Earnings Call
Atlassian Corp (TEAM)
Earnings Call Transcript - TEAM Q1 2025
Operator, Operator
Good afternoon and thank you for joining Atlassian's earnings conference call for the First Quarter of Fiscal Year 2025. 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 of Fiscal Year 2025 Earnings Call. Thank you for joining us today. On the call with me today, we have Atlassian CEO and Co-Founder, Mike Cannon-Brookes; and Chief Financial Officer, Joe Binz. Earlier today, we published the shareholder letter and press release with our financial results and commentary for our first quarter of fiscal year 2025. 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. We 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. 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 in the 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 Report and Quarterly Reports. During today's call, we will also discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to, and are not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures is available in our shareholder letter, earnings release, and investor 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.
Mike Cannon-Brookes, CEO
Thank you all for joining us here today. As you've read in our shareholder letter, FY25 is off to a good start. We've wrapped up our Team24 Europe event in Barcelona, where we heard how customers like Vodafone, Lloyds Banking Group, and Mercedes are leveraging our products in powerful ways to drive team productivity and deliver superior service. We are really energized by the excitement from our customers and partners in response to the innovations that we're delivering. Over the last few months, I've met with dozens of CIOs and CEOs from our largest customers and listened to the challenges they face. Technology is increasingly becoming critical to the success of every single organization. And with a platform that now spans software, IT, and business teams, I think Atlassian is uniquely positioned to break down the silos between those teams through our system of work. If you're interested in hearing more about the system of work, we are always innovating here at Atlassian. Check out the Loom I just posted to our IR website to give you all a sense of how it works and give us any feedback on how you like it. AI, of course, is going to play a pivotal role in how work gets done. With the power of our R&D engine and more than 20 years' worth of data on how teams plan, track, and deliver work, we have incredible competitive advantages in the AI era. And we're not just marketing AI; we're shipping it. We've made Rovo, our newest AI-powered product, generally available for all customers just five months after announcing it at Team24 in Las Vegas. Rovo is delivering differentiated value to our customers through our powerful teamwork graph, allowing customers to unlock their existing organizational knowledge at an ever-increasing scale and pace. We also continue to integrate our AI capabilities throughout the entire cloud platform with Atlassian intelligence across premium and enterprise editions of all our existing products. This is driving increased customer adoption of higher-value editions and, of course, driving migrations to the cloud. To build on this momentum, we've introduced Jira Product Discovery Premium, Compass Premium, and Guard Premium, adding even more advanced and enterprise-grade capabilities to our newest cloud offerings. Lastly, with our increased focus on serving enterprises, we introduced Atlassian Focus, the newest product in our enterprise strategy and planning solution. This continuous product innovation is paving the way for our largest and most complex customers to unlock incredible value from the Atlassian Cloud Platform. Our customers understand that the ultimate Atlassian experience is in the cloud but are increasingly expressing their desire to adopt our cloud offerings. The progress we're making against our top strategic priorities of serving the enterprise, delivering on AI innovation, and empowering teams to work better together with our system of work is resonating incredibly well with our customers. We look forward to building on this momentum to seize the incredible opportunities that lie ahead for Atlassian and make further progress on our mission to unleash the potential of every team. With that, I'll pass to the operator for Q&A.
Operator, Operator
We will now begin the question-and-answer session. Your first question comes from Kash Rangan from Goldman Sachs. Please go ahead.
Kash Rangan, Analyst
Product releases have been happening just a few months apart. Can you share evidence that AI, despite concerns from Wall Street about job losses in development and service, could actually lead to positive outcomes? What insights can you provide from your discussions with customers, even if they're anecdotal, that support this view? Thank you.
