Atlassian Corporation PLC

NASDAQ:TEAM

Earnings Call Transcript 2022-Q3

[Operator]

Good afternoon. Thank you for joining Atlassian's Earnings Conference Call for the Third 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.

[Martin Lam, Head, IR]

Welcome to Atlassian's Third Quarter Fiscal Year 2022 Earnings Call. Thank you for joining us today. On the call today, we have Atlassian's Co-Founders and Co-CEO, Scott Farquhar and Michael Cannon-Brookes; our Chief Financial Officer, James Beer; and our Chief Revenue Officer, Cameron Deatsch. Earlier today, we published a shareholder letter and press release with our financial results and commentary for our third quarter of fiscal year 2022. The shareholder letter is available on Atlassian's Work Life blog in the Investor Relations section of our website, where you will also find other earnings-related materials, including the earnings press release and supplemental investor data sheet. As always, our shareholder letter contains management's insight and commentary for the quarter. So during the call today, we'll 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, performances and achievements to be materially different from any future results, performance or achievements expressed and/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. We assume no obligation to update or revise such statements should they change or cease to be current. Further information on these and other factors that could affect the company's financial results is included in 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 a substitute for or superior to measures of financial performance prepared in accordance with IFRS. A reconciliation between IFRS and non-IFRS financial measures is available in our shareholder letter, earnings release and an investor data sheet on the IR website. During Q&A, please ask your full question upfront so that we can be fair and be able to accommodate the next speaker. With that, I'll turn the call over to Mike for opening remarks.

[Michael Cannon-Brookes, Co-Founder, Co-CEO & Director]

Thanks, everyone, for joining us today. Q3 was yet another strong quarter for Atlassian. We continue to execute well and see great momentum in our business. We continue to see significant demand for our products across all 3 of our markets, and now have line of sight to $10 billion in annual revenue based on our current markets and current products. Atlassian has a 20-year track record of growing our ambition, and we've never been more excited about the opportunities in front of us. We had an amazing Team '22 conference in Las Vegas.

It was incredible to hear all the customer stories, about the mission-critical workflows that we're powering from our customer community and all of our partners. We continue to learn from our customers about how Atlassian can help their teams work differently together. If you missed us at our Investor Day in Las Vegas, be sure to catch all of the materials and a recording of the event on our IR website. We'd love for you to learn more about Atlassian and better understand our massive market opportunities, our platform, the strategic bets we're placing and our future trajectory. With that, I'll pass the call to the operator for Q&A. Operator?

[Scott Farquhar, Co-Founder, Co-CEO & Director]

Mike, do you want to talk about the long-term future of Atlassian while we have a moment here.

[Michael Cannon-Brookes, Co-Founder, Co-CEO & Director]

I was thinking a shareholder letter maybe answered all of the questions -- perfect shareholder letter.

[Operator]

[Operator Instructions]. We have your first question from Keith Weiss with Morgan Stanley.

[Keith Weiss, Morgan Stanley]

And very impressive results. Right now, the investor focus is really on sort of macro and durability of software demand. One of the things, Mike, that you've talked about in the past is Atlassian is kind of built for defense. But when you look at sort of the 3Q results, how much of this was just the demand environment is good, and you guys are executing in a good demand environment. How much of this is Atlassian flexing that we're good at side of the equation to help us kind of understand the operating environment you guys are in?

[Scott Farquhar, Co-Founder, Co-CEO & Director]

Keith, it's Scott here. Look, I'm super happy with the results we have. But the way we operate as a company is really making long-term bets and long-term investments. And that's what we see here. And those investments, whether they were in free many years ago or they were in ITSM, who we made those investments or cloud infrastructure and migrating our customers to cloud, all these things are long-term bets that are paying off over time. And so I think regardless of what the demand environment is like we've played that long-term game. So that's one thing to think about. The second aspect about that is that we've seen kind of great demand for our products around the world. I know there's some worries about that but we've seen great demand in all of our geographies. And I think what we're seeing there is we sell into a market that in good times and bad times, requires the products that we sell.

And we've seen that even through sort of the '08, '09 downturn, we've been around long enough to have played through that, and we came out stronger on the other side of that, and we grew through that downturn as well. So it's a combination of those factors. I think people realized sort of pandemic is coming off and there might have been pandemic tailwinds, fueling Atlassian's business that will come off after that. We haven't seen anything to indicate that if anything, the demand for digital transformation is kind of a structural change that's continuing to happen.

[Operator]

We have your next question from Arjun Bhatia with William Blair.

[Arjun Bhatia, William Blair & Company]

And congrats on a great quarter here. I wanted to touch on the ITSM market and the progress that you're making with Jira Service Management, specifically. It's something that was a big topic of conversation amongst your customers and partners at Team '22 in Vegas. And I'm curious how the product market fit of that solution has changed over time? I know in the past, we've talked about maybe it would be good for legal help desk for quick up and running use cases. But are you starting to get pulled into more core ITSM use cases at large enterprises. I'd love to hear some of the commentary around that and maybe how the deal size is for Jira Service Management have changed over the last year, 1.5 years.

