Atlassian Corporation

Good afternoon and thank you for joining Atlassian's earnings conference call for the fourth quarter of fiscal year 2024. As a reminder, this conference call is being recorded and will be available for replay on the investor relations section of Atlassian's website following this call. I will now hand the call over to Martin Lamb, Atlassian's head of the investor relations.

Welcome to Atlassian's fourth quarter in fiscal year 2024 earnings call. Thank you for joining us today. On the call with me today, we have Atlassian's co-founders and co-CEOs, Mike Kennan-Brooks and Scott Farquhar and Chief Financial Officer Joe Binns. Earlier today, we published the shareholder letter and press release with our financial results and commentary for our fourth quarter fiscal year 2024. 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 sheets. 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 our time on Q&A. This call will include forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make. We should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent our management's beliefs and assumptions only as of the date such statements are made and we undertake 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 our business performance and financial results is included in filings we make with the Securities and Exchange Commission from time to time, including the section titled Risk Factors and our most recently filed annual quarterly reports. During today's call, we will also discuss non-GAAP financial metrics. These non-GAAP financial metrics are in addition to and are not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. The reconciliation between GAAP and non-GAAP financial measures is available in our shareholder letter, EARN's release, and investor data sheet on the investor relations website. We'd like to allow as many of you to participate in Q&A as possible. Out of respect for others on the call, we'll take one question at a time. With that, I'll turn the call

over to Mike for opening remarks. Thank you all for joining us today.

As you've already read in our shareholder letter, FY24 was an incredible year for Atlassian and we're proud of all we've accomplished in a challenging environment. We generated $4.4 billion in revenue, over $1.4 billion in free cash flow, and surpassed 300,000 customers. We continued our steady drumbeat of innovation in FY24, shipping Atlassian Intelligence, Compass, and virtual agents for Jira service management into general availability. We also welcomed Loom into the Atlassian family and introduced Rovo and announced an entirely new era for Jira. We closed out our three and a half year journey of winding down server and successfully migrated millions of users to cloud and data center. As we continue to partner deeper with our data center customers, they understand that cloud provides the ultimate Atlassian experience with the power of our unified platform and innovation such as analytics, automation, and AI. We've continued to deliver enterprise grade platform capabilities to this cloud by mocking data residency in six new regions, increasing the scalability for Jira to support up to 50,000 users on a single instance, and achieved FedRAMP in process designation, a critical milestone in supporting the US public sector in our Atlassian cloud. These and more are helping pave the way for some of our largest and most complex data center customers as they map out their journeys to cloud. We now have over 500 customers spending over $1 million annually. The progress we've made and the momentum we are seeing in the enterprise segment reinforces our conviction in our strategy to build and deliver solutions that help solve our customers toughest team collaboration challenges. We have a massive serviceable addressable market opportunity across our three customer markets, including a $14 billion revenue opportunity just within our existing customer base alone. And we are more excited than ever to seize this opportunity and accelerate our path to surpass $10 billion in annual revenue. Lastly, this is Scott's last earnings call. It is truly impossible to put into words the impact that Scott has had on me, on the thousands of employees, hundreds of thousands of customers, and Atlassian as a concept and as a company over the last 23 years. It's been an honor to lead Atlassian side by side with him over the last two decades, and I look forward to his many continued contributions to the company as a board member and in his special advisor role. Thank

you, Scott, and with that, I will turn it over to him. Thanks Mike.

I

look back on

the last 23 years with immense pride about what we've built at Atlassian. We've always believed that only through teamwork can we achieve the seemingly impossible. This is why we spent over two decades building products that enable our customers to do just that. Our products are powered teams at the forefront of innovation, from the companies leading the stage of space exploration to those developing ground-breaking medical discoveries that are saving lives. And it feels like we're only just getting started. Atlassian is incredibly well positioned to seize the massive opportunities in front of us across our three markets and an enterprise, AI, and of course delivering innovation across the entire product portfolio. I'm more bullish than ever about our strong position to grow and deliver our parallel value to our customers. Before I close out, I want to take a moment to thank every single Atlassian around the world, past and present. People say this place wouldn't be Atlassian without Mike or I, but the truth is Atlassian wouldn't be what it is today without each and every one of you. You drive our mission forward and your dedication and unwavering commitment inspire me and make me incredibly proud. I look forward to seeing Atlassian continue to pursue its mission of unleashing the potential of everything, albeit from a slightly different seat.

With that, I'll pass the call to the operator for Q&A.

We will now begin the question and answer session. If you have a question, please press star followed by the one on your phone. If you'd like to withdraw from the queue, please press star followed by the two. Your first question comes from Keith Weiss from Morgan Stanley. Please go ahead.

