Operator: Your next question comes from Kash Rangan from Goldman Sachs. Please go ahead.
Kash Rangan: Thank you very much. Congratulations on the results. From a trend line standpoint, the cloud migration is a big opportunity clearly, but when you look at the trend over the last five to six quarters or so, the cloud has decelerated from 49% or so, I think there was Q1 last year to 27% and a big chunk of that is coming from migrations. So if we look at the net underlying cloud growth rate, it has decelerated, where server continues to — data center, I’m sorry, continues to be a champion, it’s gone from 54% or so to 41%. Can you help us understand what could be causing the dichotomy that maybe there is a preference for the data center product? If that’s the case, then what does the long-term look like for the company?
Because companies generally either have a cloud product that wins or an on-prem that wins, rarely does both win but maybe it does for Atlassian. Can you help us understand what are you really betting on? Where do your customers really — where do you wish your customers really go and how you’re going to make it happen? Thank you so much.
Joe Binz: Yeah, Kash, this is Joe. Customers are not choosing data center over cloud. What’s happening here is server migrations to data center and cloud, both exceeded our expectations and so we don’t see more customers choosing one over the other. If there was any weakness in our cloud performance versus expectations it’s that paid seat expansion, has been lower than we expected and this quarter it was slightly lower than we expected, particularly in SMB. DC strength on the other hand, as I mentioned earlier, was also driven by stronger migrations from server as well as paid seat expansion. So we feel really good about the fact that customers are looking at datacenter as a stepping stone to the cloud, and ultimately, we want to get those customers to the cloud, because that’s where our customers receive the best experience, the most secure experience from Atlassian, and it gives us a chance to add more-and-more value over time as Scott discussed earlier in the call.
Scott Farquhar: Let me add to that, which is — every customer I’ve talked to, whether that be a German bank, kind of we would consider one of the more conservative end of the scale through to small, medium-sized businesses out there, even in regulated environments, all of them are telling me that cloud is the future. And if you went five years ago, we were telling customers cloud was the future. These days, customers are telling me that’s the case. And in many cases, they either need time to plan a migration if they’ve got tens of thousands of users, that is a chance not only to migrate to the product we have in cloud, but expand your usage of Atlassian, look at other products that we can replace, and so we see a lot of that happening, but that takes a little bit of time at the largest customers or in some cases, but decreasing.
Our customers are blocked from the cloud and they’re pushing us to say, I need data residency or I need certification or FedRAMP. So we’re thinking about a lot of that with our customers.
Operator: Your next question comes from Nick Altmann from Scotiabank. Please go ahead.
Nick Altmann: Awesome. Thanks, guys. I wanted to circle back to sort of the stabilization in the free to paid conversion. I guess when we think about how in the quarter you saw that stabilize, do you think that was an anomaly just because perhaps it’s a stronger spending period for software or you kind of see it stabilizing over the next coming quarters? Thanks.
Joe Binz: Thanks for the question. We do see it as a stabilized — a durable stabilizing factor. We think it’s super important because it’s a leading indicator of success. Today’s land and new customers are tomorrow’s expansion opportunity. So we fundamentally believe that a lot of the — lot of that is macro driven. I’d also say, we’ve done a good job of investing to improve the efficiency of our funnel and to improve the efficiency and the hit rate on that free to paid conversion. And so hats off to the team inside Atlassian that’s doing a phenomenal job on driving improvements there. So some of it is macro, some of it is absolutely our own execution, and overall, we feel it’s durable moving forward.
Operator: Your next question comes from Ryan MacWilliams from Barclays. Please go ahead.
Ryan MacWilliams: Thanks for taking the question. Great to see data centers driving more than 60% of cloud migrations at this point. So in the shareholder letter and you’ve just been mentioning how you’ve been unblocking some of the largest customers on data center to help them move to cloud? Do you have a rough idea of what percentage of data center revenue you considered block today? And if unblocked, would these customers be willing to move to the cloud after recently moving to data center? Thanks.
Joe Binz: Yeah, Ryan, we’re not going to — I’m not going to be able to help — I’m sorry, go ahead, Scott.
Scott Farquhar: That’s okay, you go.
Joe Binz: Yeah, Ryan, I was going to say we’re not going to be able to provide a breakdown today on what that blocked percentage is. Keep in mind, those data center customers are primarily our largest and most complex, so you can imagine it’s all the things we’re investing against and making progress on. I mentioned earlier, scalability, data residency, certifications, app integration, a lot of investment, a lot of effort going to unblock that, that’s why we’re confident in the ability to continue to grow migrations from data center to cloud, and so we feel very confident in our ability to continue to drive migration over the next coming years.
Mike Cannon-Brookes: Ryan, just to chime in, this is Mike here. [I’ll give you two] (ph) a break because they haven’t asked many product questions today. I will say it’s about the long term partnership with our customers. I think that’s really important even more so for the biggest of the big. One of the things that the customers will tell us is they’ve been really impressed by our delivery over the last three to five years in the cloud of enterprise capabilities. We have a public cloud roadmap. So we do talk about FedRAMP delivery, data residency delivery, compliance delivery across all the different geographies that we operate in. Last quarter, we hit 100% of that roadmap in terms of delivery on time and what that’s building is this long term strategic partnership, long term relationship with those biggest of the big customers.
We believe in our enterprise business over the next decade and hopefully many decades. It’s about building a partnership with those biggest customers that we have, and that partnership is built on trust. It’s built on continued delivery of the things that we say we’re going to deliver. And when you talk to those customers, as Scott mentioned, they are believing that cloud is their long term future. They understand that. They’re working on moving at all sorts of different rates. We have a great proportion of our migrations coming from data center today, but that engineering delivery has been a hallmark of our strength in terms of building that partnership with those customers, and obviously, we intend to continue that over time.
Operator: Your next question comes from Keith Bachman from BMO. Please go ahead.
Keith Bachman: Yes, many thanks and congratulations on the solid quarter and guide. Joe, I wanted to direct this for you. You’ve implicitly given us guidance for the June quarter, which is post the expiration of server, and I just want to get your thoughts to what extent is the June quarter a reasonable proxy without — for FY ’25 growth rates? So I’m not asking for ’25, but I’m just asking is there anything usual in the implied growth rates for cloud and data center that we should think about as we’re considering our ’25 estimates? In other words, is the February deadline going to pull forward a bunch of revenues or is there anything else that we should think about for the June quarter exit run rate? Thank you.
Joe Binz: Yeah, thanks. It’s really too early to talk specifically about FY ’25. In general, I’ll talk a little bit about the individual lines. If you look at data center, we do expect growth rates there, will continue to decelerate as server to data center migrations drop essentially to zero and the data center to cloud migrations accelerate as we continue to deliver on removing cloud blockers. In terms of the cloud, we’ve talked a lot on the call about migrations being a multi-year journey, so I won’t rehash that. In addition to that, keep in mind, we have a number of other growth drivers in that model. First of all, paid seat expansion with an existing customer is the biggest driver and even bigger than the migrations factor that we’ve talked about and that has been an area in the model that’s been most impacted by macro headwinds over the last year.
