Good afternoon. Thank you for joining Atlassian's Earnings Conference Call for the Third Quarter Of Fiscal Year 2021. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Atlassian's website following this call. I will now hand the call over to Martin Lam, Atlassian's Head of Investor Relations

Good afternoon, and welcome to Atlassian's Third Quarter of Fiscal Year 2021 Earnings Call. Thank you for joining us today. On the call today, we have Atlassian's Co-Founders and Co-CEOs, Scott Farquhar and Mike Cannon-Brookes; and our Chief Financial Officer, James Beer. Earlier today, we issued a shareholder letter and press release with our financial results and commentary for our third quarter of fiscal year 2021. The shareholder letter is available on Atlassian's work life blog and the Investor Relations section of our website, where you'll also find other earnings-related materials, including the earnings press release and supplemental investor data sheet. During the call today, we'll make brief opening remarks and then spend the remainder of time on Q&A. This call will include forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by 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, and we assume no obligation to update or revise such statements should they change or cease to be current. Further information on these and other factors that could affect the Company's financial results is included in filings we make with the Securities and Exchange Commission from time to time, including the section titled Risk Factors in our most recent Form 20-F and quarterly Form 6-K. During today's call, we will also discuss non-IFRS financial measures. These non-IFRS financial measures are in addition to and are not a substitute for or superior to measures of financial performance prepared in accordance with IFRS. A reconciliation between IFRS and non-IFRS financial measures is available in our shareholder letter, earnings release and investor data sheet on the IR website. During Q&A, please ask your full question upfront so that we can easily move through to the next speaker. We also invite you to check out sessions from Team '21, our annual virtual customer conference, which runs through tomorrow, April 30. We've included a link to Team '21 in our shareholder letter and our earnings release. Lastly, I want to thank Mike and Scott, James and Matt, and for the opportunity to lead Investor Relations at this incredible long-term and customer-focused company. With that, I'll turn the call over to Mike for opening remarks.

Thanks, Martin, and thank you for joining today from wherever you are in the world. As I sit in Australia, I'm reminded that our national coat of arms, displays the kangaroo and the emu. Why those two specific animals you might ask? Because they are unable to walk backwards, they can only move forward. Australia as a nation must continue to move forward. True to our Australian heritage, Atlassian only moves forward, and we continue to do so at great pace through a strong Q3. We hope that you've read the shareholder letter, where we described our long-term focus on delivering that innovation to customers. Our investment in our world-class cloud platform makes it possible to develop and deploy this innovation at an ever faster pace. Highlights from the quarter include: doubling customer cloud migrations versus last year, right in line with our expectations; launching Point A, our new product development program. Yesterday, we announced five initial products from Point A to technical and nontechnical teams of all sizes, and continuous investment in leading-edge innovation. We announced amazing updates for the Jira family of products. We're extremely excited about initiatives like Open DevOps and the whole new Trello that shipped during the quarter as well as acquisitions of ThinkTilt and Chartio. We also posted strong results in Q3. We saw significant short-term demand for on-premises products as a result of customers purchasing ahead of both the discontinuation of new server license sales and price changes to on-premises products that went into effect during the quarter. More importantly, we made continued progress to our long-term goal of becoming a cloud-first company. During the quarter, cloud revenue grew 35% year-over-year, and overall subscription revenue grew by 43% year-over-year. Before we move to Q&A, Scott and I want to thank the more than 6,000 Atlassians whose resilience, passion and commitment to drive that innovation that we deliver to our customers and who continue to move forward every day. Check out our sessions from Team '21 to see how we're building the future of teamwork to unleash the potential of every team. With that, I'll pass the call over to the operator for your questions.

[Operator Instructions] Your first question comes from the line of Michael Turrin from Wells Fargo. Your line is open.

