Excellent. Thank you everyone for joining us. My name is Keith Weiss. I run the U.S. Software Research franchise here at Morgan Stanley, and very pleased to have with us from Atlassian, recently announced President and COO, Anu Bharadwaj. Baraj. Okay, I was close. Not even close. Nice try, Keith. Nice try. Before we get started, for important research disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Thank you for joining us again at the Morgan Stanley's TMT conference. Can you talk to us maybe a little bit about your expanded role at Atlassian, what you're looking to take on, and kinda what are your key priorities now that you have that president role over the next 12, 24 months? Sure. Thanks for having me here, Keith. It's a pleasure being here with all of you. My new role that I took on recently as the President at Atlassian, I keep all of the responsibilities that I had in my previous role as COO, which was roughly about half of the R&D business around our enterprise business, cloud platform, and the Data Center business. In addition to that, I am also taking on the responsibility for the other half of the R&D business across our three markets, ADO, ITSM, and work management, and SMB growth and user experience. Our thesis with bringing all of these different functions together, product, design, strategy, business, operations, under one leader, is that it'll let us execute with a lot more efficiency and focus on unified priorities. We can see that straight out of the gate too. Just within the last few weeks of taking on the role and unifying these teams, we've been able to drive several efficiencies, bring teams together to eliminate overlaps, and really focus on accelerating product innovation, while also making sure that we're doing this in the best, most effective way possible. Really, I see my job as one, clarifying business priorities across the company, two, simplifying user experience, and three, driving holistic business growth across both the SMB and enterprise segments. Got it. It sounds like there's some relation to sort of that, a change in kind of how you're viewing sort of, like, organizing the leadership to the focus on sort of top three priorities that was talked about on the last conference call. It seems like there's some relation there. Yes. What we have really done is taken a step back and, just as a reminder, we operate across three markets in Atlassian, Agile DevOps, ITSM, and Work Management. Each of these three markets are growing markets showing healthy growth rates despite the current environment. We are convinced about the longer term opportunity we have across these three businesses, so nothing really changes in terms of our long-term potential of business growth. However, in terms of responding to the current macroeconomic situation, what we did do is we looked across the long-term growth drivers across our markets and said, "Hey, let's double down on the most lucrative opportunities that will help us drive more revenue across these." Those three were really centered around cloud migration, which for us has been a multi-year journey and has been going well. We are situated in a good place right now. In fact, our migration's doubled year-over-year compared to the migrations that we did last year. The second opportunity is around enterprise adoption. Also, we've sold two times more to enterprises this year and signed multi-year agreements, which is a solid sign of confidence of enterprise customers across our overall product offerings across our markets. What we really did with our rebalancing exercise is put more wood behind the arrow across these lucrative opportunities that can drive revenue over the shorter term in addition to longer. Got it. I want to dive into sort of the investment philosophy that Atlassian is, s eems to be changing a little bit, right? If we go back two quarters ago, it seems Scott and Mike had the idea that, "Hey, listen, we wanna leverage kind of our strength, leverage our balance sheet, and invest throughout sort of the downturn, and try to gain competitive advantage at the expense of sort of near-term operating margins." It seems like that took a step back like a quarter ago, when there was, so the targets came down a little bit and you pulled back on sort of the hiring expectations. Today or last night, you guys announced a restructuring. It looks like you're steering more towards balancing kind of growth and profitability in the near term. Can you talk to us about kinda what's changed over the past six months to kind of realign that investment philosophy? Yeah. Yeah. Thanks. That's a good question. I was talking to a CEO of a public company recently, and he put it well. He was saying, "Look, if you have the same set of tactics in running the company in 2023 as you did in 2022, something is wrong." I'm glad that you're noticing that we are shifting some of our tactics. Our long-term strategy remains very, very focused on investing across our three markets, where even through the current environment, we see customer demand, we see opportunities for growth, especially coupled with our unique differentiated business model. What has changed for us really is that we took a look across the company in terms of investments we've made and shifted the investment mix a little bit more towards shorter and medium term compared to our longer term mix. However, the investments that we have doubled down are very much in line with our overall long-term strategy. Atlassian's here to be a 100-year company, our focus has very much been disciplined on staying aligned with what we want to achieve over the