Good afternoon. Thank you for joining Atlassian's Earnings Conference Call for the First Quarter of Fiscal 2020. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Atlassian's website following this call. I will now hand the call over to Martin Lam, Atlassian's Senior Manager of Investor Relations.

Good afternoon, and welcome to Atlassian's first quarter fiscal 2020 earnings conference call. On the call today we have Atlassian's Co-Founders and Co-CEOs, Scott Farquhar and Mike Cannon-Brookes; our Chief Financial Officer, James Beer; 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 2020. These items were 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 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 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. For 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 Form 20-F and Quarterly Report on Form 6-K. In addition, 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 the nearest IFRS equivalents and they may be different from non-IFRS and non-GAAP measures used by other companies. A reconciliation between IFRS and non-IFRS financial measures is available in our earnings release, our shareholder letter and in our updated Investor Data Sheet on our IR website. I will now turn the call over to Scott for opening remarks before we move to Q&A.

Thanks everyone for joining today. We’re out of the box in good form in fiscal 2020. This quarter we grew revenue by 36% year-over-year and generated more than $62.4 million of free cash flow. We also added over 7,000 net new customers during the quarter and now have more than 159,000 customers in total. This quarter we introduced two important new editions of our cloud offerings, Free and Premium. Our disruptive business model continues to win new customers, both large and small, and these new editions offer them more choice and capabilities. We want it to be easier and less costly for teams to get started in the cloud and grow with us as they need to change and become more complex. Premium illustrates the increased sophistication of our enterprise cloud offerings providing large companies the flexibility and the tools they need. We are also excited to have acquired Code Barrel, the creator of Automation for Jira. As a platform for managing work and workflows, Jira is in a unique position to help automate manual steps in the workflow to help people and teams advance work more efficiently. Automation is [increasing product] [ph] for customers because it helps them move faster and collaborate more effectively. Automation for Jira is already used by thousands of teams and is another important step as we continue to enhance our cloud products. We've provided more detail on these announcements along with many other updates in our shareholder letter that was issues early today. And with that, I'll pass the call over to the operator for Q&A.

Certainly. [Operator Instructions] Your first question comes from the line of Heather Bellini with Goldman Sachs. Your line is open.

Great, thank you so much for taking the question. I wanted to ask a little bit because there has been some concern over the past few days about, you know, if you've started to see any change in the customer buying patterns? I mean, I know you guys don't have a direct sales force, but I know James has obviously seen different cycles from time to time being at different companies, but any sense that there has been any change in the demand environment? And then I had a followup question just if you could share with us anything about any potential impact you saw from the price changes if there's a way to help think about the impact on the quarter whether we should be thinking about it more similar to kind of the fiscal year 2018 price increase where the timing was more similar or is it potentially more like last year in terms of the behavior in deferred revenue? Thank you.

Hey Heather, let me start off with our answers. First of all, I wouldn’t say we've seen any material change in customer buying patterns. You know, we've been pleased by the results, the overall strength right across the product sets and our different deployment options, so no, nothing material in that regard. Reaction to price increase, Jay if you want to start off with that one and then I can come back on some of the timing items?

I think similar to how we've reported in the past it was in line with expectations. So I think customers and part of it is just around the plan that we do that goes into the increases that we do communicate to customers in the way we communicate those price increases to customers. So I think we're pleased with how it has been adopted.

Yes, and in terms of the timing, we announced our price increases at the start of this past September and so couple of weeks earlier than was the case a year ago, and so more in line with the timing of fiscal 2018. And so for that reason we expected that there would be some additional customer activity in Q1 as there was in Q1 of fiscal 2018 and that there would be potentially some of that bleeding over into Q2 as well again as there was in fiscal 2018.

Great, thank you so much.

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

Okay, thank you very much. Good afternoon guys. I found it interesting just in followup to Heather's question that your EMEA revenue growth actually reaccelerated this quarter just given again some of the macro and other concerns that we've all heard about. Is there anything that you would call out with respect to your strong execution in EMEA?

Thank you, Gregg for the question. Recall that over half of our partners are based in EMEA. We have over 500 partners around the world and they have tended to be quite active helping their customers, our customers step in front of the price increases. We saw this in the last couple of years. And while that activity generally impacts our deferred revenue balance there are, you know, I think as we've discussed in the past, a couple of revenue drivers there as well and so that is a part of what's driving those strong results both in EMEA and in APAC as well.

