Good afternoon. Thank you for joining Atlassian's Earnings Conference Call for the Fourth Quarter of Fiscal 2019. All participants will be in listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Atlassian's website following this call. I will now hand the call over to Ian Lee, Atlassian's Head of Investor Relations.

Good afternoon, and welcome to Atlassian's fourth quarter fiscal 2019 earnings conference call. On the call today we have Atlassian's Co-Founders and Co-CEOs, Scott Farquhar and Mike Cannon-Brookes; our Chief Financial Officer, James Beer; and our President, Jay Simons. Earlier today, we issued a press release and a shareholder letter with our financial results and commentary for our fourth quarter and full year fiscal 2019. These items also posted on the Investor Relations section of Atlassian's website at investors.atlassian.com. On our website, there is also an accompanying presentation and data sheet available. We'll make some brief opening remarks and then spend the rest of the call on Q&A. Statements made on this call include forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent our management's beliefs and assumptions only as of the date such statements are made. For further information on these and other factors that could affect the Company's financial results is included in filings we make with the Securities and Exchange Commission from time-to-time, including the section entitled Risk Factors in the most recent Form 20-F and Quarterly Report on Form 6-K. In addition, during today's call, we will discuss non-IFRS financial measures. These non-IFRS financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with IFRS. There are a number of limitations related to the use of these non-IFRS financial measures versus the nearest IFRS equivalents and they may be different from non-IFRS and non-GAAP measures used by other companies. A reconciliation between IFRS and non-IFRS financial measures is available in our earnings release, our shareholder letter and in our updated Investor Data Sheet on our IR website. I will now turn the call over to Mike for opening remarks before we move to Q&A.

Good day, everyone. Thanks for joining today. Fiscal 2019 was another outstanding year for Atlassian. We surpassed the 150,000 customers and exceeded the $1 billion revenue mark for the first time in a fiscal year. We achieved this while generating more than $400 million in free cash flow during the year. I am incredibly proud of the work of more than 3600 Atlassians who come together each day to build the great products that our customers love. Our customers have always been our guiding light. Over the past 17 years, our commitment to these customers has led us to make pragmatic decisions about the evolution of Atlassian and our products. Today, that’s leading us towards the cloud. Demand for our cloud products is increasing both from new customers and from existing customers using our on-premises products. It’s natural that the cloud is our primary focus and the key driver of our growth. In fiscal 2020, we will continue to invest deeply in improving and expanding our cloud offerings and platforms. We will also be investing to serve larger customers in the cloud, as well as to accelerate the pace of migration of server and datacenter customers to our cloud. Our pricing and packaging strategies will be vastly aligned with these goals. Scott and I have always been focused on driving sustainable growth over the long-term. Our increasing cloud focus supports this long-term view. In James’ section of the shareholder letter, we outlined the financial implications of our cloud strategies in fiscal 2020 and we encourage you to read his commentary. And with that, I will pass the call over to the operator for Q&A.

[Operator Instructions] The first question comes from Bhavan Suri with William Blair. Please go ahead.

Hey guys, it’s actually on for Bhavan. Just wanted to start off with the premium model that you talked about in the shareholder letter. It seems like this is a nice shift to the strategy. Just wondering why this is a right time to go premium in the cloud first, specific cloud products. And then what do you think is the benefit over offering a one week or a one month trial for customers?

Hey, Arjun. It’s Mike. I can take that.

Sure.

I guess, I would start by saying it’s, firstly it’s not really a shift in the strategy. We have free versions of a whole series of cloud products today. And we have always tried philosophically to have the lowest entry point price that we can. A lot of our cloud investments over the last couple of years have made this possible. So this is sort of the – from that point of view the combination of a longer term journey in the cloud. We have always tried to get to get off to the Fortune 500,000. We’ve got to have as many on-rents as possible to get customers onboard as frictionless as possible at the low end. And then, we deliver them value in terms of the products and then as they grow they will start to become customers. That’s always been our pricing desire. So this is just another step on that journey in terms of getting after the Fortune 500,000.

Great. Thanks. And then, maybe a quick follow-up. But just trying to get a better understanding of where customers are in the migration path, especially larger customers from server or on-premise to cloud? Is this something that your larger customers have planned already? Or are we still too early for that and something you expect to play out over the next few years here?