longer term. The three areas that we did double down our investment in are very much aligned with what we wanna deliver over the longer term. The two ones that I mentioned, cloud migration and enterprise adoption, along with one of our three markets, ITSM, which has been our fastest growing market. We've had 45,000 customers in ITSM up from 25,000 at launch and 35,000 last year. We are seeing substantial opportunity there, especially in the current environment that we're doubling down. Got it. Excellent. Can you talk to us a little bit about the restructuring that was announced last night? Yeah. I was a little bit busy. I haven't read the press release yet. Yeah. If you could catch me up on that and, what'd you guys talk to, and where are you looking to sort of take costs out in of the equation? Yeah. The rebalancing exercise that we announced yesterday impacts about 5% of our overall company. This exercise is very much not a cost savings exercise, right? 'Cause overall, we will continue to expand and grow headcount overall net across the company. Mm-hmm. This was very much an exercise of us doing, rebalancing that I talked about in terms of priorities and matching talent, existing talent that we have, that we can double down on some of our more near-term opportunities. As we did that talent matching exercise, we've deliberately decided to scale down in some functional areas, which was the result of which was the 5% impact. Got it. It's interesting. There's definitely a cohort of companies that we've talked to. The other one that pops to mind is like Workday had a very similar philosophy. It's not about cost reductions. It's about getting the right set of talent to align. Yeah. To kind of what we're on a go-forward basis. They were talking about incremental investments in like data scientists and people who understand large language models. Is there a similar focus in terms of like where are you trying to push towards? What are you trying to gear more towards in terms of your investments? Yes. Atlassian's business model is very much focused on the classic land and expand, and we are not a traditional enterprise company where we invest heavily in sales and marketing. Mm-hmm. A lot of our rebalancing, realignment exercise will result in focusing more on R&D teams and R&D kind of talent. Inside of R&D talent, for example, one of the trade-offs that we made was, we did not need as many talent acquisition people, given that our hiring trajectory has changed. Right. Instead, we've rebalanced that effort, that energy towards hiring more engineers, product managers, designers on the R&D side that can ship customer value more effectively and help us drive business growth through the flywheel. Got it. That makes a ton of sense. I wanna shift gears and talk about sort of the core product strategy Atlassian and really in the core DevOps business, and I think management has often spoken about sort of open platform versus some of your competitors have more of a closed platform approach. You guys want to be kind of the organizing principle, if you will, and working. Yeah. With whatever tooling, that the end customer wants to work with, which other competitors wanna do it all. Yeah. The fully integrated suite. Can you talk to why that's an important point of differentiation for Atlassian? Yes. Certainly. Before Atlassian, I was at Microsoft for 10 years building developer tools in Visual Studio. I've spent a lot of my career building products for technical teams, and if there's one thing I can say with certainty, it's that a surefire way to piss off a developer is to tell them this is the product you will use and to mandate tool choices on development teams. At Atlassian, our philosophy, which has been steadfast for the last 20 years of running the business, is that we want to optimize for choice. We wanna optimize for end users being able to use the products that they want, best-of-breed products that they want. We want to really be the backbone that connects all of these products. We have an obsessive focus on integration capabilities, on our ability to really connect with other partners in the ecosystem. This benefits not just end users who really want choice, 'cause this is a kind of audience that appreciates early technology, but also the CIOs that are trying to drive standardization and consolidation. They don't wanna be seen as the barriers to innovation, but they do want the ability to have administrative control, cost consolidation capabilities, all of that the Atlassian platform offers. Really, our Open DevOps philosophy has very much been focused on improving the kinds of integrations we can have with best-of-breed tools, and our marketplace is evidence of that, where we have thousands of integrations with second and third parties. Having said all of that, however, the Atlassian platform, which is a strategic differentiator for us and the underlying technical platform across our products, also gives us the ability, especially in this current macro environment, where CIOs are looking to do more consolidation and drive more cost savings, the ability to use Atlassian products across the entire DevOps tool chain. Our subscriptions, like Atlassian Together, really help get CIOs the ability to say, "Hey, I want to use the entire Atlassian platform," and it works straight out of the gate. Right. The move to the cloud and having the entire sort of portfolio in a cloud-based environment, I would assume that helps with the kind of cross-pollination, if you will, or the cross-marketing into the adjacent tool. While you don't mandate using the entire suite, now you have