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spk02: Good afternoon. Thank you for joining Atlassian's earnings conference call for the third 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.
spk10: Welcome to Atlassian's third quarter of fiscal year 2022 earnings call. Thank you for joining us today. On the call today, we have Atlassian 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 third 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 insight and commentary for the quarter. So during the call today, we'll have brief opening remarks and then focus our time on Q&A. This call will include forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performances, and achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statement. 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 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 20-F and Quarterly Form 6-K. During today's call, we will also discuss non-IFRS financial measures. These non-IFRS financial measures are in addition to and are 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 the 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.
spk08: With that, I'll turn the call over to Mike for opening remarks. Thanks, everyone, for joining us today. Q3 was yet another strong quarter for Atlassian. We continue to execute well and see great momentum in our business. We continue to see significant demand for our products across all three of our markets and now have line of sight to $10 billion in annual revenue based on our current markets and current products. Atlassian has a 20-year track record of growing our ambition and we've never been more excited about the opportunities in front of us. We had an amazing Team 22 conference in Las Vegas. It was incredible to hear all the customer stories about the mission-critical workflows that we're powering from our customer community and all of our partners. We continue to learn from our customers about how Atlassian can help their team work differently together. If you missed us at our investor day in Las Vegas, Be sure to catch all of the materials and the recording of the event on our IR website. We'd love for you to learn more about Atlassian and better understand our massive market opportunities, our platform, the strategic bets we're placing, and our future trajectory. With that, I'll pass the call to the operator for Q&A. Operator? Mike, do you want to talk about the long-term future of Atlassian while we have a moment here? I was thinking our shareholder letter maybe answered all of the questions. Finally shifted. Perfect shareholder letter.
spk02: At this time, I would like to inform everyone in order to ask a question, press star 1 on your telephone keypad. Again, that is star 1 to ask a question. Please limit your questions to one question. We have your first question from Keith Wise with Morgan Stanley. Your line is open.
spk06: Thank you guys for taking the question and very impressive results. Right now, the investor focus is really on sort of macro and durability of software demand.
spk05: One of the things, Mike, that you've talked about in the past is Atlassian is kind of built for defense. But when you look at sort of the 3-2 results, how much of this was just the demand environment good and you guys are executing in a good demand environment? How much of this is Atlassian flexing that we're good at defense side of the equation to help us kind of understand the operating environment you guys are in?
spk08: keith it's uh scott here um look i'm super happy with the results we have but the way we operate as a company is really making long-term bets and long-term investments uh you know and that's what we see here and those investments whether they were in free many years ago or they were in ipsm so we made those investments or our cloud infrastructure and migrating our customers to cloud all these things are long-term um you know, bets that are paying off over time. And so, you know, I think regardless of what the demand environment is, like, you know, we played that long-term game. So it's one thing to think about. The second aspect about that is that, We've seen great demand for our products around the world. I know there's some worries about that. We've seen great demand in all of our geographies. And I think what we're seeing there is that we sell into a market that, in good times or bad times, requires the products that we sell. And we've seen that even through the 08, 09 downturn we've been around. long enough to have played through that. And we've come out stronger on the other side of that. And we grew throughout that downturn as well. So there's a combination of those factors. You know, I think people worry sort of pandemic is coming off and there might have been pandemic tailwinds, you know, fueling Alassane's business that will come off after that. We haven't seen anything to indicate that. If anything, the demand for digital transformation is kind of a structural change that's continuing to happen.
spk02: We have your next question from Arjun Bhatia with William Blair. Your line is open.
spk08: Perfect. Thank you, guys, and congrats on a great quarter here. I wanted to touch on the ITSM market and the progress that you're making with Jira Service Management specifically. You know, it's something that was a big topic of conversation amongst your customers and partners at Team 22 in Vegas. And I'm curious how the product market fit of that solution has changed over time. I know in the past we've talked about maybe it'd be good for a legal help desk for quick up and running use cases. But are you starting to get pulled into more core ITSM use cases at large enterprises? I'd love to hear some of the commentary around that and maybe how the deal sizes for Jira Service Management have changed over the last year, year and a half. I'll talk about the long-term stuff and Cameron can chime in with any color about deal size changes if there's anything to add there. As we said before, there's some huge advantages we have in the ITSM market. One is that we're the only company that can bring IT and dev together. And that's very attractive to companies as IT and dev do come together across the entire industry. So that's really attractive. And then the other one is that we can play for the Fortune 500,000. We're not just playing the Fortune 2000. That's both. the uh you know cost-effective nature of our solution but also just the time to value uh getting our customers up and running and so when you look at the sort of product market fit like those things stand out they stand out to the entire uh time frame that we've got and that's been recognized you know by gartner forester you know kind of the big people who are recommending to large customers what to buy like those advantages are being recognized up and down the customer size spectrum I mean, longer term, we have a view that every team in an organization becomes a service team, whether you're HR, you're finance, legal, IT, the obvious one, that everyone becomes a service organization. And I think with the visions we laid out at our annual conference just a few weeks ago, we sort of articulated that global health vision. So Cameron, did you want to add anything on the customer size?
