Atlassian Corporation (TEAM) Q1 2025 Earnings Report, Transcript and Summary

Good afternoon and thank you for joining Atlassian's earnings conference call for the First Quarter of Fiscal Year 2025. As a reminder, this conference call is being recorded and will be available for replay on 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.

Welcome to Atlassian's First Quarter of Fiscal Year 2025 Earnings Call. Thank you for joining us today. On the call with me today, we have Atlassian CEO and Co-Founder, Mike Cannon-Brookes; and Chief Financial Officer, Joe Binz. Earlier today, we published the shareholder letter and press release with our financial results and commentary for our first quarter of fiscal year 2025. The shareholder letter is available on Atlassian's Work-Life blog and the Investor Relations section of our website, where you will also find other earnings-related materials, including the earnings press release and supplemental investor data sheet. As always our shareholder letter contains management's insight and commentary for the quarter, so during the call today we'll have brief opening remarks and then focus our time on Q&A. This call will include forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make. We 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. We undertake 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 our business performance in the 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 recently filed Annual Report and Quarterly Reports. During today's call, we will also discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and are not a substitute for or superior to measures of financial performance, prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures is available in our shareholder letter, earnings release, and investor data sheet on the investor relations section of our website. We'd like to allow as many of you to participate in Q&A as possible. Out of respect for others on the call, we'll take one question at a time. With that, I'll turn the call over to Mike for opening remarks.

Thank you all for joining us here today. As you've read in our shareholder letter, FY25 is off to a good start. We've crashed off our Team24 Europe event in Barcelona, where we heard how customers like Vodafone, Lloyds Banking Group and Mercedes Benz are leveraging our products in powerful ways to drive team-productivity and deliver superior service. We are really energized by the excitement from our customers and partners in response to the innovation that we're delivering. Over the last few months I've met with dozens of CIOs and CEOs from our largest customers and listened to the challenges that they face. Technology is increasingly becoming critical to the success of every single organization. And with a platform that now spans software, IT, and business teams, I think Atlassian is uniquely positioned to break-down the silos between those teams through our system of work. If you're interested in hearing more about the system of work, we are always innovating here at Atlassian, check out the Loom I just posted to our IR website to give you all a sense of how Loom works and give us any feedback on how you like it. AI, of course, is also going to play a pivotal role in how work gets done. With the power of our R&D engine and more than 20 years worth of data, and how teams plan, track and deliver work, we have incredible competitive advantages in the AI era. And we're not just marketing AI, we're shipping it. We've made Rovo, our newest AI powered product, generally available for all customers just five months after announcing it at Team24 in Las Vegas. Rovo is delivering differentiated value to our customers through our powerful teamwork graph, allowing customers to unlock their existing organizational knowledge at ever increasing scale and pace. We also continue to thread our AI capabilities throughout the entire cloud-platform with Atlassian intelligence across premium and enterprise editions of all our existing products. This is driving increased customer adoption of higher value editions and of course, driving migrations to the cloud. To build on this momentum, we've introduced Jira Product Discovery Premium, Compass Premium, and Guard Premium, adding even more advanced and enterprise-grade capabilities to our newest cloud offerings. And lastly, with our increased focus on serving enterprise, we introduced Atlassian Focus, the newest product in our enterprise strategy and planning solution. This continued product innovation is paving the way for our largest and most complex customers to unlock incredible value from the Atlassian Cloud Platform. Our customers understand that the ultimate Atlassian experience is in the cloud, but are increasingly expressing their desire to adopt our cloud offerings. The progress we're making against our top strategic priorities of serving the enterprise, delivering on AI innovation, and empowering teams to work better together with our system of work is resonating incredibly well with our customers. We look forward to building on this momentum in order to seize the incredible opportunities that lie ahead of Atlassian and make further progress on our mission to unleash the potential of every team. With that, I'll pass to the operator for Q&A.

We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Kash Rangan from Goldman Sachs. Please go ahead.

[Technical Difficulty] Product releases, which we saw a team has been just a few months after team that you released it. What are the proof-points that you can offer to us that AI, contrary to a lot of fears of Wall Street that it might take away jobs and development and service. What support can you offer as based on your customer conversations, anecdotal -- albeit that it could be just the opposite. Thank you so much, if it is the opposite. Thank you.

