Atlassian Corp (TEAM) 2021 Q1 法說會逐字稿

Good afternoon, and thank you for joining Atlassian's earnings conference call for the first quarter of fiscal 2021.

As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Atlassian's website following this call.

I will now hand the call over to Matt Sonefeldt, Atlassian's Head of Investor Relations.

Please go ahead.

Good afternoon, and welcome to our Q1 Fiscal 2021 Earnings Call.

Thank you for joining us today.

On the call today, we have Atlassian's co-founders and co-CEOs, Scott Farquhar and Mike Cannon-Brookes; and our Chief Financial Officer, James Beer.

Earlier today, we issued a press release and a shareholder letter with our financial results and commentary for our first quarter of fiscal 2021.

These items were also posted on the Investor Relations section of our website.

On our IR site, we have also posted a supplemental datasheet.

During the call, we'll make brief opening remarks and then spend the remainder of time on Q&A.

This call will include forward-looking statements.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events.

Forward-looking statements represent our management's beliefs and assumptions only as of the date such statements are made, and we disclaim any obligation to update or revise them should they change or cease to be up to date.

Further information on these and other factors that could affect 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.

In addition, during today's call, we will discuss non-IFRS financial measures.

These non-IFRS financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with IFRS.

There are a number of limitations related to the use of these non-IFRS financial measures versus their nearest IFRS equivalents, and they may be different from non-IFRS and non-GAAP measures used by other companies.

A reconciliation between IFRS and non-IFRS financial measures is available in our earnings release, our shareholder letter and our updated investor sheet on the IR website.

During Q&A, please ask your full question upfront so that we can easily move through to the next speaker.

Also, please be patient if we encounter any disruptions or challenges.

Lastly, we've announced 2 additional items in conjunction with our financials results this quarter.

First, we filed a Form 6-K announcing the successful close of a $1 billion senior unsecured delayed draw term loan and a $500 million senior unsecured revolving credit facility.

Second, we've announced that we will host a fiscal '21 Virtual Investor Day on Tuesday, November 17, at 2:00 p.m.

Pacific Time.

You'll be able to RSVP for that over the next 24 hours through our IR website.

We hope to see you there.

With that, I'll turn the call to Mike for opening remarks.

Thank you, everyone, for joining today and for your continued support.

We hope you and your loved ones are healthy during what continues to be a dynamic time for everyone, including our customers, partners and employees.

We hope you've taken the time to read the shareholder letter.

This quarter, we've been transparent in describing the many different long-term initiatives that we're focused on as a company.

This includes our recent announcement focused on migrating our customers from server products to the cloud.

In Q1, we posted strong results, adding over 8,600 net new customers; generated $460 million in revenue, up 26% year-over-year; and realizing solid non-IFRS profitability of $61 million in free cash flow.

We scored several product wins as well, including achieving FedRAMP certification for Trello Enterprise, strengthening our partnership with Slack, launching Atlassian Ventures, closing -- and closing the Mindville acquisition, which accelerates our ability to offer customers a comprehensive ITSM experience.

Looking forward to the rest of fiscal 2021, we will continue to focus on playing offense for the long term.

All of our choices and actions focus on making our customers successful to drive us through $5 billion and beyond.

Before we move to Q&A, Scott and I both want to thank our employees, who continue to be an inspiration for us in these challenging times.

Thank you for sharing your passion with our customers, especially as they move to the cloud.

You make unleashing the potential of all teams possible.

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

(Operator Instructions) Your first question comes from the line of Michael Turrin from Wells Fargo.

On the cloud migration, I'm sure there will be a number of questions on it.

Obviously, super early and appreciate there's an Investor Day upcoming, which we're certainly all looking forward to.

But any initial feedback you've gathered from customers and partners early on to share?

And I think it's questionably the right strategic decision.

But in terms of the risks to be aware of, how do you think about the potential friction a hard and fast time line can add to the equation?

And you mentioned some of this in the letter as well, but can you talk through some of the steps you're taking to help ensure this transition's as frictionless as possible?

Sure, [Michael.

I can quickly address that].

This is Mike.

Can you hear me?

This is Mike.

We could hear you now, Mike.

[You were on mute.

I think you...]

Sorry.

Apologies for that.

As I was saying beforehand, which you missed because I was on mute, the customer feedback has been largely as we expected.

So we've had the expected range of responses.

I would say our customer base has been awesome at coming to us with questions.

We've given a long time frame here, so there's multiple years.

So when you sit down with the customers and explain how you've got years here to make a decision, this is a 3-year end-of-life time frame, and there are a lot of options for you.

Our teams have done an amazing job with content to help our customers through that journey.

So we've got, I think, 10 or 12 different language translations.

There's 1 million-plus words of content out there, which I'm told is longer than the entire Harry Potter series.

So this has really been an all-company effort to make sure that this is handled well with a customer-first lens and tries to be as clear and empathetic to customers as possible as we move through that.

