on the cloud platform that NRA will expand or another you're on the cloud platform. The marketing and mission is also on cross-hilarit proving more effective. How much of this is driven by your guy's proactive activity versus driven by the market?
Speaker Change: Yeah, thanks for the question Keith. I'll start and then Mike will chime in. So just from a high level, we've benefited this quarter from a stable macro environment.
and Trends in our business from Q4 largely carried into Q1.
So we did see signs of continuous stabilization in our SMB customer segment and Vauxa Sales Channel.
Tate seed expansion rates in SMB, although lower than prior, you're worth stable to cue for and top of funnel health remains healthy. So all that felt good and that, you know, a prerequisite for that was to have a stable macroeconomic environment to build on.
and Enterprise Trends overall were also healthy and consistent with Q4. We delivered solid results on annual and multi-year deals, migrations and upsell the premium enterprise visions of our skews. So that was also...
and the other thing I would say is that we did have really steady sales execution in the quarter and that also carried through to our results.
Speaker Change: to
Speaker Change: Mike.
Speaker Change: and I would say...
Mike: Look, case um...
Thank you for yourself, Chris. I think that's very fair on yourself.
The macro is still affected, there's no doubt about that right? Companies continue to try to tie the adult scrutinised budgets.
Mike: S&B is a tend to be more sensitive to the macro, right? And we still have every proportion of S&B. So, there's no doubt that's still going on. The way we take that is that's the environment that exists.
Mike: We have to execute through that, we have to continue to grow through that, we have to deal with that. We are no doubt spending a lot of time as we always do with our customers.
and also just the consolidation factor is also working in our fiber which you know Joe did mention increasingly consolidation onto the LAC and platform in the cloud is a really great part of it.
Speaker Change: We...
We're pretty clear that over the medium to long term though, you know, the key levers are growth are not control. I think sometimes these factors like the metro are relatively short term in the scale of the last year's time thinking.
We continue to evolve, I'm going to try to go to market motion. It's Joe mentioned really strong customer conversations, really strong continued opportunity to go to world to all in our largest customers, which are some of the biggest businesses in the world now.
Systemal Workers Working really well and driving paid seat expansion, as we facilitate that wall-to-wall adoption and also as we continue to connect technology teams with the business teams in an organization and that's no doubt there are far more knowledge workers in those business teams in those big companies.
Speaker Change: A.I. as we mentioned continues to drive.
Debrot, so it's a whole set of things across migrations, across the new custom of coming to us for the last New Intelligence capabilities, Rosevo driving interest in our ability to connect and consolidate a whole series of third-party products together and provide huge value on top of those.
There's no doubt continued growth momentum coming from cross-selling of our solutions. Obviously, Jera Service Management continued your power along really well, but a lot of emerging products that we've shipped over the last year or two years in Jeraquhar discovery compass.
and Rowo, Paul whom has early traction and feedback is really encouraging and are at the start of their growth journeys.
and I'm not too much in the loop which continues to just crank along a pace of fantastic product, fantastic customer adoption.
and we keep learning as an organisation and how to do this every single quarter. That's what we've done for a long time. So, you know, incredible bullishness at the moment on our ability to continue to drive results despite a challenging environment out there in the world.
Speaker Change: You're next question, comes from Adam Tindall from Raymond James. Please go ahead.
Okay, thanks, good afternoon. I'll try to ask and unsubscribe this question since we're on a team call here. I want to return to the topic of AI, kind of two polls here, Mike.
Adam Tindall: What was the pivot point to move the AI strategy from more embedded in the product with that last seen intelligence to separately now break it out and monetize it with Robo. And as you did that, how did you think about pricing?
and Tom and for AI agents at this price point, but relative to your own core product portfolio, it is a fairly healthy price point that you could walk through those two things. And for Joe Real quick, just confirming that Robo is going to report to you cloud and anything that's contemplated in the guidance for Robo. Thanks.
