Atlassian Corp (TEAM) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for joining Atlassian's Earnings Conference Call for the First Quarter of Fiscal Year 2018.

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.

Good afternoon, and welcome to Atlassian's First Quarter Fiscal 2018 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 commentary for our first quarter of fiscal year 2018.

These items were also posted on the Investor Relations section of Atlassian's website at investors.atlassian.com.

On our IR website, there's also an accompanying presentation and data sheet available.

We'll make some brief opening remarks and 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 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 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 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 the section entitled Risk Factors in our most recent Forms 20-F and 6-K.

I'll 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 had a great start to fiscal 2018.

This quarter, we grew revenue 42% year-over-year and generated over $62 million of free cash flow.

We also added over 4,200 net new customers during the quarter and now have more than 107,700 customers in total.

For Mike and I, the clear highlight of the quarter was hosting our largest ever user conference, Atlassian Summit.

We had approximately 3,600 customers, partners and Atlassians come together in San Jose, California.

It's amazing to meet with our customers and hearing how they're using our products to unleash the full potential of their teams.

We're blown away every year by the stories from teams of every type and size using our products in ways that we never imagined when we started Atlassian 15 years ago.

We also had great representation from Atlassian user group members and leaders, who came from countries as far afield as Kenya, Japan, Russia and Chile.

Atlassian user groups are passionate communities of users who gather together in events in their local cities to learn and network, and they play a key role in supporting excitement around our products and the word-of-mouth model that fuels our growth.

We shared some exciting product developments this summer, a number of which we've highlighted in our shareholder letter.

One of the most notable announcements was our launch of Stride, our new team communication product built from the ground up to help teams turn conversations into action.

Stride goes beyond just chat, offering best-in-class team group messaging, features for real-time meetings, including audio and video conferencing and screen sharing, and collaboration tools for recording actions and decisions across teams.

It was also great to see many of you in person at our first investor and financial analyst session at Summit.

Mike, Jay, Murray, Sri and I appreciate the chance to share more about our business and to chat with you directly.

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

(Operator Instructions) The first question comes from Gregg Moskowitz with Cowen and Company.

This is actually Matt, on for Gregg.

I think he's not able to get to the call right now.

But how big of a development effort was behind the Atlassian teamwork platform?

And what do you think this means to your cross-selling prospects over time?

Scott, here.

Thanks, Matt.

Look, the Atlassian development platform is a single platform we're building in our cloud products to unify the way our products work, look and feel and a lot of sort of the way that you interact with our products.

We've got a system of elements, which are things and ways of working inside our products, such as tasks and decisions that are falling through all of our products.

And that development effort has been going on for the best part of the year, and we're really excited about the way it differentiates our products against competitors in the marketplace, but also provides a unified way of working across all of our products, which will help our cross-sell opportunities.

Now, the first release of that is -- probably best example is inside Stride, our new product that we launched, and that's had great customer reaction not only for Stride but also this common teamwork platform.

Okay.

Great.

And I guess, have you begun to see any early traction with Atlassian Stack?

Hey, Matt, this is Jay.

Stack is relatively straightforward packaging of multiple data center products into a single offering.

We've seen, as we've commented earlier and certainly this quarter, great attraction from the customer base towards data center.

And for customers that look to standardize, expand to multiple parts of their business across software, IT and business teams and they want to upgrade to all versions of Data Center, Stack is a really simple purchase vehicle.

So I think we're pleased with the adoption so far.

The next question comes from Michael Turits with Raymond James.

Obviously, a really strong quarter.

Maybe you can talk about where the upside really came in the quarter and also especially was really strong on the billings side.

So why did we see that big -- that disproportionately very positive upside to the deferred and to billings relative to revenue?

Hey, Michael, this is Murray.

Yes, we had -- this is -- for our eighth quarter as a public company, this was our strongest quarter sort of aggregate demand.

We really sell a lot in our enterprise business, driven by Data Center and Server, just sort of strong adoption across the board.

And we were just very pleased with the results along those lines.

We also saw particular strength in Marketplace this quarter as well.

Yes.

I saw that in the other line, so I was actually going to ask you about that.

