Atlassian Corporation PLC

NASDAQ:TEAM

Earnings Call Transcript 2022-Q1

[Operator]

Good afternoon. Thank you for joining us Atlassian's Earnings Conference Call for the First Quarter of Fiscal Year 2022. As a reminder, this conference call is being recorded and will be available for replay from 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. Please go ahead.

[Martin Lam, Head of Investor Relations]

Welcome to Atlassian's first quarter fiscal year 2022 earnings call. Thank you for joining us today. On the call today, we have Atlassian's co-founders and current CEOs, Scott Farquhar and Mike Cannon-Brookes and our Chief Financial Officer, James Beer. Earlier today, we issued a shareholder letter and press release with our financial results and commentary for our first quarter of fiscal year 2022.

The shareholder letter is available on Atlassian's Work Life blog and the Investor Relations section of our website. Where you will also find our other earnings-related materials, including the earnings press release, and supplemental investor [Indiscernible]. As always, our shareholder letter contains management's insight and commentary for the quarter. So during the call today, we will 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 other factors that may cause actual results, performance, and achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

You 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 and we assume no obligations over the [Indiscernible] change or to be current.

Further information on these and other factors that could affect the Company's financial results is included in the filings we make with the Securities and Exchange Commission from time-to-time, including the section titled Risk Factors in our most recent Form 20-F and quarterly Form 6-K.

During today's call, we will also discuss non-IFRS financial measures. These non-IFRS financial measures are in addition to and are not affected to, for, or superior to measures of financial performance prepared in accordance with IFRS.

Reconciliation between IFRS and non-IFRS financial measures is available in our shareholder letter, earnings release and investor Data Sheet on the IR website. During Q&A please ask your full question upfront so that we can be fair and easily move through to the next speaker. With that, I'll turn the call over to Mike for opening remarks.

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

Thank you all for joining us today. When Scott and I started Atlassian almost 20 years ago, we wanted to create an amazing Company where people love coming to work every day. We were recently named one of the world's best workplaces 2021 by the Great Place to Work. We're thrilled and humbled to be recognized among the top 25 companies in the world, in any industry, in any country.

We've won a lot of trophies over the years, but this recognition is special. Going straight to the pool room, as we say in Australia. In all seriousness, truly want to [Indiscernible] in my proudest accomplishments. It is a testament to the true stewards of our culture, to many thousands of Atlassians we have around the world who live our values every day. Your resilience, passion, and commitment inspire us. For all of you Atlassians listening, thanks for making this possible.

As you've already read in our shareholder letter, our momentum continues, as we kept winning in Q1 of fiscal '22, and continued to deliver value to our customers and innovate across all three of our core markets. A great example of this innovation is Jira Service Management. In its first year in the market, Jira Service Management was [Indiscernible] a visionary in Gartner's Magic Quadrant for IT service management.

And its customer base grew to over 35,000 up from 25,000 just one year ago. This is a result of a steady drumbeat of innovation and R&D investment as we continually [Indiscernible] better and better, each and every quarter. And we apply this same [Indiscernible] to our offerings in agile development and in work management for all.

The continual improvement of our Cloud platform is also what's driving our progress forward in the Cloud. This quarter Cloud revenue was up 53% year-over-year. We signed onto the trusted cloud principles, joining us initial signatories alongside Amazon, Google, and Microsoft in making a commitment to protect our customer’s rights, privacy, and data in the Cloud.

Underscoring this commitment to our customers, we showed data residency in Australia this quarter on the heels of delivering is critical capability in Europe last quarter. With that, I'll pass the call over to the Operator for your questions.

[Operator]

At this time. If you would like to ask a question, please press star one -- > [Operator Instructions] on your telephone keypad. Again to ask a question, simply press star one -- > [Operator Instructions] on your telephone keypad. And your first question comes from the line of Keith Weiss, coming from Morgan Stanley. Your line is now open.

[Keith Weiss, Morgan Stanley]

Excellent. Thank you guys for taking the question and congratulations on a great quarter. I was hoping you guys could help and dig in a little bit into the work management opportunity. From the outside, it seems like a massive expansion at the time for you guys. You said that you've been working on for a while, but there's also a lot of products that you have that seem to target your core, you have Trello, and you have Confluent.

Can you help us understand the solution portfolio? What's specifically in work management you're trying to target? And what's the competitive dynamic in terms of where you guys are going at?

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

Thanks, Keith. I can take that one off the bat. Look, team work is very complex. We know that there is no one corrects way or one single way to work or collaborate. That's why you see us in the work management for all space in the market taking a multi-product approach, and investing heavily in our platform.

So you've seen us, mention JIRA work management continues to go from strength to strength every quarter. We added a whole bunch of great new early customers, You are [Indiscernible] [Indiscernible], [Indiscernible] who are taking the Jira family well beyond the initial audiences that we had, I suppose, again, about half about your audiences, non-technical teams today.

We expect that to continue to improve and fuel our growth in that area. At the same time, Trello continues to do well, confidence continues to do well. As you've seen from our point I program with products like Team Central, we really have a very comprehensive offering, I would say, in that space, all built on our platform story.

