Good afternoon, and thank you for joining Atlassian's Earnings Conference Call for the Second Quarter of Fiscal Year 2024. As a reminder, this conference call is being recorded and will be available for replay on the Atlassian's 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 Second 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, Chief Financial Officer, Joe Binz. Earlier today, we published a shareholder letter and press release with our financial results and commentary for our second quarter of fiscal year 2024. The 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 insights and commentary for the quarter, but 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 have. 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 the 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 include non-GAAP financial measures. These non-GAAP financial measures 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. We'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 you've already read in our shareholder letter, Q2 was full of significant milestones for Atlassian. When we first went public eight years ago, we had just over $100 million in quarterly revenue and supported 54,000 customers. Fast-forward to today, and we've just posted our first $1 billion revenue quarter. Jira Software crossed $1 billion in Cloud ARR, and we've surpassed 300,000 customers. These accomplishments are a true testament to our amazing team, our diverse and passionate customer base, and the high-value mission-critical products we deliver. Mike and I are extremely proud and thankful for every single Atlassian who's helped to get us here. In Q2, our R&D engine continued to deliver incredible innovation across our Cloud platform. We rolled out Compass, virtual agent capabilities in Jira Service Management, and our first wave of Atlassian Intelligence capabilities into general availability. We also welcomed Loom to the Atlassian family and have been thrilled to see the team deliver on their ambitious AI vision with many new features, including an enhanced editing experience that makes updating a video as easy as editing a text document. Customers see the value we're delivering in the Cloud and are turning to us for strategic guidance on how we can unleash the potential for their teams. We're excited about the momentum we're seeing across the business and remain laser-focused on executing against our key strategic priorities: Cloud migrations, serving the Enterprise, ITSM, and now AI. We're in a great position to get after them with massive market opportunities, strong customer commitment to the Atlassian platform, a unique ability to combine over 20 years of insights with the immense power of AI, and most importantly, a world-class team. With that, I'll pass the call to the operator for Q&A. We will now begin the question-and-answer session. If you have a question, please press star followed by the one on your phone. If you'd like to withdraw from the queue, please press star followed by the two. Your first question comes from Keith Weiss from Morgan Stanley. Please go ahead. Excellent. Thank you, guys, for taking the question, and congratulations on a lot of milestones this quarter and what looks like a solid quarter. In the shareholder letter, you talked about even absent Loom, still expecting an acceleration in the Cloud business into the second half. It sounds like you saw some signs of stabilization in the quarter, but I was hoping you could drill in a little bit further on what gives you guys the confidence to look for that, to expect that acceleration into the back half of the year in what still seems to be a uneven macro environment. Thank you. Yeah, thanks, Keith. This is Joe. Let me start with the Cloud revenue results in Q2. They were up 27.5%. Loom contributed about a point of growth, so our results ex Loom landed in the middle of our guidance range for the quarter. There were a few crosscurrents in that performance, so let me walk through them in terms of consumer customer segment and growth driver trends to try and help, and then I'll transition into your question on the confidence around H2. From a customer segment perspective, we had very strong sales execution in the quarter, which drove healthy performance in our Enterprise customer segment. This resulted in better-than-expected billings on an annual and large multiyear deals. ... A significant portion of which landed on the balance sheet in unearned revenue. This also drove healthy upsell to Premium Versions of our products. Results, conversely, in SMB were slightly lower than we expected, and that was driven by paid seat expansion and a mix shift from monthly to annual subscriptions, which, you know, as you know, signals stronger customer commitment, but also carries lower pricing. As you know, dynamics in the SMB business, good or bad, are largely realized in the quarter, given the linearity in that part of the business. In terms of the trends on our key growth drivers in the quarter, migrations from Server and Data Center exceeded our expectations, and that's driven by the significant investment and execution focus we put there. In terms of paid seat expansion, while the overall rate of paid seat expansion remained lower than the prior year, the pace of deceleration or slope of that trend continued to moderate from Q1. And within that trend, as mentioned earlier, Enterprise was better than expected and SMB was slightly worse. We also saw the rate at which consumer customers convert from free to paid