better avenues for getting customers to adopt more broadly across the suite? Exactly, yeah. We have more upsell and cross-sell opportunities in cloud, like you pointed out. We have a multi-product offering, we often see most of our customers really use multiple of our products. They start with a product, and it's easy in the cloud world to add on more. Right. New products and use cases, but also it's easy to climb the ladder of different editions. We have a complete set of editions in cloud, starting from free all the way to standard, Premium, and Enterprise. We see customers mix and match across Jira and Confluence. For instance, someone wants Jira Premium, but Confluence Enterprise, and the cloud offering really gives us the ability to do that upsell and cross-sell in both directions effectively. Got it. Martin's gonna get mad at me 'cause I'm gonna go off the script. There's a question that, and a conversation I've been having with a lot of investors, around generative AI. Yeah. Right? The Copilot from GitHub has caught a lot of investors' attention and imagination, and the idea is it's gonna make developers much more productive. You hear some big figures out there that are getting validated. Yeah. In the marketplace of improving productivity. The way the investor mindset works is like, well, if developers improve the productivity, you need less developers. Atlassian's a seat-based business, is this gonna be bad for Atlassian? Yeah. How, l ike, how do you view that sort of train of thought? Yeah. Is there any reality in it? Yeah. Thanks for asking that question. I have a product pedigree. I love to talk about this question all day. This is something we think about a lot given that our investment in data, AI, and ML has actually had a track record of many years. This is not something brand new that we need to think about as some kind of reaction to the current situation. However, the step change in generative AI and NLP specifically does introduce some exciting prospects for us. The way we think about that at Atlassian very much is in two separate parts. One is that to your question of, hey, if developers get all these capabilities, do we no longer require as many developers? I think we are a fair bit away from saying that generative AI is capable of replacing the entire gamut of developer activities, but even so, really our products are not focused purely on developers. There may be 30 million developers in the world today, but really, about half of our business is focused on non-technical users. Yeah. That surround these developers and do collaboration and team building. That number is going to continue to grow irrespective of what happens with the developer population. The second part of it is actually these advances in generative AI are really exciting for developers, which basically means the number of people who can act as developers will explode. So far we have talked about citizen developers, but their capabilities have been restricted to low-code, no-code capabilities that are available in market today, and that is set to really take a step change, which means the number of people wanting teamwork products like the ones that we build. Right. Is actually gonna increase. This is a big positive for us. Right. Yeah. I think that's the crux to the equation, of that with the capabilities of AI, you really expand the scope of what software can do, you increase the demand for more software. While each developer becomes more productive, there's probably gonna be a lot more developers. The Atlassian position seems to be pretty good because you want some sense of control on those developers. You want them all to be in sort of some type of swim lane, and that's fundamentally what, like, Atlassian brings to the equation. That's the core value proposition of Jira, is making sure everyone's swimming in the same direction. Exactly. Not just Jira, but also the corresponding products around Confluence, work management. Right. Trello, all of that really helps teams be more productive, whether they're building software or something else, and therefore the overall market actually expands for us. Got it. Got it. Can you talk more specifically about how I know that Atlassian has been bringing AI or machine learning functionality into the suite for some time in various areas. When we talk about generative AI in particular and some of the GPT models or, like, Codex or whatnot, is there an Atlassian version that's coming out? Is this functionality that we're gonna see in the Atlassian portfolio at some point? Yeah, that's a great question. Just in terms of foundationally what does AI/ ML mean for the Atlassian business, because we have multiple products and we have an open tool chain philosophy, today we are already sitting on a wealth of data from our customers, right? They're users across different parts of the app life cycle management workflow, starting from product discovery all the way to tracking work, translating that into code, putting pull requests out, operating it with the DevOps workflow, and right back to connecting it back with feedback you hear from customers, and therefore driving incremental change. Given that we have partners as well as first party products through that whole workflow, we already have what we call a people work graph, so to speak, which really connects different kinds of work objects with people who are working on different areas of the overall life cycle, right? This is a unique trove of information that Atlassian has access to, especially in the cloud world. Right. It becomes a lot more easier to bring it together. That is why