Good afternoon. Thank you for joining Atlassian's Earnings Conference Call for the First Quarter of Fiscal Year 2022. 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 Martin Lam, Atlassian's Head of Investor Relations. Please go ahead.

Welcome to Atlassian's First Quarter of Fiscal Year 2022 Earnings Call. Thank you for joining us today. On the call today, we have Atlassian's Co-Founders and Co-CEOs, Scott Farquhar and Mike Cannon-Brookes; and our Chief Financial Officer, James Beer. Earlier today, we issued a shareholder letter and press release with our financial results and commentary for our first quarter of fiscal year 2022. The shareholder letter is available on Atlassian's Work Life blog and the Investor Relations section of our website, where you will also find our other earnings-related materials, including the earnings press release and supplemental investor data sheet. As always, our shareholder letter contains management's insight and commentary for the quarter. So during the call today, we'll have brief opening remarks and then focus our time on Q&A. This call will include forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance and 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, and we assume no obligation to revise our statements should they change or cease to be current. Further information on these and other factors that could affect the company's financial results is included in the filings we make with the Securities and Exchange Commission from time to time, including the section titled Risk Factors in our most recent Form 20-F and quarterly Form 6-K. During today's call, we will also discuss non-IFRS financial measures. These non-IFRS financial measures are in addition to and are not a substitute for or superior to measures or financial performance prepared in accordance with IFRS. The reconciliation between IFRS and non-IFRS financial measures is available in our shareholder letter, earnings release and investor data sheet on the IR website. [Operator Instructions] With that, I'll turn the call over to Mike for opening remarks.

Thank you all for joining us today. When Scott and I started Atlassian almost 20 years ago, we wanted to create an amazing company where people love coming to work every day. We were recently named one of the world's Best Workplaces for 2021 by the Great Place to Work. We're thrilled and humbled to be recognized among the top 25 companies in the world in any industry, in any country. We've won a lot of trophies over the years, but this recognition is special. It's going straight to the pool room, as we say in Australia. In all seriousness, it's truly one of Scott and my proudest accomplishments. It is a testament to the true stewards of our culture, the many thousands of Atlassians we have around the world who live our values every day. Your resilience, passion and commitment inspire us. For all of you Atlassians listening, thanks for making this possible. As you've already read in our shareholder letter, our momentum continues as we kept winning in Q1 of fiscal '22. We continue to deliver value to our customers and innovate across all 3 of our core markets. A great example of this innovation is Jira Service Management. In its first year in the market, Jira Service Management was named a visionary in Gartner's Magic Quadrant for IT Service Management. And its customer base grew to over 35,000, up from 25,000 just 1 year ago. This is the result of a steady drumbeat of innovation and R&D investment as we continually [indiscernible] better and better each and every quarter. And we apply the same philosophy to our offerings in agile development and in work management for all. The continual improvement of our cloud platform is also what's driving our progress forward in the cloud. This quarter, cloud revenue was up 53% year-over-year. We signed on to the Trusted Cloud Principles, joining as initial signatories, alongside Amazon, Google and Microsoft, and making a commitment to protect our customers' rights, privacy and data in the cloud. Underscoring this commitment to our customers, we shipped data residency in Australia this quarter, on the heels of delivering this critical capability in Europe last quarter. With that, I'll pass the call over to the operator for your questions.

[Operator Instructions] And your first question comes from the line of Keith Weiss coming from Morgan Stanley.

Excellent. And congratulations on a great quarter. I was hoping you guys could help and dig in a little bit into the work management opportunity. From the outside, it seems like a massive expansion of the TAM for you guys that you've been working on for a while, but there's also a lot of products that you have that seem to target it. The Jira Core, you have Trello, you have Confluence. Can you help us understand kind of the solution portfolio, what specifically in work management are you trying to target? And like what's the competitive dynamic in terms of where you guys are going in?

Yes. Thanks, Keith. I can take that one off the bat. Look, teamwork is very complex. We know that. There's no one correct way or one single way to work or collaborate. That's why you see us in the work management for all space in the market, taking a multiproduct approach and investing heavily in our platform. So you've seen us mention Jira Work Management continues to go from strength to strength every quarter. We added a whole bunch of great new early customers, UiPath, Avalara, Seaworld, BEA, who are taking the Jira family well beyond the initial audiences that we had, I suppose. Again, about half of our Jira audience is nontechnical teams today, and we expect that to continue to improve and fuel our growth in that area. At the same time, Trello continues to do well. Confluence continues to do extremely well. And as you've seen from our Point A program with products like Team Central, we really have a very comprehensive offering, I would say, in that space, all built on our platform story. So we keep talking about world-class automation, analytics, smarts. That is our ability to invest in the R&D to make that platform amazing for every team in every company and continuing to fill out the story across the products and making sure they work well together. We're obviously extremely excited where we are -- where we sit and how we're performing in that market.