Hey, Arjun. It’s Jay. It’s been playing out over a while. I think the signal that we articulated in the letter is that we are seeing increasing demand from a lot of on-premise customers many even larger to consider moving to the cloud. And that’s been ongoing and we anticipate it will be ongoing. And maybe, there is a couple of great examples of, like really large U.S.-based assets firm that’s beginning to plan a move to the cloud and that’s a large existing server customer that has 8,000 users of JIRA and 10,000 users of Confluence and on the other side of that cloud journey, they can anticipate taking it up to 15,000 users. There is a large European acrylic clothing manufacturer that’s going through the same journey. And a lot of the catalysts for it is just the broad secularship that’s been happening around us in the market where 90% of new customers are in the cloud. But a lot of it is these large customers see the investments that we made in cloud and these advantages that cloud brings them in terms of performance, the ability to have the service managed and update it for them. And then more reliability in some cases.

Great. Thanks for taking my questions and congrats on the quarter.

The next question comes from Gregg Moskowitz with Mizuho. Please go ahead.

Okay. Thank you very much and good afternoon guys. So, I was at Atlassian few months ago where you offered all attendees up to 2000 free cloud software licenses to accompany their on-prem licenses. And obviously, it looks like you’ve now opened this offer up to your entire community. And on a matching basis as well. Would it be fair to conclude that, as a result you seen high levels of interest in activity from that promotion a few months back. Any color kind of around that in terms of what you’ve seen from customers will be helpful?

Hey, Gregg. This is Jay. I think it partly was response, it is in response to the lot of interest in the cloud and the goal of just making the journey that customers are considering easier for them. And part of that is in the offer that you mentioned and in the matching cloud trial license that we are offering existing sort of customers so they can begin to plan that migration. The other component is just the investments that we made in product and migration tooling. I mean we have the migration tooling has come a long way from where we’ve had the opportunity for customers to export and import and now I think some really innovative work in helping them move project-by-project pieces of JIRA and Confluence from their on-prem installations into the cloud. Being over the broad backdrop of that is in response to where customers are signaling they want to go and our goal is to make that is as smooth and as friction free as possible.

All right. That’s really helpful. Thanks, Jay. And then, congrats as well on pitching 150,000 customers and you’ve now provided another long-term goal of more than 100 million active users versus over 10 million cloud MAUs today. And we look forward obviously as track in that progress as you continue to grow. But my question there is, if you could talk to the investments required in infrastructure and engineers and in acquisitions that you think are required to make this goal a reality. Also, does this require an accelerated multi-year investment in cloud or would you say that you are currently on a good pace from an investment standpoint?

Greg. It’s Scott here. I can take that. The investments we are making on the cloud, we’ve been a cloud company for ten years and we are making continued investments in improving our cloud for our customers. As Mike mentioned earlier, some of the investments around – we talked about which was moving our cloud off our own datacenters into third-party datacenters has allowed us to reduce our COGS. So we can offer a free version. Investments we’ve made in infrastructure and platform have allowed us to bring access and use management product to market. They’ve also allowed us to get a premium product to market as well. So we made a lot of investments over the time that are paying off now. As Jay mentioned, we are making investments in migrations as mentioned that Confluence we’ve got a great migration tool and we are continuing to improve it. And that’s going really well. We are investing in JIRA migrations tool as well which we expect to have be similarly successful. And over time, one of the things this year is, going through that journey of migrating customers with some of the largest customers of us to the cloud. And through that, we will – I am sure that we – little things we discover that we will be working with our customers on. But broadly I don’t see a change in our investment mix in order to do this. It’s more of continuing what we’ve been doing along.

Terrific. Thanks very much guys.

The next question comes from Heather Bellini with Goldman Sachs. Please go ahead.

Heather, are you there? Heather? Operator, could you move to the next question first please?

The next question comes from John DiFucci with Jefferies. Please go ahead.

Thank you. So, Mike and Scott, you talk about the opportunity to help your customers migrate to the cloud. I guess, given your new name, are there any thoughts around the undersea opportunity? That’s a bad joke. I am really sorry. But, the real question is…

We are laughing, John, a lot.

The real question is this. Is there a reason that cloud is better for Atlassian, like pricing, stickiness, or is this just doing what customers want which seems to be part of your DNA and part of your success all along or is there something else though that from a financial perspective, cloud would be better than on-premise deployments?

So, John, we’ve always been customer lighting what we do and that’s all we have both deployment options at the moment and we are not trying to pushing our customers one way or another from a financial perspective or any other reason. We are very happy with kind of both sides of our business. The demand is there for customers to go to cloud. I do think that as, when customers are in cloud, it allows us to – you get free to use this information that allows us to be a bit sharper with our R&D investments. It doesn’t shown up in any balance sheet or P&L or anything like that. But it does allow us to kind of build better products quicker. I mean, it allows us to cross-sell our products easier, because they are on the same system. They can suddenly, we can expose them to – mean to set anything up playing in their environment. So it allows us to do that. From a reality perspective and helping people sign up to products it allows us to effectively and with all the analytics we’ve got, we can make sure that people go through that journey quicker. I mean, I think we shared in our shareholder letter that the financial results over the long-term are marginally better for us at Atlassian and we feel good about that as well.