Mike Cannon-Brookes, CEO
Hi Kash, I think I missed the start of that question. It seemed to be about the AI product releases and the proof points we can provide. It's an important question. Let me take a step back. We have a dual AI strategy, as you might know. We have Atlassian intelligence integrated across our platform for all current cloud products, delivering AI capabilities to every product we offer. We also have Rovo, which is a distinct product designed for the AI era. Both of these are now widely available, and we continue to enhance them every quarter with our R&D efforts. Regarding proof points, users of both Atlassian Intelligence and participants in the Rovo Early Access program have reported significant business benefits, including substantial time savings each week and quicker business processes. This results in a high return on investment for these technologies. Usage of Atlassian Intelligence has increased over tenfold since the beginning of the year, leading customers to adopt more Atlassian products, further boosting ROI. This momentum is also encouraging upgrades to premium and enterprise editions, as well as migrations, which are crucial for our ongoing growth. Recently, a major investment management firm signed an agreement to transition from data center to cloud over the next three years, largely influenced by Atlassian Intelligence and Analytics. I understand there's a concern that AI might displace jobs, and I believe that's not the case. I firmly believe that human creativity is essentially limitless, and AI serves as an excellent tool to help us harness that creativity more efficiently. It will empower businesses that adopt it to compete more effectively, leading to widespread adoption and improved efficiency. Currently, we are not observing any reduction in demand for seats. Instead, we're experiencing strong customer enthusiasm and engagement. Customers are exploring these tools, learning how to maximize their use, and discovering ways to enhance their business speed during a challenging time. We remain very optimistic. Additionally, we have various consumption-based pricing options, as evident in our pricing for virtual service agents and some Rovo and Atlassian Intelligence features. I believe we are well-positioned for the future while maintaining a high level of confidence in how AI is transforming our customers and helping them accomplish their goals.
Kash Rangan, Analyst
Super. Thank you so much.
Operator, Operator
Your next question comes from Keith Weiss from Morgan Stanley. Please go ahead.
Keith Weiss, Analyst
Excellent. Thank you for taking the question, guys, and congratulations on a really solid quarter. So I was hoping you guys could help me with my research process, being completely selfish here. So I made it last year my topic, and my thesis was that moving to the cloud is just a better platform for upsell and cross-sell. You guys have a broader solution portfolio, and that's going to help NRR expand. So when we look at the cloud outperformance this quarter, you talked about seat expansion and migration benefits. Can you help us understand how much of this is just like the environment is maybe stabilized or slightly improving versus how much of this do you think it's stemming from now that you're on the cloud platform that NRR will expand? Or now that you are on the cloud platform, the marketing initiatives for upsell and cross-sell are proving more effective? Like, how much of this is driven by your guys' proactive activity versus driven by the market?
Joe Binz, CFO
Yes. Thanks for the question, Keith. I'll start and then Mike will chime in. So just from a high level, we benefited this quarter from a stable macro environment, and trends in our business from Q4 largely carried into Q1. So we did see signs of continued stabilization in our SMB customer segment and low-touch sales channel. Paid seat expansion rates in SMB, although lower than the prior year, were stable from Q4, and top-of-funnel health remains healthy. So all that felt good. And that prerequisite for that was to have a stable macroeconomic environment to build on. Enterprise trends overall were also healthy and consistent with Q4. We delivered solid results on annual and multi-year deals, migrations, and upsell to premium and enterprise editions of our SKUs. That was also influenced by the stable macroeconomic environment that we saw. The other thing I would say is that we did have really steady sales execution in the quarter, and that also carried through to our results. Mike?
Mike Cannon-Brookes, CEO
Thank you, Joe. I believe that Keith's concerns are reasonable, and it's clear that the macro environment remains a significant factor. Companies are still tightening budgets, and small and medium-sized businesses tend to be more impacted by these macro conditions. We have a substantial number of SMBs in our customer base, so this challenge persists. Our approach is to navigate this environment effectively while driving growth. We are dedicating considerable time to our customers, and our message is resonating well—they see us as a strategic partner who can help them navigate these challenges. Additionally, the trend of consolidation onto the Atlassian platform is beneficial for us. Over the medium to long term, we believe that the main drivers of our growth are within our control. While macroeconomic factors are vital, they tend to be relatively short-term compared to our long-term vision for Atlassian. We are actively enhancing our enterprise marketing strategy, having meaningful conversations with customers, and identifying opportunities to expand within our largest clients. The system of work we offer is performing well, leading to increased paid seat adoption as we facilitate broader use across technology and business teams within organizations. With more knowledge workers in those teams, AI continues to be a key growth driver for us. There are various factors at play, including migrations and new customers attracted to our Atlassian Intelligence capabilities. Our offerings like Rovo are generating interest by integrating various third-party products and providing substantial value. We also see growth momentum from cross-selling our solutions. Jira Service Management is performing well, and we've launched several promising new products in the last couple of years—Jira Product Discovery, Compass, and Rovo—all of which are showing positive initial feedback and are beginning their growth journeys. Loom, too, is maintaining excellent customer adoption. We are learning and improving our strategies consistently, quarter over quarter. There is considerable optimism regarding our capacity to generate results, even in a challenging environment.