at the top of our funnel stabilize relative to Q1, and that's another positive leading indicator. And then finally, other Cloud growth drivers like cross-sell and customer retention, churn, and monthly active usage, continued to be very healthy and performed in line with our expectations. And beyond that, we didn't really see anything noteworthy in terms of linearity in the quarter or across products, regions, or verticals. They were largely in line with our expectations. In terms of the confidence around the H2 guide, you know, the midpoint of our H2 Cloud guidance, range, ex-Loom, does assume slightly accelerating growth rates. The factors that give me confidence are the recognition of those strong Q2 billings on annual and large multi-year agreements rolling off the balance sheet, the increasing momentum on Cloud migrations as we focus on unblocking more customers from moving to the Cloud, and continuing to bring new innovation and value to our Cloud offering. The benefit of price increases that are laddering into the model and the momentum we're seeing in Enterprise, driving healthy upsell to Premium and Enterprise Versions of our products. I talked about the slope of the trend line on paid seat expansion rates, and that continues to moderate quarter-over-quarter. And then I also mentioned the leading indicator around free-to-paid conversions at the top of the funnel. So, those are the types of things that give me confidence in, you know, the ability to deliver accelerating Cloud revenue growth in the second half of the year, and I hope that helps. Your next question comes from Michael Turrin from Wells Fargo. Please go ahead. Thanks. I appreciate you taking the question. For Scott or Mike, there's been plenty of build-up and probably too much focus from us on the Server end of life. For investors asking us what's next, the letter does a good job in framing some of that out, but maybe you can share your vision around what the Cloud migration opens up for Atlassian from here. And then, Joe, just as a follow-on, on the ten points of migration tailwind that Cloud line has been, how should we think about that post-Server end of life? Will that at all lessen, or does it simply shift more towards Data Center? Any puts and takes there for us to consider are useful. Thank you all. Michael, thanks for the question. Scott here. Firstly, for those new to the Atlassian story, just a reminder, we've said historically that about 10 points of our Cloud growth have come from migrations. And for those of you really new to Atlassian story, this coming quarter, in the next few weeks, we will have our end of Server support will be happening, which has been a 3+ year journey with our customers. And so the three points I want to make in answer to your question, Michael, firstly, is that migrations will continue to for multiple years. And we said historically that about half our migrations to the Cloud come from our Data Center customers. In this last quarter, even with a lot of Server customers migrating with the end of support, 60% of our migrations in the last quarter came from Data Center customers. And so with that, we expect to see migrations continue for a long time to come. And we've also, you know, made huge R&D investments in order to, you know, continue our customers moving to the Cloud and you continue to see us doing that. We've launched a Data Residency in Canada this last quarter. We also did Bring Your Own Key, secure software. We continue to remove blockers for our Cloud customers, and that, you know, continues to open up the aperture of migrations. The second point I'd like to make is that Cloud continues to be the gateway to full Atlassian experience. And customers, once they get to Cloud, are really getting the best we can offer, and you see us continue to deliver innovation in Cloud. So whether that's Compass, which has continued to grow, Jira Product Discovery, which we talked about, passing 4,000 paying customers, also Loom in our ecosystem, and all the AI functionalities that we have already developed and continue to develop, are only available in Cloud. And so with that, our customers get a better experience, but we also have an incredible opportunity to, you know, sell customers more products and more functionality that really makes a difference for them. And lastly, Enterprise. The third thing is Enterprise, which is through these migrations and having these discussions with customers around migrating to Cloud, we've really deepened our relationships with our best customers. Whether they're North American financial services customers or German auto manufacturers, these discussions have led to us being seen more and more as a strategic partner for them, and they want to do more with us. And you saw that we talked about Mercedes-Benz in our letter, but Mercedes-Benz migrated 30,000 seats from Data Center to Cloud and you know, Jira and Confluence. And as part of that, they were so excited by the usage of our ITSM solution in that process, that they then have adopted that and started using it with their customers. We are becoming more and more a strategic partner for these large Enterprises. Joe, do you want to talk about some of the puts and takes? Yeah, thanks, Scott. Michael, it's really too early to give a specific number on the migration impact to Cloud revenue growth beyond FY 2024. I would just echo what Scott said. We continue to expect migrations to be a significant driver of Cloud revenue growth in FY 2025 and beyond. That's driven