spk11: Yeah, I first want to call out that part of our approach here is not to just go out to the small customers or just attract the large customers, and that we're very much an Atlassian focus, which is with over 40,000 Jira service management customers today. And that's a relatively new product and shows the type of volume of product market fit, as you would say, is quite strong, increasingly over the last couple of years, largely due to our cloud platform and from an enterprise investment perspective, supported by a variety of really robust features in the IT service management market. We checked off what I consider is like that kind of 80-20 set of requirements that most enterprise departments need, and they're starting to really look to Jira Service Management as that IT service management platform. And we have plenty of case studies where we see companies address it that way. I actually spoke with a customer yesterday that did exactly that and has been running Jira Service Management for all their IT service management operations for over a couple years now.
spk02: We have your next question from Keith Backman with BMO Capital Markets. Your line is open.
spk09: Keith Backman Thank you very much, Cameron. Good transition for my question. Excuse me. I wanted to ask about your work management and get your perspective perhaps on where you think the maturity curve is relative to JSM and what you think the opportunity is. And if I broke that down into the pieces, you know, if you could compare it to JSM has 40,000 customers in terms of the maturity Where is Jira Work Management? And how do you see the opportunity in terms of contribution today from Jira Work Management as you look out over the next couple years? It just seems like Jira Work Management has a tremendous opportunity for growth. But just wanted to see if you could put some scale and context to that. Many thanks.
spk08: I can certainly talk to that one. For sure, we would echo your comments. There's a tremendous opportunity in geo work management. There's also a tremendous opportunity in work management in general. Obviously, we have a long and proud history in the work management space and some very large products in confluence in Trello, complemented by smaller, newer products, as you've mentioned, like geo work management and Atlas, which we shipped at our Team 22 conference. I think, look, a few comments. We started using the term work differently together, and I think it's really, really applicable in the work management market because zero work management and Trello are different ways to work. They reflect different types of teams that want to manage their work. What's really important is that Atlassian allows you to have that autonomy among your teams to use different types of tools to manage work because different teams and different functions manage work in different ways. but we still have to create that alignment across your organization. We can do that in various ways. If you're working in the Jira manner, I suppose, with Jira service management, Jira software, and then Jira work management, that helps you bring them all together under the Jira family if that's the way your organization runs or your team runs. But similarly with Atlas, we can now tie Jira work management together with Trello and lots of other third-party work management tools to create that same visibility. It's very early in the Jira work management journey. So it's probably more like Jira service management eight, nine years ago, whenever we originally shipped that. So we're spending a lot of time with customers at the moment to try to make sure it fits their needs and continue to do that. But as you've seen from us over time, uh investing in r d and investing in products and listening to customers is something that we do very well and we're going to continue to to run that play quarter on quarter and we're very bullish about the geo work management space and its opportunities we have your next question from reg moskowitz with miserable securities your lines open
spk01: Okay, thank you very much. I wanted to ask about the recent outage and just if you had any concerns that this could affect the rate and pace of cloud adoption going forward. And then also, I know that it only affected about 0.3% of your install base, but were any customer credits issued for the Q3 and or Q4 period? Thanks.
spk08: Thank you, Greg. Look, I can take the first half of that, and I'll let Cameron talk to the... migration impact on customers and how we see it from his lens. Look, it's pretty clear we understand deeply how mission critical our products are to customers and that teams are impacted massively when our services are unavailable. There's no way of saying it. It's not made our own high standards that we hold for ourselves. As you said, there were 775 customers impacted and know as you pointed out you've done the math yourself but uh you know one customer is too many so although it represented yeah less than half a percent or so of our customer base you know one customer is still too many um important emphasize for any customers that are listening it's not the result of the cyber attack no unauthorized access to any data any of those uh type of things and obviously that we you know maintain backups that would be resilient against all types of different types of data corruption events um as happened in this case And all our customers have at this stage been fully restored. You'll be long familiar, Greg, with our values. Open company, no bullshit. It's something we hold pretty highly. And we run a very open and blameless incident management process and culture. As such, we will be Openly publishing a pretty detailed post-incident review on our website, on our engineering blog, I believe, by the end of the week, as we do to share with our customers what happened, our learnings, and importantly, the processes we've changed and will continue to change as a result of this. We believe that such a culture builds ever more resilient services and helps us emerge continually as a stronger company if we do that. I can talk to Cameron, but we've had pretty great customer reception from that openness.
spk11: Yeah, I can speak to the customer impact. As you can imagine, I've been speaking to many customers during and now post the incident that were both directly impacted by the incident as well as customers that are looking to migrate to the cloud and and they may have questions around that. Now, while the outage affected a very small subset of our customer base, as Mike said, one is too many, and we take this extremely seriously. Getting on the calls with these customers, like, listen, they're tough conversations, but when we walk through exactly what happened, which we will provide in detail in the instant review, as well as what we're doing about it to ensure it doesn't happen again, most customers completely understand, and it turns into a collaborative discussion on moving forward. In fact, this morning I spoke with a directly impacted customer who actually was standardizing on our tools over the last few years. And we've had incredible uptime, incredible SOAs for many years with them. And this was the first kind of big incident that caused them to have, you know, their concerns with us. And we talked about the mission criticality of our applications. We talked about how they did workarounds in the interim as they – They actually went and started some more applications with us as the core incident was out. But the reality is by the end of the conversation, we had moved forward, and they were talking about upgrading to the premium version of our products, which just shows how much goodwill our customers have for us and our products. James, do you want to speak to credits?
