Atlassian Corporation (TEAM) Earnings Call Transcript & Summary

Hi, everybody. This is Nikolay Beliov from Bank of America, one of the software research analysts here. We're happy to have today with us Jay Simons, President of Atlassian. We are lucky to have Jay. This is the last month Jay is spending with the company. So as a reminder to the audience, ask away. This is going to be one of your last chances to ask Jay any question before he leaves Atlassian after an amazing career there. Has made a big difference to the franchise. As a reminder, you can ask a question in the chat interface, and I'll be happy to ask it on your behalf anonymously, if you choose to. Jay, welcome to our conference.

Thanks for having me.

Just to kick off the conversation. How has COVID changed the market in your view? And what are the sustainable, i.e., durable trends coming out of COVID for Atlassian? And what do you see as the new opportunities and trends?

Well I think the biggest one is just how it's recalibrated companies and their understanding of how people can work outside of an office environment. And so I think we participate -- we create tools that enable more digital collaboration and asynchronous collaboration, where people can more collaboratively and better manage sophisticated projects and conference that they're creating and sharing, and plans that they're working on, and there's a whole host of things that teams of people are going to do together that, in some cases, some of that work is going to be on a whiteboard in a meeting room, and they're going to capture it in something and one person might capture it where everybody is in a different time, different place, they need products like ours. And so I think just the -- that calibration point around, I think there were a lot of companies and sort of culturally inside of business, people felt like, our people are going to be more productive if they're all in one building and they have sort of this office infrastructure that we provided them to work in. And I think that COVID has demonstrated that, that's not entirely true. And so there's a lot of rethinking about the technologies and the tools that are needed to help enable people to be more productive in their jobs and for their companies wherever they are. And certainly, that's a way that Atlassian and our products will ride as well a lot of other software and digital technologies.

Got it. Got it. I think one of the co-CEOs of Atlassian, there was an article in Australia, and he was talking about you guys seeing more usage because of COVID. Can you speak about that? And how that increase in usage could potentially translate to more revenues? More business for you?

Well I just think where everybody needs to access content -- contents and plans and things that they're doing, and either they're maybe participants of the software that -- or the products that weren't as actively using the products, and that was maybe the point that either Mike or Scott, whoever you were referring to he was mentioning. Once you're stuck at home, you only have the things that you have accessible basically on your computer, and the ability to connect the people and the way that you can connect with them asynchronously or synchronously through the computer. And so I think that is naturally going to encourage more usage of products like Zoom we've seen, and like Slack and Microsoft Teams and of course, ours. Ours play a complementary role, so some of the other products that I mentioned, were largely Zoom and Slack and Microsoft Teams deal with that synchronous real time. So if I want to talk to you in a moment, either over video or communication. And our product is really staying around that asynchronous kind of longer-form content, more sophisticated collaborative project work that happens asynchronously, where you're really building this either knowledge or corporates or the system of record around the things that teams are doing. And you know the typical kind of landing use cases for Atlassian are around technology development and IT service management, and IT operations management, and things that are a little more sophisticated and just require a lot more coordination and have a lot more types of collaborative workflow around them. And so I think this sort of environment, we wouldn't wish it, not on anyone, but I think it helps people -- I mentioned the word recalibrate, just recalibrate around different styles of working and different ways of working. And ultimately, in the long run, that's good for products like ours.

And how much of that do you think is just going to be durable and sustainable changes in the landscape?

I think that was generally a trend even pre-COVID that we were observing, that we were seeing society and companies become more comfortable with remote work and more asynchronous work and distributed work and thinking about where to tap into different talent pools. And so I think that, to a -- certainly lesser degree than COVID has created, I think that was a trend that was already happening. And I think once we're able to go back into an office environment, I mean, I'm not Nostradamus, but I think that there is also -- there are situations and environments in work that really benefits from the same time, same place where people can be in a room together. And so I think, ultimately, long run -- in the long run, there's probably more remote work and more distributed work and more ability for people to work at home where they need to or where they feel like they're going to be more productive in the situation of the type of work that they're doing. And then just the ability in certain situations to go back and benefit from the concentration of people that they're going to do work with in an office environment. I don't think it's an either/or.

