Atlassian (TEAM) Q1 2025 Earnings Name Transcript

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Atlassian (TEAM -1.00%)
Q1 2025 Earnings Name
Oct 31, 2024, 5:00 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Contributors

Ready Remarks:

Operator

Good afternoon, and thanks for becoming a member of Atlassian’s earnings convention name for the primary quarter of fiscal 12 months 2025. As a reminder, this convention name is being recorded and can be accessible for replay on the investor relations part of Atlassian’s web site following this name. I’ll now hand the decision over to Martin Lam, Atlassian’s head of investor relations.

Martin Lam — Head of Investor Relations

Welcome to Atlassian’s first quarter fiscal 12 months 2025 earnings name. Thanks for becoming a member of us at present. On the decision with me at present, we now have Atlassian’s CEO and co-founder; Mike Cannon-Brookes; and chief monetary officer, Joe Binz. Earlier at present, we revealed a shareholder letter and press launch with our monetary outcomes and commentary for our first quarter of fiscal 12 months 2025.

The shareholder letter is offered on Atlassian’s Work Life weblog and the investor relations part of our web site, the place additionally, you will discover different earnings-related supplies, together with the earnings press launch and supplemental investor knowledge sheet. As at all times, our shareholder letter incorporates administration’s perception and commentary for the quarter. So in the course of the name at present, we’ll have transient opening remarks after which focus our time on Q&A. This name will embrace forward-looking statements.

Ahead-looking statements contain recognized and unknown dangers, uncertainties and assumptions. If any such dangers or uncertainties materialize or if any of the assumptions show incorrect, our outcomes might differ materially from the outcomes expressed or implied by the forward-looking statements we make. You shouldn’t rely on forward-looking statements as predictions of future occasions. Ahead-looking statements signify our administration’s beliefs and assumptions solely as of the date such statements are made, and we undertake no obligation to replace or revise such statements ought to they modify or stop to be present.

Additional data on these and different components that might have an effect on our enterprise efficiency within the monetary outcomes is included in filings we make with the Securities and Trade Fee every now and then, together with the part titled Threat Elements in our most lately filed annual report and quarterly experiences. Throughout at present’s name, we will even focus on non-GAAP monetary measures. These non-GAAP monetary measures are along with and will not be an alternative choice to or superior to measures of monetary efficiency ready in accordance with GAAP. A reconciliation between GAAP and non-GAAP monetary measures is offered in our shareholder letter, earnings launch and investor knowledge sheet on the investor relations part of our web site.

We might like to permit as lots of you to take part within the Q&A as attainable. Out of respect for others on the decision, we’ll take one query at a time. With that, I am going to flip the decision over to Mike for opening remarks.

Michael Cannon — Co-Founder and Co-Chief Govt Officer

Thanks, all, for becoming a member of us right here at present. As you have learn in our shareholder letter, FY ’25 is off to begin, with recent off our Staff ’24 Europe occasion in Barcelona, the place we heard our prospects like Vodafone, Lloyds Banking Group and Mercedes-Benz are leveraging our merchandise in highly effective methods to drive group productiveness and ship superior service. We’re actually energized by the joy from our prospects and companions in response to the innovation that we’re delivering. Over the previous couple of months, I’ve met with dozens of CIOs and CEOs from our largest prospects and listened to the challenges that they face.

Know-how is more and more turning into crucial to the success of each single group. And with a platform that now spans software program, IT and enterprise groups, I feel Atlassian is uniquely positioned to interrupt down the silos between these groups via our System of Work. For those who’re curious about listening to extra concerning the System of Work, we’re at all times innovating right here at Atlassian. Take a look at the Loom I simply posted to our IR web site to present you all a way of how Loom works and provides us any suggestions on the way you preferred it.

AI, in fact, can also be going to play a pivotal position in how work will get accomplished. With the ability of our R&D engine and greater than 20 years’ price of information in how groups plan, observe and ship work, we now have unimaginable aggressive benefits within the AI period. And we’re not simply advertising and marketing AI, we’re delivery it. We have made Rovo, our latest AI-powered product, usually accessible for all prospects simply 5 months after saying it Staff ’24 in Las Ages.

Rovo is delivering differentiated worth to our prospects via our highly effective Teamwork Graph, permitting prospects to unlock their current organizational information at ever growing scale and tempo. We additionally proceed to string our AI capabilities all through the whole cloud platform, with Atlassian Intelligence throughout premium and enterprise editions of all our current merchandise. That is driving elevated buyer adoption of higher-value editions and, in fact, driving migrations to the cloud. To construct on this momentum, we have launched Jira Product Discovery Premium, Compass Premium and Guard Premium, including much more superior and enterprise-grade capabilities to our latest cloud choices.

And lastly, with our elevated give attention to serving enterprise, we launched Atlassian Focus, the latest product in our enterprise technique and planning resolution. This continued product innovation is paving the best way for our largest and most complicated prospects to unlock unimaginable worth from the Atlassian cloud platform. Our prospects perceive that the last word Atlassian expertise is within the cloud and are more and more expressing their want to undertake our cloud choices. The progress we’re making towards our high strategic priorities of serving the enterprise, delivering on AI innovation and empowering groups to work higher along with our System of Work is resonating extremely properly with our prospects.

We look ahead to constructing on this momentum with the intention to seize the unimaginable alternatives that lie forward of Atlassian and make additional progress on our mission to unleash the potential of each group. With that, I am going to go to the operator for Q&A.

