This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk04: Good afternoon and thank you for joining Atlassian's earnings conference call for the first quarter of fiscal 2021. As a reminder, this conference call is being recorded and will be available for replay from the investor relations section of Atlassian's website following this call. I will now hand the call over to Matt Sonfault, Atlassian's head of investor relations. Please go ahead.
spk02: Good afternoon and welcome to our Q1 of fiscal 2021 earnings call. Thank you for joining us today. On the call today, we have Atlassian's co-founders and co-CEOs, Scott Farquhar and Mike Cannon-Brooks, and Chief Financial Officer James Beer. Earlier today, we issued a press release and a shareholder letter with our financial results and commentary for our first quarter of fiscal 2021. These items were also posted on the investor relations section of our website. On our IR site, we have also posted a supplemental data sheet. During the call, we'll make brief opening remarks and then spend the remainder of time on Q&A. This call will 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. We should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent our management's beliefs and assumptions only as of the date such statements are made and we disclaim any obligation to update or revise them should they change or cease to be up to date. Further information on these and other factors that could affect companies' financial results is included in filings we make with the Securities and Exchange Commission from time to time, including the section titled Risk Factors in our most recent Form 20F and Quarterly Form 6K. In addition, during today's call, we will discuss non-IFRS financial measures. These non-IFRS financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with IFRS. There are a number of limitations related to the use of these non-IFRS financial measures versus their nearest IFRS equivalents, and they may be different from non-IFRS and non-GAAP measures used by other companies. A reconciliation between IFRS and non-IFRS financial measures is available in our earnings release, our shareholder letter, and on our updated investor sheet on the IR website. During Q&A, please ask your full question up front so that we can easily move through to the next speaker. Also, please be patient if we encounter any disruptions or challenges. Lastly, we've announced two additional items in conjunction with our financial results this quarter. First, we have filed a form 6K announcing a successful close of a $1 billion senior unsecured delayed draw term loan and a $500 million senior unsecured revolving credit facility. Second, we've announced that we will host a fiscal 21 virtual investor day on Tuesday, November 17th at 2 p.m. Pacific time. We'll be able to RSVP for that over the next 24 hours through our IR website. We hope to see you there. With that, I'll turn the call to Mike for opening remarks.
spk07: Thank you everyone for joining today and for your continued support. We hope you and your loved ones are healthy during what continues to be a dynamic time for everyone, including our customers, partners, and employees. We hope you've taken the time to read the shareholder letter. This quarter, we've been transparent in describing the many different long-term initiatives that we're focused on as a company. This includes a recent announcement focused on migrating our customers from server products to the cloud. In Q1, we posted strong results, adding over 8,600 net new customers, generated $460 million in revenue, up 26% year-over-year, and realizing solid non-IFRS profitability of $61 million in free cash flow. We scored several product wins as well, including achieving FedRAMP certification for Trello Enterprise, strengthening our partnership with Slack, launching Atlassian Ventures, and closing the Mineville acquisition, which accelerates our ability to offer customers a comprehensive ITSM experience. Looking forward to the rest of fiscal 2021, we will continue to focus on playing offense for the long term. All of our choices and actions focus on making our customers successful and drive us through $5 billion and beyond. Before we move to Q&A, Scott and I both want to thank our employees who continue to be an inspiration for us in these challenging times. Thank you for sharing your passion with our customers, especially as they move to the cloud. You make unleashing the potential of all teams possible. With that, I'll pass the call to the operator for Q&A.
spk04: At this time, if you would like to ask a question, please press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Michael Turin from Wells Fargo. Your line is open.
spk02: Hey there. Thanks. Good afternoon. On the cloud migration, I'm sure there will be a number of questions on it. obviously super early and appreciate there's an investor day upcoming, which we're certainly all looking forward to. But any initial feedback you've gathered from customers and partners early on to share? And I think it's unquestionably the right strategic decision, but in terms of the risks to be aware of, how do you think about the potential friction a hard and fast timeline can add to the equation? And you mentioned some of this in the letter as well, but can you talk through some of the steps you're taking to help ensure this transition is as frictionless as possible. Thank you.
spk07: Hi there. Can you hear me? This is Mike.
spk04: We can hear you now, Mike.
spk07: Thank you. Sorry, apologies for that. As I was saying beforehand, which you missed because I was on mute, the customer feedback has been largely as we expected. So we've had the expected range of responses. I would say our customer base has been are awesome at coming to us with questions uh we've given a long time frame here so there's multiple years so when you sit down with the customers and explain how you've got years here to make a decision um this is a three-year end-of-life time frame and there are a lot of options for you our teams have done an amazing job with content to help our customers through that journey So we've got, I think, 10 or 12 different language translations. There's a million-plus words of content out there, which I'm told is longer than the entire Harry Potter series. So this has really been an all-company effort to make sure that this is handled well with a customer-first lens and tries to be as clear and empathetic to customers as possible as we move through that. As we discussed in Q4, you know, we think we're ready to make this transition. It's been a long-term journey we've been working on for a long time. And this is just the next step on that journey particularly. You know, we've had more than a decade-long history now of building cloud products and a multi-year investment in our cloud platform. And we really believe, you know, as we show from more than 95% of new customers choosing today, we're at the right particular time to move our customers across. But necessarily this is, you know, this is an announcement that for some customers is a little interesting to receive. And I think the teams have done a fantastic job, and we will succeed in guiding everyone through that over time.
