Q3 2025 Atlassian Corp Earnings Call
Speaker Change: Good afternoon, and thank you for joining Atlassian's earnings conference call for the third 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 Atlassian's website following this call. I will now hand the call over to Martin Lam at Atlassian's Head of Investor Relations. Thank you, Martin.
Speaker Change: Welcome to Atlassian's third quarter of fiscal year 2025 earnings call. Thank you for joining us today. On the call with me today we have Atlassian CEO and co-founder Mike Cannon Brooks, and Chief Financial Officer Joe Binz. Welcome to Atlassian's third quarter of fiscal year 2020.
Speaker Change: Earlier today, we published a shareholder letter and press release with our financial results in commentary for our third quarter of fiscal year 2025.
Speaker Change: The Shareholder Letter is available at Atlassian's Work Life blog and the Investor Relations section of our website, where you will also find our other earnings related materials, including the earnings press release and supplemental investor data sheet.
Speaker Change: As always, our shareholder letter contains management, 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.
Speaker Change: This call will include forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and assumptions. Any such risks are uncertainties materialized 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.
Speaker Change: Further information on these and other factors that could affect our business performance and financial results is included in filings where you make with the securities and exchange commissions in time to time, including the session title to risk factors and our most recently filed annual quarterly reports.
Speaker Change: Prepared and accorded Swift Gap. A reconciliation between Gap and non-GAAP financial measures is available in our shareholder letter, earnings release, and investor data sheet on the investor relations section of our 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.
Mike: With that, I'll turn the call over to Mike for opening remarks.
Thank you all for joining us today.
Mike: We continue to make great progress in our strategic priorities, observing the enterprise, making rapid advancements in AI, and connecting technology and business teams through the Atlassian
Mike: Earlier this month, we held our annual user conference, team 25.
Mike: Over 5,000 customers, partners and Atlassians gathered in Anaheim, as we ushered in the next evolution of the system of work. Robert's incredible AI capability to the center of the Atlassian platform, introduced two new cloud offerings and much much more.
Mike: The next evolution of the Atlassian system work is officially here, as we've started making a shift from stand-alone products to a vision of apps and agents with Rovo at the center of everything.
Mike: By making Robo included in all premium enterprise subscriptions of JIRA, Confluence and JIRA service management with the standard edition soon to follow, with democratizing the power of AI and accelerating human AI collaboration.
Mike: We already have over one and a half million monthly active users of AI across our platform, and we expect this number to continue to grow strongly week on week as we roll out and it's more customers realize the power of reverse capabilities.
Mike: If you'd like to hear more about how this sets us up to win in the AI era, check out the loom that I just posted to our IR website.
Mike: We continue to also make steady progress towards unlocking the Atlassian Cloud platform for even more about largest and most complex customers.
Mike: As we achieved FedRap, Moderate Authorisation for US Federal Government Customers and the Industry Partners.
Mike: We expanded our cloud platform, with the Atlassian government cloud and also announced our Atlassian isolated cloud, a single tenant cloud solution for enterprises with highly sensitive data.
Mike: All up more than 300,000 customers, including Sadies, SAP, Workday, and Zero, Ryan Atlassian to help their teams work better together, an unleashed enterprise knowledge across their organisations.
Mike: We believe the progress we're making on our case strategic parties will continue to fuel durable, long-term growth and help us gal the 10 billion in revenue and beyond.
Mike: With that, I'll pass the call to the operator for Q&A.
We will now begin the question and answer session.
Mike: If you have a question, please press Gah, followed by the one on your phone.
Mike: If you'd like to withdraw from the queue, please press star followed by the two.
Mike: Your first question comes from Keith's life from Wolven Stanley. Please go ahead.
Speaker Change: I wanted to talk about some of the decisions of the business, Mike that you're making, you know, one being sort of embedding Robo into the core products and that being potentially, you know, a trade-off in sort of near-term revenue growth.
Well, we think about that maybe in relation to the...
Speaker Change: You know, the midterm outlook of sort of a 20% Kager, does that sort of move the needle and from that perspective? And then when you think about some of the uncertainty in the macro, macro, does that also sort of cause a team to reassess that 20% growth outlook? Thank you.
