Atlassian Corp (TEAM) 2017 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Thank you for joining Atlassian's Earnings Conference Call for the Fourth Quarter of Fiscal 2017.

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.

(Operator Instructions)

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

Please go ahead.

Good afternoon, and welcome to Atlassian's Fourth Quarter Fiscal 2017 Earnings Conference Call.

On the call today, we have Atlassian's Co-Founders and CEOs, Scott Farquhar and Mike Cannon-Brookes in Sydney; and our Chief Financial Officer, Murray Demo; and our President, Jay Simons in San Francisco.

Earlier today, we issued a press release and our shareholder letter with our financial results and commentary for our fourth quarter and fiscal year 2017.

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'll make some brief opening remarks and then spend the rest of 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 our 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 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 may be different from non-IFRS measures used by other companies.

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

Further information on these and other factors that could affect the company's financial results is included in the filings we make with the Securities and Exchange Commission from time to time, including a section titled Risk Factors in our most recent Forms 20-F and 6-K.

Before we proceed with the call, a quick reminder that we will be holding our first investor and financial analyst session at our U.S. user conference Atlassian Summit at the Hilton San Jose.

The Investor and Analyst Session will be held on September 13 beginning at 1:00 p.m.

Pacific time.

Attendees at the session are also welcome to attend the opening keynotes and breakout sessions at the U.S. summit.

These are being run on September 13 and 14 at the San Jose Convention Center.

I will now turn the call over to Scott for his brief opening remarks before we move to Q&A.

Good afternoon.

Thanks, everyone, for joining today.

We capped off fiscal 2017 with another great quarter.

We grew revenue 37% year-over-year and generated over $44 million of free cash flow.

For the full year, revenue grew by 36% year-over-year to almost $620 million, with over $183 million of free cash flow and more than 28,000 net new customers.

We now have over 89,000 customers in total and have 100,000 customers firmly in sight.

Mike and I mentioned in our shareholder letter that it's now been 15 years since we've started Atlassian.

So much in workplace technology has changed dramatically over that time.

Fax machines and pagers seem like distant memories now that we communicate in real time with our teams through group messaging and video conferencing.

Some things remain the same, though.

Teams still hold the key to making meaningful progress, and teamwork is still hard.

Our mission to unleash the potential in every team is more important than ever.

We help millions of work at thousands of companies get the job done, whether that's operating in national railway, designing the car of the future or reporting on the latest news.

We believe openness is a critical component to changing how change teams work.

Our products are pioneering new ways for teams to create, share, organize and connect through more fluid and open approaches.

Our products remove barriers within and between teams, giving us simple ways to plan, collaborate and deliver work.

We help create more effective teams and, as a result, fanatical and loyal users and vocal champions of new ways of working.

We took many steps forward in fiscal 2017, and fiscal 2018 looks even more promising.

Mike, I and the rest of the team are looking forward to sharing more about our business and what's in store for the future at the Atlassian Summit in September.

Separately, we also announced today that our CFO, Murray Demo, will be leaving Atlassian on December 31, 2017, to focus on his corporate and non-profit board work.

After serving in Atlassian's board for 4 years, Murray joined as CFO in 2015 to help support our transition to a public company.

We will soon begin our search for a CFO to succeed him.

Mark and I really appreciate everything Murray has done for Atlassian over the past 6 years.

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

(Operator Instructions) First question comes from John DiFucci with Jefferies.

The question that I have is -- I think it's for Murray, but Scott, if you have any comments, too.

The numbers look really good here.

The top line really validates what looks to be a robust opportunity, which we believe and we want to always measure.

But expenses were a bit higher than what we had modeled, and I'm just wondering what the cause of that might have been?

Was it the integration of the acquisitions?

Or was it more investment in cloud?

Because it sounds like that's really taking off and you have to invest there more.

Is it -- if you can comment on that, that would be great.

John, this is Murray.

I'll take that.

A couple of things.