Hi Kash, I think I missed the start of that question. I think it was largely around the AI product releases and the proof-points we could offer behind that. It's a very thoughtful and totally relevant question. Look, I can tell you in terms of both, let me step back. We have a two-pronged AI strategy, as you're probably all aware. We have a lasting intelligence threaded throughout our platform for all the existing cloud products that brings AI capabilities to every single product we offer. And we have Rovo, which is a separate product built in and for the AI era. And all of that is now in general availability. And we keep iterating and building on it every single quarter with our R&D engine. In terms of proof points, I can tell you that both Atlassian Intelligence customers and the people in the Rovo Early Access program have seen incredible benefits for their business in terms of how much time they can save every week and how much faster their business can move. So that yields just high ROI on these investments. Atlassian Intelligence usage has increased more than 10 times since the start of the year. And those customers continue to adopt more of their Atlassian products as a result. They're seeing increased ROI from that. And it's also driving for us not only premium and enterprise edition upgrades, but migrations, which is a big part of obviously our continued evolution as a business. One of the world's largest investment management companies, signed an agreement recently to move from data center to the cloud over the next three years. It's a huge agreement for us and started their primary reasons for moving as Atlassian Intelligence and Analytics. I think in the question, there's an implication that, it will do the opposite of takeaway from jobs, and I think that's entirely correct. I'm a big believer that the amount of human creativity we have is largely unlimited, and AI is a fantastic tool to enable us to get more of that creativity out faster. It will enable the businesses that that adopt it and adopt our products to compete more effectively, with other businesses, and that will force everyone to have some sort of adoption of this, and gain that efficiency. We're certainly not seeing at the moment any, seat cannibalization. Again, I would carry this. It's all [it's all] (ph), but all we're seeing at the moment is customer excitement, customer adoption. They're playing with these tools and learning how to use them, and really working out how to increase, their business velocity in a highly constrained time. So we maintain [high excitement] (ph). And we do also have, a series of elements of consumption based pricing as you can see from our pricing of virtual service agents and some of the Rovo and Atlassian Intelligence capabilities. So I think we're well placed for any future that might emerge, but maintain high confidence at the moment about how AI is changing our customers and helping us achieve their mission.

Super. Thank you so much.

Your next question comes from Keith Weiss from Morgan Stanley. Please go ahead.

Excellent. Thank you for taking the question guys and congratulations on a really solid quarter. So I was hoping you guys could help me with my research process, being completely selfish here. So I made it last year my topic, and my thesis was moving to the cloud is just a better platform for upsell and cross-sell. You guys have a broader solution portfolio, and that's going to help NRR expand. So when we look at the cloud outperformance this quarter, you talked about, seat expansion. You talked about, migration benefits. Is -- can you help us understand how much of this is just, like the environment is maybe stabilized or slightly improving versus how much of this do you think it's stemming from now that you're on the cloud platform that NRR will expand? Or now that you are on the cloud platform, the marketing initiatives for upsell and cross-sell are proving more effective? Like, how much of this is driven by your guys' like proactive activity versus driven by the market?

Yes. Thanks for the question, Keith. I'll start and then Mike will chime in. So just from a high level, we benefited this quarter from a stable macro environment and trends in our business from Q4 largely carried into Q1. So we did see signs of continued stabilization in our SMB customer segment and low touch sales channel. Paid seat expansion rates in SMB although lower than prior year were stable to Q4 and top of funnel health remains healthy. So all that felt good and that prerequisite for that was to have a stable macroeconomic environment to build on. Enterprise trends overall were also healthy and consistent with Q4. We delivered solid results on annual and multi-year deals, migrations and upsell to premium enterprise editions of our SKUs. So that was also influenced by the stable macroeconomic environment that we saw. And then the other thing I would say is that we did have really steady sales execution in the quarter and that also carried through to our results. Mike?