Speaker Change: Turrin, I can, I can take that one, Joe, I might want to add on at the end there. Look, the...
Decision to embed Robo in the coal products.
Um.
Speaker Change: I would say look, we are seeing continued growth and adoption of ROV on our AI capabilities, right? We...
Speaker Change: As you called out, past one and a half million month active users, continues to go really strongly.
Sales of Premium Enterprise editions are up over 40% year-on-year. [inaudible]
Connected to automation to seeing great value, so...
Speaker Change: I would say that for that position of strength. [inaudible]
We feel...
Speaker Change: Very good about the capabilities that we've built and we want to get them into as many hands as possible and as fast as we can in amongst our user base, right? We believe that by maximizing usage and adoption and we...
Speaker Change: Yes, we've always been patient with monetization but we think we have a massive user expansion opportunity both in terms of additions and also going wall to wall with more knowledge workers in those organizations so that fits really well with the way that we think about building software in general. Again, we're always. Thanks.
Speaker Change: Very thoughtful about balancing growth and capital usage. As we mentioned at the day we've done some amazing work in R&D to make those capabilities able to be deployed.
Speaker Change: At a reasonable cost, which is obviously a gateway in order to be able to make this sort of a move.
You know, the mind said you asked for. All down the road.
Board of Cisions, Piranha de Cisions.
Speaker Change: Look, we do think that the future of teamwork is going to be about this sort of iterative human AI, human agent collaboration.
Speaker Change: We are, I think very forward thinking in how we are doing that and implementing that at the moment. We have a great offering. So we want to get that out to as many users as possible. We do see that it enhances our stickiness and promotes the wall to all adoption of the Atlassian Cloud Platform when this works. We are, we are, we are, we are, we are,
and Scott Farquhar. Thank you. Thank you.
Again, we have a huge amount of organizational knowledge.
Speaker Change: that we have access to and giving them back to our customers in unique and interesting ways.
Naturally, make some comeback to our platform.
which is a great advantage.
Speaker Change: And this really removes the friction to get more customers started on that journey, which is really important, so that they can do that really quickly, so that it can become a continued accelerant for Atlassian's continued growth in additions and more knowledge workers. And as I mentioned at the top, look, we have a really well class R and D10, it's built some amazing features in Rovo and all the capabilities, and we hence want to make sure that they...
Speaker Change: Come through to as many customers as possible. We have a pretty good history I think of making these sorts of [inaudible]
Speaker Change: Paul Business Decisions, you might say. Everything from PLG to free additions to moving to the cloud, so I feel really comfortable where we are coming from position strength and that we have the team that can follow us through and execute against this.
To deliver the maximum amount of user value we can. [inaudible]
Speaker Change: Maybe I'll let Joe follow on on the Kager and the long-term nature.
for my financial project.
Joe Bins: Yeah, thanks Mike, you know there's nothing in the macro that changes our thinking on our commitments that we made at the investor day.
Joe Bins: In general, I would say we remain confident and on track to the plans we laid out at that time. From a revenue perspective, we do expect a tap into large market opportunities to drive healthy revenue growth across cloud and data centers through our strategies that Mike talked about earlier around enterprise AI and system of work.
Joe Bins: All of that culminates in our ability to drive revenue growth in excess of a 20% Kager through FY27. RoboNet helps that, and we don't see anything in the macro right now that would prevent us from accomplishing that.
Speaker Change: Your next question comes from Gregg Moskowitz from Mizuhu. Please go ahead.
Thank you.
Greg Moskowitz: Thank you very much to related revenue questions that I made. Just first on cloud, the shareholder letter mentions that enterprise deals landed later than expected in the quarter. Joe, was that in linearity enough to impact the Q3 cloud revenue growth? And then secondly on data center, so happy in duration and one year clearly should provide longer term benefits. It is however causing some investor confusion right now. Thank you very much.
Greg Moskowitz: Just given that data center has meaningful upfront revenue, are you able to provide some context on what impact the duration change had to data center revenue growth for Q3 as well as what's being assumed for Q4?
