Q4 2019 Earnings Call
Good afternoon. Thank you for joining atlantis', earning conference call for the fourth quarter of fiscal 2019, all participants will be in listen only mode.
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For replay from the Investor Relations section of Atlantis'.
Website following this call.
I will now.
I hand, the call over to Ian Lee Atlantis' head of Investor Relations.
[laughter].
Good afternoon, and welcome to Atlassians fourth quarter fiscal 2000, <unk> earnings conference call on the call today than last season's co founders and co CEO , Scott talk what might cannon Brooks, our Chief Financial Officer, James Beard, and our President Jay Simons.
Yeah, Let's say, we should personally ciena sheehan laid out with the financial results and commentary for a fourth quarter and full year fiscal 2019. He does is also posted on the Investor Relations section of Atlassians website investors are less in dot com.
No I website, there's also an accompanying presentation and data sheet available make some brief opening remarks, then spend the rest of the call on Q and a.
Statements made on this call include forward looking statements forward looking statements involve known and unknown risks uncertainties and other factors that may cause actual results performance or achievements to be materially different from any future results performance or achievements expressed or implied by the forward looking statements you should not rely upon forward looking statements as predictions of future events forward looking statements represent dominance management's beliefs and assumptions only as the date such statements are made.
Further information on these and other factors that could affect the Companys financial results is included in filings. It makes with the Securities and Exchange Commission from time to time, including the section entitled Risk factors in the most recent form 20-F, and quarterly report and form 6K.
In addition, during today's call, we'll discuss non IFRS financial measures. These non our first financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with I. forests. There are number of limitations related to the use of these non IFRS financial measures versus the nearest I first equivalents and they may be different from non I person non-GAAP measures used by other companies.
A reconciliation between our first and non IFRS financial measures is available in our earnings release.
L. shareholder letter and an updated investor Datasheet on our IR website.
I will now turn the call over to Mike for opening remarks, before we moved acuity.
Okay. Thanks, everyone for joining today.
Fiscal 2019 was another outstanding year for last year.
We surpassed the 150000 customers and exceeded the 1 billion dollar revenue Mark for the first time in fiscal <unk>.
We achieved this while generating more than $400 million in free cash flow during the year.
I'm incredibly proud of the work of more than 3600, Atlassians, who come together each day to build the great products that our customers love.
Our customers have always been guiding light.
Over the past 17 years, our commitment to these customers has let us to make pragmatic decisions about the evolution of it last season and our products.
Today, the leading us towards the cloud.
Demand for our cloud products is increasing both from new customers and from existing customers using our on premises products.
It's natural that the cloud is our primary focus and a key driver of our growth.
In fiscal 2020, we will continue to invest deeply in improving and expanding our cloud offerings and platform.
We will also be investing to serve logic customers in the cloud.
As well as to accelerate the pace of migration.
Oh server and data center customers to our cloud.
Our pricing and packaging strategies will be roughly aligned with these goals.
Got it and I have always been focused on driving sustainable growth over the long term.
Our increasing cloud focus supports this long term view.
And James This section of the shareholder letter, we outline the financial implications of our cloud strategies in fiscal 2020, and we encourage you to read his commentary.
And with that I'll pass the call over to the operator for Q and a.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you are using a speaker phone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
The first question comes from Avant Suri with William Blair.
Please go ahead.
Hey, guys, it's actually Arvind Bhatia on for Bob on.
Just wanted to start off with a with the freemium model that you talked about in the shareholder letter. It seems like you know this is a.
This is a nice shift to the strategy just wondering why why this is the right time to go freemium in the in the cloud for supposed to the cloud products and then what do you think is the is the benefit over offering a a one week or one month, one month trial for customers.
Hey, I imagine it's a it's mark I can take that sure Oh, I guess I would start by saying it's.
But it's not really a shift in the strategy.
We have free versions of a whole series of cloud products today, and we have always tried philosophically to have the lowest entry point price that we can.
A lot about cloud investments over the last couple of years have made this possible. So this is sort of the.
From that point of view the culmination of a longer term journey into cloud, we've always tried to get.
You know to get off to the Fortune 500000, we've got to have as many onramps as possible to get customers onboard as friction literally as possible at the low end and we delivered in value in terms of the products and then as they grow they will start to become customers. That's always been our pricing desire. So this is just.
Another step on that journey in terms of in terms of getting off the fortune 500000.
Great. Thanks, and then maybe it maybe a quick follow up but just trying to get a better understanding of where customers are in the in the migration path, especially larger customers from from server on premise too.
To cloud is this something that you are larger customers haven't have planned already or are we still.
Are we still too early for that and something you expect to play out over the next next to the next few years here.
Karajan, it's Jay it's been playing out over a while I think the signal that we you know that we articulated in the letter is that were seeing increasing demand from a lot of on prem customers many of them larger.