spk07: Yeah, Greg, just to address the compensation part of your question, obviously we want very much to do the right thing for the customers that were impacted. So I would expect that there would be compensation. It begins in Q4, so to be clear, nothing in Q3. But I would not expect the level to be material to the financial statement.
spk02: We have your next question from Michael Turin with Wells Fargo Securities. Your line is open.
spk06: Hey there. Good afternoon. Thanks for taking the question. Growth remains impressive and consistent as always. The EMEA number at 25% growth is a touch lower. The letter carefully characterizes this as event-driven as a result of the tougher cop, not demand-driven. And you're also citing no material changes to Q4 thus far. Is there any additional context you can add around the signals you're watching there and what informs those observations? It's certainly top of mind for all of us across software and useful.
spk01: Thank you.
spk07: Yeah, Michael, I can address this first, and then perhaps, Cameron, you can add on behind me. But as you're alluding to there, Michael, as you framed the question, 25% growth year over year in EMEA, but very much a tough comp. versus Q3 of fiscal year 21, in which we had very significant EMEA growth of 45% year over year. Recall that last year we had the event-driven activity as a result of having recently announced the server end of life, and then also price increases associated with both server and data center. And a year or so ago, it was our European partners who were particularly adept at at working with their customers to get ahead of some of those changes. So that really explains the reason for the tough comp. And I would just further note that in Q3, EMEA represented 39% of total revenue. So that's actually up a point sequentially versus the previous quarter. So not seeing anything unusual there. We're pleased with our growth rate in EMEA as we are in other parts of the world. And then Q4, yeah, it's early, but not seeing any material change in our sales activity day to day. Cameron, do you have anything extra there?
spk11: Yeah, and when I speak with our teams located in Europe as well as our partners, the short story is the war in Ukraine is very much present in everyone's conversations, but it has to date had no direct impact to the demand for what Atlassian does. And that's kind of the short story here is because of digital transformation, because we continue to remote work from home, because companies are trying to be more agile and responsive to this changing world. That provides constant demand for what Atlassian's applications do. At Team 22 a couple weeks ago, I met with a variety of our European solution partners. Their biggest challenge remains being able to hire enough people to satisfy the demand that they see in the market. And in addition to that, you know, we've focused pretty heavily on the European market just from a cloud capability perspective. As you know, last quarter we released a support for Banffy, which is basically financial services standards in Germany for our cloud products. And that has opened up a variety of new cloud opportunities and very large financial services firms for cloud migrations. So we continue to see that demand there and everything's looking good this quarter.
spk02: We have your next question from Itai Kidron with Oppenheimer. Your line is open.
spk11: Thanks, James. A couple for you just on the financial side. Data center continues to perform very well for you. I believe that in the investor that you actually mentioned a few instances where data center customers were actually migrating to the cloud. How do we think about the growth in data center going forward? Is there a point in time do you see this kind of rolling over and transition to the cloud starts happening a little bit more? uh diligently and that side of the equation anyway can help us get a framework around that that would be great and then just another just household question regarding russia the 1800 customers that have been i guess turned off because of the sanctions or inability to pay can you tell us what's the annual revenue impact of that customer base
spk07: OK, it's I. Let me take the first one, data center. Yeah, I was very pleased with the growth rate of the business there. And as you allude to in your question, in the context of the fact that when you look at our cloud migrations, a third of those volumes are coming from data center. So I think this is one of the important stories here around the migration journey. Obviously, we've been talking a lot about server to cloud, server to data center, but also the fact that a good number of our larger customers that generally are on the data center products are migrating to the cloud, I think is going to be a theme that continues to play out for a number of years. And I think this very much reflects our thesis that the cloud is very much the best experience for the customer. That's obviously where we've been putting a disproportionate amount of our investment over recent years. And so I would expect that to continue over time. So as it does, that would obviously represent a headwind for data center growth. But as we've discussed in the past, for some customers, they're not able yet to move to the cloud. Oftentimes, it's a matter of that customer fitting in this migration project to their overall IT workflow and so forth. And so we're delighted that customers continue to look at our data center products as high quality, good value, and so forth. And so I think those are the dynamics that will play out gradually over time. In terms of the 1,800 customers that reside in Russia and dropped out of the customer count this past quarter, we noted at analyst day that Russia had represented about a percent of our business. So those 1,800 customers reflect a fraction of that point.
spk02: We have your next question from Fatima Bolani with Citi. Your line is open.
