Earnings Call Transcript - TEAM Q1 2026

Operator, Operator

Good afternoon, and thank you for joining at Atlassian Earnings Conference Call for the First Quarter of Fiscal Year 2026. As a reminder, this conference call is being recorded and will be available for replay on the Investor Relations section of Atlassian's website following this call. I will now hand the call over to Martin Lam, Atlassian's Head of Investor Relations.

Martin Lam, Head of Investor Relations

Welcome to Atlassian's First Quarter Fiscal Year 2026 Earnings Call. Thank you for joining us today. On the call with me today, we have Atlassian's CEO and Co-Founder, Mike Cannon-Brookes; and Chief Financial Officer, Joe Binz. Earlier today, we published a shareholder letter and press release with our financial results and commentary for our first quarter of fiscal year 2026. The shareholder letter is available on the Investor Relations section of our website where you will also find other earnings-related materials, including the earnings press release and supplemental investor data sheet. As always, our shareholder letter contains management's insight and commentary for the quarter. So during the call today, we'll have brief opening remarks, and then focus our time on Q&A. This call will include forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make. You should not rely upon forward-looking statements as predictions of future events. Forward-looking statements represent our management's beliefs and assumptions only as of the date such statements are made, and we undertake no obligation to update or revise such statements should they change or cease to be current. Further information on these and other factors that could affect our business performance and financial results is included in filings we make with the Securities and Exchange Commission from time to time, including the section titled Risk Factors in our most recent filed annual and quarterly reports. During the call today, 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. Reconciliation between GAAP and non-GAAP financial measures is available in our shareholder letter, earnings release, and investor data sheet on the Investor Relations section of our website. We'd like to allow as many of you to participate in Q&A as possible. Out of respect for others on the call, we'll take one question at a time. With that, I'll turn the call over to Mike for opening remarks.

Michael Cannon-Brookes, CEO

Thank you all for joining us today. As you've already read in our shareholder letter, we're off to an incredible start to FY '26 with total revenue in Q1 growing 21% year-over-year to $1.4 billion. Our strong execution fueled cloud revenue growth of 26% year-over-year to $998 million and accelerated growth in RPO to 42% year-over-year to $3.3 billion. We continue to make great strides across our strategic priorities of enterprise, AI, and the system of work. Not only do our results reflect this, but our customers are taking notice. Over 300,000 customers, including Databricks, Expedia, Ford, and Wells Fargo rely on Atlassian's AI-enabled cloud platform to power their business processes and mission-critical workflows. We're proud of our ability to continue to deliver AI into the hands of those customers to use today. We've amassed over 3.5 million monthly active users of our AI capabilities across the platform, up over 50% since last quarter. This usage is widespread across both business teams as well as technical teams. I'll repeat what you've heard me say in the past, AI is one of the best things that's ever happened to Atlassian. The need to track, plan, and manage work while harnessing your organizational knowledge are things that don't change in this era. And I'd argue those things become even more important as more software is created and more people have the ability to create amazing technology that changes our lives. AI is also directly driving demand for our cloud offerings. Customers are choosing to migrate to the cloud and they're upgrading to the Teamwork collection to take advantage of our AI-powered cloud platform. In fact, in less than two quarters since we launched the Teamwork collection, we've seen it drive a double-digit percentage increase in users as well as upgrades to higher value additions and the consolidation of competitive tools as our customers standardize on Atlassian. We're putting world-class AI at the center of our platform and throughout our entire set of collections and apps. We've showcased our relentless pace of innovation just a few weeks back at our sold-out Team '25 Europe event in Barcelona with AI still taking center stage. Of course, you can read more about all these announcements in our shareholder letter. I want to take a moment to thank Atlassians for their tremendous execution and dedication this quarter. Without them, none of these exciting opportunities would be possible. I've talked to hundreds of customers this past quarter from all over the world, small to the biggest enterprises on the planet. And what I'm most proud of is how they're turning to us as a strategic partner to help them transform how work gets done during a time when AI is changing their world. Collaboration becomes even more important as more creation is enabled, as work evolves and as new opportunities are created for their businesses. Our customers are looking for our help. I feel incredibly bullish about how we're partnering with them and helping their businesses thrive. With that, I'll pass the call to the operator for Q&A.

Operator, Operator

Your first question comes from Keith Weiss from Morgan Stanley.