And then, embedded in my question there was a question about why billings' upside was even stronger than revenue.

I guess it's more forward-looking, but was it a bigger shift toward subscription?

Or was there any benefit from duration?

Anything that would have given you that particularly big boost in -- on the deferred side?

Yes, again, along the same lines, the subscription business, so Data Center being part of that.

That's a subscription go-to-market model for our customers.

Again, for the larger organizations that we were seeing this trend expanding behind software and IT teams with larger enterprise adoption, and a lot of that is in Data Center, which is a subscription offering.

So you'll see that go to deferred revenue, and then we'll recognize the revenue over time.

If I can squeeze one more little one in I appreciate it.

Just on tax rate, I think last quarter you actually looked at what looked like it was going to be a higher tax rate than what we had expected.

And now in the shareholder letter, it mentioned the tax rate going down in '18 relative to '17.

So maybe you could help us out with that and if you could tell us what tax rate we ought to use and what the change is.

Yes, we don't guide specifically with the tax rate.

Under IFRS, it's very difficult.

From an IFRS standpoint, we see it going down from '17 to '18.

On a non-IFRS basis, it's actually going the other way.

And the target we provided on our July earnings call that was embedded in the earnings per share guidance, we see no change to that.

Now, under GAAP, which is everybody is sort of used to, you get to smooth the tax rate over the course of the year.

Under IFRS, we can't do that.

And because of the shift of income and deductions in different jurisdictions around the world with different tax rates and things like that, this particular quarter the shift worked in a way where it was beneficial to the non-IFRS tax rate.

But for the full year, as we think about it, as it's built into the EPS target, it's going to swing back the other way, and there's no change to the full year sort of embedded non-IFRS tax rate for fiscal '18.

It's a much more complicated tax rate process than under GAAP.

The next question comes from John DiFucci with Jefferies.

I have a question on the longer-term annual price increase that you planned to instill, and I know it's still early for this one, but it's more a question around the philosophy here because we're getting more questions around that.

It's obviously -- you increase prices, if sales keep up, that's a good thing.

But your mission has always been to deliver technologies to the masses of corporations and users that's easy to consume and easy to use.

And part of that being easy to consume is price.

So can you just maybe talk to us a little bit about the -- I realize in all of our work that customers get a ton of value out of Atlassian products and especially relative to the competition.

But directionally, how does an annual price increase in server and cloud products jive with your mission to deliver this to the -- get everybody to use it?

John, so good question on the pricing.

Obviously, this is one that's getting a lot of attention.

First of all, we are not going to change our sort of low-price, high-value to customers.

We're not -- that strategy absolutely we're not changing.

This is more just really kind of tweaks on the margin in terms of the -- of price increases.

Now our costs obviously are going up every year.

Every single software vendor that we purchase from, they have a price increase that gets passed on to us.

And we believe that, that's a better approach than what we've done in the past, where we may go a few years and we hit them with -- the customer with a price increase.

It throws off their own planning.

We just feel this is -- it's a much better way to go with it.

And we'll make those decisions on what we do with price each year as we go forward.

If they're -- if we're in a recessionary environment, it might be that we don't have a price increase that year.

Other years, we may have something more.

So it'll be something that we'll just kind of look at on a year-to-year basis.

But we're absolutely not going to change the value proposition that we give to customers, which is incredible products, tremendous value at low prices.

And our plan is not to do anything to disrupt that go-to-market model.

Great, that's very clear, Murray.

And if I might, just a quick follow-up to Mike's question, or just related anyway.

Very strong cash flow, and the results all across the border are really strong, but the cash flow number is pretty impressive.

And I realize that you gave some of the reasons as to why it was strong.

But other than strong business momentum, is there any -- are there any other reasons, I don't see any, but are there any other reasons we should be aware of that were unique this quarter that we, perhaps, we shouldn't expect going forward?

Yes.

Typically, John, our first quarter is the quarter that we pay out bonuses to our employees.

So we've been accruing it all year and then the payout is in our first quarter.

So it tends to be a seasonally weak quarter.

And yet here we are with, I think it's our second strongest free cash flow quarter that we've had as a public company.