Your next question comes from the line of Gregg Moskowitz from Mizuho.

First of all, congrats, James, on all your accomplishments and a very well-deserved retirement. And Mike, just on a personal note, I wanted to congratulate you and your wife on your green pledge and thank you for all the help that, that will provide. My question relates to the cloud and product pricing. You recently made the decision to raise cloud pricing, which isn't something, quite frankly, that we've seen recently from Atlassian. What gives you the confidence to do so given that many of your customers are still early in their journey towards the cloud?

Well, great. Thank you very much for the thoughts there. The first thing I'd say is it just really reflects the strength of the underlying growth of our cloud business. And that, of course, is all driven by the very significant value that we're delivering for our customers by these cloud services. You know that we've been putting very significant investment into our cloud products for a number of years now. And we always, from a philosophical perspective, want to be a terrific value. Nothing in that notion has changed. But nonetheless, I think there is an opportunity for us to move pricing along as we have published just a few weeks ago by the order of about 5% across Jira Software and Confluence, in particular. So I think it's just illustrative of the investment that we've put in and how that's working out well for our customers. We had -- have had now in a few of our shareholder letters, examples, quotes from customers talking about the savings that they enjoy when they implement our cloud products. When they look at the total cost of ownership, they're realizing that it makes sense for them from a cost equation. And of course, oftentimes more important to these customers, they're able to, in essence, take their people and have them work on higher value-added tasks. Our software is able to do so much of the lower value-added work for them. And I just think it's a terrific example of our long-term orientation to R&D investing.

And Gregg, I was going to add some things to James there. I think you answered that really well. We've had a long-term philosophy of optimizing prices, and we've, over the years, raised prices, we've lowered prices, we've introduced new tiers and additions, both at the low end, the free at the high end, with premium and enterprise. And our philosophy has evolved over the years. It's more towards frequent, smaller price changes. And as someone that keeps our prices publicly available on a website, which is different to most enterprise software companies, you can see those changes. And it might, on the outside, look like we're making more changes than other people, but I think it's a result of that philosophy and the fact that we're public about how we interact with our customers. And our philosophy is always to be sure that we provide the best value for -- in whatever price our customers have to pay and be a no-brainer for all our customers to engage with and buy Atlassian. And so you'll continue to see us do this as we have over the last 20 years.

Your next question comes from James Fish from Piper Sandler.

And then -- and James, congrats on retirement ahead of time. I wanted to touch upon the data residency. You're offering it in 4 locations now across 3 continents. I guess what areas are you guys expected to expand to or seeing the largest demand for this that you aren't addressing today? And has there been any delays in customer decisions at all between deciding between data center versus cloud additions at all? And any sense of the mix between data center and of kind of the product lines?

Thanks, James. I can certainly take the first part of that question. I'll leave the second -- the mix shift part to James. Look, for sure, we launched data center in Australia this quarter. We had the example of Commonwealth Bank, one of the largest banks in Australia and one of the largest banks in the world, moved to our cloud tens of thousands of users, as a result of not just data residency in Australia, but all of the performance and scale improvements, compliance, legal, regulatory improvements we've made in our enterprise platform, from access to premium and enterprise, to support for all the different standards that we support. So that's, I would say, a generalized part of our enterprise cloud journey as we continue to make sure we can support the needs of our largest customers in the cloud. We continue to build out our infrastructure platform that we can roll out new geographies faster and faster. Each one we roll out is a little quicker than the one before and unlock some portion of customers to move. As always, we continue to be R&D first. So working on automating that so that it works, and secondly, customer led. So we build out those geographies as we learn from customers about where the greatest needs are. But we expect to continue to have more data residency in more areas of the globe as we work with our customers.