I can take that first on hand over to Joe for the end part of that question. Adam and I appreciate we're all a team here.
Speaker Change: Look, I don't know, I would call it a pivot point per se. I think it's really important. There are two different forces happening here. That's why we think about it as a two-pronged strategy.
Speaker Change: Firstly, for existing products, confidence and Europe, and around the other 20 years of products, still growing fantastically well.
Speaker Change: AI and all the capabilities of the Elacin Cloud Platform can deliver increased value in those existing products through text generation, through matter searching through all sorts of different things that we've built as Elacin Intelligence Code of Reliefs and Elacin and existing products.
Speaker Change: That is not something we're pivoting away from quite the opposite. We've increased the pace of delivery for less than two until it's in.
Speaker Change: The monetization of that that was not as a secret.
Adon product.
Speaker Change: It's the core capabilities of that product. As we learn how to deliver those capabilities better, as we get more of those capabilities and we deliver them at increasingly lower cost rate. We're managing our own margins and cost to put it aggressively on the AI side. And as I said, usage of those features is up more than 10x.
Speaker Change: and customers reporting great efficiency boosts in their existing use of existing products, which is only good for our last year. There's subscriptions for the long term moving to those premium additions. We're certainly not pivoting away from that with Robo at all.
Speaker Change: with Robo.
Give us a few more questions.
in the Elafin Cloud Platform. Given the team look graphed, we built it the last four or five years.
We have the ability to build new products we never could have built before.
So that's why we say that products built for the AR era. We could not have built robots without AR. It's not an additive thing. It's core to the product. But it is a very different product to the other things. Customers increasingly obviously using chat to talk to all the knowledge they have across at last-seems applications and their other applications.
Speaker Change: Boubledawks and Slack and get hard and figuring, etc. So, it's a really powerful feature set that we couldn't have built beforehand.
Speaker Change: and secondary obviously with things like agents allowing them to actually take action, have virtual teammates, increasing the bandwidth of their team and the efficiency of their team.
It's not a pivot from one to the other as much as...
We are aggressively investing in both of those two areas in terms of the wonderful tools that we have in the last few process. You're talking about pricing.
Speaker Change: I'm assuming meaningful for Rowo there particularly although we have obviously the virtual service guidance in GRS service management which also have consumption based processing capability.
I think it's important that we continue to evolve and learn about Robo in terms of the South strategy. This is an area that's moving pretty fast, no doubt about that. Robo though does appeal to both.
Speaker Change: the SMB and the Enterprise segments of our CosmoBice.
is a classical at last year in application in both sides. The flywheel driven, you know, last got product-led growth motion and the heart such an enterprise motion.
Speaker Change: We are trying to do both of those with robo. We'll continue to learn from customers in a data accordingly, but the value of the data is very, very large.
So while we take a pragmatic approach always to pricing a monetization, I could tear the early customer feedback, demand signals are strong, the pipeline is ahead of our initial expectations at the moment. So, quite don't worry, if you wish a few weeks ago, give us some time, like, be maintained.
Joe: 5.5 in here, Joe?
Yep, thanks, Mike and Adam. Thanks for the question. Robo Revenue will be included in Cloud when we report our results.
and as Mike said earlier in the conversation, our big focus now is on driving deployment, usage, engagement and value at the product across as many customers as possible.
So monetization is going to be an outcome of success on those things. So our guidance right now seems a very modest level of revenue from Rogo in FY25, which we believe is the approved approach at this early stage of the product. And then we'll see gradual growth and build from there over time.
Speaker Change: up.
Speaker Change: and the other.
Speaker Change: The End.
Speaker Change: Your next question comes from Alex Fugen from Wolfway Research. Please go ahead.
Alex Fugen: Hey guys, thanks for taking the questions. Maybe just...
The other elephant in the room, again, this is the largest cloud revenue beat I think you guys have given since you started providing guidance and maybe just
Drilling a little bit deeper on what drove the outperformance was it, you know, more prudent conservative initial guide that was de-rift. Can you maybe parse out what?
