Earnings Call Transcript - TEAM Q3 2024

Operator, Operator

Good afternoon, and thank you for joining Atlassian's earnings conference call for the third quarter of fiscal year 2024. 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 Third Quarter of Fiscal Year 2024 Earnings Call. Thank you for joining us today. Joining me on the call today, we have Atlassian's co-founders and co-CEOs, Scott Farquhar and Mike Cannon-Brookes, 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 2024. The shareholder letter is available on Atlassian's Work Life blog and the Investor Relations section of our website, where you will also find other earnings-related materials, including the earnings press release and supplemental investor data sheet. As always, our shareholder letter contains management's 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 recently filed annual and quarterly reports. During today's call, we will also discuss non-GAAP financial measures. These non-GAAP financials are in addition to, and are not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures is available in our shareholder letter, earnings release, and investor data sheet on the Investor Relations section of our website. I'd like to allow as many of you to participate in Q&A as possible. Out of respect for others on the call, we'll take one question at a time. With that, I'll turn the call over to Scott for opening remarks.

Scott Farquhar, Co-CEO

Thank you for joining us today. As is already read in our shareholder letter, Q3 was truly a milestone quarter for Atlassian. Today, Atlassian is a cloud-majority company. We have over 300,000 customers using our Cloud products and have seen a 3x increase in paid seats in the Cloud since we announced the winding down of support for Server 3.5 years ago. And while this is just one significant moment among many across our multiyear Cloud journey, we are thrilled with what we've achieved to date. We migrated more paid seats to Cloud than we had initially projected, and our churn has been consistently lower than expected from our Server base. This speaks volumes about the mission-critical role our products play, the value they deliver, and our customers' desire to realize the innovation in our Cloud products. We now have an even larger opportunity in Cloud than originally believed. You'll see us continue to execute against our road map and deliver more innovation to pave the path forward to drive durable future growth. We're also announcing that I'll be stepping down as co-CEO of Atlassian on the 31st of August this year. It's been a difficult decision, but after 23 years, it's time to pursue some other passions I have, particularly philanthropy, investing, and helping to grow and build the global technology industry. And while there is never a perfect time to step away, I'm supremely confident of where Atlassian is at. We've got one of the best Cloud platforms in the industry. Point A new products are gaining real traction with customers and revenue, AI is providing new and exciting opportunities, and our customers are increasingly choosing to consolidate around Atlassian. And I'm proud to say we have the most experienced leadership team in our history. I will remain an active Board member and assume a special advisor role, with Mike continuing on as CEO. I have complete trust in Mike leading the way to harness the incredible opportunities that we, at Atlassian, have ahead of us.

Michael Cannon-Brookes, Co-CEO

Thanks, Scott. Yes, milestone quarter for a number of reasons. Now there'll be plenty of time for celebrations and farewells as this is not Scott's last earnings call, but I do want to touch on his news briefly. As you all know, Scott and I have known each other for nearly 3 decades and have experienced every major life milestone together. This company simply would not be Atlassian without Scott, and I'm truly thankful to have had him by my side every day for the last 23 years. In this next chapter, I'm sure we will remain great friends and trusted partners, and I'm glad that I can support him through this, both personally and professionally, as I continue to lead Atlassian forward as CEO. Atlassian has always been my number one professional priority and focus. Scott and I have both worn every hat over the last 2 decades, so I'm confident in taking over full responsibility of the company. I'm incredibly excited about the massive opportunities that we have in front of us across our three markets in work management, software development, and service management. We have such huge opportunities ahead of us in both the enterprise transition and AI, where our unique team data and insights allow us to offer unique capabilities and unleash our customers' potential. As we continue to tackle our opportunities, I want to reiterate the commitments that we've made to continue to grow over the long term while returning to our historical margin levels. We have a thoughtful plan in place to continue to drive durable revenue growth. And we feel really good about our agile approach to prioritizing resources behind key strategic areas like enterprise NII, while driving leverage as we scale. And we couldn't be more excited about the future. With that, I'll pass the call to the operator for Q&A.

Operator, Operator

Your first question comes from Ryan MacWilliams from Barclays.