Obviously, as we discussed in Q4, we think we're ready to make this transition.

It's been a long-term journey we've been working on for a long time.

And this is just the next step on that journey, particularly.

We've had more than a decade-long history now of building cloud products and a multiyear investment in our cloud platform.

And we really believe, as we show from more than 95% of new customers choosing today, we're at the right particular time to move our customers across.

But necessarily, this is an announcement that for some customers is a little interesting to receive, and I think the teams have done a fantastic job, and we will succeed in guiding everyone through that over time.

Your next question comes from the line of Keith Weiss from Morgan Stanley.

Really nice quarter, this quarter, in terms of the new customer adds.

I don't think we've seen a number that strong in quite some time.

Two questions -- well, one question on that.

In the letter, it sounds like you guys don't expect that level of customer gains to maintain on a go-forward basis.

If we talk about why not, like sort of what is going to bring those back down on a go-forward basis?

And then maybe one for James.

On the guidance for the full year and the slowing down, it seems to assume that like the subscription line is going to have to slow down for the remainder of the year.

Like, I get what's going on with license.

I get what's going on with maintenance in the marketplace.

I don't quite get kind of what the pressures are on subscriptions.

Can you dig into that a little bit for us and sort of why the shift towards cloud doesn't have a more immediate positive impact, at least on the subscription line?

Yes.

Keith, I can take both of those.

So first of all, on the customer adds, yes, we were very pleased with that figure.

A couple of things, though, that I think probably did help it somewhat in this quarter.

First of all, you'll recall that in Q4, we had a relatively low customer add number.

And what we talked about there was COVID-related churn effects impacting some of our cloud customers in particular.

And I think part of what we've seen here is, in essence, a little bit of a pull-forward of that churn from Q1 into Q4 as those customers were experiencing obviously very tough macroeconomic-type conditions.

And so I think some of those who perhaps might have churned in Q1 under normal circumstances ended up churning earlier in Q4.

The other thing I'd point to is that we obviously, as you know, have really established free versions of Jira Software, Confluence and Jira Service Desk in the market now.

And as a result of doing that, we've curtailed our cloud starter offering.

And so for those folks, we've seen a nice portion of them moving up to a full standard cloud license and, therefore, being counted in our definition of a customer.

So both of those things -- wouldn't expect those to be recurring necessarily in the coming quarters.

But certainly, yes, we're very pleased with that customer number.

It's a nice illustration of the power of our land and expand model.

To the revenue picture, a few thoughts on this one.

During this next phase of the cloud transition, we've really given our 30,000-or-so server customers the control to pick their migration path and the timing of that move.

And so this will introduce a degree of variability into our financial model likely over the coming handful or so of quarters.

And so given this variability, we wanted to provide everyone with something of a framework as you consider our revenue growth during this transitional period.

And I think of that framework as having 5 themes to it that we've really generally discussed with you previously.

First of all, consider COVID-19 and the resulting challenging macroeconomic environment that that's created for our customers.

Q1 in this regard was quite encouraging versus Q4 of the last fiscal years in terms of the figures.

And based on what we've seen in Q2 in those numbers so far, we continue to be encouraged.

And so we're assuming that this headwind diminishes steadily but will still be a factor in our revenue results, including the subscription line, in particular.

Because we've seen obviously our smaller customers generally use our cloud products, we would see that being sort of factor over the next handful of quarters or so.

But that said, as you know, we are seeing COVID-19 cases continue to grow around certainly Europe and the Americas.

So we're remaining watchful of any billing impact on our financials from impacted industries or some of our small, medium-sized business customers.

The second point, as we've discussed before, we've very much taken the stance of investing through this challenging macroeconomic period for our customers with very much the strong belief that, that will drive long-term competitive advantage for us.

And a good example of that investment focus, which is really a consistent theme right across these next 4 drivers that I'll mention, was the broad rollout of those 3 versions of Jira Software, Confluence and Jira Service Desk.

We've been very pleased with the resulting expansion at the top of the marketing funnel, and that's going to create an excellent source of new customers for us over the long term.

But in the short term, this will create a revenue headwind that we expect will moderate in the next year or so.

Third, we've also talked about another investment that we've been making in this macroeconomic environment, and that is to drive less FY '21 revenue growth from the price increases than was the case in fiscal '20.

Now the server and data center price changes that we announced just recently will largely benefit FY '22 and beyond.

So we expect the FY '21 pricing-related growth headwind to neutralize in the coming quarters.

Fourth, as we discussed 90 days ago, we expect our server business will decline, especially now given the end-of-life announcement.

And specifically, the FY '21 licensed revenue line, we expect to be down around 50%, 5-0 percent, year-over-year.

And the maintenance revenue line will be approximately flat year-over-year in FY '21 as our server customers gradually migrate.

And we expect a similar effect on our server apps business, which we account for in the other revenue line.