[Scott Farquhar, Co-Founder, Co-CEO & Director]

I'll talk about the long-term stuff, and Cameron can chime in with any color about deal size changes if there's anything to add there. As we said before, there's some huge advantages we have in the ITSM market. One is that we're the only company that can bring IT and Dev together. And that's very attractive to companies as IT and Dev do come together across the entire industry. So that's really attractive. And then the other one is that we can play for the Fortune 500, 1000. We're not just playing the Fortune 2000. That's both the cost-effective nature of our solution but also just the time to value, getting our customers up and running. And so when you look at the sort of product market fit, like those things stand out, they stand out to the entire time frame that we've got. And that's been recognized by Gartner, Forrester kind of the big people who are recommending to large customers what to buy like those advantages are being recognized up and down the customer size spectrum.

Look, I mean, longer term, that we have a view that every organized team and the organization becomes a service team, whether your HR, your finance, legal. IT, the obvious one, right, that everyone becomes a service organization. And I think with the visions we laid out at our annual conference just a few weeks ago, we sort of articulated that global health vision. So Cameron, do you want to add anything on the customer size?

[Cameron Deatsch, Chief Revenue Officer]

Yes. I first want to call out that part of our approach here is not to just go after the small customers or just attract the large customers in that we are very much Atlassian focus, which is just over 40,000 Jira Service Management customers today. And that's a relatively new product and it shows the type of volume of product market fit, as you would say, is quite strong, increasingly over the last couple of years, largely due to our cloud platform and from an enterprise investment perspective, supported by a variety of really robust features in the IT service management market. We checked off what I consider is like that kind 80, 20 set of requirements that most enterprise departments need, and they're starting to really look to Jira Service Management as that IT service management platform. And we have plenty of case studies where we see companies address us that way. I actually spoke to the customer yesterday that did exactly that and has been running Jira Service Management for all the IT Service Management operations for over a couple of years now.

[Operator]

We have your next question from Keith Bachman with BMO Capital Markets.

[Keith Bachman, BMO Capital Markets]

Cameron, good transition for my question. I wanted to ask about Jira Work Management and get your perspective perhaps on where you think the maturity curve is relative to JSM and what you think the opportunity is? And if I broke that down into the pieces, if you could compare it to JSM has 40,000 customers in terms of the maturity, where is your work management? And how do you see the opportunity in terms of contribution today since your work management as you look out over the next couple of years, it just seems like your work management has a tremendous opportunity for growth. But just wanted to see if you could put some scale and context to that.

[Michael Cannon-Brookes, Co-Founder, Co-CEO & Director]

Keith, look, I can certainly talk to that one. For sure, we would echo your comments, there's a tremendous opportunity in Jira Work Management. There's also a tremendous opportunities in Work Management in general. Obviously, we have a long and proud history in the large products and confluence in Trello, complemented by -- you mentioned like Jira Work Management and Atlassian which we shipped at our Team '22 conference. I think, look, a few comments. We started using the term work differently together, and I think it's really, really applicable in the work management market. Because Jira Work Management and Trello are different ways to work. They reflect different types of teams that want to manage their work. What's really important is that Atlassian allows you to have that autonomy among your teams to use different types of tools to manage work because different teams and different functions manage work in different ways. But we started to create that alignment across the organization. We can do that in various ways.

If you're working in the Jira manner, I suppose, with Jira Service Management, Jira Software and Jira work management that helps you bring them all together under the Jira family, if that's the way your organization runs or your team runs. But similarly with that we can now tie Jira work management together with Trello and lots of other third-party work management tools to create that same visibility. It's very early in the Jira work management journey. So it's probably more like Jira Service Management 8, 9 years ago, whenever we originally shipped out. So we're spending a lot of time with customers at the moment to try to make sure it fit their needs and continue to do that. But as you've seen from us over time, investing in R&D and investing in products and listening to customers is something that we do very well, and we're going to continue to run that by quarter-on-quarter, and we're very bullish about the Jira work management space and its opportunities.

[Operator]

We have your next question from Gregg Moskowitz with Mizuho Securities.

[Gregg Moskowitz, Mizuho Securities]

Okay. I wanted to ask about the recent outage. And just if you had any concerns that this could affect the rate and pace of cloud adoption going forward. And then also, I know that it only affected about 0.3% of your installed base. But were any customer credits issued for the Q3 and/or Q4 period?

[Michael Cannon-Brookes, Co-Founder, Co-CEO & Director]

I'll first talk about that, and I'll let Cameron talk to the migration impact on customers and how we see it from different lens. Look, it's pretty clear, we understand deeply how mission-critical our products are to customers and the teams are impacted massively when our services are unavailable. There's no way of saying this out, it's not met our own high standards that we hold for ourselves. As you said, there were 775 customers impacted. And as you pointed out, you've done the math yourself, but 1 customer is too many. So although it represents yes, less than 0.5% or so of our customer base. One customer is still too many. Important emphasize for any customers that are listening, not the result of Cyber-attack, no unauthorized access to any data, any of those types of things. And obviously, that we maintain backups that we be resilient against all different types of data corruption events has happened in this case.

And all our customers have, at this stage, been fully restored. You'll be long familiar, great with our values, [indiscernible] is something we hold pretty highly, and we run a very open and blameless incident management processing culture. As such, we will be ultimately publishing a pretty detailed post-incident review on our website for -- on our engineering blog, I believe, by the end of the week, as we do to share with our customers what happened, our learnings, and importantly, the processes we've changed and we'll continue to change as a result of this. We believe that such a culture builds ever more resilient services and helps us emerge continually as a stronger company as we do that. And I can talk to Cameron, but we've had pretty great customer reception from that openness.