Greg Moskowitz: Yeah, let me start with the cloud question. So, we definitely did see deals fault more back end loaded in the quarter than we expected. That did have impact on the cloud revenue growth rate that we delivered in the quarter.
Greg Moskowitz: As you know from a Billings perspective, that still was healthy and we expect that revenue to be recognized in Q4. We just recognized less in Q3 than we expected.
Greg Moskowitz: From a data center perspective, I would just say growth in the quarter was primarily driven by pricing and it was partially offset by strong migrations to cloud.
Greg Moskowitz: And as you mentioned, fewer multi-year agreements. I would just highlight that other drivers for data centers such as customer retention, renewal rates and expansion were healthy. So overall we felt it was a good quarter of fundamental underlying data center performance.
Greg Moskowitz: I would say if you think about the impact of multi-year agreements, we do recognize revenue in the period that we sign those agreements based on the total contract value.
Greg Moskowitz: So when the duration of those agreements is shorter on average we do recognize less revenue in the quarter and that was definitely an impact on the data center revenue performance that we had in Q3. [inaudible]
Arjun Bahatia: Your next question comes from Arjun Bhatia from William Blair. Please go ahead.
Arjun Bahatia: Perfect, thank you. Joe, actually, if I could follow up on that question about deals landing later in the quarter unfiled.
Speaker Change: Is that just kind of idiosyncratic customer timing? Is that migrations or is there something else at play that we should think about? And then maybe a broader question just as we're thinking about
Speaker Change: The cloud platform, parody, relative to DC. It seems like we're there yet, but I'm curious if there's still kind of hangouts that customers have on.
Speaker Change: I'm migrating and those that are sticking around on DC, I'm curious what they're still waiting for outside of internal processes and change management if anything at all. Thank you.
Speaker Change: Yeah, thanks for the question. I'll go first in terms of the deal timing in the linearity and the quarter on the enterprise side.
Speaker Change: I think it's really a function of the fact that we're doing larger, more complex deals, they're taking longer to close than we expected. This is a muscle and capability we're building in the company. And so especially when you have the level of innovation and announcements and change that we're driving customers are very interested in that. So we're spending more time with them walking them through those options. [inaudible]
Speaker Change: helping them understand the value that we deliver and the value that we have to offer. So, as a result of that, we are seeing some elongated deal cycles. We don't attribute it to macro. It's strictly a function of the nature of the deals that we're trying to drive with our customers. [inaudible]
Speaker Change: and I'm going to be talking about the the the the the the the the the the the the the the
Speaker Change: If you want to chime in on the back half of the question in terms of customers from data center to cloud.
Speaker Change: Sorry, I can chime in on the back of the question, of course. Look, the, um. [inaudible]
Speaker Change: The Cloud Platform parody with DC, I think we feel really great about what we sit.
Speaker Change: We, every quarter continue to help customers to upgrade from D.C.
Scott Farquhar: To the Cloud, we had major wins during the last quarter with the Fedorant authorisation and the announcement of the Lassian government plot out and we have a number of customers already in that early access program. So for obviously federal government customers in the United States. [inaudible]
Speaker Change: We continue to work really hard on a lot of our other standardization, for example.
Speaker Change: Robo is now ISO 27001 compliant, Robo is now stock two compliant, so a whole series of continued compliance work for the team's done a really great job beside scale performance. So I would say we feel really great about where our customers are again.
Speaker Change: Cloud is a fundamental, like better experience for Atlassian customers than the data center is and
Speaker Change: My experience from 1025, talking to a whole series of different companies.
is that
Speaker Change: and a huge US UK, sorry, financial services company, so we had some massive cloud deals during the quarter as well, so feel really good that that's showing up in customer traction as well.
Speaker Change: Your next question comes from Mark Cash from Raymond James. Please go ahead, Mark.
Speaker Change: Yes, thanks to the smart one for Adam. Let's bring it back to the crowd migrations and data center moving to annualized only. Is this potentially increased the amount of crowd growth migrations in fiscal 26 maybe beyond the mid-single-digit level? And just confirming that you anticipate data center to grow next year with the adjustment and the other on blockers of the naturacy. Thank you.