we introduced the AVP product, Atlassian Visualization Platform and Analytics, last year, where you can create a data lake with data from our products as well as bring in third-party data. You're able to unlock insights and smarts that you weren't able to before as a customer, especially in the non-cloud world. Okay. Putting generative AI on top of that actually unlocks several other exciting possibilities. Without giving away too much of it, we have a user conference coming up in April called Team '23 in Las Vegas, and that should really build on the story that we have started telling over the last couple of years. Especially in ITSM, we are really excited about our Percept.AI acquisition, which is an AI agent that can help automate activities as well as come up with smart insights from an existing knowledge base for IT users. Stay tuned for more. That was a great advertisement coming from a product person. A good segue also into ITSM. One of the areas that you pointed out, there's cloud, there's enterprise. ITSM is the product side of the equation of where you guys are really excited on putting more wood behind the bat. Can you talk to us about why you think ITSM is such a, one, a good fit for Atlassian and still such a right market opportunity? There's definitely vendors there. From the high end you have ServiceNow and you have Freshworks come into the market. Yeah. And HubSpot. Like, why is this the market for, like, Atlassian, if you will? Yeah, that's a great question. ITSM is a market that I'm especially excited about, both from a product and a business standpoint. There's a few things that uniquely position Atlassian in this market. One is the whole DevOps wave that has rapidly been adopted by customers of all sizes. We are really the only vendor that is capable of connecting the developer teams and IT teams natively because we have dev and IT teams already using our product. JSM is the most natural fit in connecting the dev and IT teams together to create DevOps workflows and IT ops workflows. Our time to value is strikingly low because our flywheel model essentially depends on user adoption and user growth happening organically. We've designed the product to be really simple and easy to adopt versus many of the legacy vendors you see that have, like, years of adoption cycles and expensive service arrangements that are required to get to value. Especially in the current environment, we see a lot more customers asking us for a cost advantage or a time-to-value advantage, and we're uniquely positioned there. Sure. Our pricing, in the ITSM market's also, the best in terms of value-price ratio, so it's a pretty disruptive pricing model. Our capability set over the years, we have now built it up to a point where even industry analysts like Forrester and Gartner recognize us as leaders in that market. In terms of competition, to your point, we see often, JSM coexisting with several other competitors. Okay. Given the current situation where customers are trying to consolidate costs and really wanting a quick Agile solution, that delivers value to customers, we do see a few replacements as well, like PostNord and Engie are two customers where we replaced a legacy vendor with JSM, and they're quite big companies. One has about 20,000 employees, another 90,000 employees, which just speaks to the value set that JSM delivers. Got it. Got it. another good segue, 'cause I wanna make sure we touch on all the kinda key focus areas. Let's shift gears a little bit to enterprise, and I'm gonna put on my kinda cynical, investor/sell-side analyst hat. Is the focus on enterprise because the SMB market is just really poor right now in that, like, there's more macro sensitive, so that's just kinda where spending is, or is there a more sort of non-cyclical or longer term perspective on why enterprise is attractive for Atlassian to go after right now? I would say the focus on enterprise is not new for us. I was here last year talking to you about enterprise adoption's gonna be exhilarating for Atlassian, and the year before that also we were really a lot more focused in enterprise for behind the firewall for our data center products. Having run both of those businesses, I can compare how the situation's changed, perhaps which can talk to your question about is it something to do with the current environment. We definitely do see a lot more enterprise customers wanting to consolidate on the Atlassian platform, and that is a function of both our maturity overall as a product offering and as a company where we are in terms of being able to offer that. Like, we talked about our edition set is complete. We've been working on security, scale, trust, data residency, compliance, all of that. We are really positioned at a place where large enterprise customers can easily adopt a product, and we've been seeing evidence of that. In fact, we had two of the largest enterprise migrations last quarter, an Australia-based bank with 30,000 users and a U.K.