primarily by the significant size of the Data Center installed base. There's a lot of opportunity there because those are some of our very largest customers, and for them, it's more a question of when and not if they move to the Cloud. So we continue to expect to see migrations be a significant driver of Cloud revenue growth beyond FY 2024. Your next question comes from Gregg Moskowitz from Mizuho Securities. Please go ahead. Okay, thank you very much for taking the question, and, maybe I'll focus on, the Data Center business. So it's impressive, that, that business is still actually growing 30% +, even after, adjusting for the net benefit from migrations, obviously 41% reported. Joe, when you look at that strong growth, how should we think about the relative contributions from, you know, install base expansion versus pricing versus, net new logos? Thanks. Yeah, thanks, Gregg. You know, you're right. It was another strong quarter for Data Center. It was solidly ahead of our expectations, driven by stronger than expected migrations from Server. That's partially offset, as you point out, by the stronger migrations to Cloud. I'd say the biggest driver, once you get past the net migration impact, is really seat expansion, and that goes to my point earlier around paid seat expansion performance and Enterprise was actually quite strong this quarter. And so we believe that's a statement around macro, as well as our ability to serve those customers and the big investments that we've made to, you know, improve our Enterprise-grade capabilities, address things like scalability, certifications, data residency, app integration. All these things are very compelling in moving customers to the Cloud, but also in terms of... And as a result of that, customers are staying with us, and they're moving to Data Centers, a stepping stone that will ultimately result in a migration down the road. So, it's primarily paid seat expansion, from our perspective, once you get past the migration impacts. Your next question comes from Fred Havemeyer from Macquarie. Please go ahead. Hi. Thank you very much. I wanted to ask, as we start this year, we've once again seen that layoffs in the tech industry have been picking up, although at a substantially lower scale than what we saw in the prior year. I wanted to ask, as we look at your outlook in the Cloud revenue growth, how comfortable do you feel that guidance is once again, de-risked for the potential, impacts from any sort of layoffs in the tech industry? And secondly, have you seen any signs at all that these layoffs may be impacting anything in your, free-to-paid conversion or anything else to date? Thank you. Yeah, thanks, Fred. You know, we haven't seen, you know, a dramatically different impact than we expected, coming into the year relative to the recent announcements. Obviously, it's something we keep an eye on and track. You know, if you think about the guidance, you know, we really haven't changed conceptually how we've refreshed the guidance ranges for the Cloud. Just to reiterate, you know, the high end of our Cloud guidance range for the year assumes healthy acceleration and H2 growth rates that we talked about with Keith. That's driven by less macro headwinds and the related impact that would have on improving paid seat expansion. It also assumes strong migrations from Server to Cloud, following Server End of Support and continued strength in Data Center migrations, cross-sell, upsell, and customer retention. On the low end of the guide, you know, that for the year, that does assume increasing macro headwinds and the impacts you're talking about, and the related impact that would have, not only on paid seat expansion, but also areas of our business that have held up well to date, such as migrations and cross-sell and upsell. And then lastly, it would assume we get relatively weak results post-Server end of support on migrations from Server to Cloud. So, at the midpoint of our guidance, we're assuming that paid seat expansion rates are kind of steady to where they are today. That drives, you know, slightly accelerated revenue growth. At the high end of the range, we get favorable macroeconomic outcomes that drive, you know, improvement in that and thus better revenue. On the low end, we assume that we see the headwinds, and that impacts those paid seat expansion rates. Just to add on to Joe there, he talked about SMB, you know, paid seat expansion being a bit weak, but when I look at the Enterprise business and we're talking with our biggest of customers, I see great excitement amongst them for what we're providing, and that comes in a lot of different ways. You know, it comes in competitive switch outs. We see a lot of our customers looking to us to replace more expensive versions of other products at this particular stage. I had thought that might happen earlier in the economic cycle, but it's actually showing up pretty strongly now in a lot of the deals that we're doing of replacing other, you know, products out there that might be older and/or more expensive. We're also seeing that in AI and the excitement around customers who are excited to use our AI features. And then the new products that we are delivering in Cloud are having, you know, great customer reception. Though still, you know, very early days, I think that, you know, Jira Product Discovery is a great example we talked about, where we're delivering innovation and value to these customers in Cloud, and they're picking it up and running with it. So they're