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spk10: Good afternoon. Thank you for joining Atlassian's earnings conference call for the second quarter of fiscal year 2022. 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 Martin Lam, Atlassian's head of investor relations.
spk11: Welcome to Atlassian's second quarter of fiscal year 2022 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, our Chief Financial Officer, James Beer, and our Chief Revenue Officer, Cameron Deitch. Earlier today, we published a shareholder letter and press release with our financial results and commentary for our second quarter of fiscal year 2022. The shareholder letter is available on Atlassian's work-life blog and the investor relations section of our website, where you will also find other earnings-related materials, including the earnings press release and supplemental investor data sheet. As always, our shareholder letter contains management's insight and commentary for the quarter. So during the call today, we'll have brief opening remarks and then focus the rest of our time on Q&A. This call will include forward-looking statements. Forward-looking statements include 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 our management's beliefs and assumptions only as of the date such statements are made. We assume no obligation to update or revise such statements should they change or cease to be current. Further information on these and other factors that could affect the company's financial results 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. During today's call, we will also 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. The reconciliation between IFRS and non-IFRS financial measures is available in our shareholder letter, earnings release, and investor data sheet on our IR website. During Q&A, please ask your full question up front so that we can be fair and be able to accommodate the next speaker. With that, I'll turn the call over to Scott for opening remarks.
spk02: Thank you for joining us today. Happy New Year to everyone. Q2 is another strong quarter as we continue to see great momentum. It's extremely encouraging to see many of our past long-term investments reflected in our Q2 results. The Atlassian Marketplace, which we started in 2012, recently surpassed $2 billion in lifetime sales. Cloud apps now make up nearly half of all marketplace apps, and the rate at which customers are adopting cloud apps is outpacing our own cloud products. It's exciting to see our ecosystem grow at such a rapid pace and for us to be able to expand the economy around Atlassian. IT was an area we were committed to doubling down on three years ago. Recently, Jira Service Management was recognised as a leader in the Forrester Enterprise Service Management wave, with our strategy for ESM receiving the highest possible score. We also recently added percept.ai to bring AI-powered virtual agent technology to expand JSM's frontline support capabilities. Our continued investment and innovation in our cloud platform are driving great results. This quarter, we added more than 10,000 net new customers, nearly all landing in cloud, and quarterly cloud revenue grew 58% year over year. As you've already read in our shareholder letter, we're looking forward and laser-focused on investing in the future. Hiring is our top priority. We deeply believe in the massive market opportunity in front of us, and investing in people is our path to seize these opportunities. Lastly, we hope you can join us for Team 22 in April. We're cautiously optimistic to be back in person with our customers and partners. We hope to see many of you there. But we're thrilled to also be able to host viewing parties around the globe and offer virtual options as well. With that, I'll pass the call to the operator for Q&A.
spk10: Thank you. As a reminder to ask a question, just press star and then the number one on your telephone keypad. And to remove yourself from the queue, please press the pound key. We'll pause for a moment for the roster of Q&A. Our first question comes from the line of Alex Zuckin from Wolf Research. Sir, your line is open.
spk03: Hey, guys, congratulations on another just wonderful quarter. I guess maybe for me, how should we think about the results relative to your internal plan? And what were the two biggest areas that outperformed your expectations? And if you can, any bottlenecks to growth at the moment? And how are those different than maybe this time a year ago?
spk14: Well, thanks for the question. You know, I start off by saying I was really pleased with the performance against our plans, really right across the board. You see very strong performance in both the cloud and data center businesses. If I were to pick out one product, it would be JSM. I think that's just really hitting the mark with customers, a big opportunity for us going forward. That has, of course, given us the confidence to raise our full-year subscription revenue guidance to around 50%. That's up from the mid-40s percent that we were talking about 90 days ago. And the other thing I would really highlight is I feel we're very much on track with our migrations timeline. So, you know, pleased by that. In terms of the last part of your question, I see demand continuing to be strong for both the cloud and data center businesses. I don't see bottlenecks there in the future. You know, one of the other things I'm sure we'll talk more about this is the continual progress we have with increasing the capabilities of our cloud. quarter by quarter. And as we do that, obviously more and more of our currently behind the firewall customers are able to move over to the cloud. It's clear that they want to go in that direction and increasingly each quarter we're making that possible. So we feel good about the opportunities in front of us.
spk10: Thank you. The next question comes from the line of Nikolai Believ from Goldman Sachs. Sir, your line is open.
