##### 04-May-2023
 (TEAM)
## Atlassian Corp.

##### Q3 2023 Earnings Call


##### Total Pages: 18


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call

### CORPORATE PARTICIPANTS


Corrected Transcript

04-May-2023


Martin Lam
Head-Investor Relations, Atlassian Corp.

Scott Farquhar
Co-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.

Joe Binz
Chief Financial Officer, Atlassian Corp.


Cameron Deatsch
Chief Revenue Officer, Atlassian Corp.

Michael Cannon-Brookes
Co-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.


......................................................................................................................................................................................................................................................

### OTHER PARTICIPANTS


Gregg Moskowitz
Analyst, Mizuho Securities USA LLC

Brent Thill
Analyst, Jefferies LLC

Keith Weiss
Analyst, Morgan Stanley & Co. LLC

Fatima Boolani
Analyst, Citigroup Global Markets, Inc.

Michael Turrin
Analyst, Wells Fargo Securities LLC

Kash Rangan
Analyst, Goldman Sachs & Co. LLC

Michael Turits
Analyst, KeyBanc Capital Markets, Inc.


Keith Bachman
Analyst, BMO Capital Markets Corp.

Frederick Havemeyer
Analyst, Macquarie Capital (USA), Inc.

Ryan MacWilliams
Analyst, Barclays Capital, Inc.

Adam Tindle
Analyst, Raymond James & Associates, Inc.

Peter Weed
Analyst, Sanford C. Bernstein & Co. LLC

Ari Terjanian
Analyst, Cleveland Research Co. LLC

Jake Roberge
Analyst, William Blair & Co. LLC


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call

### MANAGEMENT DISCUSSION SECTION


Corrected Transcript

04-May-2023


**Operator: Good afternoon and thank you for joining Atlassian's Earnings Conference Call for the Third Quarter**
of Fiscal Year 2023. As a reminder, this conference call is being recorded and will be available for replay from the
Investor Relations section of Atlassian's website following this call.

I will now hand the call over to Martin Lam, Atlassian's Head of Investor Relation.
......................................................................................................................................................................................................................................................
##### Martin Lam
Head-Investor Relations, Atlassian Corp.

Welcome to Atlassian's third quarter of fiscal year 2023 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;
our Chief Revenue Officer, Cameron Deatsch; 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 2023. The shareholder letter is available on the 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 datasheet.

As always, our shareholder letter contains management's insights 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 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.

In today's call, we will also discuss 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 datasheet on the IR website.

Please keep in mind that we'd like to allow as many of you to participate in Q&A as possible. To facilitate that,
we'll take one question at a time. Please rejoin the queue if you have another question or a follow-up and we'll do
our best to come back to you later in the session.

With that, I'll turn the call over to Scott for opening remarks.
......................................................................................................................................................................................................................................................


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call

##### Scott Farquhar
Co-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.


Corrected Transcript

04-May-2023


Thank you for joining us today. As you've already read in our shareholder letter, we delivered another solid
quarter of financial results, and continue the steady drumbeat of innovation to help our customers transform the
way they work. We've just wrapped Team '23, our annual Atlassian conference, where we gathered with
thousands of customers and partners.

The Atlassian community has never been stronger and the enthusiasm for our product announcements was
unmatched. We introduced Atlassian Intelligence, a virtual teammate which uses generative AI technology and
leverages the Atlassian platform to accelerate customers work in a way that is tailored to them. With 20 years of
knowledge reflecting how hundreds of thousands of software, IT and business teams plan, track and deliver work,
Atlassian Intelligence is like a floodlight, lighting up new customer insights. We're excited to see how AI will
unleash our customers potential and strengthen our competitive advantage.

In addition to Atlassian Intelligence, we also announced exciting new features and platform enhancements,
including Confluence in whiteboards and databases, supports up to 50,000 users in our cloud, and Beacon, our
new threat detection and mitigation product, just to name a few. It's incredibly exciting to think about the
opportunities we have in front of us. With unique features and capability for Atlassian Intelligence and the platform
innovations we're delivering, customers are more enthusiastic than ever to migrate to the cloud, and we look
forward to helping them on that journey.

With that, I'll pass the call to the operator for Q&A.
......................................................................................................................................................................................................................................................
### QUESTION AND ANSWER SECTION

**Operator: We will now begin the question-and-answer session. [Operator Instructions] Your first question comes**
from Gregg Moskowitz from Mizuho Securities. Gregg, your question please.
......................................................................................................................................................................................................................................................
Gregg Moskowitz
Analyst, Mizuho Securities USA LLC
# Q

Okay. Thank you very much for taking the question. Good afternoon, everyone. You mentioned in the shareholder
letter that the Q4 guide includes an assumption of increasing headwinds for churn and for premium addition
upsells, even though you yet to see a significant impact in those areas, and I think that's prudent. But wondering if
you could contextualize this a bit more for us, for instance, are you basing in a modest incremental headwind, or
would you say that it's more substantial in that?
......................................................................................................................................................................................................................................................
Joe Binz
Chief Financial Officer, Atlassian Corp.
# A

Yeah. Thanks, Gregg. Really no change to our guidance approach that we took back in February when it comes
to the cloud guidance specifically. That cloud guidance range assumes the macroeconomic environment gets
worse in Q4 and year-to-date trend lines continue into Q4. You're right to call out the fact that the low-end of that
range not only assumes continued weakness in the two drivers that we've seen to-date around paid seat
expansion at existing customers and free-to-paid conversions, but it also does include some macro impact to
areas that have held up well year-to-date, like churn, upsell and migrations.


