Atlassian Corporation (TEAM) Earnings Call Transcript & Summary

Excellent. Thank you, everyone, for joining us on late afternoon, day 3 of the Morgan Stanley TMT Conference, but Keith Weiss. I run the equity research franchise here for software at Morgan Stanley. And very pleased to have with us from Atlassian, Brian Duffy, Chief Revenue Officer. So Brian, thank you for joining us.

Great. Thanks for having me.

So maybe to sort of level set for investors who haven't got a chance to meet you, you've been on board with Atlassian for about a year now. Maybe talk to us about a little bit about your background and what made coming to Atlassian interesting, especially in the light of like we've always looked at Atlassian's product-led growth model, and you've been big company CEO and CRO. What did you see as the opportunity here at Atlassian?

Sure. So yes, I spent around 18 years, almost 19 years in my career at SAP. While I was at SAP, I ran Europe for around 5 years. My last role at SAP was I launched and ran the RISE with SAP business, which was SAP's ERP and the Cloud business, which was responsible for -- still is responsible for the majority of its cloud backlog and was a very successful business. And there's a lot of correlations, honestly, between Atlassian's Cloud journey and SAP. After that, I was the CEO of a partner, SoftwareONE, a very big Microsoft's partner where we helped many customers in terms of their cloud journey as well. And then specifically, why Atlassian? Myself, I was always impressed by the product-led growth journey that Atlassian has been on. I think many of us looking from the outside always looked, amazed at how Atlassian acquired companies -- customers. In addition, from speaking to customers, the relationships that Atlassian had with customers was -- always struck me has been really amazing, considering that they didn't have a large go-to-market team, how customers really love us. And then lastly, the size of the opportunity that I felt we had if we were to invest into the go-to-market team.

Got it. And can you dig in a little bit or you piqued my interest with that the Cloud journey SAP being similar to the cloud journey of Atlassian. Could you sketch that a little bit for me?

Yes. So why similarities? Number one, we have customers -- we have a lot of customers, 350,000. SAP had a lot of customers as well. Secondly, we had customers who had done a lot with their estate. SAP had customers who have done an incredible amount. And when you've done a lot with your estate, you have very often customized the estate as well. Customers have done customizations with theirs as well. That's a good thing. When they have customized, means that you are needed. We have customers who have -- and I just spoke to this customer yesterday, in fact, the German automotive customer who has a north of 400,000 seats of -- with Atlassian. So obviously, we are mission-critical to that particular German automotive customer. Now in order for that customer to move to the cloud with us, we need to help them move away from the customizations and move more to standard cloud. That's very similar to the SAP journey. Also, similarity is we're very reliant on the ecosystem, which SAP was as well. In many respects, I think we're ahead of SAP in that journey because we actually launched a program called FastShift around 2 years ago, which our CTO Rajeev launched it, which delivered tools to the ecosystem to help them move customers from data centers to the cloud in rapid pace. So it really allowed us to get the ecosystem ready earlier. Those would be the main similarities to SAP.

Got it. So the German automotive company with 400,000 seats, that must represent sort of a success story of like a broad deployment of Atlassian because I'm sure that's not 400,000 developers that's using it more broadly. But when you talk about the big opportunity, Atlassian is in 85% of the Fortune 500, but it represents less than 10% of the revenue. So it feels like there's a lot of big companies that become much bigger to become that 400,000 seat opportunity. And I think you guys have sized it out at about like a $14 billion opportunity just within that like installed base. Can you talk to us about how you plan to take that 85% of the Fortune 500 and make it maybe look a little bit more like that German company that's using you guys across the board?