Ryan MacWilliams, Analyst

I'd like to hear about the overall macro trends at this point toward developer hiring. Have you noticed any trends around the green shoots of growth for IT budgets or hiring developers? And then separately, just one quick housekeeping item for Joe. What was the Loom contribution to Cloud revenue growth in the third quarter? And maybe how you're thinking about its contribution to the fourth quarter?

Joe Binz, CFO

Thanks, Ryan. I'll start. From a macro perspective, macro trends were very much in line with what we saw in Q2 and in line with our expectations. Enterprise was healthy across both Cloud and Data Center, and that drove the record billings, strong growth in annual and multiyear agreements, strong migration, and good momentum in sales of Premium and Enterprise editions of our products that you see rolling through our revenue results. The macro impact on SMB, on the other hand, continued to be challenging, although also in line with expectations. And that macro headwind in SMB lands primarily in Cloud, given SMB makes up a significant part of that business. And within Cloud, it primarily affects paid seat expansion. So stepping back more broadly within Cloud, the trends in Q3 were very consistent with Q2 as well as our expectations coming into the quarter. Paid seat expansion rates remained well below prior year levels, but the decelerating trend quarter-to-quarter did continue to moderate from Q2, so that's a positive sign. All of the other growth drivers, migrations, cross-sell, upsell, new customers, monthly active usage, churn, etc., those were all in line with our expectations and stable overall. In terms of Loom, we, basically, from a quarter perspective, we're not going to provide specifics on Loom's revenue or growth rate. We were pleased with the growth we're seeing and excited by the customer reaction to the recent AI innovations we've been introducing into Loom's product line. In terms of performance in the quarter, Loom revenue in Q3 was squarely in line with our expectations. And in terms of our fiscal year guidance, in terms of our overall revenue and operating margin guidance for the year, we continue to expect Loom to have about a 1.5-point impact on FY '24 Cloud revenue growth for the year and for Loom to be slightly dilutive to FY '24 and FY '25 operating margins.

Operator, Operator

The next question comes from Fred Havemeyer from Macquarie.

Frederick Havemeyer, Analyst

Thank you very much. Scott, we know you're not leaving immediately, but you will certainly be quite missed on these calls. I wanted to ask, with respect to the super migration at this point, it's very encouraging to hear that churn was looking much lower than expected, and primarily, the customers have transitioned to Data Center. But are there any customers that are left over at this point in time that might make a future transition after limping along for some period of time here?

Joe Binz, CFO

Fred, this is Joe. It's difficult to know exactly how many Server customers remain running unsupported at this point. We believe it's a small number and certainly smaller than we thought it would be entering the quarter. We're not assuming any material contribution to either Data Center or Cloud revenue growth from this cohort of customers moving forward in the guidance. Operationally, our focus now is squarely on enabling our Data Center customers to move to the Cloud.

Operator, Operator

The next question comes from Keith Weiss from Morgan Stanley.

Sanjit Singh, Analyst

This is Sanjit Singh for Keith. I actually wanted to ask a question about a customer callout that you had in the shareholder letter. You mentioned that FanDuel was able to cut tickets that require human interventions by 85%, which is a pretty fantastic result for FanDuel. In terms of that customer, are you pricing that FanDuel contract on a seat basis? How would you think about when they achieve those types of efficiency gains? How do you think about the revenue opportunity with some of the efficiency gains they're seeing with the Atlassian products?

Scott Farquhar, Co-CEO

That's a great question, Sanjit, and I think one on people's minds as AI increasingly helps produce these incredible ROI experiences that we're seeing across our customer base. At the moment, we have historically priced our products on some sort of seat basis, with some usage basis occurring in certain areas of the product, such as Bitbucket pipelines that we've charged for units of build and such things. We are experimenting with more usage-based pricing going forward. So I don't want to get into one specific customer, but we believe that there is a world in the future where we do have some sort of usage-backed pricing around these interactions with the ROI that we're getting from customers. And so we'll see more experimentation with that going forward, but that's something we're experimenting with at the moment.

Operator, Operator

Your next question comes from Gregg Moskowitz from Mizuho Securities.

