Atlassian Corporation (TEAM) Earnings Call Transcript & Summary

Yes. Look, we're really happy with the installed base transition. As I said, it's really people that have been around for many, many years that are on our server instances. If more than 90% are buying our cloud instances as we go, so -- of new customers. And so we're really happy with that. We've -- over the last 6 months, we've improved our migration tools, like our team has made it really easy for those customers to do one quick migrations of all their products across. And so it really is we've done a -- I guess, we've reduced the friction incredibly over the last few months. And so we are seeing a huge uptick. If I look at the sort of net migrations, we are seeing upticks as a result of those migration tools, particularly on the self-service side, which is what you -- where that middle-market is. If you're really, really large, you've got tens of thousands of users using our products on a daily basis, and it's mission-critical and downtime is measured in minutes per year, then we're going to be having a chat about how we do that and how we schedule the downtime and how we move it and do we test instances. If you've got 200 people and taking it down for an hour on a weekend is not an issue for you and -- then you can self-serve that. And we drastically increased the self-serve migration tools over the last few months.

And what has the role of partners been in this? I know your company is pretty partner-centric and they make money in various areas around your business. How lucrative is the migration opportunity for them? And is that -- are they on board with that? Or are they -- is that a value proposition that's not as attractive to them?

With channel, we've built up an incredible channel over time, particularly in Europe, it's very strong, but it is global. And it's one of the things that does take a while to build up. It's very hard to build a channel of partners that have invested in your particular skill set over a long -- over a short period of time, that takes a lot of investment, and we've done a great job there. And every year, we bring on even more top-tier partners, the larger consulting firms of the world and are looking to Atlassian as trusted partners. So I'm very happy with our channel network. Most of our partners make money from the services around our products. They're not hanging on, making the money off the rev share that we give them for selling our products. They make the majority on the services. And the most advanced of them actually make a majority on services almost in terms of change management and the human side of things rather than configuring scripts or those types of very tactical things. A lot of them have deep relationships with our customers. And there's -- the cloud gives them an opportunity to have better conversations with their customers because they're having less of the tactical script running stuff because we can take some of that off them and allows them to have a much more senior change management conversation. We've made incentive plan changes to our plans and partners to make sure, of course, cloud is more incentive for them to sell cloud to a new customer than it is for them to sell one of our on-premises offerings to make sure that their incentives are aligned with where we as a company are going.

And how have you, in terms of incentive? I mean there's just obviously a different model in cloud. There's less of an upfront bounty and so forth. How have those incentives changed? And sort of how far along are you evolving that set of incentives for the partners?

Yes. It's probably not the right time to get into all the real deep specifics about how we do that. But we have a few things. One, we have a marketplace, so we have traditional channel partners that sell, install, configure our products. And they help, particularly with our largest customers, and they're a much bigger part of our sales motion in our largest customers. But we also have an incredible marketplace. And the marketplace is, I think, one of the maybe underrated parts about Atlassian in that we have thousands of applications. In our marketplace, once our customers install them, they become way stickier because it's harder to move to a competitive product, and we provide a much larger feature set around that. And what we've also seen is that we've been successful in migrating most of our partners who have built marketplace apps into the cloud. And in many cases, they've replicated or improved the functionality. So these applications are actually accelerating faster in the cloud. And we've done both technical things to that. We've done financial incentives to do that. We've been training our partners to do that. So our partners are leaning into the future is the cloud, and they hear it from their customers, our combined customers as well. So I'm really happy with that. And again, I think it's a huge strategic asset for Atlassian.

Got it. Got it. Yes, makes sense. And then just on the sales and marketing side, as you mentioned, super efficient model with your model sort of quoted as a model to emulate out there. As it relates to the sort of data that -- from a customer success perspective, you haven't had the data in the past on a broad basis to sort of see how customers are interacting with your product. So it sort of brings another element to being able to do a lot of things with customers, including cell and so forth. How have -- in the sort of earlier days of having that data from the cloud customers, sort of what benefits have you seen in terms of upsell and other ways that we might sort of see it hit the numbers ultimately.