Got it. Got it. With all these changes, I mean, what would you advise your successor? I mean, is there a way you guys can take a specific advantage because of all these changes? Or -- and do you need to tweak how you think about the market and your customers because of all this?

I think, my successor, who's been with the business for 7 years, has been an incredible, supremely capable leader inside of the company. I think he's -- we -- both the company and him, I think, have created a pretty good foundation for this type of environment. The -- our business model, the emphasis that we put into ease-of-use and ease-of-adoption of our products, and ease-of-discovery of our products, our price points mean that we are accessible as business software to really anyone that wants the kick the tires. And we work really hard to make the products themselves more accessible to less and less and less technical tire kickers or evaluators. And I think, overall, that is a really good thing for this type of a trend where potentially people, I mean, who knows how long people are going to be home, but the ability for them to discover our products, try our products, buy our products, on their own and that sort of self-service. And that's the flywheel that I think has been a hallmark of the business. You've seen -- the company are going to continue to invest in that, because I think you lower the barrier to entry and ultimately, you're going to get more people that are going to consider you. And we know, and you know from observing us, that once we win one champion inside of the business, based on the built-in network effects of the products, I mean they are collaborative products, and so one user invites another user, one team shares with another team. That network effect increases or lubricates this expansion possibility that we have inside of customers that we want. And so I think what you've seen us do, even in the early phases of COVID, is we went pretty aggressive with a broad free launch or a launch of a free version of Jira Software and Jira Service Desk and Confluence, complementing free versions of Trello and Bitbucket, and Opsgenie that we -- we've made available earlier. And I think one of the reasons we did that is we did a similar move in the '08-'09 financial crisis, where we, basically, effectively made the on-prem version of the products free in a license edition that we called starter that was basically $10 for 10 users for an entire year, so ostensibly free. And I think that just widened the aperture of who in the market could consider us. And so I think it's not -- there's a lot of more of the same because I think there's a foundation that is already there that we want to continue to improve and invest in and making it more resilient at the same time. I think that we continue to expand the use cases that we support, and that's something that we'll -- that he'll lean into running marketing and sales. You've seen us kind of broaden the templates that we have in products like Confluence and products like Trello, where it just becomes easier for people to take a piece of technology and apply it to the situation or the problem that they're trying to solve. And from there, there's a whole host of other things that they can learn to apply our products to.

Got it. Got it. How do you think about IT versus non-IT and your strategy in each segment?

Well, IT -- we think of the user populations that we serve in maybe 3 distinct buckets that are all kind of interrelated: the first is where we begin, which is with technology teams. And the primary constituent inside of a technology team is a developer that's running code, but as many of you've heard me say before, the team around those developers is a really diverse population of people that span almost every function of the business. You've got people in finance, in legal, product managers, designers, program managers, people in sales, support, marketing, they may not be fully enacted participants, but they are participating in aspects of that technology project, its launch, its documentation, its design, its business planning, its business model. There's a whole host of aspects of things that people need to do to, again, sort of bring that piece of technology out into the world. And so from our very early beginnings, part of what's distinguished the company and made our products so desirable is that we weren't even for technology teams. We weren't just building product for the technology person. We weren't just building software for the developer, we were building collaborative products that allowed the developer to work with a nondeveloper, somebody that may not speak their language, the language of code. And so that's sort of the first big constituent. Because we support and go after what we refer to as the Fortune 500,000, in many cases, inside of companies that don't have a separate software development group, IT is that software development group and the developers sitting inside of IT. And so that second big audience for us overlaps with the first in many of our customers, where IT becomes the primary custodian for our products, and the catalyst for helping us spread, not just across more technology projects, but outside of them. And so we began to do, many years ago, specific things for IT. And actually, like they begin to do them themselves. The first incarnation of a service desk, built on top of Jira was a customized version of Jira from one of our customers. And then more and more customers began to customize Jira to support IT service management and operations management, sort of different collaborative workflows that were really germane to IT. And of course, between those 2, there's this movement around operations and developer op and operations that for companies that have separate software and IT functions, where software -- the software group might build something and the IT group needs to run it, there's this movement around DevOps that is a bridge between the 2. And of course, Atlassian is a primary foundation for most modern DevOps tool chains. And then the third audience, so that's technology teams, IT. The third audience is really line of business. And we -- back to our very beginning, we built a product that allowed somebody in marketing to manage -- to be a participant in a project with a software developer. And so they weren't doing anything technical. They needed a collaborative project management system that helped them understand, what's my role here? What do I need to do? What are the dependencies that are required for -- that needs to be completed before I can start my bits? But the whole project is described and recorded inside of the system called Jira. And as a non-technical marketing person, or as a non-technical support person, or somebody who's going to write documentation eventually, some items are going to come to me to do and pull project that somebody is tracking can't be completed until I do it. So because of that, a pretty meaningful percentage of our user population, even a long time ago, were in line of business. And then those line of business participants, after they became exposed to one of our products, whether it be Confluence or Jira, or Jira Service Desk, or even now in something like Trello, find a whole bunch of use cases just in their function that they can use our products to support. And so we really see the whole spectrum. I mean, we go in our biggest customers. Some of our products like Confluence and Jira can go wall-to-wall, where they become the standard way that teams inside of that business of all walks in life, will do the things that our products help them do.