To consider moving to the cloud and you know that's been ongoing we anticipate it will be ongoing and you know maybe Oh Theres a couple of great. Examples of you know like really large U.S. based asset from that.
Beginning to plan a move to the cloud and that's a large existing server customer that has 8000 years of Jira and 10000 users of confluence and on the other side of that cloud journey.
You know they can anticipate taking it up to 15000 users.
You know, there's a large European athletic clothing manufacture that's going through the same journey in a lot of the you know the catalyst for it is just a broad secular shift that's been happening around us in the market, you know where 90% of new customers or in the cloud, but a lot of it is these large customers see the investments that we've made in cloud and then these advantages that cloud brings him in terms of performance the ability to to have the service management updated for them.
And then more reliability in some cases.
Great. Thanks for taking my questions and congrats on the quarter.
The next question comes from Gregg Moskowitz with Mizuho.
Please go ahead.
Okay. Thank you very much and good afternoon, guys. So I was at a atlassians I'm in a few months ago, where you offered all attendees at the 2000 free cloud software licenses to accompany their on Prem licenses and obviously it looks like you've now openness offer up to your entire community and on and on a matching bases as well would it be fair to conclude that as a result, you've seen high levels of interest and activity from that promotion a few months back any color kind of around that in terms of what youre seeing from customers will be out would be helpful.
Yes, Hi, Greg.
I think in part it was the response is yes. It is in response to a lot of interest and in the cloud and the goal of just making the journey that customers are considering considering easier for them and part of that is in the offer that you mentioned and in the you know the matching free cloud trial license that we're offering existing sort of customers. So they can begin to plan. It migration. The other component is just the investments that we made in product of migration tooling weve the migration to and has come a long way from.
Where we've had the opportunity for customers to export and import and now.
I think some really innovative work in helping them move project by project.
You know pieces of Jira and confluence from their on Prem.
On print installations into the cloud being over the broad backdrop of that is in response to where customers are signaling they want to go and.
Our goal is to make that as smooth and its friction free as possible.
All right Thats very helpful. Thanks, Jay and then.
Congrats as well on eclipsing 150000 customers and you've now provided another long term goal of more than $100 million.
Active users versus over 10 million cloud I may use today.
And we look forward, obviously, attracting that progress as you continue to grow but my question. There is if you could talk to the investments required and infrastructure and engineers and an acquisition that you think are required to make this goal a reality.
Also does this require an accelerated multiyear investment in cloud or would you say that you're currently on a good pace from an investment standpoint.
Greg Scott here I can take that well be investments, we are making on the cloud like we have been a crowd company for 10 years, and we're making continued investments in improving our cloud for our customers.
As Mike mentioned earlier some of the investments around Vertigo, we talked about which was moving out cloud off our own data centers into third party data centers has allowed us to reduce our Cogs. So we can now offer a free.
Asian.
The investments we made in it infrastructure and platform have allowed us to bring access.
Ill.
Use of management product to market, but also allow us to.
Got a premium product to market as well. So we've made a lot of investments over time that are paying off now.
As Jay mentioned, when making investments in migrations as mentioned in the letter that.
Confluence we've got a great migration tool and by continuing to improve it that's going really well we are investing in jira migrations tool as well, which we expect to be similarly successful.
And over time as one of the things this year is.
Going through that journey, all migrating customers with some of the largest customers valves to the cloud and through that we'll I'm sure there'll be little things will discover that will.
We working with our customers on that.
Broadly I don't see a change in our investment mix.
In order to do this.
It's sort of more of continuing what we've been doing all along.
Terrific. Thanks, very much guys.
The next question comes from Heather Bellini with Goldman Sachs.
Please go ahead.
Okay, that's either.
Yeah.
Operator could you move to the next question first please.
The next question comes from John .
Difucci with Jefferies.
Please go ahead.
Thank you.
So.
Mike and Scott you talked about the opportunity to help your customers migrate to the cloud I guess given your new name is there are there any thoughts around the undersea opportunity.
That's bad joke, I'm really sorry, but.
The real question is laughing John .
The real question is this.
Is there a reason that clouds better for it last season like pricing stickiness or is this is this just doing what customers.
Juan which seems to be part of your DNA in part of your success, all along or is there something else, though that from a financial perspective cloud would be better than.
On premise deployments.
John I think we've always been confident OLED and whatever we do and.
That's all we have both deployment options at the moment and we are not trying to push our customers. One line other from a financial perspective or any other reason we were very happy with it.
Kind of both sides of our business. The demand is there for customers to go to cloud.
I do think that as you know.
When customers are in cloud it allows us to get feature usage information that allows us to be a bit shopping with our R&D investments.
