Good afternoon, and thank you for joining Atlassian's earnings conference call for the third quarter of fiscal year 2024. As a reminder, this conference call is being recorded and will be available for replay on 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.

Welcome to Atlassian's Third Quarter of Fiscal Year 2024 Earnings Call. Thank you for joining us today. Joining me on the call today, we have Atlassian's co-founders and co-CEOs, Scott Farquhar and Mike Cannon-Brookes, and Chief Financial Officer, Joe Binz. Earlier today, we published a shareholder letter and press release with our financial results and commentary for our third quarter of fiscal year 2024. Shareholder letter is available on Atlassian's Work Life blog and the Investor Relations section of our website, where you will also find 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 assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make. 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 undertake no obligation to update or revise such statements should they change or cease to be current. Further information on these and other factors that could affect our business performance and financial results is included in filings we make with the Securities and Exchange Commission from time to time, including the section titled Risk Factors in our most recently filed annual and quarterly reports. During today's call, we will also discuss non-GAAP financial measures. These non-GAAP financials are in addition to, and are not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures is available in our shareholder letter, earnings release and investor data sheet on the Investor Relations section of our website. I'd like to allow as many of you to participate in Q&A as possible. Out of respect for others on the call, we'll take one question at a time. With that, I'll turn the call over to Scott for opening remarks.

Thank you for joining us today. As is already read in our shareholder letter, Q3 was truly a milestone quarter for Atlassian. Today, Atlassian is a cloud-majority company. We have over 300,000 customers using our Cloud products and have seen a 3x increase in paid seats in the Cloud since we announced the winding down of support for Server 3.5 years ago. And while this is just one significant moment among many across our multiyear Cloud journey, we are thrilled with what we've achieved to date. We migrated more paid seats to Cloud than we had initially projected, and our churn has been consistently lower than expected from our Server base. This speaks volumes about the mission-critical role our products play, the value they deliver and our customers' desire to realize the innovation in our Cloud products. We now have an even larger opportunity in Cloud than originally believed. You'll see us continue to execute against our road map and deliver more innovation to pave the path [indiscernible] to drive durable future growth. We're also announcing that I'll be stepping down as co-CEO of Atlassian on the 31st of August this year. It's been a difficult decision, but after 23 years, it's time to pursue some other passions I have, particularly philanthropy, investing and to help grow and build the global technology industry. And while there is never a perfect time to step away, I'm supremely confident of where Atlassian is at. We've got one of the best Cloud platforms in the industry. And Point A new products are gaining real traction with customers and revenue, AI is providing new and exciting opportunities, and our customers are increasingly choosing to consolidate around Atlassian. And I'm proud to say we have the most experienced leadership team in our history. I will remain an active Board member and assume a special advisor role, with Mike continuing on as CEO. I have complete trust in Mike leading the way to harness the incredible opportunities that we, at Atlassian, have ahead of us. I'll turn it over to you, Mike.

Thanks, Scott. Yes, milestone quarter for a number of reasons. Now there'll be plenty of time for celebrations and farewells as this is not Scott's last earnings call, but I do want to touch on his news briefly. As you all know, Scott and I have known each other for nearly 3 decades and have experienced every major life milestone together. This company simply would not be Atlassian without Scott, and I'm truly thankful to have had him by my side every day for the last 23 years. In this next chapter, I'm sure we will remain great mates and trusted partners, and I'm glad that I can support him through this, both personally and professionally, as I continue to lead Atlassian forward as CEO. Atlassian has always been my #1 professional priority and focus. Scott and I have both worn every hat over the last 2 decades, so I'm confident in taking over full responsibility of the company. I'm incredibly excited about the massive opportunities that we have in front of us across our 3 markets in work management, software development and service management. We have such huge opportunities ahead of us in both the enterprise transition and AI, where our unique team data and insights allow us to offer unique capabilities and unleash our customers' potential. As we continue to attack our opportunities, I want to reiterate the commitments that we've made to continue to grow over the long term, while returning to our historical margin levels. We have a thoughtful plan in place to continue to drive durable revenue growth. And we feel really good about our agile approach to prioritizing resources behind key strategic areas like enterprise NII, while driving leverage as we scale. And we couldn't be more excited about the future. With that, I'll pass the call to the operator for Q&A.