On the cloud DC, data center mix, I'll touch through that one. But just a bit of background. These big transitions and customer transitions like there's always a chance if you do them wrong, you could end up in the doghouse. But that is not all happening here. We've done such a great job across our customers, across our partners. And just to get some starts, our channel partner sales were up 300% year-on-year in terms of selling the cloud compared to what they were a year ago. We're seeing great demand from new customers on top of migrations and great customer stories like Castlight Health. We moved 1,200 users, including 50 apps from server to cloud. I mean Commonwealth Bank, as we mentioned, is huge, highly regulated industry in Australia in banking, moved in tens of thousands of their users across from DC to cloud. So really excited by that. On the DC to cloud mix, as we said, this is a multiyear transition for our biggest customers, and we still expect a large portion of our customers to move over the coming years. And that is as our customers build up their capability and engage with the transition, and in the meantime, while the -- while that's happening, they're still buying DC. We're seeing a lot of customers expand the usage of DC as they prepare. And that speaks to the quality of our product and the demand for what we provide is that they are still purchasing kind of as they make their migrations to cloud. So give you some comfort around people not being stuck at DC, like we're really comfortable with that transition point. 30% of our cloud migrations are coming from data center customers today. And so we do see a lot of our customers maybe go from server to DC to cloud, or have been in DC for many, many years and making that migration to cloud, or not ready just yet, that still doubling down on their investments with Atlassian. So I think what you can take away from that is our customers are just continuing to commit themselves to Atlassian.

And if I could just pile on a little further with one other factoid to support that. When you think about the cloud business, we're obviously pleased with the 53% growth that we recorded year-over-year in Q1. As we think about migrations, yes, obviously, this is an important initiative for the company. But I'm only expecting migrations to drive approximately mid-single-digit growth for us in that cloud, in the subscription revenue line. So a relatively modest growth driver for us, and that just really illustrates how we're going nicely in terms of user expansion, selling premium additions, the free-to-pay funnel is working well, and churn is working well as well.

Your next question comes from the line of Tyler Radke from Citi.

I echo my congrats to you, James. You referenced in the shareholder letter just some tougher comps in the second half on the data center side. I'm curious how we should think about the trajectory of cloud growth from here. Obviously, there's a lot of dynamics between the cloud price increase and just some of the changes from last year. So would you expect that the cloud growth has tougher comps in the second half as well? Or do you think that can kind of sustainably grow at the rate that we saw here in Q1?

Thanks for the question. I mean what we've said -- this was a quarter or so ago, was for fiscal '22, we would expect our rate of cloud growth to be accelerating year-over-year, full year over full year. And certainly, yes, you're right, we had a particularly strong back half for the data center business. Recall how in Q3 of last year, we had quite a lot of customer activity where they stepped in front of price increases, both on the server and the data center products. And then, of course, Q3 was also the quarter last year in which we ceased new server license sales. Now we'll see how that plays out this coming Q3. We've already announced, of course, this coming [indiscernible] that we will cease selling several license upgrades. So the cloud business that I was just saying remains in very good shape, very much consistent with the significant investing that we've been doing in it over recent years, and we plan to continue to do that. So we're very infused as to how the underlying business is performing. And in terms of migrations, I was mentioning that some smaller component of growth that, that will drive. If you just take a step back and think about the migrations time line, I would say we're very much on track with what we've been talking about now for the last year plus or so. So we're pleased by our progress there. And we've talked in the past about how we have a good portion of that migration work to do in fiscal '23 and beyond.

And your next question comes from Michael Turrin from Wells Fargo.

Congrats on another impressively clean quarter here. You're still adding nearly 12,000 net new customers. Appreciate the updated disclosures there. Can you help step through what's driving that continued top-of-funnel strength? How should we think about Q1 maybe relative to the pace you can deliver throughout the course of the year as the environment normalizes? And it looks like Jira Service Management, I know you commented about the -- at the onset here, added 5,000 customers, at least versus prior disclosure. Can you just provide an update on some of the adoption trends or interest levels you're seeing there? The upcoming world tour looks interesting as well.

Well, I can start off on that one. First of all, yes, by the incremental customer count number that we've published today, Q1, that reflects, I think, again, how people are very much embracing digital transformation, embracing remote work. I think the compatibility of our product set seems is clear. And so we're very encouraged by that. Certainly, Q1's number of over 11,700, it was a nice contrast to last Q1, where the number was a little over 6,700. So remarkable strength year-over-year. Yes, the number will move around quarter-to-quarter. We've traditionally said that. But we're very much focused on [indiscernible] to optimize our top-of-funnel activity. I think last quarter in Q4 was one that particularly benefited from some of our free to paid optimizations. Now that's an ongoing process. We work at that constantly, and that's another driver of how we continue to expand our customer base. Recall now that new customers drive a relatively small proportion of our in-period revenue of the order of around 10%. But it's those new customers where we continue to grow the user base quarter-over-quarter, year-over-year into the future, and we've done that very consistently.

You've did a great job of answering the specifics on the numbers. I do want to call out one thing, which is our Jira Service Management product is that we're at 35,000 customers, up from 25,000 when it rolled out a year ago. And we're really pleased by the market [ response ] of Jira Service Management, really resonating with customers from very small [indiscernible], may be the only solution that has the feature set for them to the larger customers who are really resonating and working to move from other vendors out there due to the fact that it's got just way faster time to value, it's got way -- total cost of ownership and why -- is it more flexible for them to adopt and extend. And so we're seeing a lot of customers who [ adopt it ].