spk04: Hi, thanks for taking my question. James, one for you. When will we start seeing the migration impact from server and data center to cloud in the numbers as the loyalty discounts unwind over time? Are we talking maybe a year from now, two years from now? And as a follow-up to the team in general, as you move to the cloud, your pricing really is changing. And you started the company probably 20-plus years ago with a business model oriented around very low price compared to the competitors. And now, for example, Jira Premium is $15, and Enterprise probably is a little bit higher, approaching the pricing of competitors. so i would think that's kind of major shifting strategy here uh and how is that reflecting in the business model and the type of the company going going forward in light of that context thank you well nikolai uh let me start uh the answer there in terms of the impact from migration
spk14: What we're saying is that for fiscal 22, so for the full year, we would expect migrations to be driving mid to high single-digit growth in our revenue year over year. So you can contrast that, of course, to what I was just pointing out there in terms of our expectation of around 50% growth for subscription revenue in fiscal 22. And then I would add that in the quarter just past Q2, it was a very similar sort of figure, mid to high single digit type contribution to the growth rate that we recorded in Q2. So that 64% subscription revenue growth of Q2 about mid to high single digits coming from migrations. Just a couple of other things I would add. You referenced in your question their loyalty discounts. So today and until the end of June, somebody moving over to the cloud from either the server or data center, they would receive a 40% discount. Now, once we get into July, in a few months' time here, that discount will halve down to 20%. So that's important to remember. The other thing I'd say is that when a customer migrates over to the cloud, of course, in the period that they make that migration, that's a very modest impact on our revenue. Obviously, the cloud business is recognized ratably in terms of the accounting. So those are the three points to keep in mind.
spk02: I'll add just on the back of James around sort of our price philosophy that we've talked about, and just want to say there's no change to our pricing philosophy and hasn't really over The 20 years we've been running it last year, we've always priced for volume. And we've talked about reaching the Fortune 500,000 and reaching millions of people around the world. And that's what we've always priced for. And so what you've seen in terms of how that's manifested in our current list prices over the years is we've made it cheaper at the low end consistently by making it more free over time. And we've also captured more value at the higher end where we're providing more and more value for our largest customers. And, of course, the cloud provides more value for customers. We take a lot of the management overhead away from customers. We're providing the hardware. And so our customers are happy with the philosophy, and I'd continue to see us do more for the low end and more optimization at the
spk09: Thank you. The next question comes from the line of Pargo. Sir, your line is open.
spk12: Hey there.
spk03: Thanks and congrats folks here. Some of the commentary around ITSM and Jira service management stands out in the shareholder materials. You even have Cameron picking a favorite, which I'm sure isn't easy. Maybe you can speak to what's driving the momentum there, how that's impacting the model, where that might be showing up, and maybe what makes Jira service management the right product at the right time as you reference in the customer section. Thank you.
spk02: Yeah, Scott here, I'll take that one.
spk12: Look, Jira Service Management is uniquely positioned to handle the convergence of developers and IT.
spk02: And we're seeing in the market these days that IT is no longer an island over by themselves. It's no longer upgrading things that were handed on a CD over a weekend and taking people down. Developers and IT are working hand in hand to transform their organizations. And there's no other vendor out there that has that sort of unique position of bringing dev and IT together. And the second aspect is they're the only company that allows us to, that can handle the fortune 500 all the way to the, you know, Fortune 500,000, as we've talked about. And that comes from a, you know, deep focus on the end user experience, which is, you know, which we've delivered on. And bringing that to IT has seen a lot of value there.
spk12: And, you know, you've seen us say we're going to invest in IT.
spk02: Three years ago, when you've seen a consistent drumbeat of innovation, you know, we've done some acquisitions to add functionality, but most of it's been in-house innovation and building out the feature set across our entire product range.
spk12: And so we're...
spk02: We're super excited that that's being recognized by analysts out there, which is great, but more importantly, being recognized by our customers who are adopting it in droves. And so I wasn't surprised. I mean, it was our plan three years ago to do this. And because we've got a great platform, we've been able to move relatively quickly in delivering all the value to our customers. And so we expect the ITSM to continue to grow into the future.
spk10: Thank you. The next question comes from the line of Keith Weiss with Morgan Stanley. Sir, your line is open.
spk03: Excellent. Thank you guys for taking the question. And congratulations on another really, really nice quarter. I wanted to ask about two of probably in a quarter full of a lot of eye-popping numbers, two of the numbers that really stood out to me. One was data centers seeing another acceleration in growth to 83%. Anything kind of one-time in nature we should be aware of in that number? I know there's a tough comp coming in Q3, so we're not going to be seeing that growth. But actually think about what drove that acceleration. There was a comment about channel partner revenue growth accelerating. I think it was 130% growth year on year. Anything in particular changing in that program that caused that acceleration? And if you give us some type of sense, has that become a more material channel? Is that starting to move the needle a little bit more for the broader Atlassian distribution strategy? Thanks for the question. So this is Cameron here. And as far as the data center demand, the best way to look at that is it's just showing further commitment from our customer base into the Atlassian ecosystem and also the highlights, the mission criticality of our applications. As we continue to say, that migration to cloud is a multi-year journey. Different customers are on different stages of that journey, and that path to data center, for many of them, is a step towards cloud. All of them are well aware that cloud, you know, our investments in cloud, our strategy around cloud, and that cloud is in their future, but they're at all different levels of maturity of when they're able to move over. But the reality is, if you look to the last quarter, one-third of our cloud migrations came from data center customers. So we have proven that we can take the data center customer base to the cloud. The second one is around our solution partners and our channel. which are just absolutely critical to our overall efficient go-to-market model that we have. Everything we do directly with my teams in marketing and sales and customer success gets amplified with our hundreds of solution partners out there in the market. And obviously, as you see in the numbers, the solution partners have been increasingly critical to our cloud migration process. The reality is now we provide a variety of incredible self-serve migration tooling for customers to move to the cloud. But many of our customers want help from, you know, planning out the migration to the migration itself and partnering with Atlassian. And that has allowed for us to continue to show great growth.