[Operator Instructions]. Your first question comes from Ryan MacWilliams from Barclays.

Just like to hear about the overall macro trends at this point toward developer hiring. Like have you noticed any trends around the green shoots of growth for IT budgets or hiring developers? And then separately, just one quick housekeeping item for Joe. What was the Loom contribution to Cloud revenue growth in the third quarter? And maybe how you're thinking about its contribution to the fourth quarter?

Yes. Thanks, Ryan. I'll start. From a macro perspective, macro trends were very much in line with what we saw in Q2 and in line with our expectations. Enterprise was healthy across both Cloud and Data Center, and that drove the record billings, strong growth in annual and multiyear agreements, strong migration and good momentum in sales of Premium and Enterprise editions of our products that you see rolling through our revenue results. The macro impact on SMB, on the other hand, continue to be challenging, although also in line with expectations. And that macro headwind in SMB lands primarily in Cloud, given SMB makes up a significant part of that business. And within Cloud, it lands primarily in paid seat expansion. So stepping back more broadly within Cloud, the trends in Q3 were very consistent with Q2 as well as our expectations coming into the quarter. And then paid seat expansion rates remained well below prior year levels, but the decelerating trend quarter-to-quarter did continue to moderate from Q2. So that's a positive sign. All of the other growth drivers, migrations, cross-sell, upsell, new customers, monthly active usage, churn, et cetera, those were all in line with our expectations and stable overall. And then in terms of Loom, we -- basically, from a quarter perspective, we're not going to provide specifics on Loom's revenue or growth rate. We were pleased with the growth we're seeing and excited by the customer reaction to the recent AI innovations we've been introducing into Loom's product line. In terms of performance in the quarter, Loom revenue in Q3 was squarely in line with our expectations. And in terms of our fiscal year guidance, in terms of our overall revenue and operating margin guidance for the year, we continue to expect Loom to have about 1.5 points of impact on FY '24 Cloud revenue growth for the year and for Loom to be slightly dilutive to FY '24 and FY '25 operating margins.

The next question comes from Fred Havemeyer from Macquarie.

Thank you very much. Scott, we know you're not leaving immediately, but certainly will be quite missed on these calls. I wanted to ask, with respect to those -- the super migration at this point, it's very encouraging to hear that churn was looking much lower than expected, and primarily, the customers have transitioned on to Data Center. But are there any customers that are left over at this point in time that might make a future transition after limping along for some period of time here?

Fred, this is Joe. It's difficult to know exactly how many Server customers remain running unsupported at this point. We believe it's a small number and certainly smaller than we thought it would be entering the quarter. We're not assuming any material contribution to either Data Center or Cloud revenue growth from this cohort of customers moving forward in the guidance. And operationally, our focus now is squarely on enabling our Data Center customers to move to the Cloud.

The next question comes from Keith Weiss from Morgan Stanley.

This is Sanjit Singh for Keith. I actually wanted to ask a question about a customer callout that you had in the shareholder letter. You guys mentioned that FanDuel was able to cut tickets that require human interventions by 85%, which is a pretty fantastic result for FanDuel. In terms of that customer, are you pricing that FanDuel contract on a seat basis? And how would you think about when they achieve those types of efficiency gains? How do you think about the revenue opportunity with some of the efficiency gains they're seeing with the Atlassian products.

Yes. That's a great question, Sanjit, and I think one on people's minds is AI increasingly helps produce these incredible ROI experiences that we're seeing across our customer base. And at the moment, we have historically priced our -- almost all of our products on some sort of seat basis, with some usage basis that has happened in certain areas of the product, such as Bitbucket pipelines that we've charged for units of build and stuff like that. We are experimenting going forward with more usage-based private seats. So it's -- I don't want to get into one specific customer, but we think that there is a world in the future where we do have some sort of usage-backed pricing around these interactions with -- and the ROI that we're getting from customers. And so we'll see more experimentation with that going forward, but that's something we're experimenting with at the moment.

