Atlassian Corp (TEAM) 2017 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for joining Atlassian's earnings conference call for the second quarter of FY17. As reminder, this conference call is being recorded and will be available for replay from the Investor Relations sections of the Atlassian's website following this call. I would now like to turn the call over to Ian Lee, Atlassian's head of Investor Relations. Please go ahead.

Good afternoon, and welcome to Atlassian's second-quarter FY17 earnings conference call. On the call today we have Atlassian's Co-founders and CEOs, Scott Farquhar and Mike Cannon-Brookes; our Chief Financial Officer, Murray Demo; and our President, Jay Simons.

Earlier today we issued a press release and a shareholder letter with our financial results and a commentary for the second quarter of FY17. These items are also posted on the investor relations section of Atlassian's website, at investors.atlassian.com. On our IR website, there is also an accompanying presentation and data sheet available. We will make some brief opening remarks and spend the rest the call on Q&A.

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

You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent our management's beliefs and assumptions only as of the date such statements are made. In addition, during today's call, we will discuss non-IFRS financial measures. These non-IFRS financial measures are in addition to, and not as a substitute for, all superior 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 the nearest IFRS equivalents, and may be different from non-IFRS measures used by other companies. A reconciliation between IFRS and non-IFRS financial measures is available on our earnings release, our shareholder letter, and our updated and (inaudible)[data] sheet on our IR website.

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 entitled Risk Factors in our most recent forms 20F and 6K.

I'll now turn the call over to Scott for his brief opening remarks before we moved to Q&A.

Good afternoon. Thanks everyone for joining today. We had another great quarter.

This year's annual-revenue growth of 36% added over 3,100 net new customers, and ended the second quarter with more than 68,000 customs in total. We saw great growth across our business with strong performance in our cloud, server, and data center products. As most of you are aware, the big news we announced just over a week ago, were our plans to acquire Trello.

Trello is a collaboration service, and provides teams with a simple way to visualize and prioritize work. Trello has a great following, and continues to expand rapidly. Over the past year alone, Trello has nearly doubled its user base, and now has over 19 million users in over 100 countries.

We believe that Trello is a great fit for Atlassian, because it complements our products, extends our reach in the business teams, and is strongly aligned with our strategy, business model, and culture. We expect the acquisition to close in the third quarter of FY17. As Ian mentioned earlier, we have shared more information on the quarter, and Trello in particular, in the shareholder letter that we published prior to this call.

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

Thank you we will now begin the question-and-answer session.

(Operator Instructions)

Heather Bellini, Goldman Sachs.

Miss Bellini, your line has been opened for questions.

Let's come back, operator, and move to the next question please.

Gregg Moskowitz, Cowen and Company.

Okay, thank you very much. And, good afternoon, guys. It's impressive to see your billings growth accelerate to the 40% level. I was curious if there was anything in particular that you saw with respect to, either product uptake or customer follow-on deployments, that might have helped to drive that higher?

Yes, we had strong growth across our entire business, that drove that. We did see an increase in revenue coming through our channel partners. There might have been some of it around year-end budgets [wash] with some larger organizations, but it was broad across our business. We were quite pleased to see that we had that kind of growth in the quarter.

Okay perfect, thanks, Murray. And then, I guess a question for either Mike or Scott. There has been a lot of noise in the chat-based workspace market with Microsoft Teams and Facebook. Can you talk about the competitive positioning of HipChat going forward?

Sure, mate. Look, we maintain our position, being bullish about HipChat and how it is growing. We continue to invest in it as a product. I think it is a good validation of a space that is going to change how our 900 million plus knowledge workers work together over the coming years. And it is obviously, still very early, so we continue to invest in HipChat, and are excited about the prospects there.

Okay, great. And then just one last one if I could. Have you had a chance to look into customer overlap between Atlassian and Trello? And any color there would be helpful. Thank you.

Obviously, we -- Go ahead, Jay.

No, go ahead.

Obviously, we have looked at that, but we would like to go ahead and just close the acquisition first, before we provide any specifics in that particular area. But clearly that was one element that we considered as part of our acquisition of Trello.

Okay. Thank you.

John DiFucci, Jefferies LLC.

Thanks. Murray, first question for you. Is the guide down a little bit here on margin, is that all entirely due to Trello? Or are there any other investments you're making that are causing that?

Well John, there is two things. One is, yes, Trello is part of it. But, also, as you will see last year, if you look at our trend in operating margin through FY16, we had a bit of a downward trajectory throughout the course of the year.