Alex Fugen: The specifically was kind of much better than your expectations, expansions, cross-sell migrations. Maybe just stack those for investors to get a better understanding. And then the new, you're New Sierra O'Hyer, Brian Duffy just coming in.
What are you excited about in terms of the opportunities to really continue to mature the sales to the market function?
Yeah, thanks Alex. I'll start and then Mike will, we'll pick it up. So, revenue, as you mentioned, in cloud, was up 31% That's in line with Q4, but certainly much better than our expectation of 27% year over year growth.
I mentioned earlier in Keith's question, trans from Q4, continued into Q1. The very historic expectation was really driven by two factors. One is better than expected, paid seed expansion and the other is migrations.
Some of that is macro related to the question earlier, but some of it is just good execution on our part from a sales execution perspective.
All the other growth drivers in this part of our business, whether it's cross-sell of additional products or adoption of high-value additions or top of funnel performance and custom retention.
Alex Fugen: and I think those are either in line or slightly better than our expectations going into the quarter. So that's sort of the breakdown we give you on the cloud performance. I think it's a mix of both macro, good sales execution and then just fundamental help in the business. Mike.
We've gel on that. It's a broad scale. He's highlighted it as series of different points. We execute a well across a whole lot of different factors, this quarter which is great, but we're not.
with Pragmatic about the environment we're in and continue to try to do that every quarter. Brian looks super excited to have him come join. It's been a big search, very comprehensive, very thorough and a whole lot of time.
Speaker Change: Um...
I think the first thing is to learn at last in business, Brian has a great set of experience across a different series of sales motions as I've mentioned at last in the very complex company from a sales perspective.
Speaker Change: We have a large scale.
Speaker Change: S&B Flywheel, you know, product-led growth motion.
We also have an increasing enterprise, prior touch business.
and trying to throw these two machines together.
is what we do. It's no small challenge, so here's a big learner. I think you'll study that continually and learn how it works from the inside.
At the same time, obviously, has huge experience in driving yourself transformations.
Speaker Change: in leadership and he's super excited about the opportunity in front of the last year.
and continue to deliver on that. As we mentioned, we have more than 524 customers.
That was $10 million.
Continues to be a very fast-worn co-host for us.
Continuous Celerate at that enterprise path and your opportunities with called out is one of our three big.
and Transformation is going on in the businesses we continue to evolve. I'm sure he will continue to help power that and know that there will be a big ad to the executive team having a public company CEO experience and getting on the team we're all super excited to have him. So I'm looking forward to it.
The next question comes from Michael Turin from Will Fogger. Please go ahead.
Speaker Change: A, thanks very much for taking the question, nice to the fiscal year all. At the top of the drawer, but I think it's useful to go back to it and just on the AI and Robo, I want to just give Michael chance to help levels that.
Your view on Atlassian's points of differentiation there versus some of the other authentic tools we're seeing come out across software and maybe help us also just think through how much of the Atlassian user base is could eventually address over a much longer period of time. Thank you.
and Michael you're asking the questions that are you getting me into a lot of trouble here.
Look, I think we're massively differentiated in Rava. I really do.
I think we are well ahead in the Iron Day journey of building a real product that actually lands with customers and actually delivers value that can access today and is built on.
Many, many years of investment. I think.
Speaker Change: The Cloud Platform, the teamwork graphs, the forge technical platform we have to build, extensions and add-ons.
The teamwork grass, as I mentioned that we've built over many years, which is strongly typed in highly opinionated way of organizing, all of the teamwork data that you have.
and then we've added on top, adapting intelligence. A series of different large language models from many different vendors that we run and we have great.
Speaker Change: Scott to that how we choose which model and why.
Speaker Change: as well as the extensibility of Atlassians' products in portfolio, combined with a really world class enterprise search engine that we built to access that data and get the right data through the elements. Getting AI features is not...
