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Good afternoon, ladies and gentlemen. Thank you for joining Atlassian’s Earnings Conference Call for the Third Quarter of Fiscal 2018. 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 Ian Lee, Atlassian’s Head of Investor Relations.
Good afternoon, and welcome to Atlassian’s third quarter fiscal 2018 earnings conference call. On the call today, we have Atlassian’s Co-Founders and CEOs, Scott Farquhar and Mike Cannon-Brookes; our Chief Financial Officer, James Beer; and our President, Jay Simons.
Earlier today, we issued a press release and our shareholder letter with our financial results and commentary for our third quarter fiscal year 2018. These items are also posted on the Investor Relations section of Atlassian’s website at investors.atlassian.com. On our IR website, there is also an accompanying presentation and data sheet available. We’ll make some brief opening remarks and then spend the rest of the call on Q&A.
Statements made on this call include forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or 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.
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 entitled Risk Factors in our most recent Forms 20-F and 6-K.
In addition, during today’s call, we’ll discuss non-IFRS financial measures. These non-IFRS financial measures are in addition to, and not as a substitute for or superior to, measures of financial performance prepared in accordance with IFRS. There are a number of limitations related to the use of these non-IFRS financial measures versus their nearest IFRS equivalents and they may be different from non-IFRS measures used by other companies. A reconciliation between IFRS and non-IFRS financial measures is available in our earnings release, our shareholder letter, and in our updated investor data sheet on our IR website.
I’ll now turn the call over to Mike for his brief opening remarks before we move to Q&A.
Good afternoon. Thanks, everyone, for joining today. We had a great start to 2018. This quarter, we grew revenue 40% year-over-year and generated over $86 million of free cash flow. We also added 6,587 net new customers, the most we’ve ever added in a single quarter and a big step towards our goal of serving the Fortune 500,000.
In February, we kicked off the Atlassian Team Tour, where we’ve been unveiling product updates, sharing the latest in team practices, and discussing the future of teamwork with almost 3,000 users and partners. We’ve almost completed our tour across 11 cities worldwide, and it’s been fantastic to speak directly to customers and hear about the different ways teams are using our products.
We’ll be making our final stop in Tokyo on May the 23rd. This quarter, we announced the opening of our newest office in Bengaluru, India. This new location will add to our world-class R&D and customer support centers around the world.
As part of our earnings today, we announced two exciting updates to our Board of Directors. First, we are pleased to announce that Shona Brown has been appointed as the new Chair of the Board. Shona has been a Board member since November 2015, and has been a great mentor to Scott and myself.
We’re also excited to welcome Sasan Goodarzi of Intuit to our Board. Sasan brings with him almost 15 years of experience, driving product leadership and growth at Intuit and will be a valuable addition to the Board.
Finally, we’re pleased to have our new CFO, James Beer, on the call with us today. James joined the team in February and will play an important role for Atlassian as we grow past $1 billion in annual revenue.
And with that, I’ll pass the call to the operator for Q&A.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Alex Kurtz with KeyBanc Capital Markets. Please go ahead.
Yes, thanks for taking the question, guys. Just Stride, any kind of adoption trends you saw in the quarter? I know, it’s new product and maybe how you see that playing out over the next six months or so?
Thanks, Alex. It’s Scott here. Just a reminder for everyone on the call, Stride is our communications product that we built entirely from the ground-up to put voice, video and team chatting to one product. And as we know, the communications space is a sort of large and nascent space. With Stride, we’re still in the early learning mode with our customers and we – I don’t have the adoption metrics, but we’re getting a lot of feedback from our early users.
And this is James, I would just add. I don’t expect Stride to be a material revenue driver in fiscal 2019.
All right. Thanks, guys.
Okay. The next question comes from Heather Bellini with Goldman Sachs. Please go ahead.
Hi, thank you. I was just wondering if you could talk a little bit about trends on the deferred revenue side and deal signings. And I was wondering if there’s anything you could share with us kind of about the linearity of deferred in the quarter? And if there’s anything you could share with us about how customers maybe might be seeing the price increase in the market? Thank you.
Well, let me start with that. So in terms of the deferred revenue, obviously, I’m sure you know about the price increases that we announced in August of last year. And some of our customers took advantage to pull forward either their maintenance renewals, in some instances, new business, upgrade business and so forth. And so that benefited Q1 and Q2. And so we saw the other side of that effect in Q3, as we saw that pull forward revenue that otherwise would have played out in Q3.