Okay. That all makes sense. Thank you.

The next question comes from Nikolay Beliov of Bank of America Merrill Lynch. Please go ahead.

Hi, this is actually Jacqueline on for Nikolay. Two questions. First, in light of the fiscal 2019 billing seasonality, how should we think about fiscal 2020 billing trajectory? And number two, how do we think about the use cases of the premium edition? Will the channel be involved in selling premium?

Jacqueline, I can take the first one. Now, just a reminder obviously, we very much focus much more on revenue than billings and that’s for the fact that it goes deferred revenue is a relatively small part of our overall sales picture, particularly the long-term deferred revenue, because we really don’t enter into very many multi-year contracts at all. And then when you add to that across the cloud business growing very strongly as we’ve been discussing and more than three quarters of that comes with the monthly subscription. So those are some of the key reasons why we really focus on revenue as opposed to billings. So, as you know, we then guide to billings in fiscal 2020. But what I would just observe is that, in the last couple of years, the billings pattern has moved around somewhat based on the timing of price increases that we rolled out. So, for example, in fiscal 2019, last year, we announced some price increases in the middle of September. And so, there, we saw pull forward activity occurring to benefit Q2 and that benefit was pulling activity from the second half of fiscal 2019 and in fact from fiscal 2020 and even beyond that. Now, conversely, in fiscal 2018, we announced price increases a little earlier, right at the start of September. And in that year, the pull forward benefit was really balanced between both Q1 and Q2 and that benefit was pulling in part from Q2, but then more so from Q3. So that’s really all I would just remind everyone on, obviously we haven’t made any price increase announcements for fiscal 2020. But that gives you a sense for the recent historical pattern and how price increase activity can impact billings by quarter.

Hey, Jacqueline, this is Jay. I’ll tap on to the second part of your question. There is two kind of unique components to the premium cloud additions. The first is kind of common across them which are platform capabilities that offer a higher level, higher service and support level and in some cases depend on the product higher storage levels as an example. The second component is, premium features that really target more advanced and sophisticated users that are specific to the product. And so, roadmaps in JIRA or usage analytics in Confluence are two of the examples. And so, the customers that premium editions target are, can be small and just more sophisticated users, but more often than not will be larger. So that’s we were talking absolutely the channel is engaged in selling and supporting customers, both upgrading from standard cloud to premium editions, but in many cases just starting with premium.

Thank you.

The next question comes from Keith Weiss with Morgan Stanley. Please go ahead.

Hi, this is Sanjit Singh for Keith Weiss. Congrats on a very strong Q4. I had two questions. The first is on the sort of cloud unit economics if you will. You had a really nice chart in the earnings letter and it basically shows a breakeven time between cloud and server of about two years and about a 40% higher lifetime value. So, there may be dovetail on John’s question, what do customers get for that for paying that extra 40% over five years? Is it more about the performance scalability? Or some – is there a feature functionality aspect with this as well that gives the maintenance-based customers that nudged over to cloud?

Hey, Sanjit, look, from a pure value point of view, the – probably the biggest difference they get is, obviously we are doing all the operations and maintenance of the software for them. So if you think about someone paying a licensing fee they then have to download, have their own server in-house, run their own upgrades, patches, et cetera of the software, that takes time, as well as integrating it, connecting it to other things, administering it, that is a large list that we can take off them. That’s often well more than the price of the software itself. Obviously, we can provide that at a small uplift over a multi-year period as you said but we can scale that cost across many, many instances, right. Obviously, we are deploying tens of thousands of servers if you want to think about it virtually on a constant basis, we’ve automated all that and we can spread that cost across a lot of customers. At the same time, they get a better updated, more frequently updated application that should be faster, more secure, more scalable without then having to do anything. That’s the goal of the cloud is that they just sign up with ten users and they can go all the way to 10,000 without really having to think too much about that scale effect. That’s exactly what we do in R&D and engineering teams to make sure that all haven’t fallen. And obviously any new innovations, all the way through new security patches, get applied instantly. They just appear sort of magically for them. So, it’s a far better offering. It’s generally the premise behind their cloud software.

Understood. That’s really helpful. And if I could revisit the pricing strategy question, so for the last two years, I think about two years ago we moved to this cadence of annual price increases and the view was that was going to be more predictable for the customer base to expect that on an annual basis. It seems like this year is a little bit of an anomaly and I am wondering is this sort of a – should we look at this fiscal year 2020 as a sort of anomaly given the sort of push to cloud and that we revisit that annual price increase on the server base after fiscal year 2020. Or has the cadence on pricing changed with this cloud push?