Doesn't show up in any balance sheet paying out or anything like that but it does allow us to kind of build better products are quicker.
It allows us to.
Cross sell our products a lot easier.
Because they're on the same system. They can suddenly we can expose them to ops janey without the need to set anything up in their environment. So it allows us to do that at all I am from a virality perspective in helping people sign up two products.
It allows us to effectively and with all the analytics. We've got we can make sure that people go through that journey a lot quicker.
And I think we shared in our shareholder letter that the financial results over the long term.
Our nationally better for us at Alaska, we feel good about that as well.
Okay. That's okay that all makes sense. Thank you.
The next question comes from Nicolay the laws of Bank the Bank of America Merrill Lynch.
Please go ahead.
Hi, This is actually Jacqueline on for Nick why.
Two questions first in light of the fiscal 19 billing seasonality how should we think about fiscal 20 billings trajectory and number two how how do we think about the use cases that the premium edition well the channel be involved in selling premium.
Okay, Hi, gentlemen, I can take the first one.
No just a reminder, obviously, we very much focus much more on revenue.
Then billings.
And that's for the fans that of course deferred revenue is relatively small part of our overall sales picture, particularly the long term deferred revenue because we really does.
Entry into very many multi year contracts atoll.
And then when you add to that.
Of course.
The cloud business growing very strongly.
As we've been discussing.
And more than three quarters of that comes with a monthly subscription.
So those are some of the key reasons why we're really focused on revenue as opposed to billings.
So as you know, we don't guide to billings in fiscal 20, but but what I would just observe is that.
In the last couple of years.
The billings Patton has moved around somewhat based on the timing of price increases that we rolled out.
So for example in fiscal 19 last year.
We announced some price increases in the middle of September .
And.
So there we saw pull forward activity occurring it to benefit Q2.
And that's.
Benefit was pulling activity from the second half of fiscal 19, and in fact from fiscal 20 and even beyond there.
Now Conversely in fiscal 18.
We announce price increases a little earlier right at the start of September and in that year the pull forward benefit.
It was really a balance between both Q1 and Q2 and that benefit was pulling.
In part from Q2, but then more so from Q3.
So thats really all I would just remind everyone on obviously, we havent made any price increase announcements for fiscal 20, but that gives you a sense for the recent historical patent and how price increase activity can impact billings by quarter.
Hey, John This is Jeff I'll I'll tap onto the second part of your question Theres two kind of unique components of the premium car additions. The first is kind of common across on which our platform capabilities that offer a higher level higher service and support level and in some cases, depending on the product higher storage levels as an example.
The second component is a premium features that really target more advanced and sophisticated users that are specific to the product and so roadmaps and jira or.
Usage analytics and confluence or to the examples into the customers that premium additions target are.
Can be small and just more sophisticated users the more often than not will be larger.
So that two words retargeting absolutely the channel is engaged in.
In selling and supporting customers, both upgrading from standard cloud to premium additions, but in many cases, just starting with premium.
Thank you.
The next question comes from Keith Weiss with Morgan Stanley .
Please go ahead.
Hi, This is our standard Singh for Keith Weiss Congrats on a very strong Q4 I had two questions. The first is on the sort of.
Cloud unit Economics, if you will you had a really nice chart in the earnings letter and it basically shows a break and breakeven time between cloud and server of about two years and at about a 40% higher lifetime value. So there maybe dovetail on Sean's question, what do customers get for that prepaying that extra 40% over five years is it more about the performance scalability or from a is there any feature functionality aspect to this as well that that that gives the the maintenance based customers that nudged up or decline.
Hey, since you look from a from a pure value point of view.
The probably the biggest difference they get is obviously, we're doing all the operations and maintenance of the software for them.
So if you think about someone paying a licensing fee. They then have to download have their own server in house run their own upgrades patches et cetera of the software that takes time as well as integrating it connecting it to other things.
Administering it that is.
A large lift that we can take off and that's often well more than the price of the software itself. Obviously, we can provide that at a small uplift over a multiyear period as you said, but we can scale that cost across many many instances right. Obviously, we're deploying a tens of thousands of observers. If you want to think about it virtually on a constant basis weve automated all that we can spread that cross cost across a lot of customers.
At the same time, they get a better updated more frequently updated application that should be.
Foster a more secure more scalable.
Without them, having to do anything right. That's the goal of the cloud is that digest sign up with 10 users and they can go all the way to 10000 without really having to think too much about about that scale effect. That's that's exactly what we do in a in R&D and engineering teams is make sure that all happens for them.
And obviously any new innovations all the way through to new security patches get applied instantly. They just they just appeal sort of magically for them. So it's a far better offering its generally the premise behind cloud software.
Understood. That's really helpful and then I could revisit.