Okay, that's really helpful James, thanks. And then just as a followup, I realized that we're only one quarter of course into fiscal 2020, but just relative to your prior guidance for the cloud mix shift to cause 100 basis point revenue growth headwind for the year, have you seen anything at this point that perhaps might tilt you in one direction or another or do you still feel that's probably the right landing spot for the cloud impact this year? Thank you.

Yes, and I would continue to say that that 1 point headwind to revenue growth year-over-year is what we're expecting. Recall that there were three elements to that when we talked about it 90 days ago, the first, the launch of free editions of Jira Software and Confluence, the second flow of that we would offer free trials of our cloud product to the user of that same product behind the firewall. And then the mix shift that you are referring to in the question. And one of the other things to recall is that we just rolled out the free versions of Jira Software and Confluence just quite recently and so continue to be of the view that that 100 basis point headwind is the right way to think about those three issues combined.

Okay, terrific, thanks very much.

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

Thank you, guys, for taking the call -- taking the question and very nice quarter. Two questions, one on sort of the new customer adds, you guys have been adding customers at a really nice clip and saw really good growth in that net new customer adds this quarter of about 20% on a year-on-year basis. Anything in particular driving that kind of stronger new customer adds in Q1 and anything in that that wouldn’t be repeatable for the rest of the year? Number one. And number two, another acquisition sort of going deeper into sort of the opportunity around Jira and some of that core IT, we haven’t heard as much about this stuff outside of the IT Department. Could you give us an update as to kind of how we're thinking about the opportunity for Jira outside the IT Department and is the focus still there in the same way it had been historically in terms of expanding the use cases outside of those core IT use cases?

Hey Keith, Jay here. I'll take the first part and then hand it off to Mike on the second one. In terms of customer growth, you know really contribution across the board from all the major products that are contributing to the new customer adds. As we talked about last quarter, there is one component in there related to the monetization improvements that we introduced to Trello around board limits for team usage, and there is some nascent pent up demand within the existing customer base that is contributing to the number, not in a materially outsized proportion, but it is in there. And that's maybe one component as we roll through a year of those monetization improvements in the base that will moderate a little bit.

And just one thing to add on to that briefly, we continue to see more than 90% of those new customers going straight to our cloud services. Mike?

Yes, hi Keith. Look we obviously continue to remain bullish and focused on the opportunities both inside and outside the IT and Software Department. You referenced acquisition of Code Barrel. Obviously automation is an area that we already have quite a variety of offerings in, now in Trello, in OpsGenie and we had some automation features in Jira Service Desk. This really lets us expand that automation offering across the whole Jira platform. So when you talk about non-IT teams where does that mainly exist, obviously Jira core just for business workflow and process management at all sorts of levels. This automation fits directly inside of that sweet spot for companies that are modeling all sorts of processes on top of Jira already. This just gives them extra superpowers. And then within Service Desk, it is also incredibly important because Service Desk while it continues to land very strongly in IT, it does expand very well outside of IT to all sorts of other flow based teams within an organization, be it in legal or finance or HR, workplace management, any of these sort of things. That automation obviously works very well in those areas as well. Obviously in this case automation doesn’t affect Trello or Confluence or anything else we sell outside of -- to business teams, but from the automation point of view, yes, very, very strong for the whole Jira platform, but inside and outside IT. And obviously for us the core of that business is a bunch of really kick-ass people that came from Atlassian to start with, so we know the people really well and I think it's going to work really well.

Excellent. Thank you, guys.

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

Hey guys, thanks for taking the question. May be I just wanted to follow up on the acquisition that you were just talking about, just to try to get a better understanding of how you might integrate this into Jira and how you might monetize it, I think that is largely sold through the marketplace today, but can you maybe just walk us through how monetization model might work, is this something that you plan to introduce on the premium products only or is this going to be widely available across all Jira tiers?

Arjun, Scott here. We've had some success when we acquired Butler and did something similar where we had a lot of success at packing part of in our Premium, allowing part of it also the standard offering for customers to get a taste of it and [indiscernible] I think we'll also have some existing customers particularly around - existing customers in terms of transition period. So there's lot of things to consider there, but we do think it will help bolster out our Premium offering at the time and this is something our customers are really interested in.

Great, thanks. And then maybe on the freemium products that you launched, the freemium for or the free tiers of Jira and Confluence, can you just give us a sense of what you're seeing from customers in the initial phases of this launch? I know it is still early, but are you seeing a big uptick of new customers coming into that free tier and maybe on the other side what are you seeing from existing customers that used to be paying, but might have moved down to the free tier? Thank you.