So we keep talking about world-class automation, analytics, smarts, that is our ability to invest in R&D to make that platform amazing for every chain in every Company. And continuing to fill out the story across the products and making sure they work well together. We're obviously extremely excited where we sit and how it’s performing in that market.

[Operator]

Thank you. Your next question comes from the line of Gregg Moskowitz from Mizuho. Your line is now open.

[Gregg Moskowitz, Mizuho]

First of all, congrats to James on all the accomplishments and a very well-deserved retirement. Mike just on a personal note, I want to congratulate you and your wife on your green pledge and thank you for all the help that that will provide.

My question relates to the Cloud and product pricing; you recently made the decision to raise Cloud pricing, which isn't something quite frankly that we've seen recently from Atlassian. What gives you the confidence to do so, given that many of your customers are still early in their journey towards the Cloud?

[James Beer, Chief Financial Officer]

Gregg, thank you very much for the thoughts there. The first thing I'd say is just really reflects the strength of the underlying growth of our Cloud business. And that of course, is all driven by the very significant value that we're delivering for our customers as far as these Cloud services. You know that we've been putting very significant investment into our Cloud products for a number of years now.

And we always, from a philosophical perspective, want to be a terrific value. Nothing in that notion has changed. But nonetheless, I think there is an opportunity for us to move pricing along as we have published just a few weeks ago, by off the order of about 5% across GERO Software, and Confluence in particular.

So I guess it's just illustrative of the investment that we've put in and how that's working out well for our customers. We have had now in a few of our shareholder letters examples, quotes from customers, talking about the savings that they enjoy when they implement our Cloud products. When they look at the total cost of ownership, they're realizing that it makes sense for them from a cost equation.

And of course, often times more important for these customers, they are able to in essence take the people and have them work on higher value-added tasks. Our software is able to do so much of the lower value-added work for them. I just think it's a terrific example of a long-term orientation to R&D investing.

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

Gregg also had some things to change there. I think you answered that really well. We've had a long-term for us to see is optimizing prices and we've used raise prices with lowered prices. We've introduced new season additions, both at the low-end, for free, at the high-end with Premium and Enterprise.

And that philosophy is evolved over the years; it's more towards frequent, smaller price changes. And as someone that keeps our product pricing publicly available on a website, which is different to other enterprise software companies. You can see those changes, and it might from the outside, look like we're making more changes than other people, but I think it's a result of that philosophy, and the fact that we're public about how we interact with our customers.

And our philosophy is always to be sure that we provide the best value in whatever price that customers have to pay and no - brainer for our customers to engage within [Indiscernible]. So you'll continue to see us through this as we have over the last 20 years.

[Operator]

Thank you. You r next question comes from James Fish from Piper Sandler. Your line is now open.

[James Fish, Piper Sandler]

And James, congrats on retirement ahead of time. I wanted to touch upon the data residency here. You're offering it in 4 locations now across three continents. James, what areas are you guys expected to expand to or seeing the largest demand for this that you aren't addressing today?

And have there been any delays in customer decisions at all between deciding between data center versus Cloud additions at all, and any sense of the mix between data center and costs, kind of product lines? Thanks, [Indiscernible].

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

Thanks, James. I can take the first part of that question. I'll leave the second -- the mix shift part to James. Look, for sure we would want [Indiscernible] in Australia this quarter. We had the example, Commerce Bank, one of the largest banks in the Australia and one of the large banks in the world. Your move to our Cloud and tens of thousands of users.

As a result of not just [Indiscernible] in Australia, but all of the performance and scale improvements, compliance, legal, regulatory improvements we've made in our enterprise platform from Access to Premium and Enterprise to support for over different standards that we support.

So that's, I would say, a generalized part of our Enterprise Cloud journey as we continue to make sure we can support the needs of our largest customers in the Cloud. Where you continue to build out our infrastructure platform that we can roll out new geographies faster and faster. Each one we rollout is a little quicker than the one before and I'll mark some portion of customers to move.

As always, we continue to be R&D first, so working on automating that, so that it works. And secondly, customer led. So we build out those geographies as we learned from customers about where the greatest needs are. But we expect to continue to have more data residency and more areas of the globe as we work with our customers.

[James Beer, Chief Financial Officer]

On the Cloud DC data center mix, I'll [Indiscernible] through that one, but just a bit of background. [Indiscernible] think transitions and customer transitions like this, there's always a chance if you do them wrong, you could end up in the doghouse. But that is not what's happening here.

We've done such a great job across our customers, across our partners. And just to get some start, our channel partner sales were up 300% year-on-year in terms of selling Cloud compared to what they were a year ago. We're seeing great demands from new customers on top of our migrations, and great customer stories like Castlight Health, who move 1,200 users, including 50 apps from server to Cloud.

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

I mean [Indiscernible] you mentioned is huge, highly regulated industry in Australia, in banking moved in tens of thousands of their users across from DC to Cloud, so really thought about that. On the DC to Cloud mix, as we said, this is a multiyear transition for our biggest customers and we still expect a large portion of our customers to move over the coming years. And that is, as our customers build up their capability and engage with the transition.