The other thing I would have mentioned particularly about Q3 deferred revenue and so forth is, of course, this is the first full quarter of Trello. We’ve now lapped the acquisition that occurred midway through Q3 this time last year.
And then anything…
And in terms of the price increases, we very much feel as though the effect is on track as we expected, so that’s going along very much as planned.
And James, could I just ask a follow-up, if I may, about Q4 deferred revenue trends? If the early renewal slightly impacted Q3, should we be expecting that to also have a seasonal impact on Q4 just as we think about setting our models?
Well, I think that pull forward effect is likely to decline as the quarters go by. So I wouldn’t want to overstate the effect that you’ll likely see in Q4 there. So no, I think that will be a more in line, if you will, in terms of the run rate around deferred revenue. One of the other factors that we have to think through is, obviously, the cloud business is growing very fast. And so you have to think about the mix of whether our customers are electing the annual subscriptions or the monthly subscriptions.
Okay, great. And anything you could share with us on what they’re electing? What’s the trend in the annual versus monthly?
Well, it moves around. We’re pleased with the response to both. I think, what’s important is that, we’ve got options out there for our customers. We’re really addressing their needs in a variety of different ways.
Thanks. Thank you very much.
Okay. The next question comes from Bhavan Suri with William Blair. Please go ahead.
Hey, guys, thanks for taking my question. I guess, I’m going to touch a little bit on Service Desk here. Just as you’ve seen customers and partners start to deploy it and it’s now been a little while, it’s been the fastest growing product for a while. Just some color on sort of the sizes of deals and sort of are you starting to see them expand?
And then just touching on a couple of cases where we chatted with partners, we see coexistence with ServiceNow or just sort of an idea of how that exists and also maybe do you view that as a potential replacement over time?
Yes. Hi, Bhavan, it’s Mike, I can take that one. Look, as we’ve said before, JSD is growing very quickly and we’re very excited about its opportunities in all sorts of fashions inside of enterprises. We do see the growth is both in small and large accounts. Obviously, in the larger accounts, there’s the potential to go further afield, because just the size of the company is greater, the amount of service opportunity between teams is larger.
So we do see a correlation with larger businesses, obviously, moving it into other functions outside of IT. So it moves into finance, HR, legal, lots of different teams. Interactive marketing is particularly popular one. Any team that tries to help other teams is a part of their team’s job. So we’ve disclosed more than 25,000 organizations use Jira Service Desk and it continues to be one of our largest products alongside Jira Software and Confluence.
Look, we do see ServiceNow. We do come up against it occasionally, but by far the largest is attacking greenfield opportunities. As a reminder, they target kind of the Global 2000 and we’re the Fortune 500,000. So more often than not, you see very happy coexistence in a lot of different ways, and they probably see us far more than we see them I would suspect.
Got it. And a quick follow-up just on product investment. You obviously talked about the new location in Bengaluru. But as you look at product investment R&D spend, I guess, how should we think about sort of split between sort of optimizing, enhancing existing products and then sort of newer stuff you might be working on that maybe you haven’t sort of built out, so either gaps in existing products or brand-new sort of sets like Stride? What would that mix be? And sort of how do you think about that sort of in the long-term? Thank you.
Bhavan, it’s Scott here. The – one of the things I’m really proud of is our investment in R&D and turning that into valuable products for our customers and we’ve done that for 15 years and that’s not going to change. We’re going to continue to invest in R&D, because that drives our business more than other competitors or other companies that drive more sales-driven approach we really lead with R&D. So that’s not going to change.
The relative amount we spend on optimizing, enhancing changes from year-to-year, I’d say, this year with some of our moves to AWS, we probably spend a bit more on kind of internal re-architecting, which is showing more sort of infrastructure benefits for our customers, reliability, speed, latency, we can put data centers close to our customers’ scale.
So those types of benefits is what our customers get from those infrastructure investments. Now that that’s happened, we’ll be doing more investments in sort of more front facing user features. But it changes from year-to-year as we listen to customer needs.
That’s very helpful, guys. Thanks so much for taking my questions.
Okay. The next question comes from George Iwanyc with Oppenheimer. Please go ahead.
Thank you for taking my question. So impressive new customer additions. Can you give us a sense of where they’re coming from how much from Jira and other products?
Hey, George, this is Jay. We don’t break-out individual products. I mean, I think the story of the customer account was just the business overall was firing on all cylinders like especially on a cloud side, all core cloud products drove strong customer adds. And remember, the number in the quarter – number between quarters are going to move around a bit from quarter-to-quarter. But obviously, we’re super proud of the result of both the adds in the quarter and just the future expansion opportunity that it gives us. But remember, it’s still a drop in the bucket on the way to the Fortune 500,000, which is what we’re chasing.
