Atlassian Corp Q4 FY2022 Earnings Call

Good afternoon and thank you for joining Atlassian's Earnings Conference Call for the Fourth Quarter and Full Fiscal Year 2022. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Atlassian's website following this call. I will now hand the call over to Martin Lam, Atlassian's Head of Investor Relations.

Welcome to Atlassian's fourth quarter and full fiscal year 2022 earnings call. Thank you for joining us today. Joining me on the call are Atlassian's co-Founders and co-CEOs, Scott Farquhar and Mike Cannon-Brookes, along with our Chief Executive Officer, Cameron Deatsch. Earlier today, we published a shareholder letter and press release that detail our financial results and commentary for our fourth quarter and full fiscal year 2022. The shareholder letter can be found on Atlassian's Work Life blog and in the Investor Relations section of our website, where you will also find additional earnings-related materials, including the earnings press release and supplemental investor data sheet. As always, our shareholder letter features management's insights and commentary for the quarter. During the call today, we will have brief opening remarks followed by a Q&A session. This call will include forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that could lead to actual results that differ materially from those anticipated by such statements. These forward-looking statements should not be viewed as predictions of future events and are based solely on management's beliefs and assumptions at the time. We do not undertake any obligation to update or revise these statements if they change or become outdated. More information regarding factors that could influence the company's financial results can be found in filings with the Securities and Exchange Commission, particularly in the Risk Factors section of our most recent Form 20-F and quarterly Form 6-K. Today, we will also discuss non-IFRS financial measures, which are additional to and not a replacement for, or superior to, financial performance measures prepared under IFRS. A reconciliation between IFRS and non-IFRS financial measures is provided in our shareholder letter, earnings release, and investor data sheet on the IR website. Please remember that we want to allow as many people as possible to participate in the Q&A, so we will take one question at a time. If you have a follow-up or another question, please rejoin the queue, and we will do our best to return to you later in the session. With that, I will turn the call over to Scott for opening remarks.

Thank you for joining us today. As you've already read in our shareholder letter, we ended fiscal 2022 with strong Q4 results across all three of our markets: Agile and DevOps, PFM, and Wealth Management. Cloud revenue grew by 55% year-on-year in Q4 and ended the year with over 242,000 customers. Atlassian is uniquely positioned, having great momentum and a differentiated business model. Now, while we can't predict what the future holds at a macro level, we're forging ahead with conviction and vigilance as we look to continue to fuel durable growth over the long term and deepen our strategic advantages. We're incredibly proud of the way we continue to execute against our long-term goals and we're excited to take this momentum into fiscal 2023. I'd also like to mention that this quarter I am operating as interim CFO. This will be my first and last earnings call as interim CFO as we welcome Joe Binz as our incoming CFO. We are so excited to bring Joe on and introduce him to you in the next earnings call next quarter. With that, I'll pass the call to the operator for questions-and-answers.

We will now begin the question-and-answer session. Your first question comes from Fatima Boolani from Citi. Please go ahead.

Hey everyone. Thanks for taking my question. Just one around the cloud growth expectations for fiscal 2023 that you've reiterated, which is very encouraging, as well as the reiteration of the magnitude of migration impacts to that cloud growth. What I'm curious about is when you think about the fiscal 2024 dynamic which is similar to fiscal 2023, how much of the migratory impact from the prior year i.e., fiscal 2023? What type of purchasing or expansion behavior from those migrated customers are you expecting in the base in fiscal 2024?

Scott here answering that question. As we mentioned previously in our Investor Day a few months ago and reiterating now on this earnings call, we expect cloud growth to be approximately 50% year-on-year for FY 2023 and FY 2024, and so that remains the same. We've also said that a high single-digit percentage of that growth comes from migrations in any given year. And so we expect again, that could continue. We haven't looked in terms of the FY 2024 dynamic, of how that goes. What we do see though are migrating customers expanding at a similar rate to the customers we have in our existing instances. And we've also stated that previously we have a net expansion rate of 130% in cloud, and 140% for our larger customers in cloud. And so that's all I can give you on that, at this stage.