spk02: Great, Collar. Best of luck. Thank you.
spk04: Your next question comes from the line of Keith Weiss from Morgan Stanley. Your line is open.
spk02: Excellent. Thank you guys for taking the question. Really nice quarter this quarter in terms of the new customer act. I don't think we've seen a number that strong in quite some time. Two questions – well, one question on that. In the letter, it sounds like you guys don't expect that level of customer gains to – to maintain on a go-forward basis. If we talk about why not, like sort of what is going to bring those back down on a go-forward basis. And then maybe one for James. On the guidance for the full year and the slowing down, it seems to seem that like the description line is going to have to slow down for the remainder of the year. I get what's going on with license. I get what's going on with maintenance and the marketplace. I don't quite get kind of what the pressures are on subscriptions. Can you dig into that a little bit for us and sort of why the shift towards cloud doesn't have a more immediate positive impact, at least on the subscription line?
spk08: Yeah, Keith, I can take both of those. Okay. First of all, on the customer ads, yes, we were very pleased with that figure. A couple of things, though, that I think probably did help it somewhat in this quarter. First of all, you'll recall that in Q4, we had a relatively low customer ad number. And what we talked about there was COVID-related churn effects. impacting some of our cloud customers in particular. And I think part of what we've seen here is, in essence, a little bit of a pull forward of that churn from Q1 into Q4, as those customers were experiencing, obviously, very tough macroeconomic-type conditions. And so I think some of those who perhaps might have churned in Q1 under normal circumstances ended up churning earlier in Q4. The other thing I'd point to is that we obviously, as you know, have really established free versions of Jira Software, Confluence, and Jira Service Desk in the market now. And as a result of doing that, we've curtailed our cloud starter offerings. And so for those folks, we've seen a nice portion of them moving up to a full standard cloud license and therefore being counted in our definition of a customer. So both of those things, I wouldn't expect those to be recurring necessarily in the coming quarters. But certainly, yeah, we're very pleased with that customer number. It's a nice number. illustration of the power of our land and expand model. To the revenue picture, a few thoughts on this one. During this next phase of the cloud transition, we've really given our 30,000 or so server customers the control to pick their migration path and the timing of that move. And so this will introduce a degree of variability into our financial model, likely over the coming handful or so of quarters. And so given this variability, we wanted to provide everyone with something of a framework as you consider our revenue growth during this transitional period. And I think of that framework as having five themes to it that we've really generally discussed with you previously. First of all, consider COVID-19 and the resulting challenging macroeconomic environment that that's created for our customers. Q1 in this regard was quite encouraging versus Q4 of the last fiscal year in terms of the figures. And based on what we've seen in Q2, in those numbers so far, we continue to be encouraged. And so we're assuming that this headwind, it diminishes steadily, but will still be a factor in our revenue results, including the subscription line in particular, because we've seen obviously our smaller customers generally use our cloud products. We would see that being still a factor over the next handful of quarters or so. But that said, as you know, we are seeing COVID-19 cases continue to grow around certainly Europe and the Americas. So we're remaining watchful of any building impacts on our financials from impacted industries or some of our small, medium-sized business customers. The second point, as we've discussed before, You know, we've very much taken the stance of investing through this challenging macroeconomic period for our customers with very much the strong belief that that will drive long-term competitive advantage for us. And a good example of that investment focus, which is really a consistent theme right across these next four drivers that I'll mention, was the broad rollout of those free versions of Jira Software Confluence and Jira Service Desk. We've been very pleased with the resulting expansion at the top of the marketing funnel. That's going to create an excellent source of new customers for us over the long term. But in the short term, this will create a revenue headwind that we expect will moderate in the next year or so. Third, We've also talked about another investment that we've been making in this macroeconomic environment, and that is to drive less FY21 revenue growth from price increases than was the case in fiscal 20. the server and data center price changes that we announced just recently will largely benefit FY22 and beyond. So we expect the FY21 pricing-related growth headwind to neutralize in the coming quarters. Fourth, as we discussed 90 days ago, we expect our server business will decline, especially now given the end-of-life announcement, and specifically, The FY21 license revenue line, we expect to be down around 50%, 5-0% year-over-year. And the maintenance revenue line will be approximately flat year-over-year in FY21 as our server customers gradually migrate. And we expect a similar effect on our server apps business, which we account for in the other revenue line. Based on our recent announcement, we would expect license revenue to trend down towards zero in the next one and a half years or so, and the significantly larger maintenance revenue line to do the same over approximately the next three and a half years. And then the fifth point is that while we're excited by the long-term benefits of the cloud for both our customers and Atlassian, we're again taking a very customer-focused approach to gradually phasing in these benefits to our financials. So, for example, the larger customers will offer material discounts to our cloudless prices for a multi-year period, depending on the timing of the customer's move to the cloud. And this approach will bring gradually growing revenue benefits, those discount levels subside, over the coming three or so years. And then for smaller customers making that transition, we've really designed the server and cloud economics to be somewhat similar So as these customers grow in the cloud, they'll, of course, enjoy more of the benefits of our cloud offerings and will share in that additional value creation. So the net of all of that, I realize that's quite a mouthful. The net of all of that, I would say, is that revenue generation will be driven in part by the timing of customers electing to migrate. I would expect beneficial migration revenue effects to gradually build over time, especially as our larger customers increasingly migrate to the cloud in the coming years. And my current expectation is that our revenue growth rate would begin improving beyond the next year or so. So that's probably a little more color than you were expecting, Keith, but I wanted to really get that out there. That was a robust answer.