Excellent. Thank you guys for taking the question. And congratulations on a really remarkable career. It's been a real pleasure working with you over the years. So coming out of a real building year in FY24, the FY25 guidance for total revenue of 16% is disappointing to investors. We see that in the aftermarket reactions. But you guys remain confident in the longer term, 20% plus growth profile over the next three years. Can you help us bridge that equation? Where do you guys garner the confidence for like the 20% plus growth longer term? What are the parts of the equation that are going to turn on, if you will, as we go into FY26 and FY27 that we're not seeing today that give you guys the confidence to make that statement with today's results?

Thanks, Keith. This is Joe. I'll start and then I'll pass it over to Mike for more color. Despite the macroeconomic uncertainty and the execution risks related to the evolution of our go to market motion, we believe FY25 will set us up with a strong foundation to accelerate growth in FY26 and beyond. And keep in mind, mechanically, there are a number of difficult prior year comparables in FY25 with the end of server maintenance revenue and event driven purchasing around the server end of support. Longer term fundamental growth drivers for FY26 and beyond are very consistent with what we shared at investor day back in May. So it starts with the opportunities we have in our three large markets, those being software, service management, work management. Those are collectively growing at a solid double digit CAGR. We have a $67 billion addressable market opportunity with $14 billion of that in our existing enterprise customer base alone. And then from there, we can drive growth in several ways. We believe migrations from data center, given the size of the install base, will continue to be a driver of cloud revenue growth in FY25 and beyond. And we're investing and working hard to enable those customers to migrate to the cloud. In addition to migrations, we have paid seed expansion within existing customers as we move to enterprise and enable more wall to wall adoption. Then our opportunity to cross sell additional products like Jira Service Management, Jira Product Discovery, Compass, Loom and Rovo to our over 300,000 customers is another great opportunity. We have the ability to upsell to premium and enterprise additions to our products, which is another significant growth driver. And then there are other drivers in the model like pricing and new customer growth, which is not significant in the short term, but is a longer term growth driver. And then lastly, with AI, I'd say we believe we have a unique and differentiated position with data graphs around high value workloads. And there's a lot of long term opportunity in that space as well. So overall, we continue to expect to drive healthy revenue growth over the next three years in the cloud. And from a data center perspective, that customer base is primarily composed of large customers with very high logo retention. So growth from the customers that remain on data center will be driven by pricing and seed expansion and cross sell. So overall risks and tough comparables to navigate in the short term, but big opportunity and fundamental customer demand are there long term, particularly in the enterprise customer segment. As you can see in the momentum and traction we're getting there, we cited we have over 500,000 customers spending more than $1 million with us, which is up 48% year over year. So we feel really good about that. And then I just say overall, we remain confident as ever in our ability to deliver revenue growth in excess of 20% compounded annual growth rate over the next three

years. Mike? Look, I think Joe, Joe's answered that incredibly well,

Keith. The look, if I take his, he's nailed the math there, right? We are incredibly confident in our 20% figure we've given over the next three years and continue to be so today as we were at the investor day for all the reasons that he stated and how the math plays out. I will say from a qualitative point of view, the more customers I spend time with, the more confidence I have in that number from on the non math side, I suppose. Most of the large customers I speak to, in fact, all of the large customers I speak to would tell you that cloud is a when, not an ex for them. So that gap between the server migrations ending and the data center migrations, you know, picking up pace that we have high confidence that that will mature through in our engineering roadmap and in the deliveries we have in cloud and how that's resonating with the customers in the stories they tell. Secondly, increasingly, AI analytics and their platform are mentioned by those large customers as reasons for moving as well as our cloud delivery. So our proven ability to deliver, as we saw with FedRampian process this quarter, is resonating with those larger customers. As is the new products that Joe mentioned some of, so in Loon, Jiro product discovery, Rovo, Guard, Compass, we have the best slate of new products in the nascent phases that we've had with very high customer resonance when you do qualitative checks with customers. All of those exist in the cloud and all of those are going to drive that migration journey. Lastly, I have a huge confidence in our long-term ability to evolve and adapt as a business. We've shown that over more than two decades. We're in one of those adaption phases at the moment as we deal with the enterprise transition, I think, adroitly. And that evolution capability that the last thing has will continue as we help those largest customers to go increasingly -to-wall across their enterprises. So huge foolishness for me that will hit

those numbers that we've given out. Your next question comes from Michael Turin

from Wolfhawker. Please go ahead.