Busy week for everyone, it seems like, with the team conference, which looked like a good showcase for some of the innovation on the product side, that cloud, in particular, opens up. So was hoping you could maybe first touch on that, what you're enabling for customers with things like the Point A program and our Work Management. And then maybe, James, you could also comment on whether some of those recent innovations as well as things like cloud enterprise and the data center strength you're showing here alter your view on the mid-30 subscription growth target you've laid out, given it looks like you'll come in above there this year at the very least.

Yes, Michael, good to hear from you again. I can -- look, I can talk to point A. If you've seen all the announcements in the news, Point A itself is a program that we've launched to co-develop some of our new products alongside our customers. There's a period in early product innovation where we know what we want to build, but the progress, if you like, the shape shifting of the product in its early days is very rapid. And so we need to notify customers that in the first year or two of a product's life, it's likely to change form very quickly, not in a volatile way, but in a really sort of forward-moving way. That is done alongside customers, and we are -- true to our philosophy of being opened, we're doing that alongside our customers, and we're trying to be very clear with them about that. Point A, as we mentioned in the shareholder letter, all of the products built very strongly on the Atlassian cloud platform. So all of the things that we've talked about from machine learning and automation capabilities, to the compliance requirements and enterprise structures that we have through the collaborative capabilities and editors and reactions and all sorts of other things, they all appear in all of those Point A products. So not only will they solve a series of new challenges that our customers have and deliver unique value to them from product managers in Jira Product Discovery through to broad-scale organizational goals and by scale sort of user directories in Team Central, obviously, through to Jira Work Management, bringing our business teams marketing, finance and HR into the Giro family and all of the Jira capabilities that arise for those business teams in a business-friendly environment. Not only do all of those things arrive in Point A, all of the capabilities that we continue to bring to the client platform will arrive in those products as well. So we thought it was a very good example of the innovation that we've been building in the platform that's not just for our existing customers and existing products, but it's as much for the new things that we can continue to build and the advantages of moving into the cloud, both for us in terms of creating things and for our customers in terms of the value that they can get once they have moved there or if they are already there, if they are in, obviously, very large numbers today. I can talk more if anyone has any other questions, but let me hand off to James to talk about the subscription growth part of your question.

Yes. Sure. Thanks, Mike. Certainly, we were very pleased with the ongoing momentum building right across our cloud business. You mentioned in the question, enterprise, very early days for that addition. We're very pleased that it's off to a good start, but early for that to be a material revenue contributor. But I would certainly point to our premium additions as continuing their very nice momentum. And I'm also really pleased by how our partners, as a group, are really developing their business practices around our cloud business. That's very encouraging for our future. And then you mentioned the event-driven data center volume of activity that we discussed in our preannouncement press release a few weeks ago. So given all that, yes, we are projecting that we would beat the FY '21 previous target of subscription revenue growth in the mid-30s percent year-over-year. And then for FY '22, the subscription revenue growth target, we'll address that in 90 days' time.

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

Thank you for taking my question. I wanted to touch on some of the new product announcements you made specifically around Jira Work Management, and it sounds like you made some changes to Trello as well. But as you're going after this business user market, I think we're all aware that there is a lot of incumbents in that space and a lot of fast-growing companies. But I would love to hear how you think that space evolves over time. Do you think there's consolidation in the number of tools that business users are using for work management? And then how does Jira Work Management strategically kind of position itself in this market as something unique and compelling to offer compared to some of the other players that are in the space?

Sure. Arjun, I can take that. Look, let me start with the latter part of your question first. A huge number of business teams already use Jira software or the formerly owned Jira Core to manage their work. So this is not a new area for us. This is about us doing what is classic Atlassian innovation, listening to our customers, seeing what those business teams that use Jira software already are doing and how we can deliver further capabilities to improve what they're already doing in a new and better offering that's tailored to their needs. We're very confident there are a lot of other business teams in our customers that could, therefore, benefit from that if we can deliver a really good and compelling experience. So you can see that in some of the features, things like calendars and time line views more sort of business friendly ways of looking at things. A lot of the new Jira family templates that shipped as a part of Team '21, but this is sort of project setup in very specific ways for lots of different circumstances. You can obviously think about those for software teams that offer different methodologies and ways that popular teams want to set up that project. We can do that for the upfront. But we ship to 20 different business templates for different HR and finance and marketing use cases that take advantage of the features of Jira Work Management to deliver for those particular customers. There, Jira is a very structured system for work management. So it has a huge amount of power, a huge amount of capability built into the Jira platform and the broader Atlassian platform. For customers that have chosen Jira in a deep way across their business, this is a very…

Your next question comes from the line of Rob Oliver from Baird. Your line is open.