The pricing strategy question. So for the last two years I think about two years ago, we move to this cadence of annual price increases and the view what you thought was going to be more predictable for the customer base to expect that on an annual basis. It seems like this year is a little bit of that but anomaly and I'm wondering is this sort of a should we look at this fiscal year 20, as a sort of anomaly given this sort of push to cloud and that we would visit this annual price.
Increase on the server base. After February 20 were how's the how's the cadence on pricing changed with this with this cloud push.
Well the first thing I'd say Sanjay is that as we think about pricing and packaging. We continue to be very focused on remaining the high value low price leader.
And we have said in the past and continue to believe that well within that construct have continuing opportunities to make price changes.
Yes, very much commensurate with the value that we're delivering to our customers.
Now obviously, we've been talking quite a bit on this call already about our focus on the cloud and continuing to really.
Bring more and more customers be they current migrations or new customers.
Into the Atlanta CN frame.
And so.
I would expect that.
Benefits around price increases on the cloud side of our business would probably be less so in fiscal 20 than was the case in all 19.
No again, we haven't made any announcements about price increases more broadly.
But I think thats, a reasonable thing for you to consider.
Okay.
The next question.
Thanks to you over the next question comes from.
Michael Turits.
With Raymond James.
Please go ahead.
Hi, guys Nice I think as we wait until you drill down on Craig's ask US. This question about any change in.
Financial impact for the quarter, an investment let me just extend the long run obviously the move in the club in any case it seems like an acceleration, but is there anything different we should think of it in the long term either.
Opex Capex framework anything.
The degree of impact on gross margins the amount of capex, the anticipated or any breaks that we might expect in terms of.
Significant changes over a multiyear period.
Yeah.
So Michael a as we think about the cloud continuing to become a larger and larger proportion of our overall business.
I would expect that to have some impact on our gross margins.
You would expect obviously as Mike was pointing out we're doing all the work of operating the software on behalf of the customer and so you would naturally expect there to be an increase in the proportion of cost of goods sold.
And indeed, we have in the last couple of years been investing.
Quite significantly in the sort of physical infrastructure to make sure that our cloud customers wherever they are in the world have the sort of response time and reliability.
That they would looked to receive from our cloud services.
But at the same time I'm very pleased with how.
As we work with a W.S., we find a significant opportunities to continue to make more efficient our usage of the the cloud infrastructure.
And so you can expect us to continue to be focusing on that over time.
And then of course.
There are other lines embedded within cost of goods sold.
And we'll areas such as support and we will look to continue to.
Seek efficiencies there as well.
And so it's a a mixture of a variety of affects around gross margin net net I've been pleased with how we continue to progress on the gross margin line.
And yeah.
In terms of capital expenditure.
The way our relationship now works with Cws.
Really.
The capital expenditure related to cloud infrastructure sits with cws on their balance sheet and capital expenditure is very much driven by our own physical facilities.
Around our primary offices.
So I wouldn't expect the growth of our cloud business to particularly be driving that Capex line per se I will see that effect flow through operating expenditures as we work with a ws.
Okay, and then just as a follow up for you.
On the guidance for this year and I don't know this is related.
Cloud push or not but your guidance your margins up margin down a point.
Some of that is from.
Hi, Joel acquisitions and then.
Specify how much that impacted but but if we if you look at the at the castle of UBS.
So it has to come down about six points I understand based on the math you get back to that $30 million comes from higher taxes, but.
So more impact cash flow, even ex that taxes, maybe you could specify that for us.
Michael The first thing I'd say about margins is very pleased that we've been able to grow in fiscal 19, both the operating margin up a point and the free cash flow margin up 2.9 points year over year and as you know we've we've been saying how are we will continue to look to build our margins, both operating and free cash flow over time.
And so the guidance that we put out today.
As you correctly indicated in your question on the operating margin line one of the key impacts there is the acquisition of aircraft now branded tiara align because remember.
That that has more of a services component to the business model and of course.
For.
Certainly the first three quarters of fiscal 20, we'll be working through that typical deferred revenue haircut that comes along with an acquisition so that will particularly impact that and then on the the free cash flow.
Guys again, you correctly reference there a quite sizable swing in cash taxes year over year. So in fiscal 19, we actually received $7 million.
Of cash.
Related to taxes.
I would expect that to return to much more normal situation in fiscal 20.
And so net net between.
The two years, it will be a swing of around $30 million.
Approximately in cash taxes, so that will have an appreciable impact on the free cash flow margin. The other thing I would note on free cash flow margin of course is the capital expenditure.
We've indicated would be $30 million for fiscal 20, so that will be down quite substantially year over year and that just reflects a going back to my facilities point that we've worked our way through some of the key facilities projects that we've been working on in fiscal 19, hence a smaller capital expenditure projection for this year.
Hi, James.
There's still a delta in other words are still coming down a lot more on cash flow.