Questions & Solutions:

Operator

[Operator instructions] Your first query comes from Kash Rangan from Goldman Sachs. Please go forward.

Kash Rangan — Analyst

[Audio gap] product releases, which we noticed at Staff. It has been only a few months after Staff that you’ve got launched it. What are the proof factors you could supply to us that AI, opposite to numerous fears of Wall Avenue, that it would take away jobs in growth and repair? What assist are you able to supply us based mostly in your buyer conversations, anecdotal albeit, that it may very well be simply the alternative? Thanks a lot — if it’s the reverse.

Michael Cannon — Co-Founder and Co-Chief Govt Officer

Kash, I feel I missed the beginning of that query. I feel, it was largely across the AI product releases and the proof factors we might supply behind that. It is a very considerate and completely a related query. Look, I can let you know when it comes to each — let me step again.

We have now a two-pronged AI technique, as you are in all probability all conscious. We have now Atlassian Intelligence threaded all through our platform for all the present cloud merchandise that brings AI capabilities to each single product we provide. And we now have Rovo, which is a separate product inbuilt and for the AI period. And all of that’s now usually availability, and we maintain iterating and constructing on it each single quarter with our R&D engine.

When it comes to proof factors, I can let you know that each Atlassian Intelligence prospects and the folks within the Rovo early entry program have seen unimaginable advantages for his or her enterprise, proper, when it comes to how a lot time they will save each week and the way a lot quicker their enterprise can transfer. In order that yields simply excessive ROI on these investments. Atlassian Intelligence utilization has elevated greater than 10 occasions because the begin of the 12 months. And people prospects proceed to undertake extra of their Atlassian merchandise consequently.

They’re seeing elevated ROI from that. And it is also driving for us not solely premium and enterprise version upgrades however migrations, which is a giant a part of, clearly, our continued evolution as a enterprise. One of many world’s largest funding administration firms signed an settlement lately to maneuver from knowledge middle to the cloud over the following three years. It is an enormous settlement for us and cited their main causes for transferring as Atlassian Intelligence and Analytics.

I feel, with the — within the query, there’s an implication that it’s going to do the alternative of take away from jobs, and I feel that is totally right. I am a giant believer that the quantity of human creativity we now have is basically limitless. And AI is a incredible device to allow us to get extra of that creativity out quicker. It should allow the companies that undertake it and undertake our merchandise to compete extra successfully with different companies, and that can drive everybody to have some form of adoption of this and achieve that effectivity.

We’re actually not seeing in the meanwhile any seat cannibalization. Once more, I might caveat this. It is all however all we’re seeing in the meanwhile is buyer pleasure, buyer adoption. They’re taking part in with these instruments and studying learn how to use them and actually figuring out learn how to enhance their enterprise velocity in a extremely constrained time.

So we keep excessive pleasure. And we do even have a sequence of parts of consumption-based pricing, as you possibly can see from our pricing of digital service brokers and a few of the Rovo and Atlassian Intelligence capabilities. So I feel we’re properly positioned for any future which may emerge however keep excessive confidence in the meanwhile about how AI is altering our prospects and serving to us obtain their mission.

Operator

Your subsequent query comes from Keith Weiss from Morgan Stanley. Please go forward.

Keith Weiss — Analyst

Wonderful. Thanks for taking the query guys, and congratulations on a extremely strong quarter. I hoped you guys might assist me like with my analysis course of, being fully egocentric right here. So I made Atlassian my subject, and my thesis was transferring to the cloud is only a higher platform for up-sell and cross-sell.

You guys have a broader resolution portfolio, and that is going to assist NRR increase. So once we have a look at the cloud outperformance this quarter, you talked about seat growth. You talked about migration profit. Are you able to assist us perceive how a lot of this is rather like the setting has possibly stabilized or barely enhancing, versus how a lot of this do you suppose is stemming from now that you just’re on the cloud platform that NRR will increase? Or now that you just’re on the cloud platform, the advertising and marketing initiatives for up-sell and cross-sell are proving more practical? Like how a lot of that is pushed by your guys’ like proactive exercise versus pushed by the market?

Joe Binz — Chief Monetary Officer

Yeah. Thanks for the query, Keith. I am going to begin after which Mike will chime in. So simply from a excessive degree, we benefited this quarter from a secure macro setting, and traits in our enterprise from This fall largely carried into Q1.

So we did see indicators of continued stabilization in our SMB buyer section and low-touch gross sales channel. Paid seat growth charges in SMB, though decrease than prior 12 months, had been secure to This fall, and top-of-funnel well being stays wholesome. So all that felt good and that — a prerequisite for that was to have a secure macroeconomic setting to construct on. Enterprise traits general had been additionally wholesome and in keeping with This fall.

We delivered strong outcomes on annual and multiyear offers, migrations and up-sell to premium enterprise editions of our SKUs. In order that was additionally influenced by the secure macroeconomic setting that we noticed. After which, the opposite factor I might say is that we did have actually regular gross sales execution within the quarter, and that additionally carried via to our outcomes. Mike?

Michael Cannon — Co-Founder and Co-Chief Govt Officer

Yeah. Thanks, Joe. I might say, look, Keith, I do not suppose you are a really egocentric particular person. I feel that is particularly reasonable on your self.

The macro continues to be an element. There is not any doubt about that, proper? The businesses proceed to attempt to tighten their belts, scrutinize budgets, SMBs are usually extra delicate to the macro, proper? And we nonetheless have a heavy proportion of SMB, so there is no doubt that is nonetheless occurring. The way in which we take that’s that is the setting that exists. We have now to execute via that.