Your next question comes from Gregg Moskowitz from Mizuho Securities.

Scott, all the best in your future endeavors, even though I know, as Mike said, you'll be with us for a little while longer, fortunately. So my question is, obviously, this is a significant upside quarter. Having said that, I think the big question is one of sustainability. The Cloud revenue in the quarter was it'll be in line with guidance with all of the upside coming from Data Center and Marketplace, and Marketplace itself is tied to the Data Center as well. But we're never going to have another quarter of Server migrations. And clearly, there was also a decent amount of pull forward given the recent Data Center price increase. And so as we look ahead into next year and beyond, the question is, can Atlassian, in fact, continue to show good growth.

Yes. Great question, Gregg. Thanks for asking. Let me try and share a little bit of perspective on that without giving specific numbers for FY '25. At the highest level, the long-term revenue growth of the company is really driven by the opportunities we have in our three large high-growth markets that Mike touched on at the top of the call. And secular trends around things like digital transformation and software is a critical factor to the success of every company. From there, there are several growth drivers across Cloud and Data Center. In terms of Cloud, given the size of the Data Center installed base, we do continue to expect migrations to be a key driver of Cloud revenue growth over several years, although we do expect that impact to wane gradually over time. Now to drive migrations, we're delivering a Cloud platform that provides the best customer experience and value with analytics and automation and AI as well as better TCO for the customer. And those factors will only improve and grow stronger over time. As part of that, we are investing in new and highly valuable product innovation as well, and much of that is only currently available on Premium and Enterprise editions of our products, our Cloud products. And we are working to unblock and help customers migrate and deploy on our Cloud and making good progress on scalability and certifications and app integration and extensibility, all of which are very relevant to our largest customers in Data Centers. So we have a lot of confidence in the migration space. From there, as you know, there are multiple growth drivers in the Cloud we've discussed in the past, things like paid seat expansion within our existing customer base, our opportunity to cross-sell additional products to our over 300,000 customers, upselling to Premium and Enterprise editions of our products. And then with the smaller impact today but growing over time are other drivers like new customer adds and new high-growth products like Compass, Jira Product Discovery and Loom. And of course, pricing is the final lever in the Cloud model. In terms of Data Center, we expect organic expansion and pricing to be durable, long-term drivers given the high renewal rates on Data Center agreements and the Enterprise nature of that customer base. And with AI, we are well positioned with the unique data graphs around high-value workloads, and there's a lot of opportunity in that space as well. And we're off to a solid start with Atlassian Intelligence with more AI innovation on the way. And then finally, add on significant opportunity we have for further penetration in Enterprise, where we've had great signal and momentum over the last year. And overall, all up, we feel confident in our ability to invest behind and deliver healthy revenue growth over a multiyear period as a result of that.

Gregg, I just wanted to chime in at a high level. I think Joe's given a very fantastic and comprehensive answer there. I think we should remember that any upside in Data Center is long-term upside for the Cloud in terms of the destination for those customers over the long arc of time. I think our end-of-Server journey, as you mentioned, from a migration point of view, overall, it's been a huge success, right? Over the last 4 years, we beat our original expectations for the number of paid seats that we migrate to Cloud. We ended with less churn overall than we thought we would have over that 3- or 4-year period. We've tripled the number of paid seats in Cloud during that period since we -- in fact, since we announced the end-of-Servers 3 years ago. I think the way I would zoom out and see that is, that is an example of Atlassian executing against the long-term goal as a team and as a company, and we can do hard things. We say this all the time internally. Data Center customers moving to hybrid deployments, which is generally the way they go through in the middle and then to Cloud. It's a different journey. These are our largest and most complex customers. They have different requirements, different things, but we will get them there. We will execute against that mission over the next few years in the same way that we executed against the last mission. I have confidence in Atlassian to do that. And if you want a singular statistic of how that's going, again, the Data Center to Cloud migrations over the first 3 quarters of this year were up 90%, 9-0, on the first 3 quarters of last year on a year-on-year basis. So we are already migrating Data Center customers to the Cloud. So that overperformance is a long-term good sign for us.

Your next question comes from Michael Turrin from Wells Fargo Securities.