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call


Corrected Transcript

04-May-2023


So, we do expect and have built in pretty substantial macroeconomic headwinds at the low-end of that range. The
other thing I'd call out really quickly is, if you take that Q4 guidance, it puts our full-year FY 2023 cloud guidance
at 37% year-over-year. That's squarely within the range of the 35% to 40% we provided in February. So really no
fundamental change overall in our cloud outlook or our approach to guidance.
......................................................................................................................................................................................................................................................
Gregg Moskowitz
Analyst, Mizuho Securities USA LLC
# Q

Thank you, Joe. It's helpful.
......................................................................................................................................................................................................................................................

**Operator: Your next question comes from Brent Thill from Jefferies. Brent, your question, please.**
......................................................................................................................................................................................................................................................
Brent Thill
Analyst, Jefferies LLC
# Q

Joe, EMEA grew 22% this quarter, I think last quarter was 30%. It seems like you had some weakness in the
region. Can you just give us a sense what happened there, and maybe, I'm just reading too much into the
numbers, but anything to call out there?
......................................................................................................................................................................................................................................................
Joe Binz
Chief Financial Officer, Atlassian Corp.
# A

Yeah. Awesome. Thanks, Brent, and great to hear from you. I'll start and then I'll let Cameron chime in. In EMEA,
revenue trends tend to be quite volatile quarter-to-quarter than the US. And the reason for that is pretty simple.
EMEA has been slower to adopt the cloud. So there is more data center revenue in the EMEA sales mix. And DC,
as you know, is inherently more volatile for two reasons. One is revenue recognition. 20% of DC license value is
recognized upfront. And then secondarily, customer purchasing behavior around data center pricing changes also
create some volatility. So, I wouldn't read too much into that. It's typically just a function of quarter-to-quarter
volatility,

But I'll pass it to Cameron for more on the customer insight.
......................................................................................................................................................................................................................................................
Cameron Deatsch
Chief Revenue Officer, Atlassian Corp.
# A

Yeah. Repeating what Joe said there. But I would like to speak just to the cloud adoption in EMEA. Obviously, we
do see cloud adoption lagging behind the US and the Americas. But, in general, over the last year, as we've done
things like data residency in Germany, as well as higher requirements for [ph] ban fee (00:07:27) for financial
services organizations, we've been able to see more and more of our larger customers in Europe choosing to go
to cloud. We actually worked with a very large European bank over the last few months, getting them signed up
for cloud and we're starting to migrate them today. So, I will say that, although they're lagging, we are seeing that
adoption continuing to increase more in line with the US numbers.
......................................................................................................................................................................................................................................................
Brent Thill
Analyst, Jefferies LLC
# Q

Thank you.
......................................................................................................................................................................................................................................................

**Operator: Your next question comes from Keith Weiss from Morgan Stanley. Please go ahead.**
......................................................................................................................................................................................................................................................


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call

Keith Weiss
Analyst, Morgan Stanley & Co. LLC


Corrected Transcript

04-May-2023


Excellent. So, I'm going to sneak in two questions. One, kind of more tactical and short term in nature and one
longer term. On the short term – and this is going off of Gregg's question. I think what a lot of people are trying to
understand is what the shape of the quarter was and how demand held up through the quarter, and whether that
influenced sort of the more conservative Q4 guide?

So, maybe if Cameron, give us a view on kind of like how the quarter progressed?

The longer-term question comes from sort of – I think the debate that all of us are having around like large
language models and generative AI, whether they're going to be disruptive or complementary to a lot of existing
businesses? You guys have already rolled out functionality when it comes to [indiscernible] (00:08:43) the ITSM
side of the equation. So, how do you guys think about that question, sort of the risk of being displaced by people
utilizing these new technologies versus your ability and what's going to make you sticky and being able to benefit
from them?

And does that necessitate, at all, kind of changing the pricing model, moving away from the per seat pricing
model, mainly to better sort of account for the value that you're adding that doesn't take place with the agent itself,
but takes place on the platform actually doing a lot more of the work?
......................................................................................................................................................................................................................................................
Joe Binz
Chief Financial Officer, Atlassian Corp.
# A

Thanks for the question, Keith. This is Joe. I'll take the first part with Cameron, and then Mike will chime in on the
second. In terms of the linear nature of the quarter, we did not see anything unusual about the linearity of our
billings in the quarter nor did we see anything unusual in the month of April where trends were consistent with Q3.
Cam?
......................................................................................................................................................................................................................................................
Keith Weiss
Analyst, Morgan Stanley & Co. LLC
# Q

Perfect.
......................................................................................................................................................................................................................................................
Cameron Deatsch
Chief Revenue Officer, Atlassian Corp.
# A

Yeah. I'd say, the only thing is, as all of you know, we did a price change on our server and data center license in
mid-February. That, of course, caused us some behavior throughout the quarter, but nothing significant
throughout the quarter beyond the reaction to the price changes. Mike?
......................................................................................................................................................................................................................................................
Michael Cannon-Brookes
Co-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.
# A

Yeah. Thanks, Keith. Great question. Look, quite clearly, what I can say from Atlassian's point of view, we think
that AI, large language models, as you mentioned, is a huge opportunity for us as a business. If you look at our
fundamentals, we've always tried to solve human problems, not technology problems, all right, which means, we
have a lot of customer knowledge and data entrusted to us over the last two decades. We have a fantastic
platform to build on top of that connects that knowledge together, and we have a fantastic R&D team to build
features on top of these things. So, AI allows our customers to be significantly more efficient to get to our mission
of unleashing the potential of every team. That's what we believe what we did.


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call


Corrected Transcript

04-May-2023


So, from our point of view, we think our best opportunity to grow our business through the Atlassian Intelligence
feature set, is to drive customer growth, right. We have a goal of, in the long term, winning a Fortune 500,000, not
a Fortune 500, and we think these technologies will help us get there. That's why we're including the features in
all additions, rather than as a separate SKU. It's not a good customer experience, and we think it will slow
adoption to put it that way around.