And Jay, how much of that are you seeing? Jira and Confluence going wall-to-wall with a company? And we've heard that from a few of your customers over the last 12 months, where effectively, Jira is becoming an enterprise-wide workflow engine, wall-to-wall spanning IT and non-IT. Is that a newer trend that you're seeing in the business? And how do you steer people and show them the value prop here? And how is that strategy here different from what ServiceNow is trying to do?

Well, so we see more and more of it. And I think it speaks to both the earlier trend that we mentioned around companies becoming more digital and trying to think about how to transform workflows and business processes and better enable either business workflows or teams inside of their companies through new technology and approaches. And I think we're a beneficiary of that. Part of the reason that we're beneficiary of that and this, I think, distinguishes us from a company like ServiceNow, is, I think, our products are both more versatile, and then that versatility is easier and more affordable to access. And I think that gives us a leg up on most of the companies that we compete with because the customers themselves can begin to demonstrate the -- more and more utility of the product and more and more potential to standardize on it, to make it be the thing that they're going to invest in as the center of gravity for that type -- the type of work that they're trying to ingest it with. And so I would say, like it's been ongoing throughout our history and we've had customers that tend to demonstrate a bit of maturity. And their leadership understands what the product can do, and we have champions that are custodians of the software who really know how to make it work and sing and anything that their business asks of them, or not anything, but a lot of things at the business asks -- ask to them that is related to what we do. They know actually how to do it. They can address it. We've also, by the way, complemented that potential with this third-party marketplace that is, I think, one of the richest and robust app marketplaces in enterprise software. And it is -- it's also one of the most tenured. And so we began -- the first version of our products, basically, had plug-in points. It had these extension points that our customers themselves could use to do different things to the software than we intended, or that we planned. And a lot of that is around, you mentioned the word -- with the word workflow. A lot of that is around workflow, and sort of moving work around the organization. In building -- they could build an application that was specific to the type of workflow that was in their business or their industry. And those plug-in points were all successful to third-party developers, who then built add-ons and extensions and apps on top of the products. And fast forward today, and we have a really rich marketplace that customers can find and purchase, and there are many that are free, too, little add-ons and extensions that enrich the platform that we're providing in Jira and Confluence and Bitbucket in all of our products, to support these sort of purpose-built things that they want to do inside of their company, whether that's employee onboarding, or talent acquisition, application or even simple ones, as an employee recognition system, which is one of my favorite internal Jira applications that we use called Kudos. And it's a very simple application, where if I want to recognize another employee for heroic work or just going above and beyond, there's a very simple workflow app and business process app that lets me send them an Amazon gift card. And that workflow app goes up through a manager's approval, notify their manager, gives their manager visibility that they're being recognized for incredible work. It seems like a very simple application, but that type of an application would be cost prohibitive to build over on a system like ServiceNow, and very easy to build in a system like Jira. And so I think when I think about the long-term potential of products like Jira and Confluence, I think they've got a lot of potential, but part because of that versatility, what they can do, the ease-of-use, the affordability and the ecosystem around them.

Got it. Jay, how do you think about the business -- the mix between core DevOps like Bitbucket versus Jira Confluence, kind of the more collaborative type of tools going forward?