Keith Weiss, Analyst

Congratulations on a really strong start to Q1. A lot of really impressive product innovation, a lot of impressive numbers. I was hoping we could drill into the total revenue guide for the full year. And just to better understand the moving parts in this, and I'm looking at the chart that you guys put forward in terms of total revenue guidance going from 18% to 20.8%, but 3.2% of that coming from data center end of life, which means you're effectively lowering the non sort of end-of-life impact by 50 basis points. So given all of the strength that you're talking about in the letter, the product momentum, why is the full year absent the data center end of life coming down by 50 bps?

Joe Binz, CFO

Keith, this is Joe. I'll go first, and Mike will follow on with additional context. I'd say the key development that we saw in Q1 was that we had significantly stronger-than-expected cloud migrations from data center, which is a great thing for our business. As you know, this has been a big area of investment for us. It's a key strategic priority. It allows us the opportunity to provide more value to customers in ways that we simply can't on data center, and we can offer capabilities such as automation, analytics, and AI. Basically, it's the most valuable and secure experience we can offer to our customers. So it's a great thing for the business. Cloud migrations also, however, have an impact on the timing of revenue recognition because cloud revenue is recognized ratably and data center has a combination of upfront recognition and some ratable. And then lastly, the move to cloud also impacts marketplace revenue because we have a lower take rate on cloud app sales than we do on data center apps. All other organic growth drivers in our business in Q1 were either slightly better or in line with our expectations. And we've maintained that same guidance approach on those factors that we held three months ago. We continue to hold a very conservative and risk-adjusted outlook for all the other variables in the growth equation outside of migrations. With that Q1 performance and momentum, we've adjusted our full-year outlook for a greater cloud migration forecast. We've left all other organic driver assumptions in place. Because of those revenue recognition timing differences between cloud and data center and the impact to Marketplace, this drives the 0.5 point decline in our organic revenue growth outlook for the rest of the year. That's the math behind the guidance we're giving for the full year on the organic part of the business. Mike?

Michael Cannon-Brookes, CEO

Keith, I just wanted to follow on. Joe has laid out the math for you and how it pencils out. I just want to reiterate, this is a really good thing. Increased migrations are good for Atlassian, and it's great for our customers. You can see that coming through in our results, with a 26% cloud growth rate this quarter, a 42% RPO growth rate, and a significant increase in cloud guidance, right? All while reiterating our long-term 20% CAGR growth rate that we gave out at the end of FY '24. We feel incredibly confident in our ability to deliver against that. I think all of the movements that Joe laid out are incredibly positive for Atlassian as a business.

Operator, Operator

Your next question comes from Kasthuri Rangan from Goldman Sachs.

Kasthuri Rangan, Analyst

I have to applaud you on your decision to do data center end of life. I think this is likely to accelerate the cloud transition, something that I have been waiting for, for a few years now. So kudos on that for pulling the plug there. The strategic question is, given that we've got line of sight into cloud migration, we're not fighting multiple good battles. I wonder if, Mike, you can talk about the playbook for cloud migration in the years ahead. What are the things that you have learned from the last quarter or so in terms of tactics, especially with the new CRO coming on board? How are you tackling the field engagements and partnerships with the systems integrators to take this full-on because I do think it's pretty exciting what you're on to.

Michael Cannon-Brookes, CEO

Thanks, Kash. I always appreciate the applause. Let me say a few things about Ascend and cloud migrations. Firstly, the partner and customer reaction has been fantastic. I think that's because we have well telegraphed to our customers, our partners, and the entire community that cloud is the future. It's the best experience for our customers, so we had very little surprise. We're very thoughtful and long term about how we've managed the transition, and I think the reaction has been very positive as a result. I think the removal of technical barriers and the delivery of innovation in the cloud has been a combination of effects that's really bringing that through. You see that in the number of customers that mentioned to me, for example, AI is one of the big reasons they are moving to the cloud. We've learned an awful lot about how to help those customers manage that upgrade through the fast shift program, through our amazing partner network, and through a lot of different initiatives over the last 5-plus years. You see that in doubling the number of migrations and seats that were upgraded in the last quarter, which doubled year-on-year. That's a huge achievement for us. It is thanks to those partners that you talked about and everybody else, and you see it in us raising the cloud revenue outlook. So I think cloud is ready for our customers. You see that in FedRAMP Moderate in government cloud, isolated cloud, multi-cloud strategy. We feel incredibly bullish that we have the experience to do this, we feel that it's the right experience for our customers, and we are thoughtfully managing that migration as you pointed out. So I don't think the playbook has necessarily changed as much as every year and every quarter that goes by, we get better at it. We did lots of large migrations last quarter across different geographies and different industries. I can point to a large customer in almost any country that I visit, which has already moved. That gives us a lot of confidence going forward and allows us to reiterate those long-term targets that we laid out.