If I might just add something on a philosophical level there. Two, 2.5 years ago, I think we wrote in our shareholder letter that we were going to double down on the opportunity we saw in IT. And since then, you've seen us do what we classically do, which is deliver against those words that we told you we were going to do. Through the acquisition of Opsgenie, the integration of CMDB, the improvements in asset management and then the launch of Jira Service Management bringing software and IT close together, that's a proof point that Scott mentioned of delivering against that opportunity in IT. We have many, many more opportunities in front of us that we're investing against, as we said. But hopefully, it's a proof point that we do what we tell you we're going to do.

Your next question comes from the line of Alex Zukin from Wolfe Research.

First of all, it's a pleasure to be covering you guys. Maybe just the big picture question around cloud. From the perspective of cloud migration, start thinking about your original expectations, specifically for your enterprise cohort. Can you help us understand how you feel differently or any level of incremental confidence in potentially migrating that cohort sooner than you planned, or any guidance on that progression from a time line perspective? And separately, as we think on a broader spectrum, you're offering being so much more broad-based in the cloud. What are you seeing with respect to cross-sell and upsell opportunities within that cohort and customer base versus maybe your initial plans?

I'll cover the first one. In terms of enterprise cohort and migrations, nothing has changed from what we've outlined previously, which is it's going to take -- it's a multiyear journey. And we need to do some work on our end to accommodate different regulations in different areas and data residency and some engineering things on our side. And customers, for them moving some of these large systems can be a multi-month-long process that they need to do to make sure that they can do the change management for their employees. And so nothing's changed along those lines. We are seeing great customer demand at all levels in terms of migrating to cloud. They all know that cloud is the destination. They're really excited by it. James has mentioned, the total cloud [indiscernible] is significantly lower for them. So I would say that we're tracking as we expected, and really pleased with that progress. Mike, do you want to talk about the cross-sell and upsell?

Sure, Alex. Look, the way we think about this is cross-sell and upsell expanding the users and the penetration of the use cases within our customers is an inherent and deeply built part of our DNA, and it has been. We've been a multiproduct company for an awfully long time now. When you hear us talk about our 3 markets in terms of Agile DevOps, ITSM and work management for all, there are lots of overlap opportunities, both in the customers between those and in the products. So you see obviously Jira Service Management working alongside Jira Software to get developers and IT admins closer together in delivering value. That is both a purposeful strategy on our behalf and also purposefully built into the platform and all of the shared infrastructure that we use. So things like automation, our Forge and Connect extensibility platforms, all of the user experiences, things like the editor and other things that are common across those products is an intentional part of that journey. You also see us in our Point A program continuing to innovate and deliver new offerings. You can see that in Compass, in the Agile DevOps space and Team Central, in the work management for all space, looking at goals and status updates and help and the cultural and humanistic side of teams and people and how they come together, how work is actually delivered across projects, goals, metrics, strategies, help and the teams that actually deliver that. Our platform enables us to move our users around to where they get most value from our product family, and we continue to get better and better at that. Every quarter, I would say we improve at how we do that. The last part is it's inherently tied into our philosophies around pricing. So we talk a lot about free and how that's changed and obviously accelerated the movement of new customers. It also has a huge effect on cross-flowing of users because you can move from product A to product B, but there's no payment. There's no charge for product B until you started to see value to deliver value. We've always talked about getting value to customers first. We pay our second for the value they're being delivered. So free actually plays into both the platform story and the cloud and also the 3 major markets and all the new innovation and products we have coming out targeting those markets. So hopefully, that gives a sense of how it holistically all works together in our thinking.

Your next question comes from Fred Havemeyer from Macquarie.

Congratulations. Just echoing what most others have said on a very solid quarter here. And James, it's been a pleasure working with you. I'm looking forward to continue working with you as you transition. And all the best with retirement. So I'd like to ask about cybersecurity here. During the quarter, there was that Confluence exploit [indiscernible] older on-premise versions of Confluence, in which you quickly mitigate it. All software eventually will have an exploit discovered. But it was notable here that Atlassian's cloud products were immune to the exploit, those in the wild. I'm curious, did you see any customers accelerating their server to cloud migration pathways around this event? And then also more generally, how do you think about Atlassian's approach to cybersecurity across your different deployment models?