Gregg Moskowitz, Analyst

Scott, all the best in your future endeavors, even though I know, as Mike said, you'll be with us for a little while longer, fortunately. So my question is, obviously, this is a significant upside quarter. Having said that, I think the big question is one of sustainability. The Cloud revenue in the quarter was in line with guidance with all of the upside coming from Data Center and Marketplace, and Marketplace itself is tied to Data Center as well. But we're never going to have another quarter of Server migrations. And clearly, there was also a decent amount of pull forward given the recent Data Center price increase. As we look ahead into next year and beyond, the question is, can Atlassian, in fact, continue to show good growth?

Joe Binz, CFO

Yes. Great question, Gregg. Thanks for asking. Let me try and share a little bit of perspective on that without giving specific numbers for FY '25. At the highest level, the long-term revenue growth of the company is really driven by the opportunities we have in our three large high-growth markets that Mike touched on at the top of the call. Secular trends around things like digital transformation and software are critical factors in the success of every company. There are several growth drivers across Cloud and Data Center. In terms of Cloud, given the size of the Data Center installed base, we do continue to expect migrations to be a key driver of Cloud revenue growth over several years, although we do expect that impact to wane gradually over time. Now to drive migrations, we're delivering a Cloud platform that provides the best customer experience and value with analytics, automation, and AI, as well as better TCO for the customer. Those factors will only improve and grow stronger over time. As part of that, we are investing in new and highly valuable product innovation as well, much of which is only currently available on Premium and Enterprise editions of our Cloud products. We are working to unblock and help customers migrate and deploy on our Cloud and making good progress on scalability, certifications, and app integration, all of which are very relevant to our largest customers in Data Centers. So we have a lot of confidence in the migration space. From there, as you know, there are multiple growth drivers in the Cloud we've discussed in the past, like paid seat expansion within our existing customer base. There's our opportunity to cross-sell additional products to our over 300,000 customers, upselling to Premium and Enterprise editions of our products. With the smaller impact today but growing over time are other drivers like new customer adds and new high-growth products like Compass, Jira Product Discovery, and Loom. And of course, pricing is the final lever in the Cloud model. In terms of Data Center, we expect organic expansion and pricing to be durable long-term drivers given the high renewal rates on Data Center agreements and the Enterprise nature of that customer base. With AI, we are well-positioned with the unique data graphs around high-value workloads, and there's a lot of opportunity in that space as well. We're off to a solid start with Atlassian Intelligence, with more AI innovations on the way. Overall, we feel confident in our ability to invest behind and deliver healthy revenue growth over a multiyear period as a result of that.

Michael Cannon-Brookes, Co-CEO

Gregg, I just wanted to chime in at a high level. I think Joe's given a very fantastic and comprehensive answer. I think we should remember that any upside in Data Center is long-term upside for the Cloud in terms of the destination for those customers over the long arc of time. Our end-of-Server journey, as you mentioned, from a migration point of view, overall, has been a huge success, right? Over the last 4 years, we've beaten our original expectations for the number of paid seats that we migrate to Cloud. We ended with less churn overall than we thought we would have over that 3- to 4-year period. We've tripled the number of paid seats in Cloud during that period since we announced the end-of-Servers 3 years ago. The way I would zoom out and see that is, that is an example of Atlassian executing against the long-term goal as a team and as a company, and we can do hard things. Data Center customers moving to hybrid deployments, which is generally the way they go through in the middle and then to Cloud. It's a different journey. These are our largest and most complex customers. They have different requirements, different things, but we will get them there. We will execute against that mission over the next few years in the same way that we executed against the last mission. I have confidence in Atlassian to do that. If you want a singular statistic of how that's going, again, the Data Center to Cloud migrations over the first three quarters of this year were up 90% year on year on the first three quarters of last year. So we are already migrating Data Center customers to the Cloud. That overperformance is a long-term good sign for us.

Operator, Operator

Your next question comes from Michael Turrin from Wells Fargo Securities.

Michael Turrin, Analyst

Results were quite strong in a still tough environment. I think the stock is initially reacting more to the surprise news from Scott. So maybe you can both, Scott and Mike, give us a peek behind the scenes around how you have historically divided the CEO role? And Mike, it would be helpful to hear more around whether becoming sole CEO changes the role or key points of focus on your end from a product or a strategic perspective? Any detail there is useful.