A few things that went into that.

Number one is that you can see the deferred revenue strong.

You could do your calculated bookings.

So that had a big part to do with it.

We also, on the sort of the working capital side, on payables, just timing.

We're not managing it.

We did have a little higher payables at the end of the quarter that will work against us in Q2.

So as you kind of think through the -- while we don't guide quarterly free cash flow, we'll have it kind of go a little bit the other way on payables, as we make some payments in the second quarter.

We had higher profits.

You can see that with the additional revenue that we had this quarter that it flowed through to operating margin.

So the leverage in the model, that had something to do with it.

And then for the full year, we're still targeting $25 million to $30 million for CapEx.

But some of the CapEx in Q1 kind of moved out into a subsequent quarter.

So all of that factored in, but it was really the strong sort of deferred revenue was the primary driver of the free cash flow.

Which is reflective of the business momentum.

But really nice job, guys.

Thank you.

The next question comes from Heather Bellini with Goldman Sachs.

I just wanted to ask about JIRA Service Desk for a second.

Wanted to ask about the momentum you're seeing in the business, if you could just kind of give us an update given it's been a little bit since the introduction.

Just wanted to see how that's progressing.

And also just -- I know you introduced the white label version, I think, over the last 3 months or so.

I was just wondering if you could share with us kind of how the initial uptake of that has been and kind of what drove you to offer that as an option.

Hey, Heather, this is Jay.

Firstly, it's been great.

Momentum for JIRA Service Desk continues to be great.

I mean, we're pleased with the traction that we see in it.

We've disclosed previously 25,000 organizations on JIRA Service Desk.

There continues to be great demand for the 2 dimensions that it serves, both customers that seek to improve the way that their service teams, from IT to marketing, better serve internal constituents and customers.

Then also for customers that want to better enable the service and support relationship with their customers, especially where that is connected pretty deeply to JIRA Software and kind of the internal technology teams that are building some technology that their external customers are using.

So it's great.

I think we, at Summit, for folks that were there, I think you would have continued to see a lot of excitement and interest around JIRA Service Desk.

And maybe just to see the dimensionality of it, go back through the online sessions and you'll see Airbnb talk about how they're building a service culture with JIRA Service Desk.

You'll see Samsung talk about their deeper journey around ITIL and internal service management; The Trade Desk talking about better client engagement through JIRA Service Desk.

So it's great.

In terms of the white label question...

Oh, right.

I'm sorry.

I -- we don't call it that.

Yes, it's -- I think, that continues to support the kind of external use case around service and support, and it was a widely requested feature.

Part of the road map is us inventing new and different ways for customers to engage clients.

A part of that is investing in things that they need to do it more effectively.

And that's sort of a clear version of the latter.

In addition to just helping them brand the experience so it's part of their interface to their customers.

We also offered localization, just because we're a customer that has -- we are a company that has customers in hundreds of different countries.

And so in addition to branding in a real, local language is a dimension that I think improves the relationship with -- between our customers and their customers.

The next question comes from Richard Davis with Canaccord.

So when we talk to investors about you guys, they love the selling model and the high R&D focus.

The only question that I kind of regularly get is that they would love a little bit of color on kind of where the R&D is going.

For example, I saw you guys introduced some new Bitbucket and Bamboo versions.

I was talking to some dev team guys, and they were thrilled about the scale.

So I guess, basically, the question is, could you talk at least at a high level how you think about allocating developer effort between scale, between new functions?

And then, even I've talked to some guys recently about -- they're talking about trying to put a layer of security on top of the code at rest and in motion.

So just a little bit of color there would be super helpful.

Richard, Scott here.

Look, R&D is a -- that's a broad area.

As you think about our products that we sell on the quality of our products, not the quality of our salespeople, and so we're going to continue to invest strongly in our R&D to make sure that we have market-leading products in all the segments that we operate in.

As we mentioned at our investor day, we've had -- some of that effort over the last year has been replatforming in the cloud to set us up for the next level of growth and to have the ability to serve larger customers in the cloud, sort of spend some energy there where we're still improving our mobile products.

There's a lot of growth we see there in terms of making sure our products [grow] across mobile.