And in the meantime, while they're -- while that's happening, they're still buying DC. We're seeing a lot of customers expand using the DC as they prepare and that speaks to the quality of our products and the demand for what we provide is that they are still purchasing as they might be migrations to Cloud. Can you give us some comfort around people not being stuck at DC like we're really comfortable with that transition point?

30% of our Cloud migrations are coming from data center customers today and so we do see a lot of our customers maybe go from serving the DC to Cloud or I've been a DC for many, many years and making net migration to Cloud or not ready just yet, still doubling down on your investments for the last thing. So I think what are your takeaways from that is how customers are just continuing to commit themselves to

[James Beer, Chief Financial Officer]

If I could just pile on a little further with one other factoid to support that. When you think about the Cloud business, we're obviously pleased with the 53% growth that we recorded year-over-year in Q1. As we think about migrations, yes, obviously, this is an important initiative for the Company.

But I'm only expecting migrations to drive approximately mid-single-digit growth for us in that cloud, in the subscription revenue line. So relatively, modest growth driver for us and that just really illustrates how we're going nicely in terms of user expansion, selling premium additions; the [Indiscernible] funnel is working well and in turn is working well as well.

[Operator]

Thank you. Your next question comes from the line of Tyler Radke from Citi. Your line is now open.

[Tyler Radke, Citi]

Thanks for taking the question. Echo my congrats to you, James. You referenced in the shareholder letter just some tougher comps in the second half on the data center side. I'm curious how we should think about the trajectory of Cloud growth from here.

Obviously, there's a lot of dynamics between the Cloud price increase and just some of the things that [Indiscernible] last year. So would you expect that the Cloud growth has tougher comps in the second half as well, or do you think that can sustainably grow at the rate that we saw here in Q1?

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

Thanks for the question. I mean, what we've said, this is a quarter or so it goes. For fiscal '22, we would expect our rate of Cloud growth to be accelerating year-over-year, full year over full year. And certainly, yes, you're right. We had a particularly strong back-half for the data center business.

I Recall how in Q3 of last year, we had quite a lot of customer activity where they stepped in front of price increases, both on the sever and the data center products. And then of course Q3 was also the quarter of last year in which we ceased new server license sales. Now, we'll see how that plays out this coming Q3.

We've already announced, of course, this coming [Indiscernible] that we will cease selling server license upgrades. So the Cloud business, as I was just saying, remains in very good shape, very much consistent with the significant investing that we've been doing in it over recent years, and we plan to continue to do that.

So we're very enthused as to how the underlying business is performing and in terms of migrations, I was mentioning that sort of smaller component of growth that that will drive, just take a step back and think about the migrations timeline.

I would say we're very much on track with what we've been talking about now for the last year plus or so. So we're pleased by our progress there and we've talked in the past about how we have a good portion of that migration work to do in fiscal '23 and beyond.

[Operator]

And your next question comes from Michael Turrin from Wells Fargo. Your line is now open.

[Michael Turrin, Wells Fargo]

Hey, there. Thanks. Congrats on another impressively clean quarter here. You are still adding nearly 12,000 net new customers. I appreciate the updated disclosures there. Could you help step through what's driving that continued top-of-funnel strength. How should we think about Q1 maybe relative to the basic deliver throughout the course of the year as the environment normalizes?

And it looks like Jira Service Management; I know you commented on the onset here at 5,000 customers, at least first prior disclosure. Could you just provide an update on some of the adoption trends or interest levels you're seeing there? The upcoming World Tour looks interesting as well. Thank you.

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

I can start off on that one. First of all, yes, by the incremental customer account number that we published today of Q1, that reflects, I think again, how the people are very much embracing digital transformation, embracing remote work. I think the compatibility of our product set seems clear and -- so we're very encouraged by that.

Certainly Q1's number of over 11,700, it was a nice contrast to last Q1 where the number was a little over 6,700. Remarkable strength year-over-year. Yes, the number will move around courses of course, we've traditionally said that, but we're very much focused on being to optimize our top of funnel activity. I think last quarter in Q4 was one that particularly benefited from some free to paid optimization.

Now, that sort of ongoing process, we work at that constantly. And that's another driver of how we continue to expand our customer base. Recall now that new customers drive a relatively small proportion of our in-period revenue of the order of around 10%. But it's those new customers where we continue to grow the user base quarter-over-quarter, year-over-year into the future and we've done that very consistently.

[James Beer, Chief Financial Officer]

[Indiscernible]. Specifics, but I want to call out one thing which is our Jira Service Management product, is that we're at 35,000 customers up from 25,000 when it rolled out a year ago.

And we're really pleased by the market [Indiscernible] of Jira Service Management really resonating with customers from very small who for maybe the only solution that has the feature set for them, to the larger customers who are really resonating and looking to move from other vendors out there due to the fact that it's just way faster time to value.

You've got to weight [Indiscernible] our total cost of ownership and way easier, more flexible for them to adopt and extend. And so we're seeing a lot of customers that [Indiscernible].