We also obviously have a major trend [indiscernible] (00:11:15) migrations to the cloud in our business. Our
largest customers [ph] in data center (00:11:21) have the most amount of knowledge and data built up over time,
which means they can get the most amount of efficiency. And with this feature set being only available in the
cloud, it's a further reason for them to migrate or bring forward their migrations. And as we know that the migrated
customers have really great economics for Atlassian, faster expansion rates, et cetera. So, that's the reason we're
looking at it that way. Fundamentally, yes, a huge advantage for our customers, which is why we're in this
business in the first place. And secondly, that's how we're looking at growing Atlassian's business through the
Atlassian Intelligence feature set.
......................................................................................................................................................................................................................................................
Keith Weiss
Analyst, Morgan Stanley & Co. LLC
# Q

Awesome. Appreciate the color.
......................................................................................................................................................................................................................................................

**Operator: Your next question comes from Fatima Boolani from Citi. Please go ahead.**
......................................................................................................................................................................................................................................................
Fatima Boolani
Analyst, Citigroup Global Markets, Inc.
# Q

Well, good afternoon. Thank you for taking my questions. Mike, maybe for you or Scott, on the Jira Service
Management product where a lot of the activity in action is really boosting the use cases that you think can be
deployed in specifically around external customer support use cases, and we're familiar with certain vendors in
that market. So, I'm curious what else needs to happen to really drive more monetization scale in JSM and
particularly, in the context of some of your very large customers, who are working through the head count
retrenchment process, where JSM can be very [indiscernible] (00:12:51) investment? And then a quick follow-up
for Joe, if I may.
......................................................................................................................................................................................................................................................
Michael Cannon-Brookes
Co-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.
# A

Sure. I can certainly take that for you, Fatima. Look, we remain incredibly bullish on our position in the ITSM and
ESM spaces, and obviously, Jira Service Management is a huge part of that. I think as customers naturally are
looking to be more efficient with their spend in a more turbulent economic time, that would lead to advantages. In
Jira Service Management, we'll continue to push those. We've invested heavily with Atlassian Intelligence feature
sets and virtual agents and all sorts of other technologies that make customers more efficient, make agents more
efficient, fundamentally allow them to process more requests per day, per hour with, hopefully, greater customer
fidelity as well. So it's one of the reasons we're incredibly bullish at the moment.

Second is, Jira Service Management, just to remind people, it lands predominantly in IT teams, but it does have a
great expansion story to other parts of the organization in terms of like HR, finance, marketing, legal areas which
are fundamentally service-driven parts of an organization that have their customers being other parts of the
organization. That has long been our thesis.


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call


Corrected Transcript

04-May-2023


Again, our fundamental philosophy is that there are far more agents, we believe, inside a company than other
companies, I think and the other vendors think, because we're not just targeting the IT team. That said, obviously,
we have a wonderful landing spot through the development and IT organization and expansion, and we continue
to see that throughout the quarter as customers increasingly use Jira Service Management outside of IT teams
and that's a long-term growth vector for us.
......................................................................................................................................................................................................................................................
Fatima Boolani
Analyst, Citigroup Global Markets, Inc.
# Q

I appreciate the detail. And, Joe, the question for you is just on the cloud trajectory. I know a lot of us have been
grappling with how that segment is digesting and absorbing the pretty meaningful moderation you've seen in seat
expansion. And I know you alluded to in your shareholder letter that churn levels necessarily have not increased.
But can you help us sort of understand or at least maybe put some sort of a downside cap on how you're thinking
about that dynamic where you're really actively trying to manage gross seat churn in order to support that growth
in that segment?
......................................................................................................................................................................................................................................................
Joe Binz
Chief Financial Officer, Atlassian Corp.
# A

Yeah. Thanks for the question, Fatima. When we look at the churn rates, especially customer churn, it's been very
consistent and stable throughout the year. That suggests there's nothing that's changed from our structural
competitive position. Customers continue to come to our site, try our products, our monthly active users, our free
instances. All of that seems very healthy and strong. So, churn has not been a big issue for us.

The primary driver of the pressure that we're seeing in that cloud segment is really around paid seat expansion at
existing customers and the free-to-paid conversion rates that we've talked about. The remainder of the business,
whether it's migrations or upsell or cross-sell, pricing, all those drivers continue to be very healthy from our
perspective. So that's really been the core issue that we've been working through.
......................................................................................................................................................................................................................................................
Fatima Boolani
Analyst, Citigroup Global Markets, Inc.
# Q

Thank you.
......................................................................................................................................................................................................................................................

**Operator: Your next question comes from Michael Turrin from Wells Fargo. Please go ahead.**
......................................................................................................................................................................................................................................................
Michael Turrin
Analyst, Wells Fargo Securities LLC
# Q

Hey, great. Thanks. Good afternoon. Appreciate you taking the question. Maybe one for me on margin. We
entered the year expecting mid-teens operating margin. You just delivered a second consecutive quarter of 20plus-percent. Maybe, Joe, if you can speak to what's driving that uplift?

And then as a second part, at the investor session, there was a comment around fiscal 2024 as a year of
continued investment. So any color in helping us square that with just anything else you're doing to help optimize
on the cost side, as we're thinking through the puts and takes of margin trajectory and some of the offsets you
have within your control? Thank you.
......................................................................................................................................................................................................................................................
Joe Binz
Chief Financial Officer, Atlassian Corp.
# A


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call


Corrected Transcript

04-May-2023


Yeah. Great question. Thanks for asking. If you look at our operating margin performance in the quarter, we did
outperform our expectations by 6 percentage points to 7 percentage points. 5 points of that was driven by lower
operating expenses and better operating leverage. Those operating expenses were – favorability was driven in
two primary areas. First, we have less- than-expected payroll-related costs from lower bonus expenses and head
count, including about $10 million in savings related to our restructuring. And then secondarily, we have less-thanexpected discretionary costs in areas like professional services and T&E is part of our plan that we discussed
earlier in the year to be responsive to the macro impact on our business and align our cost structure with revenue
growth.