Yes, thanks, Joe. I would say, look, Keith, I don't think you're a very selfish person. I think that's very fair on yourselves. The macro is still a factor. There's no doubt about that. Right? Companies continue to try to tighten their belts, scrutinize budgets. SMBs tend to be more sensitive to the macro. Right? And we still have a heavy proportion of SMBs. So there's no doubt that's still going on. The way we take that is that's the environment that exists. And how we have to execute through that. We have to continue to grow through that. We have to deal with that. We are, no doubt, spending a lot of time as we always do with our customers. I can tell you that our message is really resonating, both the system of work and philosophy of what we're trying to do for their businesses, both their demand and drive to see Atlassian as a strategic partner that's really helping them, through that world. And, also, just the consolidation factor is also working in our fiber, which, you know, Joe didn't mention increasingly, consolidation onto the Atlassian platform in the cloud is a really great part of it. We're pretty clear that over the medium to long-term, though, you know, the key levers of growth are in our control. I think sometimes these factors like the macro are relatively short-term in the scale of Atlassian's time thinking. We continue to evolve our enterprise go to market motion, as Joe mentioned, really strong customer conversations, really strong continued opportunity to go to wall to wall in our largest customers, which are some of the biggest businesses in the world now. System of workers working really well and driving paid seat expansion, as we facilitate that wall to wall adoption and also as we continue to connect technology teams with the business teams in an organization. And there's no doubt there are far more knowledge workers in those business teams in those big companies. AI, as we mentioned, continues to drive that growth. So it's a whole set of things across migrations, across new customers coming to us for the Atlassian Intelligence capabilities, Rovo driving interest in our ability to connect and consolidate a whole series of third-party products together and provide huge value on top of those. And there's no doubt continued growth momentum coming from cross-selling of our solutions, obviously Jira Service Management continuing to power along really well, but a lot of emerging products that we've shipped over the last year or two years in Jira Product Discovery, Compass and Rovo, all of whom have early traction and feedback, it's really encouraging, and are at the start of their growth journeys. Not to mention Loom, which continues to just [crank along a pace] (ph), fantastic product, fantastic customer adoption, and we keep learning as an organization and how to do this every single quarter. That's what we've done for a long time. So you know incredible bullishness at the moment on our ability to continue to drive results despite a challenging environment out there in the world.

Your next question comes from Adam Tindle from Raymond James. Please go ahead.

Okay, thanks. Good afternoon. I'll try to ask an unselfish question since we're on a team call here. I want to return to the topic of AI, kind of twofold here, Mike. What was the pivot point to move the AI strategy from more embedded in the product with Atlassian Intelligence to separately now break it out and monetize it with Rovo. And as you did that, how did you think about pricing? Not uncommon for AI agents at this price point, but relative to your own core product portfolio, it is a fairly healthy price point. So if you could walk us through those two things. And for Joe real quick, just confirming that Rovo is going to report in cloud and anything that's contemplated in the guidance from Rovo. Thanks.

I can take that first, and I'll hand over to Joe for the end part of that question. Adam, we appreciate it. We're all a team here. Look, I don't know, I would call it a pivot point per se. I think it's really important. There are two different forces happening here. That's why we think about it as a two-pronged strategy. Firstly, for existing products, Confluence and Jira have been around more than 20 years as products, still growing fantastically well. AI and all the capabilities of the Atlassian Cloud Platform can deliver increased value in those existing products through text generation, through smarter searching, through all sorts of different things that we've built as Atlassian Intelligence capabilities in our existing products. That is not something we're pivoting away from, quite the opposite. We've increased the pace of delivery of Atlassian intelligence features. The monetization of that though is not as a separate add-on product, it's the core capabilities of that product as we've learned how to deliver those capabilities better, as we get more of those capabilities and we deliver them at increasingly lower costs. We're managing our own margins and costs pretty aggressively on the AI side. And as I said, usage of those features is up more than 10 times. And customers reporting great efficiency boosts in their existing use of existing products, which is only good for Atlassian. Their subscriptions for the long-term are moving to those premium editions. We're certainly not pivoting away from that with Rovo at all. With Rovo, given those capabilities we've built over the last 24 months in the Atlassian Cloud Platform, given the teamwork graph that we've built over the last four years or five years, we have the ability to build new products we never could have built before. So that's why we say that product's built for the AI era. We could not have built Rovo without AI. It's not an additive thing. It's core to the product, but it is a very different product to the other things. Customers increasingly, obviously using chat to talk to all the knowledge they have across Atlassian's applications, and there are other applications in Google Docs and Slack, GitHub, Figma, et cetera. So this is a really powerful feature set we couldn't have built beforehand. And secondly, obviously with things like agents, allowing them to actually take action, have virtual teammates, increasing the bandwidth of their team and the efficiency of their team. It's not a pivot from one to the other as much as -- we're pretty aggressively investing in both of those two, areas in terms of the wonderful tools that we have in Atlassian Intelligence. You talked about pricing, I assume you're meaning for Rovo there particularly, although we have obviously the virtual service agents in Jira Service Management, which also have consumption based pricing capability. I think it's important that we continue to evolve and learn about Rovo in terms of the sales strategy. This is an area that's moving pretty fast. No doubt about that. Rovo, though, does appeal to both, the SMB and the enterprise segments of our customer base. It is a classical Atlassian application in both sides, the flywheel driven, you know, large scale product led growth motion and the high touch enterprise motion. We are trying to do both of those with Rovo. We'll continue to learn from customers and adapt accordingly, but the value delivered is very, very large. So while we take a pragmatic approach always to pricing and monetization, I can tell you the early customer feedback, demand signals are strong, the pipeline is ahead of our initial expectations at the moment. So [product only] (ph) released a few weeks ago, give us some time, but we maintain high excitement there. Joe?