Yes. So you're right, 85% of the Fortune 500 are our customers, only represents 10% of our overall revenue. Pretty amazing that Atlassian did this without a massive go-to-market team. I always remind myself that every single one of our customers entered through the exact same door that is they swipe their credit card online and then they came in as a customer. And now my role is to build out our go-to-market team. By the end of this year, we will have approximately 400 sellers, which again is not a huge go-to-market team. That has pretty much doubled from where we were last year. The approach that we have is we need to continue to hire more capacity so that we can increase our coverage. We continue to revitalize the ecosystem so that we have them better aligned with our goals. We continue to focus on moving our customers to the cloud, which obviously is going to unlock more potential for us and moving our customers to higher addition values, which also is going to help us unlock more value. And to your case in point around the German automotive customer, one area that's a massive focus for us is moving from IT to the business. So exactly that German automotive customer of 400,000, they clearly don't have 400,000 developers because half of our users are actually in the business, and the business is actually our fastest-growing segment. I know many always think that we're only in dev and IT, but we are beyond dev and IT, and we're going to continue to focus on growing outside of dev and IT as we move forward.

Outstanding. So you talked about the scaling of the sellers. I think you have -- you talked about 400 sellers right now, covering about 500 -- a little over 500 customers paying over $1 million annually. How should investors think about the scaling function of that sales capacity at the same time as maintaining what has always been a really efficient go-to-market for Atlassian?

Yes. So obviously, Mike and Scott built an amazing model, a super efficient way to acquire net new names that many are jealous of. We're going to continue to have that PLG motion. And at the same time, we are going to continue to build out the enterprise motion that we have. The model that we have now is customers come in and then they will graduate into, let's say, being served by an account executive, and we will continue to have that motion in place. Within my team, we don't have a net new name sales motion. The motion that we have is they graduate from the PLG motion, and that serves us extremely well. And then from my side, we will continue to hire quota carriers and account executives, and we will be looking at placing those in the areas that are going to give us the highest rate of return within the segments, strategic and enterprise, and then also within the geos that are going to best service as we look forward.

Got it. All right. That ends the easy stuff. Now we're going to get into the hard stuff. This software market overall has come under a lot of pressure. I would argue it is under pressure through most of 2025, and that's only become exasperated on a year-to-date basis as people have seen an expanded capability of what these AI models could do and some of the agents on top of that. Maybe from a high-level perspective, just from a totality of Atlassian, what do you guys see as the opportunity there? Like you guys have been front-footed in terms of incorporating these models into your platform. You've been front-footed about creating an agentic layer. So maybe we'll start on the positive, like what's the opportunity for Atlassian and being able to take this expanded capability, utilizing it through your platform to do more for your customers?

Sure. So one, we firmly believe that AI is a great thing for the world. We believe that AI is a great thing for Atlassian and a great thing for our customers. Just last week, we announced that we now have agents which are available in Jira, available in Jira Service Management, which means that our customers can now assign tasks to agents. Therefore, that means that developers, business leaders, et cetera, will have to spend less time on certain tasks and the agents will be able to do the work. That obviously is going to mean that it's going to free up an incredible amount of time for those individuals and allow them to spend more time being more productive in other areas. That is obviously going to unlock a huge amount of time for those developers as well. And ultimately, that's going to be a game changer. Developers actually only spend around 30% of their time coding, in fact, which I think always come as a huge surprise to everybody. And as we move forward, we're going to look at more and more ways that we can continue to embed more agentic features into our products. If anything, what's going to happen as we move forward, we firmly believe that all of this is going to lead to more software. More software leads to more projects. More projects leads to more demand for Atlassian. That's what we've already seen happen and pretty sure that that's going to be the -- what the future is going to look like as we move forward as well.

Yes. So let's drill into like the software developer side of the equation. I think that was initially one of the focal points of investors' concerns. Atlassian and Jira development, in particular, being a seat-based model, there was this very kind of first order argument of developers to get more productive are going to need less developers. I think we're seeing the opposite actually, initially, Aaron Levie from Box had a post not too long ago, pointing to that we've actually seen an acceleration in developer hiring. Are you -- two questions for you. Like one, are you seeing that in your base? Like basically, Jevons paradox playing out, the developers are more productive. We're using more of them. And then two, how important is it that like the headcount grows? Or is there other ways that you can monetize Jira, you can monetize the value proposition of managing more software and more software development?