Well, the first thing I’d say, Sanjay, is that, as we think about pricing and packaging, we continue to be very focused on remaining the high value, low price leader. And we have said in the past and continue to believe that, well within that construct have continuing opportunities to make price changes very much commensurate with the value that we are delivering to our customers. Now, obviously, we’ve been talking quite a bit on this call already about our focus on the cloud and continuing to really bring more and more customers, be they current, via migrations, or new customers into the Atlassian frame. And so, I would expect that benefits around price increases on the cloud side of our business would probably be less so in fiscal 2020 than was the case in fiscal 2019. Now, again, we haven’t made any announcements about price increases more broadly. But I think that’s a reasonable thing for you to consider.

The next question comes from Michael Turits with Raymond James. Please go ahead.

Hey guys. Thanks. I think – can you peel down on Gregg Moskowitz’s question about any change in financial impacts required on investments. Just extended to the long run, obviously they are new in the cloud in any cases seems like an acceleration. But the relative difference we should think this in the long-term is that OpEx or CapEx framework anything that was a previous impacts on gross margins net of CapEx we anticipated, or any grades that we might expect in terms of significant changes over a multi-year period?

Yes, so, Michael, as we think about the cloud continuing to become a larger and larger proportion of our overall business, I would expect that to have some impact on our gross margins. You would expect obviously as Mike was pointing out, we are doing all the work of operating the software on behalf of the customer. And so, you would naturally expect that to be an increase in the proportion of cost of goods sold. And indeed we have in the last couple of years being investing quite significantly in the sort of physical infrastructure to make sure that our cloud customers wherever they are in the world have the sort of response time, reliability that they would look to receive from a cloud services. But at the same time, I am very pleased with how as we work with AWS, we find significant opportunities to continue to make more efficient usage of the cloud infrastructure. And so, you can expect us to continue to be focusing on that over time. And then of course, there are other lines embedded within cost of goods sold and areas such as support and we would look to continue to seek efficiencies there as well. And so, it’s a mixture of a variety of effects around gross margin. Net, net, I’ve been pleased with how we continue to progress on the gross margin line and in terms of capital expenditure, the way our relationship now works with AWS really the capital expenditure related to cloud infrastructure sits with AWS on their balance sheet. And our capital expenditure is very much driven by our own physical facilities around our primary offices. So, I wouldn’t expect the growth of our cloud business to particularly be driving that CapEx line per se. We will see that effect flow through operating expenditures as we work with AWS.

And then, James, a follow-up for you on the guidance of this year and I don’t know as it related to the cloud push or not. But your guidance, margins, op margins is down quite. I assume some of that is from the Agile acquisition and maybe you can specify what’s that impact is. But if you look at the - from ops, so as it comes down about six points, I understand both from the math again is about two of that $30 million comes from higher taxes, but – and still more impact to cash flow in the next – taxes. Can you specify that for us?

Michael, the first thing I would say about margins is, I am very pleased that we’ve been able to grow in fiscal 2019 both the operating margin up a point and the free cash flow margin up 2.9 points year-over-year. And as you know, we’ve been saying how we will continue to look to build our margins, both operating and free cash flow over time. And so, the guidance that we’ve put out today, as you correctly indicated in your question, on the operating margin line, one of the key impacts there is the acquisition of AgileCraft now branded JIRA Align, because remember that that has a more of a services components to the business model and of course for certainly the first three quarters of fiscal 2020. We’ll be working through that typical deferred revenue haircut that comes along with an acquisition. So that will particularly impact that. And then on the free cash flow guide, again, you can correctly reference there, a quite sizable swing in cash taxes year-over-year. So, in fiscal 2019, we actually received $7 million of cash related to taxes. I would expect that to return to much more normal situation in fiscal 2020. And so, net, net between the two years, it will be a swing of around $30 million approximately in cash taxes. So, that will have an appreciable impact on the free cash flow margin. The other thing I would note on free cash flow margin of course is the capital expenditure. We have indicated it will be $30 million for fiscal 2020. So that will be down quite substantially year-over-year and that just reflects going back to my facilities point, though we’ve worked our way through some of the key facilities projects that we’ve been working on in fiscal 2019, hence a smaller capital expenditure projection for this year.

James, we have still the delta, in other words, it’s still coming down a lot more on cash flow margin and you are on EBIT even accounting for the taxes swing. So why don’t you…

Yes, the only thing I would further add is, we are coming off on a very strong year on cash flow. And so, again, we would look for these margins to build over time and we had a very strong build in fiscal 2019.

Thanks.

The next question comes from Alex Kurtz with KeyBanc. Please go ahead.