Margin in one margin even accounting for the.
The taxes swings so I wanted to be its yes, but the only thing I would would further add Michael is we're coming off a very strong year on cash flow and so again, we would look for these margins to build over time, and we had a very strong build in fiscal 19.
Thanks.
The next question comes from Alex Kurtz with Keybanc.
Please go ahead.
Yeah. Thanks, Thanks for taking a couple of question.
Uh huh.
It's going to go back to the opportunity around cloud within a within its sort of expansion rates within existing customers.
Can you just kind of outline for US again, what you see as far as adoption and expansion rate.
Maybe by by users within your larger customers when one customer goes the cloud path and the other one goes the on Prem path I mean is there a way to.
Quantify that for us a bit.
Alex its Scott here I want to give the specific numbers around that but I give some anecdotes that are very exciting for us.
We've got a growth team here to Washington, who run a lot of growth experiments, maybe similar to what you see in some consumer type companies and.
That team is growing pretty substantial over the last year and we've had some really successful experiments.
Cross selling say jira into the comp comp went into the year base.
Which is.
Very well overlapping product and serve a very well over the RPM product in cloud because we're running those products in the cloud we have the opportunity to run these experiments, where we can adjust the interface promote something in product.
And see if it works before we spend the effort in unit production, averaging in rolling out to our entire base and so we've seen that work in those particular products over the last year, which is a focus area.
We're expanding that to look at other.
Other sort of product in the coming years and again stuff that we can do in the cloud that we have done in the server, but its a lot hotter and takes a lot longer to say the returns.
Okay, Thanks, and the comment in the shareholder letter around the one point of revenue.
Headwind for the year around these these changes that you guys have outlined today.
Is there so some way to kind of.
Outline is as a base case assumption on on.
The uptick in subscription and cloud.
Or is it back end loaded as far as how you think that that headwind is going to play out during the year, because any kind of additional context would be helpful.
Yes, I would say, obviously, we we talked in the last or about there being really three drivers of that one point so the.
The free additions.
The free cloud trials to occur or behind the firewall customers and then the revenue recognition mix effect.
That mix effect would be occurring throughout the year.
Obviously the.
The free count trials and the free additions that will start to play through as we implement those those initiatives. So you will see that come in the in the forms of time during the year.
Okay.
Thank you.
Your next question comes from Jack Andrews.
Needham.
Please go ahead.
Well good afternoon. Thanks for taking my question I wanted to ask kind of a high level question just about your overall product development efforts.
I mean can you shed some light on I guess, it's a framework, perhaps as you are using for resource allocation.
You've got a lot of things going on in terms of besides the push to the cloud you're introducing new categories things like a line and in some cases to a new user base. So I mean can you just talk about how you are prioritizing spending more time and efforts on some of these other efforts versus adding incremental functions to your existing products or is there a way to kind of rank order your product development.
Priorities.
Yeah, again, I, Mark I can take that.
Look there is no simple and easy way to communicate that fits.
I would say, it's something that we spend a lot of time thinking about we've got a long history of doing that.
You mentioned a few acquisitions, obviously, we realize it's very important to integrate acquisitions in the right timeframe, sometimes that foster sometimes that slower.
If you look at something like Trello, we've invested a lot in growing a trailer business, but not so much in integrating it in the short term and not see any it's the opposite way around.
And so we Mike I would say horses for courses decisions depending on on what that is.
We at the same time do obviously try to lean into the future. So you can see a lot of our resource allocation is going into the cloud whilst at the same time.
Being a practical about making sure that our on premises customers get the improvements that they need in those applications.
I would say we are constantly making.
Decisions on how we move resources around whilst at the same time growing.
We also have a global problem.
To constantly manage way resources all around the globe, a we've been doing very well in Bangalore through.
I was just there.
A couple of weeks ago, we've passed 200 staff there now in India, and continuing to grow really strongly and where we put resources around the world and how new those resources are can affect how what projects. We can put into it. So I would say we're really good at managing that on a global basis, now and I'm pretty comfortable where we sit but there is no singular framework we use.
Well, thanks for your perspective, and just as a follow up.
Is there any update in terms of how you're thinking about the enterprise advocate role at the last season do you feel you need to add any more resources in this area just given again the emphasis of the cloud changes in pricing things like that.
Yes, Hey, Jack this is Jay I mean, we're growing the team and we've been growing the team over the past handful of years, there won't be a material change.
But we'll continue to add enterprise advocates in sort of direct sales as you know as we.
We attacked the opportunity I think.
Keep in mind that the that the business model I think what makes our business model. So powerful is the combination of three things.
This high velocity flywheel that really focuses on enabling customers to self serve and that just allows us to reach massive global volume of customers that can start easily on their own. That's number one and two is is our direct enterprise advocates sales team and they can focus on.