Results were quite strong in a still tough environment. I think the stock is initially reacting more to the surprise news from Scott. So maybe you can both, Scott and Mike, give us a peek behind the scenes around how you have historically divided the CEO role? And Mike, it would be helpful to hear more around is becoming sole CEO at all changes the role or key points of focus on your end from a product or a strategic perspective? I think just any detail there is useful.

Thanks. Scott here. I'll take the first [indiscernible]. Look, Mike and I have worked together for 23 years. We used to take turns taking the bins out in our first office. So we've kind of done every job equally over that period of time. Mike's run go-to-market for well over half that time, I've run actually little less than that. I've run engineering, Mike's run engineering products. So we've kind of done everything together over that period of time. And I think that's relatively unique-ishly. I mean, consider ourselves to be unique, actually kind of shared and give you those responsibilities and change them over time, I think it's also extremely unique there. And so I don't think there's anything that Mike hasn't done before that he'll be picking up. And the philosophy is around how we run finances and how we think about the growth of business and investments. Like we've spent a lot of time together over the years doing and -- Joe and finance reporting into me for the last half a dozen years or so. Mike and I spent a lot of time together looking at where we want to grow the business and what our investment profile is. So Mike, do you want to add anything?

Yes. Thanks, Scott. Thanks, Michael. Look, other than Scott being clearly excited better than I was at taking the bins out, we'll work on that going forward. But I want to say, from a long-term point of view, I'd echo Scott's last point, right? Our philosophies as a company, our values, our mission to unleash the potential of every team and the culture, this has been a constant of the company for the last 23 years, and it's going to continue to be a constant going forward. We hope for a very long time. We're a very long-term thinking company. We have certain ways of being that we don't expect to change, nor do I think Scott would want them to change or nor do I think they should change. Now we live in a highly changing environment, so we can't say nothing's going to change. What we can say is, in the short to medium term, sort of the closer focus, we're very clear on our strategies and our execution. As Scott mentioned, we have the most experienced executive team we've ever had. I'm super lucky to get to work alongside them all every single day, even executing through this mini project, if you like. From a strategy point of view, look, we're very clear. We've been clear with our investors, our shareholders, our customers what our focuses are in terms of the opportunities we have in the Enterprise and with migrations, in terms of the ITSM and ESM market, and continue to invest strongly there and seeing strong results. And then in the AI era, we have some fantastic opportunities. So those are the current priorities, as we said. That doesn't change from yesterday to today, and we'll keep you updated as we move forward.

Your next question comes from Alex Zukin from Wolfe Research.

Maybe mine is tied to the Data Center to Cloud journey that you've seen both over the first 3 quarters of this year, in the context of some customers kind of signing more longer-term deals and in the construct of kind of this notion that the end-of-Server life unblocks the company's ability to focus on a lot more things. What does that mean for Data Center to Cloud migration trends in terms of both from a financial perspective, maybe next quarter and next year, that 10 points you previously thought? And then just beyond, if you look at the activity of where those customers are migrating in terms of a tier basis and what that's doing to ARR or ACV growth?

Yes. Thanks, Alex. A lot of questions there, so if I don't hit them all, bring me back. So I'll start with migrations. We do continue to expect migrations to be a key driver of Cloud revenue growth in Q4 and FY '25. Despite a few, if any, Server migrations post end of support, this is due to the significant size of the Data Center installed base and the opportunity we have to enable those customers, some of our very largest customers, to move to the Cloud. And that opportunity today is even bigger than we expected it to be 3 months ago, given the strong customer retention and migrations from Server to Data Center this quarter. Having said that, we also expect the migration benefit to Cloud revenue growth to gradually decline over time from the approximately 10-point benefit in FY '24, given the lack of Server migrations. Now to drive these migrations, I talked earlier about the things we're doing. So we have a lot of confidence in our ability to execute on that and to drive it. So that's how we think about the growth impact to Cloud from migrations going forward. In terms of the deal structure, if you look at our overall deal volume this quarter, even though we had a large number of absolute deals, the mix between annual and multiyear were very consistent and similar to past quarters. So think of the overall volume growing, and within that volume, the mix between multiyear and annual being the same.