[Gregg Moskowitz, Mizuho Securities]

Got you.

[Cameron Deatsch, Chief Revenue Officer]

Yes. I can speak to the customer impact. As you can imagine, I've been speaking -- this is Cameron, by the way. I have been speaking to many customers during and now post the incident that were both directly impacted by the incident as well as customers that are looking to migrate to the cloud and has -- and they have questions around that. Now while the outage affected a very small subset of our customer base, as Mike said, one is too many, and we take this extremely seriously. Getting on the calls with these customers, they're tough conversations. But when we walk through exactly what happens, which we will provide in detail in the incident review as well as what we're doing about it to ensure it doesn't happen again. Most customers completely understand and it turns into a collaborative discussion on moving forward. In fact this morning, I spoke with a directly impacted customer who actually was standardizing on our tools over the last few years, and we had incredible uptime, incredible SLAs for many years with them.

And this was the first kind of big incident that caused them to have their concerns with us. And we talked about the mission criticality of our applications. We talked about how they did workarounds in the interim as they actually when -- they started more applications with us as the incident was out. But the reality is by the end of the conversation, we had moved forward, and they were talking about upgrading to the premium version of our products, which just shows how much goodwill customers have for us in our products. James, do you want me to do credits?

[James Beer, CFO]

Yes, Gregg, just to address the compensation part of your question. Obviously, we want very much to do the right thing for the customers that were impacted. So I would expect that there would be compensation in Q4, so to be clear, nothing in Q3, but I would not expect the level to be material to the financial statements.

[Operator]

We have your next question from Michael Turrin with Wells Fargo Securities.

[Michael Turrin, Wells Fargo Securities]

Growth remains impressive and consistent as always. The EMEA number at 25% growth is a touch lower the letter, carefully characterized this as event-driven. As a result of the tougher comp, not demand-driven. And you're also citing no material changes fiscal Q4 thus far. Is there any additional context you can add around the signals you're watching there? And what informs those observations and certainly top of mind for all of us across software and useful.

[James Beer, CFO]

Yes, Mike, I can address this first, and then perhaps Cameron, you can add on behind me. But as you're alluding to there, Michael, as you framed the question, 25% growth year-over-year in EMEA, but very much a tough comp versus Q3 of fiscal year '21 in which we had very significant EMEA growth of 45% year-over-year. Recall that last year, we had the event-driven activity as a result of having recently announced the server end of life and then also price increases associated with both server and data center. And a year or so ago, it was our European partners who were particularly adept at working with their customers to get ahead of some of those changes. So that really explains the reason for the tough comp. And I would just further note that in Q3, EMEA represented 39% of total revenue. So that's actually up a point sequentially versus the previous quarter. So not seeing anything unusual there. We're pleased with our growth rate in EMEA as we are in other parts of the world. And in Q4, yes, it's early, but not seeing any material change in our sales activity day-to-day. Cameron, do you have anything extra there?

[Cameron Deatsch, Chief Revenue Officer]

Yes. And I want to speak with our teams located in Europe as well as our partners. The short story is the war in Ukraine is very much present in everyone's conversations, but it has -- today it had no direct impact to the demand for what Atlassian does, and that's kind of the short story here is because of digital transformation, because of continue to remote work from home because companies are trying to be more agile and responsive to this changing world, that provides constant demand for what Atlassian's applications do. In that Team '22 a couple of weeks ago. I met with a variety of our European solution partners.

Their biggest challenge remains being able to hire enough people to satisfy the demand that they see in the market. And in addition to that, we focused pretty heavily on the European market just from a cloud capability perspective, as you know, last quarter released support for BaFin which is basically financial services standards in Germany for our cloud products, and that has opened up a variety of new cloud opportunities and very large financial services firms for cloud migrations. So we continue to see that demand there and other things looking good this quarter.

[Operator]

We have your next question from Ittai Kidron with Oppenheimer.

[Ittai Kidron, Oppenheimer]

James, a couple for you. Just on the financial side. Data center continues to perform very well for you. I believe that in the Investor Day, you actually mentioned a few instances where data center customers were actually migrating to the cloud. How do we think about the growth in data center going forward? Is there a point in time? Do you see this kind of rolling over and transition to the cloud starts happening a little bit more diligently and that side of the equation is any way can help us get a framework around that will be great. And then just another just household question regarding Russia, the 1,800 customers that have been, I guess, turned off because of the sanctions or inability to pay. Can you tell us what's the annual revenue impact of that customer base?

[James Beer, CFO]

Okay. Ittai, let me take the first one, data center. Yes, I was very pleased with the growth rate of the business there. And as you alluded to in your question, in the context of the fact that when you look at our cloud migrations, 1/3 of those volumes are coming from data center. So I think this is one of the important stories here around the migration journey. Obviously, we've been talking a lot about server to cloud, server to data center, but also the fact that a good number of our larger customers that generally are on the data center products migrating to the cloud I think, is going to be a theme that continues to play out for a number of years. And I think this very much reflects our thesis, the cloud is very much the best experience for the customer. That's obviously where we've been putting in a disproportionate amount of our investment over recent years. And so I would expect that to continue over time. So as it does, that would obviously represent a headwind for data center growth.