Thank you very much for taking my question. I wanted to just ask about the enterprise conversions. You guys mentioned Splunk in your in your letter and particularly, I think, compelling example. When you look at a company like a Splunk, I think you guys mentioned maybe Northwest Mutual as well. Are there patterns or markers that you see like that that are leaping at the opportunity to migrate early? I know you guys have said that it would be mostly SMBs early in enterprises later. But clearly, there are some enterprises, multiproduct platform-type users that would leap that opportunity in the use of data that you guys are famous for. I'm sure there's some patterns you're identified there, whether it be JSM users or whatever with lower what your -- how you're approaching that.

Robert, it's Scott here. I appreciate the question. As we've mentioned before, it's migrating the tens of thousands of customers we have from our server and data center offerings across the cloud as a multiyear process. And we still expect the majority of our largest customers to move kind of in subsequent years. And so we're really excited by some early movement of customers, but it doesn't represent any, I guess, great change in the estimates that we put out previously. When I look at the customers that moved across, in general, without speaking to those specific examples, large companies can be identical. All agree that the cloud is the future for them. They don't want to be in the business of managing infrastructure. They look at the features that we're offering in the cloud, whether it's the security features we can offer them or it's the management features or the end user-facing features. And they're all -- they all want to be there. And so it comes under a discussion of when we ready. In some cases, the highly regulated industries, we haven't yet got the certification required. Or when are they ready? Which may be down to the time frame on which they can schedule that project alongside of the projects that the house are going on internally. And so we're really happy with the momentum that we're seeing with customers, large and small. It doesn't represent any change, I guess, in our forecast that was -- it is a multiyear process.

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

Thank you guys for taking the question and a very nice quarter. The number in particular that really stuck out to me was that new customer add number, And I know some of it's related to kind of single-use Trello. But even when we take that, it's well ahead of what you guys have added historically. I'm sure some of it's related to sort of end of new server licensing, but that only makes some sense because the customers didn't realize they needed Trello before and then also because the pricing changes that they do that doesn't make a ton of sense. Can you help us understand like what caused that? What drove such a big spike in new customer adds. And are these customers -- are they like of the same ilk as like historical customer is? Like did they have the same growth potential as what you've seen historically?

Keith, it's Scott here. I'll take that question. You've been around long enough to know that at Atlassian, we don't spend a lot of time looking at our customer numbers on a quarter-to-quarter basis just because a customer quarter brings very little revenue at the start and there's just so much variation in quarter-to-quarter. It's not something we manage to internally. You mentioned the Trello single users, so if I think about kind of thesis in the border trend, we've done a lot of changes to our funnel over the last year, how we've introduced free versions of that product and so that's changed our funnel. We've done more optimization around Trello, which is to more single users, also more small teams there. And while customer numbers are a huge indicator of our long-term potential, we don't kind of really get excited by large numbers, all small numbers in any particular quarter. And so I think it's too early to say what these customers look like over the long term as we've made these changes to our funnel. We do want to pull out the Trello single users because we believe we're a teamwork platform and a single user isn't yet a team. They may turn into a team pretty quickly, but not at this stage. And so we wanted to give you some indication of that. But yes, I think it will be fair to say that there is changes in our customer numbers as we've made changes to these funnels. And it's too early to say what the long-term potential of those look quite the same as previous ones. Again, our model is land and expand. So obviously, we're ending way more companies across the world that gives us a huge opportunity for us to expand into those customers over time.