spk03: Good afternoon. Thank you for taking my question. James, this one's for you. I know calculated billings or billings is not a metric you focus on, neither do you run the business on the metric, but I'm curious if you can just give us a reminder on some of the points of volatility in that metric, particularly given the pricing changes and the end of life of certain products. And then just with respect to doing larger enterprise transactions and enterprises generally preferring to take on maybe more longer-term oriented contracts, I'd love to get your perspective on how we should put some guardrails around the reported or calculated billings metrics, as it were. Thank you.
spk07: Sure. I really speak to deferred revenue here, because when you think of calculated billings, it's really revenue plus change in deferred. And so to the first part of your question around the volatility in that metric, think back to Q3 of last year, and we saw a very substantial increase increase in revenue uh that we refer to as event driven as i was mentioning in one of my earlier answers related to the server end of life activity that we had just announced previously to that point as well as price increases around both server and data center and so that drove a revenue level that had us pre-announcing uh you may recall a year ago but it also drove a very significant deferred revenue increment at that point in time. Now, fast forward a year, and we had some similar level of activity, but significantly less of this event-driven activity. In this past Q3, we finished selling server upgrades, And then somewhat similarly to the previous year, also had price increases for both server and data center businesses again. But when you look at the deferred revenue balance and the percentage growth in deferred revenue on a sequential basis, which I think is the right way to look at it, you'll see that the increment to deferred revenue. The growth rate of deferred revenue in this past Q3 was less than half of what we were seeing a year ago. So I think that's the primary thing to really focus on in terms of volatility of deferred revenue. In terms of the enterprise activity, certainly some of those larger customers are interested in multi-year commitments. And you see quite clearly in the long-term deferred revenue line the impact of that effect. Now, again, if you look at the absolute dollars here, they're actually, for long-term deferred revenue, they're actually down year over year, and obviously we've grown substantially in the last year. So while it is unaffected, I wouldn't say that it's a terribly large effect in terms of how our business model is evolving. So, yes, I have some enterprises who are looking to commit to us for longer, but in the overall scheme of our numbers, I'd say this is relatively modest.
spk02: We have your next question from Fred Havenmeyer with Macquarie. Your line is open.
spk08: Hi, thank you. And firstly, congratulations on another very strong quarter. And I think also importantly, thank you to the whole Atlassian team for addressing the outage right up front in your shareholder letter. Certainly, we were tracking what many were saying online, and I think the transparency that you're bringing to the table is really quite important when you're working with developers, technical consumers, and enterprises globally. Now, higher-level question, James, while I really don't want to see you go, it's always a pleasure to work with you. Your anticipated retirement date is on the horizon here, and I just wanted to check in.
spk05: How is Atlassian thinking about the CFO transition at this point, and where are you in terms of considering or finding a potential successor?
spk08: uh yeah thanks for the nice words fred um it's uh it's james's 74th earning school we've worked this out uh we're all on zoom with backgrounds of 74 at the moment uh celebrating uh james you won't tell us how old he is but uh we're celebrating his uh earning school numbers um soon he'll be you know he's bought himself a plane uh that he's the instrument uh cycle on soon he'll be Find a remote island, you know, going for a swim, going for a snorkel. I kill, you know, just be enjoying retirement. And so we're sad to see him go. It's going to be big shoes to fill. I know how much you all enjoy working with James. But it's been great research that we've had going. We've had a lot of interest from people. across the industry and even beyond into other industries who are super excited to come work at Atlassian. And as you'd expect, we want to make sure we keep the bar high. So whoever steps into James's shoes does a great job. And so I'm not ready to kind of share any names or any details about that at this stage, but you'll be the first to know once we've landed a suitable candidate.
spk02: We have your next question from Brent Till with Jeff Rees. Your line is open.
spk00: Hi, this is Love Soda on for Brent Till. Thank you for taking my question. I wanted to ask a question on the cloud migration demand and how we should think about it, especially as we have a loyalty discount expiration coming up in next quarter on June 30th. And you've achieved HIPAA compliance for Jira Software and Confluence Cloud this quarter. So how should we think of these two events? Could you maybe give us some historical context as to what you saw last year when you had a similar loyalty discount expiration? Thank you.
spk11: Yeah, I'll take this one. It's Cameron here. Migrations continues to be very much on track as we planned. And we continue to say that this is very much a multi-year journey. Yes, we have different steps along the way, whether it was the elimination of server upgrades back in February or the loyalty discount coming off in July. or the server end of life in February of 2024, we have multiple stages where, over the next few years, that will give customers a compelling event to go off and migrate. And this has all been planned out. But once again, this is on track. It's important to say that migrations, as well, is a multi-year journey. And that doesn't end once the server end of life happens. At that time, we will still be migrating data center to customers to the cloud for many years to come. So this will be a constant journey for us. I'd say every day we get better at helping our customers through this migration journey, whether it's them assessing our cloud, assessing the financial impact, understanding, hey, if we go earlier, we get this discount. If we go later, we can get a different level discount. But we have many different empowered teams to have those conversations as well as our solution partners having those conversations, and it gets better every day. In addition to that, what I'm very happy about is once we convince customers to move to the cloud, we get better about actually getting them to the cloud, moving their data, moving their systems, onboarding their users. And that's a journey. Our products are mission critical. That transition is different for every customer. And we have many different teams and solution partners helping with that. I just want to say it's a constant moving thing. You also mentioned HIPAA. HIPAA is one of many compliance requirements out there that I mentioned Banffia as well, that we are continually working on. We have a whole dedicated compliance team that are largely You know, you name the acronym in the industry, we're knocking them off and opening up those cohorts of customers. So, yes, with HIPAA, we can start talking to healthcare organizations. We're working on FedRAMP, which allows us to open up the government markets, you know, and so on and so forth. So, we did FSI last year, opening up more financial services. So, think of it as a continuous set of improvements, both on the product side as well as financial improvements over the next couple of years that will continue this journey for our customers.