This is Martin. Just to clarify, we are expecting 10 points of growth from the 50% growth in cloud for the next two years.

Understood. Thank you. I’ll get back in the queue.

Your next question comes from Michael Turrin from Wells Fargo. Please go ahead.

Hi, thank you and congratulations on a strong finish to the fiscal year. Scott, I know we won't see it often, but nice suit photo, very CFO-like with the materials as well. You highlighted an impressive statistic in the letter about 90% of fiscal year revenue coming from your consistent long-term strategy. Is that number consistent with what you've seen in previous periods? Additionally, if we observe some moderation with the newer cohorts, do you believe there will be a catch-up for those cohorts you've recently brought on that can contribute similarly to your model, considering the experience and expertise you've developed? Thank you.

Yes, thank you for the compliments on how good I look in the suit. I appreciate that. And you're right, we won't wear suits too often in the future. What we've said historically is yes, that 90% of our revenue in any given year comes from our existing customers. We were chatting just before this call that if you think about the results we're getting this year, they are seasonally planned years ago and the safer planting this year comes to bloom in the imports. So this is not a business where we are trying to have a very extensive enterprise sales force to achieve a particular number in a specific period. We think very carefully about the long-term return characteristics of all the investments that we make at any point in time. And so that 90% number we continue to see that like that's not likely to change at any particular time, but we really think about the long-term investments we're making now that are paying off over a two- to three-year period.

Thank you.

Your next question comes from Arjun Bhatia from William Blair. Please go ahead.

Thank you for taking my question. Congratulations on a strong quarter. I know you addressed the macro situation in the Shareholder Letter, but I’m curious about migration specifically. Do you expect the migration pattern to change due to the macroeconomic environment? Are customers hesitant or reconsidering, or do they see the total cost of ownership and decide to proceed as planned? What are you hearing from partners and customers regarding this?

This is Cameron, and I'll take that one. So as you know, this migration journey has been going on for a couple of years now. We announced the server end of life over 18 months ago and gave customers more than three years’ heads up to make a decision on migrating to the cloud. So none of this is a surprise. Many are at different stages of their planning, whether that's from a technical perspective or budgetary perspective, and we are increasingly getting good at those conversations about, honestly, the larger ROI savings that customers get when they move to the cloud, whether that's reducing administrative costs, their own hardware costs, and of course unlocking a ton of new innovation in our cloud. In addition to that, we have a Forrester Total Economic Impact report, where we've actually done deep research into the overall cost savings that customers get when they actually move to the cloud. So, the short answer is no, our migration plans continue as planned and we are very happy with the results to date. And you saw a lot of that in our recent Q4 results.

Your next question comes from Jim Fish from Piper Sandler. Please state your question.

Hey guys. This is Quinton on for Jim Fish. Thanks for taking my question. Sticking to the demand side for just a second, is there anything you can call out from a geographic perspective in terms of weakness or relative strength? Looking at the numbers here, it looks like really strong growth across all geos. But wondering if there is one specific place that you're maybe keeping your eye on more than others? Thank you.

Thank you, Quinn. Cameron here again. I'd say we are being exceedingly vigilant across watching all stages of our funnel, whether that's migrations funnel, the additions upgrades, retention rates and of course our new customers coming in. And this really set up with the Russia-Ukraine war back starting in February. We have been keeping a very special eye in the EMEA region. The good news as of today is we have yet to see any specific trend geographically or even in industry segments or in customer size that gives us pause or worry to date. So something we continue to watch like a hawk, but there's no new news to share today.

Your next question comes from Gregg Moskowitz from Mizuho. Please go ahead.