Hey, great. Thanks. I appreciate you taking the question. Objectively, 30-plus percent subscription revenue growth, 30-plus percent free cash flow margin. Not something we're seeing a lot of across software. But in the spirit of the question is, Joe, you guided cloud to 32 percent for Q4. The reported number came in at 31. So just hoping you can provide some context around what drove the Delta and Q4 and maybe just help us frame the approach to cloud guidance for fiscal 25. If there's anything additional you're taking into account, obviously a lot of moving pieces and factors to consider. So any compare and contrast with the approach to guidance here versus prior periods is helpful. Thank you.

Yep. Awesome. Thanks for the question. You're right. Revenue was up 31 percent year over year in the cloud in Q4. That was slightly below our guided range of 32 percent. The variance to our expectations there was driven by two factors. One is the timing of high touch enterprise deals, which landed later than expected in the quarter and slightly lower than expected revenue from data center migrations. So I'll take each one of those and dive in from a deal flip perspective. Deals closed and billings landed in the quarter just later than we expected. And that impacted revenue recognition. There were a couple of factors that drove that. The first is what I'd characterize as the evolution of our high touch go to market motions. We are driving larger, more complex deals that include more products and require more approvals. And in some cases, we're targeting large complex migrations. And all of that adds up to longer sales cycles than we anticipated. Second, we did. We'd always take a very disciplined and long term oriented approach as we think through pricing and concessions on these deals. So we're not deadline driven. We don't do anything unusual or natural with deal on economics to close a deal at a certain time. And we're willing to be patient and wait for the right deal for both the customer and for us. And that's what we did this quarter in terms of the migration. You know, overall migrations to cloud were slightly lower on an absolute basis in Q4 versus Q3. And you'd expect that following a catalyst like server and to support. With migrations from data centers slightly lower than our expectations, as you highlighted, the driver there is the complexity of these migrations. Data center customers are our largest customers with the most complex environments to migrate. It's very different from the one to two day migrations that we can do with our smaller customers. Further, many of these customers, when they do migrate, do so taking a hybrid approach over time. And then lastly, many of these data center customers recently migrated from servers. So there's going to be variability and the pace of these data center migrations quarter to quarter. And overall, our customers are clear that their ultimate destination is in the cloud, as Mike talked about. It's the best and most secure experience. And it's where all of our R&D and product innovations pointed so they can see the value we're delivering there and have a plan to get there. So it's just a question of what the timing looks like over the next several years. The last part of your question was on the approach to guidance in FY 25. And what I'd say here is we have taken a different approach to our guidance this year and that we have taken a more conservative and risk-adjusted view of our revenue outlook entering the year than we did a year ago. We believe this is prudent given two factors. First is the uncertainty we see in the macroeconomic environment. And second is execution risks related to the evolution and transformation of our enterprise -to-market motion. And so our guidance balances the trends we've seen over the last year with the uncertainty that is out there, whether it's macro-related or changes we're making inside the company. And it incorporates the assumption that macro gets worse and execution risks are realized to form a more risk-adjusted and prudent view entering the year than we did a year ago. So hopefully that color helps in terms of what we're thinking about

from a guidance perspective. Your next question comes from Ryan McWilliams from

Barclays. Please go ahead, Ryan.

Hey, guys. Thanks for the question. Maybe from Mike. We'll have to hear your thoughts on what's next for your -to-market organization alongside a new head of sales. Does it make sense to go out and also hire more seasoned enterprise sales reps into Atlassian? And how has the sales team so far transitioned from the migration opportunity into selling into more enterprises or selling new Atlassian products at this point?

Thanks. Yeah. Hi, Ryan. I can I can certainly talk to that. It's a great question. Maybe let me start from the higher