I'll let Scott talk to the comments at Team '23. The last point I would make just is, the focus for the team has been
around maximizing the return on every dollar spent, making disciplined prioritization of resource allocation calls,
and driving operational efficiencies. And I really believe the team has done a really good job this year of executing
across those three things, and that's what you see showing up in that operating expense favorability. Scott?
......................................................................................................................................................................................................................................................
Scott Farquhar
Co-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.
# A

Yeah. Just to reiterate what you'd mentioned, Michael, for those that weren't at our investor call or at our TEAM
Conference that, yeah, we did say that we see FY 2024 being a continued investment year. We still see huge
opportunities out there in those areas. We talked about migrations, enterprise, ITSM that we're being aggressive
in investing behind, and we expect those investments to continue through FY 2024, of course, taking into account

[indiscernible] (00:18:49).
......................................................................................................................................................................................................................................................
Michael Turrin
Analyst, Wells Fargo Securities LLC
# Q

Thank you.
......................................................................................................................................................................................................................................................

**Operator: Your next question comes from Kash Rangan from Goldman Sachs. Please go ahead.**
......................................................................................................................................................................................................................................................
Kash Rangan
Analyst, Goldman Sachs & Co. LLC
# Q

Hi. Thank you very much. Just a quick couple of introspective questions here. The cloud growth rate is certainly
looking to reset for deceleration in Q4. As you look at next year, is there any reason to believe that cloud growth
rate could reaccelerate at some point in fiscal 2024 based on your assessment of timeline of migrations and the
product readiness?

And also, as it relates to generative AI, I'm wondering if you can – and it's been hard to get clarity out of company
management because it's such a nebulous topic. To the best of your abilities, can you prognosticate if this will
mean that you will need fewer developers and fewer service people and, therefore, there is the idea of a shrinking
TAM, but then you gain share relative to the TAM, because your technology will allow to displace workers that do
not have generative AI capability, or is it that it actually grows the pie because a number of developers will
actually grow, because the barrier to software development comes down, so people like me can start to develop.
Hopefully, that should not the case. But how should we think about the TAM implication from a head count
perspective as a result of generative AI and what it does for developers and service people? Thank you so much.
......................................................................................................................................................................................................................................................
Joe Binz
Chief Financial Officer, Atlassian Corp.
# A


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call


Corrected Transcript

04-May-2023


Hey, Kash. This is Joe. Thanks for the question. Obviously, we aren't providing specific quantitative guidance on
FY 2024, but I would offer up the following how to think about it directionally, specifically as it relates to the cloud
space. But the big caveat I always offer here is, on revenue, there's a lot of moving parts, but the biggest being
the macroeconomic outlook, which is highly uncertain. And as you've seen in FY 2023, that can have an impact
on our business. We're not immune to those factors.

Beyond macro, I'd have you think about the following. Mathematically, we will have easier comps as we move
through the next year. We will have a significant event in the second half of the year with the Server end-of-life,
and our focus there is really on migrating those customers to either our cloud preferably, or data center offerings.
We'll also have some benefit from pricing as prior price increases and less loyalty discounts layer into the model.
And then lastly, the decisions that we've made this year around rebalancing and reprioritization to reinvigorate
revenue growth will begin to land and have positive impact as we move through FY 2024. So, in the end, macro is
going to play a big role and we'll see what that ultimately brings, but hopefully, that helps you think through some
of the other dynamics that will relate to cloud revenue in FY 2024. Mike?
......................................................................................................................................................................................................................................................
Michael Cannon-Brookes
Co-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.
# A

Yeah. Kash, I can chip in if you're looking for prognostication. That's probably my column. I would answer two
ways personally. Firstly, the software world, if you want to think about it, you asked if there's going to be less
developers, et cetera. My view and our house view, I suppose, is no, right. The simple answer to that is software
is not demand constrained, it is supply constrained. We are constrained by the supply of developers in the world,
not the demand, the number of ideas for pieces of software we could create. So, when you create tooling that
makes it possible for efficiency of any form, you will suck up more of that demand with the existing supply. Ergo,
the supply won't go down. And number of developers, I don't think goes down. It's not the way sort of human
creativity, which is ultimately the way the software works.

Secondly, when you make software developers more efficient, if you're talking about artificial intelligence or large
language models with cognitive systems and writing code, et cetera or creating parts of software, that makes far
more software. The more software there is in the world, that's good for Atlassian in a generalized sense. We're
not necessarily working on individual developers. Again, in Jira Software, there are about a quarter of the
audience are software developers. The more software you have, the more need you have for still designers and
program managers, and making sure that we have the right software that we're building.

You now have a lot of software to operate, run, and manage. So the more software there is in the world, that's
generally, I think a good thing for Atlassian. There will be puts and takes across this world as it flows through. But
those would be my two fundamental points. We maintain incredible optimism for artificial intelligence, and what it
can do for us as a business to help unleash the potential of our customers, to help them create and manage more
software in that market [indiscernible] (00:23:47).
......................................................................................................................................................................................................................................................
Kash Rangan
Analyst, Goldman Sachs & Co. LLC
# Q

Thanks, Mike. I will learn to code. Thanks.
......................................................................................................................................................................................................................................................