Sure. So I would say, firstly, we're not seeing a reduction in the number of seats, right? The conversations that we're having with customers are not around that. We're not seeing that in the conversation. We're not seeing that at the time of renewal with our customers. Instead, the conversations that we're having with our customers are very different. I'll give you an example. Just earlier today, I spoke with a large U.S.-based consumer tech company that was talking to us about a long 7-year term agreement that they wanted to enter into us, and this is a company that has over 100,000 seats with us both in the developer and the IT space. We firmly believe that having the ability for developers and nondevelopers to create software leads to more software. And same as what Aaron said, this means that there will be, one, the hiring of more developers and the creation of more software. And more software leads to more projects. What we have found, in fact, is that we see -- and for companies that are utilizing these cogeneration tools, there actually is a 5% increase for us in seats. And a 5% increase in fees obviously leads to expansion with our customers. And I know that's contrary to the headlines that you just gave there, but this is having a tailwind for us rather than a headwind. And that is what is leading to the headlines that we made around $1 billion -- our first $1 billion quarter in Q2, the 600 customers that are now paying us over $1 million and an RPO growth that is north of 40%. If we were facing all of these headwinds, we wouldn't be able to deliver numbers consistently like this quarter-over-quarter. So if anything, like I said at the beginning, AI is actually a tailwind rather than a headwind for us.

Great. So it's not evident today, and it's not happening today in terms of the number of software developers coming down. But even besides that, like the value proposition of what Jira brings to the organization, to your point, is it's not making a developer more productive. It's organizing and managing the software development process. And if we're increasing the volume and velocity of software, it seems like the value proposition of that is expanding. So if agents start to come into the scenario if maybe software developers becoming more productive, there's not as growthy, is there an evolution in the pricing against that value that Atlassian has to go through to ensure you're capturing that additional value that you're providing to the customer?

Sure. So as we a couple of things. Firstly, like Jira within customers has consistently been an orchestration layer within customers. And as we move forward in the world of AI, it's going to continue to be an orchestration layer. If that's with humans and if that's with customers using agents, firmly, I can continue to be that orchestration layer. And now as we move forward in terms of the monetization, we obviously have the opportunity to monetize in terms of agents as well. That's something, obviously, that we're looking into how we're going to monetize in terms of agents. That's a debate that we and others are having. And we will see how we're going to move forward in terms of how we're monetizing that in the future and that I know a debate that others are having as well.

Right. I think one last investor concern and debate. I'm going to put out and then we could talk about some more positive and constructive things is the idea of DIY, right, with cogeneration tools and the vibe coding, if you will, there's a concern of like why can't organizations now kind of just vibe code their own orchestration layer or their own management solutions for this? And I think from my conversation with Atlassian customers, particularly the larger enterprises you work with, I think there's a real underestimation of the complexity of the workflows, the complexity of that orchestration layer. Can you help us better understand how complex some of these implementations are? And why would it be difficult to vibe code a Jira-type solution?

Yes. I think like sometimes the best thing I can do rather than talking like in generic about us, like the generic headlines, is actually talk to you like where the rubber hits the road with real customers. So in the past 48 hours, I told you I talked to a technology-based West Coast company, who's clearly entering into a long-term agreement with us. I told to -- I talked to a German automotive customer that has 400,000 seats. Clearly, that is extremely complex and heavily customized, and we will work with that customer to migrate them to the cloud, but they have managed Jira in a way that is supporting their business very, very uniquely. I also spoke this morning to a defense company that told me that we are in every nook and cranny of their business, and we are a mission-critical application to them. When they had a system down, I was speaking to them because they had a system down scenario for their ERP instance, not us, their ERP instance. And when they have that down, they call their GSI, they call their ERP company, and they called us. And they called us because we are mission-critical. We have seen as we've moved more and more companies to the cloud that we're engaging in more conversations with them around topics like SLA. You're engaging in topics around SLA because you are mission-critical. That's a very good position to be in even though these customers are then testing us and pushing the limits in terms of what our service level response time are going to be, et cetera. But this is all because we are very critical to these organizations. Now when you look at customers like the ones that I just explained to you there, when we are so mission-critical, they -- could they do certain things in the periphery to Atlassian? Absolutely. Are there organizations that could vibe code certain pieces? I'm sure there are. However, when we look at scalability, reliability, orchestration management, these are the things that Atlassian brings to the table and has been doing for 23 years. And that's why so many customers, like the ones I highlighted, place their trust in us. And we're very confident that they are going to continue to do so as we move forward, hopefully for another 23 years.