spk02: We have your next question from Alex Zukin with Walt Research. Your line is open.
spk08: Hey, guys. Thanks for taking the question.
spk11: So I wanted to key back in on the data center revenues and just understand either, you know, if the outage is driving increased interest in data center or how you're thinking about the seasonality, particularly for Q4 and maybe next year. around the data center business, the trajectory there. And just remind us, obviously, the guidance for margins for Q4. It kind of looked like some more of your out-year targets. Where is that incremental spend mostly coming from in Q4? And I think that would be super helpful. This is Cameron again. I'll address the data center demand. I'll let James speak to the command spend. On the data center side, as James already mentioned on this call, it's a great product. It's a great offering for our customers who are looking for performance, scale, stability, full control of their applications in their environments. the trade-off customers make by going to data center is they do not get all of the innovation that we're launching in cloud. We speak with customers every single day about this. It's a sure trade they have. They know very much that many of the new features, a lot of our new products that are coming from our point A offerings are coming natively in the cloud and will only be available in the cloud. And many customers are running towards the cloud right now to make that decision. Many customers are saying, okay, we can actually go stay on data center for a year or two. Or many customers say, hey, I'm going to stay on data center for the time being, knowing that cloud is always going to be an option for them. That said, we will continue to focus on cloud. you know cloud on the front foot every customer we are incentivizing customers to choose our cloud first and foremost but for customers for whatever reason need to stay on data center that is a great option for them they are very high in satisfaction for those customers and we have a good track record with that product line and in terms of the operating margin part of your question there for q4 uh
spk07: This is very much illustrative of the theme that we were talking about at Investor Day recently in terms of the very significant opportunities that we believe that we have right in front of us. at Atlassian and that we're looking to invest against those and that that will be the right thing for shareholders, free cash flow generation over time and so forth. Now, one of the points that we noted in the letter was that during Q3, we had net new Atlassians, a total of 791 That is significantly higher than the previous quarterly high, which was 479 new Atlassians. And you will see the full quarter effect of those additional folks in Q4. And we're delighted that our talent acquisition engine, if you will, is able to attract that many talented people from all around the world. I think our Team Anywhere strategy is an element, an important element of how we're able to do this. And I think that just positions us very well indeed for the future. One other item to remember in Q4 in terms of the expensive side of the equation, we had our Team 22 event, as we've been discussing. And so that would have added particularly to some of the sales and marketing expenses in the current Q4 quarter.
spk02: We have your next question from Jim Fish with Piper Center. Your line's open.
spk05: Hey, guys. This is Quentin for Jim Fish. Thanks for taking our question. Really, we wanted to circle back to work management. The team said at the analyst day and actually reiterated today that there is a course to greater than $10 billion of revenue with work management as the most significant opportunity. How much of that $10 billion would work management have to represent for you to hit that goal? And then as we think about the opportunity, how much of it is penetrating the current infill base as a greenfield opportunity versus replacing competitive solutions? Thank you.
spk08: Yeah, I can answer that. And look, a few comments, especially can't fill in cell D10 in the model, but I would reiterate the 10 billion number that we put out there and we feel really confident and bullish on is across all three of our markets. I think we've said that logically work management would have the most number of users, right? If you think about tens of millions of developers hundreds of millions of technology professionals once you start talking about it and then you know a billion plus knowledge workers the work management space obviously targets the knowledge workers which has the most volume of our b hag of going after 100 million monthly active users um it's sort of logically connected that it is likely that the majority of those would come from the broader work management space right there are many more people working in finance and hr and marketing and all sorts of different departments and there are working in the it department in most companies um so that's from a user perspective that may not necessarily be reflected in the revenues perspective because obviously the dollars per user of uh uh the more technical tools are generally going to be higher right there's sort of high level directional commentary over the multiple years ahead but that sort of seems quite logical to me that that's um the way that it would It would work. That said, obviously, we have two fantastic products in Confluence and Trello that are at scale and continue to grow strongly at scale. Both have histories and we are continuing to invest very hard in both of those. We also have a series of new products that you've seen. You mentioned Jira Work Management taking advantage of the Jira family and Jira's history of compliance and structure and control for organizations and teams that work that way. And finance teams, for example, often want more details and controls and auditing processes and things like this. And Atlas, obviously, being our newest offering, launching a team 22. And I think it's fair to say that we continue to be excited about the work management space and looking at a lot of things in terms of innovation there. What I would stress that all of our products in work management are built on top of the Atlassian platform. That's the platform that helps people work differently together. But in this particular case, it allows our work management products to work very well with both the IT and developer spaces. One of our advantages is that although we sit in three different markets, those three markets are connected for customers. Scott mentioned earlier how developers and IT work very well together, and that continues to be a strength of our JSM and ITSM market. Similarly, in work management, you're increasingly seeing both We have an advantage in customer adoption in the early phases because a lot of them come from the software and IT spaces into work management. But as we continue to grow, helping your technology teams work together with the non-technology teams and to have visibility across that where you can put on your snorkel and look under the water or you can look above the water. Your visibility can be across both sides of that. I guess I'd say we're just incredibly bullish on the space. We are very strong. We have great customer reception to our work management markets, and I think our strategy is incredibly solid as we look at the Cambrian explosion of work management tools there.