And you've seen us continually invest in all the products we have, whether that's built from scratch or an acquisition.

We continue to invest in R&D to make sure those products are best-in-class.

At Summit, we launched our team platform, as I mentioned [Atlassian].

That team platform is a standard way of working across all of our products.

You probably saw it most acutely in the launch of Stride, but a lot of things we're doing there are rolling through all of our products, which we believe gives us an advantage on an individual product to product basis versus competitors, but also advantage in cross-sell and allowing us to more seamlessly move our customers across our entire product set.

Got it.

So multiple fronts in a good way.

The next question comes from Keith Bachman with BMO Capital Markets.

The first is I wanted to follow DiFucci, and go back to pricing for a second.

In the original context, it was thought that pricing would be a help of low single digits.

I think in your shareholder letter, you reiterated that view.

Our checks at your trade show and otherwise would suggest -- we haven't found any customers that were going to -- that pushed back at all on the price increases.

And so it just -- it seems like there would be more help than low single digits, but what are we missing from that?

Keith.

So yes, so far, the expectations, our expectations going into it in terms of customer reaction has pretty much been on track.

A lot of the price increases that we're putting forward this year are going into like subscription-type models so you're not going to see the flow-through all sort of recognized this year.

It's going to go into deferred revenue and come off over time.

We had some customers that have decided they might have had more than 10 users in the cloud, and then they downgrade to 10 users so they can get the starter price and save money that way or they move from monthly to annual.

So there are some customers who are making some decisions around that.

So I'm going to go ahead and renew my maintenance in advance of my maintenance; there's a price increase on maintenance.

So you get a little -- we get a little movement forward on our bookings kind of thing, but we don't get the revenue because they're trying to get ahead of the price increase.

All of these things went into sorting through what it meant for our revenue targets for the year.

And so everything at this point is on track, and everything is factored into the guidance that we've got for this year of $841 million to $847 million.

I'd also just add a little bit on that, is that as you kind of look at the model over the course of the year, as we get into the second half of the year, we're going to go up against sort of the Trello we acquired in the third quarter, and so the compares get a little tougher.

They have sort of a regulating impact on the growth rate of our revenue.

And we're also just -- this is one -- we're one quarter into the year.

We're off to a terrific start, but we're being prudent as we think about our revenue targets for the full year.

And we'll go through another quarter here and we'll be in a position to give you an update on the next call in terms of how we're doing it for revenue overall for fiscal '18.

Okay.

Great, thanks.

Yes, it's certainly off to a good start.

Murray, perhaps this is for you, but I'll throw it out to the wider audience.

The cloud foundation was discussed at the analyst event a few months ago.

And just want to revisit, what are the benefits that shareholders should be thinking about as it relates to new cloud foundation?

I mean, it seems like faster time-to-market would be certainly one and perhaps even more leverage on the R&D side, but wanted to just open that up.

How should we be thinking about the cloud foundation and the benefits to your organization going forward?

Yes.

I'll make a few comments on that, Keith, and will open up to my colleagues if they would like to add anything to it.

From a shareholder perspective, clearly moving to third-party cloud and all the tools that come with it is going to allow us to innovate at a much more rapid rate.

We're in the apps business.

We're not in the managing data centers business.

And so looking to a third-party to do that, they're going to be able to scale much more effective than we are, much more cost effectively.

So as you look at kind of the gross margin over time, while we'll see more and more of our business beyond cloud that runs at a lower gross margin than our server business, we'll be more cost-effective with a third-party running that.

And then going from single to multi-tenant and all that.

Again, it's just innovation, being cost-effective as far as adding on to that.

So that's all good for the -- that's good for the shareholder.

That's good for the customer.

I don't know if anybody here wants to add on to that as far as from the customer perspective.

Yes, Scott here.

Look, moving at our own data centers allows us to light up more data centers in a global sense, a lot easier than we can with less time and cost and distraction to do that than we would have if we were doing that ourselves.

And so that allows us to serve our global customers better, and also around performance and latency.

But over time, that allow us to work in other jurisdictions where they have certain data requirements.

We also [zips up] for the larger customers over time.