spk02: One quick follow-up. When you guys are thinking about license revenues basically getting cut in half or down 50% year-on-year, does that include an assumption of any potential pull forward by these server customers to try to, like, top up on server licenses in the near term, or do you not think that's going to happen?
spk08: Well, I think there will be some pull-forward activity. As in previous years, we're giving customers time to think about how to step in front of those price increases that come into effect on this coming February the 2nd. So, yes, in our – uh in our modeling we do try to predict some amount of that pull forward but that's you know always a challenging exercise and i'd say it's more difficult this year because this time we've actually announced the end of life of server so how customers will adjust in in their pull forward activity so that uh really remains to be seen over the next several weeks got it that's very helpful thank you okay thanks
spk02: your next question comes from the line of walter pritchard from city your line is open hi thanks um just to build on the last one we talked a lot about uh server and that's pretty clear with the end of life and so forth around data center how are you expecting that the news that you put out around server will impact the larger customers who are on data center who may look at this move and say you know, data centers next, and that's just the path that Atlassian is going, where the innovation is and so forth in cloud. Do you expect, even though it's not a direct announcement there, that you'll have sort of induced behavior change there as well?
spk07: Scott here. I'll take that. Look, I mean, what we've said for our customers is, you know, some of our largest customers are choosing to remain on data center. because they have a longer timeframe that they want to migrate, and we're continuing to invest in our data center product. Just a reminder for some of those who haven't read all the announcements, we end up like our server product, but our data center product continues to be something Atlassian builds upon and supports and continues to invest in. Now, that said, I have talked to a whole number of CIOs over the last three months from everything from regulated industries, banks, European customers, and every single one of those CIOs has a plan to move to our cloud. They, you know, whether they're in a regulated industry or, you know, a European customer, and it's just a matter of when. And so our data center product is going to be, you know, critical and make sure those customers are supported over their, you know, timeframe for migration. But we expect that all our customers will migrate to cloud over the medium term.
spk04: Your next question comes from the line of Greg Moskowitz from Mizuho. Your line is open.
spk00: Okay. Thank you very much for taking the question. James, I wanted to circle back, I guess, on fiscal 22, because clearly there are some puts and takes, and you alluded to some of them. But I guess as I think about it, on one hand, you know, there will be an additional loss of perpetual license revenue. There will be significant ongoing migration incentives. But on the other hand, you're going to get more benefit from the upcoming price increases, more conversions from free to paid, and the loyalty discounts in year two for large customers naturally won't be as significant. Now, in the shareholder letter, you said that fiscal 22 will also be negatively impacted by all of the changes that you've recently made. But just to be clear on this point, any revenue headwinds will be greater in fiscal 21 than fiscal 22, correct?
spk08: Well, what I was chanting about there, Greg, is I kind of walked through that five-point framework with the different timeframes that I feel will be relevant for each of those factors. As you framed there in the question, you've got a lot of moving parts. I'd say the net of all of this is that the revenue growth rate would begin improving again beyond the next year or so. So, you know, in the letter we use similar words in my section. But that's how I think you should consider the trajectory of the revenue growth rate pattern.
spk00: Okay. That's helpful. Thanks, James. And then just a quick follow-up. There was a comment that the current expectation is that there will be lower take rates on the sales of cloud apps through the Atlassian marketplace, I suppose, over the rest of the year or for the near term anyway, and just kind of wondering why that would be the case.
spk08: Yeah, there we're just very much looking to continue to provide rich incentives for our app ecosystem partners. to build more cloud apps and have them be in our marketplace. Obviously, that marketplace started out life many years ago as a server-based marketplace. More recently, within the last year and a half or so, we've really focused on expanding the data center apps as well. And with this very clear focus we have as a company now on the cloud transition. Obviously, we want to make sure that our customers can gain access to the same sort of functionality that they really benefit from in the current apps behind the firewall available in the cloud as well. So we just want to make sure that the financial incentives for our app developers line up with that. And as we mentioned in the letter, we've designed those as temporary incentives. Okay, perfect. Thank you. Okay.