There are seasonal elements in the third quarter that we're in now. That is when our employees get an annual salary increase, and we start with more employer taxes, and things like that, around payroll. That is part of it, and also we are obviously bullish in our long-term opportunities, and so we're going to continue to invest for long-term growth.

Okay, great. And then, Scott or Mike, I guess it looks like all your businesses are strong. But I'm just curious, when we look out across the world, and not just at Atlassian, but at the rest of software. Are you seeing any trends on how customers are consuming your products? For instance -- and what I'm really driving at, is there any acceleration in cloud versus on-prem consumption?

It's Scott here. As we have talked about before, about three-quarters of our new customers come in to our cloud products today. So cloud is definitely the long-term future. Where, because we have both cloud and server offerings, we're very agnostic as to the particular timeline, or to what that future happens. We have customers on both products that are very happy, and we're investing in both sides of the business. So we're pretty agnostic to the trend, but the long-term trend is definitely towards the cloud.

Okay, great. And, I'm sorry. I just have -- to Trello, because this is the opportunity to ask about it. It seems like something that can be sold on its own, as it has been or even become part of a lot of other things. And could you talk a little bit more about how you see that going forward?

Is it something that just will be another line item in a purchase order? Or purchase on the web? Or is going to be -- or will you also, sort of take that technology and integrate it with some of your other technologies?

Yes, John, look, we obviously are hugely bullish about the potential for Trello as a standalone product. This is not something to be folded into other products that we have. It has a lot of unique capabilities, as well as fitting very well into our broader product family.

Obviously it expands our reach into business teams, which is a part of our goal. Unleash the potential of all teams across the Fortune 500,000. We're going to continue to penetrate more and more business teams. And Trello, obviously, does that very well.

And you can see from its reach and momentum, 19 million users, almost doubling in the last year. Across 100 different countries, very big geographic spread. This is, by itself, has great momentum as a product, that we're very excited about. If you think about the types of work that teams do, there is a lot of different types of work, and no two teams work the same way.

So, we really think Trello fits very well into the family there, because where JIRA does very well at structured, process-based type of work, and Confluence is obviously completely unstructured. Trello fits very well in between them, with sort-of a free-form unstructured approach, but enough of a structure -- a scaffold that you build yourself, to work out what the work is there that needs to be down the middle.

The last thing I would say, that sort-of relates to your previous point as well, Trello does sell very well into home teams, and is used by people in their home team as well as their work team. So, the ability to use it in your home life, if you like, with a small group of people. Whether you are planning a wedding, whether you're planning a renovation, and managing some sort process like this, or if you're just collaborating with your wife about what you're going to do for the kids.

We have seen that in the consumerization of IT, where people are take products then into the workplace, they are more familiar with them. And this is really a vignette of that trend.

Great. Thanks, guys.

Jason Velkavrh, Robert W. Baird.

Great. Thank you for taking my questions. First one, you mentioned a competitive win in an aerospace manufacturer for Service Desk. I was just wondering if you could elaborate more on the dynamics of a competitive win like that. For instance, are customer [success] reps involved at all there? Or is that purely driven by the customer?

And just more generally, are using more competitive displacements like that as you grow into larger enterprise deals?

Yes, hey Jason. This is Jay. As we mentioned, about JIRA Service Desk is a product they can start with a known kind-of IT help desk use case. Like in the example that we highlighted in the letter, that was a competitive migration from an existing help desk. Where we might have a channel partner in that organization working that particular use case.

But the virtues of the product allow it to expand to service use cases across the business. From marketing, to sales, to finance, and HR. And I think that is the real opportunity with JIRA Service Desk, is landing within IT in and then expanding to all the other functions for the types of collaborative service applications they're going to run.

Great. That's helpful. And then, just one follow-up. This is for Murray. It looks like full-year guide was, if you back out Trello, increased about $9 million to $10 million. Is there any FX we should be thinking about there? Or no FX affect to guidance there.

Again, we sell in US dollars. So there is no impact on revenue. One of our largest expenses is Australian dollars. We have our hedging program going right now. So at this point, we've done a good job, I think, of sort of muting any kind of movement from a currency standpoint. And so, really nothing is, from an FX standpoint, is having an impact in our guide.

Great. Thanks, guys.

Thank you.

Sanjit Singh, Morgan Stanley.