Yes, so it will -- if I think about our disruptive model over the years like we've always tried to make sure our products were accessible for every size company. The start-ups that's coming out of university, people just starting with two or three person organization, all the way up to people that use our things with 30,000, 50,000 people and expand that gamut. And that we've always had pricing to appeal to that. And if I would go back to 20 years when we started, only the Fortune 500 could afford software and we pioneered the model to make software affordable to companies of all sizes. Now if you go with free and premium, it has continued to improve that in the cloud and on the premium side it is making sure our largest customers have the features that they need to continue their expansion in the cloud or to move their on-premises deployment to the cloud. And on the free side of things it's around make sure again those companies who [at the moment we] [ph] charge covered all the months, the [barrier of the] [ph] credit card if we can remove that we believe there will be a large increase in the funnel there. On the free, I mean your question was how much it’s open the funnel. In our position to talk through that at the moment apart from saying that we are pleased by the results internally of how that is going and but it is still early days and we do want to look at some of those things [indiscernible] over long period of time and make sure that it really uplifts, but irrespectively gets the short term benefit. The long term benefit is making sure that every single company of every size can use Atlassian's products.

And to emphasize, what I was mentioning earlier about that effective free being embedded within that 1 point headwind to our revenue growth rate in FY 2020.

Thanks James.

Your next question comes from the line of Michael Turits with Raymond James. Your line is open.

Hi, this is actually Robert Majek on for Michael. It sounds like OpsGenie is doing really well as part of the Atlassian family. Can you just give us some more color there, the changes you have made that led to an accelerated growth rate and maybe more broadly, if you can just talk more about the long term opportunity for that asset?

Michael, it is Scott here again. [Indiscernible] OpsGenie acquisition we just actually had a party in our office to celebrate one year of closing, last night so I described it seems like only yesterday. The acquisition is doing really well inside Atlassian and if you look at the space, the internet management companies around the world are struggling to how do they release software at a faster pace, how do they keep up with their competitors and [seeing] [ph] whole movement around things like dev ops and big part of that is making sure that when you are [indiscernible] naturally do that that people are going to respond quickly and have the right people available and that's what OpsGenie does. Now OpsGenie we're pleased with some of the integration that we've done on the product side, the identity side, on the user space side, but I still think we have a lot of opportunity there to put those products together with our large existing base and we have seen a doubling of the rate of paid fee since we acquired the company. I think we've reported in our sales letter and that's been great and we still think we have a long way to go in terms of introducing our existing customers to the OpsGenie product.

I appreciate it.

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

Yes, thanks. I just want to followup on that thread just in your shareholder letter talking about the free tier doubling the pace of growth for OpsGenie from a user perspective. When you see that kind of result, is that how you might think about you know future M&A that you can really accelerate a product in market where maybe as a standalone entity a company just can get to that kind of growth rate and that might change how you think about future M&A or do you think that was really specific to the markets that OpsGenie serves? So I guess the question is, when you see that impact do you think you guys might want to be a little bit more aggressive in M&A?

I'll take that, it is Scott here and Mike might want to add something at the end. When we think about M&A, we think a couple of things. Firstly, it's got to be right culture fit for the company, that's first and foremost since we already had the same culture. Second, it has to be a mission team, so it is not following foreign companies that don’t work with our mission which has done potential of every team and third is the business model fit, it's more difficult, but not impossible to change a company's business model, you know take it from volume high price to high volume low price for example is a difficult thing and then after that we consider technical or other things. And so, if we do find companies that align with our ambition, with our culture, and with our business model we will consider them and we do believe that our base is 159,000 customers and millions of teams around the world is something where they are interested in other products that we can bring to market for them, both acquisitions and new products that we will develop organically. So any opportunity is really large and we're not about kind of acquiring stuff for revenue sake. There are a lot of things that we could just random things introducing to our customer base that may bring short term revenue, but don’t bring culture to our mission and we want to be very disciplined about not going out to those types of opportunities.

Great, thank you.

Yes, I would just add one small thing, obviously we, you've seen us make series of changes in OpsGenie and it's obvious we're pleased about how it's going. I do believe companies have a DNA. We obviously have a long term philosophy, DNA of having a long term philosophy and making changes of that type over the long term. As Scott mentioned, 159,000 customers we have a massive distribution engine for software, but you still have to have fantastic applications with really great feature sets. OpsGenie has the best features in the market and we have an ability to put a disruptive price against it to really make a huge dent. I think that fits our DNA in a really, really good way. So part of the reason we've been so excited about the teams since they've come on board and we're starting to see some pretty good results, taking our model up against big enterprise software is something that we're very familiar with doing and have almost 20 years now history of success of doing so and intend to continue that.