At the moment we have a 2,000 user limit and we're working towards removing that over time.

And thirdly, it allows us to have sort of a standard platform, and we've introduced sort of Identity Manager product at our Summit, which is also for those large customers.

It allows us to sort of innovate faster.

And we see, again, the time we're not spending building of data centers that we can spend on building products for our customers.

And they're seeing the benefit of that already.

Yes.

I think it goes without saying.

At the end of the day, we believe it's going to lead to more revenue and less costs.

So I think that's what shareholders are looking for.

Okay.

I was going to sneak one more for Jay in, if I could.

And Jay, in the new customer adds, call it just over 4,000, 4,200 and change, was there any different in complexion of what the new customers are initially [buying], which I assume is still -- you're in Confluence?

But was there any difference in the composition of the products associated with the new customers adds versus, say, the last number of quarters?

Not materially, no.

I mean, we see -- we continue to see increased adoption in JIRA Service Desk as the first product, as it expands the dimensionality that I talked about earlier.

But on the whole, pretty consistent across product portfolio and also deployment model between cloud and server, where 3/4 of those customers begin their journey with us in the cloud.

The next question comes from Sanjit Singh with Morgan Stanley.

Congrats on a nice quarter.

I wanted to toggle back to Heather's question on JIRA Service Desk.

Our sort of field work points to a growing opportunity there, a lot of traction in the mid-market.

My question is, in terms of a go-to-market model, or maybe even just a services and support model, that product seems a little bit different versus your try-and-buy, like JIRA and HipChat, and now Stride.

Is there any other type of investment that you guys are doing to promote adoption of JIRA Service Desk that's different from a services or a go-to-market perspective versus the rest of the product portfolio?

Hey, this is Jay.

I'll tackle that one.

Again, no, not materially in terms of differences.

It's straight in line with the way that we approach go-to-market and customer acquisition with other products.

JIRA Service Desk, like everything else in the portfolio, you can begin with a particular service team internally.

So you can start with either IT or you can start with marketing.

I think the hallmark of all of our products is, I think, ease of adoption and configurability.

Where there are more complex service collaboration use cases or business processes, be it for JIRA Service Desk or otherwise, we've got a channel of solution partners over 400 wide, 400 strong in countries all over the world that we've enabled and equipped to kind of configure the product for more complexity.

And they can also aid in the expansion for a customer that might begin with one particular use case and then expand to others.

There's just loads of opportunity, I think, for them to bring in an expert to help kind of canvass the organization for other opportunity, and also to configure it for the more complex opportunities.

So -- but that's probably not where we start.

I think the channel can begin there.

They can go into a really large automotive organization, and with their knowledge and experience of JIRA Service Desk, begin to map that to really complex, meaty opportunities.

And so it's not necessarily one direction.

But I think if you look at the volume of customers that we acquire, it really begins I think in the way that all of our products begin, sort of small and then expand over time based on the success of the product.

That's super helpful, Jay.

And then maybe one for Scott or Mike.

In terms of the expansion into business teams, you have multiple ways to do this now with Confluence, JIRA Core, Trello, and now Stride.

And so in terms of as we look into the rest of fiscal year '18, can you give us a sense of what the playbook might be now that you have a broader portfolio?

How you might try to track customers or to track teams in this segment of the market that might have been different versus the past couple of years?

Yes.

Thanks, Sanjit.

Look, we've told you guys many, many times that our goal is to go after the Fortune 500,000 and to do that with all the teams to unleash the potential of every team.

Nothing in that goal and aspiration is changing.

We passed 100,000 customers this quarter, so it's a big milestone on that journey.

In terms of going after teams outside of software and IT, no difference or change to the model, to the go-to-market approach.

Trello lands in all sorts of different teams at the start and then expands across an organization.

Similarly with Stride, similarly with, as you mentioned, JIRA Core, JIRA Service Desk.

So no change to our model to go after those teams.

We focus on -- I guess you've seen us spend a lot of time and effort in the last couple of years on design.

We talked about it a lot at our Summit user conference in terms of continuing to drive the product experience to appeal to a broader and broader set of users.