Thank you for taking the question. I wanted to get your updated view, Scott or anyone on the team, on how the expansion outside of software is going, along two dimensions.

First, maybe into broader IT with Service Desk (inaudible). And then also, how would you assess the expansion into the business market? Where are you guys seeing good sides of progress, and where do you think you have room to improve?

Thanks, Sanjit. It's Scott, here. We're still really early in that opportunity.

As you know, we're incredibly well renowned among software teams and historically that has been [grand]. It is little known that most of the users using our products today are not writing code. People using all of our products are in broader business teams today.

Because we are bottoms-up in an organization, and we start with small teams, we struggle to quantify that. But we really feel happy with the progress in sales in JIRA Service Desk, and JIRA Core, though a little bit newer, is going great in terms of broad business teams. And obviously, Trello helps round out that capability.

I do think they are very complementary to everything. Trello is complementary of the same products [that they're]. And another example that we have is our Enterprise and Data Center areas of the business. As you know Data Center flows into that subscription line, so a small part of that (inaudible) is growing really strong.

And really, those products only kick in when you have thousands of users. And the growth of those products is an indication of how widely we are deployed inside organizations.

Great. I appreciate that. And then, I thought the comments on the partners this quarter was interesting. Getting a lot of the data on whether you guys are sustainable without Enterprise Sales Force. It seems like your partners are being really productive.

So I wanted to get a sense of how much business is going through your partners, and whether you have any sort of goals, either in terms of number of partners or increasing the partner capacity that you are teaming up with?

Yes, Sanjit. We did have strong growth of our channel partners. It was stronger as went in through December. Part of it is, for larger organizations, when they buy software, they tend to have partners that they work with -- they buy all their software from.

So, it is not a surprise that we're seeing sort of larger deployments from these organizations. That they are buying from their preferred partner, and that is flowing through to us. So we have a broad expert and partner channel that Jay can add onto here, but we did see it in the quarter. Data Center was a big part of that. Our larger server offerings for broad deployment. So, there are a number of factors that were sort of aligning to drive that.

I would just add that the channel really supports the land-and-expand part of the model, where they can start, as in the example I gave with JIRA Service Desk, with kind of a really known use case within IT. And then help organizations expand with that product and others to reach other parts of the business.

Also, keep in mind that Summit, I think, is a good activation point for just the customer base in the channel. And with Data Center in particular, there are a number of really high demand features like zero-downtime upgrading, that I think kind of help drive growth within Data Center, through the quarter and the channel plays are really important role in that.

Great. Thank you.

Bhavan Suri, William Blair.

Hey, guys. Thanks for taking my question, and congrats on the numbers there.

Just to start off a little bit on JIRA Service Desk. Just some color on how growth has progressed with the product. And then, obviously at the conference you announced the customer-facing version of JIRA Service Desk.

I know it's early, but have you seen uptake? What does that look like? Additionally, what sort of size deals are you seeing there in terms of number of agent seats, or things like that? Just some color there would be great too.

Sure, Bhavan. Yes, look, obviously, to be clear, at Summit we announced a series of features more in the customer service angle for Service Desk.

What is interesting, what we're seeing in service teams adopting Service Desk for help desk and then starting to use it for customer service -- different teams. So there is a lot of different usages in the sort of broad category of service teams. And the goal, obviously, is for us to be able to land in any of those and expand to other ones.

Look, the product is going very strongly. We're very excited about the position. Obviously, it's built on a huge foundation in JIRA that gives us a great advantage in the advance workflow, and fields and these capabilities that we've had for many years now.

So, we continue to invest strongly there, and we're very positive about the opportunity. Summit was a great reaction from customers.

I just want to add something to that, Bhavan. Is that, because of our business model -- we fill bottoms up in organization. And because we have such attractive pricing for our customers, our customers are finding thousands of use cases for our products that we don't really even go head-to-head in any sort of competitive battle there, because we get in bottoms-up and spread across.

Now that could be public-facing customer support, which is one of our most popular features that was really requested by our customers. Or it's even being used for help desks in other parts of the organization, that typically would not have thought that they would use a help desk, and a market that is not really able to be accessed with a top-down or a sales team.

Really, the business model allows us to be more successful, and often find use cases that aren't captured by anyone previously.

Got it. Guys, that's helpful.