We have now to proceed to develop via that. We have now to cope with that. We’re little question spending numerous time as we at all times do with our prospects. I can let you know that our message is admittedly resonating, each the System of Work and philosophy of what we’re attempting to do for his or her companies, each their demand and drive to see Atlassian as a strategic associate that is actually serving to them via that world.

And in addition, simply the consolidation issue can also be working in our favor, which Joe did point out. More and more, consolidation onto the Atlassian platform within the cloud is a extremely nice a part of it. We’re fairly clear that over the medium to long run although, the important thing levers of development are in our management. I feel, typically, these components just like the macro are comparatively brief time period within the scale of Atlassian’s time pondering.

We proceed to evolve our enterprise go-to-market movement, as Joe talked about. Actually sturdy buyer conversations, actually sturdy continued alternative to go to wall-to-wall in our largest prospects, that are a few of the greatest companies on the planet now. System of Work is working very well and driving paid seat growth as we facilitate that wall-to-wall adoption, and likewise, as we proceed to attach know-how groups with the enterprise groups in a company. And there is no doubt, there are way more information staff in these enterprise groups in these massive firms.

AI, as we talked about, continues to drive that development. So it is a complete set of issues throughout migrations, throughout new prospects coming to us for the Atlassian Intelligence capabilities, our Rovo driving curiosity in our potential to attach and consolidate a complete sequence of third-party merchandise collectively and supply big worth on high of these. And there is no doubt, continued development momentum coming from cross-selling of our options. Clearly, Jira Service Administration persevering with to energy alongside very well.

However numerous rising merchandise that we have shipped over the past 12 months or two years in Jira Product Discovery, Compass and Rovo, all of whom have early traction and suggestions. It is actually encouraging and are at the beginning of their development journeys. To not point out Loom, which continues to simply crank alongside at tempo. Incredible product, incredible buyer adoption, and we continue to learn as a company at how to do that each single quarter.

That is what we have accomplished for a very long time. So unimaginable bullishness in the meanwhile on our potential to proceed to drive outcomes, regardless of a difficult setting on the market on the planet.

Operator

Your subsequent query comes from Adam Tindle from Raymond James. Please go forward.

Adam Tindle — Analyst

OK. Thanks. Good afternoon. I am going to attempt to ask an unselfish query since we’re on a group name right here.

I need to return to the subject of AI. Type of twofold right here, Mike. What was the pivot level to maneuver the AI technique from extra embedded within the product with Atlassian Intelligence to individually now break it out and monetize it with Rovo? And as you probably did that, how did you concentrate on pricing? Not unusual for AI brokers at this worth level, however relative to your individual core product portfolio, it’s a pretty wholesome worth level. So in the event you might stroll us via these two issues.

And for Joe, actual fast, simply confirming that Rovo goes to report in cloud? And something that is contemplated within the steerage for Rovo?

Michael Cannon — Co-Founder and Co-Chief Govt Officer

I can take that first, and I am going to hand over to Joe for the tip a part of that query. Adam, admire we’re all a group right here. Look, I do not know I might name it a pivot level per se. I feel, it is actually essential there are two completely different forces occurring right here.

That is why we give it some thought as a two-prong technique. Firstly, via current merchandise, Confluence and Jira have been round greater than 20 years of merchandise. Nonetheless rising fantastically properly. AI and all of the capabilities of the Atlassian Cloud platform can ship elevated worth in these current merchandise via textual content technology, via smarter looking, via all types of various issues that we have constructed as Atlassian Intelligence capabilities in our current merchandise.

That isn’t one thing we’re pivoting away from. Fairly the alternative, we have elevated the tempo of supply of Atlassian Intelligence options. The monetization of that although was not as a separate add-on product. It is the core capabilities of that product.

As we have discovered learn how to ship these capabilities higher, as we get extra of these capabilities and we ship them at more and more decrease price, we’re managing our personal margins and prices fairly aggressively on the AI facet. And as I stated, utilization of these options is up greater than 10 occasions and prospects reporting nice effectivity boosts of their current use of current merchandise, which is just good for Atlassian. Their subscriptions for the long run are transferring to these premium editions. We’re actually not pivoting away from that with Rovo in any respect.

With Rovo, given these capabilities we have constructed over the past 24 months within the Atlassian Cloud platform, given the Teamwork Graph that we have constructed over the past 4 or 5 years, we now have the power to construct new merchandise we by no means might have constructed earlier than. In order that’s why we are saying that product’s constructed for the AI period. We couldn’t have constructed Rovo with out AI. It is not an additive factor.

It is core to the product, however it’s a very completely different product to the opposite issues. Our prospects more and more, clearly, utilizing chat to speak to all of the information they’ve throughout Atlassian’s purposes and their different purposes in Google Docs and Slack, GitHub, Figma, and many others. So this can be a actually highly effective characteristic set we could not have constructed beforehand. And secondly, clearly, with issues like brokers permitting them to truly take motion, have digital teammates, growing the bandwidth of their group and the effectivity of their group, it is not a pivot from one to the opposite as a lot as we’re fairly aggressively investing in each of these two areas when it comes to the fantastic instruments that we now have in Atlassian Intelligence.

You talked about pricing. I assume you are that means for Rovo there, notably, though we now have, clearly, the digital service brokers in Jira Service Administration, which even have a consumption-based pricing functionality. I feel, it is essential that we proceed to evolve and find out about Rovo when it comes to the gross sales technique. That is an space that is transferring fairly quick, little question about that.