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

If I might just add something in a philosophical level there, 2.5 years ago, I think we wrote in our shareholder letter that we were going to double down on the opportunity we saw in IT. Since then, you've seen us do what we classically do, which is deliver against those words that we told you we were going to do.

The acquisition of OpsGenie, the integration of CMDB, the improvements in asset management, and then launch of Jira Service Management, bringing software and IT closer together. That's a proof point that Scott mentioned of delivering against that opportunity in IT. We have many more opportunities in front of us that we're investing against as we said, but hopefully it's a proof point that we do what we tell you we're going to do.

[Operator]

Thank you. Your next question comes from the line of Alex Zukin from Wolfe Research. Your line is now open.

[Alex Zukin, Wolfe Research]

Hey guys, thanks for taking my question. For slots pleasure to be covering with you guys. Maybe just the big picture question around Cloud, from the perspective of Cloud [Indiscernible]. start thinking about your original expectations specifically for your Enterprise cohort.

Can you help us understand how you feel differently or any level of incremental confidence in potentially migrating that cohort sooner than you planned or any guidance on that progression from a timeline perspective?

And separately as we think on a broader spectrum, you're offering being so much more on a broad-based in the Cloud. What are you seeing with respect to cross-sell and up-sell opportunities within that cohort and customer base versus maybe your initial plans?

[Scott Farquhar, Co-founder and Chief Executive Officer]

I will cover the first one. In terms of Enterprise cohort and migrations, nothing has changed from what we've outlined previously, which is it's going to take an -- it's a multiyear journey and we need to do some work on [Indiscernible] to accommodate different regulations in different areas and data residency and its main engineering teams on our side.

Common customers, those moving some of these large systems can be amongst multi-month long process that they need to do to make sure that they can do the change, management further employees. And so nothing has changed along those lines. We are seeing great customer demand at all levels in terms of migrating Clouds and they all know multi-Cloud is the destination.

They're really excited by changing that was mentioned. The total [Indiscernible] is significantly well as to them. So I would say that we're attracting as we've -- as we expected and really pleased with that progress. Mike, do you want to talk about the cross-sell in Knoxville?

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

Sure, Alex. Look, the way we think about this is cross-sell and up-sell expanding the users and the penetration of use cases within our customers, is an inherent and deeply-built part of our DNA, and it has been -- we've been a multi-product Company for an awfully long time now.

When you hear us talk about our three markets, in terms of Agile DevOps, ITSM and work [Indiscernible] for all, there are lots of overlap opportunities both in the customers between those and in the products. So you see obviously Jira Service Management working alongside Jira software to get developers in IT, admins closer together in delivering value.

That is both a purposeful strategy on our behalf and also purposefully built into the platform and all of the shade infrastructure that we use. So things like automation, our Forge and connect extensibility platforms, all of the user experiences, things like the editor and other things that are common across those products are an intentional part of that journey. You also see us in our point a program, continuing to innovate and deliver new offerings.

You can see that encompass in agile DevOps space, in Team Central, in the work management for All Space, looking at goals, and status updates, and help, and the cultural and humanistic side of teams and people and how they come together, how work is actually delivered across projects, calls, metric strategies, help, and the teams that should deliver that.

Our platform enables us to move our users around to where they get most value from our product family, and we continue to get better and better at that. Every quarter, I would say, we improve at how we do that. The last part is, it's inherently tied into our philosophy around pricing.

So we talk a lot about free and how that's changed, and obviously accelerated the movement of new customers. It also has a huge effect on cross flowing of users because you can move from Product A to Product B, but there's no payment, there's no charge for Product B until you started to [Indiscernible] value to deliver value.

Is always talked about getting value to customers first, the payoffs, second, for the value that they're being delivered. So free actually plays into both the platform story in the Cloud and also the three major markets and all the new innovation and products we have coming out targeting those markets. So hopefully that gives you a sense of how holistically all works together in that thinking.

[Operator]

Thank you. Your next question comes from the line of Fred Havemeyer from Macquarie. Your line is now open.

[Fred Havemeyer, Macquarie]

Hi. Thank you and congratulations [Indiscernible]. Just to echo what most others have said on a very solid quarter here. And James, it's been a pleasure working with you. I'm looking forward to continue working with you transition and all the best with retirement. So I'd like to ask you about cybersecurity here. During the quarter, there was that Confluence export oolder on-premise versions of Confluence in which you quickly mitigated.

All software eventually we'll have an exploit discovered, but it was notable here is that Atlassian's Cloud products were new to the export those in the wild. I'm curious did you see end customers accelerating their server to cloud migration pathways around this event. And then also more generally, how do you think about it last year and approach to cybersecurity across your different deployment models.

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

Hi Fred. Look, obviously that's -- security in software and technology is an incredibly hard challenge, one that continues to get harder all the time. One of the ways we can fight that is by having an absolutely world-class security team, which we do have continuing to work day in, day out on behalf of our customers and securing them.

The Confluence incident that you talked about, again, had already been patched. It was already -- we had shipped the updates and everything else in time and it was a question of how fast the customer's updated their own software. One of the benefits of the Cloud, as you point out, is that we do that for the. So we had done that instantaneously on behalf of all of our hundreds of thousands of customers without them even having to wake up.