And then turning to Confluence, we've sort of seen Confluence displace SharePoint in a couple of cases, and I was wondering if that is an anomaly or if you are actually seeing that become a trend, where sort of the workflow/Confluence management, document management piece that Confluence provides, especially if it is bottoms up from developers, is a regular displacement of SharePoint.

Is that something you're seeing a lot of from a growth perspective or displacement perspective? Or is that something that is sort of an anomaly?

Look, Bhavan I wouldn't call it an anomaly. I also wouldn't say that we're seeing a huge amount it. Right? I mean, given our model, it can sometimes be hard to see the things. People often run Confluence along side SharePoint, there's actually integration between the two of them for sharing search and other content between the two.

Obviously, from a product point of view, Confluence is a lot easier and more frictionless to actually use and get content to your colleagues. It is also open by default. It goes back to Atlassian's values that we believe that the content should be open and broadly shared. Which tends to lead to a greater viral adoption, as well, within the products.

And obviously, Confluence is very tied into a lot of modern tools that people use today. Which I think, it seems like SharePoint can sometimes struggle with. Obviously, heavily tied into things like JIRA and Confluence. But, a whole lot of other products that enterprises use -- Confluence in the marketplace has a huge number of integrations with all sorts of products that modern teams are going to use which makes Confluence a great option, that a lot of products like SharePoint can struggle with.

Got it. And one quick one for me on Trello. You sort of broke out the split between -- or as you sort of described, the home life and the work life.

Do any percentage -- any idea of what percentage is work teams versus home teams? Or is that something hard to do? And then, Trello has obviously doubled users, but it is still a fairly small revenue base. Just sort of how you guys think about approaching the way to monetize the 19 million or whatever percentage you do monetize out of that.

That's it for me. Thanks for taking my questions, guys.

Sure. Look on the work versus home split, we haven't disclosed any numbers there. Except to say, that we are targeting work teams, as a company. So obviously that's important to us, and it wouldn't make a lot of sense if there wasn't a big component or big customer base.

We are all into wedding planning, but not as a corporate objective (laughter). On the broad side of things, with Trello we're just extremely bullish about how it goes. And so I think you will see that there. But it is very early in its monetization journey. So I think you will see that they have only been monetizing the product for about two and a bit years. And that is in line with Atlassian's patience for revenue sort of philosophy. And so, we are very culturally aligned with that team there. And we will be growing all the numbers.

Great. Thanks, guys.

Brent Thill, UBS

Hey, Murray, just back to John's question on the operating margin. Last year you guided third quarter to 12%. You're guiding similarly for this third quarter. Can you just give us a sense, any sense why you are not seeing more leverage there?

So Brent, again, we do have the salary increases for the employees, starting January 1st. That is third quarter. Starting the employer payroll taxes again in the third quarter, and then we've got the Trello business coming in that we have signaled as dilutive this year, and so that's affecting the margin as well.

So that's kind of how it is. We continue to invest in the business going forward, so that's what is factored into those targets.

And that's kind of how we are looking at it through the third quarter. And obviously, just if I could, just for a moment there Brent. Is just the way to think about it -- this year, obviously, the revenue that we're guiding, that is related to Trello is post the haircut on deferred revenue. And so, it has more of a compressing effect on margins.

This year, as we get into 2018, obviously, that starts to roll off, and we're in a little bit of a different situation. So you have to bear in mind that we're not getting all of the revenue, in a sense, because of that haircut that would be more helpful to margin.

We are not in a position right now where we're giving any specific EPS number for dilution this year, because of -- we have to close the books and get the purchase price allocation sorted out, and finalize all that. And then the IFRS to non-IFRS reconciliation to provide. But I think if you kind of look at our beat on EPS in Q2, you kind of look at where we were on EPS last quarter, in terms of guide for the year. What were doing now, I think everyone can kind of back into with that EPS dilution would look like for FY17.

And we did say, when we make the announcement, that it would be neutral to slightly accretive on a non-IFRS basis, in terms of EPS for FY18. And just so that everyone understands the assumptions there, is we're not assuming any revenue synergies. There is no cross-sell factored into that. It is all coming through cost synergies contributed from both sides to get to the neutral to [slightly] accretive.

Okay. Thanks. And just, I think last quarter you mentioned the deceleration of the Americas growth is related to the larger cloud uptake. Is that the case again given the deceleration in growth?

Well, I think this quarter the growth was just slightly up from Q1, so at 34% versus 32.6% last quarter.

Yes. I'm talking year over year.