Scott Farquhar, Co-CEO

Thanks. Scott here. I'll take the first part. Look, Mike and I have worked together for 23 years. We used to take turns taking the bins out in our first office. We've kind of done every job equally over that period of time. Mike's run go-to-market for well over half that time; I've run a little less than that. I've run engineering, and Mike's run engineering products. We've kind of done everything together over that period of time. I think that's relatively unique. We consider ourselves quite unique in that we've shared and given you those responsibilities and changed them over time. I don't think there's anything Mike hasn't done before that he'll be picking up. The philosophy around how we run finances and how we think about the growth of business and investments, we've spent a lot of time together over the years doing, and Joe and finance have been reporting to me for the last six years or so. Mike and I spent a lot of time together looking at where we want to grow the business and what our investment profile is. So Mike, do you want to add anything?

Michael Cannon-Brookes, Co-CEO

Yes. Thanks, Scott. Thanks, Michael. Other than Scott being clearly excited to take the bins out, we'll work on that going forward. From a long-term point of view, I'd echo Scott's last point: Our philosophies as a company, our values, our mission to unleash the potential of every team and our culture, this has been a constant of the company for the last 23 years, and it's going to continue to be a constant going forward. We think long-term as a company. We have certain ways of being that we don't expect to change, nor do I think Scott would want them to change or nor do I think they should change. Now we live in a highly changing environment, so we can't say nothing's going to change. What we can say is, in the short to medium term, we remain very clear about our strategies and execution. As Scott mentioned, we have the most experienced executive team we've ever had. I'm super lucky to work alongside them every single day, to continue executing through this transition.

Operator, Operator

Your next question comes from Alex Zukin from Wolfe Research.

Aleksandr Zukin, Analyst

Maybe mine is tied to the Data Center to Cloud journey that you've seen both over the first 3 quarters of this year, in the context of some customers kind of signing more longer-term deals and in the construct of this notion that the end-of-Server life unblocks the company's ability to focus on a lot more things. What does that mean for Data Center to Cloud migration trends in terms of both from a financial perspective, maybe next quarter and next year, that 10 points you previously thought? And then just beyond, if you look at the activity of where those customers are migrating in terms of a tier basis and what that's doing to ARR or ACV growth?

Joe Binz, CFO

Thanks, Alex. A lot of questions there, so if I don't hit them all, bring me back. So I'll start with migrations. We do continue to expect migrations to be a key driver of Cloud revenue growth in Q4 and FY '25. Despite a few, if any, Server migrations post-end of support, this is due to the significant size of the Data Center installed base and the opportunity we have to enable those customers, some of our very largest customers, to move to the Cloud. That opportunity today is even bigger than we expected it to be 3 months ago, given the strong customer retention and migrations from Server to Data Center this quarter. Having said that, we also expect the migration benefit to Cloud revenue growth to gradually decline over time from the approximately 10-point benefit in FY '24, given the lack of Server migrations. To drive these migrations, we talked earlier about the things we're doing. So we have a lot of confidence in our ability to execute on that and to drive it. So that's how we think about the growth impact to Cloud from migrations going forward. In terms of the deal structure, if you look at our overall deal volume this quarter, even though we had a large number of absolute deals, the mix between annual and multiyear were very consistent and similar to past quarters. So think of the overall volume growing, and within that volume, the mix between multiyear and annual being the same.

Michael Cannon-Brookes, Co-CEO

I just had a few small points to that, Alex. Firstly, in terms of deals, you’re seeing a lot more hybrid deals from the Data Center-type customer. One of the points that we like to make clear is that the larger and more complex customers moving to the Cloud is not a single-click event like changing an app on your phone. They have complex deployments with lots of integrations and deep customer workflows. This shows how much value we have in our products. It means the migration journey is more of a gradual series of events. We will continue to be agile with our resources at Atlassian. We pride ourselves on our ability to move R&D around to where we need it to be. Obviously, with the end of Server, we can move more R&D towards the Cloud, but we maintain a strong commitment to the Data Center business and continuing to move that forward. There is still lots of work to do. We're incredibly proud of the work we've done in performance and scale, governance, and data residency. We rolled out seven new regions this quarter and made significant progress in extensibility and implementing all of the things that our largest customers need. You'll see us continuing to invest in those over the coming years as part of the journey.