level. I think I would categorize this as another revolution in Atlassian -to-market motions overall. You've seen us do this before many times. And Atlassian is a pretty pretty proud history of adapting to the environment, adapting to technological advancements like AI, but also changing the way we service, support and make successful our customers. Our current -to-market motion engine is obviously highly successful. We have a highly effective flywheel that serves the SMB and our enterprise customers well, resulting in best in class efficiency and the financial profile that you're all aware of and has given us a huge volume of customers and an enviable margin and cash flow profile. We have made a series of evolutions in -to-market, I would say, over that 20 year period. When we introduced data center, we added enterprise advocates and obviously we've shown a history of building a significant business in the data center world. When we added cloud, we learned to sell and migrate and support customers in the cloud and built a very significant cloud business over time. You've seen us do that. And then more recently, as we added additions in premium and enterprise additions in the cloud, we've added the muscles to be able to upsell customers and explain the success of their moving. And we have proof points of that in a strong adoption of premium and enterprise. So a series of evolutions we've had over time gives us confidence that we can continue to evolve and adapt as we have done. As we've talked about the more than $14 billion revenue opportunity, our existing base, we spent a lot of time evolving R&D over the last three or four years to better serve the enterprises in the cloud. And we've got great proof points of delivery there. And now we're continuing to evolve our -to-market motion to sell, support and service those largest enterprises. As we said, we've got more than 500 customers that are spending north of a million dollars, and that's great. We think we can continue to grow that portion of the customer base strongly. And that evolution and that desire to keep changing and adapting and improving is one of the things that keeps it last in a very special place to work. I do think it's worth saying at the highest levels, too, it's important that what you can expect not to change in that evolution. First, I would say there is our discipline as a company. We've always prided ourselves on making economical decisions, understanding the deal economics in the enterprise as we do now better than ever before, and being continually capital efficient as we grow that, as you've seen us do. Secondly, the long-term focus doesn't change. Part of this evolution is looking forward multiple years and seeing how that enterprise part of our business is going to continue to grow and evolve and how we serve those largest of the Fortune 5000 with incredibly complex needs. And our opportunity to do so and to help them out in their businesses. And lastly is maintaining a flywheel of our primary land motion for all customers, right? From the SMB customers in the Fortune 500,000 to the enterprise customers in that Fortune 500 and Fortune 5000. I point out that this enterprise focus is additive, right? And our SMB and product-led growth motions are incredibly important and efficient and will remain so for the business as we keep evolving. Now to the second part of your question. Look, we will continue to focus on the talent levels experience we have as well as growing talent within our business. There are a lot of areas that we continue to grow as we strengthen our -to-market muscles to focus on the needs of our largest enterprise customers. We have a proven ability to manage multiple -to-market machines, I would say, and thread them together carefully. And I'm sure we'll continue to improve and grow that. But I'm really

excited about this evolution co-op. Thank you. The next question comes from Arjun

Bhatia from William Blair. Please go ahead.

Perfect. Thank you for taking the question here. If we can touch on the FedRAMP, the opportunity, it sounds like you're making progress there. I'm curious how long it might take before you can unlock some more federal deals in cloud. I assume you have a lot of existing federal customers on DC. Are those customers that you can start to migrate over the cloud or is there still a little bit of a process to play out before the buying cycle occurs here in calendar Q3?

Thank you. Hey, Arjun. I

can certainly take that. Look, there's no doubt we have a huge volume of very large government customers in data center. And I would also say we have a large number of customers who service government entities who are also in data center who may not necessarily be government entities themselves. But obviously in light of working with the government need FedRAMP or are easier for them to do businesses if they have FedRAMP capabilities. So it's not just about the government. It's the businesses around the government as well, which is a very large segment, as I'm sure you're aware. We have continued to work with a lot of those customers as we've developed our FedRAMP capabilities to keep them on the journey and aware of where we're at. And I will say our cloud roadmap delivery is a really important point there. The last couple of quarters, we've hit 100% of items on our roadmap at or before the time. And this resonates with customers. So you can look just as they can at our future cloud roadmap that is online to talk to compliance, to scale, to performance and to all the other things that we're building into that roadmap. We have a series of customer examples who have stated as they've moved to hybrid ELA, I can think of a very large global aerospace and defense company. It's a sort of 20 year customer of Atlassian that signed a hybrid ELA this quarter for the next couple of years and stated that FedRAMP and the inroads we've made in cloud security on the roadmap called out reasons as to why they signed such a deal and moved forward. So that gives us great confidence as we move to the in-process designation of FedRAMP, but also HIPAA and all the other compliance standards that we've shipped as well as data residency gives great confidence that we can move there. And obviously BYOK as well bring their own key encryption capabilities to this customer segment. I would say that for data center customers migrating, there's a multi-year journey for a lot of these very large customers. Again, the reason that that company signed a hybrid ELA is to enable them to start moving some workflows and loads to the cloud as the workflows and loads they have on premise will continue there. And they'll move into a hybrid state for probably a multi-year period before being entirely in cloud. And we want them to do that. Let them test and learn about cloud. It'll see the strength of cloud and they will move that over time. I think that's a pattern we'll see with a lot of these larger data center customers that can have tens, hundreds, sometimes even thousands of current and confidence service running across their enterprise. And of course, this is a huge ability. This latent demand for Atlassian products and latent demand for cloud, if you want to think about it that way, is a big strength of Atlassian as we look forward over the next few years. And I'm confident in our ability to unlock that and FedRAMP will be a huge unlock for our

government and government adjacent customers.

Your next question comes from DJ Hines from Kenacord. Go ahead.