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

Great, thanks, and nice job on the quarter. I wanted to touch on what you're seeing in terms of rate of activity from customers moving from server to either data center or cloud. And I guess on cloud specifically now that you've got Cloud Premium out I know it's still very early, but I mean, as you look over the next 12 to 24 months do you see migration being more gradual as enterprises slowly get more comfortable or do you see perhaps more of a hockey shape just with more accepted to cloud and the advance which you are making with your premium SKU?

Hey, Derrick Jay here. We talked a little bit about this on the last call. I mean, we are seeing increasing interest in cloud generally, but also in cloud from our server customer base. It is a part of what we've invested. We made big investments in migration tooling. Just to make that process simple we've make some pricing calibration adjustments to make it easier for customers to move. And then we're working a lot more closely with customers to make sure that the planning to that move and the implementation of that move is smooth. I think in just in terms of the demand environment it is increasing at a steady clip and I think what we signaled last quarter is just the investments that we've made over the past year and just the readiness to make sure that when customers do want to move because it is both the -- in some cases it is a replatforming. It is saying, I'm going to take an instance that, you know I have three or four or five years of history with and I want to move that smoothly to from infrastructure that that I'm hosting and managing to infrastructure that I no longer have to manage because Atlassian can do a better job of it for me. And then data center, you know is a little bit of a different, not even a migration pattern. It is basically an up-sell from a standard version of server-on-prem to high-availability instance of the on-prem infrastructure and that's still a motion that really, really large customers are choosing, which is fine because we're celebrating the customer's choice to either remain on-prem or go to cloud if they want to.

And just a couple of things to emphasize what Jay was saying, that we're obviously very pleased with the rate of growth of our subscription business which encapsulates both our cloud and data center business, so that grew 50% in Q1. And then you mentioned the potential effect of Cloud Premium. As I've said in the past, I wouldn’t expect cloud premium offerings for JSW and Confluence to drive the material revenue effect in FY 2020 and we see the benefits of that downstream.

Got it, okay, thank you.

Your next question comes from the line of Nikolay Beliov with Bank of America. Your line is open.

Hi, thanks for taking my questions. Just a followup on the last question, you've put in place channel incentive, product incentive, pricing incentive to steer the Silver customer base to the cloud version. Do you envision this being you know like through free process or five to six years kind of like transition of that installed base and $400 million worth of maintenance to cloud?

I mean the transition will happen over years, it will be gradual.

Okay. And James, question for you, you are right in the revenue guidance for the year in line with the Q1 base, I'm just wondering what kind of puts and takes you are considering for the rest of the year as you provided the update guidance for the year?. Thank you.

Yes well, versus the midpoint of our original guide 90 days ago, we've obviously raised beyond the Q1 beat quite substantially and this others reflects our ongoing confidence as I said right at the outset of the call across the products and across the deployment options, so really that's the logic behind the moves that we've made today on the guide.

All right, thank you.

Your next question comes from the line of Gray Powell from Deutsche Bank. Your line is open.

Great, thanks for taking the question. So you are an absolutely dollar basis. You added more revenue to the subscription line than any prior quarter ever. I know you're not going to give exact numbers to me like maybe broadly speaking, how much of that is being driven by just normal demand versus customers shifting from server to cloud?

Well, I would say that the gradual serve to cloud transition is only momentum, but what I really would say, and when you think about that subscription growth rate it just represents the underlying strength of both the cloud business and the data center business. So we're pleased by both of those business lines are growing very substantially.

Got it, thanks.

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

Hi this is [indiscernible] for Brent Thill. Congrats again on a strong quarter. I had a couple of questions, one was given the impressive subscription year-over-year growth rate of 50% this quarter, I know last quarter you guys mentioned that you would hit, you know grown over 40% year-over-year for subscription, so is there any update to that? And then the second question was really that this is the first time you guys have done price increases on the data center product, so has there been any initial reaction to that from customers if you have seen that?

Yes so, let me take the first part of that. So in terms of the subscription business, we guided at the outset of the year that we thought we could beat 40% growth year-over-year. Obviously the Q1 result is a very nice down payment if you will on achieving that objective, so nothing to update around that at this time. In terms of the price increase activity around data center customers, Jay would you want to take that one?