Yes. Thanks, Mike and Adam, thanks for the question. Rovo revenue will be included in cloud when we report our results. And as Mike said earlier in the conversation, our big focus now is on driving deployment, usage, engagement and value with the product across as many customers as possible. So monetization is going to be an outcome of success on those things. So our guidance right now assumes a very modest level of revenue from Rovo in FY25, which we believe is the prudent approach at this early stage of the product. And then we'll see gradual growth and build from there over time.

Your next question comes from Alex Zukin from Wolfe Research. Please go ahead.

Hi guys. Thanks for taking the question. Maybe just the other elephant in the room, just again, this is the largest cloud revenue beat, I think you guys have given since you started providing guidance. And maybe just drilling a little bit deeper on what drove the outperformance? Was it more prudent conservative initial guide that was de-risked? Can you maybe parse out what specifically was kind of much better than your expectations expansions, cross-sell migrations, maybe just stack those for investors to get a better understanding. And then the new -- your new CRO hire, Brian Duffy, just coming in, what are you excited about in terms of the opportunities to really continue to mature the sales go-to-market function?

Yes. Thanks, Alex. I'll start, and then Mike will pick it up. So revenue, as you mentioned, in cloud was up 31%. That's in-line with Q4, but certainly much better than our expectation of 27% year-over-year growth. I mentioned earlier in Keith's call -- Keith's question, trends from Q4 continued into Q1. The variance to our expectation was really driven by two factors. One is better-than-expected paid seat expansion and the other is migrations. Some of that is macro-related to the question earlier, but some of it is just good execution on our part from a sales execution perspective. All the other growth drivers in this part of our business, whether it's cross-sell of additional products or adoption of high-value additions or top-of-funnel performance and customer retention, those are either in-line or slightly better than our expectations going into the quarter. So that's sort of the breakdown we gave you on the cloud performance. I think it is a mix of both macro, good sales execution and then just fundamental health in the business. Mike?

Yes, I would agree with Joe on that. It's a broad scale. He's highlighted a series of different points, but we executed well across a whole lot of different factors this quarter, which is great, but we're not -- we're pragmatic about the environment we are in and continue to try to do that every quarter. On Brian, look super excited to have him come join. It's been a big search, very comprehensive, very thorough, and a whole lot of time. I think the first thing is to learn Atlassian's business. Brian has a great set of experience across a different series of sales motions. As I've mentioned Atlassian is a very complex company from a sales perspective, we have a large scale SMB flywheel product-led growth motion. We also have an increasing enterprise player touch business and trying to thread these two machines together is what we do. It's no small challenge. So he's a big learner. I think he'll study that continually and learn how it works from the inside. At the same time, obviously, he has huge experience in driving the sales transformations in leadership, and he's super excited about the opportunity in front of Atlassian and continue to deliver on that. As we mentioned, we have more than 524 customers that are north of $1 million, continues to be a very fast-growing cohort from us, continue to accelerate that enterprise path and the opportunity. We've called those as one of our three big transformations going on in the business as we continue to evolve. I'm sure he will continue to help power that. And no doubt, it will be a big add to the executive team, having public company CEO experience and getting on the team, we're all super excited to have him. So looking forward to it.

Your next question comes from Michael Turrin from Wells Fargo. Please go ahead.

Hi, thanks very much for taking the question. Nice start to the fiscal year all. On top of [dujour] (ph), but I think it's useful to go back to it just on AI and Rovo, I wanted to just give Mike a chance to help level set your view on Atlassian's points of differentiation there versus some of the other [analytic] (ph) tools we're seeing come out across software. And maybe help us also just think through how much of the Atlassian user base this could eventually address over a much longer period of time. Thank you.