spk04: Your next question comes from the line of Alex Kurtz from KeyBank Capital Markets. Your line is open.
spk05: Thanks for taking the question. I just wanted to round back to the blog post that you put out a couple weeks ago about the changing in the server pricing, but you also have a comment on the blog post around future cloud pricing. I know today in the shareholder letter you blog posts, which seems to imply that the customers in the Advantage pricing program might eventually be moved up to list price. So maybe just help me navigate that and what that can mean for a potential price increase for those cloud customers.
spk08: This is James. I'll take a crack at that, Alex, but you broke up there in the middle part of your question, so you can steer me if I'm not answering. Sorry about that. But in terms of what we've talked about in that blog post a couple of weeks ago, yes, we are raising prices effective February the 2nd for our server and data center products, and we note in – the shareholder letter that while, yes, you've got to be very thoughtful about user tiers and product combinations for specific price outcomes if you're a customer, directionally from a modeling perspective, they equate to about 15% increases year over year. We're very explicitly not raising cloud prices this year versus the case where we have done that in whole or in part in previous years. And in terms of your reference to advantage pricing, yes, there were some price lists for current customers. When we've rolled some of these price increases through, we've always wanted to be thoughtful about the degree of change that the customer is taking on in terms of price. And so in each of these situations, the end result is list price. But it just takes longer than just an immediate step function. up to the new list price, just reflective of people, customers, current budgets, and those sorts of things. So does that get at what you are asking?
spk05: Yeah, it does. So just to be clear, the advantaged pricing plan is probably for a very small subsegment of your cloud customers.
spk08: Yes. So the advantage to cloud customers were those, you may recall a year ago, for the higher user tier part of our cloud pricing structure. So certainly a year ago, we had relatively few customers in that part of our customer base. And yes, we moved prices up for those higher cloud tiers. So for those customers who had gone early to the larger scale end of the cloud, we're giving them more time to come up to list. Yes, that's a relatively small proportion of the overall cloud user base.
spk07: Thank you, Alex. Just a chime in and add to James like it's a great question on the details, but philosophically you know we want to get our customers to the cloud when I talk to companies big and small, they want to move across to the cloud. We know that over time, because we solve a lot more problems, you know, for them and take a lot of the management overhead from them, the scalability issue, the hardware costs, you know, because we do all that on their behalf, you know, they're willing to pay larger, you know, high prices in order for us to get for them. And the cost savings are significant. You know, in many cases, people, you know, if you have a team of five or six people managing our products, when you imagine yourself, that's down, you know, we have a case study where that's down to under a person now. And so, you know, those cost savings, you know, we can capture some of that. The aim is in the short term, though, to make it an absolutely easy decision for people to move across without trying to get into it. discussions in their organization it's like let's just never cross and we try and make the cost and price you know relatively the same you know in the sort of first year of transfer and over time step them back up you know and capture sort of more of the value that we're providing for them So really, there's a lot of ways we could have sliced differently. We think this one is very customer friendly and we've always thought about the long-term customer relationships we have from partner level heads all the way up to CEOs of very large organizations. We want to have great relationships as we provide more and more products for them and we sell them more things. but also that, you know, we want to do the best possible without, you know, any sort of price barrier being something in the way. So that's sort of the philosophy behind it. Thank you.
spk04: Your next question comes from the line of Itai Kidron from Oppenheimer. Your line is open.
spk06: Thanks, and good quarter, guys. Leaving the cloud on the side for a second – Scott and Mike, maybe you can talk about Trello in the work management space. Maybe you can talk about progress over there and maybe fine-tune the kind of differentiation over there. Now that Asana is public, how do you see the landscape? How do you see your competitive positioning there and opportunities ahead? And then for James, just kind of following up on the data center side of the equation, correct me if I'm wrong, that is a term business, so that shows up in subscription revenue. But can you tell us the magnitude, how much of your subscription revenue is tied to on-premise, not to cloud, perhaps number of customers? I think you talked about 30,000 enterprise customers. What would be the count on the data center side?
spk07: Sure. This is Mike. Hope you're doing well. Look, on the work management side, I can give you some color. It wasn't a specific question, I suppose. Obviously, look, you saw us in the quarter on specifics. We got support for Trello in FedRAMP for obvious reasons that Trello is doing well in the government sector and continues to grow there. I'd say the broader story there is around Trello and the enterprise. And as the extremely large Trello user base continues to grow apace, how that is starting to get into larger organisations, like the government obviously indicated from that. At the same time, Trello continues to sort of broaden the appeal of its product. So you've seen us do a lot of work with what we call Trello views, so changing the way that you see the data that's inside Trello and also embedding Trello into a lot of other places. In a broader sense, I would say... Look, that area of work management for all continues to be one that we are spending a lot of time in. Confluence continues to grow very well. You've seen us with the help acquisition in terms of providing a sort of service management experience inside of Slack and inside of messaging tools. which is used by IT certainly, but used increasingly by other teams where that's a much more familiar interface for them to provide a service management capability. So I think, you know, we're incredibly positive about all of the things we have going on in that area, continued innovation and continued enterprise growth of work management for all tools. I think bodes very well for us in that space.