Fred, look, obviously, that security in software and technology is an incredibly hard challenge, one that continues to get harder all the time. One of the ways we can fight that is by having an absolutely world-class security team, which we do have continuing to work day in, day out on behalf of our customers and securing them. The Confluence incident that you talked about, again, had already been patched. It was already -- we had shipped the updates and everything else in time, and it was a question of how fast the customer has updated their own software. One of the benefits of the cloud, as you point out, is that we do that for them. So we have done that instantaneously on behalf of all of our hundreds of thousands of customers without them even having to wake up. So we can do that overnight. We can do that for them. We can roll it out instantly and fast. We can also do a lot of other analysis, obviously, in the cloud. And it's one of the benefits of SaaS software in general, is we are really, really, really good at running our own applications as you expect us to be. We are the best in the world at running our own products. Securing them, scaling them, and that is the benefit of our cloud for those enterprise customers. I don't have any directional data on whether that's affected the general migration time line, but I can tell you that it's certainly one of the advantages that our customers see, especially the larger they get, but also on the small ones. We should -- we often talk about security in large companies. For small companies, our world-class [ team ] is far better than whatever security team they have in-house because if they were a 10- or a 20-person company, that stuff is really, really, really hard. And so it's baked into our DNA, and I think it's yet another advantage of the migration to Atlassian's cloud.

Your next question comes from the line of Arjun Bhatia from William Blair.

Perfect. Congrats on a great quarter again. I want to maybe dig a little bit deeper into Jira Service Management, and [ you called out ] the strength in customer growth. Since you've launched this new offering that's bundled in Jira Service Desk and Opsgenie and other functionality, including CMDB, have you noticed a change in the type of customer that is adopting Jira Service Management versus the prior Jira Service Desk? Are you seeing more sophisticated customers, more enterprise deployments there as this offering has scaled?

Yes. Thanks, Arjun. Great question. Obviously, in the ITSM space, we think we are extremely uniquely positioned. We're the only vendor that can bring together your software teams with your IT teams in a single pane of glass, in a singular platform that's both comprehensive and modern. And that gives us a real leg up into customers managing their IT workflows, but also managing the workflow that IT is responsible for on behalf of other teams in the business. So one of the biggest changes we've seen since Jira Service Management's release is not only IT teams adopting it in ever greater numbers, with things like Forge and automation and all the other things that come in the box as well as, obviously, the asset management, the inclusion of Opsgenie and rostering for modern service management and paging operations, we continue to see that resonating really, really strongly with IT teams. What we're seeing is the family of products that we deliver though, increasingly are seen as visionary by, as was noted earlier, by Gartner, but others, in terms of how we play across not just Jira Service Management and even Jira Software and Jira Service Management, but in things like Confluence and how that comes together, in Jira Work Management to enable IT teams to deliver applications at very, very low cost on top of the Jira platform to the already familiar users. And obviously, in things like Compass in our Point A program for managing their software components and digital assets, which is incredibly complicated for customers to deal with at the moment. And then to things like Team Central to the more cultural aspect. So I think what's resonating with IT teams is not just Jira Service Management, although, obviously, that's doing extremely well at the moment, is the offering that we can show to an IT administrator or a CIO or a CEO about how we can help them across their digital transformation, all the things the IT team is responsible for not just their own day-to-day work.

And if I could just add on one thing to what Mike was saying there. We've spoken earlier about our pricing philosophy as always being oriented on excellent customer value. I think Jira Service Management is a classic example of where we're an exceptionally good value and our customers are recognizing that.

And your next question comes from the line of Ittai Kidron from Oppenheimer.

Congrats on a great quarter. And James, all the best and good luck. I guess I have a question regarding the data center growth this quarter which was very strong. And I'm trying to think about whether the growth there really reflects more server customers preferring to stay on-premise and shift to data center rather than move to the cloud. So maybe you can talk about what's driving the data center growth, how do you think about the trade-off from server into cloud versus data center? And also, with regards to the transition to the cloud, in the past, you've kind of talked about the transition being likely back-end loaded. And it sounds like it's going to attract. But you also talked about medium- and large-sized customers being more at the back end of this transition rather than the front of it. Does that still hold? Or are you seeing the larger customers actually move early rather than -- sooner rather than later?

Ittai, I got thoughts to that.

Scott, you jump.

So I'll just jump in. First of all, I'll let James answer the more specific sort of finance questions. I don't have too much to add beyond sort of the earlier answer, which is that our customers want Atlassian products. We see really strong demand for our products. And their customers can't yet move to our cloud. They're choosing to invest in our DC products where they can go straight to the cloud. We're seeing increasing demand for -- and obviously, for our new customer numbers and our cloud revenue numbers are all showing great strong demand for our cloud offerings. And as I said, our DC is by no means a dead end. It is basically the stepping stone towards cloud, and we're seeing that with 30% of our cloud migrations coming from DC. So I feel really great about that. I think DC growth will continue to be strong as our customers continue to adopt Atlassian's products and make their choice to move to the cloud. James, can you talk through some specifics?