Operator, Operator
Your next question comes from Adam Tindle from Raymond James. Please go ahead.
Adam Tindle, Analyst
Okay, thanks. Good afternoon. I'll try to ask an unselfish question since we're on a team call here. I want to return to the topic of AI, kind of twofold here, Mike. What was the pivot point to move the AI strategy from more embedded in the product with Atlassian Intelligence to separately now break it out and monetize it with Rovo? And as you did that, how did you think about pricing? Not uncommon for AI agents at this price point, but relative to your own core product portfolio, it is a fairly healthy price point. So if you could walk us through those two things. And for Joe real quick, just confirming that Rovo is going to report in cloud and anything that's contemplated in the guidance from Rovo. Thanks.
Mike Cannon-Brookes, CEO
I can start with that, and then I'll let Joe wrap up that question. Adam, thanks for your perspective. We're all in this together. I wouldn't necessarily describe this as a pivot point. It's quite significant that there are two main forces at play here, which is why we see it as a dual strategy. First, our existing products, Confluence and Jira, have been established for over 20 years and continue to thrive. The capabilities of the Atlassian Cloud Platform can enhance these products by incorporating features like text generation and smarter searches, which are part of our Atlassian Intelligence innovations. We aren't moving away from this; in fact, we're accelerating the delivery of these features. However, the way we monetize them isn't through a standalone add-on; rather, it's integrated into the core functionalities of our products, as we've refined our ability to provide these enhancements at lower costs while managing our margins effectively. The use of these features has increased significantly, with customers reporting substantial efficiency improvements, which benefits Atlassian as well. Long-term subscriptions are shifting toward premium editions, and we are fully dedicated to that direction with Rovo. With the capabilities we've developed in the Atlassian Cloud Platform over the past two years and the teamwork graph we've built in the last several years, we can create new products that were previously impossible. That’s why we assert that Rovo is designed for the AI age. It relies on AI fundamentally, distinguishing it from our other offerings, while enabling customers to leverage chat for engaging with all their knowledge across Atlassian and external applications like Google Docs, Slack, GitHub, and Figma. This feature set is uniquely powerful. Additionally, with agents that can take action, serve as virtual teammates, and enhance team efficiency, we are investing heavily in both areas rather than switching focus. Regarding pricing, if you're specifically asking about Rovo, we also have virtual service agents in Jira Service Management that offer consumption-based pricing. It's crucial for us to keep evolving our sales strategy for Rovo in such a rapidly changing landscape. Rovo appeals to both small and medium-sized businesses as well as enterprise clients, fitting into our typical Atlassian model with growth driven by both product-led strategies and high-touch enterprise engagement. We aim to balance these approaches with Rovo, continuously learning from customer interactions and making necessary adjustments. The value it offers is substantial. While we remain practical about pricing and monetization, early customer feedback is promising, and our pipeline is exceeding our initial expectations. Rovo was only launched a few weeks ago, so we appreciate your patience, but we're very excited about its potential. Joe?
Joe Binz, CFO
Yes. Thanks, Mike, and Adam, thanks for the question. Rovo revenue will be included in cloud when we report our results. As Mike said earlier in the conversation, our big focus now is on driving deployment, usage, engagement, and value with the product across as many customers as possible. So monetization is going to be an outcome of success on those things. Our guidance right now assumes a very modest level of revenue from Rovo in FY25, which we believe is the prudent approach at this early stage of the product. Then we'll see gradual growth and build from there over time.
Operator, Operator
Your next question comes from Alex Zukin from Wolfe Research. Please go ahead.