all, you know, strong areas that I think are sort of counter to any, you know, layoffs in tech narratives. Your next question comes from Karl Keirstead from UBS. Please go ahead. ... Thank you. I'd like to focus on the remaining Server cohort. The sequential decline in Server maintenance of $10 million was at least a little bit less than I was modeling. Are you surprised by that stickiness? Can you offer us any help in sizing the cohort that will likely not migrate at the end of support date and continue to run unsupported versions? And perhaps offer a little color as to what that cohort looks like in terms of customer size, vertical, anything. Thank you so much. Yeah, thanks, Karl. This is Joe. I'll go first, and Scott can chime in if he has anything to add. In terms of the Server performance that you referenced, Server delivered much better result than expected results in Q2, and it's certainly been more resilient than we expected over the course of the last year. You know, I'd highlight this, that it's not because of slower migrations to Cloud and Data Center. Those remain squarely on track, if not ahead of where we expected to be. In general, what we're seeing is better renewals, better customer retention, and less than expected churn, which highlights the mission-critical nature of our product and customer commitment to Atlassian's roadmap and platform. Of course, it also means mathematically, we have a bigger opportunity than we originally thought in terms of future seat migrations to the Cloud, which is a great position to be in. In terms of the end-of-support moment, we're about two weeks out, and really, there's been no change from what we discussed last quarter, other than that we're seeing those stronger renewals and customer retention. End of support in a couple of weeks, there's been no change to our focus around migrating as many of those Server customers as possible. The customers that remain on that Server installed base are predominantly larger, more complex accounts that are typically blocked from the Cloud at the moment. So we continue to expect most of those customers that migrate will migrate to Data Center, and we continue to hold prudent assumptions to account for customers who will choose not to migrate in FY 2024, and that's also factored into our guidance. Yeah, just to add some color there, I think Joe's talked to the financial aspect of it. Obviously, with an end-of-life moment, you know, it's hard to predict, you know, week by week basis exactly what happens. But we've put a lot of effort into looking at every single customer that still exists on Server and what it will take to get them across to Cloud in an ideal sense, or to Data Center, if they can't move there. As Joe referenced, it really comes to the stickiness of our products and kind of a testament to what we've built and how valuable we are for our customers that we haven't seen churn there. For many of these customers who can't move to Cloud, a Data Center is a drop-in replacement that does not require, you know, many months of planning. So, customers can leave it to the last minute and switch out to Data Center, and I expect to see a lot of that happen, you know, as we cross the end of Server support threshold in the next few weeks. Your next question comes from Kash Rangan from Goldman Sachs. Please go ahead. Thank you very much. Congratulations on the results. From a trend line standpoint, the Cloud migration is a big opportunity, clearly, but when you look at the trend over the last five to six quarters or so, the Cloud has decelerated from 49% or so, I think that was Q1 last year, to 27%, and a big chunk of that is coming from migration. So if you look at the net underlying Cloud growth rate, it has decelerated. Where Server continues to... Data Center, I'm sorry, continues to be a champion, it's gone from 54% or sort of 41%. Can you help understand what could be causing the dichotomy, that maybe there is a preference for the Data Center product? If that's the case, then what does the long term look like for the company? Because companies generally either have a Cloud product that wins or an on-prem that wins. Rarely does both win, but maybe it does for Atlassian. Can you help us understand what are you really betting on, and where do you wish your customers really go, and how are you going to make it happen? Thank you so much. Yeah, Kash, this is Joe. You know, customers are not choosing Data Center over Cloud. What's happening here is Server migrations to Data Center and Cloud both exceeded our expectations, and so we don't see more customers choosing one over the other. If there was any weakness in our Cloud performance versus expectations, it's that paid seat expansion, you know, has been lower than we expected, and this quarter, it was slightly lower than we expected, particularly in SMB. DC strength, on the other hand, you know, as I mentioned earlier, was also driven by stronger migrations from Server as well as paid seat expansion. So, you know, we feel really good about, you know, the fact that customers are looking at Data Center as a stepping stone to the Cloud. Ultimately, we want to get those customers to the Cloud because that's where customers receive the best experience, the most secure experience, from Atlassian, and it gives us a chance to add more and more value over time, as Scott discussed earlier in the call. Let me add to that, which is, you know, every customer I've talked to, whether that be, you know, a German bank, you know, kind