Yes, thanks for taking the couple of questions. I was just going to go back to the opportunity around cloud within sort of expansion rates within existing customers. Could you just kind of outline for us again what you see as far as adoption and expansion rate maybe by users within your larger customers when one customer goes the cloud path and the other one goes the on-prem path? I mean, is there a way to quantify that for us a bit?

Alex, this is Scott here. I've already given the specific numbers around that, but I’ll give some adding thoughts that are very exciting for us. We’ve got a growth team here at Atlassian who run a lot of growth experiments, maybe similar to what you see in some consumer type companies and that team has grown pretty substantial over the last year. And we’ve had some really successful experiments cross-selling I’d say, JIRA into the – Confluence into the JIRA bytes, which is very well overlapping product in server, very well overlapping product in cloud, but because they are running those products in the cloud, we have the opportunity to run these experiments where we can adopt the unifies promote something in product and see if it works before we spend the effort in productionizing it and rolling that to our entire base. And so we’ve seen that work in those particular pair of products over the last year which is a focus area. We are expanding that to look at other product components in the coming years. And again stuff that we can do in the cloud, we have done in the server, but it’s a lot harder and takes longer to see the returns.

Okay, thanks. And the comment in the shareholder letter around the one point of revenue headwind for the year around these changes that you guys have outlined today. Is there some way to kind of outline, is this a base case assumption on the uptick in subscription in cloud? Is it back-end loaded as far as how you think that that headwind is going to play out during the year? Just any kind of additional context would be helpful.

Yes, I would say, obviously, we talked in the letter about that being really three drivers of that one point. So the free editions, the free cloud trials to our current behind the firewall customers and then the revenue recognition mix effect, that mix effect would be occurring throughout the year. Obviously, the free cloud trials and the free additions that will start to play through as we implement those initiatives. So you will see that come in the fullness of time during the year.

Okay, thank you.

The next question comes from Jack Andrews with Needham. Please go ahead.

Well, good afternoon. Thanks for taking my question. I want to ask kind of a high level question just about your overall product development efforts. I mean, can you shed some light on, I guess, it’s a framework perhaps that you are using for resource allocation. I mean, you’ve got a lot of things going on in terms besides the push to the cloud, you are introducing net new categories, things like align and in some cases to a new user base. So, I mean, could you just talk about how you're prioritizing spending more time and efforts are some of these other efforts versus adding incremental functions to your existing products. Is it a way to kind of rank order your product development priorities?

Yes, it’s Mike. I can take that. Look, there is no simple and easy way to communicate that. It's I would say it’s something that we spend a lot of time thinking about. We’ve got a lot of history of doing that. You mentioned a few acquisitions. Obviously, we realize it’s very important to integrate acquisitions in the right timeframe. Sometimes that’s faster, sometimes that’s slower. If you look at something like Trello, we’ve invested a lot in growing a Trello business, but not so much in integrating it in the short-term and not seeing it the opposite way around. And so we make, I would say, horses for courses decisions depending on what that is. We at the same time do obviously try to lean into the future. So you can see a lot of our resource allocation is going into the cloud while also the same time being practical a about making sure that our on-premises customers get the improvements that they need in those applications. I would say, we are constantly making decisions on how we move resources around while also at the same time growing. We also have a global problem to constantly mange where resources are around the globe. We have been doing very well in Bengaluru. I was just there couple of weeks ago. We have passed 200 staffs there now in India and continuing to grow really strongly. And where we put resources around the world and how new those resources are can affect how – what projects we can put into. So, I would say, we are really good at managing that on a global basis now and pretty comfortable with where we sit. But there is no singular framework we use.

Well, that’s great perspective and just as a follow-up, is there any update in terms of how you are thinking about the enterprise advocate role at Atlassian? Do you feel you need to add any more resources in this area just given again the emphasis of the cloud, changes in pricing, things like that?

Yes, hey, Jack, this is Jay. I mean, we are growing the team and we’ve been growing the team over the past handful of years. There will be a material change, but we’ll continue to add enterprise advocates in sort of direct sales as we attack the opportunity. I think, keep in mind that the business model, I think what makes our business model so powerful is the combination of three things. This high velocity flywheel that really focuses on enabling customers to self-serve and that just allows us to reach massive global volume of customers that can start easily on their own. That’s number one. And two is, our direct enterprise advocate sales team and they can focus on targeting high value expansion opportunities that exists within our largest customers. And the third is the channel. And often times, our direct teams are working hand-in-hand with the channel on the expansion opportunities that tend to be accompanied by and service delivery work that the channel is enabled to help with. And that’s what makes it so great. We can land even the largest accounts really efficiently and we create this really fertile ground for our channel and our direct teams to expand from.