I just had a few small points to that, Alex. Firstly, in terms of deals, like you're seeing a lot more hybrid deals, obviously, from the Data Center-type customer. One of the points that we like to make clear is the larger and more complex customers moving to the Cloud is not a sort of a 1-day single-button click event like changing an app on your phone, right? They have complex deployments with lots of integrations, and they're enmeshed into deep customer workflows. This is fantastic for Atlassian. This shows how much value we have in our products. It means the migration journey is more of a gradual over time series of events. And that shows up in their hybrid, both in terms of their deployment environment, topology and their deal construct. I will say, we continue to be agile with our resources at Atlassian. We pride ourselves in our ability to move R&D around to where we need it to be. Obviously, with the end of Server, we can move slightly more R&D towards the Cloud, but we maintain a strong commitment to the Data Center business and continuing to move that forward. And there's still lots of work to do, right? We're incredibly proud of the work we've done in performance and scale, in governance and data residency. We rolled out 7 new regions this quarter and an extensibility and all the things that our largest customers need. And you'll see us continuing to invest in those over the coming years as part of the journey.

Your next question, Keith Bachman from BMO Capital Markets.

Yes. Joe, I think this is for you as well, but I wanted to talk about Data Center growth. So the guidance that you've given for Q4 of, call it, 40 to 42 with 15 points of help, even net of help, it would have been -- it's keenly stronger than I would have anticipated. And so if we look out over the horizon, is there any puts and takes that you can give us on how to construct or think about Data Center growth specifically? And just to even take a step back, as we look at Analyst Day next week, or the analyst event, I should say, at your event, which I'm very much looking forward to, will management provide some longer-term model frameworks, either the top line or margin construct?

Yes. Great questions, Keith. Thanks. Let me start with the Data Center question and frame it in terms of long-term growth drivers on that model. We expect Data Center growth rates will decelerate through FY '25, just given the migration dynamics into and out of Data Center and the challenging comparables they're going to have to FY '24. To the question earlier, we're not going to have another Server end-of-support moment in FY '25. Having said that, in FY '24, Data Center revenue growth benefited from migration flows from Server, net the headwind from Data Center migrations to Cloud. And with Server end-of-support, we do expect that benefit to wane over the course of the next year to 18 months, given limited, if any, new migrations from unsupported Server customers and accelerating Data Center migrations from Cloud. We should see a much more pronounced decrease in that benefit in H2 FY '25 and into FY '26 as we lap the strong migrations from Server in this quarter, at which point we'll likely have a net headwind to Data Center revenue growth, driven by migrations to the Cloud. So that's sort of the migration stories. I think it's also important to keep in mind, as you think about long-term Data Center growth rates, our customer base here is predominantly Enterprise, with very high renewal rates, and price increases and expansion are the other key drivers beyond those migration dynamics. And we do expect those to remain healthy contributors to growth going forward. In terms of Analyst Day, I appreciate the interest in that, really looking forward to seeing you and many of your colleagues next week. I'm not going to share a whole lot today, other than to say we plan to share our optimism around the long-term opportunities we have how we think about the drivers of durable growth and the key areas of investment we'll be making that will enable us to deliver on that. And I'll share the rest next week when we get together.

Next question comes from Brent Thill from Jefferies.

Joe, I think many on the buy side are still hung up on why Cloud is growing faster right now. And I know you're expecting to accelerate going forward. But what is -- I mean when you think about the differential of kind of the expectation versus what you're seeing, what has been holding Cloud back as much? Is it just DC was easier to make the migration? Is there something else that's going on? Because I think most felt like this would actually move a little faster, and we know it's going to accelerate going forward for your guide. But just curious to get your thoughts on what you think is maybe can restrain some of the growth or maybe our expectations are just too big.