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

Okay. Curious to hear what you're seeing with respect to demand for Jira Service Management, including the premium option that has the CMDB technology. And then for Point A, apologies in advance for throwing out a baseball analogy to an Australian and British management team, but what inning of a product development are you engaging your customers? And how broad of a level of input are you going to be soliciting from your customers?

Yes, I can take both of those. Look, on the ITSM space, we continue to be extremely excited. As we've demonstrated two years ago, we told you in our shareholder letter, which I know you will read sort of work for work that we were doubling down on IT. And I think you can see over the last two years that we've really done that. The CMDB capabilities you referred to are just the latest of a series of additions that you've seen us make, both from internally generated things and external acquisitions outstanding for the leading sort of world real-time rostering and capabilities because a lot of things in IT nowadays come down to milliseconds it matters all the way through to this quarter adding ProForma from ThinkTilt to continue to drive our automation and low code/no code in a really native Jira way. Overall, the traction amongst the customer base is really phenomenal in the ITSM space. We're really excited about where we're going. We do believe we're very uniquely positioned. We're the only company that gives you a single pane of glass across software, operations and IT staff for modern enterprises that are moving at modern speed as we'd like to call it, high velocity. That's a very unique position, right? The Atlassian cloud platform continues to deepen its capabilities, which we bring to all of those ITSM customers. And no matter whether you're a small company or a large company, we continue to see really create traction for those offerings. So I don't think -- demand continues to be strong, the CMDB capabilities that went during the quarter in the cloud. Obviously, we'll continue to get customers excited as we as we move through that. I would point out that the low-code/no-code additions that we've added and will continue to do so. It's not new. Its automation has been a focus for us for a long while now. And I think in the quarter, you've just seen us bring that. And as we continue to add all of these capabilities together, so you can take the machine learning the automation, the forms and the CMDB that you mentioned, and it's just an amazing offering priority team. So we continue to be really excited about the space. In terms of baseball analogies, I've sat through many of baseball games. So I think I know it at least well enough. It's very similar to cricket in terms of things to be and watching time.

I would say that generally, we're sort of in the -- maybe the first or second inning, maybe bottom of the first, top of the second when we start revealing products to customers. I'm very confident of the direction that we're moving in. We have enough of the product built such that we are clear on the boundaries and what problem we are solving for customers. There's a lot of customer research that happens before that. Once it then gets out, there are a lot of tailoring to their needs, integrations that they need and how the user experience is going to impact. Things like Compass, for example, are very new ways of looking at the sprawl of one's modern software architecture. And customers are saying, yes, this is a huge problem, but I don't know how to solve it because we don't have any tools to solve that. And so we're trying to build a tool to solve something that is a problem they clearly have in a very, very new area. We hope that by the third or fourth inning. It's very clear to customers that the boundaries get very well defined, and that's when you start seeing a traction and monetization. In the early days, it's really just about finding that problem with the customer.

Your next question comes from the line of Fred Havemeyer with Macquarie Research. Your line is open.

So I'm also interested in Jira Work Management, and I'm wondering about how you're helping generally, less technical users do work, especially in these more modern remote work or hybrid work model. So understanding that it's early days, do you think that Jira Work Management is a product that nontechnical teams will pick up on a self-serve basis? Or do you anticipate it needing an assist from either your direct sales force or more of your channel partners?