spk08: And this is James. I can jump in on the second part of your question. So, yes, data center is accounted for in the subscription revenue line. And I think the way to really think about that is that subscription in Q1 represented 60% of total revenue. And recall that in the past we've said that the cloud business is just a little shy of 50% of total revenue at this point. So that gives you directionally a sense for the scale of the data center business. And in terms of customer counts, some of the other data points we've offered, now we have 182,000-plus total customers, and we've talked about 160,000 cloud customers. So, again, it gives you a little bit of a sense as directionally the overall customer count.
spk04: Your next question comes from the line of Brent Phil from Jefferies. Your line is open.
spk09: Hey, guys. This is Love Soda on Brent Phil. Nice quarter and great investments on the cloud side. Wanted to ask a couple questions. One was in terms of you've provided great color on server to cloud pricing. I was wondering, like, what would be the – you know, in terms of any color you could provide on server to data center pricing in terms of what's the difference and what the migration process entails there. And then the second question was around the Mineville acquisition that you closed this quarter. You know, obviously, how does it position you relative to the competitors in that marketplace and the ITSM space?
spk08: Thank you. Well, I can perhaps take the first part of the question. In terms of the economics of moving from server to data center, really quite similar to the situation when a customer is electing to move over to the cloud. For our larger customers, In the thousand plus seat category, we would again look to offer material discount levels, less than those that we would be offering someone moving over to the cloud, but still material discount levels. over a multi-year period. So it's a similar approach, reflecting the comments that Scott and Mike made earlier that, you know, the data center is very much still a deployment option that we continue to invest in for the future. So I'll pass over to Mike or Scott for the mindful part. Mike?
spk07: Thanks, Love. Thanks, James. Thanks, Love, for the question. I can certainly take that. We continue to be incredibly excited about what's going on in the ITSM space. As we continue our long-term journey in that space, it really has been a series of years now. I think if you zoom out, you can look at that and see a whole kaleidoscope of options. There are many, many ways that companies can provide ITSM solutions. I do think what we're doing is bringing that into pretty sharp focus. And if you look at our offerings continuing to mature in the way we've taken Jira Service Desk and then adding status page for external communication, adding Ops Genie to provide rostering and real-time management capabilities of your team and bringing them into incidents. And then obviously adding Mindville for CMDB capabilities, so asset management of all types, alongside our service management capabilities that we've released. So not only managing the services that are outbound, but also providing a registry of the inside services, the technology services that you have inside your company. What we're starting to do is really provide a single pane of glass that can look across your IT operations and development teams. as teams and companies are increasingly bringing their development teams closer to their it teams we're providing a singular set of offerings that run across that and as we continue to integrate them and add the elation platform under all of them we're obviously incredibly excited about both the growth of the space but also uh the uniqueness and the clarity that our offering brings to the um to otherwise quite quite blurry space that is around there and the uniqueness of that offering so
spk02: really excited about that space going forward and you know you'll continue to see us investing there and continue to see us having having big announcements in that space your next question comes from the line of jack andrews from needham your line is open good afternoon thanks for taking my question i want to ask about the work you're doing or initiatives you have in place to gain more leverage with some global systems integrators Particularly thinking about something like JIRA, Align, I mean, how important is it to engage with these types of partners for you these days?
spk07: Scott, yeah. Thanks for the question, Jack. Systems integrators, or what we call our partners, have been a huge part of Atlassian's success. We've, you know, we have a great partner network, hundreds of partners around the world, particularly in Europe, is a real big strength for us. And, you know, as we see with, you know, with some of our larger engagements with... With customers on the larger side, most of them are bringing in and working with the systems integrator on those transformations. Particularly if you think about digital transformation, a lot of what needs to get done in those organizations is not simply the deployment of software, it's actually changing the way that these organizations work to do agile transformation or scaled agile framework and so forth. These systems integrators are really important to be on the ground to help out with some of these transformations that happen. and so um you know i've been particularly happy with uh you know the systems integrators and um you would also say our migrations um people migrating to the cloud um is a huge opportunity for our systems integrators and we've seen some of our best partners um build migrations practices already um in moving people to the cloud and uh and that's been a great source of business for them and also a great way for our customers to get across to the cloud uh faster And, of course, as we, you know, continue our depth of portfolio that we provide the CIOs in terms of everything from, you know, the JIRA framework and confluence, but all the way up to JIRA Align, which handles, you know, effectively the CEO's dashboard about how their organization is going in the digital transformation. Again, that makes us more strategic for customers. And, you know, many of our customers, they look to our partners to help them deploy and roll it out.
spk04: Your next question comes from the line of Rishi Jaluria from DA Davidson. Your line is open.