Got it. Thanks for taking my questions.

The next question comes from Derrick Wood with Cowen and Company. Please go ahead.

Great. Thanks for taking my questions. My first one, James, it was a little surprising to see maintenance growth actually accelerate this quarter and then on the flip side, a steeper deceleration on subscription growth. Are there any puts and takes that you’d call out in terms of the revenue mix this quarter? And then, how should we think about how much license and maintenance growth steps down next year as you focus aligning the cloud?

Yes, so for Q4, we are pleased with the maintenance growth rates. Obviously, you are starting to see the price increases from really the last couple of years layering into that figure now. On the subscription growth rate, the behind the firewall component of that subscription revenue line had a particularly strong comp back in Q4 of fiscal 2018. And so that's really what drove the result there in this past quarter. We are continuing to be very pleased with our cloud business, our marketplace business and our datacenter business in terms of growth. As we’ve been discussing now for the couple of years or so, we would expect that gradually over time, the license maintenance side of the business doesn’t grow strongly. And that you see that flowing through in the strong growth of the subscription growth line that we gave you a steer on the focus for 2020 with growth expected there of greater than 40%.

Great. Thanks. And then, I guess more of a product question regarding the new free cloud license for on-premise customers. Can you give us a sense as to how long those customers will get the free license and at what time period they’ll have to start paying added fees for the cloud service?

It’s Scott here. The premium model, you know, there is many different way that the companies do that. We have free trials for many of our products and we have premium for many of our products. For the free trials, there are generally couple weeks. But what we are talking about here is moving many of our products from a free trial approach to a premium approach where there is effectively a speech out or user limited version of our product that are free forever and we found through the experiments we’ve done over a long period of time the fact that we have multiple products, we use different proxy models that the premium approach while also it has some short-term headwinds in terms of revenue for us actually provides the best long-term sort of revenue for us as a company. And as Mike mentioned earlier, when you are off to the in a Fortune 500,000 and the markets are so large, that’s the trade up we will make every day of the week trading up some short-term revenue for long-term customer acquisitions. So that’s what we are talking about. We have free trials and moving to a premium feature and user base to our model.

Got it. Okay. Thanks.

The next question comes from George Iwanyc with Oppenheimer. Please go ahead.

Thank you for taking my question. So, you had really strong growth with your larger customers once over 50,000 and 500,000. Can you give us a sense of the factors that are driving the expansion there and maybe also a sense of the penetration of your newer products with those larger customers?

Well, the factors are a couple things. One we’ve created in both the on-prem business and now in cloud with premium edition. Really important upgrade opportunities for those customers as they continue to scale. And so that’s one factor. We’ve also expanded the portfolio. So we have more products to talk to those customers about that are meaningful. And we are doing that well. I think those are kind of the two things that are contributing to growth in both customers that are spending more than 50K and customers that are spending more than 500k. There is still a lot of latent opportunity for us to continue to do that. And in concert with the stronger signals of the cloud, I think we are really excited about the opportunity for premium additions in the cloud as both a similar upgrade path for just the existing cloud base that’s on standard. It’s on the version of cloud that exists today. But also as server customers consider the move to cloud that got the opportunity to either stay on-prem with an upgrade path to datacenter or to move to premium version of our cloud products. And both those are opportunities I think to increase the two cohorts that you described.

So, with the multi product opportunities that are opening up, can you give us a sense of just the competitive landscape? Are you seeing yourself go up against more companies with the larger customers?

Not materially. I think it is a competitive landscape as we’ve described before it’s different by product and by category. I think we’ve got a really strong – I think advantage with just our existing base and we are extending from a lot of these products are deeply connected into – as an example JIRA. And so the JIRA forges an opportunity with the champion and it kind of a key fanatical base inside of our customers where they are going to look for the best product that actually allows them to extend or to weave kind of capability to an adjacency like IT operations management or incident management. So, option here is an example benefits a lot from the existing JIRA software base of 55,000 customers. And part of the momentum that we are seeing and not changes exactly related to that. And so, the competitive landscape doesn’t change. I think we lean into our advantages and we are focused on building the best products in any category. And then using all the levers that we can introduce that product to the customer.

Thank you.

The next question comes from Keith Bachman with BMO Capital Markets. Please go ahead.

Hi, thank you, James. I am going to start with you. You did mentioned or talked about the pricing impact to subscription. I wanted to extend that. If you thought about the guidance that you gave is pricing net-net still a tailwind as you think about the overall opportunity associated with FY 2020?

Yes, it’s a reasonable way to think about it

And specifically you said, subscription would probably be less so in 2020 than 2019. Is that broadly true of the balance of the portfolio as well?