**Operator: Your next question comes from Michael Turits from KeyBanc. Please go ahead.**
......................................................................................................................................................................................................................................................
Michael Turits
Analyst, KeyBanc Capital Markets, Inc.
# Q

##### 10


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call


Corrected Transcript

04-May-2023


Hey, guys. I wanted to just talk about data center versus cloud. You're saying that some of those impacts on
expansion, free-to-paid impacting cloud. Data center upbeat in the quarter. It sounds like you're talking for only a
minor decel in data center going into next quarter. So, could you tell us what's supporting that growth on a relative
basis versus cloud?
......................................................................................................................................................................................................................................................
Joe Binz
Chief Financial Officer, Atlassian Corp.
# A

Yeah. Thanks for the question, Michael. This is Joe. You're right, data center had another strong quarter of
revenue growth that accelerated to 47% and was better than we expected. And that was primarily driven by two
things; stronger-than-expected renewals and better-than-expected seat expansion for existing customers. We
were helped a little by the pull forward resulting from the price change in February, but it was largely consistent
with prior year and only slightly higher than our expectations, and certainly not nearly as significant or pronounced
as it was two years ago.

Having said that, migrations from data center to cloud remain very healthy. Year-to-date, over 50% of cloud
migrations are coming from data center, and that's up from about a third a year ago. So, we've got good progress
there as well. And then in terms of the guidance, we do expect growth rates there to moderate a little bit in Q4 and
beyond. And that's really driven by increasing migrations from data center and server to cloud, as we remove
migration blockers and add compelling features and value to our cloud offering.

And then secondly, in the data center, we are starting to lap strong prior year comparables in Q4. And so, that's
another factor in the growth guidance that we've given.
......................................................................................................................................................................................................................................................
Michael Turits
Analyst, KeyBanc Capital Markets, Inc.
# Q

Thanks.
......................................................................................................................................................................................................................................................
Cameron Deatsch
Chief Revenue Officer, Atlassian Corp.
# A

Yeah. This is Cameron. I'll just add a little bit on the data center side. Just largely basically talking to customers,
we were at Team '23 roughly a few weeks ago, where many of our largest customers are there, and many of
those customers are still on data center, have been on data center for many years. Got to say, just the tone with
those customers over the last few years, I'd say, last Team a few years ago, three years ago, was always about
like why should I move to cloud? What are the capabilities? Are you going to get to my data privacy
requirements? You name it. I'd say that tone this year, just talking with all those customers is okay, how do I get
there? Right. You deliver the new AI. We have this new functionality. We're bought in. Now help us guide us
through this plan. And I just think that overall total shift has been super positive and helping get more data center
customers moving to cloud going forward.
......................................................................................................................................................................................................................................................

**Operator: Your next question comes from Keith Bachman from BMO Capital Markets. Please go ahead.**
......................................................................................................................................................................................................................................................
Keith Bachman
Analyst, BMO Capital Markets Corp.
# Q

Hi. Thank you. My question relates to what Cameron was just talking about. As you think about just
philosophically in FY 2024, would you expect data center to continue to outgrow cloud or [ph] do they compare
with (00:26:46) some of the other feature set things you're just talking about?

##### 11


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call


Corrected Transcript

04-May-2023


And then underneath that, you've talked pretty consistently about cloud is getting the benefit of 10 points of
growth associated with conversions. As you think about what happens with that 10 points as you anniversary or
get beyond the server date, which is mid-Feb, a year away from now? Does that cloud conversion go to zero, or is
there continued benefit as you migrate longer term from data center to cloud when you, in fact, perhaps move to
enterprise versions? In other words, is there still a longer-term benefit of cloud conversion or is that 10 points go
to zero? Thank you.
......................................................................................................................................................................................................................................................
Cameron Deatsch
Chief Revenue Officer, Atlassian Corp.
# A

Thank you. So, this is Cameron. I'll talk to just largely the customer choice ahead of us and you're absolutely right.
So, Server end-of-life goes into effect February of next year, and we still have a variety of server customers still
sitting out there on a variety of sizes that effectively need to make that choice between now and February, and
many are doing it month by month. Obviously, many are going to wait for the last minute to make that choice. And
they do have two choices.

Now, obviously, we're going to lead and try and get as many of those customers to choose cloud. But, obviously,
we have data center as a very strong capable version for them going forward. So, I see that continued

[indiscernible] (00:28:10) we still have a sizable data center customer base on which to continue to migrate
customers to the cloud. So this migration journey that we are on does not stop February of next year. It is a multiyear journey, as we continue to get all of our on-premise customers eventually to the cloud.
......................................................................................................................................................................................................................................................
Joe Binz
Chief Financial Officer, Atlassian Corp.
# A

Yeah. Thanks, Cam. And I would say, nothing more to add to that beyond, we continue to invest to grow and
accelerate that migration to the cloud where we're removing blockers. We're making migration easier through
tooling and support investments. We're also closing the gap on pricing between advantage pricing on DC and
cloud with our overall pricing strategy. And just overall, the cloud platform provides the best experience, whether
it's analytics or automation or AI or collaboration and better TCO. Those factors will only increase over time. And
then just to reiterate what Cameron said, there's a lot of runway left on that cloud migration story, and we expect
to continue to see that even after the Server end-of-life.
......................................................................................................................................................................................................................................................
Keith Bachman
Analyst, BMO Capital Markets Corp.
# Q

Okay. Perfect. Many thanks.
......................................................................................................................................................................................................................................................