So we can do that overnight. We can do that for them. We can roll it out instantly and fast. We can also do a lot of other analysis, obviously in the Cloud. And it's one of the benefits of SaaS software in general is we are really, really good at running our own applications as you expect us to be.

We are the best in the world at running our own products, securing them, scaling them and that is the benefit of our Cloud for those Enterprise customers. I don't have any directional data on whether that's affected the general migration timeline. But I can tell you that it's certainly one of the advantages that our customers see, especially the larger they get.

But also on the small ones, we should -- we often talk about security in large companies for small companies, our world-class [Indiscernible] is far better than whatever security team they have in-house. Because if you're attainable 20% Company, that stuff is really, really hot. And so it's -- back into our day and night and I think it's yet another advantage of the migration to Atlassian's Cloud.

[Operator]

Thank you. Your next question comes from the line of Arjun Bhatia from William Blair. Your line is now open.

[Arjun Bhatia, William Blair]

That's perfect. Thank you very much and congrats on a great quarter again. I want to maybe dig a little bit deeper into Jira Service Management. I mean, you called out the strength in customer growth. Since you've launched this new offering from [Indiscernible] Jira Service Desk, OpsGenie, and other functionality including the [Indiscernible].

But have you noticed a change in the type of customers that are adopting Jira Service Management versus the prior Jira Service Desk more sophisticated customers, more Enterprise deployment there as this offering has scaled?

[Martin Lam, Head of Investor Relations]

Thanks, Arjun. Great question.

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

Obviously, in the ITSM space, we think we are extremely, uniquely positioned. And we're the only vendor that can bring together your software teams with your IT teams in a single pint of glass, in a singular platform that's both comprehensive and modern. And that gives us a real leg-up into customers managing their IT workflows, but also managing the workflows that IT is responsible for, on behalf of other teams in the business.

One of the biggest changes we've seen since Jira Service Management release, is not only IT teams adopting in an ever greater numbers with things like Forge, and Automation, and all the other things that come in the box as well, as obviously the asset management, the inclusion of Opsgenie and [Indiscernible] for modern service management and paging operations. We continue to see that resonating really, really strongly with IT teams.

What we're seeing is the family of products that we deliver though, increasingly seen as visionary by, as was noted earlier [Indiscernible] about others. In terms of how we play across, not just Jira Service Management, and even Jira Software and Jira Service Management, but in things like Confluence and how that comes together in Jira Work Management to enable IT teams to deliver applications at very, very low cost on top of the Jira platform to already familiar users.

And obviously, in things like compassing our point A program for managing their software components and digital assets, which is incredibly complicated for customers to do with at the moment. And then so things like Team Central through the mall, cultural aspects.

I think what's resonating with IT things is not just Jira Service Management, although obviously that's doing extremely well at the moment, is the offering that we can show to an IT administrator or CIO or CEO about how we can help them across the digital transformation, are all the things the IT team is responsible for not just their own day-to-day work.

[James Beer, Chief Financial Officer]

In the [Indiscernible], add on one thing to what Mike was saying that, we've spoken earlier about pricing philosophy. Has always been oriented on excellent customer value. I think Jira Service Management, is a classic example of where we are an exceptionally good value and customers are recognizing that.

[Operator]

Thank you. And your next question comes from the line of Ittai Kidron from Oppenheimer. Your line is now open.

[Ittai Kidron, Oppenheimer]

Thanks and congrats on great quarter. And James, all the best and good luck. I guess I have a question regarding the data center growth this quarter, which was very strong. And I'm trying to think about whether the growth there really reflects more server customers preferring to stay on premise and shift to data center, rather than move to the Cloud.

Maybe you can talk about what's driving the data center growth. How do you think about the trade-up from Server into Cloud versus data center. And also [Indiscernible] to transition to the Cloud.

In the past, you've talked about the transition being likely back-end loaded and then it sounds like it's going to track, but you also talked about medium and large size customers being more to back-end of this transition rather than the front of it. Does that still hold or you are seeing the larger customers actually move early rather there sooner, rather than later?

[Martin Lam, Head of Investor Relations]

Hi, Ittai. Thanks for the thoughts that. Scott, you jump.

[Scott Farquhar, Co-founder and Chief Executive Officer]

So I'll just say something first of all, let James answer the most specific finance questions. I don't have too much to add on to the earlier answer, which is that our customers want our [Indiscernible] products. We see a really strong demand for our products. And the customers can't yet move to our Clouds, they're choosing to invest in our DC products where they can go straight to the Cloud.

We're seeing increasing demand for, obviously for our new customer numbers and our Cloud revenue numbers, are all showing great, strong demand for our Cloud offerings. And I would say, like basically is by no means a dead end. It is actually a stepping stone towards Cloud. And we're seeing that with 30% of our Cloud migrations coming from DC.

So I feel really great about that. I think DC growth will continue to be strong as our customers continue to adopt the lasting products and make their choice to move to the Cloud since you folks know through some specifics.