Well, Michael, you're asking the questions that are going to get me in a lot of trouble here. Look, I think we are massively differentiated in Rovo. I really do. I think we are well ahead in the R&D journey of building a real product that actually lands with customers and actually delivers value that can access today and is built on many, many years of investment. I think the cloud platform, the Teamwork Graph, the Forge technical platform we have to build extensions and add-ons, the Teamwork Graph, as I mentioned, that we've built over many years, which is strongly tied and highly opinionated way of organizing all of the teamwork data that you have. And then we've added on top Atlassian Intelligence a series of different large language models from many different vendors that we run, and we have great smarts about how we choose which model and why, as well as the extensibility of Atlassian's products and portfolio combined with a really world-class enterprise search engine that we've built to access that data and get the right data through the LLMs, right? Getting AI features is not the hard part. It's getting the data you have organized, structured and thoughtfully managed. It's having a search engine or search capability that can get that data to the intelligence features and then it's having an extensibility platform to allow those agents to actually take action in ways that are user controlled, so they understand what's going to happen, but at the same time, autonomous and able to go and create value for your organization. So massive excitement. That's why you see the excitement in our customer base. A whole series of multi-multiyear investments coming together into Rovo with the Atlassian Intelligence on the top. So a classic example, I think, of Atlassian's R&D and long-term focus over the last 5 years to 10 years coming together and very differentiated, right? I will tell you that in terms of what our agents can do, the breadth of those agents across business teams, IT teams, software teams is very, very strong, and customers are really resonating with it. The amount of things they can do when they start playing. We've seen that in some of our existing early access program -- or access program customers. And what I like seeing is just delight on their faces when it starts doing things, when Rovo is achieving things inside their business with their own data, with data that comes from Atlassian products and third-party products put together and then actually taking action and driving business value. It's a super exciting product. It's a super exciting time to be building products and we have an amazing technical platform, I would say, absolutely world-class and be able to do that. So a differentiated. We've had this journey going for a fair while now. So happy to be ahead at the same time, practical. We've got to stay ahead -- we're going to keep investing to stay ahead on the R&D side. And we're far from done on this. So there's a lot more to do -- a lot more things coming out.

Your next question comes from Fatima Boolani from Citi. Please go ahead.

Good afternoon. Thank you for taking my questions. Mike, you alluded to this in the opening remarks and some of the commentary you threaded in some of your answers earlier. But I wanted to [throw-in] (ph) on your pricing strategy. Specifically, maybe Atlassian is more assertive foray into the realm of consumption pricing that is being maybe more profoundly infused in the portfolio. So I'm wondering what the calculus behind the consumption and strategy as we're aware can be pretty variable and it's still pretty early days. So we'd just love to get your thoughts on just the strategizing about rolling out the consumption pricing because it's relatively new. And Joe, if you could help us on how you are contemplating how much consumption pricing scales and how it's embedded in your guidance with respect to some of that variability that it could bring. Thank you.

Fatima, great question. I can answer the first part, and I'll let Joe follow on with the second part there. Look we’ve had consumption-based pricing in various ways across the portfolio for a little while now. Bitbucket pipelines in terms of effectively some sort of a proxy on CPU usage because of the amount of builds you run can be highly variable. It doesn't necessarily depend on the number of developers you have. We obviously have storage and a few other areas where we do have a pricing capability that burst up and down. Historically, I would say our consumption-based pricing strategy has been on avoiding overages, so the sort of top 3% to 5% of your customer base that have an order of magnitude, more usage of storage or something else? And just making sure that, that doesn't hurt the margins on the downside. And that maintains to be a broad philosophy across our [6, 7, 8] (ph) consumption-based strategies we have going on in different places. That's more of a defensive strategy, I would say. And ideally, that's where we would like to be in a broad level. However, with things like AI and virtual service agents, there's certainly a capability to increasingly deploy that. The same thing with assets in Jira Service Management is another area that we have some consumption-based pricing, largely where we like to take pricing gain from a philosophy point of view, is to be very customer driven. Where does it make sense? Where is it logical? Or is it going to scale in as friction-free way as possible? And where is there a clear value return for what I consume, what I use and where do I get a clear return for that? And is there a clear ROI to me, I think that's the same strategy that we're employing there. we will learn over the coming year, as to how that works in terms of virtual service agents and assets. I can say it's -- we're very thoughtful when it comes to pricing and have been over a long period of time. And I would say we'll maintain that posture. Joe?

Thank you, Mike. To the question Fatima, about consumption pricing and the financial model, there's a very small and modest amount in the guidance in LRP. We believe it will take some time to scale. And as Mike mentioned, we don't have a fixed mindset on pricing and packaging. And in the future, we'll be pragmatic and flexible in our approach based on the value we deliver to customers and how we deliver that. So our modeling today is predominantly seat-based when we think about this year's guidance and the long-range plan that we have. So we are taking a very conservative approach to this and seeing how things develop.