Rovo although does enchantment to each the SMB and the enterprise segments of our buyer base. It’s a classical Atlassian utility in either side, the flywheel-driven, large-scale, product-led development movement and the high-touch enterprise movement. We are attempting to do each of these with Rovo. We’ll proceed to study from prospects and adapt accordingly, however the worth delivered could be very, very massive.

So whereas we take a practical method at all times to pricing and monetization, I might let you know the early buyer suggestions. Demand indicators are sturdy. The pipeline is forward of our preliminary expectations in the meanwhile. So product solely launched just a few weeks in the past, give us a while, however we keep excessive pleasure there.

Joe?

Joe Binz — Chief Monetary Officer

Yeah. Thanks, Mike. And Adam, thanks for the query. Rovo income can be included in cloud once we report our outcomes.

And as Mike stated earlier within the dialog, our massive focus now could be on driving deployment, utilization, engagement and worth with the product throughout as many shoppers as attainable. So monetization goes to be an final result of success on these issues. So our steerage proper now assumes a really modest degree of income from Rovo in FY ’25, which we imagine is the prudent method at this early stage of the product. After which, we’ll see gradual development and construct from there over time.

Operator

Your subsequent query comes from Alex Zukin from Wolfe Analysis. Please go forward.

Alex Zukin — Analyst

Hey, guys. Thanks for taking the query. Perhaps simply the opposite elephant within the room. Simply once more, that is the most important cloud income beat I feel you guys have given because you began offering steerage.

And possibly simply drilling a bit bit deeper on what drove the outperformance, was it extra prudent conservative preliminary information that was de-risked? Are you able to possibly parse out what particularly was type of a lot better than your expectations? Expansions, cross-sell, migrations? Perhaps simply stack these for traders to get a greater understanding. After which, the brand new — your new CRO rent, Brian Duffy simply coming in, what are you enthusiastic about when it comes to the alternatives to actually proceed to mature the gross sales go-to-market perform?

Joe Binz — Chief Monetary Officer

Yeah. Thanks, Alex. I am going to begin, after which Mike will decide it up. So income, as you talked about, in cloud was up 31%.

That is in keeping with This fall, however actually a lot better than our expectation of 27% year-over-year development. I discussed earlier in Keith’s name — Keith’s query, traits from This fall continued into Q1. The variance to our expectation was actually pushed by two components. One is better-than-expected paid seat growth and the opposite is migrations.

A few of that’s macro associated to the query earlier, however a few of it’s simply good execution on our half from a gross sales execution perspective. All the opposite development drivers on this a part of our enterprise, whether or not it is cross-sell of extra merchandise or adoption of high-value editions or top-of-funnel efficiency in buyer retention, these are both in line or barely higher than our expectations going into the quarter. In order that’s form of the breakdown we would provide you with on the cloud efficiency. I feel, it is a mixture of each macro, good gross sales execution, after which simply basic well being within the enterprise.

Mike?

Michael Cannon — Co-Founder and Co-Chief Govt Officer

Yeah, I might agree with Joe on that. It is a broad scale. He is highlighted a sequence of various factors, however we executed properly throughout a complete lot of various components this quarter, which is nice. However we’re not — we’re pragmatic concerning the setting we’re in and proceed to strive to try this each quarter.

On Brian, look, tremendous excited to have him come be part of. It has been a giant search, very complete, very thorough and a complete lot of time. I feel the very first thing is to study Atlassian’s enterprise. Brian has a fantastic set of expertise throughout a unique sequence of gross sales motions.

As I’ve talked about, Atlassian is a really complicated firm from a gross sales perspective. We have now a large-scale SMB flywheel product-led development movement. We even have an growing enterprise higher-touch enterprise, and attempting to string these two machines collectively is what we do. It is no small problem.

So he is a giant learner. I feel, he’ll research that regularly and study the way it works from the within. On the similar time, clearly, he has big expertise in driving the gross sales transformations, in management, and he is tremendous excited concerning the alternative in entrance of Atlassian and proceed to ship on that. As we talked about, we now have greater than 524 prospects which might be north of $1 million, continues to be a really fast-growing cohort from us, persevering with to speed up that enterprise path and the alternatives we have known as out as one among our three massive transformations occurring within the enterprise as we proceed to evolve.

I am positive he’ll proceed to assist energy that. And little question, he can be a giant add to the chief group, having public firm CEO expertise and getting on the group, we’re all tremendous excited to have him. So trying ahead to it.

Operator

Your subsequent query comes from Michael Turrin from Wells Fargo. Please go forward.

Michael Turrin — Analyst

Hey, thanks very a lot for taking the query. Good begin to the fiscal 12 months. A subject du jour, however I feel it is helpful to return to it. Simply on AI and Rovo, I needed to simply give Mike an opportunity to assist degree set your view on Atlassian’s factors of differentiation there versus a few of the different costly instruments we’re seeing come out throughout software program.

And possibly, assist us additionally simply suppose via how a lot of the Atlassian person base this might finally handle over a for much longer time period.

Michael Cannon — Co-Founder and Co-Chief Govt Officer

Nicely, Michael, you are asking the questions which might be going to get me into numerous bother right here. Look, I feel we’re massively differentiated in Rovo. I actually do. I feel, we’re properly forward within the R&D journey of constructing an actual product that truly lands with prospects and truly delivers worth they will entry at present and is constructed on many, a few years of funding.