Based on our recent announcement, we would expect license revenue to trend down towards 0 in the next 1.5 years or so and the significantly larger maintenance revenue line to do the same over approximately the next 3.5 years.

And then the fifth point is that while we're excited by the long-term benefits of the cloud for both our customers and Atlassian, we're again taking a very customer-focused approach to gradually phasing in these benefits to our financials.

So for example, the larger customers will offer material discounts to our cloudless prices for a multiyear period depending on the timing of the customers' move to the cloud.

And this approach will bring gradually growing revenue benefits as those discount levels subside over the coming 3-or-so years.

And then for smaller customers making that transition, we've really designed the server and cloud economics to be somewhat similar.

So as these customers grow in the cloud, they'll, of course, enjoy more of the benefits of our cloud offerings and will share in that additional value creation.

So the net of all of that -- I realize that's quite a mouthful.

The net of all of that, I would say, is that revenue generation will be driven in part by the timing of customers electing to migrate.

I would expect beneficial migration revenue effects to gradually build over time especially as our larger customers increasingly migrate to the cloud in the coming years.

And my current expectation is that our revenue growth rate would begin improving beyond the next year or so.

So that's probably a little more color than you're expecting, Keith, but I wanted to really get that out there.

That was a robust answer.

One quick follow-up.

When you guys are thinking about license revenues basically getting cut in half or down 50% year-on-year, does that include an assumption of any potential pull-forward by the server customers to try to like top up on server licenses in the near term?

Or do you not think that's going to happen?

Well, I think there will be some pull-forward activity.

As in previous years, we're giving customers time to think about how to step in front of those price increases that come into effect on this coming February 2. So yes, in our modeling, we do try to predict some amount of that pull-forward.

But that's always a challenging exercise.

And I'd say it's more difficult this year because, this time, we've actually announced the end-of-life of server.

So how customers will adjust in their pull-forward activity to that really remains to be seen over the next several weeks.

Your next question comes from the line of Walter Pritchard from Citi.

Just to build on the last one.

We talked a lot about server, and that's pretty clear with the end-of-life and so forth.

Around data center, how are you expecting that the news that you put out around server will impact the larger customers who are on data centers who may look at this move and say data center's next, and that's just the path that Atlassian is going with the innovation is and so forth in cloud.

Do you expect, even though it's not a direct announcement there, that you'll have sort of induced a behavior change there as well?

Yes.

Scott here.

I'll take that.

Look, I mean, what we've said for our customers is some of our largest customers are choosing to remain on data center because they have a longer time frame that they want to migrate, and we're continuing to invest in our data center product.

Just a reminder for some of those who haven't read all the announcements, we end-of-life our server product, but our data center product continues to be something Atlassian builds upon and supports and continues to invest in.

Now that said, I have talked to a whole number of CIOs over the last 3 months from everything from regulated industries, banks, European customers.

And every single one of those CIOs have a plan to move to our cloud.

They are -- and whether they're in a regulated industry or a European customer, and it's just a matter of when.

And so our data center product is going to be critical in making sure those customers are supported over the time frame for migration.

But we expect that all our customers will migrate to cloud over the medium term.

Your next question comes from the line of Gregg Moskowitz from Mizuho.

James, I wanted to circle back, I guess, on fiscal '22 because, clearly, there are some puts and takes, and you alluded to some of them.

But I guess as I think about it, on one hand, there will be an additional loss of perpetual license revenue.

There will be significant ongoing migration incentives.

But on the other hand, you're going to get more benefit from the upcoming price increases, more conversions from free to paid and the loyalty discounts in year 2 for large customers naturally won't be as significant.

Now in the shareholder letter, you said that fiscal '22 will also be negatively impacted by all of the changes that you've recently made.

But just to be clear on this point, any revenue headwinds will be greater in fiscal '21 than fiscal '22, correct?

Well, what I was chatting about there, Gregg, as I kind of walked through that 5-point framework with the different time frames that I feel that will be relevant for each of those factors as you framed there in the question, you've got a lot of moving parts.

I'd say the net of all of this is that the revenue growth rate would begin improving again beyond the next year or so.

So in the letter, we used similar words in my section, but that's how I think you should consider the trajectory of the revenue growth rate pattern.

Okay.

That's helpful.

And then just a quick follow-up.

There was a comment that the current expectation is that there will be lower take rates on the sales of cloud apps through the Atlassian Marketplace, I suppose, over the rest of the year or for the near-term anyway.

I'm just kind of wondering why that would be the case.

Yes.

There, we're just very much looking to continue to provide rich incentives for our app ecosystem partners to build more cloud apps and have them be in our marketplace.

Obviously, that marketplace started out life many years ago as a server-based marketplace.

More recently within the last 1.5 years or so, we've really focused on expanding the data center apps as well.

And with this very clear focus we have as a company now on the cloud transition, obviously, we want to make sure that our customers can gain access to the same sort of functionality that they really benefit from in the current apps behind the firewall available in the cloud as well.