spk12: In general, for large customers, when I'm talking to them, the first thing I say is, hey, which partners are you working with?
spk03: Who can we partner with to build this plan out hand-in-hand going forward?
spk14: And let me just add on to the first part of Cameron's answer there. In terms of data center growth, a couple of things also to remember in terms of, Keith, you referred to something like a one-time nature. I think about the RevRec. Remember that a portion of the data center activity that we would contract with a customer is taken up front. So that's quite different to our cloud revenue accounting, which is fully rateable. And then the other thing I'd add is now flowing through. And so both those things give a little extra fuel to the inherent demand that Cameron is referring to for data center.
spk10: Thank you. Your next question comes from the line of Fred Havemeyer with Macquarie. Sir, your line is open.
spk03: Hey, thank you very much, and congratulations on another really impressive quarter here. I wanted to ask, you know, from your perspective, how does the hiring lens mention throughout your investor letter that your hybrid work policies have been a strategic hybrid of remote work options? Are you seeing anything out there to suggest that top talent is now weighing either compensation packages or stock comp packages any differently now?
spk12: in this more volatile environment, potentially favoring companies like Atlassian.
spk02: Thanks, Fred. It's Scott here. Luca, we've been really happy with our Team Anywhere policy to allow people to, you know, to work wherever they want with that's in an office. That's great. Although that's been a little harder through the pandemic. Um, and, uh, you know, or wherever we have the legal right to employ them. So we have seen a lot of our employees, you know, um, our new employees are working remote from existing offices and we've seen, you know, existing employees, uh, move as well. So that's, that's really great. We think that's going to be a long-term differentiator for Atlassian and, uh, I think that's going to be difficult for companies that don't have similar policies to attract and retain the best talent. In terms of compensation, You know, we have seen, you know, some minor, you know, upticks in compensation. We were early to that, I guess, ahead of many sort of peer companies who, I guess, have waited to see attrition tick up before they address the thing. And so we're really proud with how we've worked on that with our employees and, you know, particularly North America.
spk12: But we haven't seen an uptick in a similar way that our... ..goals for hiring into the future. We think and.
spk02: We have such great opportunities across all three of the markets that we have talked to you about. And you know the way of going about that is building up our largely R&D functions to these these large markets. And you know so we're you know we're you'll see an uptick in our investment over the coming quarter of the years, and we think that's going to pay off really well for us.
spk09: Thank you.
spk10: Your next question comes from the line of Steve Anders with KeyBank. You may ask your question.
spk01: Okay, great. Thanks for taking the question here. I just want to ask about Sri exiting as CTO. I just want to get a bit of sense for what the kind of plans are to manage his responsibilities going forward and how the company is thinking about that at this point.
spk12: Yeah, good day, Steve. It's Mike. I can take that one.
spk02: Look, Sri's obviously been an absolutely fantastic leader in technology over the last six years. He's taken us into the cloud and then continue to build a truly world-class cloud platform. So we couldn't be happier with where we sit. Um, I will say his, his superpower has been building high performance teams, uh, building a great leadership team. So we're in an incredibly good situation in turnoff, which is understandable, but we will, um, uh, I have no doubt we'll be able to find more talent internally, externally. We're in an incredibly good position. We've, over the long term had a clear philosophy on culture and building a sustainable company. And a part of that is about leadership transition and continuing to move forward in all of our departments. And I feel incredibly confident about where we are in technology and engineering functions.
spk00: Perfect. Thanks for taking the question.
spk10: Your next question comes from the line of Keith Buckman with Bank of Montreal. Your line is open.
spk03: Many thanks. James, I wanted to put this one to you if I could. You announced pricing changes that would be effective on Feb 15th for data center and server, and I wonder if you could characterize what you think the impact has been or will be prior to the 15th for those pricing changes, see some pull-in of demand and or any characterization of post for those two particular areas on data center and server. Thank you.