Okay. And Trello looks like, it’s continuing to see good adoption with new users. Can you give us a sense about how that cross-selling is going with that, or have you started to do that and the monetization opportunities?
Sure, I can take that one down here in Sydney. Look, I mean, as we mentioned in the shareholder letter, we just passed the one year mark of the closing of the acquisition of Trello. And I can honestly say that no one on the team has been more excited than we are now about Trello. We continue to get more excited quarter-on-quarter about the potential and opportunities of Trello.
As we’ve said a number of times now, our focus to date has been just allowing to continue its impressive momentum and user growth. These user base continues to grow quickly as Trello spreads around the world. So with regard to monetization, we certainly aren’t rushing into cross-selling into our existing base. We’re looking to do what makes most sense for the businesses. But you can expect to see it continue to come closer and closer to the family as it continues to grow by itself.
We previously mentioned that we expect Trello to contribute $20 million of the revenue in FY 2018. We expect to meet or exceed that at the moment, so we’re well on target. We have been standing still with Trello, I suppose is the other important point to make. As we noticed last quarter, we introduced Trello into the Japanese market, as well as partnerships with a whole series of local companies.
So we continue to use our strengths at Atlassian to take Trello to places it couldn’t have got to by itself. And as we mentioned, we passed the million users now in four different countries individually, so in the U.S., Brazil, UK, and France. So I think Trello demonstrates our ability to successfully do acquisitions and to grow the product family to maintain those acquisitions and their momentum. And then we’ll continue to do what we’ve done historically, which is to bring a family closer together over time.
All right. And the last question for me on the tax rate. How should we look at that as we look forward to FY 2019?
Well, in terms of the tax rate, I think, Murray has probably described to you in the past how under IFRS, our tax rate is calculated in each of the geographic entities in which we operate. And so based on the mix of income and the mix of deductions that are appropriate to take in each of those geographic entities, that can move the rate around from quarter-to-quarter more so than you would see under the GAAP approach. And that was, in fact, how things played out in Q3.
So Q3 benefited, I would expect that to somewhat reverse out in Q4. And I’m comfortable with what I’ve seen in terms of the overall tax rate for fiscal year 2018 and we don’t guide yet for fiscal 2019. So we’ll get back to you with that with more color around that story in a quarter or so’s time.
All right. Thank you.
Okay. The next question comes from Gregg Moskowitz with Cowen and Company. Please go ahead.
Okay. Thank you very much and apologies for the background noise. Jay, how did data center subscription do this quarter relative to your expectations?
Hey, Gregg, I hope you’re on hands free. It was great. I mean, it performed – we’re happy with the performance performed in line with what we expected, continues to be a really important and large expansion opportunity for us into bigger enterprise organizations on the server side. I think, nothing special really to highlight outside of there’s really good momentum. The data center business is still in early product line with, I think, a lot of room for growth and we’re pleased with how it performed.
Okay, thanks. And then, James, you spoke about pull forward into Q1 and Q2, and the company had noted that previously as well. But since this was the first quarter with the maintenance price increase in effect, just wondering if you saw any change with respect to end-period maintenance renewals rates?
No, in terms of renewal rates, again, we’re very comfortable with the customer reaction to the price increase initiatives generally. And in Q3, obviously, yes, the new maintenance rates went into effect at the start of the quarter. But obviously, others had in essence locked in that lower pricing. And so we’ll have those older prices in place for a number of quarters for a portion of our customer base.
Okay. Thank you.
Okay. The next question comes from Sanjit Singh with Morgan Stanley. Please go ahead.
Thank you for taking the question, and I welcome James. Nice to have you on Board. Maybe I wanted to start off a little bit on the some of the model dynamics. So, James, I’m wondering if you could remind us as we move more to subscription, I think, 80% of new product sales are now cloud. What impact does that have on the model, particularly when we’re thinking about top line revenue growth?
Well, as we continue to develop very, very strong momentum around cloud, but not only cloud, as Jay was just mentioning, the data center products as well. They’re both accounted for in the subscription line. So we’re seeing very strong growth rates there.
The other side of that coin is, you would expect that our server business that’s sold on a license and annual maintenance basis is not growing at that same pace, it’s growing nicely. And you particularly see that in our statistics around license revenue. So those were in the single-digit growth numbers this quarter. Just a very clear illustration, when you contrast that growth rate to subscription how customers are moving increasingly to the cloud.