Obviously, that helps us across the business, but it doesn't change in any way the go-to-market motion to attract those customers.

That's great.

Thanks, Mike.

And then, the last one for me in terms of -- for Murray.

If we look at the -- I think at Analyst Day, you talked about customers greater than 50k having these really strong renewal rates.

Can you give us a sense of what percentage of the revenue base or what percentage of ARR does that cohort represent?

Yes, we haven't provided that specific information.

Yes, we haven't done that.

This quarter, I can just tell you that we had particular strength in the enterprise as our data center offerings continue to expand.

So seen some real success there.

But as far as that specificity, we just haven't provided that level of information.

The next question comes from Bhavan Suri with William Blair.

Congrats.

Nice job there.

Just one, maybe for Jay to start off with.

And I'm going to touch on service desk here.

Jay, when you look at the partners -- and before JIRA Service Desk, they were obviously selling JIRA.

But as you look at the Platinum partners, specifically, are they shifting the mix and selling either Confluence and JIRA Service Desk?

Or are they still strongly pushing JIRA?

And then just a second part of that is, have you seen them start to sell deals in larger volume sizes, or are they still working with small deals and expanding, or they typically come in with a larger sort of 500 or 1,000 seat deal?

Just trying to understand the dynamics for the Platinum partners and sort of what's driving the growth there in terms of deal size and products.

Yes.

Thanks, Bhavan.

So Platinum partners tend to focus on more complex, larger organizations.

And so the enterprise opportunity that exists for data center and in the cloud with new releases like Identity Manager, that's where they're going to play.

I think there -- these are companies that have a service and consulting business as their primary growth engine, and so they're looking for a more complex landscape that they can basically take -- maybe initially a starting point with one product and then expand that across the portfolio.

And so that's where they gravitate.

Even within Platinum, there is some specialization.

So there are solution partners that will focus primarily on Confluence and kind of the broader content collaboration opportunity that, that provides to them.

There are partners that focus maybe particularly on JIRA Service Desk around ITSM and ITIL.

There are Platinum partners that focus specifically on just the technology opportunity that continues to grow as more and more companies become technology companies first.

So yes, I think it's really wide and diverse.

There's no one-size-fits-all.

But I would say that Platinum tend to orient more towards enterprise.

And I think the other part of our partner network that we haven't talked a lot about is just the marketplace, which is a whole other dimension, both across small and large opportunities, where our ecosystem continues to flourish, to build additional capability that both small and large companies need across the dimensions that we serve.

Yes.

That was really helpful color.

I guess, one quick one for me, just to follow-up on that.

So when you look at the Platinum partners and you look at your investment in partner go-to-market -- education, finding new partners, all the rest of that -- you're not aggressively -- there's no sales motion, so there's no sort of, "Let me go get a customer to buy." I totally get that.

But is there a motion to develop partners and enhance the Platinums?

And then, do you see customer demand coming in such that you want some of these more complex partners?

Or do you think sort of the mix is pretty good right now?

We think the mix is pretty good.

I mean, we're always looking for additional expertise and capabilities.

So I think where there is -- I'll mention JIRA Service Desk again.

I think the service desk opportunity, I think, for the Global 2000 is a little bit different and probably does benefit, I think, from expertise, both in terms of the product and the opportunities, but also by vertical.

We have solution partners that focus specifically on automotive.

And so you understand how to take that product and really configure it around that opportunity.

So I think we also look for -- we talked about this during the Analyst Day, but one aspect that partners help serve is a geographic one.

Where customers in Germany benefit, I think, from more intimacy with folks in market that speak their language, that kind of understand how their businesses are different in those particular markets.

And so we -- I think, generally -- we, the 400-strong -- I think are good.

But we continue to recruit and fill in where there are certain gaps.

One other -- one thing to tack on at the end is when we think about verticals like automotive, another one is government.

So I think there's a big opportunity, especially in U.S. fed.

And we announced a relationship with Carahsoft, which is primarily a reseller, but we've got a whole ecosystem of solution partners that understand how specifically to deal with the government and the opportunity for our products in that capacity.

The next question comes from George Iwanyc with Oppenheimer.