spk14: Yeah, sure, Keith. At the end of the day, it is obviously the customer that makes the decision as to whether or not they're going to early renew, add to their investment at last year and ahead of these price changes. So we really can't. given the volume of customers that potentially have this offer available to them. So when you look at the price changes themselves that we announced a few weeks back, they vary by product, by user tier, which is very normal for us. uh i would generally think of those as uh approximately mid teens percent type growth in in price uh across server and data center uh and so you know i would expect that uh uh to begin flowing into our p l uh in the fourth quarter uh in a more meaningful way so um There may well be some event-driven customer purchasing ahead of those price increases, as we saw in Q3 of the last fiscal year. But again, at the end of the day, the customer really decides. And so this is why we've been talking for some time now about a certain amount of variability in our financial model as our customers go on this journey from server to cloud.
spk10: Thank you. The next question comes from the line of Fatima Bolani with Citi. Your line is open.
spk08: Thank you. Good afternoon, and thank you for taking my questions and get to telephonically meet you. Jane, the question for you was with respect to the concurrent acceleration that we've seen in the cloud and data center business. Now, I was hoping you could put into context how, you know, both those businesses can sort of enjoy this degree of concurrent acceleration, especially considering you had mentioned that about a third of of the cloud performance being attributable to data center migration. So I'm just curious as to, you know, if you can walk through some of the dynamics there. And if you can also give us a frame of reference for, you know, how much of that cloud performance in the prior quarters, how much of that was driven by migrations from data center, just to give a frame of context. Thank you.
spk14: Sure, happy to take that one. Let's start with migrations. I mentioned a little earlier that what we would expect, and in fact what we saw in Q2, was about a mid to high single-digit impact on our subscription revenue growth from migrations. Now, important though to note To note that when we think about cloud migrations, then about a third of that activity is coming from data center. So again, but in context, when you think about the growth rate of the businesses that we're recording, both cloud and data center, migrations are an important but relatively small part of the overall picture. So let's take a step back and really think about what are the key drivers for the cloud. And I'd really point to a handful of items beyond migrations. First of all, and most importantly, we continue to do an excellent job of expanding our user accounts at our current cloud customers. You saw also in the data, we brought 10,000 new customers to the company. They're all effectively going to cloud. We talked about the percentage. Once they're at the cloud, we're doing a very nice job of expanding user count. The second thing I'd really also highlight, the growing impact that we're making with our customers on premium and enterprise additions. This really goes to our overall additions strategy that starts with free, standard, then premium, then enterprise. And we've really got those four additions now, pretty much right across our portfolio, broad portfolio of products. And that's a tremendously important driver with seeing customers really get incremental value as they step up that that ladder, if you will, of additions. And Then we've spoken now for several quarters about how pleased we've been at the relatively low churn levels and how we've really put effort into minimizing that type of activity. So that's working nicely. And, of course, you saw us roll out a mid-single-digit pricing increase. a few months ago now, and so that relatively quickly layers into the P&L when you think that the majority of our customers are on a monthly subscription. So those are really the important drivers that are driving the cloud business. Yes, migrations are a part of the story, but certainly I wanted to put that in context.
spk10: Thank you. The next question comes from the line of James Fish with Piper Sandler. Sir, your line is open.
spk03: Hey, guys. This is Quinton on for Jim. Thanks for taking our questions. You know, customer issues this quarter were really strong again. Is this kind of 10,000 net ads the right level moving forward? or do we move back to more fiscal 20, fiscal 21 levels? And then just as a quick follow-up, what inning would you say that the education of channel partners is at with selling to cloud products? Are we at the bottom of the ninth inning with one or two legacy partners to go, or is there significant education left within the channel? Thank you.
spk14: Cameron, do you want to start off with that one?
spk03: Sure. I can speak to both the new customer numbers as well as the innings of the channel partners. As far as the new customers, I have to call out just how incredible this machine that we built in go-to-market that we can routinely get 10,000-plus net new customers in the business while maintaining our efficient go-to-market spend. But in addition to that, I got a call two years ago, we made that change to the free model. So in addition to 10,000 paying customers coming in with more than two users, we also have thousands of more teams and companies choosing us and using us in market for free. And that just shows how much demand there is and why people are choosing us. As far as the number itself, it fluctuates quarter to quarter for a variety of reasons, changes in the funnel, seasonality, you name it. So let's be focused on the individual quarter numbers and look at the longer-term trend. We've added over 51,000 customers over the last 12 months. which when I started with this company many years ago, we had a fraction of that of our overall customer base. So we've just been able to continue to evolve and make that efficient go-to-market model work. As far as innings, being an Australian company, most of our Aussie friends don't understand what innings means. I'd hate to say which inning they're in. The reality is we continue to train, certify, partner with, and engage our partners in these migrations. It's a multi-year journey. some of the partners are well ahead you know and leading on migrations many of the other partners are going through these trainings and bringing people in so plenty more to do there but i'll tell you that they are critical to our migration story and our execution there james no i think you covered it thank you thank you the next question comes from the line of arjun batia with william bear sir your line is open
spk15: Thank you. My congrats on the quarter. Certainly, in the shareholder letter, it seemed like hiring was a key area of focus. I think you stated that building new products in the R&D world would be a priority as you scale your developer talent. I'm curious if you can share any particular areas a focus that you have out in the market from a product perspective that maybe is not addressed by the product portfolio today?