So in terms of the dynamics, in terms of revenue recognition, then obviously, subscription taken ratably over the period of the subscription length, whereas that sever business has a component – the license component that’s taken upfront. So as that license revenue component is growing at a significantly lesser rate than the subscription, then you’ll see the overall model trending towards, in essence, a more ratable, predictable type structure.
Got it, that’s helpful. And then maybe in terms of Mike and Scott as well, maybe a high-level product question for you. In that project management space, particularly among business teams, whether it’s a project management or task prioritization, there definitely seems to be just sort of a lot of options for users. And so what is the central value proposition that you guys are driving to get customers to use Altassian versus what seems to be a ton of options out there in the market? Is it the integration back to Core Jira, or what’s going to funnel that demand on to the Altassian platform?
Yes, look, I can take that, it’s more of a philosophical question that we normally get on that – on earnings call. Look, I – there has been project management software for the last 25 years and I would expect there will continue to be project management software for the next 25 years.
Obviously, with Trello and with Jira, specifically Jira Software and even a little bit with Confluence, you could say that we manage projects in a lot of different ways for teams of knowledge workers depending on the types of projects that they are running.
The more structured your project is, the more you have a large number of people, very defined workflows and structured content than you need, the more Jira Software and to some extent Jira Service Desk and Jira Core come to help your project succeed. So that’s sort of the biggest difference between Jira Software and Trello would be around the structuring and the control elements that you get. The larger business gets the more structure and control it tends to need in the way it runs the project.
At the core though, both Jira Software and Trello would be the notion of workflow. So it’s not as much about managing tasks as you would do as an individual in a task management application you might have your on your phone, which is more like to do items, buy the milk, get the laundry and tick them off if they’re done or not done.
Once you get into a team of people collaborating, you need to have great collaboration fundamentals, which Atlassian has baked into our DNA in terms of exchanging information, bringing people into the project, making sure the right people are aware of the right information.
And then secondly, you need to have workflow capabilities to be able to move work around to understand the core work items, the things that need to be done, who is currently responsible for doing them and then connect out as we do with all of our integrations and marketplace add-ons to other applications, where parts of the work may leave.
So if you look at Jira Software, it connects to probably 50 or more different applications that might store source code or builds or documents or whatever else there is. So that’s sort of the way that we see project management. Fundamentally, it’s about workflow with the difference with Jira Software and Trello being around structure versus unstructured.
That’s super helpful. And then maybe the last one for me. So in terms of coming off of Project Vertigo, which seems to be pretty successful. There used to be a sort of user cap on your cloud products, I think, it was around 2,000 users. Now with that lead off, in essence, was there any sort of like pent-up demand? I’m just trying to maybe contextualize the strong net new customer outperformance, but seem to come from cloud. Was that sort of the removal of that that user limits restriction, resulting any sort of pent-up demand that caused that strong net new customer outperformance this quarter?
Yes, Sanjit, it’s Scott here. We haven’t officially removed that 2,000 user limit. We’re working with a select number of customers on that. But it’s not something that we’ve lifted broadly. So I can’t answer that. There is demand from our large customers to move and there’s a lot of things that they want in that process.
So I couldn’t answer that. There’s a huge pent-up demand. We’ll see customers transition from server to cloud over a long period of time. Just a reminder, we’re pretty agnostic and people use our server-based products or our cloud-based products. We have a great server and data center business that serves from very small customers to very large customers on behind the firewall, and our cloud business will serve very small to very large customers in the cloud. So we’re really pretty agnostic about that.
Appreciate. Thank you for the time, guys.
Okay. The next question comes from Michael Turits with Raymond James. Please go ahead.
Hey, good evening, everybody. And James, welcome to Atlassian and the calls and great to talk to you after years. I haven’t talked to you since Symantec, so welcome.
Yes. Thank you, Michael.
So one question for you on first on margins. Margins and EPS guide was just slightly below for next quarter. This was a really great year for margin expansion. So any thoughts on why that we might have been a little bit below the street? And at least philosophically, any thoughts on margin expansion in the next year with the Street looking for just above one point of growth or expansion?
Well, in terms of the current year, I’d say a couple of things. We did identify some additional opportunities to spend against our various product investment areas. Second thing I’d mention is that, we’re particularly pleased with the pace with which we’re attracting top talent to both our Bengaluru office across multiple functions and the Mountain View office as well. So I’m excited about that.