Well, just to be very clear. My comment was around the cloud part and remember there are two parts to the subscription revenue, there is datacenter, as well as cloud. But for the cloud part of the business, I would expect price increase activity to drive less growth for us than was the case in fiscal 2019.

Okay. And if you could just answer that broadly speaking, is that true for the rest of the portfolio or?

I wouldn’t really extend the commentary beyond that. Obviously, we haven’t made any pricing announcements yet to our customers. We just wanted to give you a sense on what might be helpful in some of your modeling.

Okay, great. My second question is, could you provide any update on align? Just any kind of traction or metrics associated with that particular offering?

Hey, Keith, it’s Jay. No metrics No metrics. But in terms of traction really pleased in just the response that we've seen from customers and the momentum we saw in the first quarter. I think the timing of the announcement with summit certainly helped and I think you heard, I think you were absent. But you heard some of the interest directly from Mike at ANZ Bank on the stage when we talked about their interest in Agile transformation and the consideration set around JIRA Align and AgileCraft prior to that. Q1 was our first full quarter with the team integration pipeline channel enablement, all those things are humming. We're pleased with the results.

Okay. Yeah, Jay there did seem to be a lot of interest at your User Group event. So, thanks very much for the questions.

The next question comes from Rishi Jaluria with D.A. Davidson. Please go ahead.

Hey guys, thanks for taking my questions. Nice to see continued strong results. Two kind of broad classes of questions. First on the cloud migrations and then I've got a follow-up on Trello. But on cloud migrations side to kind of piggyback off Sanjit's observation earlier, in the chart that you gave us is really helpful when you talk about, it essentially comes out to about a 1.4x uplift from server to cloud or even if we look at year five maybe close to maybe 1.6x, 1.7x uplift. I know with other software companies when they've talked about migrations to cloud, they've talked actually about a 2x to 3x. So maybe just help me understand why the delta? And it feels silly complaining about it. But why is that uplift not bigger? And alongside that, in terms of driving the migrations, should we start to see something like cloud-only features or cloud-only products as an incentive to help customers migrate? And then I've got a follow-up on Trello.

This is Scott, I'll answer the first part, which is the cloud migrations and the uplift. Firstly, it's an illustrative example we’ve put either the document. At each segment, there is different pricing characteristics. Two, is that, we have always been patient for revenue with our customers and making sure that there are less barriers to move across to the cloud is very important for us as well. And so, a lot of the pricing, we set there is to help customers move across to the cloud.

Okay, got it, thanks. And then, just in terms of from a product perspective, anything in terms of should we expect to see cloud-only features or cloud-only products to help kind of incentivize customers to migrate?

Yeah, it's Mike here. We do have a series of cloud-only features and products, if you think about it. So OpsGenie, Statuspage, Align are all cloud-only products that are Align that support on-premises instances in terms of the data it can attract. And then you've seen us introduce specific cloud-only features like Access and within – even within the JIRA family, within Confluence, there is some slight feature differences between on-premises products and cloud products. So, yes, there are already, I guess some feature differences, but by and large, if you are using Confluence or JIRA Software or JIRA service, they are still largely the same product on both sides. We do make sure that data compatibility is really important. So for the customers that are migrating, we mentioned the Confluence migration assistant we released a few versions up during the year and the upcoming JIRA migration assistant. That requires us to be able to move, especially for the large volume of smaller customers to move that data automatically. So we do make sure that data compatibility is really important. But there are feature differences between the two for sure.

Got it. Thanks, that's helpful. And then just quickly on Trello. You did mentioned in the material that you had an uplift in customers or paying customers with the result of the kind of the board limits to TV. I think just help us understand what kind of the result of them? Was that a conversion of free to paying? Was that something else? And then maybe talk a little bit about the traction you've seen with Trello Enterprise? Thanks.

Sure. Look, Trello is continue to parallel and very strongly. We are very happy about how it's going. As we've said, look, our primary goal with Trello is still to continue to establish Trello as a brand, Trello as a product and continue to grow the momentum that it has as a standalone business. We are doing more and more integration over time. But that's a long-term journey. We did introduce some pricing changes throughout the year. You've seen some of the impact of that, as we've called out in the customer number this quarter. Some of that is a one-time benefit that we've talked about, because while the flow of Trello customers will be marginally higher, we are changing some of the free to paid conversion rates. And that's from a large existing free base. Obviously, you get some of the existing base converting over to a faster rate, which is what we've called out in a customer number there. At the same time, we are focused on Trello enterprise. We've had a really good couple of quarters in Trello enterprise as we continue invest in features there. We put that into the shareholder letter as well. As businesses adopt Trello with tens of thousands of users and beyond, they do have different sets of requirements that we continue to work with the customers on establishing, when you have hundreds of thousands of boards across a customer you need methods of organizing that content, finding that content, managing large-scale users, etc, which is exactly what we've been doing in the Trello Enterprise product and obviously with such a large install base in Trello, that has a very good future.