of, we would consider one of the more conservative, end of the scale through to, you know, small, medium-sized businesses out there, even in regulated environments, all, all of them are telling me the Cloud is the future. And, you know, if you went five years ago, we were telling customers Cloud was the future. These days, customers are telling me that's the case, and in many cases, it's that they either need the time to plan a migration. If they've got tens of thousands of users, you know, that is a chance not only to migrate to, you know, the product we have in Cloud, but expand your usage of Atlassian, you know, look at, you know, other products that we can replace. We see a lot of that happening, but that takes a little bit of time at the largest customers, or in some cases, but decreasing. Our customers are bought from Cloud, and they're pushing us to say, "Hey, I need data residency, or I need certification or FedRAMP." We're seeing a lot of that, a lot of that with our customers. Your next question comes from Nick Altmann from Scotiabank. Please go ahead. ... Awesome. Thanks, guys. I wanted to circle back to sort of the stabilization and the free-to-paid conversion. I guess when you think about, you know, how in the quarter you saw that stabilize, do you think that was an anomaly just because perhaps it's a stronger spending period for software, or you kind of see it stabilizing over the next coming quarters? Thanks. Thanks for the question. We do see it as a stabilizing, a durable stabilizing factor. We think it's super important because it's a leading indicator of success. Today's land and new customers are tomorrow's expansion opportunity. So, you know, we fundamentally believe that a lot of the, a lot of that is macro-driven. I'd also say we've done a good job of investing to improve the efficiency of our funnel and to improve the efficiency and the hit rate on that free-to-paid conversion. And so a hat tip to the team inside Atlassian that's doing a phenomenal job on driving improvements there. So, some of it is macro, some of it is absolutely our own execution, and overall, we feel it's durable moving forward. Your next question comes from Ryan MacWilliams from Barclays. Please go ahead. Thanks for taking the question. Great to see Data Centers driving more than 60% of Cloud migrations at this point. So in the shareholder letter, and you've just been mentioning, how you've been unblocking some of the largest customers on Data Center to help them move to Cloud, do you have a rough idea of what percentage of Data Center revenue you would consider blocked today? And if unblocked, you know, would these customers be willing to move to the Cloud after recently moving to Data Center? Thanks. Yeah, Ryan, we're not gonna- I'm not gonna be able to help you. Oh, sorry, go ahead, Scott. That's okay. No, you go. Yeah, Ryan, I was gonna say, we're not gonna be able to provide a breakdown today on what that blocked percentage is. Keep in mind, those Data Center customers are primarily our largest and most complex. So you can imagine it's all the things we're investing against and making progress on. I mentioned earlier, scalability, Data Residency, certifications, app integration, you know, a lot of investment, a lot of effort going to unblock that. That's why we're confident in the ability to continue to grow migrations from Data Center to Cloud. And so we feel very confident in our ability to continue to drive migration over the next coming years. Ryan, just to chime in, this is Mike here. I'll give you the other two a break because they haven't asked many product questions today. I will say it's about the long-term partnership with our customers. I think that's really important, even more so for the, for the biggest of the big. One of the things that the customers will tell us is they've been really impressed by our delivery over the last 3-5 years in the Cloud of Enterprise capabilities. We have a public Cloud roadmap, so we do talk about FedRAMP delivery, data residency delivery, compliance delivery across all the different geographies that we operate in. The last quarter, we hit 100% of that roadmap in terms of delivery on time, and what that's building is this long-term strategic partnership, long-term relationship with those biggest of the big customers. We believe in our Enterprise business over the next decade, and hopefully many decades. It's about building that partnership with those biggest customers that we have, and that partnership is built on trust. It's built on continued delivery of the things that we say we're gonna deliver. And when you talk to those customers, as Scott mentioned, they are believing that Cloud is their long-term future. They understand that. They're working on moving at all sorts of different rates. We have a great proportion of our migrations coming from Data Center today, but that engineering delivery has been a hallmark of our strength in terms of building that partnership with those customers, and obviously, we intend to continue that over time. Your next question comes from Keith Bachman from BMO. Please go ahead. Yes, many thanks, and congratulations on the solid quarter and guide. Joe, I wanted to direct this for you. You've implicitly given us, guidance for the June quarter, which is post the, expiration of Server, and I just wanted to get your thoughts. To what extent is the June quarter a reasonable proxy without for FY 2025 growth rate? So I'm not asking for 2025, but I'm just asking, is there anything usual