Thank you very much. Congrats on a very good quarter as well. Has there been any change to the mix of products sold over the last few months? Anything different with regard to customer prioritization? And then just a quick clarification just to help everybody with their models, if I may. I believe consensus was projecting data center revenue growth somewhere in the low to mid-20s for fiscal '23. And given the comment in the Shareholder Letter about moderating growth after Q1 being somewhat vague. I'm just wondering if you're able to tell us if you're comfortable at this time with where those consensus numbers stand? Thank you.

This is Cameron. I'll speak to the mix. I'll let our new interim CFO handle the second part of that question. As far as the overall mix, no we have not seen any significant shift in customer demand across our product lines. I do, however, want to call out the strong demand we continue to see with Jira Service Management as one of our strongest cross-sell motions, surpassing 40,000 Jira Service customers to date. And we just seem to have struck a vein there in the market with a very compelling offering that's feature complete, very easy to use, as well as highly competitive from a pricing perspective. But I don't want to take away from our other products. Jira Software, Confluence, Trello, you name it, continue to see strong demand across the board. We continue to see people embracing digital transformation and needing tools to help manage the large technical projects they're running, and our tools help manage those projects throughout, as well as this cultural transformation. We continue to see demand for collaboration products that continue to be strong.

Yes, just to your question around the data center shape of revenue. Again, just a reminder for those people new to the story we have end-of-life server offerings. And so they have to make a choice whether they move to our cloud directly or, if they have a longer process or a longer timeframe, they're not choose to the data center as a step starting to move to cloud. We've been really happy again with our migration, and actually happy about 1/3 of our migrations come. We said that at our Investor Day, about 1/3 of our migrations come from data center customers already. So we're really starting in all directions towards the cloud. Now specifically in our Shareholder Letter, we highlighted in terms of the data center revenue maintaining high growth through Q1 before moderating over the remaining three quarters. We can't give any sort of more details on that, but really that's just to give you into the seasonality that we might see over the next four quarters in terms of how we think those migrations might end up happening.

Yes, thank you.

Your next question comes from Brent Thill from Jefferies. Brent, please state your question.

This is Luv Sodha on for Brent Thill. I wanted to ask a real quick question on margins this quarter. It looks like there was an increase in investment in R&D. And it sounds like you're planning to continue that into the next year. Could you maybe give us some color into where these investments are being directed to? Thank you.

Yes. Thanks for that question. Sort of starting at our Investor Day we had a discussion with our shareholders about the incredible opportunities we are seeing across our business. Those opportunities are in every corner of the business. As a management team, we think long-term and we think about how we invest behind those opportunities. A couple we've highlighted in the past are our customers migrating to the cloud. We're seeing incredible demand for that migration. If we can improve the throughput of those customers migrating to the cloud that's great for them and it's great for us. We've also seen incredible demand for our ITSM products in that market. Again, there are some features we can add there and getting our customers onboarded to those products has been great for us and for them. But as a result of all these opportunities, we made a decision to invest heavier behind these opportunities than we had before. We expect margins for FY 2023 to be in the mid-teens. And so those areas of investments are largely in R&D. We are really seeing huge investments there because of the features and getting our cloud to the stage where we can accommodate 100% of our customers require some more features. You'll also see some investments turned in other areas of the P&L because there are some handholding to get our customers across that doesn't show in R&D as well as it shows up in other areas in the P&L. So largely R&D but you may see some other areas of the P&L impacted just to the way that we're helping our customers migrate.

Perfect. Thank you.

Your next question comes from Alex Zukin from Wolfe Research. Alex, state your question.

Thank you very much and congratulations on a strong quarter. I have a couple of questions. Regarding the macro effects you're experiencing in the business, you mentioned a slightly slower conversion rate of free customers to paid ones. When you analyze the pipeline, why do you believe that's the only macro effect you're encountering instead of issues like migration delays or longer sales cycles with larger customers? Are you not observing some of the other challenges that other companies are facing? What insights are you gaining in real time as you assess the data in the current demand environment? I also have a brief follow-up.