Operator, Operator

Your next question comes from Keith Bachman from BMO Capital Markets.

Keith Bachman, Analyst

Yes, Joe, I think this is for you as well, but I wanted to talk about Data Center growth. The guidance that you've given for Q4 of about 40 to 42, with 15 points of help, even net of help, it would have been keenly stronger than I would have anticipated. If we look out over the horizon, is there any context you can provide on how to construct Data Center growth specifically? And to take it a step back, as we look at Analyst Day next week, or the analyst event, I should say, at your event, which I'm very much looking forward to, will management provide some longer-term model frameworks, either the top line or margin construct?

Joe Binz, CFO

Great questions, Keith. Thanks. Let me start with the Data Center question and frame it in terms of long-term growth drivers on that model. We expect Data Center growth rates will decelerate through FY '25, just given the migration dynamics into and out of Data Center and the challenging comparables they'll have to FY '24. To the question earlier, we're not going to have another Server end-of-support moment in FY '25. That said, in FY '24, Data Center revenue growth benefited from migration flows from Server, net the headwind from Data Center migrations to Cloud. With Server end-of-support, we do expect that benefit to wane over the course of the next year to 18 months, given limited, if any, new migrations from unsupported Server customers and accelerating Data Center migrations from Cloud. We should see a much more pronounced decrease in that benefit in H2 FY '25 and into FY '26 as we lap the strong migrations from Server in this quarter, at which point we'll likely have a net headwind to Data Center revenue growth driven by migrations to the Cloud. It’s also important to keep in mind, as you think about long-term Data Center growth rates, that our customer base here is predominantly Enterprise, with very high renewal rates, and price increases and expansion are other key drivers beyond those migration dynamics. We do expect those to remain healthy contributors to growth going forward. In terms of our Analyst Day, I appreciate the interest in that. I'm looking forward to seeing you and many of your colleagues next week. I'm not going to share a whole lot today, other than to say we plan to share our optimism around the long-term opportunities we have and how we think about the drivers of durable growth, and the key areas of investment we'll be making that will enable us to deliver on that. I'll share the rest next week when we get together.

Operator, Operator

Next question comes from Brent Thill from Jefferies.

Brent Thill, Analyst

Joe, I think many on the buy side are still hung up on why Cloud is growing faster right now. I know you're expecting it to accelerate going forward. But when you think about the differential of kind of the expectation versus what you're seeing, what has been holding Cloud back as much? Is it just that Data Center was easier to make the migration? Is there something else that's going on? Because I think most felt like this would actually move a little faster, and we know it's going to accelerate going forward for your guide. But just curious to get your thoughts on what you think may be restraining some of the growth or maybe our expectations are just too big.

Joe Binz, CFO

With respect to the Server end-of-support, Brent, you'll recall that we did talk about the fact that of the Server customers that were there at the end of support, we expected the vast majority, if not all, of those customers to migrate to Data Center, right, because those are large customers with very complex environments. It's a much easier migration path to Data Center than Cloud, and most of those customers need a little more time. I would say, migrations, as part of the model, have performed in line or better than what we expected all year, and it's held up really well. Stepping back at the overall Cloud business, I think the main pain point has been around paid seat expansion and weakness. Everything else in the model has performed in line with what we expected entering the year and continues to hold up really well in what has been a really mixed, if not difficult, macroeconomic environment. In terms of paid seat expansion, our rate of paid seat expansion in the quarter, overall, remained below prior year levels, as I mentioned earlier. I talked about the fact that trend quarter-to-quarter is improving and beginning to moderate from prior quarters. Within that trend, seat expansion rates in SMB continue to be particularly challenged, and so that's been, if you want to center the pain point there and the expectation delta, that could be an aspect of it. Our Enterprise rates remain very stable. We continue to believe a big driver of this trend is macro as customers tightly managed headcount growth and costs and where we see SMB being more impacted, broadly speaking, than enterprise. From our perspective, that's been the primary pain point and the headwind on the business from a Cloud perspective. The remaining drivers, whether it's migration or cross-sell or upsell to Premium editions, even new customers, are coming back in line. All of those aspects continue to perform well and in line with our expectations. So that's been the biggest expectation delta.