One is, is that in the fourth quarter, we had our first European Summit, so there was additional expenses around that event.

It was a very successful event for us, and that obviously would have gone through the marketing and sales line.

We also had some other discrete expenses in the quarter, where we made some investments in various projects as well as we did some additional advertising and marketing spend in the quarter and that brought us to a 14% operating margin that we had guided for the quarter.

It was not headcount related.

It was more on just various activities we had.

Just keeping in mind that at the outset of the year, we targeted operating margin of 15% and we achieved 17% for the year.

And so we continue to look at expenses carefully, and believe in our leverage model and we look forward to our fiscal '18 targets.

Okay, great.

And if I could, and follow up, Murray, since I get -- just to get this question out of the way.

Whenever a CFO leaves a company as sort of keeper of the numbers, there's always some investor concern.

Like I said, the numbers look good here, and Scott, in his opening remarks, talked about 2018 being an even -- a better an opportunity.

But if you could, in your words, can you help to comment here a little bit on your [year], I guess, relative to your expectations, for Atlassian's future financial performance.

Well, first of all, I think it's typical to -- wise, if there's going to be a CFO transition, to do it on a fiscal year.

First of all, obviously, we have an audit for our full year, and so we couldn't be releasing earnings unless we had gotten through all of that.

So I don't want you to be worried about any kind of accounting issues.

Clearly, we're also giving guidance for the full year of fiscal '18.

So there's always a question here, "Does the CFO see something here?" Well, looking at our targets for next year, we're very excited about where we're going in fiscal '18.

So kind of on the fiscal year is a wise time to do it and it was the same as I did in 2 prior public companies.

I am super excited by the opportunity for this company.

I know you've heard it for, since we've been public, about just a huge opportunity, the size of our market, the great products we have or how the compelling, pricing, value of our products and our frictionless model, and I'm more convinced today than ever that this is a terrific model with a huge opportunity, and I'm very bullish on the company going forward.

The next question comes from Bhavan Suri with William Blair.

Murray, obviously, I'll be sad to see you go, but best of luck.

Just a question on the product pricing.

Obviously, it's been announced, we've seen a number of things come out.

I guess, just touching on Service Desk.

You had really good growth, you sort of stated fastest-growing product.

I'd love to know how that's going vis-à-vis expectations.

And given sort of the pricing umbrella, you guys are way lower priced than anyone else, I guess, I was just trying to understand, guys why you lowered price on Service Desk when you sort of raised it on Confluence.

I just wanted your strategic thought process there, that would be really helpful.

Okay, Bhavan, this is Jay.

Just to tackle the first part of the question.

We're really pleased with JIRA Service Desk's growth.

I mean, outside of JIRA Software and Confluence, that is one of our largest products and a quick grower.

I think still early in a market that's expanding in front of us, both in terms of the internal help desk use cases and then also the external service and support use cases, where JIRA Service Desk for our customers' customers gets closely connected to what they're doing with our other products around the software that they're building.

So I think great opportunity in front of us and really happy with its progress.

In terms of the pricing, JIRA Service Desk has a slightly different -- even though we're licensing per user, the user that we're actually licensing is the agent.

So it's a little different.

And most of the other products, every user is effectively -- is an equal user of JIRA Software or Confluence or HipChat or Trello.

In the case of JIRA Service Desk, a lot of companies basically measure the value that they're getting on the number of agents that are servicing a wide variety of either regular or itinerant customers that are basically asking for help.

And so that's sort of the -- I think, the rationale there.

Bhavan, it's Murray.

And I'll also add that we're in it for the long game here.

And as Jay said, our Service Desk, it's doing very well relative to how we're looking at it internally.

So it's not a reaction from a competitive standpoint.

It's just that we're in it for the long haul, and the product is still just growing really fast and is emerging to be one of our largest products.

Got it.

Just time for one quick follow-up.

On Confluence, we've talked about it as the primary.

I know you and I have 2. But obviously, the integration with [Trulia] has helped a lot.