Operator, Operator

Your next question comes from Arjun Bhatia from William Blair.

Arjun Bhatia, Analyst

Yes, I want to congratulate you on a successful quarter. Mike, I'm interested in your decision to phase out the data center now. Was it influenced by the technical advancements in cloud technology that have made customers more confident in migrating? You've already seen the effects of this migration, but how do you foresee it impacting cloud migrations for the remainder of this year and into 2027? When do you anticipate we will observe the next wave of acceleration in moving from data centers to the cloud? Will this process still take some time, or do you expect it to happen more quickly?

Michael Cannon-Brookes, CEO

Look, thanks. It's a continuum. We've been investing in building an enterprise-grade cloud platform with AI and all the compliance and governance and scalability and data residency and government cloud. All of the amazing technical achievements that we've invested in over the last 5-plus years are a continuum. We will continue to invest in those, but we feel good about our ability right now to accommodate the vast majority of remaining data center customers in the cloud that we have today. We feel great about our execution of the cloud roadmap that we've laid out in front of us, in things like isolated cloud. We spend a lot of time with our customers. We feel that now is the right time for that, that we have prepared, they are ready, and that our partners are ready. We've said many times on calls, we no longer get the question of if we're moving to cloud. It's a when conversation with every single customer that I deal with. I would say we just feel very good about the delivery we've had, and so now is a good time for that. In terms of the expectation of migration, look, I would say that's all part of the plan. We've laid out what we see in front of us for those customers. The multi-year period of that end-of-life gives them time to migrate, giving them the partnerships and everything else that we need. We've included that into our guidance and into our results. The confidence that we feel is included in the guidance that we've given out.

Joe Binz, CFO

For Arjun, I'd just add one other point. While we expect more momentum on migrations in the short term, there is going to be variability in the pace of these migrations quarter-to-quarter, and they will take time to move. We expect most customers will migrate as we get closer to the data center end-of-life date in March 2029. So we expect migrations to accelerate in the '28, '29 time frame.

Operator, Operator

Your next question comes from Ryan MacWilliams from Wells Fargo.

Ryan MacWilliams, Analyst

Mike, this is kind of like a high-level question, but there's been a lot of investor conversation around a super app world where AI interacts with multiple different parts of your software stack from one pane of glass. But Atlassian has always made it easy to integrate Jira with some of the other software solutions. I thought the browser company acquisition was interesting as it also makes it easier to use Atlassian and some other tools. How do you think about a future where you try to use AI across a bunch of different software solutions and how Atlassian fits into that world?

Michael Cannon-Brookes, CEO

Thanks, Ryan. Great question. Firstly, we are making amazing progress in our AI capabilities and delivery to customers. I think the company broadly should be incredibly proud of delivering AI to our customers. It turns up as one of the reasons that they are migrating to the cloud when you talk to them. It shows up as one of the reasons that they're moving to the Teamwork collection. It shows up as one of the reasons they are deepening their relationship as a strategic partner with Atlassian. Our core investment in AI is world-class. We are doing an incredibly good job at delivering AI to customers to give them the benefits today and giving the confidence that we will continue to deliver that into the future. Jira has always been an incredibly integrated tool. We're very proud of that. The Atlassian platform is incredibly integrated. You can see that there are a number of partnerships that we've signed up in the last quarter, many of which are listed in the letter to integrate our platform with other offerings that customers have. It's a core part of our customer value proposition. We believe that your best technology world, your best software world, is a deeply integrated and connected world. You can see that in the ability to use Atlassian's AI from within other tools and vice versa to use other tools from within the Atlassian world. I think that will depend on where customer workflows are and where they work. Recently, you can see that in Jira's ability to assign work items to agents, whether those are technical agents or non-technical agents. This is about taking your Jira workflows and business processes, assigning parts of them to AI or agents as that world evolves, then bringing it back in for collaboration with further users. We will continue to be integrated. I think that's the best outcome for our customers. Everything from the Teamwork graph to the design expertise we are putting into our AI offerings and our world-class capabilities are showing up in our customers and are a reason they are more deeply partnering with us. I'm incredibly proud of the delivery we've had there, and there's a lot of work to do every quarter as we go forward.

Operator, Operator

Your next question comes from Alex Zukin from Wolfe Research.