So we just want to make sure that the financial incentives for our app developers line up with that.

And as we mentioned in the letter, we've designed those as temporary incentives.

Your next question comes from the line of Alex Kurtz from KeyBanc Capital Markets.

I just want to round back to the blog post that you put out a couple of weeks ago about the changing in the server pricing, but you also have a comment on the blog post around future cloud pricing.

I know today, in the shareholder letter

(technical difficulty)

blog post, which seems to imply that the customers in the advantaged pricing program might eventually be moved up to list price.

So maybe just help me navigate that and what that can mean for a potential cloud price increase for those cloud customers.

This is James.

I'll take a crack at that, Alex.

But you broke up there in the middle part of your question, so you can steer me if I'm not answering.

Sorry about that.

But in terms of what we've talked about in that blog post a couple of weeks ago, yes, we are raising prices effective February 2 for our server and data center products.

And we note in the shareholder letter that while, yes, you've got to be very thoughtful about user tiers and product combinations for specific price outcomes -- if you're a customer, directionally, from a modeling perspective, they equate to about 15% increases year-over-year -- we're very explicitly not raising cloud prices this year versus the case where we have done that in whole or in part in previous years.

And in terms of your reference to advantaged pricing, yes, there were some price lists for current customers.

When we've rolled some of these price increases through, we've always wanted to be thoughtful about the degree of change that the customer is taking on in terms of price.

And so in each of these situations, the end result is list price.

But it just takes longer than just an immediate step function up to the new list price, just reflective of people -- customers' current budgets and those sorts of things.

So does that get at what you are asking?

Yes, it does.

So just to be clear, the advantaged pricing plan is probably for a very small subsegment of your cloud customers.

Yes.

So the advantaged cloud customers were those, you may recall a year ago, for the higher user tier part of our cloud pricing structure.

So certainly, a year ago, we had relatively few customers in that part of our customer base.

And yes, we moved prices up for those higher cloud tiers.

So for those customers who had gone early to the larger-scale end of the cloud, we're giving them more time to come up to list.

Yes, that's a relatively small proportion of the overall cloud user base.

Alex, this is Scott Farquhar here.

I'm just going to chime in and add to James.

Like, that's a great question on the details.

But philosophically, we want to get our customers to the cloud.

When I talk to companies big and small, they want to move across to the cloud.

We know that over time, because we solve a lot more problems for them and take a lot of the management overhead from them, the scalability issue, the hardware costs, because we do all that on the behalf, they're willing to pay larger -- higher prices in order for us to get it for them.

And the cost savings are significant.

In many cases, people -- if you have a team of 5 or 6 people, managing our products when you're managing yourself, that's down -- we have a case study where that's down to under a person now.

And so those cost savings, we can capture some of that.

The aim is, in the short term, though, to make it an absolutely easy decision for people to move across without trying to get [into these] discussions in their organization.

It's like let's just move across, and we try to make the cost and price relatively the same in the sort of first year of transfer and, over time, step them back up and capture sort of more of the value that we're providing for them.

So really, there's a lot of ways we could have sliced it differently.

And we think this one is very customer friendly.

And we've always thought about the long-term customer relationships we have from partner level and all the way up to CIOs of very large organizations.

We want to have very great relationships as we provide more and more products for them and we sell them more things.

But also that we [want to do this as quick as] possible without any sort of [price barrier being] something in the way.

So that's sort of the philosophy behind it.

Your next question comes from the line of Ittai Kidron from Oppenheimer.

Leaving the cloud on the side for a second.

Scott and Mike, maybe you can talk about Trello and the work management space.

Maybe you could talk about progress over there.

And maybe fine-tune the kind of differentiation over there.

Now that Asana is public, how do you see the landscape?

How do you see your competitive positioning there and opportunities ahead?

And then for James, just kind of following up on the data center side of the equation.

Correct me if I'm wrong, that is a term business, so that shows up in subscription revenue.

But can you tell us the magnitude?

How much of your subscription revenue is tied to on-premise, not to cloud?

Perhaps, number of customers.

I think you talked about 30,000 enterprise customers.

What will be the count on the data center side?

Sure.

This is Mike.

Look, on the work management side, I can give you some color.

It wasn't a specific question, I suppose.

Obviously, look, you saw us in the quarter on specifics.

We got support for Trello in FedRAMP for obvious reasons that Trello's doing well in the government sector and continues to grow there.

I'd say the broader story there is Trello in the enterprise and, as the extremely large Trello user base continues to grow apace, how that is starting to get into larger organizations, like the government, obviously, indicated from that.

At the same time, Trello continues to sort of broaden the appeal of its product.

So you've seen us do a lot of work with what we call Trello views, so changing the way you see the data that's inside Trello and also embedding Trello into a lot of other places.

In a broader sense, I would say, look, that area of work management for all continues to be one of that we are spending a lot of time in.

Confluence continues to grow very well.