The HardPod is getting the data that you have organized, structured and thoughtfully managed. It's having a search engine or such capability that can get that data to the intelligent features.
and then a tabbing and extensibility plus form to allow.
Speaker Change: Those agents to actually take action in ways that are user-controlled, so they understand what's going to happen, but at the same time autonomous and able to go and create value for your organization.
Speaker Change: Massive excitement, that's why you see the excitement in our customer base. A whole series of multi-multiure investments coming together into Rowo with the Elacin and Children's on the top.
So a classic example I think of at last in R&D and long term focus over the last five to ten years coming together and very different yet. Right, I will tell them in terms of what our agents can do, the breadth of those agents.
The Cross, Business Teams, IT Teams, Software Teams.
Speaker Change: is very, very strong and casting is a really resonating with it. The amount of things they can do when they stop playing. We've seen that in some of our existing...
Speaker Change: OXS program, OXS program customers. And you know what I like saying is just the...
The life on their faces when it starts doing things, when Robo is achieving things inside the business with their own data. We've dated a come-from-at-last-in-products and the party products put together, and then actually taking action and driving business value.
It's a super exciting product, it's a super exciting time to be building products.
Speaker Change: and we have an amazing technical platform. I was absolutely well class and being able to do that. So I was differentiated with, we've had this journey going for a fair while now. So happy to be ahead at the same time.
Practical, we're going to stay here, we're going to keep investing to stay here on the R&D side And we're far from done on this, there's a lot more, lot more things coming out.
Speaker Change: and Michael Cannon.
Your next question comes from the Tema Bologna from City. Please go ahead.
Good afternoon and see if it takes my questions.
Mike, you alluded to this in, you know, the opening remarks and some of the commentary you've read it in some of your answers earlier, but I wanted to be a role in on pricing strategy, specifically maybe it last year is more assertive for a, into the realm of consumption pricing that is being, maybe more profoundly infused in the portfolio. So I'm wondering what the skills are, you know, between the consumption and strategy as we're all aware, it's pretty variable and it's still pretty early-gave.
So we'd just love to get your thoughts on just them.
Strattagizing about rolling out the consumption pricing because it's relatively new. And Jill, if you could hope us on how you are contemplating how much consumption pricing scales and how it's embedded in your guidance with respect to some of that variability that it could bring. Thank you.
Speaker Change: I'm a great question. I can answer the first part I'll let you follow on with the second part there.
Speaker Change: McLean Fab, consumption based pricing.
in a very, very, very cross-the-foot fully have four further in a while now.
Bit, you know, pipelines in terms of effectively some sort of a proxy on CPU usage because of the amount of build you run can be highly variable. It doesn't necessarily depend on the number of developers you have.
We obviously have.
Speaker Change: Storage and a few other areas where we do have pricing.
Capability, the first up and down. Historically, I would say our consumption based pricing strategy has been on avoiding overages.
So the sort of top three to five percent of your customer base that are the order of magnitude more, you know, usage or storage or something else and just making sure that that doesn't hurt the margins on the downside. And that maintains to be a broad philosophy across our...
Six seven eight, a consumption by strategies we have going on in different places. That's more of a defensive strategy I would say, and ideally that's what we would like to be in a board level.
However, with things like AR and virtual service agents, they're certainly a capability.
who are increasingly deployed at the same thing with assets in due-reservice management is another area.
Speaker Change: that we have some consumption based pricing. Largely, what we like to take pricing against from the philosophy point of view is to be very custom-ingering. Where does it make sense? Where is it logical? Where is it going to scale and is friction-free or where is possible? And where is there a clear...
Speaker Change: Valu return for what I consume, what I use and where do I get to clear returns for that and stare at clear ROI?
Speaker Change: Tuming, I think that's the same strategy that we're employing there. We will learn over the coming year as to how that works in terms of virtual service agency assets. I can tell it's...
and I would say we'll maintain that posture.