Yes, no. One reaction, I mean the price increase at data center was super nominal. As we mentioned it was the first adjustment we made to data center pricing since introducing it three years ago.

Great, thank you.

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

Good afternoon. Thanks for taking the question. I was wondering if you could speak about the broader demand trends and competitive landscape as it relates to Trello. It seems like in this broader collaboration space more companies are increasing some focus in investments there. So I was just wondering, are you seeing any sort of inflexion in the demand for more general collaboration tools?

Look, I mean I would say more general collaboration, those continue to be something else that grows as business evolves. People are getting more comfortable with using these types of tools you have obvious of joining the workforce who are incredibly comfortable with mobile based collaboration apps and things like that, but nothing unusual in the last quarter over a general shift towards collaborative tools, but as we would say in specific demand. So why would I get a Jira Confluence? Other tools we have are actually modern collaboration tools. They have all of the modern collaboration features from our platform, but focused on specific demands whether it be project management, workflow management or document collaboration, but nothing particularly changing other than general movement in our direction which is obviously where we intend to be.

Great, thank you.

[Operator Instructions] Your next question comes from the line of Rishi Jaluria with D.A. Davidson. Your line is open.

Hey guys, thanks for taking my questions, two here. First on Trello, I mean now up to 50 million users, can you maybe help us understand if you've seen particular traction in the specific industries, lines of business within the organization, specific geographies and alongside that on the monetization side I know you introduced board limits for LTV [ph] recently and that seems to be helping, but maybe help us understand what the path to monetization for Trello looks like going forward? And then on the Automation for Jira and the acquisition there, maybe just help us understand the technology a little better, is this similar to the Butler acquisition for Trello or is this more robust maybe even slightly similar to an RPA offering? Thanks.

Rishi I'll certainly take the first half there and I guess I could take the second half too. Look on Trello, we continue to be extremely positive. As we said in the shareholder letter we passed 50 million registered users this quarter which is again a huge jump from last year and continues to power along really nicely. So as we say, pretty much every quarter to you guys, the first call is to continue Trello growing the way it is growing and I think we're sort of ticking up often continue to travel well there. Those users are all across the globe. It is a very global phenomenon. It is an application that works as well in android in Brazil as it does in now [ph] in America or on a desktop in Australia. So in terms of the global application, it is very, very large and I think we're showing in the numbers that we can continue to grow it very strongly. We are as you mentioned starting to monetize it more in the last over six to 12 months, same good traction happening there. Just in terms of managing how we separate between the free and paid offerings, you mentioned board limits, few other small tweaks in Chinese we've made to monetization and pricing. I would just say again that comes to my sort of long term patient philosophy as a company and our DNA of having - being very, very expert at how we optimize pricing for different customer groups and customer segments and make sure that that drives firstly growth and then second value to Atlassian after we deliver value to our customers and Trello is no different there. The only difference which I will point out, we're still not active cross selling users to…

All right, great, that's helpful. Thank you.

Your next question comes from the line of George Iwanyc with Oppenheimer, your line is open.

Thank you for taking my question. So just another on Code Barrel from an expense perspective, is the acquisition going forward some expenses and that's kind of embedded with maintaining the operating margin guidance?

Yes, that's -- George we've embedded all of that within the guidance, that's right.

Yes, are you accelerating investment in other areas internally as well?

Well, I wouldn't point to any particular acceleration driven by the acquisition per se. Yes, obviously we're very pleased to be adding the Core Barrel team, and as I say we will take it to each of the effects there within the guide that we've issued.

Okay and just broadly speaking on the IP side, has the competitive dynamics changed at all with the ramp of Jira Service Desk and OpsGenie and all the other efforts that you are doing – focused right there?

Yes, Scott here. The competitive dynamics I don’t think have changed significantly over the last couple of quarters and we feel increasingly confident that our position in IP as we sort of mentioned before IP and software are become increasingly closer together and that's an area that we have a real strong market position given that we have a large number of software developers and tools and products to help them be productive and as those teams work closely together they will have one stack to pull those things together. So from that I feel, I get increasingly confident with our position in the market, but I feel other people out there, any major changes in the competitive dynamic.

Okay, thank you.

[Operator Instructions] There are no further questions at this time. I will turn the call back over to the presenters.

Thanks everyone for joining the call today from Mike and Scott down in Sydney, and James and Jay up in San Francisco. We appreciate your time very much and look forward to keeping you updated on our progress as we travel into the future. Thank you.