Yes. With respect to the Server end-of-support, Brent, you'll recall that we did talk about the fact that of the Server customers that were there at end of support, we expected the vast majority, if not all, of those customers to migrate to Data Center, right, because those are large customers with very complex environments. And it's a much easier migration path to Data Center than Cloud. And most of those customers need a little more time. So I would say, migrations, as part of the model, has performed in line or better than what we expected all year, and it's held up really well. Stepping back at the overall Cloud business. I think the main pain point has been around paid seat expansion and weakness. Everything else in the model has performed in line with what we expected entering the year and continues to hold up really well in what has been a really mixed, if not difficult, macroeconomic environment. In terms of paid seat expansion, our rate of paid seat expansion in the quarter, overall, remained below prior year levels, as I mentioned earlier. But I talked about the fact that trend quarter-to-quarter is improving and beginning to moderate from prior quarters. Within that trend, seat expansion rates in SMB continue to be particularly challenged. And so that's been, if you want to center the pain point there and the expectation delta, that could be an aspect of it. Our Enterprise rates remain very stable. And so we continue to believe a big driver of this trend is macro as customers tightly managed headcount growth and costs and where we see SMB more impacted, broadly speaking than enterprise. So from our perspective, that's been the primary pain point and the headwind on the business from a Cloud perspective. The remaining drivers, whether it's migration or cross-sell or upsell to Premium editions, even new customers are coming back in line. All of those aspects continue to perform well and in line with our expectations. So that's -- from our perspective, that's been the biggest expectation delta.

Next our next question comes from Nick Altmann from Scotiabank.

Awesome. I wanted to build on the last question a little bit. But just in your prepared remarks, you guys talked about how the opportunity around Cloud today is much larger versus your initial expectations. And I was just wondering if you guys could impact that a bit. I mean you guys talked about seat counts on Cloud or higher churn sort of was above expectations. But maybe just talk about why you see the opportunity more significant today than you did several years ago? What's sort of driving that heightened optimism? And just any other color you can provide around what you guys are seeing with your current Cloud customers that's driving the upside versus sort of your initial expectations?

Thanks, Nick. Its Scott here. A couple of reasons. One is -- let's just take the migration asset first, which is that, in our migration models, everything has performed as expected, and in terms of how many people we expected to migrate from Server to Cloud. [ What these companies allow people to term out ]. And that, I think, is pointed to the stickiness of our overall offering to our customers. These are the times when you would expect competitors or alternatives to be researched out there in the market, and we haven't seen that. We've seen people really stick with and double down on investments in Atlassian's products. And so they may not have made the first step to Cloud. They've made the first by Data Center. But I can tell you with every one of those customers I speak to, large or small, Cloud is in their future. And it's really, okay, they either they feature from us or they want a particular data residency or a particular compliance that we're already working on. Or they just got a project internally that they're trying to schedule when they want to get the migration done. And so I have a huge kind of excitement around what that holds for future migrations. If we take down just the market size and opportunity, [indiscernible] next week around that. But I'm super excited by what that shows, bottoms up, of just the opportunity inside our customer base. And that is getting larger for a couple of reasons. One is that we've got new products that are coming to market. Our Point A products are gaining real customer usage and sort of early in the revenue on the usage that they're growing pretty fast. And we know that those new products can…

Yes. The only thing I would add, Scott covered all of the basics. And obviously, we're incredibly bullish about AI. We got some exciting stuff coming up next week. We hope to see you all there at 1024. The Atlassian platform is probably one of the areas that I always think is underestimated in terms of durable growth and in terms of long-term advantage, right? Again, Atlassian is a company that thinks very long term and very strategically and thoughtfully as we go through Equinox and Solstice and Equinox and Solstice and Equinox and Solstice. The world goes around and around, and we try to think about that across more than just a singular quarter. In terms of engineering, you see we have significant R&D investments, right? That is a part of how we think about the world. And in the Cloud, a large amount of that goes into the Atlassian platform. Building out the platform to scale across our products is a unique competitive advantage. It is increasingly resonant with customers as a differentiator and as a moat that allows them to choose multiple products, it allows them to adopt our products more seamlessly, more quickly. You get automation across those products, get analytics across those products and build out the teamwork graph that underpins a lot of our Atlassian intelligence and other future capabilities. That is a super unique advantage that comes only from our large R&D investments and our long-term thinking and our ability to, in a capital-efficient way, fund that buildout over a many, many year period, and it will continue to be so over the future periods.

