Good afternoon. Thank you for joining Atlassian's earnings conference call for the fourth quarter of fiscal 2019. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Atlassian's website following this call. I will now hand the call over to Ian Lee, Atlassian's Head of Investor Relations.
Good afternoon, and welcome to Atlassian's fourth quarter fiscal 2019 earnings conference call. On the call today, we have Atlassian's Co-Founders and Co-CEOs, Scott Farquhar and Mike Cannon-Brookes, our Chief Financial Officer, James Beer, and our President, Jay Simons. Earlier today, we issued a press release and a shareholder letter with our financial results and commentary for our fourth quarter and full year fiscal 2019. These items were also posted on the Investor Relations section of Atlassian's website at investors.atlassian.com. On our IR website, there's also an accompanying presentation and data sheet available. We'll make some brief opening remarks, then spend the rest of the call on Q&A. Statements made on this call include forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. 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. For further information on these and other factors that could affect the company's financial results as included in filings we make with the Securities and Exchange Commission from time to time, including the section entitled Risk Factors in the most recent Form 20-F and quarterly report in Form 6-K. In addition, during today's call, we'll discuss non-IFRS financial measures.
These non-IFRS financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with IFRS. There are a number of limitations related to the use of these non-IFRS financial measures versus the nearest IFRS equivalents, and they may be different from non-IFRS and non-GAAP measures used by other companies. A reconciliation between IFRS and non-IFRS financial measures is available in our earnings release, our shareholder letter, and our updated investor data sheet on our IR website. I will now turn the call over to Mike for opening remarks before we move to Q&A.
Good day. Thanks everyone for joining today. Fiscal 2019 was another outstanding year for Atlassian. We surpassed 150,000 customers and exceeded the $1 billion revenue mark for the first time in a fiscal year. We achieved this while generating more than $400 million in free cash flow during the year. I'm incredibly proud of the work of more than 3,600 Atlassians who come together each day to build the great products that our customers love. Our customers have always been our guiding light. Over the past 17 years, our commitment to these customers has led us to make pragmatic decisions about the evolution of Atlassian and our products. Today, they're leading us towards the cloud. Demand for our cloud products is increasing, both from new customers and from existing customers using our on-premises products. It's natural that the cloud is our primary focus and the key driver of our growth.
In fiscal 2020, we will continue to invest deeply in improving and expanding our cloud offerings and platform. We will also be investing to serve larger customers in the cloud, as well as to accelerate the pace of migration of Server and Data Center customers to our cloud. Our pricing and packaging strategies will be thusly aligned with these goals. Scott and I have always been focused on driving sustainable growth over the long term. Our increasing cloud focus supports this long-term view. In James' section of the shareholder letter, we outline the financial implications of our cloud strategies in fiscal 2020, and we encourage you to read his commentary. With that, I'll pass the call over to the operator for Q&A.
We will now begin the question and answer session. To ask a question, you may press star then one on your touch- tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Bhavan Suri with William Blair. Please go ahead.
Hey, guys. It's actually Arjun Bhatia for Bhavan. Just wanted to start off with the freemium model that you talked about in the shareholder letter. It seems like this is a nice shift to the strategy. Just wondering why this is the right time to go freemium in the cloud for specific cloud products. What do you think is the benefit over offering a one-week or a one-month trial for customers?
Hey, Arjun, it's Mike. I can take that. Sure. I guess I would start by saying first, it's not really a shift in the strategy. We have free versions of a whole series of cloud products today, and we have always tried philosophically to have the lowest entry point price that we can. A lot of our cloud investments over the last couple of years have made this possible. This is, from that point of view, the culmination of a longer-term journey in the cloud. We've always tried to get after the Fortune 500,000. We've got to have as many on-ramps as possible to get customers on board as frictionlessly as possible at the low end. We deliver them value in terms of the products.
As they grow, they will start to become customers. That's always been our pricing desire, this is just another step on that journey in terms of getting after the Fortune 500,000.
Great, thanks. Then maybe a quick follow-up, just trying to get a better understanding of where customers are in the migration path, especially larger customers from Server or on-premise to Cloud. Is this something that your larger customers have planned already, or are we still too early for that and something you expect to play out over the next few years here?
Hey, Arjun. It's Jay. It's been playing out over a while. I think the signal that we articulated in the letter is that we're seeing increasing demand from a lot of on-prem customers, many of them larger, to consider moving to the cloud. That's been ongoing. We anticipate it will be ongoing. There's a couple of great examples of like really large U.S.-based asset firm that's beginning to plan a move to the cloud, and that's a large existing Server customer that has 8,000 users of Jira and 10,000 users of Confluence. On the other side of that cloud journey, they can anticipate taking it up to 15,000 users. There's a large European athletic clothing manufacturer that's going through the same journey.