Yeah, I can cover that first piece. This is Cameron again. So, as you mentioned and you see this in our Q4 results, across the many funnels we operate, whether that's our migrations, our additions upgrades, our cross-sell of products, our overall retention continues to be exceedingly strong. That's been great to see and that's been supporting our net expansion rate we've already discussed on this call here. Largely, what you see is existing customers continue to have demand for what our products do to help their teams work more productively in the future. As far as that slight thing that we mentioned in the Shareholder Letter just so you all realize that we land all of our net new customers in free plans. We're about two years into this experience, but we continue to have many, many customers signing up in free plans. They either need to add an 11th user which then they have to pay to get the 11th user or simply they want more premium capabilities in our standard and premium editions. Those are the reasons people enter their credit card. The one thing that's worth calling out, that we've seen literally just in the last month is that the cohort of customers that came in the April, May and June timeframe are converting to those paid plans at a slightly slower rate than what we've seen in previous quarters. Now I'd love to say that's specific to a product, or a geography, or an industry. There's no specific customer segment there. It just seems that, in general those cohort of customers that have been signing up in the last quarter are using the products they're activating, they're getting value but they simply just haven't put those credit cards and hit those paid walls yet. So that's one of those areas that we continue to be vigilant. We have multiple analytics teams, multiple growth teams as well as our onboarding and R&D teams that are focused on ensuring that those customers remain active. It gives us more chances to convert them to paid plans in the future. That does not take away from the continued growth we see in our existing customer base that also drives more than 90% of our revenue in the existing year.

Perfect. And I guess maybe just going back to the data center part of your business, the extraordinary growth that you're seeing, I think accelerating growth in the quarter. How much of that growth is from data center customers expanding versus understanding what the existing customers are growing like within data center to get a sense of the growth that you're seeing in data center coming from server migration to data center? In addition and I apologize for the multipart question, just the range of migration activity from data center to cloud versus server to cloud in that 10 points of migration as a driver for the 50% cloud growth.

Got you. I think I can address that. So overall data center demand, I'll hit that first and then we can talk about the server to cloud or data center to cloud journey. So as we've already mentioned, this server end-of-life message we give customers more than three years heads up. What you see is customers increasingly opting out of going to cloud, which obviously that's where we lead with. That's where we have been putting all of our incentives to get customers to go to the cloud, so they get as much innovation as possible or they can choose data center. Many are seeing either way it's an increased investment and commitment to Atlassian long-term. We see that those are two good decisions for customers. However, when those customers jump from data center, we see this again and again, they're seeing that as just a stepping stone to that cloud journey. But it gives them more optionality down the time, and of course data center is a fantastic product. We have historically said it's roughly 30% of our cloud migrations come from data center customers, which proves that stepping stone statement. I don't specifically know how much that drives into the overall 10% growth that we've shown that drives our overall cost growth, but you can see roughly a third of our customers are coming from data center. That's all I have to share. Scott, do you have anything to add on that?

Your next question comes from Adam Tindle from Raymond James. Adam, please state your question.

Okay. Thank you very much. I just wanted to touch on the investment period and operating margin trends. You talked about mid-teens in fiscal 2023 playing offense. I think you said lower in the second half of the year. I'm wondering if that's indicative of a multiyear period of investment here. You certainly have earned the right to invest based on what we've seen so far. I just wanted to level set investor expectations since I think Street is modeling improvement in fiscal 2024. I'm not sure if that's consistent with how you're thinking about things. Thank you.

Thank you, Adam. Just to remind everyone, we said back at our Investor Day, Atlassian has an incredible business model. If you look historically over time, before being a public company and during the seven years we've been a public company, this business model does generate a large amount of free cash flow and margin returns. Those are the fundamentals that we have in the business. If we look at the long-term opportunities, they are more abundant than we've ever seen before and that's the reason to invest. Now, on your specific investment period, what we've said is that FY 2023 is going through an investment year and we guided to the mid-teens margins for FY 2023. We haven't given any guidance for FY 2024, and we'll be doing that at the end of FY 2023.