I feel, the cloud platform, the Teamwork Graph, the Forge technical platform we now have to construct extensions and add-ons, the Teamwork Graph, as I discussed, that we have constructed over a few years, which is strongly typed and extremely opinionated manner of organizing all the Teamwork knowledge that you’ve. After which, we have added on high Atlassian Intelligence, a sequence of various massive language fashions from many various distributors that we run. And we now have nice smarts about how we select which mannequin and why, in addition to the extensibility of Atlassian’s merchandise and portfolio mixed with a extremely world-class enterprise search engine that we have constructed to entry that knowledge and get the suitable knowledge via the LLMs, proper? Getting AI options isn’t the arduous half. It is getting the info that you’ve organized, structured and thoughtfully managed.

It is having a search engine or a search functionality that may get that knowledge to the intelligence options. After which, it is having an extensibility platform to permit these brokers to truly take motion in methods which might be person managed, in order that they perceive what is going on to occur, however on the similar time, autonomous and in a position to go and create worth in your group. So huge pleasure. That is why you see the joy in our buyer base.

An entire sequence of multi-multiyear investments coming collectively into Rovo with the Atlassian Intelligence on the highest. So a basic instance, I feel, of Atlassian’s R&D and long-term focus over the past 5 to 10 years coming collectively and really differentiated, proper? I’ll let you know that when it comes to what our brokers can do, the breadth of these brokers throughout enterprise groups, IT groups, software program groups could be very, very sturdy, and prospects are actually resonating with it. The quantity of issues they will do after they begin taking part in, we have seen that in a few of our current early entry program prospects. And what I like seeing is simply the delight on their faces when it begins doing issues, when Rovo is attaining issues inside their enterprise with their very own knowledge, with knowledge that comes from Atlassian merchandise and third-party merchandise put collectively, after which really taking motion and driving enterprise worth.

It is a tremendous thrilling product. It is a tremendous thrilling time to be constructing merchandise. And we now have a tremendous technical platform. I might say, completely world-class in having the ability to try this, so extremely differentiated.

We have had this journey going for a good whereas now, so completely happy to be forward. On the similar time, sensible. We’re going to keep forward. We will maintain investing to remain forward on the R&D facet, and we’re removed from accomplished on this.

There’s much more to do, much more issues popping out.

Operator

Your subsequent query comes from Fatima Boolani from Citi. Please go forward.

Fatima Boolani — Analyst

Good afternoon. Thanks for taking my questions. Mike, you alluded to this within the opening remarks and a few of the commentary you threaded in a few of your solutions earlier. However I needed to zero in in your pricing technique.

Particularly, possibly Atlassian’s extra assertive foray into the realm of consumption pricing that’s being possibly extra profoundly infused within the portfolio. So I am questioning what the calculus behind the consumption technique is. We’re conscious it may be fairly variable and it is nonetheless fairly early days, so we would simply like to get your ideas on simply the strategizing about rolling out the consumption pricing as a result of it is comparatively new. And Joe, in the event you might assist us on how you’re considering how a lot consumption pricing scales and the way it’s embedded in your steerage, with respect to a few of that variability that it might convey.

Michael Cannon — Co-Founder and Co-Chief Govt Officer

Fatima, nice query. I can reply the primary half, and I am going to let Joe observe on with the second half there. Look, we have had consumption-based pricing in numerous methods throughout the portfolio for a short while now. Bitbucket pipelines when it comes to successfully some form of a proxy on CPU utilization due to the quantity of builds you run will be extremely variable.

It does not essentially rely on the variety of builders you have got. We, clearly, have storage and some different areas the place we do have a pricing functionality that bursts up and down. Traditionally, I might say, our consumption-based pricing technique has been on avoiding overages, so the form of High 3% to five% of your buyer base which have an order of magnitude extra utilization of storage or one thing else, and simply ensuring that that does not harm the margins on the draw back. And that maintains to be our broad philosophy throughout our six, seven, eight consumption-based methods we now have occurring elsewhere.

That is extra of a defensive technique, I might say. And ideally, that is the place we wish to be in a broad degree. Nonetheless, with issues like AI and digital service brokers, there is definitely a functionality to more and more deploy that. The identical factor with property in Jira Service Administration is one other space that we now have some consumption-based pricing.

Largely, the place we wish to take pricing achieve from a philosophy viewpoint is to be very buyer pushed. The place does it make sense? The place is it logical? The place is it going to scale in as friction-free a manner as attainable? And the place is there a transparent worth return for what I eat, what I take advantage of? And the place do I get a transparent return for that? And is there a transparent ROI to me? I feel that is the identical technique that we’re using there. We are going to study over the approaching 12 months as to how that works when it comes to digital service brokers and property. I can let you know it is — we’re very considerate with regards to pricing and have been over an extended time period, and I might say, we’ll keep that posture.

Joe?

Joe Binz — Chief Monetary Officer

Thanks, Mike. To the query, Fatima, about consumption pricing within the monetary mannequin, there is a very small and modest quantity within the steerage and LRP. We imagine it should take a while to scale. And as Mike talked about, we do not have a set mindset on pricing and packaging.

And sooner or later, we’ll be pragmatic and versatile in our method based mostly on the worth we ship to prospects and the way we ship that. So our modeling at present is predominantly seat-based once we take into consideration this 12 months’s steerage and the long-range plan that we now have. So we’re taking a really conservative method to this and seeing how issues develop.

Operator

Your subsequent query comes from Gregg Moskowitz from Mizuho. Please go forward.