A lot of the catalyst for it is just the broad secular shift that's been happening around us in the market, where 90% of new customers are in the cloud. A lot of it is these large customers see the investments that we've made in cloud and the advantages that cloud brings them in terms of performance, the ability to have the service managed and updated for them, and then more reliability in some cases.
Great. Thanks for taking my questions, and congrats on the quarter.
The next question comes from Gregg Moskowitz with Mizuho. Please go ahead.
Okay. Thank you very much, and good afternoon, guys. I was at Atlassian Summit a few months ago where you offered all attendees up to 2,000 free cloud software licenses to accompany their on-prem licenses. Obviously, it looks like you've now opened this offer up to your entire community and on a matching basis as well. Would it be fair to conclude that, as a result, you've seen high levels of interest and activity from that promotion a few months back? Any color around that in terms of what you've seen from customers would be helpful.
Yeah. Hey, Gregg, this is Jay again. I think in part it is in response to a lot of interest in the cloud and the goal of just making the journey that customers are considering easier for them. Part of that is in the offer that you mentioned in the matching free cloud trial license that we're offering existing Server customers so they can begin to plan a migration. The other component is just the investments that we've made in product and migration tooling. The migration tooling's come a long way from where we've had the opportunity for customers to export and import, and now, I think some really innovative work in helping them move project by project pieces of Jira and Confluence from their on-prem installations into the cloud.
The broad backdrop of that is in response to where customers are signaling they want to go, and our goal is to make that as smooth and as friction-free as possible.
All right. That's really helpful. Thanks, Jay. Congrats as well on eclipsing 150,000 customers, and you've now provided another long-term goal of more than 100 million active users versus over 10 million cloud MAUs today. We look forward, obviously, to tracking that progress as you continue to grow. My question there is, if you could talk to the investments required in infrastructure and engineers and in acquisitions that you think are required to make this goal a reality. Also, does this require an accelerated multi-year investment in cloud, or would you say that you're currently on a good pace from an investment standpoint?
Gregg, Scott here. I can take that. Look, the investments we're making on the cloud, we've been a cloud company for 10 years. We're making continual investments in improving our cloud for our customers. As Mike mentioned earlier, some of the investments around Vertigo we talked about, which was moving our cloud off our own data centers into third-party data centers, has allowed us to reduce our COGS so we can now offer a free version. Investments we've made in infrastructure and platform have allowed us to bring Access, our user management product to market. They've also allowed us to get a premium product to market as well. We've made a lot of investments over the time that are paying off now. As Jay mentioned, we're making investments in migrations.
As mentioned in our letter that Confluence, we've got a great migration tool, and we're continuing to improve it. That's going really well. We're investing in the Jira migrations tool as well, which we expect to be similarly as successful. Over time, one of the things this year is going through that journey of migrating customers with some of the largest customers of ours to the cloud. Through that, I'm sure there'll be little things we'll discover that we'll be working with our customers on. Broadly, I don't see a change in our investment mix in order to do this. It's sort of more of continuing what we've been doing all along.
Terrific. Thanks very much, Scott.
The next question comes from Heather Bellini with Goldman Sachs. Please go ahead.
Hi, Heather. Are you there? Heather? Operator, could you move to the next question first, please?
The next question comes from John DiFucci with Jefferies. Please go ahead.
Thank you. Mike and Scott, you talk about the opportunity to help your customers migrate to the cloud. I guess, given your new name, are there any thoughts around the undersea opportunity? That's a bad joke, I'm really sorry.
Laughing, John. It's all right.
The real question is this: Is there a reason that cloud's better for Atlassian? Like pricing stickiness, or is this just doing what customers want, which seems to be part of your DNA and part of your success all along? Is there something else, though, that from a financial perspective, cloud would be better than on-premise deployments?
John, we've always been customer-led in whatever we do, and that's why we have both deployment options at the moment. We are not trying to push our customers one way or another from a financial perspective or any other reason. We're very happy with both sides of our business. The demand is there for customers to go to cloud. I do think that when customers are in cloud, it allows us to get feature usage information that allows us to be a bit sharper with our R&D investments. It doesn't show up in any balance sheet or P&L or anything like that, but it does allow us to build better products quicker. It allows us to cross-sell our products a lot easier because they're on the same system. We can expose them to Opsgenie without the need to set anything up in their environment.
It allows us to do that better. From a virality perspective and helping people sign up to products, it allows us to effectively, with all the analytics we've got, we can make sure that people go through that journey a lot quicker. I think we shared in our shareholder letter that the financial results over the long term are marginally better for us at Atlassian, and we feel good about that as well.