Yes. Good day, Fred. Look, I think like all Atlassian products, there'll be a large amount of self-serve involved. I think one of the things that's interesting about Jira Work Management, especially when combined with our land and expand model and obviously, the free program we've talked about a lot over time, that has great potential not just to learn new customers but to learn new parts of existing customers. So a Jira software customer that's broad can easily start a new free Jira Work Management account alongside that product offering alongside that Jira software for the first team or the second team to really get started. That said, I have no doubt that because of all the capabilities of the broader Atlassian platform, automation, a lot of things we're investing in the data and insight space that we haven't talked about as much, but there's a lot there for partners to both explain to larger customers, map to their organizations, which is often a facility that they bring or understanding those larger customers challenges and business problems and then say, hey, Jira work management could be a piece of the solution to that problem and obviously bring it along to them. So I would imagine that the general split that the self-serve motions, et cetera, Jira Work Management aren't meaningfully different to our other products in size and scale. Obviously, we think it's incredibly large market, and we continue to invest against that. I would point out, as we've talked about before, probably, call it, 50% of the broader Jira family audience is technical, which means about 50% of the audience today is nontechnical. As Jira Work Management continues to grow, you could see that blend getting even further applied. It's usually surprising to people when they hear it's 50-50 at the moment. And obviously, this has a potential to continue to grow that. We've made no bones that our mission is the potential of every team and every team means we're going to have to work out how to help solve problems for marketing, HR, finance, sales, lots of other teams that need to manage projects around the building. And that's what Jira Work Management is aiming at inside the inside the capabilities and structure in power.

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

Nice quarter, guys. I guess I want to just make sure I double down and understand the transition to the cloud. Clearly, you had a massive quarter where customers kind of pull in purchases. I guess the question is going back to that 30,000 server customers you talked about to transition over time. Has that number actually increased in this past quarter rather than decrease? And perhaps you can talk about churn that you've seen in the conversion? How is that shaped? And then lastly, given the magnitude of this pull-in effect, do you get a sense that perhaps customers are really unhappy with your cloud pricing? Does this magnitude of falling make you feel more comfortable about your transition to the cloud or makes you question the pricing that you've set up for it relative to the historical products?

Scott here. Great question. Appreciate you asking it. There's nothing about this last quarter that has changed our belief or our time frame internally for our customers moving over. And then again, main we say win, we've had a huge matter of pull forward on the service side of things. How does that affect our cloud transitions? All of our internal cloud transition numbers are working day on track as what we had forecast before this. What you've really seen is people take advantage of, okay, inertia, I might be here for a year or two, I want to buy that now and get ahead of any price increases that are happening or And so it hasn't really changed their forecast time frame, they really just decided to transact ahead of certain events. So we haven't seen that. You asked about churn, now customers and cloud pricing look on churn, our numbers are actually -- I think we've talked about this before, our churn numbers across cloud and across our entire base are better than we had forecasted through this transition. So that is going really well. And there will be some customers who will turn through this process, but we believe that it's better for us and those customers over the long term, like -- so that's all going on track. And on the cloud pricing, we have discussions with our customers. Obviously, the sticker prices is larger in cloud for many of our customers. But when you look at the -- both of the features and the benefits they get from that the reduction in the number of headcount that they require to move across, like our cloud, our customers are super excited about the cloud offering and are very happy with the price that we're providing that at. And so we -- I guess, when you look the numbers on our website, sometimes they require a bit of explaining to customers. But once we've done that, they're all signing up, and it really just comes down to the time frame that they want to move across.

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

I wanted to ask one quick one on -- dig a little bit deeper on that last question around the cloud migration. Could you talk a little bit about the enterprise cloud -- the cm enterprise cloud and how that might give some comfort to maybe the larger customers who are maybe waiting to make their decision as to whether or not they commit to the transition early on? And then a second question around the acquisitions of Chartio. I wanted to ask like are you planning to get into the BI space? Or is this just giving you some basic reporting functionality within the Jira family?