[James Beer, Chief Financial Officer]

Yes. Just to add on a couple of things. Ittai, recall that we have raised prices on the data center products, around 15% that got implemented in Q3. So as the courses go by, you see that effect coming through. The other thing I'd add is that we just see that unusual volume of data center activity in Q3.

Now, much of that showed up in the revenue results in Q3, but also there was a significant deferred revenue balance that got generated in Q3. So the subsequent quarters, Q4 now Q1, have also benefited from some of the roll-off of that bode revenue balance as well.

And as to the timetable part of your question, I would expect that we would continue to see the bigger proportion of migrating customers be the larger, medium size customers migrating in fiscal 23 and beyond. They have the most complex requirements and so forth. So that continues to be our expectation. That we're very much tracking along to the original steel that we gave you on the migration timetable.

[Operator]

Your next question comes from Brent Thill from Jefferies. Your line is now open.

[Unidentified Analyst, Jefferies]

Hi, this is [Indiscernible] on for Brent Thill. Congrats on a great start to the fiscal year and congrats [Indiscernible] on an amazing run. I wanted to ask a couple of questions. One was, as far as the price changes this year, you also offered some incremental pricing discounts for the Enterprise customers. I wanted to ask whether that is to incentivize more Enterprise customers to move to the Cloud,

[Brent Thill]

And will that have a bigger impact on the migration pace, or should we expect the discounts that you have in place to have a bigger impact? And then my second question was around the opportunity from Standard to Premium, could you help us think about that opportunity set? What percentages of your customers are on the Cloud standard edition, and how would we move them to Premium? Thank you.

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

Well, thanks for the question. In terms of the Enterprise -sized customers and pricing, we've got at least a couple of things going on in recent months. Back in July, what we published were, in essence, extensions of our pricing curves. Previously, the pricing curves had accommodated small, medium-sized type customers. But increasingly we are seeing larger customers looking to move to the Cloud.

So we extended those pricing curves to larger user levels, very much consistent with the way our pricing curves data center business and server business have been designed. And so, perhaps not surprisingly, the larger number of users you commit to, the somewhat lower would be the per-user price. So what you saw us publishing in July, it was just reflecting the reality that larger customers are now moving over to the Cloud, so we needed to update our pricing.

The other theme that's relevant in terms of migrations for these larger customers, of course, is the loyalty discounts that we've had in place now for quite a while. And as of July 1 just passed, we reduced the attractiveness of those discounts, they are still very attractive, so 40% discount for server customers moving over to the Cloud, for example.

And so those step-down overtime, because there will be another step-down next July 1. And so those have worked, I think quite nicely to encourage some of the larger enterprises to begin their movement to the Cloud. Consistent with how we've expanded the capabilities of our Cloud offerings.

In terms of the second part of your question around standardization and so forth, we've been really pleased with the takeout of our Premium addition. More recently now, Enterprise is also off to a good start. So we're pleased with that strong Premium adoption. We've noticed, perhaps not surprisingly, but our Premium addition customers have lower churn rates and so forth.

So we will continue with our philosophy and history of adding more functionality, more -- making those Premium additions more attractive to our customers. So obviously, at the end of the day it's their decision, but we're infused by the future for our Premium and Enterprise additions.

[Operator]

Thank you. Your next question comes from Steve Koenig from SMBC Nikko. Your line is now open.

[Steve Koenig, SMBC Nikko]

Hi, there. Thanks [Indiscernible] I will echo my congratulations as well at a real solid quarter. So I'm [Indiscernible] question, but I haven't seen the disclosure on revenue deployment if that's new, as I think it is my kudos to you for putting in that revenue by deployment. Really very helpful. I -- you've given play a color around why data center trend.

I'd like to ask a question focused more about Cloud here as you look to customers moving to Cloud. Are there a particular products and capabilities that will be more instrumental, that will be key to driving customers to Clouds and particularly larger customers later in time? And or pricing and packaging options that you might be considering as well? Thanks very much.

[Scott Farquhar, Co-founder and Chief Executive Officer]

It’s Scott here, and so Michael has some stuff to add on here. In terms of products and capabilities, we were really excited by Cloud, which more than 90% of our new customers are choosing our Cloud products today. And so we feel like that's the default choice for anyone investing in Atlassian today.

For some very distinct customers, the areas, and I think we follow [Indiscernible] before is that you -- our ecosystem is effective, is absolutely people have behind the firewall and our exclusive of jumped on that and build that's for the Cloud and so forth.

But there's a bit of a more of a stickiness in moving people across from that [Indiscernible] Cloud vendors need to provide migration pods, so that's an area of investment for us. As Mike mentioned earlier in the call, data residency and certifications in certain areas are an area that we continue to invest in.

I don't think you know that we have data centers close enough to your customers for performance and regulation reasons, and so that'll probably never be done, but we continue to invest in those areas and certifications, which is a big vertical for our customers or after. We've continued to improve scale over time. When we started this journey and talking with you, we were [Indiscernible] in single-digit, thousands supporting in Cloud.