Your next question comes from Gregg Moskowitz from Mizuho. Please go ahead.

Okay. Thank you for taking the question. Congratulations on a very nice quarter. Mike, for many years now, Atlassian has spent right around 35% of its revenues in R&D, which obviously is much higher than peers. And certainly, we've seen some very good innovation over the years. But frankly, I can't recall any period of time that matches what you've unveiled over the last several months or so. And maybe that's just circumstantial. But what I'm wondering is, have any changes been made to how the engineering teams are oriented that helps explain the flurry of product innovation that we are seeing.

Thanks Gregg, look I appreciate the nice words there, for sure. I don't think there is anything structural that I would say we're changing. We've continued to work really hard over the last couple of years on developer productivity, having a world-class engineering organization, product management organization, design organization is incredibly important to us. And we have a big view as you've said for a long time that great technology companies that can survive and thrive for decades require world-class engineering organizations. You cannot find one that doesn't have a really world-class engineering organization. We spend a lot of time focusing on what we create but also as much time focusing on the productivity of that organization, we do spend a lot of time on productivity. When I talk to customers, I spend a lot of time explaining to them how our R&D organization works, how much we spend on productivity, how we measure productivity, both qualitatively and quantitatively. And a lot of our products, Compass is a good example, come from internal tool that we have built over time to drive our own productivity in the modern world of engineering. I don't think that's really changed. It's a continued evolution, a continued growth in the mindset there. The only thing I could probably point to is building a lot of platform componentry takes an awful long time, as we've talked about whenever asked about R&D spending over the years. There is no doubt we've spent a lot of time building our cloud platform. And at some point, you can start building products on top of that platform that really show that and leverage that. If you look at Focus, if you look at your Product Discovery, even if you look at Rovo building on top of Forge and the Teamwork Graph, we are able with that cloud platform to build, I would say, more mature products faster than we were five years ago, more fully featured and more of the time can be spent on the unique value of the product. There is no doubt about that. We are integrating Loom into that platform faster than we have integrated any previous acquisition, which is another way that, that platform is benefiting. And as the -- I suppose if you're looking at the multiyear view, as that platform has matured, that lets us spend less time on migration tooling and moving the data centric customers to that cloud platform. We are now building ever more advanced enterprise capabilities, right? We're now data resident in 11 different countries, et cetera. So that platform had certainly a large amount of investment for a period of time. To some extent, that’s pivoted to building products and other capabilities on top of that platform. But I would say that we’re not slowing down. We’re a big organization. We have a lot of great ideas of things we can build. We take the same view that we start with prototypes and ideas. We try to turn those into products, learn and co-create with our customers, and where those products deliver incredible value, then we work out how to turn them into the business, and we’re very patient and thoughtful about how we do that to build really defensible businesses over time.

Your next question comes from Keith Bachman from BMO Capital Markets. Please go ahead.

Hi, thank you very much. I wanted to focus on JSM for a second, if I could. On your slide deck, you have greater than 55,000 JSM customers. I wanted to try to get some perspective on how do you think your win rates and opportunities have changed. There's a lot of different dynamics underpinning the question, but in particularly seats, which the seat opportunities based on channel feedback have been limited, but seem to be steadily growing, particularly over the last year. But just how do you think the competitive dynamics are changing. In addition, if you could address, Mike, this was per your comments to a previous question on how AI may be changing the landscape. And the context of my question is really within JSM, I'd like to drill down a little bit on that. ServiceNow obviously talks about their plus SKUs pretty aggressively gaining traction. And I wanted to see if you could channel the AI discussion, particularly towards JSM and how you think that might change your competitive opportunities as you look out over the next year or two. Many thanks.