Gregg Moskowitz — Analyst

OK. Thanks for taking the query. Congratulations on a really good quarter. Mike, for a few years now, Atlassian has spent proper round 35% of its revenues in R&D, which, clearly, is way greater than friends.

And positively, we have seen some excellent innovation through the years. However frankly, I can not recall any time period that matches what you have unveiled over the past a number of months or so. And possibly that is simply circumstantial. However what I am questioning is, have any adjustments been made to how the engineering groups are oriented that helps clarify this flurry of product innovation that we’re seeing?

Michael Cannon — Co-Founder and Co-Chief Govt Officer

Thanks, Gregg. Look, I admire the great phrases there, for positive. I do not suppose there’s something structural that I might say we’re altering. We have continued to work actually arduous over the past couple of years on developer productiveness, having a world-class engineering group, product administration group, design group is extremely essential to us.

And we now have a deep view, as you have stated for a very long time, that nice know-how firms that may survive and thrive for many years require world-class engineering organizations. You can not discover one that does not have a extremely world-class engineering group. We spend numerous time specializing in what we create but in addition as a lot time specializing in the productiveness of the group. We do spend numerous time on productiveness.

Once I discuss to prospects, I spend numerous time explaining to them how our R&D group works, how a lot we spend on productiveness, how we measure productiveness, each qualitatively and quantitatively. And numerous our merchandise, Compass is an efficient instance, come from inner device that we now have constructed over time to drive our personal productiveness within the trendy world of engineering. I do not suppose that is actually modified. It is a continued evolution, a continued development within the mindset there.

The one factor I might in all probability level to is constructing numerous platform componentry takes an terrible very long time, as we have talked about each time requested about R&D spending through the years. There is not any doubt, we have spent numerous time constructing our cloud platform. And in some unspecified time in the future, you can begin constructing merchandise on high of that platform that actually present that and leverage that. For those who have a look at focus, in the event you have a look at your product discovery, even in the event you have a look at Rovo constructing on high of Forge and the Teamwork Graph, we’re ready with that cloud platform to construct, I might say, extra mature merchandise quicker than we had been 5 years in the past, extra absolutely featured, and extra of the time will be spent on the distinctive worth of the product.

There is not any doubt about that. We’re integrating Loom into that platform quicker than we now have built-in any earlier acquisition, which is one other manner that that platform is benefiting. And because the — I suppose, in the event you’re trying on the multi-multiyear view as that platform has matured, that lets us spend much less time on migration tooling and transferring the info middle prospects to that cloud platform. We are actually constructing ever extra superior enterprise capabilities, proper? We’re now knowledge resident in 11 completely different nations, and many others.

In order that platform had actually a considerable amount of funding for a time period. To some extent, that is pivoted to constructing merchandise and different capabilities on high of that platform. However I might say that we’re not slowing down. We’re a giant group.

We have now numerous nice concepts of issues we will construct. We take the identical view that we begin with prototypes and concepts. We attempt to flip these into merchandise, study and co-create with our prospects. And when these merchandise ship unimaginable worth, then we work out learn how to flip them into companies.

And we’re very affected person and considerate about how we try this to construct actually defensible companies over time.

Operator

Your subsequent query comes from Keith Bachman from BMO Capital Markets. Please go forward.

Keith Bachman — Analyst

Hello. Thanks very a lot. I needed to give attention to JSM for a second, if I might. In your slide deck, you have got higher than 55,000 JSM prospects.

I needed to attempt to get some perspective on how do you suppose your win charges and alternatives have modified. There’s numerous completely different dynamics underpinning the query. However in notably seats, which the seat alternatives based mostly on channel suggestions have been restricted, however appear to be steadily rising notably over the past 12 months. However simply how do you suppose the aggressive dynamics are altering? As well as, in the event you might handle, Mike, this was per your feedback to a earlier query on how AI could also be altering the panorama.

And the context of my query is admittedly inside JSM. I would wish to drill down a bit bit on that. ServiceNow, clearly, talks about their Plus SKUs fairly aggressively gaining traction. And I needed to see in the event you might channel the AI dialogue notably towards JSM and the way you suppose which may change your aggressive alternatives as you look out over the following 12 months or two.

Michael Cannon — Co-Founder and Co-Chief Govt Officer

Keith, nice questions. There’s rather a lot there. Look, I might say just a few issues on the Jira Service Administration alternative within the service administration house. We proceed to do extraordinarily properly there, continues to develop strongly, as you talked about.

Promote-through, 55,000 prospects, so the growth continues properly. It is pushed by just a few fundamentals, I might say. Firstly, an unimaginable product that delivers unimaginable worth, particularly in comparison with numerous legacy distributors the place the price-to-value ratio, we’re far and away forward of numerous these legacy distributors. That’s many, a few years of R&D constructed on high of the cloud platform, constructed on high of the Jira platform, so there is a purpose for that.

We proceed to increase strongly with JSM, each within the DevOps house, so anybody connecting their IT group to their growth and operations groups, an space of giant energy as you have seen us persevering with to embed a few of the Opsgenie capabilities when it comes to incidents and rostering and alerting, combining JSM and Compass collectively as an actual highly effective resolution. We’re head and shoulders above anyone else in our potential to try this in the meanwhile and proceed to go within the different path towards extra worker service administration, with points of HR groups, advertising and marketing groups and finance groups more and more adopting Jira Service Administration. Unbelievable time to worth, so the power to start out a service perform or a service desk, can get it up and operating, extremely configured. Our automation engine is second to none, so the ROI of our service desk is extremely excessive.