Okay. Scott here. I'll do the first one, and Mike can chime in on the one. If you look at our migrations, we said that small customers can move faster, and we've seen that. And the larger customers just have more inertia, and so it takes them more time to move across. And the larger customers, we've done a lot for them over the last -- I mean, since we started our cloud, but it's accelerated over the last period of time. We've improved scalability requirements, and we continue to tick down the size and scale of the instances that we can support in cloud. We are working on compliance and certifications, and we're again ticking off the compliance requirements for heavily regulated industries. We are data residency and other one, particularly for customers in Europe, and you saw -- I think we talked about into our shareholder letter De Volksbank, who's the fourth largest bank in the Netherlands who have chosen to move across and their European customer and data residency obviously something that they consider over there. You looked at data regulation that our enterprise offerings allow people who want to make sure the data is not intermingled with other customers. Security, we've improved and continue to improve our access product that allows effective integration with security providers and the higher level of security and access control. I've been going for a very long time here, but we've -- we are continuing to improve LOA enterprise offerings, whether it's in the base product. We chose to be data residency in based product for every single customer. Then we have our premium offerings that provide more. And then for the largest companies in the world, we have enterprise versions of our product that cater to those specific needs. So all those are improving in a very, very rapid clip, and so yes, we're really happy with the progress of our R&D teams on those ones. Mike, do you want to talk about Chartio?

Sure. Thanks for the question, Brent. Look, there's no doubt that data is incredibly important to our customers. And we have an amazing depth and richness of data that is incredibly important to them. The more customers consume Atlassian products across the family, the more data about their history, project and task speeds, how that connects into documentation, who's collaborating with who, we have a phenomenal data set when we put it all together across our products. We are exposing that to customers in various different ways. Firstly, this quarter, you've seen -- well, first, I would I would start with, in the platform, infrastructural, we continue to build a large data lake where we are cross-referencing and connecting all of the different data points that we have across multiple products and across third-party products, I would say, in the various different markets and workflows that we're involved in. So in software, in IT operations and through to broader knowledge management and work management that data lake all of the principles that Scott just talked about. So this is not a trivial engineering exercise across billions and billions of data points, but to do it with data residency in mind and do it with all of the different enterprise compliance in mind is a nontrivial exercise. That's a part of what the Atlassian platform does in terms of the data and insights features keeping compliance and privacy in mind at all times. We then take that data lake. We can expose it to customers in a direct way. We have an early access program going on to expose that directly to customers to put into their broad-scale BI tool and mix and match with whatever data that they have. That's one potential way that, that is emerging for customers' insights…

Your next question comes from the line of Tyler Radke from Citi. Your line is open.

Could you help us understand how you're thinking about just data center strength kind of continuing into Q4? Obviously, a really strong number in Q3, and obviously, with the end of life of server, you would expect that customers weren't ready to go to the cloud. Kind of when we have data centers they're only non-cloud options. Maybe just help us understand how you're thinking about that growth heading into Q4 and just overall subscription growth into Q4.

This is James. I'll address that one. Clearly, in Q3, we did see this outsized event-driven data center volumes. And of course, a part of that was, customers stepping in front of the price increases that we implemented in Q3. So you won't have that sort of a dynamic playing out in Q4. As I mentioned a little earlier, though, when we look at our subscription revenue growth target now for fiscal '21, we had previously said mid-30s percent growth year-over-year. And we are confident that we're going to beat that now. We're very much encouraged as we've been discussing on this call by the momentum that we're seeing on the cloud business. And then as you say, the data center business remains strong as well.

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

In my checks, I picked up that some customers are planning to convert to cloud last minute in June, while they're still able to lock in the 55% discount level. Is that something that you've heard or expect more broadly across the base? And if so, should we expect some new cloud wins to get pulled forward into Q4?

Well, this is James again. You're right. We do have the loyalty discount that we've been offering to enterprise scale, so 1,000-plus users, server customers looking to migrate over to the cloud. So there could be some additional volume there ahead of that reduction in the discount rate. But we're certainly not of the mind that, that would drive the sort of scale of event-driven activity that we saw in Q3. I think Q3 was maybe really Atlassian unusual event in terms of us ceasing the sale of new server licenses and then also raising prices on both the server data center side of the business. So yes, there will be examples like the one you're framing in the question there, where we'll continue to try and tune our various business incentives to further drive our cloud migration time line. But I'm not of the view that it would drive the same sort of outsized level of activity that we saw in Q3.