Good job.
Speaker Change: The End
Yep. Thank you Mike, to the question of a team about consumption pricing and the financial model. There's a very small and modest amount in the guidance and LRP.
Speaker Change: We believe it will take some time to scale and as Mike mentioned we don't have a fixed mindset on pricing and packaging and in the future we'll be pragmatic and flexible on our approach based on the value we delivered to customers and how we deliver that.
Speaker Change: So our modeling today is predominantly seat-based when we think about this year's guidance and the long-range plan that we have. So we are taking a very conservative approach to this and seeing how things develop.
Your next question comes from Greg Muscoet from Mizuhu. Please go ahead.
Okay, thank you for taking the questions and gradations on a very nice quarter. Mike, for many years now, I'd last seen it spend right around 35% of its revenues in R&D, which obviously is much higher than peers, and certainly we've seen some very good innovation over the years, but frankly, I can't recall any period of time that matches what you've unveiled over the last several months or so. And maybe that's just sort of substantial board of wondering if any changes that may to how the engineering teams are oriented that helped explain the flurry of a product innovation that we're seeing.
The End
Thanks, Greg. I'll appreciate the nice words, that's a show. I don't think there's anything structural that I would say we're changing. We've continued to work really hard over the last couple of years on developer productivity, having a world-class engineering organization, product management organization, design organizations, and incredibly important to us.
Speaker Change: and you know we have a view as you've said for a long time that great technology companies that can survive and thrive for decades require world-class engineering organizations. You cannot find one that doesn't have a really world-class engineering organization.
We spend a lot of time focusing on what we create, but also as much time focusing on the productivity of that organization we do spend a lot of time on productivity. When I talk to customers, I spend a lot of time explaining to them how our organization works.
How much we spend on productivity, how we measure productivity both qualitatively and quantitatively and a lot of our products, campuses, a good example, come from internal tools that we have built over time to drive our own productivity in the modern world of engineering.
I don't think that's really changed. It's a continued evolution, a continued growth in the mindset there.
The only thing I could probably point to is
Speaker Change: Building a lot of...
Blackform Componetary takes an awful long time as we've talked about whenever it's asked about R&D spending over the years.
There's no doubt we've spent a lot of time building our cloud platform.
and at some point you can start building products on top of that platform that really show that in leverage that. If you look at focus.
Speaker Change: [inaudible]
Speaker Change: Farza, then we were five years ago, most fully featured and more of the time can be spent on the
Speaker Change: We are integrating Lume into that platform faster than we have integrated any previous acquisition, which is another way that that platform is benefiting and as the
Speaker Change: I've heard that if you're looking at the multi-multi-year view.
Speaker Change: as that platform has matured.
That lets us spend less time on.
Speaker Change: Mike Grayson, tooling and moving the data center customer's two that cloud platform.
and we are now building ever more advanced enterprise capabilities, right? We now don't a resident in a living different country, etc. So that that platform had certainly a large amount of investment for a period of time.
Speaker Change: to some extent that's pivoted to building products and other capabilities on top of that platform but I would say that we're not slowing down. We're a big organisation. We have a lot of great ideas of things we can build. We take the same view that we start with prototypes and ideas. We try to turn those into products.
Speaker Change: and Co-Creatment with our customers and where those products deliver incredible value, then we work out how to turn out into businesses and we're very patient and thoughtful about how we do that to build really defensible businesses over time.
Speaker Change: Your next question comes from Keith Bachman from BAMO Capital Markets. Please go ahead.
Hi, thank you very much.
I wanted to focus on JSM for a second if I could. On your slide deck you have greater than 55,000.
Jeff, some customers. I wanted to try to get some perspective on how do you think?
Speaker Change: You're win-rate.
and opportunities have changed. There's a lot of different dynamics.
and I'm not sure if you're underpinning the question, but in particular seats which you know the seat opportunities based on the channel feedback have been limited but seem to be steadily growing particularly over the last year.