Hey, guys. Thanks for taking the question. This is Luke on for DJ. So I was hoping to get some insight into the response you've received from customers since you've folded JWM and the JIRA. You know, just anything you've heard from both technical and non-technical teams regarding that change and whether it's been a positive from a marketing and messaging standpoint

in terms of driving interest across those two audiences. Look, certainly. Great question.

Look, I can say categorically it's been a positive from customers point of view. That one is a very, very easy answer. The system of work that Atlassian has continued to communicate and been sharper on over the last few quarters is very resonant with customers. The reason is a lot of our customers are incredibly technology driven companies. They realize that technology is their core competitive advantage going forward in their business, whether they're building cars or rockets or, you know, fantastical health care advancements or whether they're building databases, right? Whether a technical or non-technical company, they realize the technology is their core fundamental advantage. And in doing so, they realize that getting their technology teams to work closely to their business teams and to exchange data back and forth and to be able to work in a common set of tools and a common set of patterns is incredibly important for them to win in that technology driven era. That's one of the reasons why, although JIRA work management was doing incredibly well as a product and we were very bullish on it. We took the decision to merge the two into a single JIRA to allow technology and non-technology teams to work together. That has been incredibly well received by customers. It allows them to achieve those goals that they had. We have a series of stories where it also leads to two factors for Atlassian. Firstly, it allows the customer to consolidate on Atlassian off other work management tools because they have a singular cloud platform. And in the era where consolidation is incredibly important, that timing works very well for us and for them. We can talk to a company like Rivian that took five different work management tools and consolidate on the Atlassian cloud due to the combination of JIRA work management and JIRA software, saving them over two and a half million dollars annually and expanded their use cases for JIRA into many other business teams. And secondly, for Atlassian, it allows us to expand our seat count because the technology teams within an organization are a relatively small proportion, depending on the organization can be from five to 25 or 30 percent of an organization. The other 95 to 70 percent of the organization is business teams that still have workflows and project capabilities they need. And Rivian is a good example where we've seen that, where we've got both consolidation and seed expansion for Atlassian due to the system of work and the platform that underlies all of our products. So incredibly good customer reception from this move. And as we continue to do it, last year over the long term, it's about listening to customers and understanding what they need and trying to deliver that in our product portfolio, in our R&D, and also in our -to-market motions and how we explain to customers what it is that we do and

help them with. Your next question comes from Fatima Bulani from Citi. Please go ahead.

Hi, good afternoon. Thank you for taking my questions. Joe, this question is for you. Earlier, you were very explicit in the variables and assumptions you are taking into consideration for the cloud book of business for fiscal 25. And you need a specific reference to execution risks due to some of the enterprise -to-market motion changes that you're making. I was hoping we could go a couple of layers deeper into what specific variables or assumptions you're considering or flexing to kind of arrive at that conclusion and, you know, relatedly, you know, changes in the sales organization and kind of the departure of Kevin. How is that flowing downstream in the way you're thinking about productivity and quota attainment and things like that? I'd really appreciate some more granularity. Thank you.

Yeah, thanks for the question. I'll keep it at a fairly high level in terms of the execution risk we see in that transformation or evolution of our -to-market enterprise sales motion. As you pointed out, there is leadership transition there. And so that's always something you want to keep in the back of your mind as you think about forecasting over the next year. And then I would just say it's a nascent capability that we continue to build and develop over time. And we might piloted the fact we've been investing in a space. We have a foundation. But as we continue to make more and more progress, we're going to continue to evolve and build that. And whenever you're doing that, that involves risk, you know, in our execution against that level of change. So from a high level, those are the two big factors. And I'll let Mike

fill in the details. Yeah, look, Fatima, great question.

I want to I guess I want to start from my point of view, but nothing but gratitude and thanks for Kevin and the role he's played. He's been an incredibly dedicated leader of our sales function for a number of years, built an incredibly strong sales leadership team and has set up the foundation for us to make this this continued transformation and evolution. So just have to have to call him out with great thanks from from myself and from Scott in that in that context. As I said, we are searching for a transformation of zero. We can continue to drive that the next phase at ever increasing scale. That search is is well underway. And in the short term, look, I personally led and built the go to market engine we have today for our first 17 years. I guess, and continue to be incredibly heavily involved there and with the customers. I will say we have an incredibly strong executive team. I would argue the strongest we've ever had across the business. So incredibly, incredibly confident we can lead the business strongly through that that evolution. I think Joe has spoken well to the prudence of our guidance in light of this transformation, but more in light of the other things he's mentioned. The other factors that go into that there. And I think, you know, you've seen from us prudence and careful thought as well as hopefully openness and explanation about what it is that we are going through as we focus on the long term. And last year, I would reiterate our deep belief and confidence in that the 20% multi year revenue that we've given out at Invest Today. And we would maintain those targets both on the revenue side and on the return to historical operating

margin side. Your next question comes from Brent

from Jeffries. Please go ahead.