Yes. Just to add on a couple of things, Ittai. Recall that we have raised prices on the data center products, around 15% that got implemented in Q3. So as the quarters go by, you see that effect coming through. The other thing I'd add is that we did see that unusual volume of data center activity in Q3. Now much of that showed up in the revenue results in Q3. But also, there was a significant deferred revenue balance that got generated in Q3. And so the subsequent quarters, Q4, now Q1, have also benefited from some of the roll-off of that deferred revenue balance as well. And as to the timetable part of your question, I would expect that we would continue to see the bigger proportion of migrating customers, be the larger, medium-sized customers migrating in fiscal '23 and beyond, they have the most complex requirements and so forth. So that continues to be our expectation that we're very much tracking along to the original steer that we gave you on the migration timetable.

Your next question comes from Brent Thill from Jefferies.

This is Luv Sodha, on for Brent Thill. Congrats on a great start to the fiscal year. And congrats, James, on an amazing run. I wanted to ask a couple of questions. One was, as part of the price changes this year, you also offered some incremental pricing discounts for the enterprise customers. So I wanted to ask whether that is to incentivize more enterprise customers to move to the cloud. And will that have a bigger impact on the migration pace? Or should we expect the discounts that you have in place to have a bigger impact? And then my second question was around the opportunity from standard to premium. Could you help us think about that opportunity set? What percentage of your customers are on the cloud standard edition? And how would you move them to premium?

Well, thanks for the question. In terms of the enterprise size customers and pricing. We've got at least a couple of things going on in recent months. Back in July, what we published were, in essence, extensions of our pricing curves. Previously, the pricing curves had accommodated small-, medium-sized type customers. But increasingly, we're seeing larger customers looking to move to the cloud. So we extended those pricing curves to larger user levels, very much consistent with the way our pricing curves, the data center business and the server business have been designed. And so perhaps not surprisingly, the larger number of users you commit to, the somewhat lower would be the per user price. So what you saw us publishing in July was just reflecting the reality that larger customers are now moving over to the cloud. So we needed to update our pricing. The other theme that's relevant in terms of migrations for these larger customers, of course, are other loyalty discounts that we've had in place now for quite a while. And as of July 1 just passed, we reduced the attractiveness of those discounts. They're still very attractive. So 40% discount for server customers moving over to the cloud, for example. And those stepped down over time. There will be another step down next July 1. And so those have worked, I think, quite nicely to encourage some of the larger enterprises to begin their movements to the cloud, consistent with how we've expanded the capabilities of our cloud offerings. In terms of the second part of your question around standard edition and so forth. We've been really pleased with the take-up of our premium edition. More recently now, enterprise edition is also off to a good start. So we're pleased with that strong premium adoption. We've noticed, perhaps not surprisingly, that our premium edition customers have lower churn rates and so forth. So we will continue with our philosophy and history of adding more functionality, more -- making those premium editions more attractive to our customers. And so obviously, at the end of the day, it's their decision, but we're enthused by the future for our premium and enterprise editions.

Your next question comes from Steve Koenig from SMBC Nikko.

I will echo my congratulations as well on a real solid quarter. So I'm newer to Atlassian, but I haven't seen the disclosure on revenue by deployment. And if that's new, as I think it is, my kudos to you for putting in that revenue by deployment. Really very helpful. I -- you've given plenty of color around why data center [indiscernible] trend. I'd like to ask a question focused more about cloud here as you look to customers moving to cloud. Are there particular products and capabilities that will be more instrumental that will be key to driving customers to cloud and particularly larger customers later in time and/or pricing and packaging options that you might be considering as well?