Got it. Great. Thank you. That's helpful.

The next question comes from Heather Bellini with Goldman Sachs. Please go ahead.

Great. I just wanted to do an apologize for missing the slot earlier. I just wanted to ask real quickly about OpsGenie. You commented about how it accelerated the pace of additional paid users. And I was just wondering if you could talk a little bit about, how you are seeing that cross-sell opportunity into your JIRA installed base. And like, is there any color that you could share about kind of where you are seeing the success of kind of cross-sell across those products? Thank you.

Heather, I can't get into specifics. But as you mentioned, we mentioned in our shareholder letter that we've doubled the pace of customer acquisition and we feel really good about that that acquisition. If you look through our internal charts, there is a distinct change when OpsGenie, we came at last June and we feel great about that. If you - in trading with customers, it is a great product. Sometimes I mentioned at the acquisition, sometimes you require something and you have to add features to it or make it enterprise-ready. And OpsGenie actually scales better than any of the other products out there in the market. And so for us, it was just a matter of getting in front of our customers. I know it's still very early in the journey of putting it on the Atlassian platform. Now we are really happy with the pace that we've only it’s required less than a year ago. We've already done identity and user interface and stuff like that. So, we're sort of at the - still at the start of what I think of in terms of cross-selling into our existing base.

And then Heather, I would just add that when we announced the acquisition of OpsGenie, we noted that it would drive a point of revenue growth on these then revenue guidance for fiscal 2019 and I am pleased to say that we achieved that. So strong momentum.

Okay, that's great. Thank you. Just a quick follow-up, is there, is it – so it's net new customers that you are getting from this two plus expansion into the installed base. So you see the opportunity on both fronts, is that correct?

That's right.

Yes, that's right, very much.

Thank you very much.

[Operator Instructions] The next question comes from Pat Walravens with JMP Securities. Please go ahead.

Hi, this is Joe Goodwin on for Pat. I just wanted to ask real quickly about, how is the relationship with Slack going? And can you speak to some of the opportunities that may be on the horizon?

Hey Joe. It's going great. I mean, we've got - I think a good relationship, great integration that we continue to improve between the products. We are in the market, I think talking to customers at both of our user conferences and events about the relationship that exists in the value for customers when they integrate them more deeply. You saw that at Summit where we talk a lot about just how we use Slack internally and extend their products and their users of our products at the same time and doing the inverse. So, it's good.

Great. And then just a quick follow-up. Is the monitoring space, a space that you guys would have entered into?

It’s Scott here. At the moment, that’s not an area that we are actively looking at. There are a lot of thought players in that space. And there is a – there is no clear winner. We benefited a lot more from integrating with the leaders in that space and we have a great relationship with all the leaders in that space.

Again, it's Mike. I might just add, philosophically if you look at our history, we do try to solve human and people problems, not technology problems and so where we strive into areas where you are solving a technology problem, be it language-specific features or analytic-specific features, it's not our core DNA right. We are a collaboration company around teams of people. Something like OpsGenie where you are coordinating people is much more in our wheelhouse of strength in our DNA as a business around solving people and collaborative problems around technology rather than actually solving a technology problem per se.

Thank you.

The next question comes from Gray Powell with Deutsche Bank. Please go ahead.

Great. Thanks. You may have already touched on this. I’ve joined a little bit late. But I just want to make sure I understood some context behind the fiscal 2020 guidance. How should we think about the acquisition contribution to revenue growth in fiscal 2020? And then is there any residual impacts on operating margins, particularly from AgileCraft?

Well, we haven't broken out any specific acquisition element of the fiscal 2020 guide. Obviously, we have just been talking about how pleased we are always with OpsGenie and JIRA Align, and so we are looking for those both to continue growing strongly during fiscal 2020. In terms of the operating margin effect around JIRA Align in particular, we will be working through the deferred revenue haircut that comes along with every software acquisition. And so, that will impact the JIRA Align revenue growth rate during fiscal 2020. We will still have some of that for OpsGenie as well, but we are three quarters further along that pathway with OpsGenie. So, during fiscal 2020 that their deferred revenue haircut should start to ebb.

Okay, that's helpful. Thank you very much.

This concludes our question-and-answer session. I would like to turn the conference back over to the management team for any closing remarks.

Thanks everyone for joining our call today. So from the bottom of the sea to the top of the clouds, we continue to work hard to deliver for our customers. We appreciate your time today and look forward to keeping you updated on our progress.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.