Targeting high value expansion opportunities that exists within our largest customers and the third is is the channel.
And often times our direct teams are working hand in hand with the channel on expansion opportunities that tend to tend to be accompanied by some service delivery work that the channels and able to help with and that's what makes it so great. As you know, we can land and even the largest accounts really efficiently and we create this really fertile ground for our channel and our direct teams to expand from.
Got it thanks for taking my questions.
The next question comes from.
Derrick wood with.
Cowen and company.
Please go ahead.
Great. Thanks for taking my questions My first one James.
It was a little surprising to see maintenance growth actually accelerate this quarter and then on the flip side, a steeper deceleration on subscription growth.
Are there any puts and takes that you'd call out in terms of the revenue mix. This quarter and then how should we think about how much license and maintenance growth steps Downs next year as you focus more on the cloud.
Yes, so for Q4.
We are pleased with the the maintenance growth rates, obviously, you're starting to see the price increases from really the last couple of years layering into that that figure now.
On the subscription growth rate.
The behind the firewall component of that subscription revenue line.
Had a particularly strong comp bank in Q4 of fiscal 18, and so thats really what drove the result there.
In in this past quarter.
We're continuing to be very pleased with our.
Cloud business, our marketplace business and our datacenter business in terms of growth.
As we've been discussing now for a couple of years also we would expect that gradually over time.
The license maintenance side of the business doesn't grow strongly and you see that flowing through in the strong growth of the subscription growth line that we that we gave you a steer on for fiscal 20 with growth expected there of greater than 40%.
Great. Thanks, and I guess more of a prior question regarding the new free cloud license for on premise customers.
Can you give us a sense as to how long those customers will get the free license and at what time period, they will have to start paying.
Added fees for the cloud service.
It's Scott here.
The freemium model, we know there's many different ways of the company companies do that.
We have free trials for many of our products and we have a freemium for many of our products for the free trials.
They are in generally a couple of weeks, but when we're talking about here is moving many of our products from a free trial approach to a freemium approach, where there is effectively a feature or use a limited version of our products that are free forever.
And we found through the experiments weve done over a long period of time and the fact that we have multiple products with different pricing models that the freemium approach whilst it has some short term.
Headwinds in terms of.
Revenue for US actually provides the best long term sort of revenue for us as a company and as Mike mentioned earlier, when you were off to the Fortune 500000, and the markets are so large that it write off will make everyday of the week.
Trading out some short term revenue for long term customer acquisition. So that's what we're doing now we are free trials are moving to a freemium feature and user based on model.
Got it okay. Thanks.
The next question comes from.
George you run Nick.
Well.
Open armor.
Please go ahead.
Thank you for taking my questions.
So you had really strong growth with your larger customers ones over 50000, and 500000 can you give us a sense of the factors that are driving the expansion there and maybe.
Also a sense of the penetration of your newer products with those larger customers.
Well I have the factors are a couple of things like one we've created in both.
The on Prem business are now in cloud with premium additions and really important upgrade opportunities for those customers as they continue to scale and so thats. One factor. We've also expanded the portfolio. So we have more products and talk to those customers.
Stronger signals of cloud I think we're really excited about the opportunity for premium additions in the cloud as both a similar upgrade path for just the existing.
Cloud based Thats on standard that's on the version of that exist today, but also as server customers consider the move to cloud they've got the opportunity to either stay on Prem within upgrade path, the datacenter or to move to premium version of our cloud products and both those are opportunities I think to increase the two cohorts that you described.
So with the multi product opportunities that are opening up can you give us a sense of just the competitive landscape are you seeing.
Yourself go up against more companies with the larger customers.
Not not materially I think into the competitive landscape as we've described before is different by product and by category.
I think we've got.
You got a really strong I think advantage with just our existing base and where were expanding from a lot of these products.
Deeply connected into.
As an example, jira and so the jira affords us an opportunity with a champion and it kind of.
A key fanatical base inside of our customers, where they are going to look for the best product that actually allows them to extend or do weve kind of capability into an adjacency like ITD operations management or incident management. So optionee as an example.
Benefits a lot from.
The existing Jira software base of 65000 customers and part of the.
Momentum that we're seeing an option is exactly related to that and so you know the competitive landscape doesn't change I think we lean into our advantages and we're focused on building the best product in any category.
And then using all the levers that we can introduce that product to the customer.
Thank you.
The next question comes from Keith Bachman with BMO capital markets.
Please go ahead.
Hi, Thank you James are going to start with you.
You did mention or talked about the pricing impact to subscription I was wanting to extend that if you thought about the guidance you gave.
Is pricing that that's still a tailwind as you think about the overall opportunity associated with F y 20.
Yes. It is that's a reasonable way to think about it.