Okay. That all makes sense. Thank you.
The next question comes from Nikolay Beliov of Bank of America Merrill Lynch. Please go ahead.
Hi, this is actually Jacqueline Lu on for Nikolay. Two questions. First, in light of the fiscal 2019 billing seasonality, how should we think about fiscal 2020 billings trajectory? Number two, how do we think about the use cases of the premium edition? Will the channel be involved in selling premium?
Okay. Jacqueline, I can take the first one. Just a reminder, obviously, we very much focus much more on revenue than billings. That's for the fact that, of course, deferred revenue is a relatively small part of our overall sales picture, particularly the long-term deferred revenue, because we really don't enter into very many multi-year contracts at all. Then when you add to that, of course, the cloud business growing very strongly, as we've been discussing, and more than 3/4 of that comes with a monthly subscription. Those are some of the key reasons why we really focus on revenue as opposed to billings.
As you know, we don't guide to billings in fiscal 2020, but what I would just observe is that in the last couple of years, the billings pattern has moved around somewhat based on the timing of price increases that we rolled out. For example, in fiscal 2019, last year, we announced some price increases in the middle of September. There, we saw pull-forward activity occurring to benefit Q2. That benefit was pulling activity from the second half of fiscal 2019, and in fact, from fiscal 2020 and even beyond there. Conversely, in fiscal 2018, we announced price increases a little earlier, right at the start of September. In that year, the pull-forward benefit was really balanced between both Q1 and Q2, and that benefit was pulling in part from Q2, but then more so from Q3.
That's really all I would just remind everyone on. Obviously, we haven't made any price increase announcements for fiscal 2020, but that gives you a sense for the recent historical pattern and how price increase activity can impact billings by quarter.
Hey, Jacqueline, this is Jay. I'll tap onto the second part of your question. There's two unique components of the premium cloud editions. The first is common across them, which are platform capabilities that offer a higher level, higher service and support level, and in some cases, depending on the product, higher storage levels, as an example. The second component is premium features that really target more advanced and sophisticated users that are specific to the product. Roadmaps in Jira or usage analytics in Confluence are two of the examples. The customers that premium editions target can be small and just more sophisticated users, but more often than not, will be larger. That's who we're targeting. Absolutely, the channel is engaged in selling and supporting customers, both upgrading from standard cloud to premium editions, but in many cases, just starting with premium.
Thank you.
The next question comes from Keith Weiss with Morgan Stanley. Please go ahead.
Hi, this is Sanjit Singh for Keith Weiss. Congrats on a very strong Q4. I had two questions. The first is on the sort of cloud unit economics, if you will. You had a really nice chart in the earnings letter, and it basically shows a break-even time between Cloud and Server of about two years and about a 40% higher lifetime value. To maybe dovetail on John's question, what do customers get for paying that extra 40% over five years? Is it more about the performance scalability, or is there a feature functionality aspect to this as well that gives the maintenance-based customers that nudge to deliver to cloud?
Hey, Sanjit. From a pure- value point of view, probably the biggest difference they get is obviously we're doing all the operations and maintenance of the software for them. If you think about someone paying a licensing fee, they then have to download, have their own server in-house, run their own upgrades, patches, et cetera, of the software. That takes time, as well as integrating it, connecting it to other things, administering it. That is a large lift that we can take off them that's often well more than the price of the software itself. We can provide that at a small uplift over a multi-year period, as you said, but we can scale that cost across many, many instances, right? We're deploying tens of thousands of servers, if you want to think about it virtually, on a constant basis. We've automated all that.
We can spread that cost across a lot of customers. At the same time, they get a better updated, more frequently updated application that should be faster, more secure, more scalable, without them having to do anything, right? That's the goal of the cloud, is that they just sign up with 10 users, and they can go all the way to 10,000 without really having to think too much about that scale effect. That's exactly what we do in our R&D and engineering teams, is make sure that all happens for them. Obviously any new innovations, all the way through to new security patches, get applied instantly. They just appear sort of magically for them. It's a far better offering. It's generally the premise behind cloud software.
Understood. That's really helpful. If I could revisit the pricing strategy question. For the last two years, I think, about two years ago, we moved to this cadence of annual price increases, and the view was that that was going to be more predictable for the customer base to expect that on an annual basis. It seems like this year's a little bit of an anomaly, and I'm wondering, should we look at this fiscal year 2020 as a sort of anomaly given this sort of push to cloud and that we revisit this annual price increase on the Server base after fiscal year 2020? Has the cadence on pricing changed with this cloud push?