But just how do you think the competitive dynamics are changing? In addition, if you could address Mike, this was per your comments to a previous question on.
Speaker Change: How AI may be changing the landscape.
and the context of my question is really within JSM. I'd like to drill down a little bit on that. Service now obviously talks about their plus cues pretty.
A aggressively gaining traction and I'd wanted to see if you could channel the AI discussion, particularly towards JSM and how you think that might change your competitive opportunities as you look out over the next year or two. Many thanks.
Keith, great question. There's a lot there. Look, I would say a few things on the
Speaker Change: We continue to extremely well that continues to grow strongly as I mentioned.
South for 55,000 customers to expand and continue as well. It's driven by a few fundamentals I would say, firstly an incredible product.
that delivers incredible value, especially compared to a lot of.
Speaker Change: Legacy Vendus, where the process of value ratio, we are far and away ahead of a lot of those legacy Vendus.
That is many many years of R&D, built on top of the cloud platform, built on top of the two-year-of-class platform, so there's a reason for that.
We continue expansion strongly with...
Speaker Change: Jason Boath in the DevOps space.
Speaker Change: So anyone can have any of their eye teaching to the development operations teams.
Speaker Change: An area of huge strength is you see I've continuing to embed some of the off-geny capabilities in terms of incidents and rostering and a lotting combining JSM and compass together as a really powerful solution. We are head and shoulders of everybody else in our ability to do that for the moment.
and continuing to go on the other direction towards more employee service management.
with aspects of HR teams, marketing teams and finance teams, increasingly adopting.
Jerry Service Management, incredible time to value, so the ability to stop.
Service Function or Service Desk can get it up and running highly-consigued. Automation Engine is second to none, though the ROI of our service desk is incredibly high.
Our AI is a little bit of a cream on top of that to do this with a ready running really, really well.
Speaker Change: When you add AI on the DevOps side, we ship the whole series of AI observations, really industry leading in terms of our ability to use AI to process large amounts of alerts and incoming information and really distill that for the agents to separate signals from noise.
Speaker Change: and Secondary and Virtual Service agents.
Given the strength we have in AI and our R&D heritage, we are outperforming anybody else in our ability to deliver that virtual service experience both in terms of the number of customers' help and the number of tickets resolved.
The number of agents help so the ability to make agents operate their job faster and the ability to close out the high volumes of repetitive tickets.
We feel really strongly about how we're doing that, we continue to have all serves of things, it's fantastic to be recognized by Farquhar, our serves and others for our sort of leadership position there in AI and service management.
Speaker Change: and I would say that we're not.
Flying down in that space at all.
Speaker Change: I know there's sort of continued surprise about from the invested day, the speed of growth of that business continues to be a really strong one for us.
Speaker Change: and I think we're in a great competitive position and we're only just getting started our assets type of abilities.
and Bill Gain had a modern...
Speaker Change: Configuration Management Database that's graph based and set up in relational is increasingly adopted by customers for all sorts of workflows and applications within their organization. So lots of super exciting areas to go into the size of the traditional DevOps space.
Speaker Change: Look, lots of customer examples, incredible statistics from customers, so very, very excited about what we've set in Service Management space and I'm with Nufferd from here.
Speaker Change: The End
Speaker Change: Your next question comes from Ryan McWilliams from Barclays. Please go ahead Ryan.
Hey, thanks for taking the question. For the larger data center customers that have provided more detail around their plans, the move for the clouds to get it left into gas seizures.
Ryan McWilliams: I think the timing of their migration is likely to happen around their contract renewal, or do you think they could start to move more sheets over the last five weeks?
Ryan McWilliams: The End
Brian McKin: Brian McKin.
Speaker Change: and I think that one as well. It's a little bit of both. It might be worth stepping back to understand how that tends to work for these larger customers.
Speaker Change: There's no doubt that contract renewal.