spk02: We have your next question from Rob Oliver with Baird. Two lines open.
spk06: Great. Thanks, guys. Appreciate it. Mike, Scott, just a question for you guys around Forge and some of the point A products. There was a good buzz at the event and certainly around Atlas and, you know, work local app and just Compass as well. I just wanted to get a sense. for what you guys are seeing there. It seems like a lot of the activity is still on the free trial side, but just what sort of interest from customers, and then also how you see partners, your partners, fitting into that equation as Forge starts to work up the scale. Thanks, guys.
spk08: Yeah, good one, mate. I think there were two questions in there, Rob, so I might take them separately if that's all right. On the point, I'll take point A first and then I'll say Forge second and then maybe Scott can add on if I miss anything. Look, on point A, incredibly positive reception from Team 22, I will say. It was the first sort of outing for Atlas and Compass. both of which have similar goals in terms of helping people, you know, work differently together and providing that aggregation layer at a lot of different areas in a very innovative way. So both Compass on the technology side and Atlas on the broader cross-company, you know, user, work, team, help directory level, very, very positive reception to both. So, you know, now it's, The hard grind of doing what we do, which is working with those customers, seeing their adoption learning from their activity, and also working with them and collaborating with them, as you said, in the Point A program. That's one of our strengths. That's where we can put our R&D expertise together with our customer centricity and really build truly differentiated products that have a long-term focus. We also ship during product discovery. At 1022, so that's us getting more into the creative discovery spaces at the start of the software processes. That also had great reception. Sometimes gets missed, but the JPD team's doing an amazing job. And again, bolstering out the Jira product family and getting more into the discovery and creative parts of the engineering cycle is a new space for us with a lot of partners and also with our own products. So that's... it's fantastic that's what we said we're going to do as uh we've talked about point a um repeatedly here on the forge side of things look customers continue to be very happy with forge forge again is our extensibility framework that allows customers and partners to build apps integrations extensions that run in our infrastructure And the latter part is really key there. It's what makes it differentiated against almost any SaaS-based extensibility framework out there. It means that if you have data residency requirements, compliance requirements, security requirements, you run in our infrastructure, even the third-party apps or your customer-written extensions, the customer's right for themselves, that runs in our infrastructure. One of the things customers like the most about it is we provide the servers and everything else to run. So they just focus on writing the extension, writing the integration they need. We handle all of the running and can keep their compliance and security requirements top of mind to run that data. That saves them a lot of time. It's a much higher ROI, expansibility method than having to run their own servers and maintain them and operate them and keep them running, et cetera. Look, it's going very well so far. We continue to invest in Forge and improving it every single quarter. You can see it's got quite a rapid pace of innovation and incremental improvement. And so Team 22 has a great chance to chat with a lot of our vendors and customers about what they want to see next and continue to build that up.
spk02: We have your next question from Avita Jain with Cleveland Research.
spk08: Your line is open.
spk05: Hello. Thank you for taking the question and congrats on the great results.
spk08: I just had a question regarding the CTO transition. Obviously, a ton of great progress the last few years, scaling the cloud product, addressing different regulations and compliance needs. What do you view as the main things that Rajiv will be working on over the next couple of years as CTO of Atlassian. Thank you. Yeah, thanks, mate. Look, super excited about Rajiv coming on board. I've personally been leading that search for a long while and, you know, incredibly excited to get him to start. Starts in a few weeks. and to share that all with you. Very sad to see Sri go, but happy we'll have an overlap between the two. So there'll be a smooth handoff of the baton there. And I think our engineering teams will continue to be incredibly well-led in that way. In terms of goals, look, It's a bit abstract, but at a high level, obviously, as we've communicated to you at Team 22, we are investing very much so in ourselves. That results in scaling the company up, adding thousands and thousands of new employees, tens of thousands of new employees. Obviously, given our model, significant numbers of those will be in engineering, in R&D, in design, continuing to keep our you know, world-class R&D team and the efficiency of that continuing innovation, that's a non-trivial exercise. This is not just something that, you know, continues to be exactly the same as we go through levels of scale. That continues to have to be adapted, restructured, rethought in a lot of different processes and human factors in terms of how we continue to make Atlassian a fantastic place for engineers to come and do the best work of their lives. That's obviously going to be a big part of Rajiv's goals over the next few years, is handling that scale and continuing to make that the case, as well as all the things that we are working on in terms of continuing to improve and deepen our cloud, enterprise compliance, scale performance, all of those types of things. So no shortage of challenges and growth opportunities ahead. And that's largely what we'll be working on continuing to bolster the identity of Atlassian Engineering as being world-class as we scale it to ever greater heights. I should also point out here is Pretty big shoes to fill, obviously, from Sri, who has taken us from 400-odd engineers to thousands and thousands of engineers, got us into the cloud, built a world-class cloud platform and scaled infrastructure, as well as built a fantastic leadership team. So, you know, Sri's leadership team remains in place. Rajiv has some pretty big shoes to fill to continue the great trajectory that Sri has set in motion.