in the implied growth rates for Cloud and Data Center that we should think about as we're considering our 2025 estimates? In other words, is the February deadline gonna pull forward a bunch of revenues, or is there anything else, that we should think about for that, June quarter, exit run rate? Thank you. Yeah, thanks. You know, it's really too early to talk specifically about FY 2025. In general, you know, we'll talk a little bit about the individual lines. If you look at Data Center, you know, we do expect growth rates there will continue to decelerate, as Server-to-Data Center migrations drop essentially to zero, and the Data Center to Cloud migrations accelerate as we continue to deliver on removing Cloud blockers. In terms of the Cloud, you know, we've talked a lot on the call about migrations being a multi-year journey, so I won't rehash that. In addition to that, keep in mind, we have a number of other growth drivers in that model. First of all, paid seat expansion within existing customers is the biggest driver, and even bigger than the migrations factor that we've talked about, and that has been an area in the model that's been most impacted by macro headwinds over the last year. So a lot of your view on 2025 is gonna depend on macro outcomes. Then our opportunity to cross-sell additional products to our over 300,000 existing customers. Our ability to upsell to Premium and Enterprise Editions of our products is another significant growth driver. And then with a smaller impact, other drivers like the free-to-paid conversion that we've talked about, the price increases that we've made, and new high-growth products like Compass, Jira Product Discovery, and Loom. I just point out, you know, we're in a super dynamic space right now, particularly with AI, and there's a lot of opportunity to add value with solid execution. So we feel very confident in our ability to deliver healthy revenue growth over a multi-year period in the Cloud. And then, obviously, Server is going to be zero, essentially, in two weeks, when we get to the Server End of Support. So that's the color I'd give you for now. We'll continue to update you over the course of the next six months. But that's how I would-- That's where our mindset is, and that's how I think about it directionally. Your next question comes from Fatima Boolani from Citi. Please go ahead. Thank you for taking my questions. I just wanted to shift gears to Jira Service Management. You're clocking in about 50,000 customers since about three, three and a half years from launch, about 20% of your base. But I was hoping to add some more line to quantitative color, the monetization curve looks like, and when should we expect a JSM to become as large or rival the size of Jira and Confluence as a revenue contributor to the business? Thanks, Fatima. I can, I can take that. Look, we remain incredibly excited about JSM and the service management market broadly, both in terms of IT service management and Enterprise service management for all functions within a business. I think we've done a really good job at continuing to grow that business alongside our other businesses that we have. It's always hard when you're playing catch-up. It's got to about a decade to catch up on, on Jira Software and the Agile and DevOps market. It certainly has the potential to do that, and we continue to see it, you know, being our, our fastest growth, broad, broad market that we have. It's also worth noting that, for a lot of our customers, our strength is in the combination of the markets. So people who buy Jira Service Management, some of them, as Scott mentioned, are migrating off expensive and legacy tools, and we see increasing numbers of switch outs, which is always comforting to see. But more importantly, they're buying it because of our connection to developers and connection to the work management market and broader connectivity across their organization. Increasingly, you're going to see a blending of this as software and technology become the core strategic advantage, and operating and delivering on that service alongside that is incredibly important. I think we are very bullish on the long-term monetization of Jira Service Management and the ITSM and ESM spaces broadly, both because of our competitive positioning, as we've seen and demonstrated this quarter and last quarter and the quarter beforehand, but also because of our connectivity to the two adjacent markets, which is strategically why we're there, in the first place. Scott might have some customer color that he wants to add on top of that. Yeah, look, I just want to, you know, remind everyone that, like, ITSM is right in Atlassian's bailiwick. Like, it really is, goes together with our, you know, Jira Software, which is development teams, and all the other products we've got there work very closely with IT teams, and increasingly so every single day. And that's something that only we deliver in this market. And we've been recognized, actually, over the last few months by this. We were a leader in Forrester's ESM Wave, where we received the highest possible score for strategy. And, you know, as a company that we've been doing this for a while now, but it wasn't the thing we started with. It's really comforting to see that we're being recognized for the unique things that only we can provide in the market. And, not only is that, you know, being recognized by analysts, but, key switch out stories, right? We had a luxury travel company, who'd been a 15-year, you know, customer