Well, the first thing I'd say, Sanjit, is that, as we think about pricing and packaging, we continue to be very focused on remaining the high-value, low-price leader. We have said in the past, and continue to believe that, well, within that construct, have continuing opportunities to make price changes very much commensurate with the value that we're delivering to our customers. Now, obviously, we've been talking quite a bit on this call already about our focus on the cloud and continuing to really bring more and more customers, be they current via migrations or new customers, into the Atlassian frame. So I would expect that benefits around price increases on the cloud side of our business would probably be less so in fiscal 2020 than was the case in fiscal 2019. Now, again, we haven't made any announcements about price increases more broadly.
I think that's a reasonable thing for you to consider.
The next question-
Sorry, continue, operator.
The next question comes from Michael Turits with Raymond James. Please go ahead.
Hey, guys, thanks. I think this is maybe a drill down on Gregg Moskowitz's question about any change in financial impact from moving to the cloud and investment, and maybe we just extend it to the long run. Obviously, the move in the cloud, in any case, it seems like an acceleration. Is there anything different we should think of in the long term, either OpEx or CapEx framework, anything around the degree of impact on gross margins, the amount of CapEx to be anticipated or any breaks that we might expect in terms of significant changes over a multi-year period?
Yeah. Michael, as we think about the cloud continuing to become a larger and larger proportion of our overall business, I would expect that to have some impact on our gross margins. You would expect, obviously, as Mike was pointing out, we're doing all the work of operating the software on behalf of the customer. You would naturally expect there to be an increase in the proportion of cost of goods sold.
Indeed, we have, in the last couple of years, been investing quite significantly in the sort of physical infrastructure to make sure that our cloud customers, wherever they are in the world, have the sort of response time and reliability that they would look to receive from our cloud services. At the same time, I'm very pleased with how, as we work with AWS, we find significant opportunities to continue to make more efficient our usage of the cloud infrastructure. You can expect us to continue to be focusing on that over time. Then, of course, there are other lines embedded within cost of goods sold, areas such as support, and we would look to continue to seek efficiencies there as well. It's a mixture of a variety of effects around gross margin net.
I've been pleased with how we continue to progress on the gross margin line. In terms of capital expenditure, the way our relationship now works with AWS, really, the capital expenditure related to cloud infrastructure sits with AWS on their balance sheet. Our capital expenditure is very much driven by our own physical facilities around our primary offices. I wouldn't expect the growth of our cloud business to particularly be driving that CapEx line per se. We'll see that effect flow through operating expenditures as we work with AWS.
James, a follow-up for you on the guidance for this year, I don't know if this is related to the cloud push or not, you've got into margins, op margins, EBIT margins down a point. I assume some of that is from the Agile acquisitions, and maybe you can specify how much that impact is. If you look at the cash flow from ops guidance, it actually comes down about 6 points. I understand based on the math you gave us, that about 2 points of that, or $30 million comes from higher taxes, there's still more impact to cash flow even ex that taxes. Maybe you could specify that for us.
Michael, the first thing I'd say about margins is, I'm very pleased that we've been able to grow in fiscal 2019, both the operating margin up a point and the free cash flow margin up 2.9 points year-over-year. As you know, we've been saying how we will continue to look to build our margins, both operating and free cash flow, over time. The guidance that we've put out today, as you correctly indicated in your question, on the operating margin line, one of the key impacts there is the acquisition of AgileCraft, now branded Jira Align. Because remember that that has more of a services component to the business model. Of course, for certainly the first three quarters of fiscal 2020, we'll be working through that typical deferred revenue haircut that comes along with an acquisition. That will particularly impact that.
On the free cash flow guide, again, you correctly referenced there a quite sizable swing in cash taxes year-over-year. In fiscal 2019, we actually received $7 million of cash related to taxes. I would expect that to return to much more normal situation in fiscal 2020. Net between the two years, it'll be a swing of around $30 million, approximately, in cash taxes. That will have an appreciable impact on the free cash flow margin. The other thing I would note on free cash flow margin, of course, is the capital expenditure we've indicated would be $30 million for fiscal 2020.
That would be down quite substantially year-over-year, and that just reflects, going back to my facilities point, that we've worked our way through some of the key facilities projects that we've been working on in fiscal 2019, hence a smaller capital expenditure projection for this year.
Right, James. There's still a delta. In other words, you're still coming down a lot more on cash flow margin than you are on EBIT margin, even accounting for the taxes swing.
Yeah, the only thing I would further add, Michael, is we're coming off on a very strong year on cash flow. Again, we would look for these margins to build over time, and we had a very strong build in fiscal 2019.
Thanks.
The next question comes from Alex Kurtz with KeyBanc. Please go ahead.