**Operator: Your next question comes from Fred Havemeyer from Macquarie. Fred, please go ahead.**
......................................................................................................................................................................................................................................................
Frederick Havemeyer
Analyst, Macquarie Capital (USA), Inc.
# Q

Hi. Thank you very much. I wanted to ask about Beacon. Actually, it caught my attention in your shareholder letter
offering – it's, of course, an early access product, but shifting and focusing a bit on cybersecurity as it relates to
just Atlassian's Cloud ecosystem seems an interest adjacency here. I'm curious, with this early access program,
are you seeing signs that there's demand across your customer base for just a broader set of cybersecurity
solutions? Is this something that you think is specifically monetizable? And is there any sort of scale of customer
that is particularly applicable to?
......................................................................................................................................................................................................................................................

##### 12


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call

Scott Farquhar
Co-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.


Corrected Transcript

04-May-2023


Thanks for the question. Scott here. Just a reminder, so firstly, there's a big demand for these sort of products
from Atlassian – from our customers, particularly at our user conference. And just customers are excited by this.
And if you think about moving to the cloud, customers want to make sure that their data is secured and the things
that we can do and OS that we can do and we can see the shape of usage of our products that allow us to work
with our customers on flagging things that might be of interest to them.

I just want to remind that this is not a generic security product. This is across our data and our cloud. Now, we
have advantages because we have one platform in the cloud and we can offer Beacon across most of our
products. So it's an advantage there from a sort of consolidation perspective. And from an IT admin play, in a
similar way, you've seen us to access on the user authentication side, but this is really a product to help
customers be very comfortable with how their data gets used in the cloud. And in most cases, what we can offer
here is again ahead of what other customers could do themselves in a behind-the-firewall setting. And so, this is
just yet another example of how the cloud is overall better for our customers than what they can do themselves
and another reason for them to migrate.
......................................................................................................................................................................................................................................................

**Operator: Your next question comes from Alex Zukin from Wolfe Research. Alex, please go ahead.**
......................................................................................................................................................................................................................................................

# Q

Hey, guys. This is [indiscernible] (00:31:41) on for Alex Zukin. I just wanted to ask you a financial question. If I
think about the shape of NRR through the quarter, I know this isn't a metric you guys report to, but just to better
understand the growth that you're seeing in the business, can you just, at a high level, talk about what that shape
looked like through the quarter and through April?
......................................................................................................................................................................................................................................................
Joe Binz
Chief Financial Officer, Atlassian Corp.
# A

Yeah. Thanks for the question. Unfortunately, no specifics to share with you today on the NRR. Given the macro
pressure and headwinds, we do see on space seat expansion, it is trending lower. There was nothing unusual
about that trend in Q3 relative to Q1 and Q2. Those trends just continued into Q3. And I'd say, lastly, the
underlying fundamentals in our business remain very strong. We see no change to our structural competitive
position. So, we do expect those retention rates to recover once the macro picture stabilizes and improves.
......................................................................................................................................................................................................................................................

# Q

Got it. Okay. And just as a quick follow-up, appreciate the color on the guide for Q4 of cloud growth benefiting 10
points from migrations. Just so kind to have the numbers correctly here, do you mind just kind of telling us like
what that exact benefit was in this quarter in the last two quarters or so? Thank you.
......................................................................................................................................................................................................................................................
Joe Binz
Chief Financial Officer, Atlassian Corp.
# A

Yeah. We've consistently said we're getting, overall, approximately 10 points of revenue growth in the cloud
business from migrations. That hasn't changed dramatically throughout the year.
......................................................................................................................................................................................................................................................

##### 13


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call


Corrected Transcript

04-May-2023


**Operator: Your next question comes from Ryan MacWilliams at Barclays. Ryan, please go ahead.**
......................................................................................................................................................................................................................................................
Ryan MacWilliams
Analyst, Barclays Capital, Inc.
# Q

Thanks for taking the question. Just on the vertical standpoint, any verticals worth pulling out that may have
impacted the quarter or the guide? And, at this point, do you have a sense maybe what percentage of server
customers might choose to remain on server, even past the end-of-life for a couple of quarters after? Thanks.
......................................................................................................................................................................................................................................................
Cameron Deatsch
Chief Revenue Officer, Atlassian Corp.
# A

Yeah. This is Cameron. I'll take that. Yeah. Just from a customer perspective, as we mentioned, with over
250,000 customers and across all industries, geographies with a sizeable type, we see that we can have a
massive competitive differentiation for Atlassian, giving us plenty of growth opportunities across the customer
base for quite some time. Of course, the trends we've seen in seat expansion slowing down is broad based
across the entire customer base that we see today. One advantage we have is that, as every company starts
bringing in more and more technology to deliver value to their customers, we obviously had to take advantage of
that as we are helping companies with technology teams and business teams work better together going forward.

Oh, and then the second part on the Server end-of-life thing. Largely, most of those customers we see, there will
be some that have a professional license. There will be some customers we believe that most will choose cloud.
Some will go to data center and, obviously, some will continue to use the server licenses unsupported. Just about
every customer size that I speak to, largely is under a compliance requirement or just general IT guidance
internally that they do not run unsupported software, and that will be choosing cloud or data center post the endof-life. So, I really see that as a very small portion of the customer base.
......................................................................................................................................................................................................................................................

**Operator: Your next question comes from Adam Tindle from Raymond James. Adam, please go ahead.**
......................................................................................................................................................................................................................................................
Adam Tindle
Analyst, Raymond James & Associates, Inc.
# Q

Okay. Thank you. Maybe one for Mike or Scott. I was going back to my notes from this time last year where you
announced free editions of cloud products. And you talked about it echoing an approach from 2008-2009 where
you brought in your customer base by offering a $10 starter license. So, if we fast forward one year later, your
customer account is still growing, so you're certainly broadening the base like you did in 2008-2009. The question
would be, maybe take us back to the upsell motion from the starter license and compare and contrast that to
upselling from the free cloud, what you learned then and what you can apply now to improve cloud upsell?
Thanks.
......................................................................................................................................................................................................................................................
Scott Farquhar
Co-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.
# A

Hi. Scott here, Adam. Great question. And so, just a reminder for those who haven't followed the Atlassian story
for such a long time that back in the 2008-2009 financial downturn, we introduced free versions of our behind-thefirewall products back then, and $10 data, I guess, was really what we introduced back then where you had to pay
$10 and you got 10 users of our products, down from what was a couple of thousand dollars with our lowest price
at that time. So, very disruptive pricing changes. And that was a long-term play for us, because we left a lot of
money on the table. People who were previously paying us thousands of dollars are now paying us $10 to get a
version of our software.