spk02: I could take that. My mic is not on. I'm sure it will work as well. Look, with the three markets that we're operating in, we're lucky to operate in markets that are very, very large. And we have different levels of maturity in each of those markets. And underpinning our ability to go after these markets is the Atlassian platform that we've spent over a decade building out. And so when I look at the investments we're making, you'd have to say they're in the areas of the three different markets we talk about. There's the investments required to help our customers make those migrations across the cloud and continued investments in the platform that we've built out over those years and continue to build out. And the benefits you're seeing come through, obviously, in things like migration numbers, but there are also benefits in our ability to launch new products, as you've seen with point A, that we can bring and launch new products to the market pretty quickly. I wouldn't see there being, you know, huge changes in that. Like, I think as the platform continues to mature, we'll be able to bring more functionality to the market quicker. You know, the ability for us to, like I mentioned earlier, ability to work across, you know, Dev and IT is, you know, I guess it's a bit like, you know, chips and guacamole, right? They go hand in hand. And, you know, so that's like a unique ability that we have, you know, to do that. And of course, work management for all built on a great platform for work really unifies work across the entire organization. Again, something that we're uniquely positioned to do. So, Mike, you had anything? Yeah, I mean, I just wanted the question started in hiring, I guess, in the market. So I'm not sure which which angle you were trying to go on. I think Scott's point about the platform is really key. Our platform, we believe, is one of our strengths in executing against the large opportunities that we believe we have in all of our markets and around the business and in the Atlassian economy. Building that platform takes a world-class engineering team and a world-class engineering team at very large scale. So you see us making continued improvements and things like Team Anywhere and our culture and pressing our long-term thinking as a business and also executing against those opportunities, right? And being clear that we are going to invest and we believe in those opportunities. At the core of that platform is a truly world-class engineering organization. So if it's about where are we hiring, look, we have a deep long-term belief that building a world-class technology company without engineering and R&D at the core is to steal Scott's analogies, it's a little like making guacamole without putting avocados at the core. It just doesn't work. And you'll see that from some other companies, but we have a deep belief in engineering and R&D at the core of executing against the huge opportunities that we have in front of us. And so that's why I try to tie those two together in your questions.
spk10: Your next question comes from the line of Itai Kidron with OpenHyper. Please ask your question.
spk03: Thanks, guys, and great, great numbers. I have a couple questions. One on work management. You haven't talked much about that. Maybe you can give us a little bit more color on the progress there. Maybe number of customers. You mentioned that on service management. Maybe you can mention that on work management. And then second question, more of a general one regarding the customers that have transitioned to the cloud. Can you talk about how the expansion activity of customers that migrate to the cloud is different than expansion activity of customers who remain on-premise?
spk02: Hey, Yitai. Look, I can take both of those. Firstly, on work management for all, the first thing I would say is the fact that we get this deep into the call and we talk about our huge opportunities in IT, we haven't mentioned agile DevOps and software teams or work management. I think that's an example of just the size and scale that Atlassian operates at now and the set of opportunities we have. We could spend an hour plus talking about any of that. I would say we continue to be incredibly bullish on the work management space. We're doing an incredibly good job with Trello and continuing to make that part of our platform, part of our set of offerings, whilst having a standalone flavor to it. Jira Work Management continues to power along. It's very new out of our point A program of innovation, but adding a different flavor on project management. And, you know, we're incredibly bullish on things like Team Central and other things coming out of time. I feel very comfortable with where we stand. We believe there'll be lots of different ways of attacking the broad work management problem. And that's all before we even mention something like Confluence. So really excited about how that happens and how that continues to evolve. I will say we talk a lot about digital transformation. A big part of that is also a cultural transformation and how those software and IT teams work with the rest of the business. so yes we have three different markets we believe in all of them very deeply they are tied together at the core of how every company is changing um as a software and technology base but also changing culturally to be more dynamic and more agile and that's that's why we're in those three markets in terms of cloud expansion it's a pretty simple story actually the ease of adopting a second product in the cloud our ability to understand what customers are using and hence recommend and other alternatives for them either you should get more people in your team on board or you should try this other product yeah but it's a single click in the cloud nothing to install nothing to try um with free you can quickly get 10 users started so our ability to help customers expand is just much higher in the cloud and you see that in in greater and quicker expansion numbers of customers we have to have the products to deliver that value but our ability to help customers and guide them less friction in the cloud is just higher rob oliver we bear please ask your question
spk03: Great. Thank you. Good evening, guys. Thanks for taking my question. James, you alluded to this earlier in your remarks. Scott and Mike, I'd love to hear your view. But you guys continue to knock down a lot of the global compliance standards that really, I assume, are inhibitors to many large enterprises and governments really going wholesale into the cloud. So I'd love to hear your what you've seen in terms of as you knock those down, how that backlog has been converting, and then maybe some of the other global standards out there that you're excited about.