Keith great questions. A lot there. Look, I would say a few things on the Jira Service Management opportunity in the Service Management Space. We continue to do extremely well there, continues to grow strongly, as you mentioned, sell through 55,000 customers, so the expansion continues well. It's driven by a few fundamentals, I would say. Firstly, an incredible product that delivers incredible value, especially compared to a lot of legacy vendors where the price-to-value ratio we are far and away ahead of a lot of those legacy vendors. That is many, many years of R&D built on top of the cloud platform, built on top of the Jira platform. So there's a reason for that. We continue to expand strongly with JSM, both in the DevOps space. So anyone connecting their IT team to the development and operations teams, an area of huge strength as you've seen us continuing to embed some of the OpsGenie capabilities in terms of incidents and rostering and alerting combining JSM and Compass together, as a real powerful solution. We are head and shoulders above anybody else in our ability to do that at the moment and continue to go in the other direction towards more employee service management, with aspects of HR teams, marketing teams and finance teams increasingly adopting Jira Service Management, incredible time to value. So the ability to start a service function or a service desk can get it up and running, highly configured. Our automation engine is second to none. So the ROI of our service-desk is incredibly high. Our AI is a little bit of a cream on top of that. The business was already running really, really well. When you add AI on the DevOps side, we shipped a whole series of AI ops innovations, really industry-leading in terms of our ability to use AI to process large amounts of alerts and incoming information. And really, there's still that for the agents to separate signal from noise. And secondly, in virtual service agents, given the strength we have in AI and our R&D heritage, we are outperforming anybody else in our ability to deliver that virtual service experience, both in terms of the number of customers helped and the number of tickets resolved, the number of agents helped, so the ability to make agents operate their job faster and the ability to close out the high volume of sort of repetitive tickets. We feel really strong about how we are doing that. We continue to have a whole series of things. It’s fantastic to be recognized by Forrester and others for our sort of leadership position there in AI and service management. And I would say that we’re not slowing down in that space at all. I know there’s sort of continued surprise about from the Investor Day, the speed of growth of that business continues to be a really strong one for us. We think we’re in a great competitive position. And we’re only just getting started. Our assets capabilities in building out a modern configuration management database that’s graph-based, instead of being relational is increasingly adopted by customers for all sorts of workflows and applications within their organization. So lots of super exciting areas to go into besides the traditional DevOps space. So look, lots of customer examples, incredible statistics from customers. So very, very excited about where we sit in service management space and onward and upward from here.

Your next question comes from Ryan MacWilliams from Barclays. Please go ahead Ryan.

Hi, thanks for taking the question. Well, the larger data center customers that have provided more detail around their plans to move to the cloud to get Atlassian features, do you think the timing of their migration is likely to happen around their contract renewal? Or do you think they could start to move more seats over to the cloud earlier with hybrid deployments in the meantime? Thanks.

Ryan, I can take that one as well. It's a little bit of both. It might be worth stepping back to understand how that tends to work for these larger customers. There's no doubt that contract renewal is a time when they will look at moving into more of a hybrid state. That certainly is true. The more innovation we ship in the cloud, depending on when their renewal is at, they may look for early renewals or early capabilities, right? Atlassian Intelligence, certainly, driving some of those customers to look earlier so that both of those are happening. Most of those largest customers, certainly, move into a hybrid state first, right? If someone has 50, 80, 100 data center instances running around that company, they will move some of them. They may choose some of them to move into an archival state. They may move some small ones first to get used to the migration process. They may have some that require FedRAMP or some different type of compliance capabilities and other instances. So you run into these large global conglomerates, I've spoken to, a series of large conglomerate, banking customers and telecommunications customers in the last month. Both of them have different geographic needs for different data center instances. So it becomes a large scale migration project. The key for us is to make sure that we are showing them good value from the cloud platform over time that, that is their destination, they understand the value they're going to get from getting there. And we build up our capability and their organizational capability to run these migrations. Some of these customers again have 50 to 100 data center servers or more that they have to migrate over time. This is a large scale IT project, but it's very exciting for them to do that. I will point to two final things. It is a multiyear journey, and it's somewhat dependent upon those customers. So the macro environment can affect this, right? There's no doubt about that. We have customers who have migration projects that have slowed down because of their internal macro environment. It's an internal project. That's okay. We're patient. We're playing a long game with those customers. As I said, we had a good quarter. We're slightly ahead of our expectation for this quarter. We're slightly behind last quarter. I suspect, as Joe mentioned, that's going to be part of this multiyear journey is managing through that experience. But most importantly, the COOs speak to the customers, they really are in a win not if environment. They do understand that cloud is the best experience of Atlassian products. It's their ultimate destination. They see the innovation we're delivering in the cloud. They see that management that movement -- as I mentioned, that large financial services customer that signed a very large 3-year deal for us. They explicitly mentioned that analytics and AI were the reasons that they were choosing the cloud, and they were starting on their migration journey. And that's fantastic. It's just up to us to continue to drive that momentum.

And then if I could just add one thing, Mike. Ryan, just as a reminder, we are confident and continue to expect data center migrations to make a mid-to-high single-digit contribution to cloud revenue growth rates over the next three years. So that’s reflective in the financial model of our confidence around that motion.

Your next question comes from Brent Thill from Jefferies. Please go ahead.