spk03: Hey, guys. Thanks so much for taking my questions. Just two quick ones. First, you know, if we do kind of the back-of-the-envelope math, you've got roughly 60%-ish of your customer base that's using a hybrid, you know, some products on-premise, some products in the cloud. Can you give us a little bit more color on what these sort of situations look like? Is it a function of, you know, they might be using JIRA on-premise and Trello in the cloud, or is it a, you know, departmental-level thing where the initial adopters are using JIRA server or data center and new teams are jumping straight to JIRA cloud? And then the second is just on, you know, thinking through the longer-term COVID impact, you know, over the past couple quarters, you've, you know, identified some of the headwinds from SMB exposure and payment duration, right? When we look out maybe longer term, especially given that it's looking likely that we're going to be in a much more distributed workforce, even post-pandemic, how do you think that shapes maybe the necessity for your solutions and the demand environment? Thanks.
spk07: That's great questions. First of all, I'm not sure the back of the envelope of 60% of customers is necessarily right. But we've said in the past that 95% of our new customers use our cloud offerings. And while we don't disclose the overlaps, I can talk through the reasons for that. One of the advantages of cloud is that you can get going really quickly. You don't need to deploy hardware. You don't need to kind of find space in your data center. And so, you know, what we find is even amongst our largest customers that may have deployed, you know, wall to wall with our data center or server offerings, with new projects where they want to get off the ground quickly, they in many cases will deploy a cloud version our products and so we find that you know even the crisis customers you find usage of our cloud products and in many cases that's sort of the White House you know department inside those companies as they look to migrate to cloud so I think it really speaks to the ease and speed of which customers can get going in a cloud that you see that a hybrid and of course over time we'll see those cloud things scale On the distributed workforce side of things, what we saw in the initial days of COVID was a spike in our web traffic, I think in the order of roughly 10%, where we saw, you know, not because we had huge fucking customers within days of the pandemic, but because our existing customers were using our products with a higher frequency. And, you know, perhaps that is that there was no Post-it notes, no whiteboards, and... they need one and want to track all the work they do inside our tools and there's a huge opportunity for that um because once you track uh work in a product like here or trello or confluence or any of our products there's opportunities for automation um which we've seen with all our investments in automation and all our scenes automation products um there's investments for smarts and we've seen some announcements recently around how we're using data machine learning to better route work to the right people. And so we think there's a huge opportunity for our products to help with the workforce. And the other thing which was surprising for me when I chatted with CIOs is that the CIO's agenda has never been more aligned with the CEO's agenda. You know, if you went back sort of 15 years, the CEO and the CIO's agenda would be, you know, sort of marginally overlapping, whereas today, the same problems CEOs are struggling with, which is, how do I make my workforce productive while we're remote? How do I serve our customers in a new way, particularly if I've had to move our transactions with our customers online? How do I make sure my employees are healthy? How do I make sure the workflows across the organization are moving fast? These are all CEO conversations and board-level conversations that are happening. And the CIOs now are on the hook for doing that. And now it used to be that HR was responsible for the water cooler. Now CIOs are responsible for the digital water cooler. And so what has surprised me is how much interest there's been around culture from CIOs who traditionally wouldn't be thinking that that would be front of mind for them. And because of Atlassian and the way we've worked and how we work openly and how our products promote an open and transparent culture, they've turned to us as a trusted partner to help them transform their organizations.
spk04: Your next question comes from the line of Derek Wood from Cowan & Company. Your line is open.
spk01: Great. This is actually Nick Altman on for Derek. Thanks for taking our questions. You guys have talked about your hiring plans for this year, and you've said the bulk of the hiring is going to be going into R&D. I guess when you look at the product portfolio, where are the pockets that you guys will be focused on the most from an R&D perspective? And I guess how much of the effort is going to be directed around furthering the cloud enablement of the portfolio versus net new offerings?
spk07: Yeah, go ahead, Nick. Look, firstly, I think I would zoom out to start that answer. As we said a few times, we're in three very large markets between work management for all, the software agile DevOps market, and then into obviously the IT and ITSM market. One of our advantages is not only are these three fantastic markets that are incredibly critical to customers and to companies out there, as Scott mentioned, they are all connected at various different points. One of the strengths Alassian has is having products. Confluence runs across all three. Jira as a platform runs across all three. Trello is increasingly used in lots of different places across all three. So having products and connections between these markets, as we've mentioned, software coming closer to IT, obviously the IT department being more involved in all sorts of work management capabilities. These connectivities are a huge strategic strength of ours, but require R&D investments. They require us to continue to bring products closer together to allow customers to reuse data across different spaces and building out our cloud infrastructure to handle all the enterprise needs of customers, as well as the work management and the automation data platforms, as Scott has mentioned. So, yes, we will certainly continue to invest in R&D across a lot of those areas. Our platform is a continued place of some significant investment, both to bring our marketplace up to speed, but also, as I mentioned, to look across the increasing amounts of data we have and providing better answers, automation, AI. There's lots of things that we're doing and building there. We are always... looking at building new products. We always have a series of different prototypes and teams working on things internally. Sometimes those become products for the outside world. Sometimes they actually get merged into existing applications and become features of what we're already doing. So one of the advantages of our business model, obviously, is our ability to invest in R&D and continue to keep that innovation going. One of the advantages of our DNA is the long-term thinking, and when you put both together, I think that's part of the reason we've been so successful for almost two decades now and intend to continuing to be so. So we don't generally provide any specifics, but hopefully that gives you a little bit of colour about where some of that R&D is going and why we're excited about our possibilities in the markets we're in.