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

Congratulations on the announcements this week. I want to ask a couple of questions about Point A. I guess I was curious, given the launch, does this change your framework at all in terms of how you think about building new functionality organically versus maybe making potential acquisitions. And then I was also wondering if you could provide some color on just in terms of how we should be thinking about what type of -- what is the portfolio of new products that may come out of Point A look like? And how far field do you think that you might go from your core mission of improving work management under this new initiative

Yes. Good day, Jack. Look, on the first part of your question, we've always maintained repeatedly, I think we've been very, very consistent in our philosophical stance. I was going to say since we've been public, but actually, we're consistent well before that in terms of -- we don't believe all the innovation exists inside the building. We don't believe all the innovation exists outside the building. And so we try to be extremely pragmatic and thoughtful about whether we build or buy new capabilities that we need or new products or teams in terms of groups of people. And it's always been a strength of ours, I think, to be pragmatic about both of those equations. Point A is a particular example of internal innovation and programs that are starting to hit the outside world, which is always a very exciting time. Part of that is driven from the cloud platform investments that we've made over the last five years or more. So those investments have taken a large amount of that R&D spend line item that you're always so excited to find out about as a group. And building on those platforms, that platform itself will enable us to create new products faster and with less resource spend than they would have otherwise done in past years. That's why all of those products are in the cloud. We believe all of those products will be also a card or an advantage to customers who are considering moving their existing products to cloud. A lot of the new products that they can work with exist in the cloud only because they're natively built on top of that cloud platform. That lets each of those products benefit from all of the capabilities that we've already put into that cloud platform.…

Your next question comes from the line of Ari Terjanian from Cleveland Research. Your line is open.

Thank you for taking the question. Just want to see if there's any change in thoughts or philosophy around how you're thinking about cloud versus data center and any feedback from customers. Data center is something, given the recent strength you plan to maybe increase R&D or investment around maybe versus previous thoughts or you continue to intend to invest the disproportionate now focus towards cloud longer term?

Ari, it's Scott Farquhar here. We're clear with our customers that the cloud is the future and the long-term future for our customers to get the best experience of Atlassian. And it will take some time for our customers committed across, but they all understand that, that is the best place to get the best experience from Atlassian. Obviously, we're continuing to invest in data center, so there's a small number of customer that aren't ready to go to cloud or who aren't yet ready to go to cloud. And so we're continuing our investments there. But long term, both our customers and us know that that experience that we get will be in the cloud.

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

This is Quinton on for Jim. You touched on it briefly already, but on the data residency capabilities, I think you mentioned during yesterday's Team 21 event, that those capabilities for paid customers would focus on just a few areas or geos to start. Are there plans to roll that capability out to the larger global scale? Or is that plan to follow based on customer demand? Thank you.

Yes. Quinton, I can take that. Look, we support a series of geographies at the moment for data residency. The plan is to continue to roll that out, I would say, yes, with customer demand. We have strong demand, as we've talked about at the Team -- in the Team '21 keynote from various more specific regions in Europe. Australia, Canada, those are all in some sort of engineering or testing today and will be rolled out by the end of the calendar year at least. So I think it's some of them are by midyear as customers continue to go into different regions. Given our platform, it's relatively easy for us to roll out new geographies if we see demand or we see legal privacy compliance reasons why we need to roll that out in a particular area for customers. So it's both driven by market forces, if you like, in terms of the governance and regulatory regimes and also by customer demand in those areas. But what we've invested in the platform being able to do that relatively rapidly and economically for all of our customers. We continue to believe that broad-scale compliance laws in different parts of the world around data, privacy, regulated industries in terms of finance or health care or whatever it may be, will continue to evolve over the next 5 to 10 years. We need our R&D and our engineering to be prepared for that and our platform to be prepared for that because I think it will be a competitive advantage and will be increasingly difficult for SaaS companies to be able to keep pace with that for their customers. We are prepared and investing in that future. You see that in our recent announcement in the last quarter that data residency will be available for all customers that are on paid additions, so standard, premium and enterprise. We don't believe that data residency is a large-scale sort of capital E requirement. It is a small customer requirement as well for smaller German organizations that need their data to be in Germany, it's not just large German banks, for example, that have that requirement. That is a Kudos to our engineering and infrastructure team, that's a nontrivial thing to do in a very large-scale SaaS platform and SaaS application, but that is the future that we are building to be able to have those capabilities for customers that may only have 11, 12 or 13 users and to be able to do that economically for both them and for us.