spk02: We have your next question from Stephen Keeney with SMBC. Your line is open.
spk05: Hey, team. This is Owen Hayworth on for Steve. Thanks for taking my questions, and congrats on the next quarter.
spk08: I'm wondering if you can rank the buying motions for Jira Service Management at this stage today. Is it more of a greenfield, customers that don't have a service desk, or is it a line of business with an organization standing something up, maybe in tandem with their enterprise standard, or are organizations coming to you looking to make a larger-scale replacement?
spk05: And with that, to what extent are you getting into ServiceNow accounts, even when ServiceNow is already largely an enterprise standard? And if I can speak one quick one in, I believe Jira, Software Confluence, and Trello have been the most common LAN products today in the cloud. Is JSM trending up in the mix of LANs, or is it more commonly an expansion? Thanks so much.
spk11: This is Cameron. I think I can address all of that. So first off, Jira Service Management, who's buying it? You've got to think we're going with 40,000 customers. We have small customers, midsize, and large. On the small size, very much we're replacing – email and spreadsheets. It might be one or two people in IT. They're handling it via email. Then they need to get a little bit more mature. And actually, this is one of the great things. We offer three agents for free with Jira Service Management. So it's actually a great pipeline into those small businesses. You're a small business. You need an IT service management, IT help desk solution. You get a free one from us. And as you grow your IT department, you turn to paying customers. So that's what we'll replace on the very small size. In the mid-size, there's a variety of different vendors. or established different solutions out there. But we continue to see that with those organizations, the core value prop of, hey, these are your development teams, your engineers and your IT departments, your operators, your IT help desk people working closer together in the future. If so, they're looking to a single platform to solve the needs and connect those teams. And Jira Software and Jira Service Management is that kind of perfect unification for many of those midsize customers and very much a sweet spot at Atlassian. In the enterprise, our complete strategy, what we've seen, is very much go in there and knowing that most will have at least one or multiple different IT platforms that they're running. Our goal there is very much to leverage fine departments, teams, and so on that have bought into the fact that their engineering teams need to move nimbly with their IT organizations. We see different things like security teams or small subsidiaries in these large organizations, and we come in and we largely get small little beachheads where organizations want to move very, very quickly. From that, we absolutely start seeing when the big renewals come up for the big platforms, of which there are a few out there, we tend to increasingly have a seat at the table and have those conversations. Additionally, what Atlassian has been able to do over the last few years is outside of just beyond IT service management, is really establish our enterprise credibility. We have executive advisory boards. We have many CIO councils. So the good part is now those top leaders who are making those big platform decisions, we have relationships with, and they understand that this is very much an area that we can support for them going forward. So we're very much in the game and credible there. Granted, plenty of enterprise customers to go after. Your next question is, you know, which customers, which products are we landing with, which one are we expanding with? I'll be the one to say you called out very much the products we land with. And geo-service management, we are still very much going after the current existing customer base. But that said, it's not always the software development teams in the existing customer base. We need to find those IT departments or those IT use cases, and that's where we turn on a lot of the marketing machine to drive that awareness. But today we still very much consider Jira service management focused at our very large existing customer base.
spk02: We have your next question from Cash Ryington with Goldman Sachs. Your line is open.