Your next question comes from Peter Lee from Bernstein. Peter, go ahead.

Thank you. So taking a look at your overall migration plan. I think you had originally anticipated maintenance shrinking down a little bit more than maybe it's seen now and you're talking about a year from now getting to $75 million which I think was maybe a little bit of a slower ramp than at least I had been anticipating. How are you seeing that roll off of your existing customer base? Has it been stickier? Are you having to spend more time and effort encouraging customers to migrate? And how do you see that affecting the velocity of the cloud migration itself?

Yes, this is Cameron again. As we mentioned, migration demand remains very strong. That server customer base effectively has until February of 2024 to make a decision on where they want to opt out, whether it's going to data center or whether that's going to cloud. Obviously, we continue to remove any blockers or any reasons why customers would not adopt our cloud and we give people plenty of incentives along the way to move to our cloud offerings. The good news across the board is we continue to see retention rates maintain high for the existing the entire server customer base throughout this. As we continue to see server renewals happen, we see people opting out to data center and cloud. The good part there is we continue to see these customers remain loyal to Atlassian and largely they're figuring out what the best technical and decision long-term is for their companies. We have been focusing on cloud, and as we've already mentioned, we are largely in line with our migration plans to date. We'll continue to be vigilant there over the next year, as we continue to incentivize our customers to choose cloud.

And I think you've been investing in some cloud migration personnel. Do you see that being kind of like fully built out, or are you seeing that you're going to have to continue to expand that personnel to see the success through?

This is Cameron again. Yeah, so we have dedicated cloud migration management and migration support engineers, as well as a dedicated migration tooling and a variety of people that can come and help these customers through the more technical migrations. We did make significant investments in the previous fiscal year across those teams, and we believe they are fairly stable to date and can handle the volume that's coming in over the next few quarters.

Your next question comes from Steven Koenig from SMBC Nikko. Steven, please go ahead.

Great. Hey, thanks a lot for taking my question. I'm wondering regarding your hiring and you're investing that you've been talking about. Your comments on your plans to hire are certainly borne out by your job postings, which remain pretty solid whereas a lot of other vendors are cutting their hiring plans. I'm wondering how is your hiring progressing relative to plan in terms of your progress in finding the talent that you want? And then if I can just add a quick addendum. Any tactical pricing adjustments of note since your February 15 price increase on server on data center? And that's all for me. Thanks very much and congrats on a great quarter.

Hey, Steve, it's Mike here. I can take that. We continue to play offense. We are using this period to deepen our strategic position and increase the advantages we have over the competition. There’s a lot of competition out there, and we think we have a really good opportunity going forward. We have spent a lot of time retooling our hiring pipeline over the last two years and are really, really excited with where we stand at the moment. We've had, I believe, our two biggest quarters of hiring in the last two quarters and we continue to do so. We don't just look at the volume multipliers or that's sort of an absolute number marker. We continue to push the quality of the talent that's available and we think that that will get easier in difficult circumstances. There's no doubt as Scott mentioned, the majority of that hiring is going to R&D to try to again deepen those strategic positions that we already have. Lastly, I would say we made a similar sort of play in the 2008-2009 period. We paused for a little while then realized we were in a very strong position. We hired well through that period and we saw the benefits of that for the next few years as we've got a real updraft with the products coming out and the results of this product. So we believe we have massive opportunities in front of us in all three of our markets and as such we're hiring behind them.

That's great. Can you guys comment on any pricing actions of note say in the last six months since the February price increase?

Yeah. As you already mentioned, we did have price increases on our server and data center products in February. All of our pricing changes are made public across the board, and they're all available on our websites for all of our customers, as well as we give our customers a decent heads up on these price changes so they can plan their budgets accordingly. No other price changes to mention and our pricing strategy remains consistent.

Your next question comes from Keith Weiss from Morgan Stanley. Please go ahead, Keith.

