Joe Binz: Yeah, thanks, Scott. Michael, it’s really too early to give a specific number on the migration impact to cloud revenue growth beyond FY ’24. I would just echo what Scott said, we continue to expect migrations to be a significant driver of cloud revenue growth in FY ’25 and beyond. That’s driven primarily by the significant size of the data center installed base. There’s a lot of opportunity there because those are some of our very largest customers, and for them, it’s more a question of when and not if they move to the cloud. So, we continue to expect to see migrations be a significant driver of cloud revenue growth beyond FY ’24.
Operator: Your next question comes from Gregg Moskowitz from Mizuho Securities. Please go ahead.
Gregg Moskowitz: Okay. Thank you very much for taking the question. And maybe I’ll focus on the data center business. So, it’s impressive that that business is still actually growing 30% plus, even after adjusting for the net benefit from migrations, obviously 41% reported. Joe, when you look at that strong growth, how should we think about the relative contributions from installed base expansion versus pricing versus net new logos? Thanks.
Joe Binz: Yeah, thanks, Gregg. You’re right, it was another strong quarter for data center. It was solidly ahead of our expectations, driven by stronger-than-expected migrations from server. That’s partially offset, as you point out, by the stronger migrations to cloud. I’d say the biggest driver once you get past the net migration impact is really seat expansion, and that goes to my point earlier around, paid seat expansion performance in enterprise was actually quite strong this quarter. And so we believe that’s a statement around macro, as well as our ability to serve those customers and the big investments that we’ve made to improve our enterprise-grade capabilities, address things like scalability, certifications, data residency, app integration, all these things are very compelling and moving customers to the cloud, but also in terms of — and as a result of that, customers are staying with us and they’re moving to data centers, a stepping stone that will ultimately result in a migration down the road.
So it’s primarily paid seat expansion from our perspective once you get past the migration impacts.
Operator: Your next question comes from Fred Havemeyer from Macquarie. Please go ahead.
Fred Havemeyer: Hi, thank you very much. I wanted to ask as we start this year, we’ve once again seen that layoffs in the tech industry had been picking up, although at a substantially lower scale than what we saw in the prior year. So I wanted to ask, as we look at your outlook in the cloud revenue growth, how comfortable do you feel that guidance once again de-risks for the potential impacts from any sort of layoffs in the tech industry? And secondly, have you seen any signs at all that these layoffs maybe impacting anything in your free to pay conversion or anything else to date? Thank you.
Joe Binz: Yeah. Thanks, Fred. We haven’t seen a dramatically different impact than we expected coming into the year relative to the recent announcements. Obviously, it’s something we keep an eye on and track. If you think about the guidance, we really haven’t changed conceptually how we freshen the guidance ranges for the cloud. Just to reiterate, the high-end of our cloud guidance range for the year assumes healthy acceleration in H2 growth rates that we talked about with Keith. That’s driven by less macro headwinds and the related impact that would have on improving paid seat expansion. It also assumes strong migrations from server to cloud following server end of support and continued strength in data center migrations, cross-sell, upsell, and customer retention.
On the low end of the guide, that — for the year, that does assume increasing macro headwinds and the impacts you’re talking about and the related impact that would have not only on paid seat expansion but also areas of our business that have held up well to date, such as migrations and cross-sell and upsell. And then lastly, I would assume we do a relatively — we get relatively weak results post server end of support on migrations from server to cloud. So at the midpoint of our guidance, we’re assuming that paid seat expansion rates are kind of steady to where they are today. That drives slightly accelerated revenue growth. At the high end of the range, we get favorable macroeconomic outcomes that drive improvement in that, and thus better revenue.
On the low end, we assume that we see the headwinds and that impacts those paid seat expansion rates.
Scott Farquhar: Just to add on to Joe there. He talked about SMB paid seat expansion being a bit weak, but when I look at the enterprise business and we’re talking with our biggest of customers, I see great excitement amongst them for what we’re providing and that comes in a lot of different ways. It comes in competitive switchouts. We see a lot of our customers looking to us to replace more expensive versions of other products at this particular stage. I had thought that might happen earlier in the economic cycle, but it’s actually showing up pretty strongly now in a lot of the deals that we’re doing of replacing other products out there that might be older and or more expensive. We’re also seeing that in AI and the excitement around customers who are excited to use our AI features, and then the new products that we are delivering in cloud are having great customer reception, though still very early days, I think that Jira Product Discovery is a great example we talked about where we’re delivering innovation and value to these customers in cloud and they’re picking it up and running with it.
So they’re all strong areas that I think are sort of counter to any layoffs in tech narratives.
Operator: Your next question comes from Karl Keirstead from UBS. Please go ahead.
Karl Keirstead: Thank you. I’d like to focus on the remaining server cohort. The sequential decline in server maintenance of $10 million was at least a little bit less than I was modeling. Are you surprised by that stickiness? Can you offer us any help in sizing the cohort that will likely not migrate at the end of support date and continue to run on supported versions and perhaps offer a little color as to what that cohort looks like in terms of customer size, vertical, anything? Thank you so much.
Joe Binz: Yeah, thanks, Karl. This is Joe. I’ll go first and then Scott can chime in if he has anything to add. In terms of the server performance that you referenced, server delivered much better results than expected results in Q2 and it’s certainly been more resilient than we expected over the course of the last year. I’d highlight that it’s not because of slower migrations to cloud and data center, those remain squarely on track if not ahead of where we expect it to be. In general, what we’re seeing is better renewals, better customer retention, and less-than-expected churn, which highlights the mission-critical nature of our product and customer commitment to Atlassian’s roadmap and platform. And of course, it also means mathematically, we have a bigger opportunity than we originally thought in terms of future seat migrations to the cloud, which is a great position to be in.
In terms of the end of support moment, we’re about two weeks out, and really there has been no change from what we discussed last quarter other than that we’re seeing those stronger renewals and customer retention. We end of support in a couple of weeks, there has been no change to our focus around migrating as many of those server customers as possible. The customers that remain on that server installed base are predominantly larger, more complex accounts that are typically blocked from the cloud at the moment. So we continue to expect most of those customers that migrate — will migrate to data center. And we continue to hold prudent assumptions to account for customers who will choose not to migrate in FY ’24 and that’s also factored into our guidance.
Scott Farquhar: Yeah, just to add some color there, I think Joe’s talked to the financial aspect of it. Obviously, with an end of life moment, it’s hard to predict in a week-by-week basis exactly what happens, so we put a lot of effort into looking at every single customer that still exists on server and what it will take to get them across the cloud in an ideal sense or to data center if they can’t move there. As Joe referenced, it really comes to the stickiness of our products and kind of a testament to what we built and how valuable we are for our customers that we haven’t seen churn there. And for many of these customers who can’t move to cloud, data center is a drop-in replacement that does not require many months of planning, and so customers can leave it the last minute and switch out to data center, and I expect to see a lot of that happen as we cross the end of server support threshold in the next few weeks.