You've seen us with the Halp acquisition in terms of providing a sort of service management experience inside of Slack and inside of messaging tools, which is used by IT certainly but used increasingly by other teams where that's a much more familiar interface for them to provide a service management capability.

So I think we're incredibly positive about all of the things we have going on in that area.

Continued innovation and continued enterprise growth of work management for all tools, I think, bodes very well for us in that space.

And Ittai, this is James.

So I can jump in on the second part of your question.

So yes, data center is accounted for in the subscription revenue line.

And I think the way to really think about that is that subscription in Q1 represented 60% of total revenue.

And recall that in the past, we've said that the cloud business is just a little shy of 50% of total revenue at this point.

So that gives you directionally a sense for the scale of the data center business.

And in terms of customer accounts, some of the other data points we've offered, now we have 182,000-plus total customers, and we've talked about 160,000 cloud customers.

So again, that gives you a little bit of a sense as directionally the overall customer count.

Your next question comes from the line of Brent Thill from Jefferies.

This is Luv Sodha on for Brent Thill.

Nice quarter and great investments on the cloud side.

I wanted to ask a couple of questions.

One was in terms of -- you provided great color on server to cloud pricing.

I was wondering like what would be the -- in terms of any color you could provide on server to data center pricing in terms of what's the difference and what the migration process entails there.

And then the second question was around the Mindville acquisition that you closed this quarter.

Obviously, how does it position you relative to the competitors in that marketplace in the ITSM space?

Well, I can perhaps take the first part of the question.

In terms of the economics of moving from server to data center, really quite similar to the situation when a customer is electing to move over to the cloud for our larger customers in the 1,000-plus seat category.

We would again look to offer material discount levels less than those that we would be offering someone moving over to the cloud but still material discount levels over a multiyear period.

So it's a similar approach, reflecting the comments that Scott and Mike made earlier that the data center is very much still a deployment option that we continue to invest in for the future.

So I'll pass over to Mike or Scott for the Mindville part.

Mike?

Thanks, Luv.

Thanks, James.

Thanks, Luv, for the question.

I can certainly take that.

Look, we continue to be incredibly excited about what's going on in the ITSM space.

As we continue our long-term journey in that space, it really has been a series of years now.

I think if you zoom out, you can look at that and see a whole kaleidoscope of options.

There are many, many ways that companies can provide ITM -- ITSM solutions.

I do think what we're doing is bringing that into pretty sharp focus.

And if you look at our offerings continuing to mature in the way we've taken Jira Service Desk and then adding Statuspage for external communication, adding Opsgenie to provide rostering and real-time management capabilities of your team and bringing them into incidents, and then obviously adding Mindville for CMDB capabilities, so asset management of all types alongside our service management capabilities that we've released, so not only managing the services that are outbound but also providing registry of the inside services, the technology services that you have inside your company, what we're starting to do is really provide a single pane of glass that can look across your IT operations and development teams.

As teams -- companies are increasingly bringing their development teams closer to their IT teams, we're providing a singular set of offerings that run across that.

And as we continue to integrate them and the Atlassian platform under all of them, we're obviously incredibly excited about both the growth of the space but also the uniqueness and the clarity that our offering brings to the -- to otherwise a quite blurry space that is around there and the uniqueness of that offering.

So really excited about that space going forward, and you'll continue to see us investing there and continue to see us having big announcements in that space.

Your next question comes from the line of Jack Andrews from Needham.

I want to ask about the work you're doing or initiatives you have in place to gain more leverage with some global systems integrators.

I'm particularly thinking about something like Jira Align.

I mean, how is it -- how important is it to engage with these types of partners for you these days?

Scott here.

Thanks for the question, Jack.

Look, the systems integrators, or what we call our partners' partners, have been a huge part of Atlassian's success.

We have a great partner network.

Hundreds of partners around the world, particularly in Europe, is a real big strength for us.

And there, as we see with some of our larger engagements with customers on the larger side, like most of them are bringing in and working with a systems integrator on those transformations.

And particularly as you think about digital transformation, a lot of what needs to get done in those organizations is not simply the deployment of software.

It's actually changing the way that these organizations work to do agile transformation or Scaled Agile Framework and so forth.

And so these systems integrators are really important to be on the ground to help out some of these transformations that happen.

And so I've been particularly happy with the systems integrators.

And you would also say our migrations, people migrating to the cloud, is a huge opportunity for our system generators.

And we've seen some of our best partners build migrations practices already in moving people to the cloud, and that's been a great source of business for them and also a great way for our customers to get across to the cloud faster.

And of course, we continue our depth of portfolio that we provide for CIOs in terms of everything from the Jira framework and Confluence but all the way up to Jira Align, which handles effectively the CEO's dashboard about how their organization is going in the digital transformation.

Again, that makes us more strategic for customers.

And our customers, they look to our partners to help them deploy and roll that out.

Your next question comes from the line of Rishi Jaluria from D.A. Davidson.