Your next question comes from the line of Pat Walravens from JMP. Your line is open.

This is Joey Marincek on for Pat. I appreciate the question. So first, I want to dig in on IT and ITSM. And maybe just from a high level, why those make sense as a focus area? And then secondly, what have you learned in the early days of your premium and enterprise SKU strategy?

Yes. Okay. I can take those. In terms of why IT and ITSM make sense, look, we obviously have a long-term multi-decade now core strength in software teams, software and engineering teams and expanding out to designers and product managers and the people around the software creation process. Increasingly, that has both in terms of our movement as a company, but also the larger industry scale trends, IT and software are increasingly blurring the lines between those two, right? Development and IT, those lines are increasingly blurring as they come together. It used to be that software teams built something, and IT teams ran it. Now you have software teams that are running services for themselves, and you have IT teams that are building new capabilities as the world becomes ever more digital and software-driven. We think it's an incredible strength of our company to be the only company that spans development IT and the operations that exist either between those two or across all of those groups as they come together. You see that in Jira Service Management and all of the changes that we've made there and increasingly driving the more rapid pace of IT as modern IT organizations move, as we like to say, have high velocity, there's different speed and cadence to modern IT operations that we're really helping to drive that a lot of the legacy and old school vendors don't seem to understand. The strength of having the software teams there shouldn't be underestimated because all of this is coming together into a single spot. So that hopefully explains why we think it's a large and transformative area and why we have some strength to play there. It goes without saying I hope that the digitalization of everything, software and technology is the core…

Your next question comes from the line of Keith Boston from BMO. Your line is open.

This is Dan on for Keith. I wanted to ask quickly about the marketplace business. Obviously, this quarter benefited from the server and data center dynamics. But next quarter, it sounds like it will continue to be impacted by some lower take rates. So how do you think about marketplace growth in a more normalized environment?

Yes, just in time. Look, clearly, this quarter, we had the pull-forward effect when we -- marketplace revenue is recognized 100% at the point in time when it is sold, whereas other revenue is spread ratably across different time periods depending on if it's data center or cloud. But because we don't have ongoing obligations for our marketplace revenue, it's recognized upfront. So what you do see is see more variability around marketplace, sort of swings in the revenue line item that we have than you would see in other areas. Well, in terms of marketplace growth, we have an amazing marketplace in our -- behind the firewall on-premises products, and we have amazing marketplace in our cloud product as well. We've seen a huge number of our vendors move from, I guess, their behind the final business to cloud along with our customer transition. So they are being led by our customers as well who are moving across. And as you mentioned, we've more use the take rate for our marketplace to incentivize some of the vendors to move across, and that has worked, and we've seen vendors both transition of business across, and we're seeing a whole bunch of new vendors who are building only for our cloud platform. So marketplace continues to be a huge source of strategic strength for us at Atlassian. We know that customers who use our marketplace products are stickier than ones that don't. We benefit of the ecosystem that is built around it. We know that we can't build everything. Our products get us so widely 200,000 companies around the world. And they can't build every use case for them into the marketplace managed to fill in areas that we can't do. And so again, the customers benefit from that. So I said the marketplace to be just as important, and it is just an important in our cloud business as it has been historically now behind the firewall business.

There are no further questions at this time. I turn the call back over to Scott Farquhar for closing remarks.

Just a huge thank you, everyone, for joining our call today, we appreciate your ongoing support. I'll be on holiday with my family next earnings call, maybe tracking some emus across Australia. And so Mike and James will be holding down the fort for the Q4 call. I hope you and your loved ones remain safe and healthy.

This concludes today's conference call. Thank you for participating. You may now disconnect.