Alex Zukin, Analyst
Hi guys. Thanks for taking the question. There's a significant cloud revenue beat this quarter, the largest since you began providing guidance. Can you elaborate on what contributed to this outperformance? Was it due to a more conservative initial estimate that was made less risky? Could you break down the factors that exceeded your expectations, like expansions, cross-sell migrations, and how these can be communicated to investors for a clearer picture? Additionally, with your new Chief Revenue Officer, Brian Duffy, what opportunities are you excited about in continuing to enhance the sales go-to-market strategy?
Joe Binz, CFO
Yes, thank you, Alex. I will begin, and then Mike will continue. The revenue from cloud increased by 31%, which aligns with our fourth quarter results and exceeds our initial expectation of 27% year-over-year growth. As I mentioned earlier in response to Keith's question, the trends we observed in the fourth quarter carried over into the first quarter. The difference from our expectations was mainly due to two factors: stronger-than-anticipated expansion in paid seats and migrations. Some of this can be attributed to macroeconomic conditions, while other parts reflect our effective sales execution. Other growth drivers in this segment of our business, such as cross-selling additional products, the adoption of high-value editions, and our top-of-funnel performance and customer retention, met or slightly surpassed our expectations for the quarter. Overall, the cloud performance reflects a combination of macro factors, strong sales execution, and solid business fundamentals. Mike?
Mike Cannon-Brookes, CEO
I agree with Joe on that. It's a broad scale. He's highlighted a variety of different points, but we executed well across many different factors this quarter, which is great. However, we're realistic about the environment we are in and strive to do that each quarter. Regarding Brian, I'm really excited to have him join us. It has been a significant search, very comprehensive and thorough, taking a lot of time. The first priority is to learn Atlassian's business. Brian brings a wealth of experience across various sales methodologies. As I mentioned, Atlassian is quite complex from a sales standpoint. We have a large-scale SMB flywheel product-led growth strategy alongside an expanding enterprise player touch approach, and integrating these two operations is what we do. It is no small challenge. He is a fast learner and will study this continuously to understand how it operates from the inside. Additionally, he has substantial experience in driving sales transformations in leadership and is very enthusiastic about the opportunities at Atlassian and our continued accomplishments. We have more than 524 customers exceeding $1 million, which remains a rapidly growing segment for us and helps accelerate our enterprise strategy and opportunities. We have identified this as one of our three significant transformations in the business as we evolve. I am certain he will contribute significantly to that. Having someone with public company CEO experience on our executive team will undoubtedly be a major asset, and we are all very excited to have him on board. I look forward to it.
Operator, Operator
Your next question comes from Michael Turrin from Wells Fargo. Please go ahead.
Michael Turrin, Analyst
Hi, thank you for taking my question. It's great to see a positive start to the fiscal year. I want to revisit the topic of AI and Rovo, and I'd like to give Mike an opportunity to clarify Atlassian's unique advantages compared to other analytic tools emerging in the software space. Additionally, it would be helpful to consider the potential reach of Atlassian's user base over a longer time frame. Thank you.
Mike Cannon-Brookes, CEO
Michael, you're asking some challenging questions. I believe we are significantly differentiated with Rovo. We're well ahead in our research and development journey, creating a product that truly resonates with customers and provides immediate value, built upon years of investment. The cloud platform, the Teamwork Graph, and the Forge technical platform we have for extensions and add-ons are critical. The Teamwork Graph allows us to organize teamwork data effectively. Additionally, we've integrated a variety of large language models from different vendors through Atlassian Intelligence, and we've developed a strong understanding of which models to use and why. The extensibility of Atlassian's products, along with our top-notch enterprise search engine, enables efficient data access through the LLMs. The real challenge lies not in obtaining AI features, but in organizing, structuring, and managing your data effectively. We need a capable search engine to connect this data to the intelligence features and a platform that empowers agents to act in user-friendly, autonomous ways that drive value for organizations. This is generating excitement among our customers. Our multi-year investments are coming together in Rovo, enhanced by Atlassian Intelligence. This is a prime example of Atlassian's long-term focus on R&D paying off, leading to a significant differentiation in the market. Our agents have broad capabilities across business, IT, and software teams, and customers are responding positively. We’ve observed their delight with Rovo’s outcomes, as it works with their data from both Atlassian and third-party products to drive business value. We’re thrilled about our product and the outstanding technical platform we have to develop it. We're ahead of the curve but need to continue investing in R&D. There’s still much to accomplish and many more innovations on the horizon.