Thanks. Joe, in the letter, you seem to comment on negative macro factors and obviously understand Brian coming in as a potential factor as well. But I guess, in your commentary, you mentioned demand was stable quarter to quarter, Andy Jassy at Amazon just mentioned demand is improving. AWS is accelerating, Google saw their enterprise cloud accelerate. I guess, I mean, it seems like in the bigger picture, things seem to be getting a little bit better, but you're being a little more conservative. Anything to read in there? Is that a right view? Maybe just kind of give us your sense of how you are taking a lot of these factors into your guidance.

Yes, it's a great question, Brent. Thanks for asking. We highlighted last quarter that we had taken a different approach to our guidance this year, and that it was a more conservative and risk-adjusted approach than in the past. At the time, we believe this was prudent and the right thing to do given two factors. First, the uncertainty we saw in the macro environment and then secondarily, execution risks related to the evolution and transformation of our enterprise go-to-market motion. Nothing has changed with respect to that approach in our updated guidance for Q2 and the rest of FY '25. A few factors there. One, Q1 is seasonally our lowest, absolute bookings quarter in the year. So we don't want to read too much into the rest of the year based on performance in Q1. Secondly, macro uncertainty remains with the upcoming US election, the regional military conflicts and tempered IT spending outlooks. And while we are super excited to welcome Brian to the team, we are still in the early days of our enterprise go-to-market evolution, and there's a lot of work left to do. So we believe it was the right thing to do three months ago, and nothing has changed in our thinking about that. So we've taken the same approach this quarter because both of those factors, macro uncertainty and execution risk remain as relevant now as they did three months ago in our opinion, as we look to the future. So hope that context helps Brent.

Your next question comes from Jason Celino from KeyBanc. Please go ahead.

Hi, thanks for taking my question. Clearly, very impressive cloud results, kind of twofold. With the Q4, did you see any deals that maybe had slipped closed in Q1? Or was there any dynamic of maybe closing some deals or some pull forward ahead of some of these cloud pricing increases that we saw a month back. Thank you.

Yes. Thanks for the question. This is Joe. I'll take that one. Just as a reminder, in Q4, we highlighted deal timing landing in the quarter, not deal slips. And I would just point out deal timing was not a factor in Q1 as it was in Q4. In Q1, we saw a healthy deal flow throughout the quarter that was in-line or slightly better than our expectations. And stepping back for a second, over time, there will be two factors that will impact the velocity of our deals with large customers in our high-touch sales channel. The first is the evolution of our high-touch go-to-market motions. We are driving larger, more complex deals that include more products, span more groups within the customer and require more approvals. In many cases, we're targeting large, complex migrations and all of that adds up to longer sales cycles than we've had in the past. Second, we also take a very disciplined and long-term oriented approach as we think through pricing and concessions. We are not deadline driven. We do not do anything unusual or unnatural with deal economics to close a deal at a certain time. We are willing to be patient and wait for the right deal for both the customer and for us. And so as we continue to further grow our business in the enterprise, we've incorporated the impact of both of those factors into our outlook for the future.

And I just wanted to add on, Jason. There's no doubt, as Joe mentioned, we are trying to be prudent and pragmatic. It is a very complex macro environment as we've talked about, there's a lot of factors flowing around. We don't make excuses for that. It's our job to execute through that, and we did a great job in the last quarter. We've got to keep doing that. I do want to say, though that we're feeling excited about. You mentioned the enterprise and pull forwards. The exciting part is that the long-term focus of those customers. If we continue to have them treat us and see us as a strategic partner, one of their top 3, 4 or 5 vendors that are really driving that business forward, if they understand the system of work philosophy and feel like it resonates and it's going to change their organization in a positive way. And the more executives from our largest customers that I meet, the more that, that is a true statement, I would say, every single time that they understand that. That puts us in a good stead for the long term as we all navigate through these conditions, economic conditions that we're in. We're building in R&D and investing for the long term. We are doing the same thing in the go-to-market and sales side of the world as well. And I'm sure, Brian, will come in and take that point of view. So I would just recommend understanding that, that we still take a long-term view through the short-term waters that we're in. We're very pragmatic about those orders, and we feel really excited about where we sit with the customers and our opportunity there.

Thank you. That's all the questions we have time for today. I will now turn the call over to Mike for closing remarks.

Just wanted to say thank you, everyone, for joining our call today for all the questions and for being part of the team as investors and analysts. A short reminder, we put up a Loom video in the Investors section this time for the first time ever. I love any feedback that you will have on that. As always, we appreciate your thoughtful questions and continue to support. Have a [indiscernible] day.