spk04: Your next question comes from the line of Robert Magic from Raymond James. Your line is open.
spk02: Great, thanks. Can you update us on the customer transition from standard to premium SKUs? What has customer feedback been like on a premium? What's the mix today, and where can that mix go as we look out a few years?
spk07: Robert, Scott here. We're really pleased with the customer adoption of premium SKUs. And as you know, in the last probably 18 months, we've introduced premium and enterprise versions of our cloud SKUs. So previously, there was really only one price you could pay for, you know, say, Jira or Confluence, you know, or Jira Service Desk. And we've now sort of got tiering in those structures. Premium, we announced earlier, and we've got that ramping up now. So that is a widely available and widely adopted platform. Our product and enterprise is really in the early stages, like we've announced it and we've got some early customers using it, but it's still ramping up. I would say we are giving specific numbers. We've been extremely happy with the premium adoption of our products. We're still in the stages as we add more features, they get adopted at a higher rate and the satisfaction for those customers has been really high. As a reminder, the premium version of their products include feature differentiation. They also include high SLAs for customers where we're mission critical. And so we've seen that combination be a really valuable and desirable one for our customer base. So yeah, very excited and very happy with it.
spk02: And with the launch of Atlassian Ventures, can you help us frame the positive impact that might have on ecosystem as well as future marketplace revenues?
spk07: Sure. I just want to add one thing. I'll get to ventures on premium and enterprise additions in the cloud. A reminder that most customers will tend to migrate. And obviously, you know, migration is going very well. We're up about 90% year on year in terms of the number of users that are migrating. And obviously off a small base, but as we continue to increase that with tools and with partnerships, that's going to grow. Most customers will migrate probably to cloud standard. And then over time, as their cloud journey, you know, as they increase their confidence in Atlassian's cloud and they need more features and capabilities, once they're in the cloud, they'll then sort of move up through premium and enterprise depending on their company and their journey. So just to be clear, I'm not sure people will necessarily move from on-prem straight to cloud premium. That'll be, you know, as they mature in their Atlassian journey. On Atlassian Ventures, of course, we're incredibly excited about this. We've done... A few investments in the past as Atlassian. This is, I would say, a sign of our maturation as a company. Having a formal brand, a formal budget, and a team that is focused on doing this allows us to better serve the ecosystem and economy around Atlassian, right? It's not all about acquisitions. There's a lot of work to be done in investments and partnerships. And we just continue to mature and grow in stature in all of those areas as we become a part of the, you know, the larger scale tech economy. And I think it's a great step for us to continue to go, albeit done with Atlassian's general sort of pragmatic long-term focus on how we do this. So obviously that's not a short-term initiative.
spk04: Your next question comes from the line of Jim Fish from Piper Sandler. Your line is open.
spk02: Hey, guys. This is Quinton on for Jim. Thanks for taking our question. Just two high-level questions from us. First, IT operations is a massive and somewhat newish opportunity for Atlassian. Is there any way to think about the revenue contribution today outside of the core software dev market? And then additionally, wondering if you guys have seen any material changes in the hiring of developers or IT professionals in general that may help expand at-lasting usage?
spk07: Scott here. Quentin, great questions. What we're seeing in the dev and IT markets is the continual overlap of those markets. People like to put them in discrete buckets, but these days, most of what IT people are doing is involving software. And a lot of the IT operations stuff is running and managing software. And that's an area where we believe we have a unique advantage as the vendor that powers more software teams than anyone else on the planet. And we think you have a huge opportunity to bring those two things closer together. If you think about how we, you know, I probably mentioned this before, you know, in terms of planning and managing work, you know, Jira and Confluence come in, we do an incredible job there and we handle everything from, you know, someone putting something on the sprint backlog all the way up through to Jira Online and managing 10,000 people. Then, you know, through development, like, you know, there are a lot of vendors there and we actually partner with a huge number of vendors in that sort of code and test and deploy side of things. And then the run side of things, right, run, manage, support area. That's where you've seen us make a large number of investments over the past couple of years. Everything from Jira Service Desk, which has been in the market now for quite a while, through to Ops Genie status page and, you know, the investments that Mike talked about with Mineville recently. And so, you know, that is a huge area of investment for us. And as you see, like, you know, everyone that builds software now has to run it, and those things are closer than ever before. So we don't break them out as much. If anything, we see those lines being more blurred. You know, developers are now on call and on support. There's not a separate, you know, team sitting in a network operations center anymore. It's the people that build it now run it, and, you know, so the developers are now using our products there. So that was on the first part. On the hiring of developers, What you see across the entire industry now is 10 years of digital transformation happened in 10 weeks. And so the demand for IT professionals and developments and people can build software is higher than it's ever been. And what you're seeing is organizations saying, well, we want to hire developers. And if we can't do that, how do we get our developers to be more productive? And so you see the rise of workflow applications, you know, like Atlassian's where, you know, you can take, you don't necessarily need a software developer to make sure workflow applications happen and run across your organization. You see, you know, low code opportunities, which people using Atlassian platform to automate things across their entire and, you know, automation, which we've invested heavily in to make sure that all of the busy work goes away. And so, you know, in terms of we don't have specific numbers from any third party in terms of hiring developers, but I would expect that to be a pinch point for most organizations for the foreseeable future.