And specifically you said subscription would probably be less so in 20, then 19 is that.
Broadly true of the balance of the portfolio as well.
Well.
Just a.
I'll be very clear my comment was around but cloud part now remember there are two parts of the subscription revenue those data center as well as cloud, but for the cloud part of the business.
I would expect price increase activity.
To drive less growth for us than was the case in fiscal 19.
Okay, and if you could just answer that broadly speaking is that true for the rest of the portfolio or no I wouldn't really extend the commentary beyond that obviously, we havent made any pricing announcements yet to our customers. We just wanted to just give you a sense of what might be helpful. In some of your modeling.
Okay great.
My second question is if could you provide any update on a line or just any kind of traction or metrics associated with.
That that particular offering.
Hey, Steve its Jamie no metrics, but in terms of traction really pleased in just the response that we've seen from customers and the momentum we saw in the first quarter and you know I think the timing or you know the announcement with Sun. It certainly helped and I think you you heard I think you were add some at your some of the interest is directly from Mike Enzi Bank on the stage you know when we talked about.
About their interest in agile transformation into consideration set around your line of natural Kraft part of that.
Q1 was our first full quarter with the team integration pipeline channel enablement. All those things are humming were pleased with the result.
Okay, Yeah, Jay there did seem to be a lot of interest at your user group event. So thanks very much for the questions.
[noise].
The next crush question comes from Rishi Jaluria with D.A. Davidson.
Please go ahead.
Hey, guys. Thanks for taking my questions nice to see a continued strong results.
To to kind of broad classes of questions first on the cloud migrations and then I've got a follow up on on Trello.
But I'm I'm proud of migrations side to kind of piggyback off signs it's observation earlier.
In the chart that you gave US is really helpful. Can you talk about it essentially comes out to about a 1.4 x. uplift.
From from server to cloud.
Or even if we look at year five maybe closer to maybe a 1.6 to one point sevenx uplift idle with other software companies when they've talked about migrations to cloud they've talked actually about a two extra three x. So maybe just help me understand why the delta and feel silly complaining about it but but why isn't uplift not not bigger and alongside that in terms of driving the migrations.
Should we start to see something like cloud only features or cloud only products as an incentive to.
Help customers migrate and then I've got a follow up on travel.
Hi, John .
First thought which is that cloud migration from the uplift.
Firstly, you know its an illustrative example, we put into the document.
At each segment.
There's different pricing characteristics.
Two is that we.
We have always been patient revenue with our customers and making sure that they're a with barriers to move across to the cloud.
It is very important for us as well and so what are the pricing was that there is you know to help customers moved across to the cloud.
Okay got it thanks, and then just in terms of from a product perspective and anything in terms of should we expect to see cloud only features or cloud only products to help kind of incentivize customers to migrate.
Yeah, we it's mark and we do have a a series of cloud any features and products. If you think about it. So obviously any status page aligner, all cloud only products that are aligned to support on premises instances in terms of the data it can attract.
And then you've seen us introduce specific cloud only features like access.
And within even within the Jira family within confluence there was a slight feature differences between on premises products and cloud products.
So yes, there already I guess, some feature differences, but by and large if you're using confluence so jira software with Jira service desk that there's still largely the same product on both sides. We do make sure. The data compatibility is really important so for the customers that are migrating we mentioned the conference migration assistant we released a few virgins up during the year and the upcoming during my question assistant that requires us to be able to move.
Especially for the for the large volume of smaller customers to move that daughter automatically. So we do make sure. The data compatibility is really important but there are major differences between the two.
For sure.
Got it. Thanks, that's helpful and then just quickly on Trello.
You did mention in the in the materials that you had an uplift and customers are paying customers with the the resultant kind of the board limits can you be I think just help us understand what kind of the result of that and was that.
A conversion to free the pain was that was that something else.
And then maybe talk a little bit about the traction you're seeing with with travel enterprise. Thanks.
I'm sure look Trello is a continued doing to its apparel and very strongly we're very happy about how it's going.
As we've said look up a primary goal would trello is still to continue to establish a trello as a brand trello as a product and continue to grow the momentum that it has as a as a standalone business.
We are doing more and more integration over time, but that's that's a long term journey.
We did introduce some pricing changes throughout the year or you've seen some of the impact of that as we've called out in the in the customer number this quarter.
Some of that is a is a onetime benefit that we've talked about because.
While the flow of truckload customers will be moderately higher we are changing some of the free to paid conversion rights.
And that's from a large existing free base, obviously, you get some of the existing base converting over to foster a foster right, which is what we've called out in a in a customer number there.
At the same time, we are focused on Trello enterprise or we've had a really good a couple of quarters intro enterprises. We continue invest in features day, we put that into the shareholder letter as well.
As businesses adopt trello with tens of thousands of users and beyond.