Yes. We can talk for the rest of the time, I want to give you a few small bits. And Atlassian always been a very data-driven company, even with our behind the firewall and on-premises products. We -- about half of our on-premises products have a phone home feature, which gives us very core screened analytics about usage, just a number of people and what marketplace apps and so forth. And so we've done -- been doing that for almost 20 years now. Obviously, in the cloud, we get a much bigger tick up. We can see what users use, what they don't use. We typically run experiments for all of our rollouts and we -- in much way you'd expect from a consumer company. We made those changes and bounce that off that. And that's possible because of the size and scale that we have, tens of millions of users using our products, gives us a gives us big scale to run those types of experiments. To get to the more -- how does it turn into dollars? A couple ones. Obviously, experiments are successful, you can run them a lot quicker and cheaper than running out your engineering and is it -- [indiscernible] half my marketing is wasted, I just don't know which half. And product management is the same thing, like half the features don't get used, I just don't know which half. These as we do, and we can make sure all of it, our engineering investments, can be much more targeted. Secondly, cross-sell, and whether that is upsell to an edition to move from free to paid or paid to premium to enterprise like we have a lot of usage data and thermographic data to know who to target there. We've done a lot of success, say, cross-selling confluence into Jira by integrating the experiences, which again, behind the firewall, that's very difficult. It's hard to cross-sell a second product because someone needs to install it before you can show them the value, whereas we -- with free and with the ability integrated together, we can show them the value before they have to put it on their credit card. So we've seen that significantly increase. And we're also seeing that with acquisitions. And so if you look at Opsgenie, as an example, acquired a couple of years ago, and prior to Atlassian, they had to have a sales team out there dialing for dollars, almost cold calling and very successful. But now inside Atlassian with 175,000 customers using our products, we can now target those customers. And so we're seeing that we can become more efficient on the sales and marketing side in terms of cross-selling, rather than having people try and do it on the phone.

Got it. You mentioned from an M&A perspective, could you help sort of put some parameters? And if there's any sort of evolution in that as your really mainstay, your product line ultimately goes to the cloud. How are you looking at acquisitions, especially? Does it make sense to do anything larger? And in terms of the markets you're in, how do you look at potential sort of expansions in some of the markets that are adjacent?

A lot in there. A couple of things. Firstly, Mike and I are the -- I think, still, between us, the #1 shareholders of Atlassian. And so as -- we're highly aligned with shareholders in terms of being good stewards of capital. We're not out here to build the biggest company that can be possibly built. We want to make sure that everything we do as a good stewards of capital. And I think we've got a good track record of doing that. We believe that we have -- build products, we can partner, and we can buy. And we also have marketplace as well. So effectively, we've got 4 areas. And I think, again, you've seen over the last 20 years of Atlassian, we deployed all those at various stages, depending on what makes sense. And so we always look at building or buying. We're also a platform company. And we believe that the benefits come to acquisitions because we can bring our customer base to bear for that acquisition. There are other companies that do that with a sales-led team. So in terms of acquisitions coming and you throw it in the sales bag and you get instant uplift for that. For us, when you sort of say it's a platform, it's a little more of a slow burn because day one on acquisition, it's not in someone's sales bag to kind be sold. It actually takes a while to migrate to the platform. Be once we do that, of course, it's much more efficient than other people. And so in terms of what acquisitions, we've always taken it that we look at do we share the same mission? Do we want to unleash the potential of every team? And that's the first and most important thing. Do we share the same value set as a company like -- because many acquisitions come unstuck where just culturally, we don't fit. Then I look at, do we have a similar go-to-market approach because it is difficult to take a low-volume, high-cost model and match it to a high-volume, low-cost model. So we look at those. And then after that, we look at everything else that's involved. And so look, we acknowledge that valuations are very healthy on all sides at the moment. But we're always chatting with companies where we think it might make sense long term. And you never know when the time is going to be right.