Operator, Operator
Your next question comes from Fatima Boolani from Citi. Please go ahead.
Fatima Boolani, Analyst
Good afternoon. Thank you for taking my questions. Mike, you alluded to this in the opening remarks and some of the commentary you threaded in some of your answers earlier. But I wanted to throw in on your pricing strategy. Specifically, maybe Atlassian's more assertive foray into the realm of consumption pricing that is being maybe more profoundly infused in the portfolio. So I'm wondering what the calculus behind the consumption pricing strategy is, as we're aware can be pretty variable, and it's still pretty early days. So we'd just love to get your thoughts on just the strategizing about rolling out the consumption pricing because it's relatively new. And Joe, if you could help us on how you are contemplating how much consumption pricing scales and how it's embedded in your guidance with respect to some of that variability that it could bring. Thank you.
Mike Cannon-Brookes, CEO
Fatima, great question. I can answer the first part, and I'll let Joe follow on with the second part there. Look, we’ve had consumption-based pricing in various ways across the portfolio for a little while now. Bitbucket pipelines in terms of effectively some sort of a proxy on CPU usage because of the amount of builds you run can be highly variable. It doesn't necessarily depend on the number of developers you have. We obviously have storage and a few other areas where we do have a pricing capability that bursts up and down. Historically, I would say our consumption-based pricing strategy has been on avoiding overages for the sort of top 3% to 5% of your customer base that have an order of magnitude more usage of storage or something else. We're just making sure that that doesn't hurt the margins on the downside. That maintains to be a broad philosophy across our consumption-based strategies we have going on in different places. That's more of a defensive strategy, I would say. Ideally, that's where we would like to be on a broad level. However, with things like AI and virtual service agents, there's certainly a capability to increasingly deploy that. The same thing with assets in Jira Service Management is another area where we have some consumption-based pricing, and largely where we like to take pricing gain from a philosophical point of view, is to be very customer-driven. Where does it make sense? Where is it logical? Or is it going to scale in a friction-free way as possible? Where is there a clear value return for what I consume, what I use, and where do I get a clear ROI from that? I think that's the same strategy that we're employing there. We'll learn over the coming year as to how that works in terms of virtual service agents and assets. We're very thoughtful when it comes to pricing and have been over a long period of time. I would say we'll maintain that posture. Joe?
Joe Binz, CFO
Thank you, Mike. To the question, Fatima, about consumption pricing and the financial model, there's a very small and modest amount in the guidance in our long-range plan. We believe it will take some time to scale. As Mike mentioned, we don't have a fixed mindset on pricing and packaging. In the future, we'll be pragmatic and flexible in our approach based on the value we deliver to customers and how we deliver that. Our modeling today is predominantly seat-based when we think about this year's guidance and the long-range plan that we have. So we are taking a very conservative approach to this and seeing how things develop.
Operator, Operator
Your next question comes from Gregg Moskowitz from Mizuho. Please go ahead.
Gregg Moskowitz, Analyst
Okay. Thank you for taking the question. Congratulations on a very nice quarter. Mike, for many years now, Atlassian has spent right around 35% of its revenues in R&D, which obviously is much higher than peers. We've seen some very good innovation over the years. But frankly, I can't recall any period of time that matches what you've unveiled over the last several months or so. Maybe that's just circumstantial. But what I'm wondering is, have any changes been made to how the engineering teams are oriented that helps explain the flurry of product innovation that we are seeing?