They do have different set of requirements that we continue to work with the customers on establishing a you know when you have hundreds of thousands of boards across a customer you need methods of organizing that content finding that content.
Managing large scale uses et cetera, which is.
Exactly what we've been doing in the in the Trello enterprise product and obviously with such a large installed base in trello that that that has a very good future.
Great. Thank you that's helpful.
The next question comes from Heather Bellini with Goldman Sachs.
Please go ahead.
Great I, just wanted to and I apologize for missing the slot earlier I just wanted to ask real quickly about ops Genie.
You commented about how it accelerated the pace of additional paid users and was just wondering if you could talk a little bit about how you're seeing that cross sell opportunity.
Into your Jira installed base and.
Like is there any color that you could share about kind of where you're seeing the success of kind of cross sell.
Across those products. Thank you.
Hi, there I'm trying to get into specifics that as you mentioned, we mentioned in our shareholder letter we've doubled the pace of customer acquisition and.
We feel really good about that.
That acquisition, if you will through their internal charts. There is a distinct change when outstanding retirement Watson and we feel great about that.
If you Jenny with customers, it's a great product.
Sometimes I mentioned that the acquisition sometimes you.
You acquire something and.
You have to add features to it or Omega enterprise ready and opportunity actually scales better than any of the other products out there on the market and so for US. It was just a matter of getting in front of our customers are still very early in the journey of putting it on the last seen platform, we're really happy with the pace.
But we've only declined it less than a year ago, we've already done identity and user interface and stuff like that so whereas it was still at the start of what I think of.
In terms of cross selling into our existing base.
And then I have the right I would just add that when we announced the acquisition of ops Genie. We noted that it would drive a point of revenue growth. On these then revenue guidance for fiscal 19, and I'm pleased to say that we achieve that so a strong momentum.
Okay, that's great.
Just a quick follow up if there is a net new customers that you are getting from this two plus expansion into the installed base and you see the opportunity on both fronts is that correct.
That's right, yes, that's right very much so.
Thank you very much.
Again, if you have a question.
Please press Star then one.
The next question comes from.
Pat.
Walravens with.
JMP Securities.
Please go ahead.
Hi, This is Joe good one on for Pat.
Just wanted to ask.
Real quickly about how how is the relationship was flat going in can you speak to some of the opportunities that may be on the horizon.
Hey, Joe.
It's going great I mean, we've got.
I think a good relationship great integration that we can to improve between the products.
We are.
In the market I think talking to customers at both of our user conferences and events about the relationship that exists in the value for customers when they integrate them more deeply.
You saw that at some point where.
We talk a lot about just how we use lock internally and extend their products and their users of our products at the same time and doing the inverse so.
It's good.
Great and then just a quick follow up.
It was the monitoring space a space that you guys whatever and enter into.
Scott here at the moment.
That's not an area that we are actively looking at.
There are a lot of players in that space.
And.
There is no clear winner, we benefited a lot more from integrating with the leaders in that space and.
We have a great relationship with all the leaders in.
In that space.
Again, it's Mike I might just add philosophically if you look at our history, we do try to solve human in people problems not technology problems, and so where we stray into areas, where you're solving a technology problem bid language specific features or analytics specific features it's not it's not our core DNA right. We're a collaboration company around teams of people.
Something our crops, Jamie while you are coordinating.
People is much more in our wheelhouse of have strengthened our DNA as a business around solving solving people and collaborative problems around technology rather than actually.
Solving technology problems per se.
Thank you.
The next question comes from Greg Hello.
With Deutsche Bank.
Please go ahead.
Oh, great. Thanks, you may have already touched on that's why I joined a little bit late but I just wanted to make sure I understood. It in some context behind the fiscal 20 guidance, how should we think about the acquisition contribution to revenue growth in fiscal 20, and then is there any residual impact on operating margins, particularly from agile craft.
[noise] Ah well, we haven't broken out any specific acquisition element of the fiscal 20 guide.
Obviously, we have just been talking about how pleased we always ops Cheney and Jira line and so we're looking for those both to continue growing strongly during fiscal 20.
In terms of the operating margin effect.
Around jira align in particular, we'll be working through the deferred revenue haircut that comes along with every software acquisition.
And so that will impact the jira align revenue growth rate during fiscal 20. It will still have some of that for ALKS Genie as well, but we're three quarters further along that pathway without genie. So during fiscal 20 that their deferred revenue haircut should start to add.
Okay. That's helpful. Thank you very much.
This concludes our question and answer session.
I would like to turn the conference back over to the management team for any closing remarks.
So to say thanks, everyone for joining our call today I think from the bottom of the sea or to the top of the clouds. We continue to work hard to deliver for our customers. We appreciate your time today, we look forward to keeping you updated on our progress.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.