Our AI is a bit little bit of a cream on high of that. The enterprise was already operating actually, very well. If you add AI on the DevOps facet, we shipped a complete sequence of AIOps improvements, actually industry-leading when it comes to our potential to make use of AI to course of massive quantities of alerts and incoming data and actually distill that for the brokers to separate sign from noise. And secondly, in digital service brokers, given the energy we now have in AI and our R&D heritage, we’re outperforming anyone else in our potential to ship that digital service expertise, each when it comes to the variety of prospects helped and the variety of tickets resolved, the variety of brokers helped, so the power to make brokers function their job quicker and the power to shut out the excessive quantity of form of repetitive tickets.

We really feel actually sturdy about how we’re doing that. We proceed to have a complete sequence of issues. It is incredible to be acknowledged by Forrester and others for our form of management place there in AI and repair administration. And I might say that we’re not slowing down in that house in any respect.

I do know there’s form of continued shock about from the investor day. The velocity of development of that enterprise continues to be a extremely sturdy one for us. We predict we’re in a fantastic aggressive place. And we’re solely simply getting began.

Our property’ capabilities in constructing out a contemporary configuration administration database that is graph-based, as a substitute of being relational, is more and more adopted by prospects for all types of workflows and purposes inside their group. So a number of tremendous thrilling areas to enter in addition to the standard DevOps house. So look, a number of buyer examples, unimaginable statistics from prospects. So very, very enthusiastic about the place we sit in service administration house, and onward and upward from right here.

Operator

Your subsequent query comes from Ryan MacWilliams from Barclays. Please go forward.

Ryan MacWilliams — Analyst

Hey, thanks for taking the query. For the bigger knowledge middle prospects which have supplied extra element round their plans to maneuver to the cloud to get Atlassian’s AI options, do you suppose the timing of their migration is more likely to occur round their contract renewal? Or do you suppose they may begin to transfer extra seats over to the cloud earlier with hybrid deployments within the meantime?

Michael Cannon — Co-Founder and Co-Chief Govt Officer

Ryan, I can take that one as properly. It is a bit little bit of each. It is perhaps price stepping again to grasp how that tends to work for these bigger prospects. There is not any doubt that contract renewal is a time when they are going to have a look at transferring into extra of a hybrid state.

That actually is true. The extra innovation we ship within the cloud, relying on when their renewal is at, they could search for early renewals or early capabilities, proper? Atlassian Intelligence is actually driving a few of these prospects to look earlier in order that each of these are occurring. Most of these largest prospects actually transfer right into a hybrid state first, proper? If somebody has 50, 80, 100 knowledge middle situations operating round their firm, they are going to transfer a few of them. They could select a few of them to maneuver into an archival state.

They could transfer some small ones first to get used to the migration course of. They could have some that require FedRAMP or some completely different kind of compliance capabilities and different situations. So that you run into these massive international conglomerates, I’ve spoken to a sequence of enormous conglomerate banking prospects and telecommunications prospects within the final month. Each of them have completely different geographic wants for various knowledge middle situations.

So it turns into a large-scale migration mission. The important thing for us is to be sure that we’re displaying them good worth from the cloud platform over time, that that’s their vacation spot. They perceive the worth they will get from getting there. And we construct up {our capability} and their organizational functionality to run these migrations.

A few of these prospects once more have 50 to 100 knowledge middle servers or extra that they need to migrate over time. It is a large-scale IT mission, however it’s very thrilling for them to try this. I’ll level to 2 ultimate issues. It’s a multiyear journey, and it is considerably dependent upon these prospects.

So the macro setting can have an effect on this, proper? There is not any doubt about that. We have now prospects who’ve migration tasks which have slowed down due to their inner macro setting. It is an inner mission. That is OK.

We’re affected person. We’re taking part in the lengthy sport with these prospects. As I stated, we had quarter. We’re barely forward of our expectation for this quarter.

We’re barely behind final quarter. I think, as Joe talked about, that is going to be a part of this multiyear journey is managing via that have. However most significantly, the CIOs I communicate to, the purchasers, they are surely in a when, not if setting. They do perceive that cloud is the most effective expertise of Atlassian merchandise.

It is their final vacation spot. They see the innovation we’re delivering within the cloud. They see that administration, that motion. As I discussed, that giant monetary providers buyer that signed a really massive three-year deal for us, they explicitly talked about that analytics and AI had been the explanations that they had been selecting the cloud, and so they had been beginning on their migration journey.

And that is incredible. It is simply as much as us to proceed to drive that momentum.

Joe Binz — Chief Monetary Officer

After which, if I might simply add one factor, Mike. Ryan, simply as a reminder, we’re assured and proceed to count on knowledge middle migrations to make a mid- to excessive single-digit contribution to cloud income development charges over the following three years. In order that’s reflective within the monetary mannequin of our confidence round that movement.

Operator

Your subsequent query comes from Brent Thill from Jefferies. Please go forward.

Brent Thill — Analyst

Thanks. Joe, within the letter, you appeared to touch upon detrimental macro components and, clearly, perceive Brian coming in as a possible issue as properly. However I suppose, in your commentary, you talked about demand was secure quarter to quarter. Andy Jassy at Amazon simply talked about demand is enhancing.

AWS is accelerating. Google noticed their enterprise cloud speed up. I suppose, I imply, it looks as if within the greater image, issues appear to be getting a bit bit higher, however you are being a bit extra conservative. Something to learn in there? Is that the suitable view? Perhaps simply type of give us your sense of how you take numerous these components into your steerage.