Thank you for taking the question. This is Sanjit Singh for Keith. Somewhat annoying, we had another question on the sort of the case for investment. As you sort of look at where the business stands today, you have a $3 billion business, you have 0.25 million customers, I think with 10-plus monthly active users. If you look at sort of where you're trying to take the business, getting to one million customers, 100 million monthly active users, expanding from developers and IT to line of business teams, with the work management initiatives. As you expand into these newer markets and this longer tail of customers, are the unit economics from here going to be as attractive versus what the business has built today to get to this $3 billion and 0.75 million customers? I was wondering if you could just sort of frame out how you think expanding into these longer tail of users and customers and product markets will impact the unit economics of the business?

Sure. Mike, I can take that again. Look, I think obviously we feel bullish about our unit economics at the moment and I don't see why that would change going forward. We've always been very prudent stewards of capital in the business and continue to invest in very high ROI opportunities as we look forward. You mentioned some of our numbers there. Obviously, there are millions and millions and millions of businesses in the world. There are around or approximately one billion knowledge workers. So we have a huge amount of expansion possibility, even just inside our existing customers. As Cameron mentioned earlier, we remain north of 130% in our NER numbers and north of 140% in the large customer segment and we saw that again this quarter. From the point of view of expansion in those large customers, we have many millions of employees that we do not touch in those existing customers. You see that specifically in our Work Management segment where Trello, Confluence, and Atlas are continuing to penetrate deeper into organizations looking for full access to all employees within those companies. Additionally, we continue to focus on not just the unit economics of our funnel but also the product growth funnel in terms of free evaluations and trials. We're incredibly well-instrumented there and really understand the value of spending a dollar on marketing or sales and the conversion rate of expansion through our customer base. I believe we're absolutely best-in-class and continue to improve and evolve every year. We're also really, really good at enterprise and premium expansion activities when it comes to bringing in more human power and more activity to expand customers across the product set. We've got a whole lot of new products coming out, but also the same focus on being capital efficient in those sales motions. We don't just take it in the automated product-led growth funnel; we take it at the same time in all of our sales activities. We're very proud of how we do that and we have to keep raising the bar on that every year. I don't think long term, it should change the unit economics.

Really appreciate the thoughts and congrats on the great data center and cloud subscription results this quarter. Thank you.

Your next question comes from Ari Terjanian from Cleveland Research. Ari, please go ahead.

Hi, team. Thanks for taking the question and congrats on the great results. I just want to double-click on the Deutsche Bank cloud deal that was called out in the press release or the Shareholder Letter. I was just hoping if you could provide some more detail on that opportunity. Is that migration complete, or is it just the signing? What do you think caused them to pull the trigger? I know regulated industries like banking in Germany and Europe have historically been more hesitant to move to the cloud. So just wondering if you could please provide some more color on that deal and if you think it could be a beachhead to cause others in these geos and verticals to start moving.

Yes. So, Cameron again. Yes, I was deeply involved with Deutsche Bank for quite some time. In fact, they've been a customer for many years. They were a data center customer for many years. We've been speaking about the cloud opportunity and journey with them for quite some time. It shows, I think, you nailed it right there; it's a German bank, highly regulated, massive scale, like you name it from a requirements perspective they had it for our cloud. It's a testament to the investments we've made over the last couple of years and performance and scale in regulated industries like this, as well as specific financial services regulations in Germany that allowed us to open up that door and have that serious conversation about getting them to the cloud. To answer your question, no, we have just started the cloud journey. They've checked all the boxes to adopt our cloud and we've started our migration planning to begin moving their users and data. That will be a multi-month or multi-quarter journey due to the size of deployment and complexity they have, as well as how mission-critical applications are for the bank. Many of our customers are saying that our applications are more important than email for getting their work done inside the organization. We have to plan out very diligently with them, but they've been incredible partners throughout this exploration of cloud and we are looking forward to having them 100% on the cloud in the upcoming quarters.

Thank you.

Your next question comes from Fred Havemeyer from Macquarie. Fred, please go ahead.