spk04: Hello. Thank you very much. It's great to be a first-time participant on your earnings conference call. Congratulations on everything that you've accomplished. I'm curious to get your perspective on how the platform evolves Certainly there is a merit to be espoused in having the three pillars, your DevOps, ITS, and work management, be interconnected from a market perspective and also have a technology platform that brings it all together. At the same time, how do you weigh that against the innovation in each of these pockets still going through pretty rapid cycles? We've got best-of-breed companies that you probably run into or maybe don't. at the high end of these markets. So these markets are still going through a period of growth and not yet at maturity. So how do you trade off having to bring together these disparate markets and products under the cloud unification, which is a different challenge versus actually a horizontal challenge as opposed to vertically scaling these products and still keeping up with all the cutting-edge features? How do you weigh these two things? Because the market does not look like it has settled. It's entering a next generational shift if you will right and uh from a financial question uh james i know uh that this is probably the last couple of quarters or so as as the dust settles on the migration uh how do we think about the longer term structural growth of your end markets and athletes you know so thank you so much yeah hi cash welcome welcome to the investment call that uh the hell is that a question you got there um
spk08: Let me start with the platform and I'll leave James to answer the finance question in a second. I think, firstly, a few comments. Our platform enables us to be best of breed in each of our three markets and to do so efficiently. So we definitely don't think about ourselves as competing against best of breed. We are the best of breed in each of the markets that we participate in and intend to continue to be so. and the platform allows us to do that with efficiency and scale as well as preparing for the future so a few ways it does that we are able to be best of breed in itsm and in Agile DevOps because of the investments we make in the editor driven by the work mentioned for market as a singular example, right? Because we can afford to build an absolutely world-class text editing environment, which is a very non-trivial exercise, and then run that across a series of different markets. Now, a single competitor in a single market or single space can't afford to do that. You can look at that in reverse if you go to the bottom of the stack in terms of infrastructure, the same thing occurs in terms of compliance, enterprise, scale, The SaaS world is increasingly difficult as every geography around the world passes new laws and new rules about how data needs to be stored for certain industry types, et cetera. That's a very non-trivial exercise to serve those enterprise customers and different global geographic customers in different ways. uh putting all of that into the platform allows us to have that across all our markets and spaces allows point a products they're shipping in new and innovative areas to um to have all that enterprise and compliance support and similarly as the markets change we talked about the future our platform is a very long-term investment, not just because it takes a long time to build a really world-class platform, but as we look at the future, we believe there will be more compliance. We'll be there more. The Cambrian explosion of different SaaS apps, hence our focus on integration and bringing them together. Our platform is hard to build. It's also very hard to replicate. So we believe it's a huge competitive advantage in each of our spaces. as you've mentioned it obviously helps us bring the spaces together you can see that in our Atlassian data lake and Atlassian analytics tools that we shipped on top of the platform at team 22 enabling us to take data from disparate applications and bring them together for customers in a way that they couldn't have done beforehand and they can't do we're also focused on building out in the platform the stuff that doesn't change I think Jeff Bezos once famously said that he was more focused on the things that wouldn't change in 10 years than the things that would change. And it's a really interesting philosophy. What doesn't change is the collaboration. Teams and people are going to need to come together in each of these three markets to really be efficient. And that desire for efficiency in the corporate world is going to continue to go up. And so collaboration is going to become ever more important. A team anywhere in the world where people are distributed. Our collaboration tooling is largely built in the platform. So you can see this in commentary and reactions and sharing notifications and search and all the different bits and pieces of bringing data together connecting it linking it and then connecting with colleagues and people that collaboration thing built into the platform is a huge competitive advantage I believe for Atlassian in each of our markets and then even more so when you start putting the markets together collectively so We've tried to talk about this for many, many quarters. It's an area that I think is a huge strength of Atlassian, and you'll see us continue to invest in the platform going forward.
spk02: I'm showing no further questions at this time. Presenters, please continue for any closing remarks. Sorry, I think James is going to finish off.
spk07: Yeah, let me just jump in to add to that last question. Just very briefly, good to hear from you again, Cash. a number of things. In your question, you kind of alluded to the end of migrations, if you will. The first point I'd want to make is just to re-emphasize something that we mentioned earlier, is that, yes, the server customers will make their move in the next couple of years. But we're very encouraged by how many of the data center customers are going to continue to be moving to the cloud already, that third of migrations to the cloud coming from data center. Beyond that, more generally, we are addressing very large total addressable markets. We went into some detail at Analyst Day on this topic. And for the TAM that just represents our current products, That's of the scale of around $29 billion, well, less than 10% of that today. I think the theme of digital transformation is very real for companies all around the world, and we are exceptionally well-placed to continue to address customers' needs in this regard. We are going to invest so that we can drive more value for our customers in these different ways in which we're very well equipped to do. And that is going to help continue to spur our growth rate over the long run. We'll be disciplined about how we invest. We always are. But that will be an important theme for our growth rate. And then just the last thing I'd say is, The top of the Atlassian funnel, we talk about a net new customer count each quarter. It's always in the thousands of customers. And we land small and expand very significantly over time. And I think the net expansion rate number that we indicated at Invest Today three weeks ago of 130 percent, in fact, it's 140 percent for our larger customers, is just a great illustration of how We gradually get larger and larger in terms of what we do for our customers. And I think that altogether gives us a lot of runway for long-term growth.
spk02: I'm showing no further questions at this time. Presenters, please continue for any closing remarks.
spk08: I just want to thank everyone for joining our call today. I want to say a particular thanks to James Beer for his partnership over the last four, almost five years with Atlassian. And I could just, you know, congratulations on such an incredible career and wish you all the best in your retirement. And as always, like for everyone on the call, staff, partners, investors, everyone, I just want to say thank you for all your ongoing support and enjoy the rest of your week and your weekend.
spk02: ladies and gentlemen this concludes today's conference call thank you for your participation
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