spk12: You guys hinted in the letter that there's more to come imminently. Appreciate it.
spk03: Thank you very much.
spk02: Yeah, good day, Rob. Look, the
spk12: I hope you've all seen over time Atlassian's just continued momentum and improvement, incremental improvement every single quarter. It's something we've done for just shy of 20 years now and will continue to do.
spk02: The area you've asked about in terms of cloud standards and compliance and governance and the whole sort of acronym soup that comes with that in every different geography in the world, We do believe that that will continue to be a challenge for every SaaS company going forward if there are more companies, more geographies, more legal conditions. And so we have to build a world-class engineering organization and a platform underneath our cloud products that allows us to quickly adapt to that market as it changes, that area as it changes, and also continue to add the standards that our customers need and ask us to support. um we've done that over time and you continue to see us improving that every single quarter whether it's data residency in australia for financial companies or whether it's barfing in germany we've continued to do that and we'll continue to do that we've seen a lot of examples of every time we add support for a different geography or standard we unlock a portion of our customer base to move to the cloud it's not a singular unlock it's a whole series of ingredients but it just increases the overall momentum of customers to the cloud. But for sure, we continue to work on performance and scale for the larger customers in the cloud. We continue to work on compliance and regulations and standards. And we also continue to work on extensibility, which is equally important. The reason I mentioned that last one is Forge, our sort of Future extensibility standard and technical framework builds things like these compliance and regulatory standards at the core, which is incredibly difficult to do, but we believe in extensibility for our customers going forward. It's long been a hallmark of Atlassian, and I think in a higher compliance environment, that's going to be incredibly important for us going forward in the cloud, and we're seeing that in the adoption of Forge by those enterprise customers in the cloud where it handles the regulatory standards for them.
spk10: Thank you. The next question comes from the line of DJ Hines with Canaccord. Please ask your question.
spk03: Hey, guys. Congrats on the continued success here. I have a product question for Mike or Scott, I presume.
spk02: So there are a handful of visual collaboration tools in the market that are seeing really strong growth. I know you guys recently invested in Miro. What is it about visual collaboration that makes it hard for you to replicate? Like why invest or partner in that space versus doing it on your own? Yeah, hi, man. I can take that, DJ. Look, we've long believed in having a broad spectrum of opportunities and bets. With Atlassian Ventures, we're trying to make sure that we are investing and partnering in high-quality enterprise SaaS companies that are partners of Atlassian. You've seen us do that in the past with Zoom and Slack and others, and more recently with Miro and Snyk and across our markets as well as a whole host of smaller up-and-coming names. Visual collaboration in general, look, it's a very busy category, I would say, because it's such a broad option. It used to be called whiteboards, but it's not really a whiteboard. It's a whole series of different things that you can do there. It's a bit like saying there's one way to do project management. If you're a five-person marketing team, you do project management utterly differently than if you're 5,000 engineers building a bridge. So project management is a very broad term. I would say the same thing for visual collaboration. It's a broad term. I think there'd be a lot of fantastic products in there. And obviously, we believe in the ones that we use and the ones that we've invested in. But in general... Our customer philosophy is being partnered and integrated with all of the best-of-the-breed SaaS products that are out there and allowing our customers to make those choices and just making sure that all the data they have in any Atlassian product is easily connected and integrated with all the data they have in any other product. Thanks.
spk03: Thanks. On Trello, you've been pretty clear over $50 million on the platform, yet I think monetization is still low. Can you walk through how you expect to potentially change that over the next year or maybe not? And for James, Americas, at least in our model, look like the best quarter in 13 quarters. I know the comp was a little easier, but anything stand out there in Americas that perhaps you haven't seen in past quarters? Thanks.
spk02: Brent, I can take the first part on Trello monetization. I'm sorry I don't have much new news for you, but I can repeat our stance here. I mean, Trello, we focus first on continuing to grow the monster that is the size of Trello. Going after the Fortune 500,000, we think about very, very large scale, and there's a billion knowledge workers out there trying to do products with views. smart cards to integrate third-party data, as we just talked about, and a whole series of continued product improvements. That said, we've gotten better at monetizing Trello almost every year that we've had it on the platform. But I will say that we put... ...to Trello. You see it getting closer to the Atlassian platform in various different ways in terms of Atlassian account and identity and all sorts of different things. So we're very patient in... and doing those things correctly and continue to make Trello a huge product that's beloved by its users. And we put that first. But it's a pretty nice business for us and we continue to invest in it.