Mike Cannon-Brookes, CEO
Thanks, Gregg. I appreciate the kind words. I don’t believe we are making any structural changes. We’ve been working hard over the past few years on developer productivity, and having a top-notch engineering, product management, and design organization is crucial to us. We believe that great technology companies need world-class engineering teams to survive and thrive for decades. You won’t find a successful company that lacks a strong engineering organization. We focus not only on what we create but also on the productivity of that team, which is a significant area of our attention. When I speak with customers, I explain how our R&D organization operates, how much we invest in productivity, and how we measure that productivity in both qualitative and quantitative terms. Many of our products, such as Compass, originated from internal tools we've developed to enhance our own productivity in today’s engineering landscape. This approach hasn’t changed; it has evolved and continued to grow. One point worth mentioning is that building robust platform components takes a considerable amount of time, as we’ve discussed regarding R&D expenses over the years. We have indeed invested a lot of time in developing our cloud platform. Eventually, we can begin creating products on that platform, demonstrating and leveraging it. If you look at Focus, Jira Product Discovery, or Rovo on top of Forge and the Teamwork Graph, our cloud platform enables us to develop more mature products faster than we could five years ago. These products are more feature-rich, allowing more of our efforts to be directed toward the unique value they offer. We are integrating Loom into our platform more quickly than we have with any prior acquisition, showcasing the platform's advantages. As the platform matures, it allows us to spend less time on migration tools and transitioning data center customers to the cloud platform. We are now developing more advanced enterprise capabilities and are data-resident in 11 countries, among other improvements. This platform has required significant investment over a period, and we are now shifting towards developing products and additional capabilities on it. However, we are not slowing down. We are a large organization with many exciting ideas to explore. We begin with prototypes and concepts, aiming to turn those into marketable products. We learn and co-create with our customers, and where those products prove to offer great value, we figure out how to integrate them into our business. We approach this process thoughtfully and patiently, aiming to build sustainable and defensible businesses over time.
Operator, Operator
Your next question comes from Keith Bachman from BMO Capital Markets. Please go ahead.
Keith Bachman, Analyst
Hi, thank you very much. I wanted to focus on JSM for a second, if I could. On your slide deck, you have greater than 55,000 JSM customers. I wanted to try to get some perspective on how you think your win rates and opportunities have changed. There are a lot of different dynamics underpinning the question, but in particular seats, which the seat opportunities based on channel feedback have been limited, but seem to be steadily growing, particularly over the last year. How do you think the competitive dynamics are changing? Additionally, if you could address, Mike, this was per your comments to a previous question on how AI may be changing the landscape. The context of my question is really within JSM. I'd like to drill down a little bit on that. ServiceNow obviously talks about their plus SKUs pretty aggressively gaining traction. I wanted to see if you could channel the AI discussion, particularly towards JSM and how you think that might change your competitive opportunities as you look out over the next year or two.
Mike Cannon-Brookes, CEO
Keith, great questions. A lot there. Look, I would say a few things on the Jira Service Management opportunity in the Service Management space. We continue to do extremely well there, and it continues to grow strongly, as you mentioned, selling to over 55,000 customers, so the expansion continues well. It's driven by a few fundamentals, I would say. Firstly, we have an incredible product that delivers incredible value, especially compared to a lot of legacy vendors, where the price-to-value ratio we are far and away ahead of a lot of those legacy vendors. That is many, many years of R&D built on top of the cloud platform and the Jira platform. So there's a reason for that. We continue to expand strongly with JSM, both in the DevOps space. So anyone connecting their IT team to the development and operations teams is an area of huge strength, as you've seen us continuing to embed OpsGenie capabilities in terms of incidents, rostering, and alerting. We are combining JSM and Compass together as a real powerful solution. We are head and shoulders above anybody else in our ability to do that at the moment. We continue to go in the other direction towards more employee service management, with aspects of HR teams, marketing teams, and finance teams increasingly adopting Jira Service Management. Incredible time to value. The ability to start a service function or a service desk can get it up and running, highly configured. Our automation engine is second to none, so the ROI of our service desk is incredibly high. Our AI is a little bit of a cream on top of that. The business was already running really, really well. When you add AI on the DevOps side, we shipped a whole series of AI ops innovations, really industry-leading in terms of our ability to use AI to process large amounts of alerts and incoming information. There is still that for the agents to separate signal from noise. Secondly, in virtual service agents, given the strength we have in AI and our R&D heritage, we are outperforming anybody else in our ability to deliver that virtual service experience, both in terms of the number of customers helped and the number of tickets resolved, the number of agents helped; the ability to make agents operate their job faster and the ability to close out the high volume of sort of repetitive tickets. We feel really strong about how we are doing that. We continue to have a whole series of things; it’s fantastic to be recognized by Forrester and others for our leadership position there in AI and service management. I would say that we’re not slowing down in that space at all. I know there’s sort of continued surprise from the Investor Day about the speed of growth of that business; it continues to be a strong one for us. We think we’re in a great competitive position, and we’re only just getting started. Our assets' capabilities in building out a modern configuration management database that’s graph-based instead of being relational are increasingly adopted by customers for all sorts of workflows and applications within their organization. So lots of super exciting areas to go into, besides the traditional DevOps space. So look, lots of customer examples and incredible statistics from customers. We are very excited about where we sit in the service management space and onward and upward from here.