All of our geographies, they grew from quarter -- from Q1 to Q2 in order of those growth rates. The growth we saw on revenue and deferred revenue in the quarter, it was just broad-based across essentially all product families, cloud, and server, and geographies, very broad-based.

Thanks, Murray.

Michael Turits, Raymond James

Hey, guys. This is Austin Dietz, filling in for Michael.

I was wondering, how impactful was the move to the Data Center pricing model in the cloud? And what impact did that move to subscription have on the revenue this quarter? Thanks.

We haven't provided those specific matters. You know, the move to Data Center probably has more impact, just because under the perpetual model, we would get 50% of that upfront. And Data Center is just growing very fast. But we have not provided specifics on it.

I think it is important to remember that we've kind of been subscriptionesque since the beginning, because we have such a high maintenance rate relative to the perpetual license. And, so that transition from perpetual and maintenance to subscription is just so much less than you see with other software companies that are making that big move, in terms of the deployment models.

Great. And then secondly, if I may, I know a fair amount of customers came into the StatusPage acquisition. So I would just be curious to hear how any efforts to cross sale any Atlassian products in that space have been to date.

Look Michael, it's Mike here. I think we're really early in the StatusPage story. They haven't been with us for, what is it, six months now, I guess.

We have a lot of things we want to do in the StatusPage business itself, that we're really working hard on before any sort of major efforts to cross sell into the Atlassian base. There's a lot of revenue and customer synergies already between the two. We have a lot of shared customers. So there is a natural kind of thing that happens there, but there is nothing explicitly we're doing other than focusing on the product and StatusPage, itself.

A really nice data point for Trello was actually, if you're a StatusPage customer you can see from their public website before they come on board. That was just nice.

I just think it's also important to understand that our patient-for-revenue model, and not having those direct sales forces out there. It also means that we have to be patient cross sell as well. Clearly, there's tremendous cross-sell opportunities for us, but it's not like, we have this direct sales force all over the world that is going the next day and pushing StatusPage as part of the portfolio. Is more in our patient-model, through our funnel or engagement engine.

Great. Thanks, guys.

Heather Bellini, Goldman Sachs.

Great. Most of mine have been answered but thank you for taking the questions. I guess I just had one. I was wondering if you could share with us a little bit of, kind of how you are thinking about HipChat and Bitbucket. And just share with us maybe any cross sell trends, into the install base. And in general, maybe how you see your product starting to -- your portfolio of products permeating through an organization. And then I have a couple of follow-ups.

Hey, Heather, this is Jay. You remember the virtues of our product portfolio allows to land and expand through a couple different dimensions. At a really high level, remember we're focused on a couple of key universal capabilities that teams need. The ability to share and manage work and projects, the ability to create content together. Where for development teams, part of the content they are creating is code, that is managed in Bitbucket, and then communication.

So, I think with both HipChat and Bitbucket, they are simultaneously opportunities for us to land and begin a relationship. In this case with Bitbucket with a development team, that might start code. And then expand through JIRA software to better manage software projects. Expand with Confluence and HipChat to better manage content communications. With HipChat, you know, it is a vehicle that allows us to land with teams the start with communication first. Maybe because they are small, maybe because they have some other products that they are going to plan to replace with the rest of our portfolio over time.

So, I think land-and-expand, which you've heard us talk about before is vital to the model. And then in the customer examples that we included in the shareholder letter, I think you see that kind of the natural expansion opportunity that exists, both with one team that might start with our products like a technical team or IT and expand out to business functions.

And then lastly, as you heard in the server business, I just think is worth restating the data point that, that kind of expansion is companies look to serve a myriad of different teams and their organizations with our products to help them work better. That drives standardization within really large organizations around Atlassian products, that includes JIRA, the JIRA family, Confluence, Service Desk, Bitbucket, HipChat and that is the real opportunity overtime for us, is to continue to do that.

OKay. Yes. No, I was just wondering specifically if you had any stats that you could share directionally. How many -- kind of how multi-product customers and maybe the average number of products per customer.

We don't break that out. Other than just to talk about, you know as we have shared in the past, HipChat's kind of momentum around the number of teams it is supporting. With the volume of messages that it's sending. And then, with products like JIRA Service Desk with 20,000 organizations now adopting JIRA Service Desk. And then, previously we have talked about, you know, customers at Summit where they'll share the wide percentage of teams that are using the JIRA family and Confluence.