Yeah. Thanks for taking a couple of questions. Just going to go back to the opportunity around cloud within sort of expansion rates within existing customers. Could you just outline for us again what you see as far as adoption and expansion rate maybe by users within your larger customers when one customer goes the cloud path and the other one goes the on-prem path? Is there a way to quantify that for us a bit?
Alex, it's Scott here. I won't get into specific numbers around that, but I can give some anecdotes that are very exciting for us. We've got a growth team here at Atlassian who run a lot of growth experiments, maybe similar to what you see in some consumer type companies. That team has grown pretty substantial over the last year. We've had some really successful experiments cross-selling, say Confluence into the Jira base.
Which is a very well overlapping product in Server, very well overlapping product in cloud. Because we're running those products in the cloud, we have the opportunity to run these experiments where we can adjust the interface, promote something in-product, and see if it works before we spend the effort in productionizing it and rolling it out to our entire base. We've seen that work in those particular pair of products over the last year, which is a focus area. We're expanding that to look at other sort of product compares in the coming years. Again, stuff that we can do in the Cloud that we have done in the Server, but it's a lot harder and takes a lot longer to see the returns.
Okay, thanks. The comment in the shareholder letter around the 1 point of revenue headwind for the year around these changes that you guys have outlined today, is there some way to kind of outline? Is this a base case assumption on the uptick in subscription in cloud? Is it back-end loaded as far as how you think that headwind's going to play out during the year? Just any kind of additional context would be helpful.
Yeah, I would say, obviously, we talked in the letter about there being really three drivers of that 1 point. The free additions, the free cloud trials to our current behind-the-firewall customers, and then the revenue- recognition mix effect. That mix effect would be occurring throughout the year. Obviously, the free cloud trials and the free additions, that will start to play through as we implement those initiatives. You'll see that come in the fullness of time during the year.
Okay. Thank you.
The next question comes from Jack Andrews with Needham. Please go ahead.
Good afternoon. Thanks for taking my question. I wanted to ask a kind of a high-level question just about your overall product development efforts. Can you shed some light on, I guess, it's a framework perhaps that you're using for resource allocation? You've got a lot of things going on in terms of besides the push to the cloud, you're introducing net new categories, things like Align, and in some cases to a new user base. Could you just talk about how you're prioritizing spending more time and efforts on some of these other efforts versus adding incremental functions to your existing products? Is there a way to kind of rank order your product development priorities?
Yeah. Good day, mate. Mike, I can take that. Look, there's no simple and easy way to communicate that. I would say it's something that we spend a lot of time thinking about. We've got a lot of history of doing that. You mentioned a few acquisitions. Obviously, we realize it's very important to integrate acquisitions in the right timeframe. Sometimes that's faster, sometimes that's slower. If you look at something like Trello, we've invested a lot in growing the Trello business, but not so much in integrating it in the short term. In Opsgenie, it's the opposite way around. We make, I would say, horses for courses decisions depending on what that is.
We, at the same time, do obviously try to lean into the future, so you can see a lot of our resource allocation is going into the cloud, whilst at the same time being practical about making sure that our on-premises customers get the improvements that they need in those applications. I would say we are constantly making decisions on how we move resources around whilst at the same time growing. We also have a global problem to constantly manage where resources are around the globe. We've been doing very well in Bengaluru. I was just there a couple of weeks ago. We've passed 200 staff there now in India and continuing to grow really strongly. Where we put resources around the world and how new those resources are can affect what projects we can put them to.
I would say we're really good at managing that on a global basis now and pretty comfortable where we sit, but there's no singular framework we use.
Well, thanks for your perspective. Just as a follow-up, is there any update in terms of how you're thinking about the enterprise advocate role at Atlassian? Do you feel you need to add any more resources in this area, just given, again, the emphasis of the cloud, changes in pricing, things like that?
Yeah. Hey, Jack, this is Jay. We're growing the team, and we've been growing the team over the past handful of years. There won't be a material change, but we'll continue to add enterprise advocates and sort of direct sales as we attack the opportunity. I think, keep in mind that the business model, I think what makes our business model so powerful is the combination of three things. This high-velocity flywheel that really focuses on enabling customers to self-serve, and that just allows us to reach massive global volume of customers that can start easily on their own. That's number one. Two is our direct enterprise advocate sales team, and they can focus on targeting high-value expansion opportunities that exist within our largest customers. The third is the channel.
Oftentimes, our direct teams are working hand-in-hand with the channel on expansion opportunities that tend to be accompanied by some service delivery work that the channel's enabled to help with. That's what makes it so great is we can land even the largest accounts really efficiently, and we create this really fertile ground for our channel and our direct teams to expand from.
Got it. Thanks for taking my questions.