Thanks, Joe. As you know, the central question investors are asking us is the cloud guide and ultimately, you know, are you putting a little more conservatism into this forecast to give yourself more wiggle room? It's been a I know it's been a challenging thing to forecast given a lot of different factors. But is your approach change here? Is anything changed in the underlying assumptions to give investors more confidence that they can they can really believe in that number? The second one was just to follow up on, you know, two months ago, you got a 20% top line, your guidance 16. Should we think differently now about the long term growth or is this more of a tactical pit stop and you still believe in 20 over a period of time? Thanks.

Yeah, Brent, thanks for the question. In terms of the revenue guidance, I'll just reiterate what I said earlier in terms of our approach. We are taking a different approach to our guidance this year. It is a more conservative and risk adjusted approach. And the reason and the drivers for that are, you know, the risks and uncertainties that we talked about. One is we see uncertainty in the macro economic environment. And second, the question earlier, you know, we do see execution risk related to the evolution and transformation that we're undergoing on the go to market side. So so we've taken all of that into account. And the net result of that is we have a more risk adjusted and proven view this year going into the year than we did last year. So we have adjusted slightly to that in terms of the cloud revenue and revenue overall. We are still committed to a three, three, three year, 20% plus compounded annual growth rate on revenue. We talked earlier about the drivers on that. Nothing has changed in the last three months since investor day when we made that. We continue to reiterate our confidence around that. And we talked earlier on the call about the drivers behind that.

Your next question comes

from Alex from Wolf Research. Please go ahead.

Yeah, hey, guys, I think maybe it would be helpful to just unpack kind of similar to how you at least commented in the letter on the margin side around the headwinds that investors should or the tailwinds that investors should recall that were one time in nature on operating margins and fiscal 24, such that. Ex that the fiscal 25 margin guide is actually flat similar to that framing if it's possible just to understand if you look at the guide that you gave for 16% total revenue growth, but that's in light of these one time tailwinds of end of server conversion. Because I think if if I adjust for that, the guides actually closer to 19 to just help us frame that because that's obviously not going to recur. And presumably it appears from your commentary that the guidance is more incorporating timing of certain deals closing on the enterprise side, maybe migrations on the enterprise side. That's informing the conservatism, but just maybe help maybe help better understand that a little bit.

Yeah, this is Joe. I'll take a shot at that. I think first of all, you started from an operating margin perspective. And what are the factors there that are driving the lower year over your operating margin? As you point out, we expect our non gap operating margin to be 21 and a half percent approximately in FY 25. That's about 200 basis points lower than FY 24. Keep in mind, as you pointed out, our FY 24 non gap operating margin benefited from the significant outperformance in data center and marketplace revenue related to server and to support in H2. That impact was about 200 basis points. And so when you normalize for that impact, our FY 25 operating margins will be roughly flat year over year. In terms of the cloud revenue deceleration and the comps there, you know, we do believe, you know, cloud revenue growth will decelerate in FY 25. And the primary drivers, we expect less contributions from server migrations now that we're past server and to support. And while data center migrations will increase, they won't make up for the decrease in server migrations, given the migration path for many of those customers, as we've talked about earlier, will play out over a multi year period with many involving hybrid deployments. We've also incorporated, as you pointed out, prudent assumptions to account for the impact of worsening macroeconomic environments and execution risks in our enterprise go to market motions. So those are some of the factors that are driving that year over year decel and cloud revenue. Now, having said that, as we pointed out on the call, we remain optimistic long term and expect cloud revenue growth to accelerate in FY 26 as we lap the drag from server and to support and drive improving seed expansion, cross sell of additional products and upsell to premium enterprise editions of our products that we

talked about earlier. Your next question comes from Greg Muskowitz from the zoo. Please go

ahead. Okay, thank you for taking the question. I had a follow up on a couple of the go to market questions from earlier. Mike, you're looking, as you said, for a new CRO with expertise in leading enterprise transformation. But how do you define enterprise sales transformation? And more specifically, how much do you foresee your go to market changing at Atlassian, both in fiscal 25 as well as over the