Speaker Change: Yeah, I'd say to answer your first question, we definitely do believe that we're going to see better migration contribution to cloud revenue growth in FY26 and FY27.
Speaker Change: Consistent with what our guidance was at investor day last year, we said that those contributions would be in the mid to high single digit range over a three year period and that we would see less contribution in FY 25 simply as a result of the roll off of the server and the support. So that's how we're thinking about the migration piece. Thank you.
and the second part of the question.
Speaker Change: You know, it's really too early at this point to talk about FY26 guidance.
Speaker Change: What I can tell you is from that perspective, we do expect to continue to have data center growth driven by pricing and expansion the customers that will be offset though however by increasing data center to cloud migrations.
Michael Turin: Your next question comes from Michael Turrin from Mulfago. Please go ahead.
We'll move to the next question.
Thank you.
Go ahead.
Is that? [inaudible]
Thanks very much, appreciate you taking the question. Thank you very much.
Joe Bins: Joe, the gross margin and the free cash flow margin stand out this quarter. I'm just curious as you can speak a bit to what you're seeing in terms of...
Joe Bins: The overall efficiency gains, how you're thinking about your ability to continue to drive margin, particularly if the growth environment at all turns. I know Atlassian has taken a counter-cyclical approach previously, but just curious how you're assessing those trade-offs currently and just more commentary on margin as well as helpful. Thank you. Thank you.
Joe Bins: Yeah, thanks for the question. It was another great quarter on the gross margin front. As you can see, we posted gross margins of 86%. That was solidly better than what we guided coming into the quarter.
Joe Bins: And as I said in the past, focusing on a managing cloud cogs efficiently right now is particularly important given you expected growth in that part of the business and the opportunity and strategy we have with Grovo in the ice base.
Joe Bins: I'd also reiterate that this highlights one of the big advantages of the engineering investment model we have at Atlassian that we've talked about in the past, which is investing in world-class engineering talent that can work on unlocking efficiency improvements in cost to serve. [inaudible]
Joe Bins: And as I mentioned, last quarter, some of the very best work in the company is happening in the space. We believe there's more to come.
Joe Bins: So overall we feel very good about the gross margin picture and trends and how trends are shaping up. And we do believe those efficiency gains will be structural in nature and will be able to maintain them going forward. Thank you very much.
For more information visit www.FEMA.gov
Joe Bins: I just wanted to add on top of that, look we've always been incredibly prudent stewards of capital I'd like to think and balancing our approach to growth and profitability across our whole history. We've given some pretty clear long-term targets, we're executing really well, I would say on our journey to those targets, both top line and bottom line targets that we've given out beforehand.
Joe Bins: The R&D team has done a fantastic job as Joe mentioned getting efficiency out of cloud at scale and continuing to do so you know quarter on quarter. [inaudible]
Joe Bins: It's this sort of work that allows us to do things.
Speaker Change: Your next question comes from Aleksandr Zukin from Wolf Research. Please go ahead, Aleks.
Speaker Change: Hi, this is our study on for Alex, thanks for taking the question. Thank you.
Speaker Change: How had the outlook on cloud revenue change given the back-up we didn't surprise them? And if you saw this quarter was the expectation being below impacted more by better hybrid deal momentum than expected. And also in the shareholder letter, cross-cell adoption of high-value deals, top-of-tone performance and retention was in line with expectations versus last quarter being in line, slightly ahead. Is there any clarification we can provide on where the upper form of expectations last quarter versus this quarter outside of deal just landing later than expected?
Thank you.
Speaker Change: Thanks for the question. From a cloud perspective, we did deliver 25% year over year revenue growth that was better than we expected coming into the quarter. The core underlying performance in our cloud business was very similar to Q2 with trends from Q2 continuing into Q3. The variance to our expectations was driven by two factors. It was better than expected paid expansion and data center migrations.