##### 14


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call


Corrected Transcript

04-May-2023


And the good thing about that is it opens a funnel up to a whole bunch of companies that otherwise would not
have considered our products. And over the long term, they go from 10 to 11 to 12 users and then start paying us

[indiscernible] (00:36:44). So, echoing that, in the COVID time period a couple of years ago, we introduced
basically free versions of products down from $10 a month in the cloud down to $3. And soon, we saw that open
the funnel at the top of our customer acquisition side of things. And so, I mean, natural questions asked, well then
how do you convert more of those free customers to paid and how do you change that cycle?

That is something we do, yeah, but honestly, most of our free-to-paid is based on usage and based on customer
value and changing from 10 to 11 users. And you could – one of the advantage [indiscernible] (00:37:26)
business model is that customers pay us as they start using more of our features, and we don't even spend a
huge amount of energy trying to call them, trying to encourage them. You could waste a lot of money in a sales
machine doing that. And so, what we do is spend a lot of time looking at the levels at which we charge for things,
and make sure that is the appropriate gates, and make sure we provide value to our customers. And so, as they
use our products more and more, we get the value as they increase their usage.

Now, not only have we done free at the start of COVID when we saw a couple of months ago more interesting
macroeconomic signs, we decided to go harder on ITSM, on our JSM offering where we made it cheaper at the
low-end on hand for competitive migration, so people that were switching out from other higher-priced offerings.
And so, Adam, last thing we talk sometimes about the price rises that come through various parts of our cycle, but
we also spend a lot of time looking at how do we make it cheaper in other areas, like in order to more
aggressively get market share. And so, for us, it's a long-term play about getting market share, and not really a
short-term [indiscernible] (00:38:38) trying to convert those free customers to paid in any particular given time
period.
......................................................................................................................................................................................................................................................
Adam Tindle
Analyst, Raymond James & Associates, Inc.
# Q

Makes sense. Thank you so much.
......................................................................................................................................................................................................................................................

**Operator: Your next question comes from Peter Weed from Bernstein. Peter, please go ahead.**
......................................................................................................................................................................................................................................................
Peter Weed
Analyst, Sanford C. Bernstein & Co. LLC
# Q

Thank you. I guess, there's two parts to this, kind of both focused maybe on a follow-on even with new customers.
You certainly had a nice uptick this last quarter relative to the prior one on net new customers. And I guess,
there's two parts of there. One is, we were backing out in our model, what portion of the kind of new revenue
growth was coming from the two? And it looked like you were probably seeing kind of flat quarter-over-quarter
revenue contribution from kind of new customers over the trailing 12 months. And most of the headwinds are
really coming from existing customers. So, does that seem about right that the new customers were probably kind
of like flattening and it was mostly the existing customers' expansion that that had been the issue?
......................................................................................................................................................................................................................................................
Cameron Deatsch
Chief Revenue Officer, Atlassian Corp.
# A

Yeah. This is Cameron. I'll speak to the net new customer number. So, as we said before, the new customer
number does jump around from quarter-to-quarter for a variety of reasons. That said, very glad to see the
increase from Q2 to Q3 with over 6,500 net new customers. It's showing that there's continued demand for what
we have, that we still can convert those free customers to paid customers, and it's nice to see the quarter-onquarter increase.

##### 15


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call


Corrected Transcript

04-May-2023


However, I do want to call out that that challenge that we've been mentioning for the last few quarters of our
conversion rate from free plans to paid plans is still lower than it was historically before we saw this
macroeconomic headwinds. As far as net new customers impact into our short term revenue, it is minimal. And
today, where we always focus on the net new customer, overall number is really a better guide for our long-term
portion of our business.
......................................................................................................................................................................................................................................................

**Operator: Your next question comes from Ari Terjanian from Cleveland Research. Your question, please.**
......................................................................................................................................................................................................................................................
Ari Terjanian
Analyst, Cleveland Research Co. LLC
# Q

Hi, all. Thanks for taking the question. Just a question on the cloud growth and expectations here. One, given the
strength in data center, you called that out as better than expected in the quarter. Does that suggest potentially
that future migration to cloud may not be quite as pronounced, given customers are renewing on data center more
than you expected.

And second, I believe in the shareholder letter, it was called out, for the first time, there was an impact from seat
count reductions. Do you believe that's more reflective of layoffs that are being occurring today or more reflective
of the layoffs that we saw last year? Thank you.
......................................................................................................................................................................................................................................................
Joe Binz
Chief Financial Officer, Atlassian Corp.
# A

Yeah. Multi-part question here. This is Joe. I'll take part of it, and then Cam will chime in. I'd say in terms of the
data center to cloud migrations, not at all. We expect those to continue to be strong for the foreseeable future.
Cam spoke earlier about the multi-year journey we're on. We continue to add a ton of value in the cloud. We
continue to invest in migration tooling and customer support. We continue to invest in data residency and
scalability and certifications and extensibility, and all the things that are going to enable more customers in that
data center category to move to the cloud. So, we remain very bullish on that opportunity.