But yes, as we've discussed in the past. For some customers, they're not able yet to move to the cloud. Oftentimes, it's a matter of that customer fitting in this migration project to their overall IT workflow and so forth. And so we're delighted that customers continue to look at our data center products, high-quality, good value and so forth. And so I think those are the dynamics that will play out gradually over time. In terms of the 1,800 customers that reside in Russia and dropped out of the customer count of this past quarter, we noted at Analyst Day, that Russia had represented about 1% of our business. So those 1,800 customers reflect a fraction of that point.

[Operator]

We have your next question from Fatima Boolani with Citi.

[Fatima Boolani, Citigroup]

James, this one is for you. I know calculated billings or billings is not the metric you focus on and neither do you run the business on the metric. But I'm curious if you can just give us a reminder on some of the points of volatility in that metric, particularly given the pricing changes in the end of life of certain products? And then just with respect to doing larger enterprise transactions and enterprises generally preferring to take on maybe more longer-term oriented contracts. I'd love to get your perspective on how we should put some guardrails around the reported or calculated billings metrics as it were.

[James Beer, CFO]

Sure. I really speak to deferred revenue here because when you think of calculated billings, it's certainly revenue plus change in deferred. And so the first part of your question around the volatility in that metric, I think back to Q3 of last year, and we saw a very substantial increase in revenue that we referred to as event-driven that I was mentioning in one of my earlier answers, related to the server end of life activity that we had just announced previously to that point as well as price increases around both server and data center. And so that drove a revenue level that had us preannouncing, you may recall, a year ago. But it also drove a very significant deferred revenue increment at that point in time.

Now fast forward a year, and we had some similar level of activity, but significantly less of this event-driven activity. In this past Q3, we finished selling server upgrades and then somewhat similarly to the previous year also had price increases for both the server and data center businesses again. But when you look at the deferred revenue balance and the percentage growth in deferred revenue on a sequential basis, which I think is the right way to look at it, you'll see that the increment to deferred revenue, the growth rate of deferred revenue in this past Q3 was less than half of what we were seeing a year ago. So I think that's the primary thing to really focus on in terms of volatility of deferred revenue.

In terms of the enterprise activity, certainly, some of those larger customers are interested in multiyear commitments. And you see quite clearly in the long-term deferred revenue line, the impact of that effect. Now again, if you look at the absolute dollars here, they're actually for long-term deferred revenue, they're actually down year-over-year. And obviously, we've grown substantially in the last year. So while it is an effect, I wouldn't say that it's a terribly large effect in terms of how our business model is evolving. So yes, I have some enterprises who are looking to commit to us for longer, but in the overall scheme of our numbers, I'd say this is relatively modest.

[Operator]

We have your next question from Fred Havemeyer with Macquarie.

[Frederick Havemeyer, Macquarie Research]

And firstly, congratulations on another very strong quarter. And I think also importantly, thank you to the whole Atlassian team for addressing the outage right up front in your shareholder letter. Certainly, we were tracking what many were saying online. And I think the transparency that you're bringing to the table is really quite important when you're working with developers, technical consumers and enterprises globally. Now higher-level question, James, while I really don't want to see you go, it's always a pleasure to work with you. Your anticipated retirement date is on the horizon here. And I just wanted to check in how is Atlassian thinking about the CFO transition at this point? And where are you in terms of considering or finding a potential successor?

[Scott Farquhar, Co-Founder, Co-CEO & Director]

Yes. Thanks Fred. It's changed, it's 74th earnings call we've liked this out and with backgrounds of 74 at the moment, celebrating, James, do you want to tell us how old [indiscernible] celebrating his earnings call numbers. Soon, he will be -- he bought himself a plane that he [indiscernible] soon, he'll be flying to a remote Island, going for a swim, going for snowfall, hike, just enjoying retirement. And -- so we start to see him go [indiscernible] I know how much he will enjoy working with James. But it's been great research that we had ongoing. We've had a lot of interest from people across the industry and even beyond into other industries who are super excited to come work with Atlassian. And as you'd expect, we want to make sure we keep the bar high and so whoever and exception to James he sure does a great job. And so I'm not ready to kind of share any names or any details about that at this stage, but you'll be the first to know once we've landed a suitable candidate.

[Operator]

We have your next question from Brent Thill with Jefferies.

[Luv Sodha, Jefferies]

This is Luv Sodha on for Brent Thill. I wanted to ask a question on the cloud migration demand and how we should think about it, especially as we have a loyalty discount expiration coming up in next quarter on June 30, and you've achieved HIPAA compliance for Jira Software and Confluence Cloud this quarter. So how should we think of these 2 events? Could you maybe give us some historical context as to what you saw last year when you had a similar loyalty discount expiration?

[Cameron Deatsch, Chief Revenue Officer]

Yes, I'll take this one. It's Cameron here. Migration continues to be very much on track as we planned. And we continue to say that this is very much a multiyear journey. Yes, we have different steps along the way, whether it was the elimination of server upgrades back in February or the loyalty discount coming off in July or the server end of life in February of 2024. We have multiple stages where over the next few years that will give customers a reason to component event to go off and migrate. And this has all been planned out. But once again this is on track, it's important to say that migrations as well is a multiyear journey and then it doesn't end once the server end of life happens. At that time, we will still be migrating data center to customers to the cloud for many years to come. So this will be a constant journey for us.