Operator, Operator

Next our next question comes from Nick Altmann from Scotiabank.

Nicholas Altmann, Analyst

Awesome. I wanted to build on the last question a little bit. In your prepared remarks, you talked about how the opportunity around Cloud today is much larger versus your initial expectations. I was just wondering if you could expand on that a bit. I mean, you talked about seat counts on Cloud or higher churn exceeding expectations. But maybe just talk about why you see the opportunity as more significant today than you did several years ago? What's driving that heightened optimism? Any other color you can provide around what you're seeing with your current Cloud customers that's driving the upside versus your initial expectations?

Scott Farquhar, Co-CEO

Thanks, Nick. It's Scott here. A couple of reasons. First, let's take the migration aspect, which is that, in our migration models, everything has performed as expected in terms of how many people we expected to migrate from Server to Cloud. Despite challenging market conditions, customers are sticking with and doubling down on investments in Atlassian's products. This may not have made the first step to Cloud, but they have made the first through Data Center. With every customer I speak to, large or small, Cloud is in their future. It's really just a matter of timing for them due to specific requirements such as feature sets or compliance. I have huge excitement around what that holds for future migrations. If we take down just the market size and opportunity, I'm super excited about what that shows, bottoms up, of just the opportunity inside our customer base, which is getting larger. Each year, we have new products that are coming to market. Our Point A products are gaining real customer usage and revenue, and we know that those new products can then be sold across our entire customer base. We're also seeing a consolidation trend across the industry. In times like this, our customers are looking to reduce the number of vendors and are seeking a single system of work across their entire organization. We're witnessing competitive switch-outs to consolidate on Atlassian. Lastly, AI presents remarkable opportunities—the market for customers who want to use our tools to build software is set to increase significantly. The ROI we can provide is also rapidly changing. Overall, this opens up substantial opportunities we didn’t expect just a couple of years ago.

Michael Cannon-Brookes, Co-CEO

The only thing I would add, Scott covered all the basics. Obviously, we're incredibly bullish about AI. We've got some exciting announcements coming up that we can't wait to share with you. The Atlassian platform is one of the areas that I believe is underestimated in terms of its durable growth and long-term advantages. Atlassian is a company that thinks very strategically and keeps a long-term focus. Our significant R&D investments are part of how we think about the world. A large amount of investment goes into building out the Atlassian platform across our products, which creates a competitive advantage. This resonates with customers as a differentiator, enabling them to choose multiple products seamlessly and quickly. You get automation and analytics across those products, which supports our Atlassian Intelligence and other future capabilities. This is a unique advantage stemming from our R&D and long-term vision that will continue to drive growth in the coming years.

Operator, Operator

Your next question comes from Kash Rangan from Goldman Sachs.

Kasthuri Rangan, Analyst

I'm toggling from one call to the other. My question is, considering the continued strength in the Data Center product, this is going to be here to stay for quite a while. I'm curious, when you look at the product roadmap ahead, how much of an emphasis is being placed on the development side on the Cloud, particularly regarding functionality? And when are we going to start to see a divergence in design intention between the Cloud and the remaining entity? What new incentives should we expect in the coming fiscal years, and will we see improvements to make migrations easier?

Michael Cannon-Brookes, Co-CEO

Sure, Kash, I can take that. From our customers' point of view, it’s well understood that the Cloud is our future, and our customers know that. As Scott mentioned earlier, five years ago, you had a lot of customers who said, 'I'm not going to the Cloud.' Now it’s a matter of when, not if. I do not run into customers who say they will not go to the Cloud, only those who have their own timelines for migrations. The divergence of features has already begun because of the nature of the Cloud. You don't need to look further than Atlassian Intelligence—AI-driven features with large-scale foundational models that require a teamwork graph in the Atlassian Cloud platform are not things that we can provide to Data Center customers. That’s an extra reason or incentive for them to migrate. We're continually building hybrid-supporting features in our migration tools and other areas to help customers move parts of their workloads to the Cloud. We continue to invest in Data Center capabilities, especially in security, scalability, and compliance while we can take certain features that make sense to build in both environments simultaneously. The customers understand that. While we keep improving our migration tooling and addressing governance issues, we know that trust is key. We are committed to demonstrating our continuous improvement.