Speaker Change: All the other drivers in this part of our business, whether it's cross-cell of additional products or adoption of higher value additions or top of top funnel performance or customer attention those were all in line with our expectations going into the quarter. In terms of looking at the level of beats relative to the guidance in key three versus first half.
Speaker Change: I would just start by saying that in both Q1 and Q2 those were exceptionally strong quarters where we executed really well against the very robust set of opportunities in pipeline. Then I think fundamentally Q3 is simply a seasonally slower quarter for us so there was less opportunity for the level of our performance you saw in the first half of the year. . .
Speaker Change: And then I know not specific to cloud but more generally there were some mechanical dynamics particularly in data center and marketplace that negatively impacted revenue growth on the margin. And I think taking all of this into account helps explain most of the difference between our H1 performance to guidance and Q3. Thank you very much.
Speaker Change: The next question comes from Kasthuri Rangan, from Goldman Sachs, please go ahead.
Kashran Ghan: Hey, thank you, Mike and Joe, I'm on a plane, so I'll keep trying to keep this stuff right brief. Frederick, do you want to talk about the sector of tariffs on your customers' businesses?
Speaker Change: Maybe it's a little premature, but what are you hearing from your best customers as to how they are prioritizing? [inaudible]
Athletes during these times, and also we can talk about... [inaudible]
Speaker Change: The CEO of Transition, Anu, you had a new CEO join at the start of the squatter. Could there have been some settling in in redirection of the go-to-market effort they should have resulted in the back-and-bid nature of the business, all the stops that are shattering, but it's just curious to get your Marsos thought today. Thank you so much.
For more information visit www.FEMA.gov
Speaker Change: Sure, Kasthuri, let me take the first part, and I hope you have a great flight, I'm impressed by Dallian from a plane there.
What the effect of tariffs on the business? [inaudible]
Speaker Change: First thing I would call out is I think that we're in a currently healthy position today. We feel that business remains really healthy. So nothing to call out on a sort of macro impact at this point. Pipeline looks strong.
Speaker Change: Customers continue to want to upgrade to the cloud, they're expanding their usage of Atlassian Team 25 had everybody in the business on a high in terms of their customer reaction to what we had done. So we feel we're in a really healthy and strong position as a business. [inaudible]
Speaker Change: Cycles and periods of uncertainty, right? We had this in 2008, we had it in 2020, so we have a really strong executive team with a broad experience, and obviously I've done this before every time of these is different, but you can learn a lot from that experience. From a resilience point
Speaker Change: Rivermons, 300,000 customers, pretty diverse in terms of the industries and the countries that they come from.
Go to market evolution and our customer base has changed.
Since, for example, that 2020...
Period.
And that's what we are there. Yeah.
I think, look. Look.
Speaker Change: Our focus has to maintain through any of these environments on the customers, getting closer to the customers, understanding their challenges, understanding opportunities we have, whatever that environment is will probably affect our customers much more than it affects us.
Speaker Change: But, that doesn't mean we are not aware of that and we aren't careful of that and stay close to those customers.
At the same time, we've historically...
Speaker Change: Done a good job in a thoughtful way I would say about gaining market share in those difficult times. We see a lot of customers consolidating onto the Atlassian platform.
Speaker Change: From many, many vendors, we have an example of gravel that move from 10 different tools to the Atlassian platform, etc. So there are potentially very good opportunities for us in terms of our competitive prices.
Speaker Change: And gaining share or however you want to phrase it during those periods of time, so feel really healthy about what we are now, really confident in the strategy and parties we have, so we're feeling very good.
On the CRO transition, look.
Speaker Change: Brian is doing an excellent job. He's been in the building what three months now.
There's no doubt he has a huge amount of experience.
He's bringing that to be already. Ready?
There's...
Speaker Change: Still a lot of learning to do, obviously, about Atlassian where a large and complex business is a lot of history. I will say we have, again, a fantastic executive team that are leaning into help every which way we can. And really, a really excellent sales and success team that is already coming from position of strength. So, um...
Speaker Change: Phil Good about those transitions we have. Again, our focus areas and sales continue to be largely the same. And we continue to work on the.