I'd say every day, we get better at helping our customers through this migration journey, whether it's them assessing our cloud, assessing the financial impact, understanding, hey, if we go earlier, we get this discount. If we go later, we can get a different level of discount, but we have many different empower teams to have those conversations as well as our solution partners having those conversations, and it gets better every day. In addition to that, what I'm very happy about is once we convince customers to move to the cloud, we get better about actually getting them to the cloud, moving their data, moving their systems, onboarding their users. And that's a journey. Our products are mission-critical. That transition is different for every customer, and we have many different teams and solution partners helping with that. I just want to say it's a constant moving thing, and you also mentioned HIPAA and HIPAA is one of many compliance requirements out there that I mentioned [indiscernible] as well that we are continually working on.

We have a whole dedicated compliance teams that are largely -- you name the acronym in the industry, we're knocking them off and opening up those cohorts of customers. So yes, with HIPAA, we can start talking to health care and organizations. We're working on FedRAMP, which allow us to open up the government markets and so on and so forth. So we did FSI last year more financial services. So think of it as a continuous set of improvements both on the product side as well as financial improvements on the -- over the next couple of years that we'll continue this journey for our customers.

[Operator]

We have your next question from Alex Zukin with Wolfe Research.

[Aleksandr Zukin, Wolfe Research]

So I wanted to key back in on the data center revenues and just understand either if the outage is driving increased interest in data center or how you're thinking about the seasonality, particularly for Q4 and mid next year around the data center business, the trajectory there? And just remind us, obviously, the guidance for margins for Q4, kind of looked like some more of your out-year targets. Where is that incremental spend mostly coming from for -- in Q4. And I think that would be super helpful.

[Cameron Deatsch, Chief Revenue Officer]

This is Cameron again. I'll address the data center demand. I'll let James speak to the incremental spend. On the data center side, as James already mentioned on this call, it's a great product. It's a great offering for our customers who are looking for performance, scale, stability, full control of their applications in their environments. The trade-off customers make of going to data center is they do not get all of the innovation that we're launching in cloud. And customers, we speak with customers every single day about this. It's a sure trade they have. They know very much that many of the new features, a lot of our new products that are coming from our point A offerings are coming natively in the cloud and will only be available in the cloud.

And many customers are running towards the cloud right now to make that decision. Many customers are saying, okay, we can actually go stay on data center for a year or 2 or maybe customers say, hey, I want to stay on data center for the time being, knowing that cloud is always going to be an option for them. That said, we will continue to focus on cloud on the front foot, every customer. We are incentivizing customers to choose our cloud first and foremost. But for customers for whatever reason, need to stay on data center, that is a great option for them. They are very high satisfaction for those customers, and we have a good track record with that product line.

[James Beer, CFO]

And in terms of the operating margin part of your question there for Q4, is very much illustrative of the theme that we were talking about at Investor Day recently in terms of the very significant opportunities that we believe that we have right in front of us at Atlassian and that we're looking to invest against those and that will be the right thing for shareholders, free cash flow generation over time and so forth. Now one of the points that we noted in the letter was that during Q3, we hired net new Atlassian's, a total of 791. That is significantly higher than the previous quarterly high, which is 479 net new Atlassians. And you will see the full quarter effect of those additional folks in Q4.

And we're delighted that our talent acquisition engine, if you will, is able to attract that many talented people from all around the world. I think our team anywhere strategy is an element -- an important element of how we're able to do this. And I think that just positions us very well indeed for the future. One other item to remember in Q4 in terms of the expensive side of the equation, we had our Team '22 event, as we've been discussing, and so that would have added, particularly to some of the sales and marketing expenses in the current Q4 quarter.

[Operator]

We have your next question from Jim Fish with Piper Sandler.

[Quinton Gabrielli, Piper Sandler & Co.]

This is Quinton on for Jim Fish. Really, we wanted to circle back to work management. The team said at the Analyst Day and actually reiterated today that there is a course to greater than $10 billion of revenue with work management as the most significant opportunity. How much of that $10 billion would work management have to represent for you to hit that goal? And then as we think about the opportunity, how much of it is penetrating the current installed base as a greenfield opportunity versus replacing competitive solutions.

[Michael Cannon-Brookes, Co-Founder, Co-CEO & Director]

Yes, I can answer that. And look, a few comments. Firstly, I can't fill and sell detail in the model, but I would reiterate the $10 billion number that we put out there, and we feel really confident and bullish on is across all 3 of our markets. I think we've said that logically, work management would have the most number of users, right? If you think about tens of millions of developers, hundreds of millions of technology professionals once you start talking about IT and then 1 billion-plus knowledge workers. The work management space, obviously, target which has the most volume of going after 100 million monthly active users. It's a logically connected that -- it is likely that the majority of those would come from the broader work management space, right? There are many more people working in finance and HR and marketing and all sorts of different departments and there are working in the IT department in most companies. So that's from a user perspective.