The next question comes from Derrick Wood with Cowen and Company. Please go ahead.
Great. Thanks for taking my questions. My first one, James, it was a little surprising to see maintenance growth actually accelerate this quarter. On the flip side, a steeper deceleration on subscription growth. Are there any puts and takes that you'd call out in terms of the revenue mix this quarter? How should we think about how much license and maintenance growth steps down to next year as you focus more on the cloud?
For Q4, we are pleased with the maintenance growth rates. Obviously, you're starting to see the price increases from really the last couple of years layering into that figure now. On the subscription growth rate, the behind-the-firewall component of that subscription revenue line had a particularly strong comp back in Q4 of fiscal 2018. That's really what drove the result there in this past quarter. We're continuing to be very pleased with our cloud business, our marketplace business, and our data center business in terms of growth.
As we've been discussing now for a couple of years or so, we would expect that gradually over time, the license maintenance side of the business doesn't grow as strongly, and you see that flowing through in the strong growth of the subscription growth line that we gave you a steer on for fiscal 2020, with growth expected there of greater than 40%.
Great. Thanks. Now I guess more of a product question regarding the new free cloud license for on-premise customers. Can you give us a sense as to how long those customers will get the free license, and at what time period they'll have to start paying added fees for the cloud service?
It's Scott here. The freemium model, there's many different ways that the companies do that. We have free trials for many of our products, and we have freemium for many of our products. For the free trials, they're generally a couple of weeks, but what we're talking about here is moving many of our products from a free trial approach to a freemium approach, where there is effectively a feature or user-limited version of our products that are free forever. We've found, through the experiments we've done over a long period of time, and the fact that we have multiple products with different pricing models, that the freemium approach, whilst it has some short-term headwinds in terms of revenue for us, actually provides the best long-term sort of revenue for us as a company.
As Mike mentioned earlier, when you're after the Fortune 500,000 and the markets are so large, that's a trade-off we'll make every day of the week, trading off some short-term revenue for long-term customer acquisition. That's what we're talking about. We have free trials. We're moving to a freemium feature and user-based model.
Got it. Okay, thanks.
The next question comes from George Iwanyc with Oppenheimer. Please go ahead.
Thank you for taking my questions. You had really strong growth with your larger customers, the ones over 50,000 and 500,000. Can you give us a sense of the factors that are driving the expansion there, and maybe also a sense of the penetration of your newer products with those larger customers?
Well, the factors are a couple things. One we've created in both the on-prem business and now in cloud with premium editions, really important upgrade opportunities for those customers as they continue to scale. That's one factor. We've also expanded the portfolio, so we have more products to talk to those customers about that are meaningful. We're doing that well. I think those are kind of the two things that are contributing to growth in both the customers that are spending more than $50K and customers that are spending more than $500K. There's still a lot of latent opportunity for us to continue to do that.
In concert with the stronger signals of cloud, I think we're really excited about the opportunity for premium editions in the cloud as both a similar upgrade path for just the existing cloud base that's on standard, that's on the version of cloud that exists today. Also as Server customers consider the move to cloud, they've got the opportunity to either stay on-prem with an upgrade path to Data Center or to move to a premium version of our cloud products. Both those are opportunities, I think, to increase the two cohorts that you described.
With the multi-product opportunities that are opening up, can you give us a sense of just the competitive landscape? Are you seeing yourself go up against more companies with the larger customers?
Not materially. I think the competitive landscape, as we've described before, is different by product and by category. I think we've got a really strong advantage with just our existing base and where we're expanding from. A lot of these products are deeply connected into, as an example, Jira. The Jira affords us an opportunity with a champion and a kind of a key fanatical base inside of our customers where they're going to look for the best product that actually allows them to extend or to weave a kind of capability into an adjacency like IT operations management or incident management. Opsgenie, as an example, benefits a lot from the existing Jira Software base of 65,000 customers. Part of the momentum that we're seeing in Opsgenie is exactly related to that. The competitive landscape doesn't change.
I think we lean into our advantages, and we're focused on building the best product in any category, and then using all the levers that we can to introduce that product to the customer.
Thank you.
The next question comes from Keith Bachman with BMO Capital Markets. Please go ahead.
Hi. Thank you, James. I'm going to start with you. You did mention or talked about the pricing impact to subscription. I wanted to extend that. If you thought about the guidance that you gave, is pricing net net still a tailwind as you think about the overall opportunity associated with FY 2020?
Yes, it is. I think that's a reasonable way to think about it.
Specifically, you said subscription would probably be less so in 2020 than 2019. Is that broadly true of the balance of the portfolio as well?
Just to be very clear, my comment was around the cloud part.