Your next question comes from Kash Rangan from Goldman Sachs.

Yes. I'm toggling from one call to the other. My question is, it looks like given the continued strength in the Data Center product, this is going to be here to stay for quite a while. So I'm curious, when you look at the product road map ahead, how much of an emphasis is being placed on the development side on the Cloud, particularly with respect to the functionality. And when are we going to start to see a divergence by design, by intention, between the Cloud and the surviving entity? And what new incentives are we going to see in the fiscal years ahead and also migrations? Are we going to make those migrations easier going forward?

Sure, Kash, I can take that. Look, I would say, from our customers' point of view, it's well understood that the Cloud is our future and our customers know that. As Scott mentioned earlier, 5 years ago, you had a lot of customers that said, I'm not going to the Cloud. Now it is a when, not an if, right? I do not run into customers who say they will not go to the Cloud. I run into customers who say, we can't go now because of this reason or that reason, either internal reasons or Atlassian-related reasons. The divergence of features, to some extent, has already happened because of the nature of the Cloud. So you need to look no further than Atlassian Intelligence, right? AI and LLM-driven features with large-scale foundational models requiring teamwork graph in the Atlassian Cloud platform is not something that we can bring to a Data Center customer, and they understand that. It's a completely logical reason. And hence, an extra reason or incentive for them to migrate. Now we are building continually hybrid-supporting features in things like our migration tooling and in other areas as those customers move parts of their workload to the Cloud, if you think about it that way. And that is helpful to those customers over time. Beyond that, we do continue to invest in the capabilities of Data Center for those customers, right, in terms of security, in terms of their scale and compliance and in terms of features where we can take certain features, which makes sense to build in Data Center and in the Cloud simultaneously. So I think the customers understand that. In terms of additional incentives for DC customers to move from a financial and other point of view, we continue to work with our customers and our partners as to the best way to do that. Often, it's not financially driven, right? It can be as much about compliance and data residency and Fed ramp and Enterprise scale and all the things that we are continuing to work on with those customers.

The next question comes from Fatima Boolani from Citi.

Scott, congratulations to you for an absolutely legendary run. Just on the point of the carrots or the incentives for your existing Data Center customers to move to the Cloud, I wanted to ask you the question in a different way. You always make substantial progress in solving for data residency demands and other compliance with security blockers for some of your most regulated and complex customers. So I'm curious what is left to address or alleviate from a "cloud blockers" standpoint? And what type of investment should we expect that will entail in the medium term? And the reason I ask this is because the expectation is that your Data Center migrations to Cloud are going to accelerate, presumably most of those blockers have been renewed. So I would just love a little bit more color on that front.

Sure, Fatima. I can take some part of that. Look, I think, at the highest level, it's a pretty big testament to our Enterprise that 3/4 of our Enterprise customers in regulated industries have a Cloud footprint today. So you talked about our achievements, and thank you for noticing that, by the way. That's very gratifying. We have been working incredibly hard on those areas, and it is resonating with customers, and that's an important place to start. Second, I would say, these customers, we call them our largest, the most complex, most enmeshed customers. That is one of the things that just takes time for them to move. Like for a lot of these customers, it is a 3-, 5-year road map they're running in these large complex IT organizations. That's not about -- I think you referred to them as cloud blockers. That is just about that company saying, yes, I get it. I have these projects going on. It's going to take me a year, 2 years, 3 years. I'm going to move this piece first, and this piece second. Some of that's the natural progression pace of those customers. There are certainly things we can do, improving migration tooling and lots of other things that we are working on. But some part of the paces were in terms of the customers. And there's no doubt, we will continue to work on governance, as we mentioned. We're in process with FedRAMP Moderate, and we continue to work on things like that for governmental customers. We have more data residency regions we'd love to roll to, for sure. There is always more performance and scale that we can eke out for our largest customers. So there are a lot of things that we have to continue to work on. In the app and extensibility area, we continue to ship improvements every single quarter. Now the other thing is building customer trust. We see our relationship with the customers, especially in the Subscription environments, like Data Center and Cloud, that's about demonstrating continued trust over time. They are subscribing to get our future offerings. We can see that in the last 2 quarters, we've hit 100% of our Cloud road map in R&D in terms of delivery. So when these customers are making a multiyear or even decade-long commitment to Atlassian as a partner, they want to see that we're going to deliver on the things that we tell them we're going to deliver on, which is certainly what we've done over the last period of time. That said, having customer conversations, they acknowledge they are clear and they see that we are continuing to remove the, as you call them, cloud blockers over time. So that trust is going up when you talk to customers. They are seeing our progress just as you are. So I hope that's helpful.