In terms of the longer-term, as we think about margins, obviously, last year, I think, at Investor Day, the company committed to continuing to have modest increases in both operating and free cash flow margins over time. And we’re very fortunate to have such strong market opportunities in front of us excellent R&D capabilities.
And so we will have more opportunities to invest in ways that will drive very strong returns to our shareholders. And what we’ll do is back that up with a robust process of driving accountability within Atlassian for spending wisely. And I think, that will be a good outcome for shareholders.
Got it, thanks. And then, I think for Jay, just any – can you give us an update really on how things are going with the channel? Any changes there, whatever particular partners you want to talk about, including some of the recent ones, which seem to be expanding? And how they’re working with some of the personnel inside, including technical account managers to drive some of the larger deals?
Yes. Hey, Michael, I mean, no material changes. The channel, as you know, it’s been an important part of the model, important part of Atlassian for the better part of the past decade continues to be. So both in terms of reaching new markets – geographically new markets that we’re targeting like as an example with your Service Desk and sort of like the IP landscape as well just reaching new customers and then expanding existing ones.
They do over index around larger enterprises in part, because the complexity, the expansion, the opportunity for the services and engagement that they offer is larger. And I had the opportunity to meet a number of them during the Team Tour event that we highlighted. And everyone I spoke with share positive signals about, both the current business and the opportunities that they see in front of them. So I would just say all things on them.
Great. Thanks very much.
Okay. The next question comes from Keith Bachman with the Bank of Montreal. Please go ahead.
Hi, many thanks. I also want to ask two questions. I was hoping you could give us a little bit of sense about the puts and takes involved in the June quarter guidance. To a previous comment, you said you felt like the pricing increase had manifest themselves in the December and March quarters. If I look at the guidance for June though, you’re guiding to even at the top end 5% sequential growth. In the last two years, June 16 and June 17, you grew 8% and 9% sequentially. And so just hoping if you go through what are some of the puts and takes we should consider as we’re running through our models related to the June quarter? Thank you, and I have a follow-up?
Yes. Well, as you think about the June quarter, I know it’s important to recall that we’ve now lapped Trello year-over-year. So that effect will be…
Yes, sorry. My comments were sequential. So Trello wouldn’t really impact that?
In terms of the sequential process, I think, again, you’ll see that similar to one of the answers I gave a little earlier. As you’ve got cloud and data center continuing to grow very fast, the license revenue line obviously growing at a much, much lower rate than that.
You’ll see the revenue model orientation become more ratable. The deferred revenue component in essence rises somewhat relative to the recognized revenue component. So underlying this, we continue to have strong demand across the product set and I’m very comfortable with the fundamentals of the top line.
Okay, thank you. And my follow-up question then does relate to pricing. You’ve had a few sets of price increases depending on the category subscription maintenance license, et cetera. And at the Analyst Day last year, you talked about you envision annual price increases. And I just want to see if is that still the way we should be thinking about Atlassian models we look out over the next couple of years is that price increases will be an annual event? Thank you.
Yes. One of the things with my sort of outsider lens on, if you will, that I’ve been really struck by is the remarkable ratio in terms of price to value that Atlassian offers right across its product set. And so that obviously underpins what has been said in the last year or so about a philosophy of being able to apply annual price increases on the server and cloud side of our businesses.
So and, of course, we’ll always be very thoughtful about current market conditions and so forth. But I think, that is a part of the model that you should expect to see going forward.
Okay, many thanks. Congratulations.
Okay. The next question comes from Adam Holt with MoffettNathanson. Please go ahead.
Hi, everyone. I’ll also echo the congratulations and welcome for James. James, it’s also been a long time and glad to have you back.
Yes. Thank you.
I had two – absolutely. So I had two questions. In the shareholder letter, you had some nice language and some numbers around Confluence, which I don’t think I had seen for awhile. But a lot of detail around how you’re extending outside of the IT and sort of the core IT organization. And I was hoping maybe you could touch on, in general, how the efforts have been to extend outside of IT and really monetize that that non-IT opportunity? Then I had a follow-up for James.
Yes, I can talk to that one. Look, Confluence has continued to be one of the great success stories of Atlassian over the last decade and passing 40,000 customers individually. Obviously, it continues to be our second biggest product and grow strongly.
So it was a good moment to celebrate all the achievements of Confluence in the clouds, server and data center realms. It’s certainly one of the products that pushes the furthest and the fastest outside of technology teams, and it’s continued to do so in terms of marketing, finance, sales, all the other functions inside of a company. That is, it continues to be a long-term trend as a business as we highlight in data, in customer examples and as you see in some of the Confluence part of the shareholder letter.