Well, I mean, the bulk of our business is in the latter camp, right? The bulk of our business is in collaborative products that basically help bridge the gap between all different types of teams and people and users. Be that a very technical user like a developer who could use Bitbucket, or GitHub, or GitLab or some version -- or some other source control system. Even -- we're supporting the collaborative work that they need to do our own code with Bitbucket. The harder, more complicated collaborative work they need to do tends to span users and functions and teams. And that's the -- we think the most differentiated connection point that we can help companies with. And I think it's usually why we're chosen. I think the system of record for the project, the system of record for the work that this really diverse group of people need to do around with even a software project, the very technical endeavor resides inside of our products. The business plans and the specifications and the long-form documents that tend to describe what is the developer? If they're going to write code, and they're going to put it somewhere, ideally in Bitbucket, but they could put it in a whole bunch of other places. Where is the spec that describes what they need to do? That spec, more often than not lives inside of Confluence because Confluence is this living collaborative platform for building that for multiple people to contribute and build that spec and have to live and breathe and then connect into the project system that's going to describe the things that individual people need to do. And so I think when you talk about whether it's DevOps or just development in and of itself, developers themselves are really important user of all of our products. But they also tend to be not the majority of the users, there's a lot of people outside of just the developer that are working with developers around what developers are doing. And then because of that, I'd repeat what I said earlier, that just opens up more and more market to us and sort of different TAMs as we support the problems that IT teams need that are specific to IT. And as we've got a broad landscape of line-of-business use cases that our products can support just because they're built to support them.

Got it. Got it. I wanted to start the conversation around a major topic going on with your installed base right now and just the move to the cloud. Now that the migration tools have been launched, number one; number two, the scalability issues have been removed; number three, cloud features, in terms of like product gap, is closing but -- to the -- is getting closer to the on-prem product. Is it fair to say we're as close as we've ever been of getting more and more people to move to the cloud product because of all these factors?

Yes. And more and more customers are moving to Cloud. And we talked about -- I talked about that in the earnings call last quarter. And that's what we would expect. We put a lot of work to remove any barriers to customers. And so we've accentuated the product in certain ways to support security and data privacy and various requirements in the products on the platform. And then we -- the migration tooling that you've mentioned is built to make the move, the actual move from a technology perspective, easier. And as we've said before, there's still a cultural move, right? In some cases, these products are a little bit different. The feature sets are broadly similar, but there could be some distinct differences that users experience when they move from on-prem to cloud. And so there's going to be some change management. There's going to be some planning. And as we've also mentioned, a lot of these companies have -- that are in on-prem have multi-years of experience with their on-prem installation, their on-prem deployment. And this is also an opportunity for them to remove all the barnacles, and they have grown around that over time, right? Because it's a piece of software, they've been able to customize and tweak, and they've added [ scenes to ] and they've added custom workflows to, and they've had a different kind of -- a different security patterns to, and all sorts of things that they may want to rethink. And the migration tool is going to help them move the bits from point A to point B. But that process of kind of replanning what this new environment is going to give them and how they want to use it and how they want to sort of start fresh, is work that our partner ecosystem is going to help them do what they're going to do on their own. But the short answer to your question is, yes, we've worked really hard to make it -- to improve the readiness of the Cloud to meet all these customers that want to come from on-prem because we've seen more and more and more of them want to move.

That's what our survey showed too. Our survey data showed that 2/3 of your customers, especially large customers, want to move to the Cloud in the next 18 months. I mean, what do you guys think inside Atlassian? I mean, do you think this is going to be like a 10-year journey migrating people to the Cloud? Is it more like a 5-year journey, 2- to 3-year journey? What's your best guesstimate today about how long it is going to take to migrate the majority of people to the Cloud versions?