Operator, Operator
Your next question comes from Ryan MacWilliams from Barclays. Please go ahead.
Ryan MacWilliams, Analyst
Hi, thanks for taking the question. Well, the larger data center customers that have provided more detail around their plans to move to the cloud to get Atlassian features, do you think the timing of their migration is likely to happen around their contract renewal? Or do you think they could start to move more seats over to the cloud earlier with hybrid deployments in the meantime? Thanks.
Mike Cannon-Brookes, CEO
I can take that one as well. It's a little bit of both. It might be helpful to understand how this works for larger customers. Contract renewal is certainly a time when they might consider transitioning to a more hybrid model. This is especially true as we continue to innovate in the cloud. Depending on the timing of their renewal, they may look for early renewals or new capabilities. Atlassian Intelligence is encouraging some customers to explore these options sooner. Most of our largest customers tend to make that shift to a hybrid state first. For example, if a company has numerous data center instances, they might begin by migrating some of them. They could choose to move certain ones to an archival state or start with smaller instances to get familiar with the migration process. Some may have specific compliance requirements, such as FedRAMP, that affect which instances they migrate. In the past month, I've talked to several large global conglomerates, including banking and telecommunications clients, each with distinct geographic needs for their data centers. This creates a large-scale migration project. Our primary goal is to demonstrate the long-term value of the cloud platform, which will be their final destination. We aim to enhance both our capabilities and their ability to manage these migrations. Many of these customers have 50 to 100 data center servers or more that need to be transitioned over time. This represents a substantial IT undertaking, but they find it very exciting. I want to highlight two key points. This is a multiyear process and is somewhat contingent on the customers themselves. External macro conditions can certainly influence this, and we have customers whose migration projects have slowed down due to their internal environments. That's fine; we are patient and committed to a long-term partnership with them. We had a strong quarter, slightly exceeding our expectations for this period but lagging behind last quarter. As Joe mentioned, managing through these experiences will be part of this multiyear process. Most importantly, the COOs engage with the clients and recognize that it's a win-not-if situation. They understand that the cloud offers the optimal experience with Atlassian products, and they see it as their ultimate goal. They are aware of the innovations we are delivering in the cloud. They recognize that a large financial services client, which just signed a significant three-year agreement with us, specifically cited analytics and AI as key reasons for their decision to migrate to the cloud. It's up to us to maintain that momentum.
Joe Binz, CFO
And then if I could just add one thing, Mike. Ryan, just as a reminder, we are confident and continue to expect data center migrations to make a mid-to-high single-digit contribution to cloud revenue growth rates over the next three years. So that’s reflective in the financial model of our confidence around that motion.
Operator, Operator
Your next question comes from Brent Thill from Jefferies. Please go ahead.
Brent Thill, Analyst
Thanks, Joe. In the letter, you seemed to comment on negative macro factors, and obviously understand Brian coming in as a potential factor as well. But I guess in your commentary, you mentioned demand was stable quarter to quarter. Andy Jassy at Amazon just mentioned demand is improving. AWS is accelerating; Google saw their enterprise cloud accelerate. I guess it seems like in the bigger picture, things seem to be getting a little bit better, but you're being a little more conservative. Anything to read in there? Is that a right view? Maybe just kind of give us your sense of how you are taking a lot of these factors into your guidance.