Speaker Change: High velocity parts of our model all the way up to the strategic customers and making it an integrated process of how we go to market across all about 300,000 customers.
Speaker Change: The next question comes from Keith Bachman from BMI, please go ahead.
Kate Bachman: Hi, good afternoon, thank you. I also wanted to focus on the question of growth and Joe, part A is when I read the shareholder letter, you called out a few things that caused you to risk adjust the guidance. Thank you very much.
Kate Bachman: And there were more macro this time than past this. Are you implying that there's more conservative conservatism in a Q4 guide than you might otherwise bring to bear? And the second question is, is can't we probably more important?
is attending the event a month ago.
Kate Bachman: There was a number of questions about the impact of collections.
and more specifically,
that
Kate Bachman: The bundle pricing, if you will, of collections. It's a pretty significant discount to the adding of the individual pieces. And so just wondering if you wanted to offer any thoughts on how we as investors should be tuning our model on how that price. [inaudible]
Kate Bachman: Versus Seats, how the collections may impact the growth as we look out over the horizon, given the pretty significant discount implied by the bundling. That's it for me. Thank you.
Speaker Change: Yeah, great questions, Keith. So, from a Q4 guidance approach, overall there's no change, and we've taken the same approach to our guide for Q4, that we've taken all year, which is we are accounting for potential impacts of macroeconomic uncertainty and execution risk related to our enterprise go to market sales motion. Thank you.
Speaker Change: I'd highlight the data center in marketplace, there is greater variability, just given revenue recognition and the underlying dynamics in that part of the business, around cloud migrations, multi-year deal mix, and the transactional nature of marketplace revenue.
Just as we have throughout FY25.
Speaker Change: In terms of the team work collection, while the team work collection is not a driver to our Q4 guidance and it will have a limited impact on FY26
Speaker Change: We think it is a powerful part of our strategy in transforming Atlassian, and the reason we think it makes sense is because there's an untapped attached opportunity to over 10 million Gura users.
Speaker Change: We think we have a real opportunity to drive long-term revenue growth with this through additional attach, attach of Confluence and Loom to Jira.
Speaker Change: additional catch of premium and enterprise versions since all users must be on the same version.
Speaker Change: incremental new seats, because we have an opportunity to drive wall-to-wall into place alternative tools. [inaudible]
Speaker Change: And then lastly, AI credits, we'll drive AI usage and that's going to strategically strengthen our structural competitive position broadly. And that will provide an uplift to our overall business. So overall, we're very bullish on the opportunity for TWC, teamwork collection, to drive growth over the long term. Thank you very much.
Michael Cannon: and Michael Cannon, the president of the United States. And thank you for joining us. We hope you have a great day. Thank you. Have a great day. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
Speaker Change: I just wanted to add, Keith, from my point of view, maybe Charley Morph, Philosophical, and then...
Speaker Change: Joe, Collections are about being as customer first as we can and we always try to do that Atlassian.
Speaker Change: It simplifies how our customers can buy and grow with our offerings.
Speaker Change: That simplicity and that reduction in friction does result in in our experience a long-term growth driver that appears over time.
As,
Speaker Change: Customers increasingly want to buy larger amounts of software from Atlassian, that they want to not buy it in smaller and smaller pieces if that makes any sense. They want to buy it in large amounts.
Speaker Change: That enables us to create quite some significant simplicity in the purchasing behaviour but also simplicity in the deployment and the rollout behaviour.
As Joe mentioned, that simplicity comes from...
Speaker Change: I believe over time that will lead to continued growth, that's that's part of the reason, but also lead to customer stickiness and customer happiness as more of our functions are exposed to more people within that organization.
And it gives us a larger opportunity to go after. Yeah.
Speaker Change: The knowledge workers that we don't have access to in many of our customers at the moment or who don't have access to our products. So philosophically I think it's about simplifying things for our customers in terms of their purchasing behaviour. Yeah.
Speaker Change: Your next question comes from Rob Oliver from Bed, please go ahead.