Aleksandr Zukin, Analyst

I apologize for the voice issues I was experiencing. One of the most interesting points from the letter was your observation about your customer cohort that is using AI coding tools and how they are increasing their usage by 5%. What other insights can you provide regarding product adoption and trends from this super user group? Also, could you briefly discuss how you see DX contributing to greater adoption and expansion of your cloud portfolio?

Michael Cannon-Brookes, CEO

Thanks, Alex. I'm well on record as saying that I firmly believe there will be more developers in five years' time. There will be far more people creating software and a greater amount of technology in the world, which is great for all of us. That significantly expands Atlassian's opportunities. We have the best data. We have amazing visibility right now: 300,000 customers, 80% of the Fortune 500, and 60% of the Forbes AI 50 are Atlassian customers. We're mission-critical and central to their business processes. We have tens of millions of developers, engineers, product managers, and designers that use our applications across millions of teams. We have phenomenal insights into how customers get work done, build software, and technology. We continue to see really healthy user growth among our customers. We look at a cohort of our customers that were utilizing co-generation tools, GitHub Copilot, and others. We excluded Rovo Dev to remove bias from our own customer base. Those customers using those co-generation tools were expanding their paid seats on Jira at a rate 5% faster than those who didn't. They were managing over 20% more projects than those that didn't. All three are working with us in partnership to bring their agents into Jira, into the business processes and workflows they are using because that's where customers get work done. The other anecdotes we have. The Teamwork graph is phenomenal, up over 100 billion objects in connections and growing at an incredible clip. Our AI interactions have increased by almost 150% in the last six months. We have tripled the number of tokens we processed quarter-on-quarter. So millions of workflows involve automation and agents. We're doing a great job in AI. AI is fantastic for Atlassian's business and customers. It creates great opportunities for us. You mentioned DX. As customers change the way they build technology and software, they want to ensure they get the right productivity, where their investment is going, and see the returns from this increasing engineering force they have. Every business is becoming a software company at some point. DX is doing a fantastic job at showcasing customers their developer productivity, where they can improve, and how they can act on it. It's a fantastic team; incredibly bullish about that once the deal closes, and we can move forward.

Operator, Operator

Your next question comes from Gregg Moskowitz from Mizuho.

Gregg Moskowitz, Analyst

Congratulations on a really good performance. Mike, I also, like Alex, was pretty fascinated by the data you provided that you just spoke to a moment ago. I'm wondering if it's possible to give us a rough sense of the size of this cohort that might shed some light on if these data would, in fact, be a fair representation of what your customers may be doing, particularly those utilizing AI coding. For Joe, just to clarify, because the guidance puts and takes are a bit confusing, is your fundamental growth outlook stronger, weaker, or unchanged compared with 90 days ago?

Michael Cannon-Brookes, CEO

Thanks, Gregg. Look, we wouldn't give out any statistics that we didn't feel were statistically relevant in terms of the size of the cohort we are analyzing. Obviously, we're invested in ensuring this is the case. I think it's a fair representation of what the best companies in the world are doing, and we believe there will be more companies following those paths in the years ahead, especially with AI continuing to improve those abilities and processes. We saw that in our Rovo Dev going GA this quarter, which is doing a fantastic job of many different things, right? Over half of the security incidents that occur at Atlassian come from Rovo Dev. There are many opportunities for AI to continue improving technical processes in software and service collections, and in AI Ops. There's much work to be done, and many amazing things to be built. But we believe this will be great for Atlassian's business. We think the human-AI collaboration across software teams and business teams is central to what we do for our customers. At the same time, I'll point out there's a lot of enterprise concerns when I talk to customers around governance, controls, auditability, traceability, permissions. New issues arise with much of this AI technology. We're at the forefront of providing enterprises, as shown in Rovo and our AI cloud platform, the right level of controls and governance they need. I am incredibly bullish on what AI is doing for Atlassian's business; our three big transformations, AI, enterprise, and the system of work, are delivering today in the cloud growth rates you see in our RPO growth rates and our commitment to our long-term targets. I will let Joe answer the financial question.

Joe Binz, CFO

Yes. Thanks, Mike, and thanks, Gregg. We fundamentally believe our business in FY '26 will be stronger today than we did 90 days ago. That will show up in better bookings. That will show up in better CRPO, and it's driven by the Q1 outperformance and the fact we expect a greater volume of cloud migrations through the rest of the year. Hope that helps.

Operator, Operator

Your next question comes from Fatima Boolani from Citi.