It's Scott here. I'm sure Michael has some stuff to add on here. In terms of products and capabilities, we're really excited by cloud, which well over 90% of our new customers are choosing our cloud products today. And so we're -- we feel like that's the default choice for anyone investing in Atlassian today. For some of our existing customers, the areas, and I think we've highlighted this before, is that you -- our ecosystem, is as effective as all apps that people have behind their firewall. And our system have jumped on that and build apps for the cloud and so forth, but there's a bit of more of a stickiness and sort of moving people across from that, like our cloud vendors need to provide migration paths. So that's an area of investment for us. As Mike mentioned earlier in the call, data residency and certifications in certain areas are an area that we continue to invest in. I don't think you can ever have data centers close enough to your customers with performance and regulation reasons. And so they will probably never be done. But we continue to invest in those areas and certifications for specific verticals that our customers are after. We have continued to improve scale over time. We've -- when we started this journey and talking with you, we were [ still down ] in single-digit thousands supporting in cloud. We're now into tens of thousands and well on our way to hundreds of thousands in terms of vertical scale in the cloud. So there's some of the areas of continued investment. And the great part about that is that our customers are partnering with us on all these investments. And so we know that there's good -- great ROI for the investments we're making. And in terms of like unique packaging or capabilities, some great benefits of being in the cloud that we -- we have one user management system across all of our cloud products, and that allows us to put things like our Point A products in front of new customers a lot easier than then having to download and install and configure something new. And so that gives us a lot more flexibility with how we price and package our products together. And as Mike alluded to earlier with free, that's given us a lot more opportunities to get things in front of customers without them having to make a purchase decision before they're getting value. So we are seeing that's sort of critical to how we get functionality in front of our customers. And so you'll see us continued pricing and packaging and how we put our products in front of our customers like to deliver value to them over time, whether it's editions, free, standard price, or it's unique bundles of how we put products together for customers that want to buy a multiple of our products together. You'll see us continue to innovate over time.

I just wanted to -- Scott covered a lot of the nuts and bolts, and I think we're well known for our execution against all of those things, from editions all the way up to all the other bits and pieces Scott talked about. Especially if you're new to Atlassian, Steve, one of the things I wanted to reinforce there, you talked about the opportunities in cloud beyond migrating customers to it. I would reinforce that I think the opportunities in front of Atlassian has never been greater across all 3 of our markets that we sit in at the moment. And we've been as clear as we can be that we intend to invest in playing offense across all 3 of those markets. We continue to invest heavily in the cloud platform, everything from the big end of town or the regulatory and legal and compliance changes that we think will be a great moat over time because it's very, very hard to do at scale, all the way down to investing in new products, as you've seen in Point A, and continuing our culture and DNA of delivering innovation on a continued drumbeat to our customers to serve their needs. And lastly, we've indicated we continue to invest in talent. It's an incredibly tough market out there. If you talk to any other company, the market for talent has never been harder, and we just had a record quarter for hiring. People are choosing to come and work for Atlassian and we are investing in that talent to continue to go after those opportunities. And that is a really, really [ good thing ] to understand about where we currently sit.

Your next question comes from Ari Terjanian from Cleveland Research.

Yes. Congratulations on the results. I noticed a couple of management changes in the shareholder letter in addition to James' announcement of leaving. But yes, I was just wondering if you might be able to expand upon the promotions of Anu and Joff to Chief Operating and Product Officer, what their roles will entail, as well as bringing on [ Kevin Egan ] to head up Global Enterprise Sales. Would love any more color you could provide on those changes.

Look, it's plenty of time to celebrate James' achievements, and he's -- as I think Scott said earlier. He's not in the doghouse here. He's leaving on a high to retire to greener pastures of -- he's flying, I suspect, around a lifelong dream to be a fighter pilot. But we have ultimate thanks and he's given us plenty of notice. So I think you can see his achievement has been amazing. On the management team broadly, I think one thing I would celebrate is we have a very stable management team. We've long been believers that the best technology companies have stable management teams that learn and grow together over many, many, many years. So the stability of our management team for a long time now has been incredibly good. As such, it's amazing to be able to give both Anu and Joff, who are both stars on our team, huge new opportunities, right? And giving them opportunities and promoting that growth of internal staff is fantastic and something that we've always prided ourselves on as a company. In terms of those roles, look, we've never had a Chief Operating Officer before operating our business. We have an incredibly complicated business across multiple markets, multiple deployment options, globally distributed talent and operations. And planning in our business is not a simple exercise. At the same time, we're clearly operating a large-scale transformation to migrate our customers. We are continuing to transform how we serve our enterprise customers as best we can. We are also continuing to grow the Atlassian economy as we call it, all of the parts around Atlassian, from Forge in the marketplace through our partners and everything else. There's a lot of complexity that needs to come to operating all of those transformations in sequence and…

And your next question comes from Pat Walravens from JMP Securities.

This is Joey, on for Pat. So just 2 from our end. First, congrats to James on the promotion -- or sorry, on the retirement. So how are you thinking about what you're looking for in your next CFO? And then lastly, just on Forge, I'd love to get an update there and your ultimate vision there.