Yeah.
Now, remember, there are two parts to the subscription revenue. There's Data Center, as well as Cloud. For the cloud part of the business, I would expect price increase activity to drive less growth for us than was the case in fiscal 2019.
Okay. If you could just answer that, broadly speaking, is that true for the rest of the portfolio, or
No, I wouldn't really extend the commentary beyond that. Obviously, we haven't made any pricing announcements yet to our customers. We just wanted to give you a sense for what might be helpful in some of your modeling.
Okay, great. My second question is, could you provide any update on Align? Just any kind of traction or metrics associated with that particular offering?
Thank you. This is Jay. No metrics, but in terms of traction, really pleased in just the response that we've seen from customers and the momentum we saw in the first quarter. I think the timing of the announcement with Summit certainly helped, and I think you were at Summit. You heard some of the interest just directly from like ANZ Bank on the stage, when we talked about their interest in Agile transformation and the consideration set around Jira Align and AgileCraft prior to that. Q1 was our first full quarter with the team integration, pipeline, channel enablement, all those things are humming. We're pleased with the result.
Okay. Yeah, Jay, there did seem to be a lot of interest at your user group event. Thanks very much for the questions.
The next question comes from Rishi Jaluria with D.A. Davidson. Please go ahead.
Hey, guys, thanks for taking my questions. Nice to see continued strong results. Two kind of broad classes of questions. First on the cloud migrations, and then I've got a follow-up on Trello. On cloud migrations side, to kind of piggyback off Sanjit's observation earlier, in the chart that you gave us, which was really helpful when you talk about it essentially comes out to about a 1.4x uplift from Server to Cloud. Even if we look at year five, maybe closer to maybe a 1.6x-1.7x uplift. I know with other software companies, when they've talked about migrations to cloud, they've talked actually about a 2x-3x. Maybe just help me understand why the delta and feel silly complaining about it, but why is that uplift not bigger?
Alongside that, in terms of driving the migrations, should we start to see something like cloud-only features or cloud-only products as an incentive to help customers migrate? Then I've got a follow-up on Trello.
Hi, Rishi. I'll answer the first part, which is about cloud migrations and the uplift. Look, firstly, it's an illustrative example we've put into the document. At each segment, there's different pricing characteristics. Two is that we have always been patient for revenue with our customers and making sure that there are less barriers to move across to the cloud is very important for us as well. A lot of the pricing we've set there is to help customers move across to the cloud.
Okay, got it. Thanks. Then just in terms of from a product perspective, anything in terms of should we expect to see cloud-only features or cloud-only products to help kind of incentivize customers to migrate?
Yeah, mate, it's Mike here. We do have a series of cloud-only features and products, if you think about it. Opsgenie, Statuspage, Align are all cloud-only products. Although Align does support on-premises instances in terms of the data it can attract. You've seen us introduce specific cloud-only features like Access, and even within the Jira family, within Confluence, there is some slight feature differences between on-premises products and cloud products. Yes, there are already, I guess, some feature differences, but by and large, if you're using Confluence or Jira Software or Jira Service Desk, they're still largely the same product on both sides. We do make sure that data compatibility is really important. For the customers that are migrating, we mentioned the Confluence Cloud Migration Assistant. We released a few versions of during the year and the upcoming Jira Cloud Migration Assistant.
That requires us to be able to move, especially for the large volume of smaller customers, to move that data automatically. We do make sure that data compatibility is really important, but there are feature differences between the two, for sure.
Got it. Thanks. That's helpful. Then just quickly on Trello, you did mention in the material that you had an uplift in customers or paying customers with the result of kind of the board limits. Can you be, I think, just help us understand what kind of the result of that was that a conversion of free to paying? Was that something else? Then maybe talk a little bit about the traction you've seen with Trello Enterprise. Thanks.
Sure. Look, Trello has continued to power along very strongly. We're very happy about how it's going. As we've said, our primary goal with Trello is still to continue to establish Trello as a brand, Trello as a product, and continue to grow the momentum that it has as a standalone business. We are doing more and more integration over time. That's a long-term journey. We did introduce some pricing changes throughout the year. You've seen some of the impact of that, as we've called that in the customer number this quarter. Some of that is a one-time benefit that we've talked about because while the flow of Trello customers will be marginally higher, we are changing some of the free- to- paid conversion rates.
That from a large existing free base, obviously, you get some of the existing base converting over at a faster rate, which is what we've called out in the customer number there. At the same time, we are focused on Trello Enterprise. We've had a really good couple of quarters in Trello Enterprise as we continue to invest in features there. We put that into the shareholder letter as well. As businesses adopt Trello with tens of thousands of users and beyond, they do have different sets of requirements that we continue to work with the customers on establishing. When you have hundreds of thousands of boards across a customer, you need methods of organizing that content, finding that content, managing large-scale users, et cetera, which is exactly what we've been doing in the Trello Enterprise product.