But we've also heard of sort of standalone implementation to Confluence, where people take content management the system, potentially share a file and replacing them -- sorry SharePoint -- Microsoft SharePoint and replacing them with Confluence.

Is that something that's one off?

Or are you starting to see that happen on a more regular frequent pace?

Again, not hugely material, but sort of just trying to think through, is that's something that you guys are seeing more frequently.

Bhavan, the frequency isn't necessarily increasing.

I think it's been kind of a common expansion use case for Confluence over its history.

And it can start within a team.

And I think, as it builds more momentum and attracts more teams, I think it becomes the user choice for how content gets created and shared.

And so I think in some cases, companies might move off SharePoint in favor of standardizing on Confluence wall to wall.

In other cases, it's often that it coexists.

There's an integration connector and add-on in the marketplace that connects Confluence to SharePoint, so some parts of the organization might still use Office documents heavily and put them in a SharePoint and then sync or connect them back into Confluence for a better way maybe to iterate and share with other teams.

Next question comes from Heather Bellini with Goldman Sachs.

And Murray, best of luck in your going back to the board roles.

Quick question -- a couple of questions.

The first one was on the new products, the premiere products that you offer, the data center products.

I'm just wondering if you could share with us what the revenue uplift might look like as people upgrade to the data center offering.

And then I noticed you said Trello was, I think, $3 million in the quarter, and I believe you talked about last quarter, that being $20 million as a target.

Is that still intact?

Heather, this is Murray.

I think I missed the part of that -- on the data center, what the question was and if you could just repeat that...

Yes, what's the price uplift for the new products that you mentioned?

The data center products, plus the Premier Support services?

How do we think of the uplift that you could get as your customers migrate to that?

Heather, I might take that.

It sorts of depends on tier.

At the 500-user and 1,000-user tier, it's basically awash.

What the customer is doing is moving from their maintenance model for the perpetual license to a subscription, it's sort of roughly the equivalent cost.

And then as you move up tiers, it's -- it kind of varies.

It can be anywhere from 2 to 3x us much depending on the tier.

And again, data center, what they're upgrading to, is subscription from perpetual licensing.

Heather, it's Murray.

Two things.

One is, on our Investor Day, we're going to talk more about pricing, so we'll be able help folks better understand some of those relationships.

In terms of the target for revenue for next year, it assumes 20 -- approximately $20 million for Trello, same as what we had stated on our last call.

Next question comes from Gregg Moskowitz with Cowen and Company.

This is Matt Broome on for Gregg.

So I guess, it's somewhat early, but has there been any cross-selling of Trello to JIRA and Confluence or vice versa?

Yes, Matt.

I can take that, it's Mike.

Look, I'd say on Trello, things are going really, really well on both the integration and in the product front.

So we've only just started you'll see announcing and talking about Trello to our customer base.

So European Summit, as mentioned on the intro remarks in Barcelona in May, was the first time that our customer base has really been exposed on a personal level.

Obviously, again, in September, we'll start to do that.

So pretty happy with how we see Trello fitting in.

If anything, I would say, no major surprises on the integration.

And the last few months have really reinforced that the people and culture as well as the product that Trello fits brilliantly inside the Atlassian family.

We have said that we're not going to rush into cross selling the product aggressively into the audiences.

It's very early in that pace.

And like is our sort of DNA, we're going to pragmatically do what makes sense for both businesses.

And Trello's built an amazing product and an amazing business, and priority #1 is to continue that momentum for us, and priority #2 is to build, obviously, connections between the families.

Okay, great.

And I guess, I would expect the sales cycles to be quite a bit longer than usual, but what are your expectations for adoption of Atlassian Stack going forward?

It's early days, and we've just announced Atlassian Stack.

And just to remind people what it is, it's basically a relatively straightforward packaging of all of the data center -- individual data center products into a single license that customers can purchase at once.

So I think over half of companies with more than 500 users have 3 or more products.

That's the cohort that we're focused on upgrading the data centers.