longer term? Hey, Greg. How

much is an interesting question. Look, I would say that we are continue to be a very long term thinking company. And what I say that I mean, you know, at Invest Today, we talked about our R&D spend as a percentage of revenue moderating when we gave our long term targets. And our sales and marketing spend increasing from roughly that sort of 15, 16 percent range, you know, moving north of that. So you can see implied in that that there'll be increasing spending, but I would argue in a cautious and careful way. And we're very good at the capital efficiency, the calculation of where the ROI on that spend is. And it's a relatively moderate increase in spending, especially when you compare it to our constant and market and other companies, right? We'll still be after that transition, comparatively efficient on sales and marketing to most other software companies and still comparatively high spending on R&D because we believe that that's where our fundamental advantages are. So think about this as an evolution and an adjustment in that in that manner. Now, the transformation is about how we continue to take those 500 customers spending more than a million dollars and the huge light and demand we have in data center and increasingly build deep partnerships with some of our largest customers in how we are helping them transform their businesses. This is a part of our evolution, right? I've talked about when, you know, 15, 17 years ago when we started the data center business, we were talking about moving $5,000 customers to be $50,000 customers. Now, we're a long way from that nowadays, but this is something that we are familiar with. It is a history of evolution that we've had, and I think it's a very, you know, smart example of how Atlassian continues to evolve through the years in ways that benefit our customers. In this case, we're looking at our largest customers that are, you know, when you speak to them, they're betting incredibly hard on Atlassian. They think that we are transforming the way that their company works. They want to roll out to ever increasing numbers of scale, and they want to understand the philosophies of how we work together and build a partnership across our portfolio products. And that's what we mean by that enterprise transformation and how we sell, support, and ultimately make successful those largest customers. Lastly, I will point out that we believe this is additive to our model, not a swap or a switch. We have a great capital-efficient flywheel in the product-led growth motion that we have at landing large numbers of SMB customers, but also landing in those enterprise customers, which is what makes that enterprise motion more efficient for us than other companies. So they

work together in harmony. Your next question comes from Kashran Gan from

Goldman Sachs. Please go ahead.

Hi, thank you very much. So, Mike, a question for you with these transitions can be very hard. Certainly the goal is to come out more successful as a company. Clearly you're on the way. As you come out of the transition, what are the lessons learned and how can there be further tweaks to the product strategy, go to market? I guess we all learn from the most difficult, challenging times and we come out mostly ahead. So what are the things that you have learned that you're going to adopt to the strategy company going forward? Also, from a bandwidth perspective, you're in an unenviable position. You're now twice the CEO that you were before, with Scott, of course, he's on the board now. And then you're looking for a CEO. These are some big shoes to fill. You talked about Joe very eloquently talked about the watt, how the different levers exist in place to get the company to potentially accelerate. And one of the very first questions I had, I'm more curious about the how you get there. What are the things that are being done internally, differently? I know it's a long, rambling, complicated question, but I just wanted to hear you out a little bit more in depth as you start through all this stuff. Thank you so much.

Sure, Tash. I'm guessing I'm going to take that one. Look, I'll say a few things. Firstly, I think I would start with saying we have an

incredibly strong executive team. So a lot of the implication in the question is this is all going to fall on my shoulders and there's no doubt ultimate accountability does. I'm very comfortable with that. But at a high level, we have a great executive team. We have a great South leadership team at the moment, and we're well familiar with this evolution and transformation motion and having it play out over the quarters and the years. This is not something that starts on July 1 of this of this quarter. This is something that's been going for a while. As you can see, with more than 500 customers, not a million dollars. This is not an entirely new motion for us. This is an evolution. There's nothing broken here, right? We're just continuing to improve and grow and stretch as we have done for a long time. The mixed shift of being more and more additive in the enterprise, as we said, have come on the back of a huge amount of R&D investment into everything from data residency and BYOK to scale in the cloud to FedRAMP. And now we believe we have the opportunity to increase our footprint in that enterprise customer base in all of our customer markets, I would say, from software teams and in ITSM. You've seen how strong was your service manager of businesses at the moment and through work management and collaboration as the system of work rolls out, we get a high footprint. So I think we feel the opportunity is there and we're going to go after that. I think when you talk about what lessons have we learned, look, we continue to see great sales execution as we go through. Team 24 was a huge event for us in terms of a lot of things, product launches, but also in terms of pipeline builds. It was our largest enterprise event we've ever held and the confidence that comes from those customers often informs us in making these these evolutions and movements. I would say that strength as a company has always been our ability to learn and evolve. I'm less worried about personal workload and personal bandwidth than looking at the team of, you know, 10 odd people we have on the executive team, I guess you'd say, and then through the thousand leaders we have through the business and the 12,000 or more Atlassian staff and our ability as a collective to go after this mission. I feel incredibly confident that we can we can get

after that and do that and that's what we intend to go to. Your next question comes from Nick Altman from Scotiabank. Please go ahead.