of one of our large competitors in the space, who, you know, switched to us for JSM and switched away from that, that legacy vendor. And, you know, we see that again and again with a large logistics provider who moved 1,400 agents to JSM. So we're really, you know, we've been strong historically in the SMB space. That's kind of where we started. We're increasingly seeing strength in the Enterprise space, as well, as well as, you know, industry analysts recognizing us. Your next question comes from Alex Zukin from Wolfe Research. Please go ahead. Hey, guys. Thanks for taking the question. I want to maybe shift a little bit towards understanding the unlock in kind of the OpEx and COGS basis post-migration. If we think about, you know, elevated COGS activity, salespeople continue to be focused on migration that start to unlock and focus on Cloud and cross-sell, upsell, as well as the incremental R&D costs that you've been, you know, kind of putting into the entire platform, as you've been doing this over the last couple of years. What's the right way to think about that opportunity on kind of the operating margin side and the OpEx portfolio, as we go, you know, as we get even into the next few quarters? Yeah. Thanks, Alex. This is Joe. Let me start with sort of our view of H2 on OpEx, and then, I'll touch directly on your question around the points of leverage we see from an OpEx and cost management perspective. We'll see growth, OpEx growth rates accelerate in H2, and this is really driven by two factors. One is the ongoing growth and investments in our core strategic priorities. Those are things like Cloud and Enterprise and artificial intelligence, ITSM, and the other core markets that we're in. And the other thing is more mechanical. It's we're lapping the benefit we received in H2 last year from the restructuring and lower bonus expenses. You know, you've heard me talk about our philosophy overall on OpEx management. We continue to focus on maximizing the return on every dollar spent. We're focused on making, you know, disciplined prioritization and resource allocation calls and driving operational efficiencies as we gain scale. I'd say the other factor to keep in mind, that's over time, not necessarily in the immediate future, is on the other side of the significant multi-year investments in Cloud and Enterprise capability, we will have the opportunity to reallocate that investment to other areas that will drive long, long-term growth, and that will be another point--potential point of leverage for us as we think about it. In terms of gross margin, in general, gross margins will track with the revenue mix. Cloud gross margins structurally, obviously have lower gross margin than our licensing business. So as that becomes a bigger mix of our overall revenue, that will put pressure on gross margins blended. At the same time, the mindset we have on Cloud gross margins is to drive consistent year-over-year improvement through the great investments we're making on the engineering side to optimize Cloud infrastructure, to improve support. And so again, you know, you're right, we're gonna make big investments on post-sale activity to drive deployment and usage and engagement, and then we're gonna have an opportunity to redeploy that and become more efficient over time, and that will be part of that story. So that's the general framework on how we're thinking about both the Cloud COGS side as well as the OpEx side going forward. Alex, maybe I can just add a small bit of color from an engineering point of view. Look, philosophically, I think all world-class engineering organizations in any large SaaS or SaaS-type company should be working on continuing to optimize engineering costs. As you're running, as we are, an incredibly large Cloud platform that's now geographically diverse, as you see from all the data residency improvements and other things, there are opportunities to save money effectively by running things more efficiently over time, and some of that learning comes from scale, some of that learning comes from deployment, some of that learning comes from new technologies. We certainly have a large investment as a world-class, world-leading R&D organization in continuing to do the things we did last quarter cheaper, better, faster, and more efficiently. Sometimes that money is returned, as Joe said in the finances, at other times, it's invested in other things. So it might be we learn how to do things more efficiently, and run systems and services more efficiently, that then allow us to do things like data residency, in a global sense. Other times in things like Atlassian Intelligence, and a lot of the AI features, it's about getting the features out first and then working out how to cost optimize over time. As we watch customer usage patterns, we can work out how to scale and make that more efficient. So certainly something in engineering we spend a lot of time working on, and we've had great results over the last two to three years as our Cloud platform has grown increasingly more complex, but also that gives us more leverage. Your next question comes from Brent Thill from Jefferies. Please go ahead, Brent. Thanks. On the Atlassian Intelligence, I believe it's GA now, and I'm curious if you could give us a sense of what we're seeing, what you're seeing, and then ultimately the monetization path in AI. And I guess one of the questions, you know, we're getting is if you're seeing a faster move to DC versus Cloud, does this slow your AI adoption