I think it's a multiyear journey for sure. I think, I always say, even though it's -- we see it accelerating, I think that there becomes, maybe it [should be pointed ] too acute. But I think the momentum within both the customer base and sort of the broader secular trend of companies wanting to move to the cloud. And by the way, COVID, back to the start of this, I think this could be another accelerant on that move, right? Because there's a lot of companies whose infrastructure wasn't available easily for companies with employees who didn't go into the office. And that can seem maybe even a little bit foreign in 2020. How could you not -- how can we not access it at home? But in some cases, they're kind of private networks and their infrastructure was prohibitive around that. And so I think that, that can also be a catalyst for companies to say, "Hey, listen, we've managed these bits of technology for a long time. And if we can trust a provider, like Atlassian or Salesforce, or Workday, or the whole host of, if you're starting a technology company in 2020 and certainly in the last 5 years, you weren't really building software for people to install on their own machines." And so I think that's another catalyst for companies to -- or COVID has been another catalyst for companies to kind of rethink what does our modern technology stack need to do in order to best enable our people to do the things that they need to do? And so in some cases, this is a little bit of a forced wake-up call for, I think, companies to be more thoughtful about that. Because I don't think a lot of them are just going to snap back to the old normal, I think there's a new normal that they'll -- they can adjust around it. But it will take time, right? It will take time for companies to -- especially the bigger ones that have more history and more of that customization and tweaking and sort of like the way that they've modeled our products kind of deeply into their businesses. A lot of that modeling can move over to the cloud, but they may not want it to. And they may want to take a moment to think about, like, what is the new world of Atlassian in the cloud of Jira, Confluence and other products in the cloud look like for us.

Do you think there will be differences in the way server customers look at the cloud migration versus data center customers?

No. No. Other than, I think, data center customers are larger, right? Data center is built to support. The data center product starts at 500 users. And so there's lots and lots of server customers that are below 500 users that have an easier path to migration, I think, because they probably have less customization and less add-ons and a whole bunch of other things that they need to think through that makes just a move a little more complicated for them, or requires them to put a little more thought into it. And then data center has -- if you've got tens of thousands of users, more than likely you're a data center customer. You don't have to be but more than likely you are or you're considering data center. And so just the only difference between the 2 is size. And size has its own complexity you need to think through. You've got more employees that you need to think about if there's differences here. And maybe you're used to using this one particular feature, in this one way, and that feature is still there, but it works a little bit differently because it's been approved. Not something that 10,000 people need to understand. And so we work really hard on a lot of that stuff just to make sure that the onboarding of the employees downstream of a move is really simple and smooth. To answer your question, there's definitely differences between small and big companies, just in terms of what they need to think through.

Yes. But the point is data center customers are going to be moving to the cloud too.

Yes. I mean I think it really depends on the customer, where a customer may have a real reason to stay on data center and to invest in on-prem. And as we've mentioned, we support that decision. But I think, increasingly, they're going to see the benefits of not having to manage like data center is still a piece of software that you manage on your own infrastructure and your machine and you're responsible for updating it, and you're responsible for thinking about how it scales, and you're responsible for tuning it, and you're responsible for improving the performance of it over time even though we're going to shift some bits in the software when you upgrade that does that for you. In cloud, you basically get that on a continuous basis all the time. And so I think absolutely data center customers are going to see those advantages and want to move. They already are.

Got it. Can you give us the latest update on the move to the Cloud from a product perspective? Clearly, you rerolled Jira and Confluence for the Cloud on top of AWS. How about Service Desk and the DevOps products? When are you going to be 100% completely done and everything rewritten for the Cloud?

They all are in the Cloud.

Oh, they all are? Okay.

Yes.

Okay.

Yes, absolutely. Yes. I mean, every one of our product that's been on the Cloud has been in the Cloud for a while. I mean, the rewrite that you're talking about was basically moving, shifting our infrastructure from many years ago, our own data centers to AWS. And so there's more of the workloads that we run on AWS. But yes, I mean, our -- we're -- our platform is solid. And I think what you've seen us do over the past year, or handful of years, is just continue to enhance the Cloud products that support larger and larger customers. And then more of the Cloud security and kind of compliance considerations that certain industries and certain companies and certain sizes they have.

Got it. Got it. We have time for more -- one more question. And the one I want to ask you is at the Analyst Day last year, Sri, your CTO, made a statement that he's building the foundation, the technology foundation for a $10 billion revenue scale company. In your opinion, I mean, what's it going to take for you guys to get there? Number one,, do you need to make larger acquisitions to get there? Number two,, how do you think about DevOps versus collaboration, et cetera, et cetera? Any kind of color, of course, here would be appreciated.

So the first of all of the question, what do we need to do to get where? Just to continue to unlock our mission?