Speaker Change: and Managed Clouds that's currently in DC, and then Joe, you know, relative to your comments earlier on cloud cogs and cost to serve, how should we think about as that ramps in 26, and you know, certainly not asking for guidance there, but as we think about that ramp, how a single tenet solution option in cloud could potentially impact cost to serve. Thanks guys. Thank you very much.
Sure Rob, let me take the first part of that. The... [inaudible]
Speaker Change: The strategy around isolated cloud is about continuing to make sure that we're serving the entire breadth of our customer base.
Speaker Change: As we scale in the enterprise, as we scale in ever larger and more complex customers. Some of those customers, some very small amount of them have particular needs.
And so I slated Cloud with its own sort of dedicated...
storage, dedicated compute, and dedicated networking for the customer. [inaudible]
Speaker Change: Certainly appeals to some amount of the largest and most complex organizations and also those that have particular needs and choices.
Speaker Change: A lot of the architectural changes and improvements we've made over the last three years in cloud and in a cloud platform allow us to do this, things like data residency which you can think about deploying our cloud in different regions of the world. [inaudible]
Speaker Change: You can think about isolated cloud as kind of the next days and that journey architecturally to be able to deploy. Think about it as conceptually an entire Atlassian cloud, all of the services. Thank you.
for a single customer.
Speaker Change: And to be able to do that both at an effective R&D speed perspective so that we can get the features out to those customers in the same way they are getting the cloud software.
And secondly, being able to do that from a...
Speaker Change: A cost management perspective both that the customer is willing to pay and see its value in and secondly that Atlassian can deliver it at the right.
Margin, and Christ.
Speaker Change: And then I'll take the second part of that and thanks for the question. I'll start by talking a little bit about the long term structural view of Gross margins and then I'll dive into your specific question around Robo and the impact that's going to have.
Speaker Change: I'd say the savings and efficiencies to the question we answered earlier that you see this quarter, they are structural and sustainable.
Michael Cannon: But as Mike mentioned, keep in mind, we'll continue to add more and more value and related costs to our cloud products to strengthen our structural competitive position. And the strategy with Robo is a great example of that. So, while we create capacity with savings and efficiency, we also backfill with additional costs over time.
Michael Cannon: So in terms of our longer term guidance, company gross margins are going to be primarily impacted by the factors we've talked about in the past. So that's things like our revenue mix, which will increasingly skew towards the cloud and progress on our cloud gross margin improvements. Thanks for your time.
Michael Cannon: So that's the overall mindset we have as we look to shaping future gross margin trends and when you net all that out we do continue to expect blended gross margins to decline over the next two years consistent with what we shared with you at an investor day last May.
Michael Cannon: In terms of AI Cogs, in the near-term it is early days and the impact from Rovo and AI related Cogs is pretty small and we're managing it well.
Michael Cannon: Obviously with the change in our global pricing and packaging strategy there will be a significant investment in COGS
Michael Cannon: But as you read in our shareholder letter, we believe that decision is absolutely the right thing to do to strengthen our structural competitive position and drive long-term growth.
Michael Cannon: Over the long term, we do believe AI related costs will come down the curve as multiple vendors compete in that space and will continue to optimize our AI infrastructure and support requirements just as we're doing on the other aspects of our cloud platform.
Michael Cannon: And as you can see from the results this quarter on CloudGross Margin, we are driving savings in Cloud Cogs that creates that capacity. And so in the future we feel we are really well positioned to be able to manage this change in strategy from a margin perspective. Thank you so much.
Speaker Change: Your next question comes from Raymo Linchial from Bachlates, please go ahead.
Speaker Change: Thank you. I wanted to go back to Kasthus' question on Brian earlier and obviously you're kind of planning for the new financial year that is coming up.
Speaker Change: How should we think about changes to the go-to market? With Brian coming from SAP, you know, he's bringing like an enterprise focus that, you know, you know, my complement to what you had before, but you know, we need to think about like changes to your go-to market in that respect and then have one for the one. [inaudible]
Thanks, Ramo, I think.
Speaker Change: We're always changing our car market is probably what I would say. We're evolving every quarter, certainly every year. How we go to market is our customer mix changes and our needs change. We've seen this.