pathway down or not? Brent, I'm glad I can take that one. I was worried about you all not asking an AI question until well into the call. Just checking you're all okay there. Look, high level, Atlassian Intelligence and AI, generally, is a huge advantage for Atlassian. Like, we deeply, deeply believe that. As a company that focuses on knowledge workers and unleashing the potential of every team, as a company that has a huge amount of data that customers have entrusted us with, the ability to remix, summarize, and give that data back in different forms to customers using a lot of these large language models and machine learning technologies is incredible. It's very exciting in terms of what we can deliver. As you mentioned, the initial Atlassian Intelligence feature set largely went GA during the quarter. It has had fantastic customer reception. There's no other way to say that. We saw that when we announced it at Team 2023 last year in Las Vegas and we've continued to see that as we worked with all of the early access program and then beta customers and now being in GA. The ability to change how people do work in non-technical teams and in technical teams is just an unlock, right? We talk about our mission to unleash potential of every team. It's literally doing that in fantastical ways. We had more than 20,000 customers that used the features during the beta period, which for us, as far as the beta goes, is sort of off the charts in terms of interest, which is fantastic. And as you mentioned, we do see Server and increasingly more of a Data Center customers it being a factor in their movement, right? It being a factor in their migration. There's a clear logical understanding among customers that the large language model-driven and machine learning-driven features are based in the Cloud, which means that the customers move to the Cloud in order to get access to those features. And it is another reason in a whole tapestry of reasons why customers are looking to move, and we've certainly seen really great adoption of those features so far. Really excited about Atlassian Intelligence. Really excited about virtual agents in Jira Service Management, continuing to just drive straight efficiencies for customers, and again, driving that movement up to Premium and Enterprise editions, as we've talked about beforehand. And lastly, as I mentioned earlier, Loom AI and the Loom intelligence features that we shipped last month, again, driving great adoption of Loom because it's a different category than the other Atlassian Intelligence features. But the ability to create and consume video more efficiently is really quite fantastic using some of these technologies. So I don't think our excitement could be higher, and our commitment and the amount of resources we're spending in R&D to do this equal to the best in the world is paramount for us. Your next question comes from Ari Terjanian from Cleveland Research. Please go ahead. Hello, thank you for taking the question. Strength in deferred revenue performance was notable. I was wondering if you could help unpack how much some of the newer initiatives around Step-Up Credits, dual licensing, hybrid ELAs, as well as, you know, Atlassian Advisory Services, help drive the strength in the larger Enterprise deals there. And, you know, how should we think about some of those newer programs flowing through to revenue over the coming quarters? Meaning to the extent there was, you know, dual licensing, you know, how does that flow through to DC and Cloud, and similarly, you know, advisory services, how does that, like, flow through to, you know, re-revenue, be it showing up in other or Cloud or DC? Thank you. Yeah. Thanks, Ari. This is Joe. You're right, we were thrilled with our billings performance in the quarter. It was higher than we expected and was a record for the company. As you mentioned, you see this performance in our unearned revenue balance, which accelerated to 30% year-over-year growth. You'll also see it in the remaining performance obligations, which increased over $1.9 billion. The outperformance there this quarter was driven by great sales execution that we talked about earlier, and that resulted in several large multi-year agreements. And those are the agreements that you were referencing, hybrid ELAs, dual licensing. They're having a material impact on our ability to grow our business in the Enterprise space. I'd say the way you're gonna see that show up is primarily in the form of migrations, because a lot of that is targeted at, you know, establishing those relationships with our customers over multiple years. Many of those customers are using Data Center as a stepping stone until they're ready to move to the Cloud. It shows up both in a Data Center and in our Cloud revenue grows from a P&L accounting perspective, and we basically attribute revenue based on the relative list price between those two. So, you know, it's roughly 50/50, give or take, between those two things as you think about the mechanical accounting of it. Thank you. That's all the questions we have time for today. I will now turn the call over to Mike for closing remarks. Thanks, everyone, for joining the call today from wherever you join in the world. We really, really appreciate you being here. As always, also appreciate thoughtful questions and continued support of Atlassian and analysts. A small note, we look forward to seeing all of you, hopefully, at Team 2024 in Las Vegas at the end of April. And with that, have a kick-ass weekend.