So looking at Trello -- and nice additions there, again -- what type of crossover are you seeing from the Trello user base into your other products at this point?

Yes.

George, this is Mike.

Look, we've obviously been incredibly happy with how Trello's user base has continued to grow and that the broad appeal it has to the potential 1 billion knowledge workers out there.

We've shared quite clearly that our main objective there is to have the team, the Trello team, continue to do the things that has made them successful as a team, as a product.

And our primary focus is on the momentum that exists within Trello.

We aren't rushing into cross-selling across the base between Trello and the other Atlassian family and vice versa.

We're focusing on doing what makes sense for both businesses.

Obviously, at Summit, we shipped a number of integrations with other Atlassian family products.

So we've now got Trello and Confluence, Trello and JIRA.

We shipped embedded Trello inside of Bitbucket, so a really deep integration between those 2 products.

And obviously, things like the Stride meetings, so audio and video meetings and conferencing inside a Trello board, so going the opposite direction.

Those integrations are obviously going to help customers flow back and forth, but there's no explicit or active cross-selling activity going on at the moment, just trying to continue the momentum that Trello has.

And then, just broadly on a broad product competitive basis, are you seeing any changes in the market, either relative to your price changes or just normal product development?

It's Scott here.

We remain really confident about our competitive position in all the markets that we operate in.

And we haven't really seen anything over the last quarter that changes the market dynamic in any way.

As mentioned, the price increases are still -- retain our great go-to-market model of being a huge amounts of value for a low price.

So that hasn't changed anything on our market competition.

The next question comes from Jonathan Kees with Summit Redstone.

Great.

My questions are actually just a follow-up to some of the questions that have been asked.

There's been bits and pieces of the answers provided, but I guess I wanted to get a more complete answer if possible.

In regards to the cross-selling, you talked about the service desk and there's Platinum partners who are dedicated to service desk.

I guess I'm just curious, in terms of like the service desk and other new products ex-Trello -- you've already explained pretty well about Trello.

And that you did also at the Analyst Day.

Out of the new products, how many of them are like lead-in to the original products of JIRA and Confluence?

Or is it still mainly JIRA and Confluence are leading to the new products?

This is Scott here.

One of the interesting things that I model is by having lots of products that are very popular with our customers, we don't have one main product that lands the majority of our customers.

If we go across our product set, they all land new customers.

And then the cross-sell motion, both active on our part and just as customers naturally move from one product to the next, it's not an easy motion to map compared to maybe other companies that land with one product and have add-ons.

We have a diverse product portfolio.

So that makes us incredibly resilient as a business, but it's sort of harder to model externally.

And as we add new products into that mix, we see the same properties.

And that's what we look for with products we build and acquire, is that they have the same properties of landing new customers and enabling us to cross-sell across the business.

And so we haven't seen any real change in that.

I mean, we've been pleased with the Trello acquisition.

We've been pleased with the momentum of JIRA Service Desk, both landing new customers and cross-selling in our existing base.

But I couldn't sort of map out anything more specific on a product-by-product basis.

Okay.

And I guess, the assumption then that the majority of revenues, since there's still the original JIRA, and then after that Confluence, that's starting to diminish as you're getting the other products starting to take the lead.

Or as you're saying, there's so many other products going on, you don't have the original products that are dominating the product lead-in, the original sale lead-in, like you did in the past.

I guess that's a fair assumption then?

Yes, Scott here.

When we went public we I think disclosed in our S-1 that JIRA and Confluence made up a large percentage of revenue, and they continue to be really strong products.

And -- but obviously, as we grow and we bring on new products that we build and acquire, then that percentage of JIRA Software and Confluence decreases over time as we grow all our products.

Okay.

Great.

That makes sense.

And if I can, my last question -- my second question really is regards to -- this is for Murray.

Not so much the number of customers who are purchasing enterprise and percentage of MR; that you haven't disclosed.

But you have disclosed before the customer count of customers paying $500,000 or greater as well as customers paying $50,000 and greater.

I'm wondering if you could share that for this quarter.

Hey, Jonathan, we're doing that on an annual basis.

So we'll do that at the end of our fiscal year.