Hi. Thank you. I wanted to ask about your net retention rate because throughout this year you've been posting or discussing strong 130% rather north of 130% cloud net retention rates. I saw in the Shareholder Letter today that you noted that larger customers were topping 140% cloud net or rather net expansion rate. So I wanted to ask can you help to characterize what's driving that? Is that something that is a seat-based expansion or cross-sell or upsell reach into non-technical departments expansion with new technical departments? Anything to characterize that can help us understand where this growth is coming from would be greatly appreciated.

I appreciate your question, Fred. The numbers you mentioned are accurate, and we shared similar information during our Investor Day last year and reiterated some of it in our Shareholder Letter today. Atlassian's business model has always focused on a land and expand strategy. We typically start with a part of an organization, which could be a small team, several teams, or even multiple uncoordinated teams within the organization. Once they experience the value of our products, they tend to expand in various ways. This includes an increase in the number of seats, which can range from a single small team to large deployments, like the one we discussed with Deutsche Bank involving tens of thousands of seats. Additionally, we observe that customers often expand based on the products they use. They might begin with one product, appreciate its value, and then return to discover other solutions we offer that can address their needs, particularly in the cloud where our products integrate seamlessly. Furthermore, different editions like premium and enterprise allow customers to access enhanced functionalities, which they are eager to unlock. Our third-party application marketplace is also a significant factor; it is one of the leading marketplaces in enterprise software, enabling customers to easily adopt additional functionalities or explore entirely new ones. We see growth through various channels, and while there isn’t just one approach that customers take, we are confident about our prospects moving forward, given how integral our products are and the extra functionalities they can access once they become customers.

Thank you. If I can get another one in here, it wouldn't take up more time. I also wanted to ask about scaling. Because in the Shareholder Letter today, I think you also noted that 35,000 user cloud instances are now available to your entire customer base. If I recall correctly, getting to that scale has been a journey and looking across the market some of the other project management tools that are out there have some difficulties really achieving scale for large non-current users. So I wanted to ask what has that journey been like? What does it take to build such a highly scalable collaborative live project management tool? And would you view that as a competitive moat?

Sure. I can take that question. It's Mike here. Look, there's a testament to our R&D teams and specifically the infrastructural engineering teams there in terms of scaling our offerings in the cloud. A few things I would point to there. A reminder for anyone listening: With a single instance of Jira Software in the case you mentioned, we started our cloud journey at about, I think 1,000 or 2,000 seat range. We expanded to five, then to 10, I think we've ended 25 and now we've just reached 35,000 and I believe we have 50,000 in early access program. We are continuing to scale a single instance of Jira Software. At the same time, we've scaled multiple other parts of our back-end infrastructure to allow further increases beyond that amount in a single Jira Software instance. You see that in our enterprise addition where you get unlimited instances. You can have lots of 35,000 user instances at the moment. Obviously, from an identity and scaling perspective, you can go beyond there. I would say, it's a testament to our continued investment in our customers and the continued world-leading amount of revenue that we spend on R&D because this stuff is hard. It's just one of those problems that's very difficult. You need a lot of hard work and discipline over a long period of time to continue to work out what parts of the infrastructure are scaling and continue to be ambitious and push that upwards. We have many, many customers on-premise and data center who were well beyond the 35,000 limits. So you won't see us stop there. We'll continue to push that limit higher as we work with those larger customers. Lastly, I would say it's a testament to the platform that we've built because most of that scaling doesn't actually happen in the Jira Software world. It happens in the Atlassian cloud platform in our infrastructure layers below that. Everything from the networking layer all the way through to databases and various shared services we have, et cetera, all have the scale to handle that, whether it's serving videos or whether it's mentioning users. Collaborative software is all about connecting with other people on your team. If you mention the user and it takes an awfully long time, it's a poor customer experience and you get low customer satisfaction. It’s not just about scaling the sheer numbers, it's ensuring that all the user experiences happen at scale very, very fast. We spend a lot of time and effort on that and we'll continue to do so, probably reflected in our MER and great cloud numbers, and more to come.