We're now into the tens of thousands and we're well on our way to a hundreds of thousands in terms of vertical scale in the Clouds. Just some of the areas of continued investment, and the great part about that is that our customers are partnering with us [Indiscernible] investments, and so we know that they're good, great ROI for the investments we're making.

In terms of unique packaging abilities, some great benefits of being in the Cloud are that we have one user management system across all of our Cloud products. And that allows us to, things like our point products in front of new customers, or what easier and then having to Download and Install and configure something new. So that gives us a lot more flexibility with how we price and package our products together.

And as Michael had said earlier, with free that's given us a lot more opportunities to get things in front of customers without them having to make a purchase decision before they're getting value. So we are seeing that's critical to how we kick our functionality in front of our customers.

And so you'll see it's continued [Indiscernible] packaging and how we put our products in front of our customers to deliver value to them at the time, whether it's additions for E-standard ICE, or its unique bundles of how we took products together for customers that want to buy a multiple of our products together. You will see us continue to innovate overtime.

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

I just wanted to -- Scott covered a lot of the nuts and bolts and I think he is well-known for our execution against all of those things, from additions all the way up to all the other bits and pieces Scott talked about, especially if you're new to Atlassian, Steve. One of the things I wanted to reinforce that you talked about the opportunities in Cloud beyond migrating customers to it.

I would reinforce it. I think the opportunity in front of the Atlassian has never been greater across all three of our markets that we see at the moment. And we have been, as clear as we can be, that we intend to invest in planning offerings across all three of those markets. We continue to invest heavily in the Cloud platform.

Everything from the big end of town or the regulatory and legal and compliance ranges that we think will be great most over time, because it's very hard to do at scale, all the way down to investing in new products as you are seeing in point A. And continuing our culture and DNA of delivering innovation on a continued drumbeat to our customers to serve their needs.

And lastly, we've indicated we continue to invest in talent. It's an incredibly tough market out there. If you talk to any other Company, the market for talent has never been hotter and we just had a record quarter for hiring. People are choosing to come and work for Atlassian, and we are investing in that talent to continue to go after those opportunities. And that is a really good thing to understand about where we currently see it.

[Operator]

Thank you. Your next question comes from Ari Terjanian from Cleveland Research. Your line is now open.

[Ari Terjanian, Cleveland Research]

Yes. Hello, thank you for taking the question and congratulations on the results. I had noticed a couple of management changes in the shareholder letter. In addition to James as announcement of leaving, but yes, I was just wondering if you might be able to expand upon the promotions of [Indiscernible] and Joe to Chief Operating and Product Officer, what their roles will entail, as well as bringing on Kevin Egan to head up global Enterprise sales above. Any more color you could provide on those changes. Thank you.

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

Look, it's plenty of time to celebrate James' achievements and he's [Indiscernible], he is not in a doghouse, he's leaving on a high to retire to greener pastures of his flying, I suspect around in [Indiscernible] during the day [Indiscernible] pilot. But we have ought him an ultimate thanks, and he's given us plenty of notice. I think you can say he's a [Indiscernible] in the mining.

On the management team broadly, I think one thing I would say, is that we have a very stable management team. We've long been believers that the best technology companies have stable management teams that learn and grow together over many, many ages. So the stability of our management team for a long time now, has been incredibly good.

As such, it's amazing to be able to give both Anu (ph) and Geoff (ph) who are both staffs on our team huge new opportunities. We're giving them opportunities and promoting that growth of internal staff is fantastic and something that we've always prided ourselves on as a Company. In terms of those roles look, we've never had a Chief Operating Officer before operating our business.

We have an incredibly complicated business across multiple markets, multiple employment options, globally distributed talent in operations and planning and our business is not a simple exercise. At the same time, we clearly are operating a large-scale transformation to migrate our customers. We are continuing to transform how we serve our enterprise customers as best we can. We are also continuing to grow the Atlassian economy as we call it, all of the parts around Atlassian, from Forge in the marketplace through to all our partners and everything else.

There is a lot of complexity that needs to come to operating; all of those transformations in sequence and in synchrony, synchronized with each other, and [Indiscernible] is perfectly -- skills to do that and I think improve how we actually operate. We are not satisfied with our current operations and good luck to continue to improve. On Geoff's, we've never had a Chief Product Officer.

Geoff has led that work management for all group of products and conference in Trello for a long time. And does a phenomenal job at that. Taking on the other two markets is a natural progression and growth opportunities for him, especially as we look at, as I talked beforehand, tying the different markets together for our customers in certain ways.

So whether that's a single plan of loss across development teams and IT teams, whether that's IT teams serving the work management for all use cases and absent workflows of non-technology teams. Increasingly, not only our technical platform, but the products have to be [Indiscernible] together, which is part of the reason behind that.

So look, just really excited with the team we have. All come to work every day. I think our whole management teams do, and we're doing an excellent job. Oh, Kevin, sorry. Yes. Look, Kevin has been a huge adds to the revenue function in general, leading our sales efforts.

As we continue to expand again, we grew customers more than a million dollars over 70% in our last, we talked about last quarter. So we certainly need to continue to do that. And Kevin brings a wealth of experience from series and invests technology companies in the world. And continue to be excited about how he helps us evolve our model and our business as we go forward.