Cam, you want to take the next part?
......................................................................................................................................................................................................................................................
Cameron Deatsch
Chief Revenue Officer, Atlassian Corp.
# A

Yeah. I'll just clarify the – just we see customers using data center as further investment in Atlassian and our
multi-year journey of getting customers to the cloud is very much on track with our expectations, and we
increasingly improve our ability to migrate customers every single day. As far as your mention on the seat count
reduction, in general, I'd say, the biggest issue that we focus on is the paid seat expansion. And customers are
still expanding their seats. It's just not at the same rate that we saw before the macroeconomic headwinds.

Of course, there are a subset of our customers, a very small subset, that have reduced their employee count over
the last few months. And when their renewals come up, they're renewing at a lower tier than what they previously
renewed, because they have less new users in their business. But overall, that is a small overall percentage of
our customer base. The bulk of where we focus is really the paid seat expansion.
......................................................................................................................................................................................................................................................

**Operator: Your next question comes from Jake Roberge from William Blair. Jake, please go ahead.**
......................................................................................................................................................................................................................................................

##### 16


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call

Jake Roberge
Analyst, William Blair & Co. LLC


Corrected Transcript

04-May-2023


Yes. Thanks for taking my questions. Just wanted to double click on the data center strength you saw in the
quarter. Is that more a result of new customers starting to land there or upsells within existing customers? Or is
that really just the server migrations going more towards DC than you expected to cloud? And then more of a
high-level one, but what's driving the seat expansion for DC versus the headwinds for cloud? Is that primarily a
result of the enterprise focus in DC?
......................................................................................................................................................................................................................................................
Joe Binz
Chief Financial Officer, Atlassian Corp.
# A

Yeah. Thanks for the question. This is Joe. As we discussed earlier, when you look at that DC strength and
resilience, it's really driven by two things; better-than-expected renewals; and then paid seat expansions at
existing customers. Cam?
......................................................................................................................................................................................................................................................
Cameron Deatsch
Chief Revenue Officer, Atlassian Corp.
# A

Yeah. I have to say, just in the quarter, we have to remember, we did do a price change on data center and that
causes customers to make a choice, whether they – if they're thinking about adding users in the future, then it's a
good compelling event for them to choose data center. But, once again, we see that past the data center. We
proved it again and again. We have the ability to move data center customers to the cloud. Over the last year, half
of the seats we moved to cloud are from data center customers. So, we see this as – within the quarter, it's
fantastic. People choose data center, so that's great. We can eventually get them to cloud and we're proving that
every day.
......................................................................................................................................................................................................................................................

**Operator: Thank you. And that concludes our question-and-answer session. I will now turn the call over to Mike**
for closing remarks.
......................................................................................................................................................................................................................................................
##### Michael Cannon-Brookes
Co-Founder, Co-Chief Executive Officer & Director, Atlassian Corp.

I just wanted to say, thank you, everyone, for your questions. Thank you to those who came to our Analyst
Function at Team '23. And I hope you all have a fantastic rest of your day.

##### 17


-----

#### Atlassian Corp. (TEAM)
Q3 2023 Earnings Call


Corrected Transcript

04-May-2023


Disclaimer
The information herein is based on sources we believe to be reliable but is not guaranteed by us and does not purport to be a complete or error-free statement or summary of the available data.
As such, we do not warrant, endorse or guarantee the completeness, accuracy, integrity, or timeliness of the information. You must evaluate, and bear all risks associated with, the use of any
information provided hereunder, including any reliance on the accuracy, completeness, safety or usefulness of such information. This information is not intended to be used as the primary basis
of investment decisions. It should not be construed as advice designed to meet the particular investment needs of any investor. This report is published solely for information purposes, and is
not to be construed as financial or other advice or as an offer to sell or the solicitation of an offer to buy any security in any state where such an offer or solicitation would be illegal. Any
information expressed herein on this date is subject to change without notice. Any opinions or assertions contained in this information do not represent the opinions or beliefs of FactSet
CallStreet, LLC. FactSet CallStreet, LLC, or one or more of its employees, including the writer of this report, may have a position in any of the securities discussed herein.

THE INFORMATION PROVIDED TO YOU HEREUNDER IS PROVIDED "AS IS," AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, FactSet CallStreet, LLC AND ITS LICENSORS,
BUSINESS ASSOCIATES AND SUPPLIERS DISCLAIM ALL WARRANTIES WITH RESPECT TO THE SAME, EXPRESS, IMPLIED AND STATUTORY, INCLUDING WITHOUT LIMITATION ANY IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ACCURACY, COMPLETENESS, AND NON-INFRINGEMENT. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE
LAW, NEITHER FACTSET CALLSTREET, LLC NOR ITS OFFICERS, MEMBERS, DIRECTORS, PARTNERS, AFFILIATES, BUSINESS ASSOCIATES, LICENSORS OR SUPPLIERS WILL BE LIABLE FOR ANY
INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR LOST PROFITS OR REVENUES, GOODWILL, WORK STOPPAGE,
SECURITY BREACHES, VIRUSES, COMPUTER FAILURE OR MALFUNCTION, USE, DATA OR OTHER INTANGIBLE LOSSES OR COMMERCIAL DAMAGES, EVEN IF ANY OF SUCH PARTIES IS ADVISED
OF THE POSSIBILITY OF SUCH LOSSES, ARISING UNDER OR IN CONNECTION WITH THE INFORMATION PROVIDED HEREIN OR ANY OTHER SUBJECT MATTER HEREOF.

The contents and appearance of this report are Copyrighted FactSet CallStreet, LLC 2023 CallStreet and FactSet CallStreet, LLC are trademarks and service marks of FactSet CallStreet, LLC. All
other trademarks mentioned are trademarks of their respective companies. All rights reserved.

##### 18


-----