Your next question comes from Kash Rangan from Goldman Sachs. Kash, please go ahead.

Hi, thank you very much. I wanted to say congratulations on the quarter, but also on a terrific executive. On that thought, how comfortable are you with the new CFO Joe's caliber coming in, that you have reset the margins and that we can be very comfortable that you have factored in all possible investments the company needs to make to achieve this cloud transition? I imagine our new CFO coming in will want to ensure that the Street is level set with respect to margin guidance because you have a bag of Microsoft and cloud transition. I'm just wondering how did Joe get comfortable with the level of investments that have already been spoken for and guided into the model. That's it for me. Thank you very much and congratulations.

Thank you. This is Scott here. I'll answer that. Mike and I have been around for 20 years; we just celebrated our 20th anniversary in the last few months. We've been public for seven years. Each new CFO at Atlassian brings their own experience and views on how the business should operate, the philosophy behind our guidance, and how we engage with our shareholders in an open and transparent manner, which is established from the top. We are very excited for Joe to join us, bringing his extensive experience from Microsoft, especially considering their cloud transition. I don't anticipate any significant changes in our guidance, investment strategies, or our interactions with shareholders as a result of this. I'm really looking forward to having Joe on board. He will be a valuable addition to the team, and I am eager to see how he can help us allocate capital amidst the tremendous opportunities we have ahead.

Your next question comes from Michael Turits from KeyBanc Capital Markets. Michael, please go ahead.

Hi. This is Billy on for Michael. Thanks for taking the question. Can you just give us an update on the regulatory work you've been doing around the public sector, FedRAMP, and maybe different industry verticals? And how much opportunity do you think is out there once you unlock these events?

This is Cameron. I can speak briefly to that. So as we mentioned before, over the last couple of years, actually many years with our cloud platform, we continue to invest in not just scale, as Mike just mentioned, but all of the regulatory data and compliance requirements that our very diverse customer base has. In that we've been able to knock-off these cloud requirements, and you see this every single quarter. As we announce these new capabilities, a new cohort of customers gets unlocked to start their cloud transition. Additionally, we do publish all of our future-looking roadmap in this area up on our public cloud roadmap, which gives increasing confidence to our customers to plan ahead and engage with our teams on when they should actually start their migration journey. That's been a critical part of our overall conversation going forward. In the last 12 months, we've completed HIPAA, Banfi, and we have all of our SOI compliance; we continue to work on FedRAMP. Our federal customer base is significant and we do have customers across the federal customer base, all on server and data center today. The good part there is the majority of those agencies have cloud-first mandates, and they are looking for the ability to go to cloud, and we continue to invest in our cloud platform to hit up those specific requirements. But it doesn't stop with FedRAMP; there are many other specific industry-related regulatory efforts that we will continue to invest in. In addition to that, I want to call out our Forge platform as our new capability to allow Marketplace apps to be run within the Atlassian cloud infrastructure. This has opened up even more opportunity for our customers to build and deploy apps as well as our Marketplace partners to build out and have them secured within the cloud, giving our customers even more confidence if they're in highly regulated industries.

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

Thanks everyone. Just thank you for joining the call. Two small things before we sign off here. Firstly, congratulations to Scott on his interim CFO role. I think he's done a fine job today. We're super excited to have Joe join to take the wheel. Barrowing any emergencies, we look forward to him joining us on our October call. Secondly, as you saw in our Shareholder Letter, building on the success of the theme 2022 earlier last quarter, we'll be holding unique events now tailored to each of our markets. We will kick things off on September 29th in San Francisco at the Chase Center with a Work Management-specific event that we're calling Work Life. So please come check it out and see how teams can work differently together. With that, thank you everyone for joining our call today. As always, we really appreciate all of your continued support and thoughtful questions. Last but definitely not least, thank you to all the Atlassians on a fantastic year. We will talk to you next quarter.