Just 2 quick ones.

First, if we do kind of the back-of-the-envelope math, you've got roughly 60%-ish of your customer base that's using a hybrid, some products on-premise, some products in the cloud.

Can you give us a little bit more color on what these sort of situations look like?

Is it a function of they might be using Jira on-premise and Trello in the cloud?

Or is it a departmental-level thing where the initial adopters are using Jira Server or Data Center and new teams are jumping straight to Jira Cloud?

And then the second is just on thinking through the longer-term COVID impact over the past couple of quarters.

You've identified some of the headwinds from SMB exposure and payment duration.

When we look out maybe longer term, especially given that it's looking likely that we're going to be in a much more distributed workforce even post-pandemic, how do you think that shapes maybe the necessity for your solutions and the demand environment?

That's great questions.

First of all, I'm not sure that the back of the envelope of 60% of customers is necessarily right.

But we've said in the past that 95% of our new customers use our cloud offerings.

And while we don't disclose the overlaps, like -- but I can talk through the reasons for that.

If you -- one of the advantages of cloud is that you can get going really quickly.

You don't need to deploy hardware.

You don't need to kind of find space in your data center.

And so what we find is even amongst our largest customers that may have deployed wall-to-wall with our data center or server offerings, with new projects where they want to get up the ground quickly, they, in many cases, will deploy a cloud version of our product.

And so we find that even [perhaps these] customers would find usages of our cloud products.

And in many cases, that's sort of the White House department inside those companies as they look to migrate to cloud.

So I think it really speaks to the ease and speed of which customers can get going in the cloud that you see that a hybrid.

And of course, over time, we'll see those cloud things are scale.

On the distributed workforce side of things.

What we saw in the initial days of COVID was a spike in our web traffic.

I think they're in the order of roughly 10%, where we saw -- not because we had a huge spike in customers within days of the pandemic but because our existing customers were using our products with a higher frequency.

And perhaps there was no post-it notes, no whiteboards, and they need and want to track all the work they do inside our tools.

And there's a huge opportunity for that because once you track work in products like Jira, Trello, Confluence or any of our products, there's opportunities for automation, which we've seen with all our investments in automation and Atlassian's automation products.

There's investments for smarts, and we've seen some announcements recently around how we're using data and machine learning to better route work to the right people.

And so we think there's a huge opportunity for our products to help with the workforce.

And the other thing which was surprising for me when I chatted with CIOs is that the CIO's agenda has never been more aligned with the CEO's agenda.

If you went back sort of 15 years, the CEO and the CIO's agenda would be sort of marginally overlapping, whereas today, the same problems CEOs are struggling with, which is how do I make my workforce productive while we're remote.

How do I serve our customers in a new way, particularly if I've had to move out transactions with our customers online?

How do I make sure my employees are healthy?

How do I make sure the workflows across the organization are moving fast.

Like, these are all CEO conversations and board-level conversations that are happening.

And the CIOs now are on the hook for doing that.

And now the -- it used to be that HR was responsible for the water cooler.

Now CIOs are responsible for the digital water cooler.

And so what surprised me is how much interest there's been around culture in -- from CIOs who traditionally wouldn't be thinking that, that would be front of mind for them.

And because Atlassian in the way we worked and how we work openly and how our products promote an open and transparent culture, they turn to us as a trusted partner to help them transform their organizations.

Your next question comes from the line of Derrick Wood from Cowen and Company.

Great.

This is actually Nick Altmann on for Derrick.

You guys have talked about your hiring plans for this year, and you've said the bulk of the hiring is going to be going into R&D.

I guess, when you look at the product portfolio, where are the pockets that you guys will be focused on the most from an R&D perspective?

And I guess, how much of the effort is going to be directed around furthering the cloud enablement of the portfolio versus net new offerings?

Yes.

Look, firstly, I think I would zoom out to start that answer.

As we've said a few times, we're in 3 very large markets between work management for all, the software agile DevOps market and then into obviously the IT and ITSM market.

One of our advantages is not only are these 3 fantastic markets that are incredibly critical to customers and to companies out there, as Scott mentioned, they are all connected at various different points.

One of the strengths Atlassian has is having products -- Confluence runs across all 3. Jira as a platform runs across all 3. Trello is increasingly used in lots of different places across all 3. So having products and connections between these markets, as we've mentioned, software coming closer to IT, obviously, the IT department being more involved in all sorts of work management capabilities, these connectivities are huge strategic strengths of ours but require R&D investment.

They require us to continue to bring products closer together to allow customers to reuse data across different spaces and building out our cloud infrastructure to handle all the enterprise needs of customers as well as the work management and the automation data platforms, as Scott has mentioned.

So yes, we will certainly continue to invest in R&D across a lot of those areas.

Our platform is a continued place of some significant investment, both to bring our marketplace up to speed but also, as I mentioned, to look across the increasing amounts of data we have in providing better answers, automation, AI.

There's lots of things that we're doing in building there.