I think the number that we shared was over 35% that were using products by business teams. That is kind of the natural expansion of moving from one product to many and moving from one team to many.

And then, Heather this is Mike. It is also worth noting. Sorry, it's Mike. Just to echo Murray's comment from before but from a [smaller] lens. That patience for revenue, gives us -- we believe, gives us great strength and great predictability. And so when you think about cross sell or HipChat, Bitbucket to other products, that cross sell does not come through a sales motion. That cross sell comes much more through logical and thought through integrations between the products and parts for the customers to move from A to B.

It can take time for them to find those parts, time for us to build those parts, and those parts don't apply to all customers using all products. But we continue to invest there as see we see some of our R&D dollars going into building different parts that give us great strength over time in the logical patient cross sell.

Okay. Thank you. And then, just one last quick one. Obviously you guys are the low cost provider in your go-to-market strategy. I'm just wondering, in areas like JIRA Service Desk, for example, where you have obviously started to see some very good success, are you starting to see your competitors change their pricing to try to respond to the success that you are having?

Heather, this is Scott, here. Without naming individual competitors, what we have found over the 15 years of running Atlassian, is that the philosophy that a company takes early on about how they go to market is really difficult to change. And we've had a philosophy that we believe markets are way larger than any of our competitors do.

We've talked about the Fortune 500,000. Many of our competitors really targeted the Fortune 500. And it is one thing to say I have lower prices, but you need your entire organization to be built up around high-volume, low-touch models. The patience that we have by not having venture capital for a long period of time. All those things add up to our model, and it is another matter of someone trying to match our price, and many of them can't do that just the way they are set up.

So I feel pretty comfortable about the model we've got, and how difficult that is to replicate.

Okay. Thank you very much.

Patrick Walravens, JMP Securities.

Oh, great. Thank you, very much. I was wondering on the -- following up on the competition side. Do see the competition trying to evolve? There is more copying I would say of your broader messaging. And do you think there is anything that you would do differently overtime, as they do evolve?

It's Mike here, Pat. You certainly see people copying messaging, and things overtime, and they're welcome to do whatever they want to do. We're pretty used to that now after 14 years.

The think that is hard for them to copy, is the business model and the synergies we have between the product and the level of R&D invested in focusing on the customer, and the pricing model, and the way the sales machine that we have works. Those three, and the way the tie together, is incredibly hard for somebody else to copy. So yes, they can put the same text on the website, but that tends to be way less relevant to customers than the entirety of the picture and the system that we have built.

And you know, you sometimes see that, too. And we're often slightly amused by seeing some trumpeting of a customer win for example, where we have lots and lots of deployments in that individual customer. 10 or 20 different servers running, and someone else will trumpet a single customer win that doesn't make any sense to us. Because of the way we go to market, they can't copy the hundreds of different landing spots that we have within that company to draw up into a Data Center standardization, as their adoption of Atlassian products continues to grow.

Great. Thank you.

Ittai Kidron, Oppenheimer.

Thanks and congrats guys on a great quarter, and a good acquisition. Murray, I wanted to follow up on the Trello acquisition details. You've talked about how you had to write down the deferred. Can you give us maybe a little bit of perspective on how long will it take to get Trello to the same revenue run rate that would've had if you didn't have to write down the deferred?

Well, the majority of their business is going to be like on annual agreements. And so, you're going to have, at most 12 months of deferred revenue. So that's going to be rolling off as we go forward here. We will have more to say about FY18, but the impact is really primarily on FY17.

Okay. Very good. And then headcount, I didn't see it in your slides. Is there -- can you give us an update on what was the headcount change in the quarter?

Yes, we increase by 55 heads in the quarter from Q1 to Q2, and there was hiring across the whole business. But the majority of the -- the primary area was in R&D, as you would expect.

Very good. And then lastly, Scott. Again with bringing Trello in, it makes complete sense. I guess the question is, how do you avoid confusion for customers -- you know, the ones that would have been interested in JIRA Core. How do you fine tune pitching JIRA Core to them versus Trello. And do you envision teams using both? If you can help us kind of understand how you are going to create that differentiation and lack of confusion, that will be great.

Sure. Thanks, Ittai. Look that's really important for us. It is important to note that JIRA Core and Trello serve different purposes, and we are going to continue to sell both products into customers, and that they work very well together. They are very complementary.

Again, the important thing to note there, is that there is lots of different kinds of teamwork, and it is our job to communicate the types of teamwork, and the types of teams in the types of organizations, be they small or large and which product works best for them at a given time, and how they work together and how you flow to the set of products.