That may not necessarily be reflected in the revenues perspective, because obviously, the dollars per user of the more technical tools are generally going to be higher. There's sort of high-level directional commentary over the multiple years ahead, but that sort of seems quite logical to me that, that's the way that it would work. That said, obviously, we have 2 fantastic products in Confluence and Trello, that are at scale and continue to grow strongly at scale. Both have histories, and we are continuing to invest very hard in both of those. We also have a series of new products that we've seen, we mentioned Jira work management, taking advantage of the Jira family and Jira's history of compliance and structure and control for organizations and teams that work that way. And the finance teams, for example, often want more details and controls and auditing processes and things like this.

And Atlas, obviously, being our newest offering, launching at Team '22. And I think it's fair to say that we continue to be excited about the work management space and looking at a lot of things in terms of innovation there. What I would stress that all of our products in work management are built on top of the Atlassian platform. That's the platform that helps people work differently together. But in this particular case, it allows our work management products to work very well with both the IT and developer spaces. One of our advantages is that although we sit in 3 different markets, those 3 markets are connected for customers. Scott mentioned earlier, how developers and IT work very well together and that continues to be a strength of our JSM and ITSM market.

Similarly, in work management, you're increasingly seeing both -- we have an advantage in customer adoption in the early phases because a lot of them come from the software and IT spaces into work management. But as we continue to grow, helping your technology teams work together with the non-technology teams and to have visibility across that where you can put on your snowflake book look under the water or you can look above the water, right? Your visibility can be across both sides of that. So I guess I'd say we're just incredibly bullish on the space. We are very strong. We have great customer reception to our Work Management market. And I think our strategy is incredibly solid as we look at the explosion of Work Management tool there.

[Operator]

We have your next question from Rob Oliver with Baird.

[Robert Oliver, Robert W. Baird & Co.]

Great. Appreciate it. Mike, Scott, just a question for you guys around in some of the point A products. So, it's just a good buzz at demand and to be around Atlas and do the workflow collab and just confluence as well. I just wanted to get a sense for what you guys are seeing there? It seems like a lot of the activity is still on the free trial side, which is what sort of interest from customers? And then also how you see partners, your partners fitting into that equation and as forward starts to work up to scale.

[Michael Cannon-Brookes, Co-Founder, Co-CEO & Director]

Yes. Good. I think there were 2 questions in there, Rob. So I might take it separately, if that's all right. On the point, I'll take point A first and then I'll slide forward to second and then maybe Scott can add on if I miss anything. Look, on point A, incredibly positive reception from Team '22, I will say. It was the first sort of outing for Atlas and Compass both of which have similar goals in terms of helping people work differently together and providing that aggregation layer and a lot of different areas in a very innovative way. So both comes on the technology side. And Atlas on the broader cost company user work team help directory level, very, very positive reception to both.

So now it's the hard grind of doing what we do, which is working with those customers, seeing adoption, learning from their activity and also working with them and collaborating with them, as we said, in the point A program that's one of our strengths. That's where we can put R&D expertise our together with our customers centricity and really build truly differentiated products that have a long-term focus. We also shipped Jira product discovery at Team '22. So that's us getting more into the creative discovery spaces at the start of the software processes. That also had great reception. Sometimes gets missed, but the executive team is doing an amazing job.

And again, bolstering out the Jira product family and getting more into the discovery and creative parts of the engineering cycle is a new space for us with a lot of partners and also with our own product. So that's what we said we're going to do, as we've talked about pointed A repeatedly here. On the Forge side of things, look, customers continue to be very happy with Forge. Forge again is our extensibility framework that allows customers and partners to build apps, integrations extensions that run in our infrastructure. And the latter part is really key there. It's what makes it differentiated against almost any SaaS-based extensibility framework out there. It means that if you have data residency requirements, compliance requirements, security requirements, you run in our infrastructure, even the third-party apps or your customer written extensions, the customers write them for themselves. That runs in our infrastructure.

One of the things customers like the most about it is we provide the servers and everything else to run. So they just focus on writing the extension, writing the integration they need. We handle all of the running and keep the compliance and security requirements talking about the run of data. That saves them a lot of time. It's a much higher ROI sensibility method than having to run their own servers and maintain them and operate them and keep them running, et cetera so. Look, it's going very well so far. We continue to invest in Forge in improving every single quarter. You can see it's got quite a rapid pace of innovation and incremental improvement. And so Team '22 has a great chance to chat with a lot of our vendors and customers about what they want to see next and continue to build better.

[Operator]

We have your next question from Ari Terjanian with Cleveland Research.

[Ari Terjanian, Cleveland Research Company]

Congrats on the great results. Just had a question regarding the CTO transition. Obviously, a ton of great progress the last few years scaling the cloud products, addressing different regulations and compliance needs. What do you view as the main things that Rajiv will be working on over the next couple of years as CTO of Atlassian.

[Michael Cannon-Brookes, Co-Founder, Co-CEO & Director]

Yes. Thanks, super excited about Rajiv coming on board. I've personally been leading that search for a long while, and incredibly excited to get in to start, starts in a few weeks and to share that all with you. Very sad to see Sri go, but happy we'll have an overlap between the 2. So there'll be a smooth handoff of the baton there. And I think our engineering teams will be -- continue to be incredibly well led in that way. In terms of goals, still abstract, but at a high level, obviously, as we've communicated to you at Team '22, we are investing very much so in ourselves. That results in scaling the company up, adding thousands and thousands of new employees, tens of thousands of new employees. Obviously, given our model, significant numbers, this will be in engineering, in R&D and design, continuing to keep our world-class R&D team and the efficiency of that, continuing innovation. That's a nontrivial exercise.