Speaker Change: is a time when they will look at moving into more of a hybrid state.
Speaker Change: and that certainly is true. The more innovation we ship in the cloud, depending on when their renewal is at, they may look for early renewals or early capabilities, right? Elastin intelligence, certainly driving some of those customers to look earlier.
Speaker Change: So that that both of those are happening, most of those largest customers.
Don't be moved into a hybrid state first, right? If someone has
5080 100.0 Senate instances running around that company.
Speaker Change: They will move some of them, they may choose some of them to move into an archival state. They may move at some small ones first to get used to the migration process.
Speaker Change: and they have some that require Fed ramp or some different type of compliance capabilities and other instances. So you run into these large global conglomerates I've spoken to a series of live conglomerate banking customers and telecommunications customers in the last month.
Both of them have different...
Geographic needs for different data center instances. So it becomes a last-scale migration project.
The key for our system, make sure that we're showing them the values and the cloud platform of the time. That's that destination they understand the values they're going to get from getting there. And we build up our capability and their organizational capability to run these migrations.
Some of these customers again have 50 to 100 data centers servers or more that they have to migrate by the time. This is a large-scale IT project, but it's very exciting for them to do that.
Speaker Change: Ah!
I will point to two.
Barnall things. It is a multi-year journey and it's somewhat dependent upon those customers. So the macro environment can affect this. There's no doubt about that. We have customers who have migration projects that have slowed down.
because of their internal macro environment, it's an internal project.
Speaker Change: That's okay. We're patient. We're playing the long-range with those customers. As I said, we have a good quarter. We're a slightly ahead of our expectation for this quarter. We're slightly behind the last quarter. I suspect this Joe mentioned that's going to be part of this multi-year journey is managing through that.
Speaker Change: Experienced, but most importantly, the CIOs, I speak to the customers, they really are in a win, not if environment. They do understand that cloud is the best experience of the last year in products.
Speaker Change: It's their ultimate destination. They see the innovation we're delivering in the cloud. They see that.
Speaker Change: Management, that movement, as I mentioned that live financial services, is custom of this on a very large three-year deal for us.
They explicitly mentioned that analytics and AI were the reasons that they were choosing the cloud and they were starting when they migration journey and that's fantastic. It's just up to cost to continue to drive that momentum.
Speaker Change: And then if I could just add one thing like Ryan, just as a reminder, we are confident and continue to expect data center migrations to make a mid to high single digit contribution to cloud revenue growth rates over the next three years. So that's reflective in the financial model of our confidence around that motion.
Speaker Change: The End.
You're next question, come from Brent Till from Jeffries. Please go ahead.
Brent Till: Thanks Joe and the letter you seem to comment on negative macro factors and obviously understand Brian coming in as a potential factor as well.
Brent Till: I guess in your commentary you mentioned the man was stable, chord to quarter, Andy Jassie, and Amazon just mentioned the man's improving, he had a beautiful, he's accelerating Google saw their enterprise cloud accelerates. I guess, I mean, it seems like...
Brent Till: in the bigger picture, things seem to be getting a little bit better, but you're being a little more conservative. Anything to read in there is at a right view. Maybe just give us your sense of how you're taking a lot of these factors in your guidance.
Yeah, it's a great question Brent, thanks for asking. We highlighted last quarter that we had taken a different approach to our guidance this year and that it was a more conservative and risk adjusted approach than in the past.
Brent Till: At the time we believe this was prudent and the right thing to do given two factors. First, the uncertainty we saw in the macro environment and then secondarily execution risks related to the evolution and transformation of our enterprise go to market motion.
Brent Till: Nothing has changed with respect to that approach in our updated guidance for Q2 and the rest of FY25.
Speaker Change: A few factors there. One, Q1 is seasonally absolute booking's quarter in the year, so we don't want to read too much into the rest of your based on performance in Q1.
Brent Till: The secondly macro uncertainty remains with the upcoming US election and regional military conflicts and tempered IT spending outlooks.