Fatima Boolani, Analyst

Mike, you have A/B tested effectively this concept of consumption pricing. There was some of that introduced last year under the confines of JSM. I'm wondering if you can share an update on how pervasive that modality is in terms of monetizing some of your innovation in the last 12 to 18 months. More specifically, how does AI coding and coding assistant-related code generation allow you to capitalize on that as all of that gets shipped inside the Jira environment and is held captive and operated out of. I'd love to get your perspective on how you can capitalize on that trend through consumption pricing and how pervasive that is generally within the base today?

Michael Cannon-Brookes, CEO

Thanks, Fatima. We have a series of different consumption-based pricing offerings as we have announced and shown, from the Rovo and AI credit world to the service collection world of agents and assets to Bitbucket pipelines to Rovo Dev to Forge and CDP. That is certainly something we have as a monetization option set for our customers. It's one of our elements of monetization. Customers are interested in it but also cautious. The most important thing for us regarding your question about AI monetization is, we are already seeing it. Our three strategic priorities are delivering a world-class AI platform, continuing to grow our enterprise capabilities, and enhancing the system of work across our customers' teams. We're making amazing progress in all three, and I will say that it's directly driving the results we see in Q1. It's directly driving the 26% cloud growth rate. It's responsible for accelerating our RPO to over 40%. We are already witnessing that in everything from cloud migrations to AI stats we have to the additional upgrades. Teamwork collection—customers that move there talk about AI. Every customer I engage discusses AI as one of their reasons for moving to the Teamwork collection and to the cloud. We have numerous customers that presented at Team '25 in Barcelona, all of whom shared positive feedback on our AI capabilities across business and technical teams. Our ability to connect both these areas is at the core of the system of work. Your question about co-generating and capitalizing—we have numerous stats on how it improves Jira. The fundamentals are about human and AI collaboration. You will still have work items assigned to various AI agents from different platforms, including ours and others. We solve human problems. We've always done that, and the collaboration aspect is why we are placing that at the core of our AI platform, ensuring we deliver world-class capabilities. We see strong monetization as we look forward and have high optimism regarding our capacity to continue to grow.

Operator, Operator

Your next question comes from Raimo Lenschow from Barclays.

Raimo Lenschow, Analyst

Congrats from me as well. Mike, one question as we evolve in this new AI world, how do you think about M&A or build versus buy? I'm thinking about the browser company. I got a lot of questions from people on how that would fit into the new world, etc. Can you just speak to that, please?

Michael Cannon-Brookes, CEO

Raimo, sure. Let me first say that there's no change in our M&A philosophy regarding AI or anything else. That’s really important to note. We've had the same philosophy for over a decade now. We look for companies that have a great strategic fit with Atlassian. We seek great teams that feel they belong in our tribe and create opportunities that fit both sides. We must have the capital to execute, and the timing must be right. That philosophy has not changed. We do not believe that all innovations lie outside of Atlassian, just as we do not believe all the innovations lie within Atlassian. We take a pragmatic and long-term approach. You can see in the stats we gave in the shareholder letter from the Loom acquisition, which just surpassed two years, that it has built a fantastic business north of $100 million ARR already, and that’s on a stand-alone basis. That's with no contribution from Teamwork collection driven by AI and the AI SKU, which is growing over 100% year-on-year. Why is that? If you look two years back at what we said regarding that acquisition—practices of younger people, remote work, distributed companies, and AI changing how video collaboration works—those trends led us well. Loom is a vital part of our strategy. Now regarding the browser company and DX, we see these as very different acquisitions with distinct strategic rationales. For the browser company specifically, we believe AI will continue to reshape how knowledge workers conduct their work. Technical disruptions tend to change the interaction layers; today's browsers were built before the explosion of SaaS apps and AI, and they weren't really designed for knowledge workers. We think that by optimizing for knowledge workers, SaaS apps, and packing it with AI skills and agents, we have a fantastic opportunity. The browser company meets all of the criteria I mentioned earlier for M&A. They are doing an excellent job. We believe we can significantly impact this area. So we've just closed the deal, and I'm looking forward to making exceptional progress.

Operator, Operator

Your next question comes from Robert Oliver from Baird.

Robert Oliver, Analyst

Great. Mike, you guys have done a lot of preparation for this cloud move. It seems like projects like Ascend are working really well, fast shift team. When you think about your extended partner network, how well developed is the cloud motion with them currently? From our checks, a lot of them have been out early on that. But as you accelerate the end of life on D.C., how prepared is your extended partner network to help you manage this transition?