We continue to land strongly in software and IT departments in companies and continue to grow across the enterprise into all teams. And then alongside that continuing to land also a little bit more broadly if you think of something like Trello, it lands sort of all over the map even going as far as home teams and different forms of cross-company collaboration. And we continue to see that as an important part of our model is the strength to be able to land in certain types of teams. And then having a product depth and breadth to be able to expand across an organization to all types of teams.
Thank you. And then for James, the perpetual number, the license number in the quarter was a little shy of consensus. And I wanted to know did you all hit your number internally in the quarter.? And how should we think about the quarter-on-quarter in license? So we as an analyst community make sure that, that we get that right going into the next quarter. So we’re more in line with your thinking? Thanks.
Well, on the perpetual license line, also just going back to one of my earlier answers. And as we think about the pull-forward effect that we saw activity into the first-half of the year as customers look to get ahead of price increases, yes, certainly, the primary effect there would have been around customers renewing maintenance contracts and so forth.
But there was also a certain element of customers bringing forward new purchases, upgrades to current installations and so forth. And obviously, that would have helped the perpetual license line, excuse me, the license revenue line in the first-half of the year. And so that drags some of that activity out of Q3 and to some effect, I think, we’ll see that in Q4 as well although I would expect that effect to dampen out as time goes by.
Great. Thank you.
Okay. The next question comes from John DiFucci with Jefferies. Please go ahead.
Hey, guys, Zach Lountzis for John. Jay, there were some helpful comments you gave on the data center trends earlier. But within there, are there any updates on how Atlassian stack is doing? I remember a few quarters ago, you said over 50% of customers with 500 or more users have three or more products, which, I guess, helped drive the creation of this discounted suite. And then what are your thoughts on offering something similar for cloud specifically? Thanks.
Yes. Hey, Zach. You shouldn’t consider that to be a material driver of data center growth. I mean, it’s really offered as simpler packaging of multiple products and a nominal discount for a company that’s going to basically swallow the blue pill and take all of them all at once. And it’s – that’s – it’s going to be rare, but it’s there for customers to remove friction if they want to do that to basically do it easier.
I think, the more common pattern is the customers is going to adopt Jira data center when they’re ready to do it Confluence data center, when they’re ready to do it JIRA Service Desk data center, when they’re ready to do it and those might be at different times. So, it’s there. It’s – it removes friction for them when they want to do it. But I’d focus sort of overall on the growth of the data center business on whole, which is good.
Okay. Sure. Thank you.
Okay. [Operator Instructions] The next question comes from Pat Walravens with JMP Securities. Please go ahead.
Oh, great. Thank you for taking the question. I appreciate. So James, welcome and forgive me for beating a dead horse here, I know there’s just too much to say. But should we expect the perpetual license rate to decelerate from Q3 into Q4?
Well, we don’t get that granular in terms of the guidance thought process. But I think, the core trend here is that more and more of our customers are choosing cloud as the way in which they want to consume our products. And I would expect that that will continue. So when you add to that, the fact that many of our larger customers on the server side of our business are choosing to deploy our data center products. And both data center and cloud are part of the subscription revenue line. Then I think it’s reasonable to infer that it’s going to be lesser proportion as time goes by going through the license revenue line. That said though, that’s still a very important and robust part of our business.
That’s very helpful. Thank you. And then, Scott, bigger picture, I just noticed in the letter you talked about how you’re transitioning from the Chair of the Board role and I was super impressed by the academic background of your successor. But I was just wondering why this is the – why you feel like this is the time for that?
Yes. Pat, look, we’ve always surrounded ourselves – Mike and I always surrounded ourselves with the best people we can in order to grow this business, whether that is the Board. And I think we have a very impressive Board for all of our Board members, all the management team we have. We can’t do this alone and we really want the best people in the world to help us along that.
And having Shona as the Chair will free up my time to be more detail and involved in the business and also provide the opportunity for Mike and I to sort of enhance our learning from her and for her to have a better opportunity to help other businesses. So I’m very excited by that. Mike and I have never sort of coveted the chair position for many sort of ego perspective or anything like that. It’s really about just getting the right people around us to make a successful company.
Okay great. Thank you very much.
Okay. This concludes our question-and-answer session. I would like to turn the conference back over to the management team for any closing remarks.
Hey, it’s Scott here. I just want to say thanks, everyone, for joining the call and we appreciate your time and look forward to keeping you updated on our progress.
Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.