They achieve scale and continue to grow with Atlassian.

So I would say it's still early.

Customers have the ability to either add data center à la carte, one at a time, as they're ready to basically move from a single server to the high-availability clustered configuration that data center provides.

Or if they're interested in basically upgrading the entire server family onto data center, they can do that.

And Stack offers basically a 25% discount off of the à la carte.

The next question comes from Rob Oliver with Baird.

Murray, you mentioned in -- on the expense question earlier about some of the additional marketing expense.

I know you guys hired a CMO in May, so just curious if that additional marketing cost was somehow correlated with that?

And if not, if you guys could speak a little bit more broadly about some of his initiatives here early on.

Rob, it's Murray.

I'll turn over that to Jay as far as what Robert's going to be focusing on, but it was not correlated to his arrival.

It was just to other things that we were focused on in sales and marketing and also some activities we did in G&A.

We also -- with the European Summit, we launched more languages, local languages of our products, which incurred costs through our cost -- in our gross margins.

That was a little lighter because of that.

So it was a lot of discrete items in the quarter of what sales and marketing made up part of it.

Rob, this is Jay.

I would just say that we're really excited about Robert.

He had a long, [historic] career in eBay.

And what he will focus on, I guess, is like 3 main things.

One would be, he is going to be familiar with our high-velocity, high-volume automation model, right?

He's going to be familiar with the sort of the patterns that we see in the way that we're building awareness in converting into active, happy customers and then growing with products.

It's sort of a motion that he'll be familiar with.

So continue to scale that part of the growth machine.

Second, we are a really interesting brand opportunity.

I mean, we want to be a household name inside of every workplace globally around teamwork and what teams can do.

So continuing to build the brand and having more resonance around all the products that are changing the way that modern teams function and work, is a big part of what he'll do.

And then finally, third, a big part of our business is just the fanatical customer base that has -- appreciates, basically, the change that our products help introduce for their teams and activate as evangelists kind of around the globe.

And I think there were a lot of people that had the same sort of activation evangelism in eBay; so continuing to grow and scale that.

Rob, it's Murray.

Just some more on the expenses that I -- as I wanted to make sure that everybody saw in our shareholder letter not really as reference to fiscal '18.

We provided a target of -- operating margin of 18% to 19% for fiscal '18.

We also provided a little bit of color about how to think about the 4 quarters of fiscal '18.

The first 3 quarters, as we said, will be relatively consistent [up] margins, and the fourth quarter will be higher.

There are a number of things going on this year.

We have our U.S. Summit.

It's in Q1.

It's normally in Q2.

So you should think in terms of the sales and marketing expenses being higher in Q1 this year because of some of the activities that we have going with Summit.

Also have a number of very important IT projects and other infrastructure projects going on that will involve some consulting expense and those kinds of things that are going to span sort of Q1 through Q3.

And then in January 1, we have our employees -- it's the annual salary increase time.

And so those things will kind of play across the first 3 quarters.

As we get into the fourth quarter, some of those things now wane in terms of some of the projects, and we wouldn't have the U.S. Summit, obviously that's in Q1.

And so that's why the fourth quarter now, we see a higher margin, and the leverage, it comes with greater revenue expanding as we finish out '18.

Next question comes from Sanjit Singh with Morgan Stanley.

Murray, sorry to see you go.

The best of luck in your next endeavors.

I guess, I wanted to step back and maybe ask a longer-term question.

If you just extend the trend lines, you guys are going to become a billion-dollar business in the next couple of years.

And so my question is, is previous software companies that have been fortunate enough to hit that billion-dollar revenue milestone, they've had to -- they've either had some "growing pains" or they've had to make some changes to the organization to realign for overall larger scale?

And so I guess, the question for you guys is, do you see any changes that you guys would have to make as you guys become a billion-dollar company?

Or do you feel like this -- the model that you have today, the organizational structure that you have today, supports scaling way past that billion-dollar revenue threshold?

Sanjit, it's Scott here.