-based bank with 25,000 users come into our cloud. It's very much a pull from enterprise customers that we're seeing as a result of years of investment in our product line. Got it. In terms of the another good segue into the cloud migration. In terms of setting up the cloud migration at the front, at the start, you guys had talked about the smaller customers are gonna come over first, and then. Yeah. The larger customers are gonna be at the back end. We've always framed it as a kinda like a three-year transition. Are we starting to get to that point where now we're getting to the large enterprise side of the equation? Yes. Yeah, definitely. I personally drove the cloud transition for Atlassian, I've been fortunate to witness that entire transformation for unfold. We had more of the small customers come in, this year, like I was saying, we've doubled. We have 2x the number of migrations into cloud, about half of it came from Data Center last quarter. Data Center is really a product line that's focused on serving some of our larger customers, some of our more regulated customers. Right. We see increased flow from our larger customers wanting to come onto the cloud. Like I mentioned, a lot of it is really a function of the steady progress that we've made over the last three years in checking all the requirements that enterprise customers have of us. Got it. Just to mark to market on that, a lot of the commentary from Atlassian around sort of the impact of cloud transition has come in the rubric of, like, 10 percentage points added to. Yeah. The, to the overall, cloud growth. Is that doubling of the migration still within that framework of the 10%? Yes. All of the numbers that I'm talking about in terms of volume of migrations, yes. They are within. Okay. What we're, what we have projected overall as cloud migration flows. Okay. I just wanna take this chance to remind everyone that cloud is a multi-year migration journey for us, like we've always said. Right now we are in the middle of that journey, and if I had to compare where we are versus where we thought we would be, I would say we are exactly where we thought we would be at this point. If I turn this into a little bit more of a macro question, you guys have talked about macro impacts in your business, but it's been more so kind of conversion of a top of funnel. Yeah. To paying customers. It's been more around sort of expansion of seats within existing customers. The cloud migrations have been on pace. That part is still. Yes. On place. There's no change to the kind of end of server life next year. Yes. Yeah. That's all kind of on a go-forward basis? Got it. Excellent. So maybe just drilling down a little bit further into the cloud transition, and a question that I get from a lot of investors. Server maintenance guide changed, right? People are having a hard time kind of wrapping their head around that. You're expecting to have more maintenance left on the balance sheet or on the income statement when we get to Q4. Why is that not an indication that cloud migration is going slower, right? Like, that people are staying on kind of that server maintenance longer? Yeah. That's a good question. The stack that you're mentioning about the server business is purely a function of churn from server customers being lower than what we expected. This is basically customers saying, "Hey, we want to stay on server longer, and we would rather stay on server than switch to any other alternative." Right? 'Cause the DC business growth has been healthy. It's actually been pretty solid over the last couple years. Cloud migrations, we talked about they're at the pace that we expected. Server churn has actually been lower than what we thought. That really for us as a company, what that means is it gives us a longer window, in fact, than we thought of converting even more users from server to cloud or to DC. Right. To be clear, these are customers that you thought might churn off the platform altogether. Right. They're staying on the platform, so the base, everything is larger, and there's still an expectation that they could come over and be cloud. Exactly, yeah. Got it. This 30 minutes went super fast. I wanna end on kind of a high note in terms of cloud transition. Can you remind us? You guys have high expectations of when a customer comes onto the cloud, it's gonna be a better customer for Atlassian. We talked a little bit more about sort of the ability to do cross-marketing. What have you been seeing thus far in terms of the basic customers on cloud? Do they behave any differently than sort of your on-premise customers? What does that kind of inform you about kind of the future of Atlassian once that cloud migration is over? Yes, definitely. Again, two parts to the question. One, in terms of just overall user experience. We've been working on a variety of different things in the cloud that were only possible in the cloud and not possible behind the firewall. When customers initially used to move a few years ago, they would come to us with complaints of, "What about performance? What about user experience?" Over the last year, customers that come into cloud have actually cited these as advantages. They're really pleased. In fact, last week I was talking to a large customer that had come onto cloud, and they were so thrilled that performance was way better, that the user experience was just so much of a refreshed user experience. Right. That it was just simpler to get work done on cloud. We've really put in a lot of work, and that work shows in terms of customer reaction. From a business angle, there is clear evidence that customers in cloud, especially larger customers in cloud, cross-sell faster, expand faster. They tend to use our products for more use cases, tend to use more of our products, and tend to be on the higher-priced editions as well. Like I was talking about, there is a mix and match across multiple products and multiple editions. There is definitely larger opportunity for us in the cloud compared to [BDF] for us to be able to cross-sell and up-sell to these customers. Outstanding. Unfortunately, we're about a minute over now, but thank you so much, Anu, for joining us. Again, another, fascinating conversation. Thank you so much, Keith.