Okay. And I think another part of the equation that investors often overlook, there's the complexity of the workflows. There's how broadly you're automating workflows for our customers, but there's also the data underneath that. You've started to talk more and more about Teamwork Graph. There's now over 100 billion objects in Connect and the Teamwork Graph that's up over 150%. Can you talk about the role that this proprietary data plays in what your customers are doing already but also how it's going to better enable them to adopt AI going forward?

Yes. So the Teamwork Graph is we think of like everybody in this room. If everybody in this room works for the same company, everything is interconnected to each other. So a spec is connected to a Jira ticket, a Jira ticket is connected to an engineer, an engineer is connected to a team, and a team is connected to a company goal. Therefore, you can trace back how the company goal is connected ultimately to that spec. So you can trace why the engineer was working on the spec and how it supports the company goal ultimately. So therefore, there is a way to trace who is working on what, why they're working on certain things and how -- and it just increases the overall visibility for work ultimately within organizations, which without this organization's net-net do not have that visibility. Now as you said, we have over 100 billion objects, which obviously is a huge amount and increases the value of the Teamwork Graph for our customers. That has been a huge unlock value for them. And now with Rovo, allows our customers to ask questions like, have you seen an incident like this before happened with system down for XYZ? What has the response time been for ABC? And then it will pull on the Teamwork Graph for similar incidents that have happened, pulling on these 100 billion objects. And it is only Atlassian with the platform that we have with 100 billion objects and the 23 years of experience that is able to pull in these. And that is where we are seeing a huge amount of traction with our customers given the database that we have that is so rich that they're pulling on this information from.

Got it. It's a good segue to Rovo, the agentic platform that you guys put into the marketplace almost 2 years ago. I think it was in the summer of 2024. But growth has really started to take off. You guys talked about 2.3 million monthly active users at the end of FY '25. 2 quarters later, it's over 5 million monthly active users, so more than doubling over that 6-month period. Can you talk to us about what's driving this adoption? What are the commercial outcomes that your customers are seeing from the usage? And then how is this going to translate into like even better monetization for Atlassian going forward?

Yes. And so as you said, we have 5 million monthly active users at the end of Q2. We took a very different approach than other companies. We chose not to sell Rovo. Instead, we said that any customer who is moving to the cloud with us will get Rovo, specifically any customer that moves to Teamwork Collection, which is what I call our hero motion. Teamwork Collection includes Jira Confluence, Rovo and Loom. They get 10x the Rovo credit. We have been very successful with Teamwork Collection. It is really propelling our -- overall, our Rovo revenue stream, let's say. We have over 1 million seats in the cloud, and we have 1,000 customers that have moved to Teamwork Collection since April of last year. That is beyond what we expected. And we are very happy with the traction that we have received there. Specifically, what we have experienced is customers who have moved to Teamwork Collection who have embraced Rovo, we have seen a 20% increase in addition -- expansion as they have embraced Teamwork Collection, and we have seen an uptick in the Rovo usage as well. Just in the month of February, we had a large semiconductor company here on the West Coast go live with over 40,000 seats. Following their go-live 10 days later, there was an expansion to the tune of 8,000, the 20%. And that trend, we continue to see. We are consistently seeing more and more use cases emerging from our customers around the world. One thing that we are doing to drive more usage and more monetization is every one of our Teamwork Collection transactions that we were doing has a use case for Rovo embedded into it from our sales team, which means that our customer success team at the time of closure of that transaction will then pick up the use case and work with the customer and our forward deployed engineers that are embedded with the customer to help them activate the use case so that they can then get the journey started. And usually, what we see is that this leads to the creation of 3-plus agents at each of our customers.

Got it. Could you dig into that Teamwork Collection motion. It is a relatively new motion for Atlassian. But to your prior point, you talked about the business solutions outside of IT and development being the faster growing part of the business. I think Teamwork Collection is a big part of that. Can you talk to us a little bit about what are the customers using it for, right? And to certain extent, it reminds me a little bit of ServiceNow, right? When they move from ITSM into the broader business, but they had a very discrete solution. They brought out an HR onboarding solution or a legal compliance solution. How do you guys look -- how does Teamwork Collections bring you guys into those broader business use cases? And what are they?

Sure. Great question. So Atlassian is very interesting because like I said before, we entered into organizations and we entered into a department and then we spread within an organization. And now as customers have moved to Teamwork Collection, it's made the selling process for us within sales a lot easier because we've moved from product. And obviously, we're coming from a product-led growth motion to positioning outcomes. That's a journey that we, as an organization, are on to move more toward solution selling and less focus on the product motion. So as we position the Collection in total, we now focus on the outcome that we are driving for the business. We have champions within organizations that are within dev and IT. We now focus in on the business, and we talk to the business around the outcomes that we're going to be driving for them and how we can best support their particular area of the business. We have invested into our business value advisory team that helps us drive quantifiable results for the business in terms of dollar savings for the business as well. And at the same time, we also have a specific persona-based approaches that we also adopt, which is, again, new to Atlassian coming from a product-led motion. And when we look at the customers who have embrace Teamwork Collection, we have customers like Workday. Just recently in Q2, Workday, Tripadvisor, a large ride-hailing app, which I'm not allowed to tell you the name of them. And Publicis Sapient also and many, many more. As I said, 1,000 customers who have done this. And as we move forward, we expect the majority of our customers are actually going to embrace the Collection because that is the direction of travel, one of Atlassian, and that is where they received 10x the credits for Rovo, and that is where the majority of our customers are heading towards.

Got it. And what -- and sticking with the theme of like the go-to-market and the evolution of that go-to-market, what role are partners going to play in that and helping you guys become more solution focused? And how are you shifting like the partner channel to become more value-add rather than just maybe fulfillment-type partners?

Yes. So the partner ecosystem has done around 50% of our revenue in total. And the ecosystem when I arrived was compensated from a transaction-based approach. So we implemented a fair degree of changes to have them compensated more on outcomes-based. So there was various categories, let's say, of partners. There were partners at the top of the pyramid, who really already had transformed and these changes weren't significant. There were other partners, let's say, in the middle of the pack who had to make certain investments into services, and they knew this. And then we had partners at the bottom that were purely transactional. Some of these partners are clearly going to struggle. But honestly, those partners are not the partners that are going to bring us to the next stage. We have a great thriving ecosystem and a great community that is very passionate about Atlassian. I was just recently with some of them because we see a massive opportunity for us around Jira Service Management. And we want to expand our footprint in this space. And I was very open saying we're going big in one particular part of the world, which partners are going to come with us. And our partners very quickly leaned in, and they're going to lean in Asia with us. And it's great that we have that relationship with the partners. We've made investments into them in terms of the right partner managers for them. We also have the correct KPIs in terms of tracking success for them and tracking success for us. And I would say that we have a very open and transparent relationship with them, and we are also rewarding them for the right type of behavior and support that they give us also.

Got it. Let's double click on the Jira Service Management opportunity. Service Management, $18 billion market. Atlassian, you guys have talked about 14x faster implementation times, 15% lower TCO compared to some of the incumbent solutions. Previously, it's been more of a together with some of the higher-end existing solutions. Does this turn to be more of a competitive dynamic than an ability to replace some of those existing more expensive solutions? And how are you thinking about the right to win for Atlassian in these broader service management deployments?

Yes. So myself and the team are very passionate about Jira Service Management. Since I arrived, we've doubled our specialized sales force that is focused on Jira Service Management. Jira Service Management is our fastest-growing business at scale within Atlassian, and we will continue to hire in that particular space at a significant clip as well. We have 65,000 customers that are Jira Service Management customers. We have a massive opportunity to cross sell because when you look at Jira, we have 125,000 customers. Confluence, we have 100,000 customers. We are win in mid-market in this space. When we go up head to head against competitors, we win 7 times out of 10 in that space. The challenge we had purely was a capacity problem. We did not have enough capacity. And now we are really double down in terms of capacity in this space. So I anticipate that we're going to continue to make progress in mid-market. As we look at enterprise and strategic, there are certain gaps that we have from a product perspective. We will finish out those gaps. When we finish out those gaps, we will be completely competitive. That will allow us to go head to head with the competitors who you know. And that will mean that it will be game on in that space. We have had a rip and replace of competitors as well. We also have a scenario whereby we are actually running side by side with some of those competitors. So for example, at Mercedes-Benz in Germany, we are running side by side with ServiceNow. ServiceNow has a bigger footprint than us, but we are running side by side. Our goal, we're going to prove it out. We're going to prove that it works, and then we are going to expand. We have had a rip and replace for ServiceNow at CLEAR, the folks in the airport that gets you through nice and fast, where we had similarly at Saint-Gobain in Europe and many, many more. The goal that we have is we're going to continue to hire in that space. We're going to continue to expand our ecosystem as well. And then we're looking at new rights to market, for example, around managed service providers as well but very bullish on the opportunity and look forward to as we move up the pyramid in terms of enterprise and strategic as well.

Got it. I'm going to try to sneak one last one in, in 4 seconds. And really ending up where we started off on sort of the cloud transition, you guys have transitioned the server business successfully, much lower attrition than was originally anticipated and starting to see the expansion of those server customers now that they're in the cloud environment. Can you talk to us about on the data center side of the equation? You now have an end of life. You have the Ascend program to help people do that migration. How should we as investors think about 2 components? One, that time frame for migration, what's going to be some of the factors that will speed it up or slow it down? And two, what's the pot of gold at the end of the rainbow, if you will? What's the opportunity for a data center customer now that they're in the cloud environment? Is there that same type of broader expansion and upsell capability in the cloud for that data center customer?

Sure. Great. So firstly, we obviously announced this, and we -- I think it was a matter of when we were going to announce this, not if we were going to announce this. There was not a massive amount of turmoil in the market when we announce it, firstly. We obviously have various cohorts of customers in terms of complexity who are ready to move to the cloud and then some that we need to work closely with, like I said at the beginning, because of their complexity. We have spent a lot of time with the ecosystem to ensure that they are ready to support us from a capacity perspective to move to the cloud, and I feel very good about where we are now and also good about the ecosystem and the hiring that they are making, which is why we have the incentives that we do in place because we will reach an inflection point here with more and more customers moving. We track very closely when we sign to when a customer actually starts that project to when it's actually adopted to the point that we're tracking monthly active users down to daily active users now to literally see where they are in their journey. And then when a customer does move to cloud, obviously, the experience that they have from everything from a user interface, it's completely different to innovation is completely different because the ability to consume and adopt Rovo is there in the cloud. Their ability to do so from an innovation perspective is really limited in data center. So they will experience something completely different. And then from a sales perspective, it opens up a lot more opportunities from cross-sell and upsell perspective for us. I will say, at the same time, there is a fair degree of work for us to be done for some of our larger customers, no doubt. However, we are also working with some customers in terms of isolated cloud already. And I have no doubt that we're going to continue to make progress in terms of supporting these more complex customers who are also leaning in heavily with us as well.

Outstanding. Look, a lot of exciting stuff going on Atlassian in terms of an evolving go-to-market strategy, expanding solution portfolio, expanding scope of what you're able to do with the customers. So thank you so much for sharing that story with us at the Morgan Stanley TMT Conference.

Great. Thanks for having me.

Awesome.