Speaker Change: Many times in the past, you know, we've moved from how we've sold to adding data center, for example, we've moved to selling cloud and subscriptions. [inaudible]
Speaker Change: We've adapted to selling to the largest enterprises in the world again well more than 500 customers now spend more than a million dollars a year with Atlassian and we've grown that enterprise business as we mentioned to over 15% of the business to a 40% of the business in sales.
Speaker Change: and obviously cloud additions in free but also in premium enterprise. So what I would say is we're continuing to evolve our go-to-market motion.
Speaker Change: Almost every quarter but certainly every year as we look forward and see what the customers need and what the customer base needs and where we think the biggest opportunities are.
The
Speaker Change: You know, there's continued experience obviously that comes with Brian from a large global enterprise customer base to some of our largest customers and how we can continue to serve them very well.
Speaker Change: At the same time, we continue to learn both Brian , myself and everybody in the team about the large-scale frictionless end of the model that we're running with 300,000 plus
Speaker Change: Customers nowadays, and many, many offerings, new offerings like Loom and Trello have very different self dynamics to some of our traditional offerings.
Speaker Change: So I would say we keep learning about everything from a marketing point of view all the way through sales and customer success. We want to be a continual learning organization. But there's no doubt, you know, Brian brings a huge amount of experience and we're super happy to have him on board.
Speaker Change: We're really excited about the future in this world as we continue to evolve.
Speaker Change: Your next question comes from Jason Celino from Keybank, please go ahead.
Speaker Change: Hey, guys, this is Billy Onford, Jason Celino. It sounds like feedback in demand for Robo has certainly been very positive, but of course, we're still in early days.
Speaker Change: I just wanted to get a pulse check on where you think we are an enterprise-agentic AI adoption and maybe what some of the barriers out there still are to that adoption curve.
Thanks Billy Craig, Craig question, look
Speaker Change: I think there were very early days, there's no doubt that the easy answer is there were extremely early days in terms of ejecting adoption in our prizes. I would say that a lot of them are experimenting, a lot of them are trying to learn and trying to understand fundamentally what the technology can do.
They are.
Speaker Change: Understandably cautious with enterprise knowledge. We get a lot of questions about robust commissioning and structure and how it works.
Speaker Change: Who can access what content, how it all sort of strings together architecturally, I will say Kasthuri is very happy with how thoughtful we've been on all those areas, but it's natural that this is a new area of technology that they see clearly the upside the possibilities. [inaudible]
Speaker Change: But they're trying to be very careful and cautious about deployment and also working out where it actually adds ROI to their business and that's a lot of what we spend time with customers is helping them to understand that. There is certainly a. A.
A gap I would say between the awareness of AI.
And the usage, but I am hired the moment.
Speaker Change: Part of where we're trying to make sure we get across that gap is certainly with the rovo inclusion.
with the various offerings that allow them to try robots.
to connect data and to learn.
Speaker Change: And as we mentioned, we have various ways to deliver that value, but also for Atlassian to gain from that value in time, from higher editions, but also consumption based pricing in credits and various things like that. So it's. Um.
It's an evolving area, I suppose, I would say. [inaudible]
Speaker Change: Where I would say Kasthuri's the most excited is the breadth of agents that we supply and also the familiarity of those agents in their interaction.
Speaker Change: The ability to iterate, as I said, between humans and agents and back and forth, and often multiple times, two, three, four loops to get a task done, that also resonates really strongly with our approach. It feels more like...
Speaker Change: Generally, super early in our journey here, but huge level of customer excitement and our goal is to get that into as many hands as possible. I think we're making pretty good traction as we've said we've gone from a million AI mouths over one and a half million AI mouths in a quarter and we'll continue to see that number rise. I think it's going really strongly. Thank you very much.
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: Thanks everyone for joining our call today, there's always appreciate the thoughtful questions you can see in support. I was great to see a whole lot of you on the call at Team 25, just a couple of weeks ago in Anaheim. Have a kick-ass day and we'll talk to you in a quarter. Thank you very much.