Obviously, with such a large install base in Trello, that has a very good future.
Got it. Great. Thank you. That's helpful.
The next question comes from Heather Bellini with Goldman Sachs. Please go ahead.
Great. I just wanted to, and apologize for missing the slot earlier. I just wanted to ask real quickly about Opsgenie. You commented about how it accelerated the pace of additional paid users, and was just wondering if you could talk a little bit about how you're seeing that cross-sell opportunity into your Jira install base. Is there any color that you could share about where you're seeing the success of cross-sell across those products? Thank you.
Heather, I can't get into specifics, but as you mentioned, we mentioned in our shareholder letter that we've doubled the pace of customer acquisition. We feel really good about that acquisition. If you look through our internal charts, there is a distinct change when Opsgenie became Atlassian, and we feel great about that. Chatting with customers, it's a great product. Sometimes I've mentioned at the acquisition, sometimes you acquire something and you have to add features to it or make it enterprise-ready. Opsgenie actually scales better than any of the other products out there on the market. For us, it was just a matter of getting it in front of our customers. Now, still very early in the journey of putting it on the Atlassian platform. We're really happy with the pace, but we've only sort of acquired it less than a year ago.
We've already done identity and user interface and stuff like that. We're sort of still at the start of what I think of in terms of cross-selling into our existing base.
Heather, I would just add that when we announced the acquisition of Opsgenie, we noted that it would drive a point of revenue growth on the then revenue guidance for fiscal 2019. I'm pleased to say that we achieved that, so strong momentum.
Okay. That's great. Thank you. Just a quick follow-up. It's net new customers that you're getting from this too, plus expansion into the installed base. You see the opportunity on both fronts, is that correct?
That's right.
Yes, that's right. Very much so.
Thank you very much.
Again, if you have a question, please press star then one. The next question comes from Pat Walravens with JMP Securities. Please go ahead.
Hi, this is Joe Goodwin on for Pat. I just wanted to ask real quickly about how is the relationship with Slack going, and can you speak to some of the opportunities that may be on the horizon?
Hey, Joe. It's going great. We've got I think a good relationship, great integration that we continue to improve between the products. We're in the market, I think, talking to customers at both of our user conferences and events about the relationship that exists and the value for customers when they integrate them more deeply. You saw that at Summit where we talk a lot about just how we use Slack internally and extend their products and they're users of our products at the same time and doing the inverse. It's good.
Great. Just a quick follow-up. Is the monitoring space a space that you guys would ever enter into?
Scott here. At the moment, it's not an area that we're actively looking at. There are a lot of players in that space, and there's I guess no clear winner. We benefited a lot more from integrating with the leaders in that space, and we have a great relationship with all the leaders in that space.
Again, it's Mike. I might just add, philosophically, if you look at our history, we do try to solve human and people problems, not technology problems. Where we stray into areas where you're solving a technology problem, be it language-specific features or analytic-specific features, it's not
It's not our core DNA, right? We're a collaboration company around teams of people. Something like Opsgenie, where you're coordinating people is much more in our wheelhouse of strength in our DNA as a business around solving people and collaborative problems around technology, rather than actually solving technology problems per se.
Thank you.
The next question comes from Greg Howell with Deutsche Bank. Please go ahead.
Oh, great. Thanks. Hey, you may have already touched on this. I joined a little bit late. I just want to make sure I understood some context behind the fiscal 2020 guidance. How should we think about the acquisition contribution to revenue growth in fiscal 2020? Is there any residual impacts on operating margins, particularly from AgileCraft?
Well, we haven't broken out any specific acquisition element of the fiscal 2020 guide. Obviously, we have just been talking about how pleased we are with Opsgenie and Jira Align. We're looking for those both to continue growing strongly during fiscal 2020. In terms of the operating margin effect, around Jira Align, in particular, we'll be working through the deferred revenue haircut that comes along with every software acquisition. That will impact the Jira Align revenue growth rate during fiscal 2020. We'll still have some of that for Opsgenie as well, but we're three quarters further along that pathway with Opsgenie. During fiscal 2020, their deferred revenue haircut should start to ebb.
Okay. That's helpful. Thank you very much.
This concludes our question and answer session. I would like to turn the conference back over to the management team for any closing remarks.
Just want to say, thanks everyone for joining our call today. From the bottom of the sea, to the top of the clouds, we continue to work hard to deliver for our customers. We appreciate your time today and look forward to keeping you updated on our progress.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.