JIRA Core works very well for managing structured processes. So not going to do your quarterly financial close for a public listed company in Trello. That is not going to make sense to you. And we have to make sure that the more structure you have in your process, the more compliance, the more controlled that process is, generally the company gets bigger or team gets bigger. It's going to make a lot more sense in JIRA Core for business team to run as you get that.

At the same time, if you have a very unstructured process -- so, you know, a blogging calendar, or planning a marketing campaign, brainstorming, whatever you might be doing, that's going to work much better in Trello. So depending on how much structure you have, they are going to be quite different.

We believe that no two teams work in the same way, and it is our job to make sure that people understand when the different tools are applicable for different challenges they have, and may vary from day to day. And at the same time, that those tools do work very well together. So once you have one you can flow into the next one, or you can use them in concert for a given process.

Got it. That's helpful. Do you think that the competition for you changes now that you are adding Trello? Are there other companies that you think you are going to will rub up against a little bit more with this company in your portfolio?

I mean look, we've always had a lot of competition for each individual product. I think at the Atlassian-wide level, I don't believe that the competitive map changes particularly with this acquisition, from the large-scale view. But at the same time, it's not something we spend a huge amount of time obsessing on. We've always tried to focus very much more on the customers, and how our individual products are serving their needs, and growing and serving more their needs, than responding to what others are doing.

Got it. Very good. Congrats and good luck guys.

Thank you.

(Operator Instructions)

Ben McFadden, Pacific Crest Securities.

Hey, guys. Thanks for taking my questions. I just want to start with the fact that your growth, both on the revenue side and the billing side, seemed to accelerate a little bit in the quarter. And I was just wondering if there is any shift in seasonality that takes place in this model for the December-end quarter, given the fact of how much larger these Data Center deals are or whether this is just continued execution on your growing portfolio of solutions?

So I guess if you were to look at it from budget-flush December, there must be some element that we are benefiting from there. So I think that's a seasonal factor, and that is part of it.

But it is so broad-based, it's across all the geographies. It was just strong performance. It is just a continuation of what we have been focused on for the last number of 14 years, and just seeing more broader deployments. We're just seeing more larger organizations that are kind of moving from a bunch of servers, and they're moving to Data Center, which comes at a higher price. And they are just getting thousands of users. So the whole broader adoption theme, we clearly saw that in the quarter.

And not to sort of beat on the old pricing benefit thing, but this was the last quarter that we just got a little fraction. We had the solid, more benefit in the previous quarter. So to see revenue growth higher this quarter, relative to last quarter and if anything, if you will, a little bit of that headwind was very pleasing to us in terms of our overall performance, as well as the deferred revenue calculated bookings that some have looked at.

Great. And then, I wonder if you could just kind of help us understand how much of JIRA Core traction is coming from new customers versus existing customers. And then tying that into the Trello acquisition, is there an opportunity from a cross sales standpoint for Trello to potentially drive more viral adoption of JIRA Core than JIRA software has historically done? Just any color you can provide there would be great.

Ben, it is Scott here. JIRA Core primarily today has been an expand product for us. And with 68,000 customers, there is a huge opportunity inside our existing install base to expand. And it's a lot cheaper for us to acquire those customers for that product.

Trello, as you know, one of the reasons we were attracted to that, is installed base is 19 million users, of which they have achieved just under half of those in the last year. So it has incredible momentum in acquiring new users and new customers, and so we believe that will help us attract a group of users that perhaps previously hadn't looked at Atlassian. And that goes with some things that Mike said earlier. Trello is less structured then JIRA Core is used in more ad hoc use cases.

A team of one or two, get a huge amount of value from Trello. Where as we've said traditionally, Atlassian products provide value once you are much larger or have more structure and process. We're really pleased that it really allows us to acquire customers much earlier in their lifecycle, and for many more ad hoc use cases. And once we've got them, up-sell them into JIRA Core once they need more structure. Or selling them to JIRA software once they become a larger software team. Cross selling all the product suite we have, and that really is an opportunity for us at some stage down the line.

Great. Thank you.

(Operator Instructions)

It looks like we have no further questions, so I would like to turn the conference back over to management for any closing remarks.

Thanks everyone for joining our call today. We really appreciate your time, and we look forward to keeping you updated on our progress as we go forward. Thank you, very much.

The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines.