Atlassian Corporation ($TEAM)

But yes, I want to welcome James on stage, newly appointed CFO of Atlassian. Thanks again for coming, and Martin for -- Martin is in the back. He has been with the company for many years and been a big supporter of our team. Thanks again for doing this.

Well, thank you, Brent, for having me. Hopefully, you guys can hear me okay, and thank you all for being here today.

Yes. James spent 13 years at LinkedIn, including 5 years as the CFO. And he basically took the company from $10 billion to $18 billion, so an incredible trajectory. Congrats on that. And for those that don't know you as well, maybe talk to why you made the jump over? It's been only a few months, right? And maybe just give us your first impressions, kind of first observations, and then ultimately, kind of what you think -- what you're really focused on over the next year?

Yes. As Brent said, it's been coming up on 2 months at Atlassian. And I would say there's no major surprises per se, but I would say I'm seeing more and more evidence in terms of what drove my conviction to the opportunity. And I'll speak to some of those areas. I think the first is just how I underappreciated, I think, how well diversified the business really is. For those maybe not following Atlassian closely, you could sort of pigeonhole it into a technology point solution for engineers, right? And while there is an incredible legacy of product-led growth that really started in that domain, when I looked much more closely to the opportunity and where it's at now and frankly, where it's been for several years now, is that -- Jira users, as an example, 65% of Jira users are knowledge workers. These are non-edge, non-dev. These are folks and teams sitting across HR teams, finance teams, legal teams and marketing teams. And that number is even higher for Confluence at 70%. And for JSM, our Service Collection, that's 75%. So an incredibly strong and diversified base in terms of the opportunity set across enterprises and companies. And that diversification, I think, also shows up in other dimensions in terms of the scale of the types of customers that we have, right, over 350,000 customers, everyone from SMB, all the way to enterprises as well. The other aspect is when I think about fundamentally where AI is now and where it's going and the companies that are going to be incredibly well positioned to deliver that type of value for customers durably. Right? A couple of things are happening. On the AI side, it's reducing the barrier to entry as it relates to coding, right? So you're going to see a proliferation of code. We're already seeing that coming out of developers. You're seeing a proliferation of code coming out of non-developer teams as well, marketers, legal, finance, et cetera. And you're seeing more innovation, more software, more applications being built day-to-day. And we see that in the hundreds of millions of workflows that flow through our platform. And so that's doing two things. One, it's creating a lot of proliferation as it relates to the need for planning, tracking, governance and collaboration. And that's exactly where Atlassian's platform sits. The other piece is then that not all AI is created equal, right? When you think about the agents and AI that is much more intelligent, it's going to need context. And I think we're seeing and hearing more and more of that right now. So when I think about Atlassian's 20-year history and the investments that we've made, not just in applications, but more and more on the Teamwork Graph that we've talked about is that we're able to deliver higher quality outcomes and outputs through that Teamwork Graph for our customers at a much better rate as well. So those are some of the things that really stood out to me, Brent.

This concept that AI can massively disrupt your end market, I mean, the stats are obviously really good to see because Joe in customer service and Benny in accounting don't really have a choice of ripping something out their business processes built there. What else has been maybe surprising to you in terms of the sentiment? I think you look at those stats, and that it's pretty telling that you're more installed and deeper ingrained in these workflows than I think people understand. But are there other things that have kind of stood out to you that perhaps the casual observer right now, we're just are getting, hey, everything is getting AIed? What else is standing out? I mean, this concept of the work graph and all the different applications you can use, the multiple products that you're adopting, I would assume if you're adopting multiple lines of your service, that's harder to AI, if you will. So anything -- those are just a couple of observations from my side, but anything else that...

Yes. Ultimately, I think the proof is in the performance, right? When I look at the outperformance that we had in Q3, it came from a couple of different areas. The first was cross-sell into our Teamwork Collection, and that outperformed our expectations. And that's really important because that's where -- it's the best vehicle to buy AI and unlock AI with Atlassian. So when customers think about AI right now, you can certainly buy single SKUs, Confluence and Jira and service -- our service management tools. But I think what we see over time in terms of the customer journey is that they go from single SKUs into a collection. And then they're seeing more and more value out of that collection and they buy more systems of work, right? So Teamwork Collection, Jira Service Management into Service Collection. And we unlock 10x credits for our customers. So it's the best vehicle for customers to actually unlock AI for their organizations right now. We're seeing that in our ARPU uplift when we monetize through Teamwork Collection and our other collections right now. So that's an area where we're seeing strong performance. We're seeing really strong traction, and that continues to play through. In terms of other areas of opportunity and maybe less so surprise, but we are still very early in the enterprise journey. We've been sort of evolving that go-to-market motion over the last several years, and it continues to mature. Brian and team are doing a fantastic job of that. And we shared some of these stats out at our investor forum a couple of weeks ago. The $1 million dollar customers cohort has grown 6x over the last 4 years, and they're growing at 39% year-over-year. And our $3-plus million cohort has 10xed over that same time period, growing at 54% year-over-year, and our fastest-growing cohort is our $10 million plus. And so as customers are continuing to adopt more and more AI and deploy more and more AI agents, we're continuing to take share in some of these really key markets. We talked about JSM, our Service Collection business, being $1 billion ARR business growing 30% year-over-year. Confluence is now a $1.5 billion business. Jira is a $2.5 billion business for us. And so a lot of opportunity to continue to grow into these different parts of the segments that we play in and all the different domains within those enterprises.

The's transition to cloud, it's a big catalyst, this end of life for server. Maybe just talk to the dynamic? I mean, if you look at the surface, I think total revenue growth slows, but the real focus should be on the cloud, right?

Yes, that's right. And that's a big part of the reason why we disclosed ARR recently, right, to really just showcase this overall business in the right light. It removes a lot of the noise as it relates to data centers. So for those maybe not following us closely, what's happening on the data center side is that in September of 2025, we announced our data center end of life. And what that did was create a couple of dynamics. One is there's ASC 606 rev rec that got pulled up from future periods into FY '26. That's one dynamic that we saw. Q3, the quarter -- our most recent quarter is our largest installed base in terms of expiry base for data centers. We had a pricing change going to effect in March of this year. And what we saw was that for customers that know that the migration to cloud is going to be a multiyear journey because of all the custom builds, all the change management and the very large user base that they need to make sure they migrate in the right way to preserve business continuity, we saw them pull up their business, right? They expanded and said, look, we're going to continue to commit to Atlassian. We're expanding, and we want to take advantage in the quarter. And so we saw a lot of that revenue also get pulled up into the period. The other dynamic that we saw then is for customers that are actually getting ready and active to move to the cloud, they're going to see much more muted expansion, right, which makes sense. As they move to the cloud, they will continue to expand there. And so those are some of the dynamics, and that's why we wanted to show that in FY '27, we'll see a revenue trough, a mechanical sort of revenue trough in FY '27 with reacceleration out in FY '28, but the area to really point to is ARR growing north of 20% and reaccelerating as well.

When you talk about the go-to-market, Brian Duffy, I think has done a really nice job and came from SAP, and kind of no one knows the enterprise better than SAP. So the conversations -- the limited conversations you'll let me have with him are -- it just seems like there is a lot of opportunity inside the enterprise. And so you mentioned, hey, things are going -- it's early, but things are going well. Kind of what are the other pieces in the enterprise that you're excited about that you're seeing that Brian and the team are doing? And maybe one thing to tie in, and my question was really tied into this is that we all do these partner checks, but the partners are visibly -- some of the partners are visibly upset, and I think it's intentional from you, where you're like, look, we're pulling this more direct. And so we may hear static from the checks, but that's not really reflective of actually what is going on. And that's intentional, I believe. So I think everyone wanted to hear just a view on that as well.

Yes, it's a great question, Brent. Brian is busy closing customers, so we'll try to get it in front of you on this, Brent. But I think a couple of things that we're seeing right now. If you think about the opportunity still on the enterprise side, we're in 85% of the Fortune 500, and yet it only represents 10% roughly of our revenue. And so if you think about then also the fact that we've got 150,000 Jira customers and roughly 65,000 JSM customers, that's 80,000 customers that we have yet to attach in terms of cross-sell opportunities across the enterprise as well. And so that motion is well underway right now. There's a lot of opportunity across both breadth and depth as we talk about all the different cross-sell opportunities into our customers and then all the different teams across customers as well, HR, finance, legal, marketing, et cetera, as well as the developer domain. So I think we're seeing a lot of opportunity there. The partner ecosystem remains incredibly important to us. And it's an area where we want to make sure we continue to fine-tune and work with them to deliver the right types of value to our customer. We want to make sure that we're incentivizing the right way. And ultimately, it is really helping customers get the most out of the Atlassian platform especially as we deploy more and more AI capabilities, making sure that both partners and our own go-to-market teams are ready to deliver that type of value and demonstrate that type of value.

And then from a cost perspective, obviously, going through a reduction in force is painful, but you had, I think, a 10% reduction. We've seen some pretty big ones, Intuit, others. And everyone will say, well, this is happening because the industry is starting to decay. That's the bear view. The bull view is this is going to be really profitable in a year or 2 years. I mean, how do you view what happened? And how do you view from your lens, these changes we're seeing in the industry?

Yes, it's hard to speak to sort of other companies and their decisions and how -- that they're making right now. But I think if I go back to the fundamentals of what's changing right now, right? We talked a little bit earlier about the barrier to entry on coding reducing, and that's going to continue to create more software, more innovation, more applications. And as a result, there's going to be a need for more planning, tracking and domain expertise, governance. And that's exactly where the Atlassian platform sits. And so when we saw the outperformance in Q3, as an example, that's customers telling us, listen, we want to unlock more AI with Atlassian. That was the outperformance we saw in Teamwork Collection. And we've got now over 1,000 customers in Teamwork Collection with over 1 million seats as part of that, and that continues to grow. And the other thing that we're seeing then is that it's allowing more domains to play in this space of creating more opportunity, more software, more innovation. The other piece I'm really excited about then is the Teamwork Graph, right? And we showed this at our Team '26, where we put Claude Code and we demonstrated 2 versions, one with Teamwork Graph and one without. Gave it the same repo, gave it the same prompt. And ultimately, we're able to show that with Teamwork Graph, we're able to demonstrate 44% higher quality outcomes at 48% fewer tokens. So that's an opportunity for us to continue to deliver value to our customers, right? Not all AI is created equal. We're demonstrating that through Teamwork Graph right now. And we have the ability, because we're also an open platform agnostic to models, to be able to optimize those models as well. There's a lot in that zeitgeist right now about token maxing and talking about making sure companies are responsibly managing those token costs. And I think Atlassian can play a big part of that.

You're a pretty global organization. And when you think about how that's playing a role, how do you think about the importance of what you've -- how you've architected and built it with Australia and the rest of the world? Maybe speak to the strength of why this is working?

Yes. I mean I think when we think about the opportunity, it really is a global opportunity. And we've seen really healthy growth across all of the geographies that we're playing in right now from an international perspective. In terms of go-to-market opportunity, there's still a lot within the U.S. There's still a lot within APAC and EMEA. And then there's other international domains and regions that we have yet to really scratch the surface on right now. That's an area that I'm working with Brian on to make sure that we unlock over these next several years. And so that's one aspect from a go-to-market perspective. And then from a global domain perspective in terms of the R&D investments that we've made, it really is at the platform level. Brent, you asked me this earlier about sort of costs and thinking about that. We've gone through an investment cycle on the R&D side over the last several years to build an enterprise-grade cloud to make sure that's enabled and ready to also build a unified AI platform. We're starting to see a lot of leverage come out of that right now. The fact that we're able to deliver things like Rovo Dev, the MCP Gallery, Jira agents, all within months and quarters. That's the type of acceleration and innovation that we're benefiting from through those R&D investments that we've made over the last several years. And so you're seeing that show up in the top line, but you're also seeing that, I think, in our cost structure as well. Our gross margins, non-GAAP, 88%. That's 3 points year-over-year. And a big part of that is because we're able to continue to optimize against those platforms that we've invested in over time. We're coming off on the other end of that cycle right now. And so I think that answers a little bit of your -- maybe question a little bit earlier. But again, we're taking a very global view of how we want to build that platform as well to be able to drive that type of leverage.

The one common thing with the partners, and a lot of our investors, they look at you and they say, okay, I got Act 1 with Jira. I got Act 2 with JSM. And everyone says, okay, what's Act 3? Is it Rovo? Is it the whole organization taking this and all knowledge workers? Is it some killer new app? And I don't know the answer, but -- and maybe we don't need an answer because you have so many products today that are -- you don't suddenly need this third superpower, but -- is there -- how would you describe that?

Yes. I mean, I think if there's a third act, it really aligns with our priorities that we talked about, which is AI, enterprise and system of work and more and more driving durable, profitable growth. So let me hit on maybe a couple of those. When we think about what AI can help drive for both Atlassian and ultimately, our customers, it's coming through Teamwork Graph, where we're going to meet customers where they are, right? Customers that are very tech-forward, and they've stood up sort of internal engineering teams to build their own agents, et cetera. Atlassian is open by design, right, open by design, and that's how we really think about our platform. And that doesn't mean we're giving away value. What it means is it's actually compounding the value. When you think about what Teamwork Graph really does, it sort of packages all the different contexts that happens within enterprise workflows. Right? So right now, customers can invoke a Jira ticket certainly through API or MCP, but they're going to get a lot more coming directly to the Teamwork Graph, right, whether that's through their own agents, whether that's through agent to agent like we introduced through our Jira agents. And some customers are going to want Rovo out of the box, right? They either don't want to spend the time or resources building for that. They can get Rovo out of the box and deploy the types of agents that will serve their organizations and their teams best, whether that's sitting in marketing, whether that's sitting in finance, legal or engineering developers as well. And so there's different sort of mediums, if you will, in terms of the types of agents and agentic workflows that we can provide for customers to meet them where they are.

Your best deployment of AI internally, how would you describe that? Is it inside R&D? Is it in service? Is it -- maybe it's across the board, but how do you describe your adoption of AI internally?

Yes. It's -- if there's maybe one thing that was a pleasant surprise for me is just how AI-native and how AI-forward Atlassians are, writ large. And that's not just the engineering team. It's not just the product team. It's actually across the board. Finance teams, marketing teams, they're going deep on Rovo, creating their own agents, really rethinking and rewiring the workflows underneath. That's been a really pleasant surprise. It's -- I've built more agents there in my time in these last 2 months than I have in the last year. And so I think that really speaks to the culture of it. And from a development perspective, where is this all going? It's showing up in our product. It's showing up in feature releases and product releases like Rovo Dev, like MCP Gallery, like the Jira agents that we talked about and ultimately, at the platform layer as well. When we think about building AI for Teamwork Graph, Teamwork Graph serves all of our collections. It serves all of our applications. And so you're seeing that come through as well.

Mike, your founder, co-founder has been on a lot of podcasts. And I'll go on a walk and listen to it, and he keeps talking about 20% growth, 20-plus percent growth, like we're in this, and we -- I just don't see the AI destruction that Wall Street keeps talking about, yet your multiple keeps fading. So this -- I guess, the question I get is this conviction level in this durable growth engine, it doesn't feel like you guys are giving up on that yet. Investors are questioning right now, maybe it's the excitement of memory and the AI party going on in infrastructure and everyone's left the software complex, which I think is partly true. But what -- I mean, if you keep putting up these type of growth rates with this type of margin at this multiple, I don't know how that continues. Something's got to give, and...

Yes. And look, I...

I know that's our question for the multiple, but...

That's right. Brent, you and the team are sort of the experts on that. What we're focused on right now is making sure that we're taking and delivering real value for our customers. And it really has to just continue to show up in the performance. And I think the Q3 print really reinforced that in terms of how AI is showing up in our products, how it's showing up in our monetization as well. So we're going to continue to execute. And as I mentioned, whether it's the go-to-market enterprise opportunity and the motions that we have there, whether it's through Teamwork Graph and the acceleration in the products that we're continuing to deliver, we have a lot of opportunity still ahead of us right now. So that's an area that we're going to continue to focus on our execution.

Okay. And where the stock is now in terms of your cap allocation, I mean, how do you feel about this?

Say more, Brent?

Just in terms of capital allocation, in terms of buyback, M&A?

Yes. I mean, look, I think when we think about capital allocation, we first think about the opportunity that we have to serve our customers, right? Organic growth opportunities where we see the highest impact, highest ROI and opportunity. We think about tuck-in acquisitions and opportunities there as well. And I think we've made some of those over the past. And then when we think about repurchases, we've been aggressive with repurchasing in Q3. Q4 is on track right now. And really thinking about those 3 pillars in terms of returning capital and making sure that we're driving durable value for our investor base, for our customers and for our employees.

And monetizing AI, the industry is still -- it's tiny today in terms of the monetization for the software industry. But when do you think this can be more measurable and more material? Is it a '27 event, '28?

I think different companies are on different arcs of that right now. I don't think it's one size fits all. I think what we're hearing writ large from our customers is, as it relates to AI, is they do want to unlock AI. We're seeing that in our performance in things like Teamwork Collection, where they get 10x more Rovo credits and the growth and opportunity that we see there. But they're looking also for predictability, right? We're hearing a lot right now about token maxing and making sure folks are being really mindful about the tokens that they're spending right now. And so they're looking for predictability. And they're also looking for the ability to load balance those AI credits as well, right? So for any enterprise and organization right now, oftentimes, what we see and what they see is that they'll see hyper users of those credits, and then those that are deployed, but not necessarily using those credits. So it's helpful for them to be able to take a package of credits and tokens and being able to load balance that across their organization as well. Right now, for Atlassian, the best vehicle to monetize AI and the best way for our customers to unlock AI is through Teamwork Collection because when they buy into that collection, they are getting 10x the Rovo credits. And we're seeing a lot of traction with that right now. We see that Teamwork Collection customers are using 2x more credits than those on a stand-alone basis. They're deploying 2x more agents, which then in turn consume more credits as well. And for Rovo customers, we're seeing credit usage grow 20% month-over-month. So a lot of traction on the AI side there. It's being monetized, and we're seeing that today through ARPU in our Teamwork Collection. And I think over time, that may shift over more to consumption, along with seats. And we also introduced our Flex program as well. This is a single wallet for customers, our largest really strategic customers to go all in on the Atlassian platform. That's access to the entire suite across our collections, across all of our applications and being able to unlock all of those credits across all of the different applications and load balance against those applications in terms of the value. And so through Flex, they're able to actually drive the type of value that is most meaningful for them across the entire platform.

Thanks, James, for coming. Really appreciate your time, and it's great, great having you.

Awesome. Thank you, Brent. Appreciate it.