And thirdly, some Atlassian intelligence features enhance and leverage features that are packaged into premium and enterprise additions. So we do believe it will drive some additional movement as customers go from free to standard, and standard to premium and premium to enterprise. Some features do exist in enterprise levels. For example, the Atlassian Analytics features that exist in the Enterprise edition, very powerful set of features to be able to use Atlassian Intelligence to generate queries for you is one of the resident features, but that will hopefully drive more enterprise addition upgrade. So we do believe there’s monetization opportunities for us in Atlassian Intelligence in summary. But philosophically, we’re starting with R&D and building a deep set of core capabilities.
We believe we can scale for the next five to 10 years as this wave takes over all software. And secondly, we’re focusing on delivering customer value first. We are doing that every single day. We remain incredibly bullish about this area of the company.
Operator: Your next question comes from Brent Thill from Jefferies. Please go ahead.
Brent Thill: Thanks. Joe, on the operating margin, you’re guiding down 200 basis points year-over-year. And then I think in the shareholder letter, you expect that trend to reverse. Can you just walk through the next couple of year cadence and how you’re thinking about the investments you’re going after and then maybe tie that into that expansion and how you’re thinking about how that plays out? Thanks.
Scott Farquhar: It’s Scott here. I’ll take the first part about that, and Joe can get in with the details. And just to remind us of those who might be new to Atlassian story. Well, I think we’ve run a very successful and highly profitable business over a really long period of time. It’s kicked off great. Free cash flow has great margins. And about 18 months ago, we identified a set of opportunities where we wanted to invest heavy arm behind those opportunities than we have historically. And the three opportunities we articulated to you, our investors at our Investor Day were investing heavier in enterprise cloud investing heavier in our cloud migrations and investing more in our ITSM set of products. And on all three, I mean, super happy with the returns we’ve been getting migrations, we’re continuing at the pace that we thought.
We were ITSM, and particularly in this time of consolidation and people looking to get off high-priced legacy vendors. We’ve seen a lot of competitive switch outs. And in enterprise cloud, you’ve seen some of the number is now $0.5 million or $1 million deals in our shareholder letter, like we’re seeing a great uptick in our enterprise segment as well. So all three of those are going really well. Now you as investors have rightly asked, well, what does the shape of that investment look like? How many years are we doing that for? And in our investor letter this year, just that we just came out today, we shared that we expect the FY ‘24 margin profile to be the sort of lowest point in our margin, and we expect them to climb over the coming years back towards our historical norms.
Joe, do you want to add any more color to that?
Joe Binz: Yes. Thanks, Scott. Brent, I was just going to walk you through some of the mechanics. So in FY ’24, we do expect operating margins of approximately 18.5%, as Scott mentioned. That’s lower than this year, and it’s driven by the strategic high-priority areas we’re investing in that Scott and Mike have both highlighted including the areas of innovation like AI. Keep in mind in FY ’24, we’ll also be lapping the H2 benefit of restructuring savings and lower bonus expense that we had in FY ’23. In terms of FY ’25, what’s happening there is we do expect continued healthy revenue growth in FY ’25 combined with our expectation of improving operating leverage as operating expense growth moderates, as Scott mentioned, particularly in the big areas of investment like cloud migrations and we will continue to drive general efficiency improvements with scale. So that’s some of the mechanics underneath the philosophy that Scott articulated.