This is not just something that continues to be exactly the same as we go through levels of scale that continues to have to be adapted, restructured, we thought and a lot of different processes and human factors, right, in terms of how we continue to make Atlassian a fantastic place for engineers to come and do the best work of their lives. That's obviously going to be a big part of Rajiv's goals over the next few years. He's handling that scale and continuing to make that the case as well as all the things that we are working on in terms of continuing to improve and deepen our cloud, enterprise compliance, scale, performance, all of those types of things.

So no shortage of challenges and growth opportunities ahead, and that's largely what will be working on continuing to bolster the identity of Atlassian engineering is being world-class as we scale [indiscernible]. I should also point out he has pretty big shoes to fill, obviously, of Sri who has taken us from 400-odd engineers to thousands and thousands of engineers, got us into the cloud, built a world-class cloud platform and scale of infrastructure as well as built a fantastic leadership team. So Sri's leadership team remains in place, Rajiv has some pretty big shoes to fill to continue the growth trajectory that should have set a motion.

[Operator]

We have your next question from Stephen Koenig with SMBC.

[Owen Haworth, SMBC Nikko Securities]

This is Owen Haworth on for Steve. Congrats on nice quarter. I'm wondering if you can rank the buying motions for Jira Service Management at this stage today. Is it more a greenfield customers that don't have a service test for the line of business with an organization standing something else maybe in tandem with their enterprise standard or organizations coming to you looking to make a larger scale replacement. And then -- and with that, to what extent are you getting into ServiceNow accounts, even when ServiceNow is already largely an enterprise standard. And if I can sneak 1 quick one in. I believe Jira Software Confluence and Trello has been the most common land products today in the cloud. Is JSM trending up in the mix of lands? Or is it more commonly an expansion?

[Cameron Deatsch, Chief Revenue Officer]

This is Cameron. I think I can address all of that. So first off, Jira Service Management, who's buying it -- you got -- we're going with 40,000 customers. We have small customers, midsize and large. On the small size, very much we're replacing e-mail and spreadsheets. There might be 1 or 2 people in IT. They're handling the e-mail, then they needed to get a little bit more mature. And actually, this is one of the great things we offer 3 agents for free with Jira Service Management. So it's actually a great pipeline into those small businesses. You're a small business, you need an IT service management, IT help desk solution, you get a free 1 from us. And as you grow your IT department, you can turn to paying customers. So that's [indiscernible] on the very small size.

In the midsize, there's a variety of different vendors or established different solutions out there, but we continue to see that with those organizations, the core value prop of, hey, these are your development teams, your engineers and your IT departments, your operators, your IT help desk people working closer together in the future. If so, they're looking to a single platform to solve the needs and connect those teams. And Jira software and Jira Service Management is that kind of perfect unification for many of those midsized customers and very much a sweet spot of Atlassian. In the enterprise, our complete strategy, what we're seeing is very much go in there and knowing that most will have at least 1 or multiple different IT platforms that they're running.

Our goal there is very much to leverage, find departments, teams and so on that have bought into the fact that they need to move -- their engineering teams need to move nimbly with their IT organizations. We see different things like security teams or small security areas in these large organizations and we come in and we largely get small little beachheads where organizations want to move very, very quickly.

From that, we absolutely start seeing when the big renewals come up for the big platforms, of which there are a few out there. We tend to have -- we increasingly have a seat at the table and have those conversations. Additionally, what Atlassian has been able to do over the last few years, outside of just beyond IT service management is really establish our enterprise credibility. We have executive advisory boards. We have many CIO councils. So the good part is now those top leaders who are making those big platform decisions, we have relationships with and they understand that this is very much an area that we can support for them going forward. So we're very much in the game incredible there, plenty of enterprise customers to go after.

Your next question is which customers, which products are we landing with, which one are we expanding with. I'll be the ones that you called out were very much the products we land with. And Jira Service Management, we are still very much going after the current existing customer base. But that said, it's not with the software development teams and the existing customer base. We need to find those IT departments of those IT use cases. And that's where we turn on a lot of the marketing machine to drive that awareness. But today, we still very much consider Jira Service Management focused at our very large existing customer base.

[Operator]

We have your next question from Kash Rangan with Goldman Sachs.

[Kasthuri Rangan, Goldman Sachs Group]

It's great to be a first-time participant on your earnings conference call. Congratulations on everything that you've accomplished. I'm curious to get to your perspective on how the platform evolves. Certainly, there is a merit to be exposed and having the 3 pillars, your DevOps, ITES and work management, be interconnected from a market perspective and also have a technology platform that brings it all together. At the same time, how do you weigh that against the innovation in each of these pockets still going through a pretty rapid cycles you've got best-of-breed companies that you probably run into or maybe don't at the high of these markets. So these markets are still going through a period of growth and not yet at maturity.