Joe Binz, CFO
Yes, it's a great question, Brent. Thanks for asking. We highlighted last quarter that we had taken a different approach to our guidance this year, and that it was a more conservative and risk-adjusted approach than in the past. At the time, we believe this was prudent and the right thing to do given two factors. First, the uncertainty we saw in the macro environment, and then secondarily, execution risks related to the evolution and transformation of our enterprise go-to-market motion. Nothing has changed with respect to that approach in our updated guidance for Q2 and the rest of FY '25. A few factors there: one, Q1 is seasonally our lowest absolute bookings quarter in the year. So we don't want to read too much into the rest of the year based on performance in Q1. Secondly, macro uncertainty remains with the upcoming US election, the regional military conflicts, and tempered IT spending outlooks. While we are super excited to welcome Brian to the team, we are still in the early days of our enterprise go-to-market evolution, and there's a lot of work left to do. We believe it was the right thing to do three months ago, and nothing has changed in our thinking about that. We've taken the same approach this quarter because both of those factors, macro uncertainty and execution risk, remain as relevant now as they did three months ago in our opinion, as we look to the future. So hope that context helps, Brent.
Operator, Operator
Your next question comes from Jason Celino from KeyBanc. Please go ahead.
Jason Celino, Analyst
Hi, thanks for taking my question. Clearly, very impressive cloud results, kind of twofold. With the Q4, did you see any deals that maybe had slipped closed in Q1? Or was there any dynamic of maybe closing some deals or some pull ahead of some of these cloud pricing increases that we saw a month back? Thank you.
Joe Binz, CFO
Yes. Thanks for the question. This is Joe; I'll take that one. Just as a reminder, in Q4, we highlighted deal timing landing in the quarter, not deal slips. I would just point out that deal timing was not a factor in Q1 as it was in Q4. In Q1, we saw a healthy deal flow throughout the quarter that was in line or slightly better than our expectations. Stepping back for a second, over time, there will be two factors that will impact the velocity of our deals with large customers in our high-touch sales channel. The first is the evolution of our high-touch go-to-market motions. We are driving larger, more complex deals that include more products, span more groups within the customer and require more approvals. In many cases, we're targeting large, complex migrations, and all of that adds up to longer sales cycles than we've had in the past. Second, we also take a very disciplined and long-term oriented approach as we think through pricing and concessions. We are not deadline driven. We do not do anything unusual or unnatural with deal economics to close a deal at a certain time. We are willing to be patient and wait for the right deal for both the customer and for us. As we continue to further grow our business in the enterprise, we've incorporated the impact of both of those factors into our outlook for the future.
Mike Cannon-Brookes, CEO
I just wanted to add on, Jason. There's no doubt, as Joe mentioned, we are trying to be prudent and pragmatic. It is a very complex macro environment as we've talked about; there are a lot of factors flowing around. We don't make excuses for that. It's our job to execute through that, and we did a great job in the last quarter. We've got to keep doing that. I do want to say, though, that we're feeling excited about. You mentioned the enterprise and pull-forwards. The exciting part is that the long-term focus of those customers. If we continue to have them treat us and see us as a strategic partner, one of their top three, four, or five vendors that are really driving their business forward. If they understand the system of work philosophy and feel like it resonates and it's going to change their organization in a positive way. The more executives from our largest customers that I meet, the more that is a true statement, I would say, every single time that they understand that. That puts us in a good stead for the long term as we all navigate through these economic conditions. We're building in R&D and investing for the long term. We are doing the same thing in the go-to-market and sales side of the world as well. I'm sure Brian will come in and take that point of view. So I would just recommend understanding that we still take a long-term view through the short-term waters that we're in. We’re very pragmatic about those orders, and we feel really excited about where we sit with the customers and our opportunity there.
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.
Mike Cannon-Brookes, CEO
Just wanted to say thank you, everyone, for joining our call today for all the questions and for being part of the team as investors and analysts. A short reminder, we put up a Loom video in the Investors section this time for the first time ever. I love any feedback that you have on that. As always, we appreciate your thoughtful questions and continued support. Have a great day.