Your next question comes from Arjun Bhatia from William Blair.

Perfect. Maybe one for Mike or Scott. I just wanted to touch on the AI landscape, but maybe more from the sense of what it means for the role of the developer, right? We're hearing a lot more about text-to-code capabilities and how that's automating a lot of the workflow for the developer role. And you have companies popping up that are addressing this, start-ups that are doing this more and more. But from your perspective, how do you see the role of the developer changing? And maybe what does it mean from an Atlassian perspective? What does it mean about how Jira might need to change or evolve to manage the agile process overall?

Yes. Thanks, Matt. I can certainly take that one. Lots of thoughts here. Firstly, AI is awesome for software development in the broadest sense, right? Large language models, their ability to generate code, their ability to understand code, which is arguably more important, is phenomenal for the world. It -- we take the position that the world has a supply constraint in the number of engineers, not a demand constraint in the amount of ideas we have for software that we would like to be built. What AI does is loosens that supply constraint. We're not going to hit demand ceiling. So people will be able to do more with the number of engineers that they have is the way we think of it. That is good for us for a number of reasons. Firstly, most developer time is not spent on coding. It's spent on coordination activities. It's spent on how developers work with product managers and marketing teams and service teams, how they support and operate the software and services that they've built, rather than just the sort of classical view of coding a piece of software and then delivering it. That is a collaboration activity. That is a difficult hard problem that we spent 20-plus years working on, and I suspect to spend most of the next 20 years continuing to work on. Secondly, AI, we believe, will generate far more software, far more services and apps and tools, and that is a great thing for us, especially for things like Compass, which are about managing developer experience, managing your software sprawl. Again, resonating extremely well with customers only a few months into GA, but obviously -- but already taking off on a pretty strong growth path and well ahead of our expectations. So Compass and AI is a great thing that have more software. And thirdly and lastly, the ability of AI to allow nondevelopers to "write" code in some sort of a form to be able to do more programmatic capabilities is quite fantastic. You can see this in Atlassian Analytics, where the ability to use natural language to turn into SQL and then chart and dashboards, it's kind of a developer-like activity but allows a democratization of the ability to get to that analytics, to get to your data, to understand it. I think there'll be many, many more things like that, that allow these AI capabilities to democratize what we used to think of as software development. Maybe that's the way to say it. So Scott, I don't know if you have any follow-ons.

I'd just [indiscernible] the first point you made, which is just that I think for people that don't write software, I think it may be not well known how little time people actually spend hands-on keyboard writing code. A lot of software is working at the requirements and what it looks like and how do we want to build things and where is data going to come from. And so you can make huge differences in how much time a developer spends with hands-on keyboard. But percentage-wise, it actually doesn't change their weight that much because they spend a lot of their time in Jira, in Confluence, in like talking to customers, gathering requirements. And if you look at where our products touch our customers, that's a way larger percentage of a customers' weight than a software developers' in writing in an idea. So the opportunity for us to save time for these hands-on keyboard software developers is immense. It is because [indiscernible] spend coding [indiscernible] time there, it's a huge difference. And so I just want to echo that because it's not particularly well-known if you're not a software developer.

Thank you. And that concludes our question-and-answer session. I will now turn the call over to Mike for closing remarks.

Thank you, everyone, for joining our call today. As always, we appreciate your thoughtful questions and continued support. We're incredibly excited for TEAM '24, our flagship customer conference next week in Las Vegas. We've got some incredible speakers, fantastic customers and some, hopefully, mind-blowing announcements that we can't wait to share with you. We'll also be hosting our Investor Day at TEAM '24, so we really hope to see you there. And with that, have a fantastic weekend.