Well, thanks for that.

I mean, we all look forward to that day if it comes.

But the thing we've always looked at -- over is building a long-term company, and we have since the start, since -- 15 years ago, we've always wanted to build a sort of multi-generational, long-term company, and so that hasn't changed through being a private company, being a public company, through every revenue threshold we've had.

There's always change internally in terms of how we tweak the model and how we build and add new products to our stable of products over time.

But the thing we've always been true to is that sort of high-velocity model and the fact that we're after the [Fortune 500/1000] and we really want to be for people everywhere.

And so there'll be tweaks and changes over time, but I wouldn't look at anything drastic that we need to do in the next coming years to achieve our mission of unleashing the potential of every team.

I think we're really well set up for that.

We operate in really big markets.

Our products are really respected and bought in by our customers, and we continue to do that as we grow.

Great, that's really helpful.

And then Murray, maybe just a follow-up for you.

In terms of your CapEx guidance, it does imply a pretty significant increase over this past fiscal year.

So just wanted to see what the investments are there.

I assume it's sort of related to the cloud infrastructure, but I wanted to get a sense of whether that's the sort of new level we should think about going forward.

And then in terms of the pricing impact, are we still thinking about low-single-digit impact for fiscal year '18 revenue.

Yes, Sanjit.

So our CapEx, as we are transitioning to really having a public cloud -- a cloud provider doing all the hosting for us as opposed to ourselves, the amount of CapEx that we'll have going forward that's involved in acquiring servers and things like that is diminished rapidly.

And for the most part, our CapEx on a go-forward basis is going to be tied to facilities.

And that's what we really got here in fiscal '18.

We've grown in headcount.

We'll grow again in headcount this year.

And as you know, with facilities, you go through a stair-stepping.

They don't sort of happen every year.

It's just this year, we're going to have more, in terms of leasehold improvements and just building out some the facilities that we're expanding in, in the San Francisco Bay area and other parts of the world.

And that's really what it is.

It's not about buying IT equipment or servers and things like that.

So it's going to be -- it'll be kind of -- there'll be years where we'll have more around facilities activities and there'll be other years that we won't.

And we didn't have as much in fiscal '17.

Great.

And then on the pricing impact, is everybody still thinking about single digits?

Yes, in terms of pricing, yes, no change to that.

And I just want to talk a little bit about it.

There's -- obviously, we've gone out now.

We announced this at the end of June and it'll take effect July 31.

A few things that go into this, we obviously put a tremendous amount of effort into the analysis that went into this, and it's not just as simple as, we're changing prices.

We're moving customers in the cloud from what was kind of a server-based model, in terms of tiers, to a per-user model that you tend to see in a cloud environment.

So if you're a monthly user, you're going to be on a per-user pricing.

And if you're going to be annual, it's going to be granular tier.

It's kind of getting close to being like a per-user.

So it's really important that we move to that industry standard.

And we also -- it's really important that we maintain our low-price, high-value, "targeting the [Fortune 500/1000]" pricing.

That's the long game that's giving us incredible competitive advantage, and we're not looking to change that.

However, we did look at optimized pricing and that did lead to some increases in pricings as part of this transition to per-user pricing.

In addition to just changing the prices though we have to model things like will there be some customers that churn; will there be some customers that say, "Hey I'm going to go from monthly to annual to get an annual discount." Will I try to actively manage my number of users.

So maybe now, I'll try to like bring my users down a little bit to see if I can kind of offset some of that price increase.

There are just so many things that go into this analysis that I think it would be kind of hard to figure it out by just looking at our public pricing.

And that's why we've done the work for you guys and said it's low-single-digit points of revenue growth in fiscal '18.

The next question comes from Michael Turits with Raymond James.

Best of luck to you, Murray, and thanks for everything.

First question is sort of -- I think an extension to what Bhavan was asking about Confluence and SharePoint.

Can you talk about where -- in each of the different major silos, where you're seeing competition, specially outside of the IT realm?

