Atlassian Corporation Plc (NASDAQ:TEAM) Q1 2024 Earnings Call Transcript

So that is a major focus for us. I also do want to highlight that many of our customers, actually one of the most exciting things about talking about customers about getting to migrate them over an enterprise is a lot of the new capabilities we’ve launched in our existing products, whether that’s white boarding and Confluence, new automation capabilities, analytics capabilities, but we’ve also launched new products this year. Jira Product Discovery, is getting a lot of attention within our customer base, and we’ve seen that getting rapid adoption within kind of the early adopters in our customer base. So very excited about that. And just over the last couple of weeks, we launched a new product called Compass. Focused on really hard core developer user base and really have a new innovative experience to help developers manage their complex services platforms.

So I’m really excited across the board. Strength in Jira Service Management, but one, we can’t lose sight of the many other products that many of our customers are very excited about. And in cloud, the reality is it’s just way easier for them to adopt those products. they can simply just turn them on, add them to their environment and get value out of them. So by the time we come around and have a sales conversation, many of them are already understanding the value that these products are providing to them.

Operator: Your next question comes from Ari Terjanian from Cleveland Research. Please go ahead.

Ari Terjanian: Yes, hello. Thank you for taking the questions. We noticed some incremental carrots, so to speak, during the quarter around dual licensing, step-up credit, six-month free trial for cloud. Could you speak to some of those efforts? And if they’re providing any lift or also maybe potential dilutive impact on the revenue?

Cameron Deatsch: Yes. This is Cameron again. I’ll speak broadly just to everything we’ve done to incentivize customers to migrate in the past few years. And it’s a — as I continue to say is, when we announced the server end of life three years ago, we had a carefully engineered set of programs to incentivize customers to migrate to the cloud sooner than later. This was a combination of pricing incentives with loyalty discounts extended trials, so that customers could start using cloud at no cost and get used to it, understanding comfortable with the new functionality. Or, of course, when customers purchase cloud to ensure that they can continue to run their on-premise environments like data center during the migration experience, knowing that migrations take different extended periods of time.

So we override, all these were well planned, engineered from day one and have them part of our migrations forecasts for the last few years. So we continue to roll those out all the way up to the server end of life in February. The goal really being to make it as easy as possible for customers who want to get to cloud to get the cloud as quickly as possible.

Operator: Your next question comes from Jacob Roberge from William Blair. Please go ahead.

Jacob Roberge: [Technical Difficulty] work and work management. And do you ever see that the potential to combine that with Atlassian together? It seems like you’re planning to offer it as a stand-alone product off the bat, but could Loom gets integrated into that suite over time?

Scott Farquhar: Yes Jack, I think I missed the start of the question. So tell me if I’m answering the wrong question here. I think the first-half didn’t come through. The question is interpreted as, Could LUM get integrated into some sort of a work management suite or bundle over time, like we’ve done with Jira Work Management, Confluence and Atlassian together. So I hope I’m answering the right question. That certainly is a distinct possibility. As I mentioned, there’s a number of ways that we’re looking to continue to monetize and grow Loom on as a result of the acquisition. One of those is certainly just Loom by itself as a stand-alone product. It has a significant audience already. It has some really good viral properties and growth factors to it and we think we can help continue that movement forward.

Second, certainly monetizing video across our audiences and improving, you might think about it as a competitive position of Confluence, it’s a better video features, right? But thirdly, you’re certainly looking at different bundles and opportunities in our customer base. I think you can be sure that we will do that thoughtfully when we come to looking at work management or ITSM. I don’t forget there’s a significant video component in knowledge bases and helping employees to and potential to share quick things either from the customer to the agent or from the agent back to the customer. So we will continue to look at possibilities of bundling and putting it into things like Atlassian together, yes. But our upfront goal will be to focus on integration and firstly, continuing the great growth rate of Loom as a stand-alone product, which is a fantastic business.

Operator: Your next question comes from Keith Bachman from BMO. Please go ahead.

Keith Bachman: Many thanks for the question, Cameron. I think this is for you, if I could. When you talk about the conversion help the cloud of 10 points I was wondering if you could offer some commentary around what is that same metric? How much help is going to data center? And then for each of those, what happens after February 15? Any kind of guidepost on how we should be thinking about the conversion help for the customers that may be ongoing past the Feb 15 deadline. Any kind of commentary on how much conversion will help post that 15? Many thanks/

Cameron Deatsch: Yes. So one thing for clarity, so the 10 points of growth we mentioned is for our cloud business. That’s just what came to the migrations and being clarity on where that growth is coming. So, and of course, as Joe already mentioned, a large portion of the data center growth today is simply server to data center conversions. All of that pricing is actually available on our website. You can see across all tiers. You can see what existing server renewals are and what the existing data center list prices are going forward. Now that’s the.

Keith Bachman: Sorry, Cameron, that wasn’t my question. My question is how much, what’s the same metric for data center. So of the growth, how much contribution are you getting from conversions?

Cameron Deatsch: Joe, you want to address that?

Joe Binz: Yes, it’s about 15 points to 20 points.

Keith Bachman: And then what happens to those two metrics after the end of life of server, do you think? Any kind of just directional barometers you would want to provide?

Joe Binz: I would say, in general, what you should expect post server end of support is, obviously, the server to data center migrations will start to decline. That’s going to be a big driver of why we expect to see the deceleration in data center in the second half of the year. We haven’t quantified specifically what that curve looks like. And a lot of it will depend on what the customer purchasing behavior is around that server end of support moment. How many of those seats move to data center, how many of those seats move to cloud and the timing on that.

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

Fatima Boolani: Hi, good afternoon. Thank you for taking my questions. I wanted to talk about the cloud SKUs and the pricing increases that you’ve undertaken in the cloud suite of products and solutions, in addition, it seems that every October, like clockwork pricing goes up by 5%. So Joe, maybe the question is for you. How is that being contemplated in your guidance for the year. And as an added layer, can you speak to customers who migrated to cloud in the past, in the recent past, who are perhaps on loyalty discounts? And what that cadence of getting these customers on loyalty discounts up to MSRP, if you will, how that’s being considered in your cloud guidance? And then a quick follow-up, if I may, please.