spk04: Your next question comes from the line of Arjun Bhatia from William Blair. Your line is open.
spk02: Hey guys, this is Dylan Becker on for Arch and appreciate you taking the time. The question just one quick one from us and I kind of wanted to touch on Trello as you've made some kind of changes here in 2019 with the paywalls and the acquisition of Butler. But but kind of thinking how is the monetization of the product change and then how are you measuring the kind of success from this product looking into fiscal 2021? Thank you. Thanks Dylan.
spk07: Look, as we've been on a long-term journey with Trello, we've always said the most important thing is to keep the product growing as a whole. Trello is a monster product, tens of millions of users and continuing to grow fast. And from the long-term perspective, having those tens of millions of users continuing to grow is the number one priority, and we've been pretty clear about that. That said, we have continued to apply Atlassian's expertise in pricing and packaging to work out how we get the best customer outcomes and the best Atlassian outcomes so that we can continue to invest in the product. That journey's been going quite well. As you mentioned, we've changed some of the ways that it's charged a couple of times now over the years, and that continues to drive the top line that Trello is contributing to Atlassian. Things like Butler provide more differentiation, so that's the set of automation capabilities. for Trello. And you're seeing that with the continued work we're doing around Trello views. So providing more ways to look at, you know, we've got a calendar view and a map view at the moment. We've got a table view that's in a public beta at the moment. So continuing to have different ways to look at the data that's inside Trello also gives us some capabilities to look at the different paid editions and add different view capabilities as you go through there. So I think, look, I can see number one focus for Trello, as I've said, is the user base and continuing to just make it a standard. The other thing we're also doing with Trello is continuing to bring it closer to the Atlassian family, as you've seen with the identity stack underneath moving to the Atlassian identity platform, which by itself handles tens of millions of users. So it's very helpful to bring that Trello user base closer to the Atlassian user base over time. and obviously things like access is a monetization angle across trello as well as connections to obviously the jira software jira service desk to help and to confluence obviously so bringing it closer to the atlassian family is is a part of the monetization journey for trello as well once again if you would like to ask a question please press star then number one on your telephone keypad
spk04: Your next question comes from the line of Ari Taranian from Cleveland Research. Your line is open.
spk10: Hi, guys. Thanks for taking the question and congrats on the results. Just wanted to double-click on the comment around low-code app development. It's an area we're seeing increasing strength certainly this year around crisis communications or track and trace, etc. Any thoughts around You know, furthering efforts here, obviously, Forge is a great first step. But any more color you can share on new use cases and ways you're seeing people use Atlassian as a low-code platform in this environment. Thanks. Hang on. We lost you, Scott.
spk07: Apologies there. Sorry. One of the benefits we've had over the long term of Atlassian is that our products are incredibly flexible and our customers have used them for all manner of things. And so we see Atlassian products use everything from HR, recruiting and onboarding of employees. We've seen them for People, NASDAQ listed company uses Atlassian's products to handle their quarterly close process in finance. And the advantage, I guess, is our products are very fast to roll out. They are widely deployed inside an organisation. And they have customization that varies from just changing internal, you know, kind of the web interface and configuring workflows and custom fields all the way through to our uh writing forge which is you know forge applications through to building you know complicated applications that are you can deploy and uh use from our marketplace and so we've seen that sort of the use cases will be too numerous to get into on this goal um but we've seen a lot of things products be used across the entire organization Another example we've said previously, Twitter uses Atlassian for hundreds of service desks. I think it was 140 service desks. So everything from a legal service desk to HR across the entire organization. And so we see Atlassian as a platform where people do move work across their organizations. And as Michael alluded to, as we continue to build out that platform, it gets used for more and more use cases.
spk04: There are no further questions at this time. I pass the call back to Scott Farquhar for closing remarks.
spk07: Thanks, everyone, for joining our call today. We appreciate your ongoing support, and we really hope that you and your loved ones remain safe and healthy. We hope to see all of you at Investor Day on November the 17th. Thanks a lot.
spk04: That concludes today's conference call. You may now disconnect.
Disclaimer