So for example, Confluence, SharePoint, maybe HipChat, Slack and JIRA or anywhere else in workflow whether it's ServiceNow or others?

Michael, this is Jay.

I think you mentioned a lot of them, right?

I mean, remember, I think if you take any one sort of point product, it would have different things, different alternatives that it's continuing against, and you mentioned a lot of them.

And we mentioned before that our focus and philosophy is we want to make sure that we win head-to-head contests based on the merits of the product -- that individual product.

That's what we sort of lead with when a customer's comparing.

I think the -- if you step out -- take a step back from that, the advantage we have as a company is I think we are sort of the singular company that's focused on teamwork holistically.

And all the dimensions of what makes teams function at work better: people need to organize things, they need to create and share content, they need to communicate and message and discuss work.

And I think the value that we provide companies and I think one of the reasons that we're growing the way we are is, people see that holistic approach to change in teamwork.

And even when we lose a particular contest against a SharePoint or a Slack or a Zendesk or fill in the blank, we have 3 or 4 other category-leading, compelling products that, that customer might choose and, over time, swap out the one particular thing we lost.

And so I think we're in a unique and I think pretty interesting market and competitive position.

And then one point for Murray.

On the guidance for next year, I think you guided above on revenue -- above the Street.

I'm [aware] you haven't given guidance before.

And above on the Street on margins, and yet, EPS is kind of slightly below the Street.

So is there anything that you think that might be a disconnect in terms of the where the Street was modeling?

Yes.

Between fiscal '17 and '18, there's a change in the tax rate.

The income and deductions across the various global jurisdictions just sort of changed for us between '17 and '18, and that's led to a higher tax rate, what you've seen in the earnings per share.

Our focus, from a global tax strategy, is going to be focused on cash flow and not on book tax.

That's where we're going to focus our efforts and have been, and this quarter -- I mean this year, you're saying leading to a higher book tax, but not having an impact on cash tax.

Yes, maybe I missed it, but did you have that book tax rate for us to use?

We don't provide a tax rate.

It's quite complicated on IFRS and non-IFRS reconciliation, and so it's implied in the guidance.

We did have a brief comment in the letter about this change in the tax rate, so that's really what's driving it.

The next question comes from Keith Bachman with Bank of Montreal.

I wanted to go back to pricing for a bit.

It's been out for a brief period of time.

And I just wanted to get your feedback on what customer reaction has been to date.

You mentioned churn, and at some price points, it looks like -- or some usage levels, I should say, it looks like the price increase was fairly high.

And I just wanted to see if you had any incremental thoughts on churn.

And the second part of the question is, does the price increase have a duration that's longer than this year?

In other words, might some of the price increases actually impact the following year as well to help revenue growth?

I might take part of that, Keith, and then pass it over to Murray for the back half.

Just in terms of the earlier part of the question, it's still relatively early.

So the price change goes into effect.

I would say that there hasn't been much of a negative reaction to the change, I think, in part because the change was driven by customer demand and want.

The biggest frustration that customers expressed to us was having to jump through this kind of antiquated tier model.

And what they really wanted was sort of a per-user approach, where they get paid for the users that they're adding over time.

So I think that was a big win from the base.

And then I think we also talked about a lot of -- the majority of accounts and the cloud practices that were affected either had no change or could see a decrease based on their actual active user accounts that they could adjust.

So I would say it's still early, but generally the reception, I think, to the model shift was positive.

Okay, fair enough.

And then on duration?

Yes, at this point we haven't commented on duration.

We're just focusing on fiscal '18.

Obviously, at a future point, we'll have more to say on that, but for right now, the focus is on fiscal '18.

The next question comes from Patrick Walravens with JMP Group.

Murray, I'm not going to say goodbye to you yet.

I still wanted to talk to you for a while.

So [your] question for, I don't know if it's Scott, Mike or Jay.

I'm signed up for the incident reports, and I feel like I get a lot of them, like 3 or 4 a day.