Hey guys, this is John Gomez on for Nick Altman. Thanks for taking my question. You guys outlined some interesting examples at the analyst day in terms of the product adjacencies with Loom and the core. So now that Loom has been part of Atlassian for a couple of quarters now, can you give us a better sense of cross selling traction there? And as it pertains to FY25, do you have any goalposts for how we should be thinking about the Loom contribution?

Thanks for the question.

I'll take the first part of that and then Mike will follow on. You asked about the FY25 impact that Loom will have within our overall revenue and operating margin guidance for FY25. We expect Loom to have about one and a half to two points of impact on FY25 cloud revenue growth for the year. And consistent with our prior expectations, we expect Loom to be slightly dilutive to FY25 operating margins. And I'll turn

over to Mike on the cross sell. I would say a few things on Loom. Firstly,

what an incredible product. The customer reception, I would start there, is fantastic. It is saving our customers a lot of time at meetings. It's just a fantastic way to communicate. If any of you haven't tried it, I would encourage you to do so. We truly believe it can be transformational to the way that organizations work, the way that they work through video in an asynchronous manner in an increasingly distributed workplace that we live in. So bullishness of the product and the product sector is still increasingly, is still very high. Secondly, as a product, it continues to sell very strongly independently of Atlassian. And that's always the first step. I would say we've added a smaller amount of top spin to the business in terms of how it actually sells. And Loom AI continues to sell and drive a change in Loom in and of itself as an ability to edit video just as you would edit a text document. It rings true both with customers and also in the delivery of the product. We are continuing to integrate Loom into our business practices as we do. So into the Atlassian Cloud Platform, into a broader sales and marketing execution machine. That integration does take some time. We get better at it with each evolution. But there's sort of a two stream effect there. One is the product continuing independently to sell strongly by itself. And secondly, is the integration into our broader platform and the role it plays in the system of work. Maybe lastly, I would say that the team, the Loom team that's joined us and the additional Loom mates we've added to that continue to deliver a very strong product roadmap. If you look at the recent launches in Loom around integrations with Durham Confluence, but also in Loom AI's queue and continuing to work on how you can just seamlessly edit video. I think the product delivery there is going to continue to be important as we build

the momentum in the Loom business. Your next question comes from

Kate Bachman from VMI. Please go ahead, Kate.

Hi, many thanks for the question. Joe, I want to direct this to you. I appreciate your comments on being a bit more conservative on the outlook. And I wanted to tie that to some of the conversations we had in Vegas, and particularly as we think about the outlook for the year in cloud and data center. How are you thinking about two variables that would contribute amongst others, but in particular as it relates to seats and pricing? How are you thinking about what the contribution from those in order to realize the targets that you've laid out for the year?

Yeah, thanks for the thanks for the question, Keith. From a paid seat expansion perspective, our expansion rates in Q4 were consistent to Q3. That's an encouraging sign, but one data point is not a trend to make. And so we are assuming that we'll see continued pressure in paid seat expansion in FY25. And that speaks to the risk adjusted approach we took around macroeconomic. In terms of pricing, we continue to expect to have pricing increases throughout the year. That will be a driver of cloud revenue growth as it has been in FY24 and prior. And so you should expect to see a similar impact in FY25 going

forward. Thank you.

That's all the questions we have time for today. I will now turn the call over to Mike for closing remarks.

Thanks, everyone, for joining the call today.

Appreciate all of your thoughtful questions and continued support. I guess I just want to add a small note on a personal level at the end here. It is Scott's last earnings call and you've all sped in some questions today, which I'm sure he's very grateful for. One of, you know, when Scott sits down with graduates, when they join Atlassian or with any new staff members, one of the things he said for more than two decades now is that the one thing he wants to leave them with is that they should leave Atlassian a better place than they found it. They should not treat it as a finished object, but rather a continued construction project that gets better and better. And that if they leave the company better than they found it, that's the only thing they walk away with that we will all benefit. And I say that because I think if there's one person who's left Atlassian better than he found it, it is Scott. And on behalf of the leadership team of the 12,000 current Atlassians and the 20 odd thousand, I don't even know how many Atlassians there are past and present add together. We all owe him a huge debt of gratitude and thanks for for leaving Atlassian better than he found it is is an underestimation, but just a magical place to work and a fantastic and different company. And for me personally and from everybody else, thank you, Scott, for everything you've done to contribute to the business we have today and the place we all lucky enough to get to work every day. And for a long time to come. So thank you very much for me. We love you a lot and we wish you the best in all future endeavors. With that, have a great day, everyone, and have a kick ass weekend.