Michael Cannon-Brookes, CEO

Thanks, Rob. Yes. We continue to be a long-term thinking company that makes these changes over a multiyear period. We have seen that play out over the last five years in this cloud migration, and I expect it to play out over the next five. The partner program and our channel broadly play a critical role in that transition. I spend a lot of time with various partners globally. We have continued to communicate openly with that partner network. They've evolved their businesses over the years to understand how to help customers migrate to the cloud. Fast Shift is an additive element to those partners, and they also explain to customers the benefits of AI in their business, along with helping them see the value in transitioning to the cloud. I have a very thoughtful, measured approach that involves long-term thinking from Atlassian, alongside strong execution. You can view the channel as touching about 50% of our revenues; they have matured in how to handle this situation over the past few years. As I've mentioned before, Ascend helps us continue that momentum in the channel.

Operator, Operator

Your next question comes from Brent Thill from Jefferies.

Brent Thill, Analyst

I know Brian Duffy is about 10 months in, but I think everyone's curious just to get an update on the go-to-market, some of the changes he's making, what's starting to resonate well and what's ahead. And Joe, if I can sneak one in for you, it’s been a great couple of decades working with you. Just wondering why now?

Michael Cannon-Brookes, CEO

Brent, sure. Let me talk briefly about our go-to-market evolution. Brian has made tremendous strides since arriving only nine months ago, and he has made a huge impact on evolving our go-to-market motions. It’s not revolutionary; as I've said, we've been on this enterprise journey for a decade. We're striving to become a better strategic partner for the largest organizations. We have a significant serviceable market—a $14 billion opportunity in our existing customer base—along with existing products. Twenty percent of Fortune 500 represents just 10% of our business from DC to cloud migrations. With Ascend and the Teamwork collection, service collection, and software collection, we have huge opportunities to capture. Brian and the sales and marketing teams have executed incredibly well this quarter. We signed some of our largest deals across multiple sectors and industries, representing significant global technology firms and large financial institutions. They are moving to the cloud and consolidating multiple tools onto the Atlassian platform while being excited by AI opportunities. Brian and his team will continue to guide our customers on this journey.

Joe Binz, CFO

Great, thanks, Mike, and thanks, Brent. It's been a fantastic collaboration for me too. As for the transition timing, it’s announced now but will transition later. It’s not about urgency for me, but I have significant personal life events coming up that I want to be fully present for. My wife and I have discussed this intensely over the past year. I think the finance team is in great shape, and I’m a big believer in the need for new energy and ideas. I believe that applies to me as across the team. That’s the logic behind it.

Operator, Operator

Your next question is from DJ Hynes from Canaccord.

David Hynes, Analyst

Joe, one of the questions I have been hearing is whether you're raising the cloud revenue guide only on the back of better than forecast data center to cloud migration. Can you talk about what you're seeing with the non-migration cloud business? How are you feeling there? What's contributing to the increased cloud outlook?

Joe Binz, CFO

Yes. Great question. Thanks. I'll clarify. We are raising our cloud revenue outlook by 1.5 points to 22.5% year-over-year. That reflects the stronger migrations performance and outperformance in Q1. We now expect migrations to make a mid- to high single-digit contribution to cloud revenue growth in FY '26, with that upside landing in the back half of the year, given the current data center expiration base. It's important to note that we haven't changed our assumptions regarding other growth drivers of cloud revenue in our guidance. We maintain a conservative and risk-adjusted approach on those variables.

Michael Cannon-Brookes, CEO

I just want to add one or two things, if I can, on DJ's question. Firstly, it's worth reiterating that our expansion rates of 120% NER, etc., remain unchanged. When Joe says we are continuing with our cloud guidance in other areas, those are really strong numbers, and we should reiterate that. We feel strong momentum in the cloud, right? Teamwork collection is going very well, only two quarters in. Our AI is delivering. The enterprise platform is generating strong results. Our customers are excited about their continued adoption of more apps and collections, and that’s reflected in our paid seat expansion rates, our cloud growth rate in and of itself, our RPO growth rate, and our recommitment to our 20% CAGR target over the course of the next three years. We feel incredibly bullish about the cloud business overall as the result of AI, enterprise, and the system of work. We're seeing strong feedback from customers about what we're delivering every single day, credit to the entire Atlassian team.

Operator, Operator

Thank you. That's all the questions we have time for today. I will now turn the call over to Mike for closing remarks.

Michael Cannon-Brookes, CEO

Thanks, everyone, for joining the call today. As always, thank you to all of the Atlassian team for an amazing quarter. To all of those on the call, we appreciate your thoughtful questions and continued support. Have a great day, and let's go.