Yes. Makes sense. And then you've been pretty clear that the last financial -- the financial crisis -- maybe there's a different crisis. But the financial crisis that happened in 2008, 2009, 2010, you really did invest through that, and it was the right choice for the company at the time. You said that again here. Can you talk about what areas specifically you've decided to put more money into, given the environment we're in and expect to see a the return out of that?

Yes. It's across the board, areas we're investing in. One is if you take it broadly, there's a lot of talent on in the market that hasn't been on the market for a long time and often of no choice of their own, their the companies have gone out of business or a downsizing or aren't as fun anymore. And we're in a lucky situation that we're still growing through this crisis. We have a lot of cash in the bank. And so we can pick up amazing talent. And we've got old-timers group inside Atlassian with people that have been here more than 10 years. And we have a very -- a huge number of those, like it's a very large percentage of people that were here 10 years ago are still here. And those people often picked up in that global financial crisis and they stuck around. And I hope that this time, we can pick up a similar group of people that will be around for the next 10 years during that. So investing in people, and that can be across all different areas. I think go to market, there's a chance to be aggressive here, as we have shown with free. Things like free don't pay back within weeks, they pay back over months and years, but they open the funnel up to make it faster. There's opportunities to upsell customers. So there may be some high-touch opportunities that we can experiment with through this period when we have more of an opening with our customers, especially with digital transformation is more important. So I wouldn't say there's sort of one particular area that makes sense. But broadly speaking, there's just opportunities of picking up great people and picking up great customers.

Got it. Got it. I think I want to close out with 1 question, just very product oriented. I probably did the most frequent product question I get, which is around Jira Service Desk. And that product sort of grew out of Jira and is very much kind of coming from below some of the enterprise kind of ITSM products that are out there. How do you look at sort of where that product ends up, taking sort of a, I don't know, a 2- or 3-year view around continued adoption trends as they are now, sort of what are the use cases there that you see yourself expanding into? And is there also -- I know you talked about some opportunities outside of IT as well. Just curious how you're thinking about that specifically?

Yes. So great question. The service desk offering came out of Jira, and still, the #1 reason people use our products is that they work really well together. And it used to be, again, that software and IT were 2 different parts of the -- an organization, joined pretty tenuously when someone through a CD or something on a share drive to be deployed. And these days, they are one and the same. And so people use Jira Service desk because in order to solve customers' problems, so they get raised through a service desk, they need to be going to a Jira backlog for a software team to solve. So that's the key value proposition. And we're still really early in that. We're at the stage where adding more features gets us significantly more market share. And one of the biggest things we did recently was acquire a CMDB, so a configuration management database, but so [indiscernible] asset management for Jira Service Desk. So the idea is when someone raises a ticket, I want to know what laptop was it against, or what assets are in pay here. And that was the #1 feature request we had for -- from our customers there, and that's been very well received. And it's also kind of speaks to the power of our marketplace because that was already a product built on top of the Atlassian platform. So from an integration perspective, that is a lot easy to do given they've already integrated with this before we acquired them. So look, over time, we want to be more things to our IT teams, whether that is asset management, whether that is service management. We see a lot of companies thinking of their -- what services do they provide. We see that going beyond typical it. Twitter use Jira Service Desk for 140-plus service desks, including legal and HR and many other service desks out there. And they choose us because low price and they choose us because of its ease of use, not even related to the fact that Jira Service Desk is integrated with Jira, they choose it because it's best stand-alone product. So we're really excited about that. We think we have a lot to offer IT teams that have maybe been underserved in the past. And we do see other people trying to serve that market in new ways. But a lot of them are at the top end of the market. And we think a 500-person company in, I don't know, in Mexico, should be able to access great products to make sure their IT team works well, same as a Fortune 500 company. And so I think there's a huge amount of market there for those types of tools. And again, we have a great platform that we've already built over dozens of years that we can bring to bear.

Got it. Great. Well, I think we're going to have to close it off there. We're out of time. Scott, I very much appreciate you joining the conference here. Helpful to make this event a success. And everybody else that joined the 3 days of the conference, thank you as well. We'll talk to you soon.

Thank you, everyone. Appreciate it.