spk14: Just follow up on that.
spk12: One of the things we've done around Trello, again, this is an example. We've talked about price increases at different points. on this call.
spk14: So it's a good example of where there are many an occasion where we actually lower price, again, to stimulate the sort of demand that Mike is referring to there. In terms of the America's result, yes, it was a strong year-over-year growth rate for the Americas. I just point back to one of my earlier comments about obviously data center had very strong growth. in the quarter. And we do have this portion of the customer commitment that is taken up front in terms of RevRec in the quarter in which the customer signs with us. And, of course, the U.S., the Americas, particularly the U.S., is home to a good number of our largest customers. So there's a certain amount of timing effect there that made for a very strong America's year-over-year growth rate.
spk10: Thank you, and the next question comes from the line of Greg Moskowitz of Mizuho. Your line is open.
spk07: Okay, thank you. I remember when you launched Atlassian Marketplace. That was less than a decade ago, and here we are at 2 billion lifetime sales. It's incredible. My question here is, with cloud now comprising nearly half of the apps in the marketplace and with take rates continuing to be discounted as an additional incentive, Are we sort of at a tipping point? In other words, are we at a stage where you're seeing app development and app usage really accelerate?
spk02: Yes, Scott here. We're really proud of the marketplace. the plane ride where Mike wrote the original code that went into the marketplace and, you know, got us off the ground. And for us to get from there to $2 billion lifetime sales is amazing. And more importantly, that's, you know, $1.5 billion of money that's gone back into the ecosystem, right? And we've got such a strong and powerful ecosystem around Atlassian and You know, we've long, you know, for over a decade had goals around the ecosystem outside of Atlassian to be way larger than Atlassian itself, both in terms of the number of people working on it and the revenue there. And so we're really, really proud about kind of the jobs and everything we've been created around Atlassian and how we benefit, all of us benefit from that. In terms of cloud and tipping point, obviously, Forge, our app development platform in cloud, takes care of a lot of things that developers used to have to do themselves, such as running their own servers. Now, we take care of it for you, so that has lowered the barrier to entry for new people to build. functionality inside our applications. As we've seen in our server-based applications, a lot of the early adopters of these new technologies are people using internally inside their own companies to integrate with different processes, to automate things themselves, to build extra functionality that is unique to that particular company. And that, you know, often then leads to people starting their own business, you know, using those things and making them more generic, or those things flow to our existing marketplace partners who are, you know, building out on the Porsche capabilities. So, you know, I think, like, longer term, you know, you've seen pressure on marketplace take rates across, you know, kind of particularly the consumer side of things has been down with pressure on that. And if you had to play that out over the long term, you know, I would say that we're going You know, the take rate, there'll be more pressure on the take rates than there have been historically, but that's also going to lead to a much, much, much larger ecosystem built around Atlassian. Like, and, you know, we're experimenting and seeing, you know, beyond our traditional partners, how we can partner with people, you know, like that we've made investments in through us in Ventures. And, you know, overall, like, the number we focus on is not really our take rate. Like, you know, that's nice, but the number we focus on internally is our sort of GMV or, you know, so effectively how much money is running through the marketplace, like, to our third parties. And that's the number we optimize for internally.
spk09: Thank you. And our last question comes from... From the line of Steve Keenig with SMBC NICO, your line is open.
spk05: Excuse me, and I appreciate it. Most of my questions have been asked, and actually let me also congratulate you on the quarter, also on the very low employee turnover metrics that we're seeing from LinkedIn. You know, the price increase that's happening on February 15th, you talked a little bit about, you know, the impact it could have on the coming quarter.
spk12: in the subsequent four quarters, maybe have renewed early to take advantage of locking in the price?
spk05: And then, you know, would they be looking to convert to cloud within the next four quarters? How do we think about that? And I guess the larger question here really is, as we kind of puzzle over your trajectories here, you know, we talked a bit about data centers. about the drivers in cloud.
spk12: But we're seeing cloud continue to accelerate here. And, you know, just kind of how do we think about that, you know, even if it's qualitative. So that's all, and thanks again, and congratulations. Yeah. So thanks for the question. This is Cameron here.
spk03: So two pieces on this. So every time we do some price changes, obviously customers have the ability to make a choice. And I was actually just on a call with an executive at a very large pharmaceutical company. Just as we continue to plan for cloud, out a few small cloud projects, maybe for some teams, or we can go all in on cloud and get it all done with. It all comes down to what's your prioritization and your company's readiness. Give me the all in on cloud option. Like, this is fine. We have a cloud mandate. We need to prioritize the work. Let's just get it done now. The reality is that's how we prefer that optimality for our customers.