Operator, Operator

Your next question comes from Fatima Boolani from Citi.

Fatima Boolani, Analyst

Scott, congratulations to you for an absolutely legendary run. On the point of the incentives for your existing Data Center customers to move to the Cloud, I'd like to ask you the question in a different way. You've made substantial progress in solving for data residency demands and other compliance with security blockers for some of your most regulated and complex customers. I'm curious what is left to address or alleviate from a 'cloud blockers' standpoint? What type of investment should we expect in the medium term? The expectation is that your Data Center migrations to Cloud will accelerate, presumably most of those blockers have been renewed. I would love a little more color on that front.

Michael Cannon-Brookes, Co-CEO

Sure, Fatima. I can answer part of that. At the highest level, it’s a testament to our Enterprise relationships that three-quarters of our Enterprise customers in regulated industries have a Cloud footprint today. Thank you for acknowledging that. We've worked incredibly hard in those areas, and received positive feedback from customers, which is important. Second, for these large and complex customers, it takes time to progress. For many, it's a 3- or 5-year roadmap. It's not just about the blockers. Customers are saying it will take time to plan their transitions. We're continually improving our migration tooling and addressing other issues. We’re also focused on agency with FedRAMP Moderate and expanding our data residency regions to meet increasing demands. There's also ongoing work to enhance performance and scale for our largest customers. Building customer trust is essential. These customers subscribe, expecting us to deliver on our promises. We've achieved 100% delivery of our Cloud roadmap in R&D over the last two quarters. Customers acknowledge our continuous progress as we remove the so-called 'cloud blockers' over time, leading to increased trust.

Operator, Operator

Your next question comes from Arjun Bhatia from William Blair.

Arjun Bhatia, Analyst

Perfect. Maybe one for Mike or Scott. I wanted to discuss the AI landscape and its implications for developers. We're hearing more about text-to-code solutions that are automating workflows for developers. Companies are emerging to meet this demand. From your perspective, how do you see the role of the developer changing? What does this mean for Atlassian, particularly in terms of how Jira might evolve with agile processes?

Michael Cannon-Brookes, Co-CEO

Thanks, Arjun. I have plenty of thoughts on this. Firstly, AI is excellent for software development in the broadest sense. Large language models have a phenomenal ability to generate and comprehend code. We believe the world faces a supply constraint of engineers, not a demand constraint of ideas for software. AI helps bridge this gap. Developers' workloads mainly involve coordination activities, requiring collaboration with other teams rather than simply writing code. This is a challenge we've focused on for over two decades, with the next two decades of work still ahead of us. AI is expected to facilitate greater software generation and assist with managing complex software environments like Compass, which is seeing strong initial growth. Additionally, the capabilities that allow non-developers to create code (like natural language turning into SQL within Atlassian Analytics) will empower more individuals to analyze data effortlessly. This democratization of coding will expand what gets built and the tools used by a broader audience.

Scott Farquhar, Co-CEO

I'd just like to echo the initial point you made: It may not be well-known that developers spend significantly less time writing code than one might assume. Much of their time is consumed in discussions about requirements and how their applications are structured. AI can drastically reduce the time developers spend coding, improving efficiency dramatically. However, since most work happens outside the keyboard, the overall weight of coding may not diminish as it remains just one aspect of their role. Therefore, the potential for us to improve developer productivity is enormous because coding is just one part of a developer's responsibilities.

Operator, 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-CEO

Thank you, everyone, for joining our call today. As always, we appreciate your thoughtful questions and continued support. We're incredibly excited for TEAM '24, our flagship customer conference next week in Las Vegas. We've got some incredible speakers, fantastic customers, and some, hopefully, mind-blowing announcements that we can't wait to share with you. We'll also be hosting our Investor Day at TEAM '24, so we really hope to see you there. And with that, have a fantastic weekend.