So we're not providing an update on it this quarter, but clearly we've made progress once again this quarter.

We just haven't disclosed the exact numbers, and we'll do that on our call at the end of fiscal '18.

(Operator Instructions) The next question comes from Alex Kurtz with KeyBanc Capital Markets.

Yes.

When you look at the annual guidance just relative to the last couple of questions around execution, strong execution in the enterprise space, how do you guys figure out how to kind of model for that over the next couple of quarters as those customers sort of grow in revenue contribution and trying to balance that against sort of the smaller accounts and their recurring revenue profile?

Well, really no change to how it's been working.

I mean, we have the land-and-expand model so we're going to be making assumptions on what we're going to land each quarter in terms of new customers and what the expansion rates are, and renewal rates, et cetera.

So there's no real change in all that.

We're not trading off, like large enterprise for small customers.

Our products can scale across that entire spectrum.

We're going after that Fortune 500,000, which is small businesses and large enterprises.

So it's just more of the same in terms of the model.

And what you're seeing is that, on the expand side, there's customers that's gone from 1 team to 5 teams to 10 teams.

And now with the data center offering, it allows them to expand even further with it.

It could be in tens of thousands of users.

And so this patient for revenue model where it expands over time with large organizations, and we continue to land with new customers each quarter is a very powerful model.

But no real change in how we're modeling it going forward, and we're excited with the start of our first quarter.

The next question comes from Gregg Moskowitz with Cowen and Company.

Great.

Apologies, I couldn't get on earlier, just navigating multiple calls.

I had just one other question for Scott or Mike or Jay.

You mentioned at Summit that you only have 18 enterprise advocates and obviously the business has great momentum.

You have a strong self-service model.

But given that we're talking about Fortune 500, Global 2000-type customers that traditionally expect more handholding, wondering if you could just talk about what gives you comfort that this is running at or near an optimized level?

Well, we've been practicing it for about 15 years, and so that's maybe the -- the model continues to get better, but I think we have a lot of experience with it.

And remember, Enterprise Advocates, which really act as almost like a concierge service for large enterprise, are one dimension of how we service and support really big companies.

The channel is another, and self-service is a third.

The data center business, when we first initiated it, wasn't available on the shopping cart.

And part of its growth has come from allowing customers to take that upgrade path on their own when they're ready.

And if they need additional service and care from us, they've got an Enterprise Advocate and then a broader advocacy channel that can help them.

And they also have our solution partners that can work pretty closely, mapping out additional opportunity and helping guide them through that upgrade path.

So -- then I think the results say a lot, that we continue to look for opportunities to improve, but we're pleased with our momentum so far.

Gregg, I'd just add one thing, which is we obviously invest more in R&D than other companies.

And one of the things is that the products have to be very usable very early in the adoption so that expansion can occur.

And so we put a tremendous amount of effort into usability immediately after a customer puts it into production.

And it does cost more in R&D, but it allows for this model to work and for expansion in large enterprises as much as in smaller organizations.

The last question comes from Pat Walravens with JMP Group.

Let me add my congratulations.

Murray, can I ask, are you still leaving us effective December 31?

And maybe, Mike and Scott, how's the search going for someone to replace the irreplaceable Murray?

And what characteristics are you looking for?

Yes, still.

This is Murray, Pat.

Yes, still focusing on December 31, and we still got a few months to go here.

So still chugging along.

It's Scott.

We've got a search ongoing.

I've been really pleasantly surprised by the great candidates that we've been attracting, the quality of the people that we're speaking with.

I think this speaks both to the strong reputation of Atlassian and the great opportunity for the right person.

And we'll keep you updated on our progress as we find someone.

Great.

And can you comment on what some of the most important things are that you look for as you talk to all these people?

Yes.

I mean, the key one for us is finding people that have seen scale and the right -- to also fit for us at Atlassian.

And so we have a great opportunity here and we're attracting people with those attributes.

Okay.

This concludes our question-and-answer session.

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

I'd just like to say thanks, everyone, for joining the call today.

We really appreciate your time and look forward to keeping you updated on our progress as we go forward.

The conference has now concluded.

Thank you for attending today's presentation.

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