Thanks for the questions. I'll answer about James, and Mike can answer about Forge. Firstly, James has done an incredible job, like he's, by far, the best CFO we've had at Atlassian. And we've been around 20 years. We've had -- even though we've had great stability, I think we had 5 or 6 over that period of time. And I think we do well to find someone that works very much in James' footsteps. To be specific about some of the things I think we need, as we grow capital allocation as a company, we have so many opportunities in front of us, how to make sure that we allocate capital in the right way, in a scalable way, but we do it looking over the long term, and we don't optimize for short-term returns. That's going to be really important. And not just sort of making those decisions, it's building the systems to allow the company to make those decisions at all levels of Atlassian. And that will include things like how we cost value to the projects. As you move to cloud, we're making sure that we understand where our [ COGS ] goes and the micro services we build and how we make sure we make articulate decisions around those areas. And so I think James has done a great job of understanding our business. As Mike mentioned, it spans a lot of different areas. And so I think that finding someone that is a systems thinker, much like James is, who can help us grow and allocate capital and really tackle the huge opportunity we have in front of us is what we're after.

And your next...

I can answer the question on Forge. I think there was a second part just on the -- sorry, operator. Look, we've talked a lot about Forge. It is our next-generation extensibility and development platform. It adds capabilities around security and data residency and all the other things that is fairly unique, I would say, in the whole SaaS ecosystem in terms of how do you deal with all of the enterprise compliance and regulatory requirements in different geographies of the world and still allow extensibility of your SaaS applications. This is a huge technical challenge, and I'm really, really proud of how the Forge team is attacking that. It lets us run the application so we can continue to tune and improve them. But the third-party developers or customers get a very stable and simple extensibility and development platform that's fast and performing, but also secure. It's worth noting -- I know it's often talked about. The marketplace and the vendors and the economy we have around Atlassian, which is fantastic, Forge is as much for our customers. So a lot of the fantastic early use cases that we're seeing, our customers using Forge to extend applications, to integrate with their own services, to connect applications together in unique ways, alongside all of the other things like our Smart and automation and different facilities of the platform, really excited about where Forge is at. Again, we've GA-ed the platform at this stage, but we will continue, obviously, as we do, to improve it every single quarter. And I believe we've now passed 500-odd Forge apps and continue to head on as we, again, have one of the largest app marketplaces in the [indiscernible]. We continue to grow that. And I think Forge has a huge potential going forward.

And your last question is from Keith Bachman from Bank of Montreal.

I wanted to revisit on upsell. And my specific question is, can you get any directional or specifics on the difference on cloud versus what was server and data center? And the 2 thought process here is, one, you're getting a lot of information conversions. And at that time, is there a step-up in terms of total value that the customers subscribing to Atlassian in terms of either capacity or cross-sell. And then the second would just be, as you mentioned, there's a lot of customers that are going straight to the cloud. How does their upsell rate over time compare the data center and/or server?

I'll start off here and Mike can add to it. As we know and have said that in the cloud, we provide more value for our customers in terms of we're hosting it for them, we're upgrading it for them. We allow them to return a whole bunch of their stock back to doing higher value opportunities for themselves. And so we do capture a portion of that commensurate value with our cloud pricing compared to DC. And so that's an important thing I think you are all aware of. If you look at in our products behind the firewall, there's a lot of friction involved in expansion, less than many other software vendors. But if you exceeded a license, you'd still have to contact us and pay some more, get a new purchase order. And that process is just a little more frictionful than having a credit card online. And you add users and they just turn up straight away. And so I think the reduction of that friction at all areas of the product journey is something excited by, whether that is starting for free with a click rather than a download or an install, whether that is being able to invite your colleagues because we can tie into the single sign-on solution of that company, and so it's much easy to add and second and third users there. And so I think there's -- if you go probably for half an hour on all the different opportunities that are there. And I think as you said, cross-sell is a lot easier because that second and third product we can put it in front of customers where we believe that they have value. And not in front of one so we don't -- so we're not -- we can be much more specific and targeted. A great example of that is if you're inside Jira now in our cloud products, and we have a tab on the side that says, "You want to write a specifications document, a requirement document, you want to write some documents associated with your project?" We'll allow you to instantly start a trial of Confluence for doing that task. And it is a great experience like -- and that's something this is not possible to do behind the firewall. So it's something we continue to invest in, and we're going to get better over time. I won't say where. I think we're really good at the moment. I don't think -- I think there's a lot of areas where we can still improve on all those different areas. And so I'm excited by what our teams come up with week in, week out and improving that sort of cross-sell, upsell, customer experience that we have.

Ladies and gentlemen, that concludes our Q&A session for today. I will hand it back over to our presenter for any closing remarks.

I just want to thank everyone for joining our call today. We really appreciate your ongoing support. And we really hope that you and your loved ones remain safe and healthy. Have a great week.

Thank you. Ladies and gentlemen, that concludes our call for today. Thank you for participating. You may now disconnect.