spk12: We're not forcing them down any path. It's, you know, what's going to work for them and their projects and the value that we can deliver. The second big one is, you know, even if they renew today,
spk03: We have plenty of programs and practices in place that two months from now or four months from now or six months from now, if they want to move to cloud, we will absolutely make them right from a licensing perspective.
spk12: So by no means do we hold them to the customer's appetite to take on.
spk03: the IT project that is in migration more than anything. For most of our customers, they are more than ready to go cloud. Almost all of them have cloud mandates, and it just comes down to timing of budgets, prioritization, and IT projects.
spk10: Thank you. And the next question comes from the line of Pat Walravens with JMP Securities. Your line is open.
spk13: Thanks so much. It's Joey Marincic on to Pat. Appreciate the question. Can you just give us some more color on the Percept acquisition and then sort of how you think about M&A going forward? And then separately, you know, what are you looking for in your next CTO? Thank you so much.
spk02: Three questions at the end there. Well done. Look, let me take Percept first. Fantastic team focused on AI and smarts. in specifically in a service management and customer service manner. Again, AI and smarts is relatively domain specific to make a huge impact at the moment. And so I would see this as a part of our continual improvement in the ITSM space, both organic and inorganic, to make sure that we have the best set of ITSM tools around. And also an investment in machine learning and smarts as we keep putting at the core of our platform. I always say that our customers shouldn't need to know that we care about AI and machine learning and smarts, but we bake it deeply into the platform. And this is about, you know, continuing to improve that in the area of service management and for IT teams and any service-driven enterprise out there.
spk12: And pass this, Scott, on M&A philosophy, if that's...
spk13: Why not?
spk12: Yeah. Sounds great.
spk02: Mark, like, we're lucky as a company, you know, we have... ..long track record... ..successful M&A, you know, both really small tuck-ins and, you know, medium-sized, you know, companies like Trello, which we brought as an extension. And so I don't see that changing, you know, in the future. Like... well on all three. You know, when we look at which things we want to acquire over time, you know, the cultural and mission alignment. So, you know, are they, do they help unleash the potential of every team? Like that's part of our mission. And then do they fit culturally with Atlassian? And then everything else after that, you know, kind of go to market and technology and other things are areas we evaluate the way the first two are the most But there's been no change to our, you know, M&A philosophy over, you know, a long, decade-long time horizon. We'll continue to look for assets that fit really well alongside Atlassian, as well as, you know, kind of small tuck-in technology acquisitions that, you know, help us where it'll be quicker to acquire something than build it ourselves.
spk10: And the next question comes from the line of Derek Wood of Coven. Sir, your line is open.
spk03: Great. Thanks, James.
spk13: Question for you on operating margins. You guys are targeting, I think, 17% to 18% in Q3. That's down from 26% to 27% in the first half.
spk03: Can you just talk about what's driving that, kind of where you see hitting the line? low watermark and margins starting to rebound. Thanks.
spk14: Yeah, sure, Derek. We very much feel as though, and we've been saying this for a while, that there's such a significant opportunity in front of the company across the three markets to push to continue to build on the momentum that we're seeing hiring, bringing excellent talent in wherever they are around the world. I think the Team Anywhere approach we have is really important in terms of differentiating our ability to attract the best talent, obviously in a very competitive field, with those additional folks that will be able to get after these very significant opportunities that lie right in front of us. And so we're really enthusiastic about that.
spk12: We're really positive about that opportunity.
spk14: And more tactically, if you think about the fact that we're increasingly becoming a cloud company quarter by quarter, 53% of revenue is now cloud, that will of course have an impact on gross margins. We've talked about that for a number of years as we take on the work of hosting the services on behalf of our customers. And we're also going to be investing in additional support resources to help our customers make that migration journey very much along the lines of what Cameron was just talking about with the large customer that he was talking with this week. So those will drive some transitory impacts on the gross margin as we ramp up those support resources and do the migrations work. In terms of
spk12: operating margin that's where the significant bulk of the additional investment would be in our business as you know really comes down to having Atlassians and so that's why it's really we described it in the letter as our top priority so So that's what we'll be focused on, opportunities across the three markets.
spk14: The platform, I think, is a really important accelerant of our business. You've seen that showing up in our ability to quickly get new products developed. Point A, we've talked about those new products under that program will continue to be important. So we'll continue to be very focused on the quality of our investing. and the returns that we can generate for our shareholders. And I'd be confident that the health of the financial model for Atlassian will be strong.
spk10: Thank you. And that concludes our question and answer session. I will now turn the call back to Scott. Sir, please go ahead.
spk02: I just wanted to thank everyone for joining the call today. Thank you to our customers and to all the fantastic Alassians out there, past, present and future. We appreciate your ongoing support and we hope that you and your loved ones remain safe and healthy in these times. Lastly, we hope to see some of you in person and for the rest of you to tune in virtually to Team 22 coming up in April. Have a kick-ass day.
spk10: Thank you. This concludes today's conference.
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