[Operator]

Thank you. And your next question comes from Pat Walravens from JMP Securities. Your line is now open.

[Joe Goodwin, JMP Securities]

Hi. This is Joe on for Pat. Thank you so much for taking the questions. Just two from our end. First congrats to James on the promotion, or sorry, on the retirement. How are you thinking about what you're looking for in your next CFO? And then lastly, just on Forge, I'd love to get an update there and your ultimate vision there. Thank you.

[Scott Farquhar, Co-founder and Chief Executive Officer]

Thanks for the questions. I'll answer about science. And Mike can answer about Forge. Firstly, James done incredible job, he's is by far the best CFO we've had at Atlassian in the -- in 20 years he's had, even though it's a great stability, it's nothing to have 5 or 6 over that period of time. And I think we do well to find someone that works very much in James ' footsteps.

To be specific about some of the things I think we made as we grow. Capital allocation as a Company, we have so many opportunities in front of us. How to make sure that we allocate capital in the right way in a scalable way. How we do it looking over the long term and we don't optimize for short-term returns. That's going to be really important, and not just

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

Making those decisions, i t's building the systems to allow the Company to make those decisions at all levels of Atlassian. And that will include things like how we cost value to the projects. And as you move to Cloud we're making sure that we understand where our colds goes and the microservice as we build and how we make sure we make articulate decisions around those areas.

And so I think James has done a great job of understanding our business as I mentioned it's -- it stands out in different areas and so I think that finding someone that is a systems think tank [Indiscernible] changes who can help us grow and allocate capital and really tackle the huge opportunity we have in front of us is what we're after.

[Operator]

Thank you.

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

I can answer the question on Forge. I think there was a second part just on there. Sorry, Operator Look, we talked a lot about Forge. It is our next-generation extensibility and development platform. It adds capabilities around security, and data residency, and all the other things.

That is, fairly unique, I would say, in the whole [Indiscernible] ecosystem, in terms of how do you deal with all of the Enterprise compliance and regulatory requirements in different geographies of the world and still allow extensibility of your SaaS applications. This is a huge technical challenge and I'm really, really proud of how the Forge Churn is attacking us.

It lets us run the applications so we can continue to churn and improve them. But the third-party developers or customers get a very stable and simple extensibility in the platform that's fast and performing but also secure. It's worth noting -- I know it's often talked about the marketplace and the vendors and the economy, we have around [Indiscernible], which is fantastic.

Forge is as much for our customers. So a lot of the fantastic early use cases that we're seeing are customers using Forge to extend applications to integrate with their own services, to connect applications together in unique ways alongside all of the other things like our smarts and automation and different facilities of the platform.

Really excited about what Forge is that. Again, with Jira, the platform at this stage, but we will continue obviously as we do to improve it every single quarter. And I believe we've now passed 500 Forge apps and continue to hit on as we again have one of the largest app marketplaces in the [Indiscernible] We continue to grow that and I think Forge has a huge potential going forward.

[Operator]

Thank you. And your last question is from Keith Bachman from Bank of Montreal. Your line is now open.

[Keith Bachman, Bank of Montreal]

Thank you very much. I want to revisit on up-sell and my specific question is, can you get any directional or specifics on the difference on Cloud versus what was server and data center. And the two thought process here as one, you're getting a lot of information, conversions.

And at that time, is there step-up in terms of total value that the customers subscribing to last seen in terms capacity or cross-sell. And then the second would just be, as you mentioned, there's a lot of customers that are going straight to the Cloud. How does their up-sell rate over time compared to data center and/or server? Thank you.

[Scott Farquhar, Co-founder and Chief Executive Officer]

I'll start off here and Mike wants to add into it. As we know and have said that in the Cloud, we provide more value for our customers in terms of way hosting it for them. We're operating it for them. We allow them to turning a whole bunch of these stuff back to doing high-value opportunities for themselves.

And so -- and we do capture a portion of that commensurate value with our Cloud processing compared to DC. And so that's an important thing. I think you are all aware of. If you look at our products behind the firewall, there's a lot of friction involved in expansion.

Lift and any other software vendors, but if you exceeded a loss since you still have to contact us and [Indiscernible] some more given your purchase order and that process is just a little more friction - ful then having a credit card on the line and you are uses and they just kind of stride away.

And so, I think the reduction of that friction at all areas of the product journey is something cited by, with that is starting to free with a quick losses when a download and install. Whether that is being able to invite your colleagues because we can tie into the single sign-on solution of that Company, and so as much as you to add and second or third users there,

[Mike Cannon Brookes, Co-founder and Chief Executive Officer]

And so I think there's -- like you guys probably it's an half-an-hour on all the different opportunities that are there. And I think as you said, cross-sell is what is [Indiscernible] because that second and third products, we can put it in front of our customers where we you believe on that they have value and not in foreign one.

So we don't, so we're not, we can be much more specific and targeted and a great example of that is, if you're inside Jira now, our Cloud products, and we have a tap on North inside this as you want to write a specification.