So how do you trade off having to bring together these disparate markets and products under the cloud unification, which is a different challenge versus actually horizontal challenges as oppose to vertically scaling these products and still keeping up with all the cutting edge features. How do you weigh these 2 things because the market does not look like it is settled, it's entering a next generational shift, if you will, right? And from a financial question, James, I know this is probably the last couple of quarters or so. As the dust settles on the migration, how do we think about the longer-term structural growth of your end markets in Atlassian as well?

[Michael Cannon-Brookes, Co-Founder, Co-CEO & Director]

Yes, Kash, welcome. Welcome to the investment call. It's a hell of a set of questions you've got there. Let me start with the platform, and I'll leave to answer the finance question in a second. I think first, a few comments. Our platform enables us to be best-of-breed in each of our 3 markets and to do so efficiently. So we definitely don't think about ourselves as competing against best of breed. We are the best of breed in each of the markets that we participate in and intend to continue to do so. And the platform allows us to do that with efficiency and scale as well as preparing for the future. So a few ways it does that. We are able to be best of breed in ITSM and in Azure DevOps because of the investments we make in and are driven by the work management as a singular example because we can afford to build an absolutely world-class tech editing environment, which is a very nontrivial exercise and then run that across a series of different markets.

Now a single competitor in a single market in this space can't afford to do that. You can look at that in reverse. If you go to the bottom of the staff in terms of infrastructure, the same thing occurs in terms of compliance, enterprise, scale. The SaaS world is increasingly difficult as every geography around the world passes new laws and new rules about how data needs to be stored for certain industry types, et cetera. That's a very nontrivial exercise to serve those enterprise customers and different global geographic customers in different ways. Putting all of that into the platform allows us to have that across all our markets and spaces, allows point A products, they're shipping in new and innovative areas to have all of that enterprise and compliance support.

And similarly, as the markets change, we talked about the future, our platform is a very long-term investment, not just because it takes a long time to build a really world-class platform. But as we look at the future, we believe there will be more compliance, will be more Cambrian explosion of different SaaS apps are focused on integration and bringing them together. Our platform is hard to build. It's also very hard to replicate. So we believe it's a huge competitive advantage in each of our spaces. As you've mentioned, it obviously helps us bring the spaces together. You can see that in our Atlassian data lake and Atlassian analytics tools that we shipped on top of the platform at Team '22, enabling us to take data from disparate applications and bring them together for customers in a way that they couldn't have done beforehand, and they can't do.

We're also focused on building out in the platform the stuff that doesn't change. I think Jeff Bezos once famously said that he was more focused on the things that wouldn't change in 10 years than the things that would change, and it's a really interesting philosophy. What doesn't change is the collaboration. Teams and people are going to need to come together in each of these 3 markets to really be efficient and that desire for efficiency [indiscernible] continue to go up. And so collaboration is going to become ever more important a team of anywhere world, where people are distributed. Our collaboration tooling is largely built in the platform.

So you can see this in commentary and reactions and sharing, notifications and search and all the different bits and pieces of bringing data together, connecting it, linking it and then connecting with colleagues and people that collaboration being built in the platform is a huge competitive advantage, I believe, for Atlassian in each of our markets and then even more so when you start putting the market together collectively. So we've tried to talk about this for many, many quarters. It's an area that I think is a huge trend of Atlassian, and you'll see us continue to invest in the platform going forward.

[Operator]

I am showing no further questions at this time. Presenters, please continue for any closing remarks.

[Michael Cannon-Brookes, Co-Founder, Co-CEO & Director]

So I think, James will finish up.

[James Beer, CFO]

Yes, let me just jump in to add to that last question. Just very briefly. Good to hear from you again, Kash. A number of things. In your question, you kind of alluded to the end of migrations, if you will. The first point I'd want to make is just to reemphasize something that we mentioned earlier, is that, yes, the server customers will make their move in the next couple of years. But we're very encouraged by how many of the data center customers are again continue to be moving to the cloud already that 1/3 of migrations to the cloud coming from data center. Beyond that, more generally, we are addressing very large total addressable markets. We went into some detail at Analyst Day on this topic. And for the TAM that just represents our current products that's of the scale of around $29 billion, well, less than 10% of that today.

I think the theme of digital transformation is very real for companies all around the world, and we are exceptionally well placed to continue to address customers' needs in this regard. And we are going to invest so that we can drive more value for our customers in these different ways in which we're very well equipped to do. And that is going to help continue to spur our growth rate over the long run. We'll be disciplined about how we invest. We always are. But that will be an important theme for our growth rate. And then just the last thing I'd say is the top of the Atlassian funnel, we talk about a net new customer count each quarter. It's always in the thousands of customers. And we land small and expand very significantly over time. And I think the net expansion rate number that we indicated at Investor Day 3 weeks ago of 130%, in fact, it's 140% for our larger customers is just a great illustration of how we gradually get larger and larger in terms of what we do for our customers. And I think that altogether gives us a lot of runway for long-term growth.

[Operator]

I'm showing no further questions at this time, presenters. Please continue for any closing remarks.

[Scott Farquhar, Co-Founder, Co-CEO & Director]

Thank you everyone for joining our call today. Let's say particular thanks to James Beer for his partnership over the last almost 5 years with Atlassian and just congratulations on such an incredible career and wish you all the best in your retirement. And as always, like for all, everyone on the call, staff, partners, investors, everyone, thank you for all your ongoing support, and enjoy the rest of your week and your weekend.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.