We are always looking at building new products.

We always have a series of different prototypes and teams working on things internally.

Sometimes, those become products for the outside world.

Sometimes, they actually get merged into existing applications to become features of what we're already doing.

So one of the advantages of our business model obviously is our ability to invest in R&D and continue to keep that innovation going.

One of the advantages of our DNA is the long-term thinking.

And when you put both together, I think that's part of the reason we've been so successful for almost 2 decades now and tend to -- continuing to do so.

So we don't generally provide any specifics, but hopefully, that gives you a little bit of color about where some of that R&D is going and why we're excited about our possibilities in the markets we're in.

Your next question comes from the line of Robert Majek from Raymond James.

Great.

Can you update us on the customer transition from standard to premium SKUs?

What has customer feedback been like on premium?

What's the mix today?

And where can that mix go as we look out a few years?

Robert, it's Scott here.

We're really pleased with the customer adoption of premium.

And as you know, in the last probably 18 months, we've introduced premium and enterprise versions of our cloud SKUs.

So previously, there was really only one price you could pay for, say, Jira -- or Confluence and Jira Service Desk.

And we've now sort of got tiering in those structures.

Premium, we announced earlier, we've got ramping up now, so that is widely available and widely adopted our product.

And enterprise is really in the early stages, like we've announced it, and we've got some early customers using it.

But it's still ramping up.

I would say, without giving specific numbers, we've been extremely happy with the premium adoption of our products.

We're still in the state that as we add more features, they get adopted at a higher rate, and the satisfaction for those customers has been really high.

As a reminder, the premium version of the products include feature differentiation.

They also include higher SLAs for customers where we're mission-critical.

And so we've seen kind of that combination would be a really valuable and desirable one for our customer base.

So yes, we're very excited and very happy with it.

And with the launch of Atlassian Ventures, can you help us frame the positive impact that might have on ecosystem as well as future marketplace revenues?

Sure.

I just want to add one thing.

I'll get to Ventures on premium and enterprise additions in the cloud.

A reminder that most customers will tend to migrate, and obviously, migration is going very well.

We're up about 90% year-on-year in terms of the number of users that are migrating.

And obviously, off a small base, but as we continue to increase that with tools and with partnerships, that's going to grow.

Most customers will migrate probably to cloud standard.

And then over time, as their cloud journey -- as they increase their confidence in Atlassian's cloud and they need more features and capabilities, once they're in the cloud, they'll then sort of move up through premium and enterprise depending on their company and their journey.

So just to be clear, I'm not sure people will necessarily move from on-prem straight to cloud premium.

That will be as they mature in their Atlassian journey.

On Atlassian Ventures.

Look, we're obviously incredibly excited about this.

We've done a few investments in the past at Atlassian.

This is, I would say, a sign of our maturation as a company.

Having a formal brand, a formal budget and a team that is focused on doing this allows us to better serve the ecosystem and economy around Atlassian, right?

It's not all about acquisitions.

There's a lot of work to be done in investments and partnerships, and we just continue to mature and grow in stature in all of those areas as we become a part of the larger-scale tech economy.

And I think it's a great step for us to continue to go, albeit done with Atlassian's general sort of pragmatic long-term focus on how we do this.

So obviously, that's not a short-term issue.

Your next question comes from the line of Jim Fish from Piper Sandler.

This is Quinton on for Jim.

Just 2 high-level questions from us.

First, IT operations is a massive and somewhat newish opportunity for Atlassian.

Is there any way to think about the revenue contribution today outside of the core software dev market?

And then additionally, wondering if you guys have seen any material changes in the hiring of developers or IT professionals in general that may help expand Atlassian usage.

Scott here.

And Quinton, great questions.

What we're seeing in the dev and IT market is the continual overlap of those markets.

And so if you -- people like to put them in discrete buckets, but these days, most of what IT people are doing is involving software.

And a lot of the IT operation stuff is running and managing software, and that's an area where we believe we have a unique advantage as the vendor that powers more software teams than anyone else on the planet.

And we think you have a huge opportunity there to bring those 2 things closer together.

If you think about how we -- I probably mentioned this before, in terms of planning and managing work, Jira and Confluence come in.

We do an incredible job there, and we handle everything from someone putting something on the sprint backlog all the way up through the Jira line and managing 10,000 people.

Then through development, like, there are a lot of vendors there, and we actually partner with a huge number of vendors in that sort of code and test and deploy side of things.

And in the run side of things, right, run, manage, support area, that's where you've seen us make a large number of investments over the past couple of years, everything from Jira Service Desk, which you've been in the market now for quite a while; through to Opsgenie; Statuspage; and the investments that Mike talked about with Mindville recently.

And so that is a huge area of investment for us.

And as you see, like, everyone who builds software now has to run it, and those things are closer than ever before.

So we don't break them out as much.

If anything, we see those lines being more blurred.

Developers are now on call and on support.