So I'm just wondering, are you guys -- how satisfied are you with the -- sort of the maturity and consistency of your hosting operations?

And where do you think that goes from here?

Well, Patrick, I appreciate you signing up to the incident reports, that's a first for us, having an analyst sign up for that, so I appreciate the interest.

Look, there's a couple of things there.

One is that our culture of openness and transparency leads us to be really open with our customers about where we are with things.

And if there's something, even the most minute problem, we want to make sure we're open and honest with our customers about it in case they're -- in case they face that.

So that, falls into, I guess, the frequency with what you say, [things].

And obviously we have a product called StatusPage that allows other companies to be open and transparent with their customers around how their services are running at the same time.

The cloud, as other companies would realize, taking on running things for our customers is a huge responsibility for us, and we spend a lot of time on that responsibility in improving it every single year.

So you'll see every single year our improvements in that area because trust with our customers is a big part of our business.

The next question comes from Ben McFadden with KeyBanc Capital Markets.

This is Clarke on line for Ben.

I was wondering if I could ask about JIRA Software and Confluence, some of your more established products.

Between the 2 of those, which is growing faster still?

And maybe if that can be broken out, which is becoming more important to the strategy of multiple solutions being sold in, whether the attach rate of one of those is fairly significant Confluence with maybe outside of software development.

This is Murray.

Yes, so we don't break out our individual products in terms of their specific growth rate, things like that.

All we can say is, is that JIRA and Confluence has been around since really almost the inception of the company, they're absolutely critical products for us.

What we have said in the past is that at the time of the IPO, they represented approximately 2/3 of our total revenue.

They have huge market opportunities.

We've got a long way to go with those products.

It's early days for those.

All right.

And for JIRA Core, I was wondering if there would be any color that you could provide on the deal size, whether it's still being sold from department-to-department or whether you're seeing more often pulled across department into the entire firm?

Clarke, not different actually with other products -- other products in our model.

We land -- it's really common for us to land within a small team.

With JIRA Core, it could be within IT or it could be within a business team, it sort of begins with it.

And then again, the nature of the products and the network effects of adding other people from other departments or other teams to work on the project, aids the expansion and spread of that project.

So it's far less common for a company to say, "I'm going to start with JIRA Core and just like blanket the whole organization out of the get go." It's typically, one team proving to another team, it's just a better way to work.

(Operator Instructions) The next question comes from Nate Cunningham with Guggenheim.

Could you give us a sense of how many of your customers are on subscriptions versus maintenance today?

Well, what we said in the past is generally that sort of from a cloud versus server, it's generally sort of 50-50 in terms of the mix.

However, each quarter, when we look at new customers, on average it's been about 3/4 of new customers are going straight to cloud.

This quarter was particularly strong in cloud adoption.

And part of the reason for why the perpetual license revenue number in Q4 was maybe a little lower than you would expect it from a trend line, it was because new customers were choosing cloud in a big way this quarter.

It was nothing that we were trying to do.

We're agnostic on their deployment model.

We'll let them choose.

The secular trend of moving to the cloud is clearly in place, and in this particular quarter, we saw more moving to cloud.

Okay.

And could you give us a range or like a sweet spot for your average number of seats on the subscription side?

We haven't provided that.

Obviously, it would depend on cloud versus data center.

Data center subscription product has huge numbers of users on that.

So it's really quite a mix.

It can be from a very small number to larger numbers, but the largest ones are going to be on data center.

Yes, I'm thinking more on the cloud side.

We have not provided any specifics on that.

This concludes our question-and-answer session.

I'd like to turn the conference back over to Mike Cannon-Brookes for any closing remarks.

Yes, thanks, everyone, for joining the call today.

We really appreciate your time.

Look forward to keeping you updated on our progress.

And just a reminder that we hope to see as many of you as possible at our investor and analyst sessions at the Atlassian Summit in September.

Thank you.

The conference has now concluded.

Thank you for attending today's presentation.

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