To $10 billion -- Yes, to $10 billion -- get to $10 billion revenue scale, right? That's what Sri is building technology foundation for you guys to get $10 billion in revenues. So the question is, I mean, do you need to like do a lot of M&A? How do you think about non-IT versus IT market opportunities, DevOps versus collaboration? Any high-level thoughts would be appreciated here.

Well, I would say, if history is our guide, we have a fairly steady track record of M&A as a company over the past 18 years, and so I think M&A is going to continue to be in our playbook. And I think we've got a good track record of both buying technology that extends the potential of the markets that our main products already exist in and then in building around those platforms to open up new markets like Jira Service Desk, I think, would be a good example, where Jira Service Desk was part, a lot of building that we did on top of the Jira platform and then some small technology acquisitions to complement what we've done and sort of really build a richer, more robust offering in the market. And then I think you've seen us acquire products that are complementary to where we already are and adjacent Opsgenie would be a good example of that in IT operations management, where Jira largely is kind of the lone star for the work that operations teams are doing but Opsgenie complements Jira and integrates with Jira around learning and rostering and a whole host of other things that are related to kind of modern incident response. You've seen us also do that with the AgileCraft acquisition, which, again, really complements where Jira broadly is inside of the business to help manage collaborative work at the team and tribe level, and bridge that up to the portfolio and C-suite level. And so I think that will continue to be in our playbook. And we've also acquired new category leaders like Trello, that open up different dimensions of the types of companies that we can begin relationships with, and the types of audiences that we could build kind of brand and recognition with. So a long, long, long way of saying, I think M&A will continue to be a part of the playbook. And then the second part of the question was -- what was the second part?

The -- to get to $10 billion in revenue, how do you think about collaboration versus DevOps...

Oh, versus DevOps?

The IT opportunity versus non-IT opportunity? Yes.

I mean I don't -- like DevOps, the thing that we do inside of DevOps is the collaboration part, right? I mean, largely, that's why we are such an important part of both the DevOps tool chain and the DevOps movement is because people need to communicate and they need to record what they're doing, and they need some system of record that backstops all of the other aspects of what they're managing in sort of their pipeline, their DevOps pipelines or as a DevOps [ option ]. So I don't see them as mutually exclusive, right? I think if you really study where Atlassian is inside of businesses, it's that collaborative layer across both the really complex sophisticated work and also less and less sophisticated work. And I think it's -- we land inside of those really sophisticated problems that people can't do with something like Excel. I mean, you can't run a DevOps process with Excel or with monday.com or with e-mail and Slack, you just can't. You need something that is more sophisticated. And at the same time, you need that to be simple because potentially, the people that you're going to enlist in that particular product are not sophisticated. And -- but that's a really hard thing to do. And I think that's -- if you ask me what the secret sauce of Atlassian inside of our products is just that, that you -- it's really hard to build a piece of technology that somebody who's very deeply technical will use and love and want to share and at the same time, have a deeply technical person to work with somebody who is exactly the opposite, the least technical person, and have that least technical person also feel the same way about the product. That's a really hard thing to do. And if we were on one side of that spectrum, I think that we would be -- we just -- back to the $10 billion plan, I think we couldn't get that far. And the fact that we can support that whole spectrum of usage just opens up the potential for Atlassian a lot broadly than whatever it would otherwise.

And Jay, what are your plans after Atlassian? Are you going to take some time off and enjoy life? And what do you think you end up -- where are you steering? I mean, what do you think you're going to do after that?

Well my plan was, yes, I was going to do nothing. Well not nothing, but I was -- my plan was to do a whole bunch of travel between July and January. And we had a whole bunch lot of travel with family, and we were taking both sets of grandparents to the -- to Africa for Safari. And so we're -- all of that is sort of in the blender now. I don't know. I'll salvage -- I'm going to try and salvage as much of it as I can. But I think most of the travel that I was really looking forward to is probably not possible now. So we'll see.

I hope you will find a way, a creative way to get some much deserved rest. And good luck with your future endeavors. And thank you so much for spending the time with us today.

Thanks, Nikolay, and thanks for having me.

Thank you, everybody, for joining us. I hope everybody stays safe and healthy, and this concludes our presentation with Atlassian. Thank you.