There's not a separate team sitting in a network operations center anymore.

It's -- the people that build it now run it.

And so the developers are managing our products there.

So that was on the first part.

On the hiring of developers.

What you see across the entire industry now is 10 years of digital transformation happened in 10 weeks.

And so the demand for IT professionals and developers and people who can build software is higher than it's ever been.

And what you're seeing is organizations saying, well, we want to hire developers.

And if we can't do that, how do we get our developers be more productive?

And so you see the rise of workflow applications like Atlassian's where you can take -- you don't necessarily need a software developer to make sure workflow applications happen and run across your organization.

You see low-code opportunities, which are people using Atlassian's platform to automate things across their entire organization and automation, which we've invested heavily in, to make sure that all of the busywork goes away.

And so in terms of -- we don't have specific numbers from any third party in terms of hiring developers, but I would expect that to be a pinch point for most organizations for the foreseeable future.

Your next question comes from the line of Arjun Bhatia from William Blair.

This is Dylan Becker on for Arjun.

Just one quick one from us, and I kind of wanted to touch on Trello.

As you've made some kind of changes here in 2019 with the paywalls and the acquisition of Butler, but kind of thinking, how has the monetization of the product changed?

And then how are you measuring the kind of success from this product looking into fiscal 2021?

Thanks, Dylan.

Look, as we've been on a long-term journey with Trello, we've always said the most important thing is to keep the product growing as a whole.

Trello is a monster product, tens of millions of users and continuing to grow fast.

And from the long-term perspective, having those tens of millions of users continuing to grow is the #1 priority, and we've been pretty clear about that.

That said, we have continued to apply Atlassian's expertise in pricing and packaging to work out how we get the best customer outcomes and the best Atlassian outcomes so that we can continue to invest in the product.

That journey has been going quite well.

As you mentioned, we've changed some of the ways that it's charged in -- a couple of times now over the years, and that continues to drive the top line that Trello is contributing to Atlassian.

Things like Butler provide more differentiation, so that's the sort of automation capabilities for Trello.

And you're seeing that with the continued work we're doing around Trello views, so providing more ways to look at [the data].

We've got a calendar view and a map view at the moment.

We've got a table view that's in a public beta at the moment.

So continuing to have different ways to look at the data that's inside Trello also gives us some capabilities to look at the different paid additions and add different view capabilities as you go through there.

So I think -- look, I can see the #1 focus for Trello, as I've said, is the user base and continuing to just make it a standard.

The other thing we're also doing with Trello is continuing to bring it closer to the Atlassian family.

As you've seen with the identity stack underneath moving to the Atlassian identity platform, which by itself, handles tens of millions of users, so it's very helpful to bring that Trello user base closer to the Atlassian user base over time.

And obviously, things like Access is a monetization angle across Trello as well as connections to -- obviously to Jira Software, Jira Service Desk to help and to Confluence, obviously.

So bringing it closer to the Atlassian family is a part of the monetization journey for Trello as well.

(Operator Instructions) Your next question comes from the line of Ari Terjanian from Cleveland Research.

Congrats on the results.

I just want to double-click on the comment around low-code app development.

It's an area we're seeing increasing strength, certainly, this year around crisis communications or tracking and tracing, et cetera.

Any thoughts around furthering efforts here?

Obviously, Forge is a great first step.

But any more color you can share on new use cases and ways you're seeing people use Atlassian as a low-code platform in this environment?

One of the benefits of Atlassian

(technical difficulty)

Hang on.

We've lost you, Scott.

Apologies there.

Sorry.

One of the benefits we've had over the long term at Atlassian is that our products are incredibly flexible, and our customers have used them for all manner of things.

And so we see Atlassian's products used in everything from HR, recruiting and onboarding of employees.

We've seen them for people -- a NASDAQ-listed company uses Atlassian's products to handle their quarterly close process in finance.

And the advantage there, I guess, is as our products are very fast to roll out, they are widely deployed inside an organization.

And the customization there varies from just changing internal kind of the [broad] interface and configuring workflows and custom fields, all the way through to our -- writing Forge, which is -- Forge applications through to billing complicated applications that are -- you can deploy and use from our marketplace.

And so we've seen that.

Sort of the use cases will be too numerous to get into on this call, but we've seen Atlassian's product being used across the entire organization.

Another example we've said previously, Twitter uses Atlassian for hundreds of service desks.

I think it was 140 service desks, so everything from a legal service desk to HR across the entire organization.

And so we see Atlassian as a platform that people do move work across their organizations.

And as Mike alluded to, as we continue to build out that platform, it gets used for more and more use cases.

There are no further questions at this time.

I pass the call back to Scott Farquhar for closing remarks.

Thanks, everyone, for joining our call today.

We appreciate your ongoing support, and we really hope that you and your loved ones remain safe and healthy.

We hope to see all of you at Investor Day on November 17.

Thanks a lot.

That concludes today's conference call.

You may now disconnect.