Brent Till: and while we are super excited to welcome Brian to the team, we are still in the early days of our enterprise go to market evolution.
Speaker Change: and there's a lot of work left to do. So we believed it was the right thing to do three months ago and nothing has changed in our thinking about that so we've taken the same approach this quarter.
because both of those factors, macaron, certainty and execution risk remain as relevant now as it did three months ago in our opinion as we look to the future. So, hope that context helps Brent.
Speaker Change: The End
Speaker Change: Your next question comes from Jason Suleyno from C-Bank. Please go ahead.
Jason Suleyno: Hi, thanks for taking my question, you know, clearly very impressive cloud result.
Speaker Change: Yeah.
Jason Suleyno: Kim, you know, with the Q4, did you see any deals that may be a flip closing Q1? Or was there any dynamic of, you know, many closing some deals or some pull forward ahead of some of these cloud pricing increases that we saw? My back, thank you.
Yeah, thanks for the question. This is Joe. I'll take that one. Just a reminder, in Q4, we highlighted deal timing, landing in the quarter, not deal slips. And I would just point out deal timing was not a factor in Q1 as it was in Q4.
In Q1 we saw healthy deal flow throughout the quarter that was in line or slightly better than our expectations.
Speaker Change: and stepping back for a second over time there will be two factors that will impact the velocity of our deals with large customers on our high touch sales channel.
Speaker Change: The first is the evolution of our high touch-go-to-market motions. We're driving larger and more complex deals that include more products, span more groups within the customer, and require more approvals. In many cases, we're targeting large complex migrations and all of that adds up to longer sales cycles and we've had in the past.
Speaker Change: Second, we also take a very disciplined and long-term oriented approach as we think through pricing and concessions. We're not deadline driven, we do not do anything unusual or unnatural with the economics to close a deal to certain times.
Speaker Change: We're willing to be patient and wait for the right deal for both the customer and for us. And so as we continue to further grow our business in the enterprise, we've incorporated the impact of both of those factors into our outlook for the future.
Speaker Change: and now just one of the, just one of the add-on Jason, there's no doubt of Stuart mentioned.
Speaker Change: We're trying to be prudent and pragmatic. It is a very complex macro environment. As we've talked about, there's a lot of factors flowing around.
Speaker Change: We don't make excuses for that. It's our job to execute through that and we did a great job in the last quarter. We've got to keep doing that.
Speaker Change: I do want to say though that we're...
We're feeling excited about you mentioned the enterprise and pull forwards. The exciting part is that the long term focus of those customers. If we continue to have them treat us.
Speaker Change: and CS as a strategic partner, one of their top three, four or five vendors that are really driving a business forward.
Speaker Change: If they understand the system of work for lots of people, I feel like it resonates and it's going to change their organization in it.
Speaker Change: and a positive way and the more executive from our largest customers that I've made the more that that is a true statement I would say every single time that they they understand that. That puts us in a good state for the long term as we all all navigate through these.
Speaker Change: Conditions, economic conditions that we're in. We're building in R&D and investing for the long-term. We are doing a same thing in the go-to-market and sales side of the world as well. And I'm sure Brian will come in and take that.
Speaker Change: and I'm going to be a little bit more excited about this.
Speaker Change: and understanding that we still take the long-term use through the short-term waters that were in, we're very pragmatic about those waters, and we'll feel really excited about what we set with the customers and our opportunity there.
Speaker Change: The End
Speaker Change: 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 Grayson: I just wanted to say thank you everyone for joining our call today for all the questions and for being part of the team as investors and analysts.
Mike Grayson: I show our mind that we put up a loop video in the investment section this time for the first time ever. Love any feedback that you all have on that. As always, we appreciate your thoughtful questions and continue to support. Have a kick after.
Mike Grayson: The
Mike Grayson: and Michael Cannon.
Mike Grayson: and Michael Cannon.