Joe Binz — Chief Monetary Officer

Yeah, it is a fantastic query, Brent. Thanks for asking. We highlighted final quarter that we had taken a unique method to our steerage this 12 months, and that it was a extra conservative and risk-adjusted method than up to now. On the time, we believed this was prudent and the suitable factor to do given two components.

First, the uncertainty we noticed within the macro setting after which secondarily, execution dangers associated to the evolution after which transformation of our enterprise go-to-market movement. Nothing has modified with respect to that method in our up to date steerage for Q2 and the remainder of FY ’25. A number of components there. One, Q1 is seasonally our lowest absolute bookings quarter within the 12 months.

So we do not need to learn an excessive amount of into the remainder of the 12 months based mostly on efficiency in Q1. Secondly, macro uncertainty stays with the upcoming U.S. election, the regional navy conflicts, and tempered IT spending outlooks. And whereas we’re tremendous excited to welcome Brian to the group, we’re nonetheless within the early days of our enterprise go-to-market evolution, and there is numerous work left to do.

So we believed it was the suitable factor to do three months in the past, and nothing has modified in our fascinated by that. So we have taken the identical method this quarter as a result of each of these components, macro uncertainty and execution threat, stay as related now as they did three months in the past, in our opinion, as we glance to the long run. So hope that context helps, Brent.

Operator

Your subsequent query comes from Jason Celino from KeyBanc. Please go forward.

Jason Celino — Analyst

Hello. Thanks for taking my query. Clearly, very spectacular cloud outcomes. Type of twofold, with the This fall, did you see any offers that possibly had slipped closed in Q1? Or was there any dynamic of possibly closing some offers or some pull ahead forward of a few of these cloud pricing will increase that we noticed a month again?

Joe Binz — Chief Monetary Officer

Yeah. Thanks for the query. That is Joe. I am going to take that one.

Simply as a reminder, in This fall, we highlighted deal timing touchdown within the quarter, not deal slips. And I might simply level out, deal timing was not a consider Q1 because it was in This fall. In Q1, we noticed wholesome deal circulation all through the quarter that was in line or barely higher than our expectations. And stepping again for a second, over time, there can be two components that can impression the speed of our offers with massive prospects in our high-touch gross sales channel.

The primary is the evolution of our high-touch go-to-market motions. We’re driving bigger, extra complicated offers that embrace extra merchandise, span extra teams inside the buyer, and require extra approvals. In lots of instances, we’re focusing on massive, complicated migrations, and all of that provides as much as longer gross sales cycles than we have had up to now. Second, we additionally take a really disciplined and long-term oriented method as we expect via pricing and concessions.

We’re not deadline pushed. We don’t do something uncommon or unnatural with deal economics to shut a deal at a sure time. We’re prepared to be affected person and look ahead to the suitable deal for each the client and for us. And so, as we proceed to additional develop our enterprise within the enterprise, we have included the impression of each of these components into our outlook for the long run.

Michael Cannon — Co-Founder and Co-Chief Govt Officer

And I simply needed so as to add on, Jason. There is not any doubt, as Joe talked about, we’re attempting to be prudent and pragmatic. It’s a very complicated macro setting as we have talked about. There’s numerous components flowing round.

We do not make excuses for that. It is our job to execute via that, and we did a fantastic job within the final quarter. We have got to maintain doing that. I do need to say although that we’re feeling enthusiastic about — you talked about the enterprise and pull forwards.

The thrilling half is the long-term focus of these prospects. If we proceed to have them deal with us and see us as a strategic associate, one among their High 3, 4, or 5 distributors which might be actually driving their enterprise ahead, in the event that they perceive the System of Work philosophy and really feel prefer it resonates, and it will change their group in a optimistic manner. And the extra executives from our largest prospects that I meet, the extra that that could be a true assertion, I might say, each single time that they perceive that. That places us in stead for the long run as all of us navigate via these situations, financial situations that we’re in.

We’re constructing in R&D and investing for the long run. We’re doing the identical factor within the go-to-market and gross sales facet of the world as properly. And I am positive Brian will are available in and take that viewpoint. So I might simply suggest understanding that that we nonetheless take a long-term view via the short-term orders that we’re in.

We’re very pragmatic about these orders, and we really feel actually enthusiastic about the place we sit with the purchasers and our alternative there.

Operator

Thanks. That is all of the questions we now have time for at present. I’ll now flip the decision over to Mike for closing remarks.

Michael Cannon — Co-Founder and Co-Chief Govt Officer

Simply needed to say thanks, everybody, for becoming a member of our name at present, for all of the questions, and for being a part of the group as traders and analysts. A brief reminder. We put up a Loom video within the traders part this time for the primary time ever. I like any suggestions that you should have on that.

As at all times, we admire your considerate questions and continued assist. Have a kickass day.

Length: 0 minutes

Name individuals:

Martin Lam — Head of Investor Relations

Michael Cannon — Co-Founder and Co-Chief Govt Officer

Kash Rangan — Analyst

Mike Cannon-Brookes — Co-Founder and Co-Chief Govt Officer

Keith Weiss — Analyst

Joe Binz — Chief Monetary Officer

Adam Tindle — Analyst

Alex Zukin — Analyst

Michael Turrin — Analyst

Fatima Boolani — Analyst

Gregg Moskowitz — Analyst

Keith Bachman — Analyst

Ryan MacWilliams — Analyst

Brent Thill — Analyst

Jason Celino — Analyst

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