Good afternoon, ladies and gentlemen. Thank you for joining Atlassian's earnings conference call for the second quarter of fiscal 2019. 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. Welcome to Atlassian's second 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 second quarter of 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 and 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 results. 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. Further information on these and other factors that could affect the company's financial results is included in filings we make with the Securities and Exchange Commission from time to time, including the section titled Risk Factors in our most recent Form 20-F and quarterly report on Form 6-K. In addition, during today's call, we will 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 their 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 on our earnings release, our shareholder letter, and in our updated investor data sheet on our IR website. I will now turn the call over to Mike for his brief opening remarks before we move to Q&A.
Good day, everyone. Thanks for joining us today. Q2 was a beauty. A great way to cap off 2018, as we surpassed $1 billion in calendar year revenue for the first time. In Q2, we had $299 million in revenue, up 39% year-over-year. For the quarter, we also generated more than $122 million worth of free cash flow. In October, we closed the acquisition of Opsgenie, a leader in incident alerting and on-call schedule management. We're tremendously excited to have them join the Atlassian family as we double down on IT teams this year. IT organizations big and small are becoming more service driven and agile oriented. As technology becomes the key ingredient for growth and survival of nearly any business.
We're excited about the role we play in helping IT drive that transformation. Opsgenie plays a key role in strengthening the service and response muscle for IT teams across the Fortune 500. During Q2, we also acquired Butler for Trello, one of Trello's most popular integrations. Butler gives Trello users the ability to work smarter and faster by bringing the power of workplace automation to their Trello boards. Individual users can shrink multiple steps into one or have things like user assignments or status change based on triggers or rules that they set up themselves. It's a superpower that we're excited to bring to the millions of daily Trello users. I'm also excited to share that Jira Software recently surpassed 65,000 customers. This is more customers than the entire company had when we went public just three years ago.
Including Opsgenie, we ended Q2 with a total customer count of more than 138,000. We provided more detail on these announcements, along with many other updates in our earnings release and shareholder letter that was issued earlier today. With that, I'll pass the call to the operator for Q&A.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. 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. Congratulations. That was a spectacular quarter, so great job there. I guess I just want to touch on a couple of quick things, and it's one question, but with two small parts. When you think about the quarter specifically, I'd love to understand sort of the impact pricing changes had, in terms of pull forward and sort of what the impact of that might have been. Just some quantitative and then also qualitative commentary on sort of how that played out to the customer behavior you've seen in the past year, given the pricing increase, what they saw, churn, et cetera, and then the pull forward. Thank you.
Oh, thanks, Bhavan, for that question. The first thing that I'd really like to emphasize is that our key top-line metric that we focus on to measure our business continues to be revenue. That's because we are not like most traditional enterprise software companies in that the significant majority of our business is made up of either monthly or annual subscriptions or annual maintenance contracts, and we expect this to be increasingly the case as our customers continue to choose our cloud and Data Center offerings. To further emphasize this point, again, unlike many other software companies, multi-year deals are only a tiny fraction of our business. While pull-forward activity by our customers ahead of a server price increase
Drives really just a timing difference rather than a change in the scale of our relationship with that customer. As a result, we very much believe the revenue is a better reflection of the underlying customer demand for our business when you consider our performance over time. More specifically, to address your question around pull-forward activity. As we indicated on the call last quarter, we did see a significant volume of Q2 transactions coming in ahead of the server price increases taking effect. This activity came in the form of both early annual renewals and multiyear renewals. This pull-forward activity, in essence, replaced what would otherwise have occurred in the second half of our current fiscal year or the following two fiscal years as well. In terms of the part of your question around the customer behavior and so forth.
Again, as expected, I must say, I'm pleased by the overall reaction to the price increases that we've had from our customer base, I think that's illustrative of the way we roll out price increases. We give lead time, of course, accompanied with those price increases are very significant improvements in the product. We're investing heavily in our product every month, this comes through in terms of the value we create for our customers.
That's really helpful. Thanks, guys. Appreciate the color there. Thank you, and congrats.
Okay. The next question comes from Nikolay Beliov with Bank of America. Please go ahead.
Hi. Thanks for taking my question, and congratulations on the result here. I have a pretty basic question for the team. You highlighted 65,000 Jira Software customers. Can you please remind us, Scott, roughly the split between Jira Core and Jira Software? And right now, where do you think is the penetration of the potential market for Jira Software? Are we in the second inning, the fourth inning? Just wanted to get your opinion on the team.
Thanks for the question. It's Scott here. We don't break out Jira Core from Jira Software. I think Jira Core is a relatively recent offering for us, and it's still growing. It'd be safe to say that the majority of our revenue in the broader Jira family comes from Jira Software and Jira Service Desk, but still the majority is Jira Software. What was your second question, was around are we the first, second or third or fourth innings? I think that's an American term. I think I'd have to translate that to like a cricket term. Are we the third day of the test, I guess? For us, the way I think about it is the software market is growing incredibly fast. Every company is becoming a software company. The market itself is growing very fast.
We are continuing to grow our customer base within that market incredibly well. Then we're also growing our share of wallet within our customer base as we do more things for them, such as Opsgenie, which we talked about, the Jira Service Desk. We also, as we start going adjacent into more IT teams, we're seeing that as a sort of a new market opportunity for us as well. I feel very good about both the TAM and the sort of relatively small penetration we have within that TAM today.
Just to add one point on to what Scott was saying there. The US Bureau of Labor Statistics recently came out with some data estimating that the number of software developers in the world is going to be growing 24% annually through 2026. A very interesting illustration of the future potential.
Got it. James, quick question for you. Long-term deferred revenue increased sequentially quite a bit. We haven't seen that in a while. What drove that, and what do you think the forward trends would be in long-term DR over the next couple of quarters?
Yes. Well, as you say, long-term deferred revenue sequentially was up around $14 million, and that certainly is a larger bump than we would usually see from one quarter to the next. That was very much driven by this pull-forward activity that I was referring to earlier. In particular, obviously, the multi-year part of that pull-forward activity. The long-term deferred revenue represents activity that will be earned into revenue beyond 12 months from now.
Thank you.
The next question comes from Heather Bellini with Goldman Sachs. Please go ahead.
Hi, this is actually Ted Lin on for Heather. Thanks for taking my question, and congrats on the strong quarter. I was wondering if you could just give us an update maybe on your overall philosophy on pricing. Historically, it seems like you've gotten a lot of people in at a very low price to help prove willingness to pay. For a lot of your customer base, it's a pretty high value to cost product. How do you capture more of the value that your customers are getting longer term?
Yeah. Hey, this is Jay. I think you captured the philosophy in your question that we believe in providing incredible product at the most affordable price. That's been consistent through the company's history. We also believe on creating opportunities to land inside of customers, where we remove prices as part of the friction. In Opsgenie, you'll notice that in October, shortly after close, we lowered pricing, introduced a free plan. We are transparent with our pricing, so across the spectrum of what customers can buy and how they grow with us. We basically share those price points so they don't have to ask. That's effectively the philosophy. Where we work to participate in greater share of wallet is in adding more capability and more premium features that support enterprises as they scale with us.
We've done that in the context of the Data Center product family, which we've talked about is growing nicely and continues to grow. In the cloud, we've done that in the context of Access, which is effectively a premium capability that supports stronger identity and security management for customers.
Great, thanks for the color. I guess on the core, given that the strong outperformance and the strong pull forwards that you saw, how should we think about that impacting the shape of the seasonality of deferred revenue and billings for the rest of the fiscal year? Thanks.
I would just sort of reconfirm that pull-forward activity would have come from both the second half, both quarters of the second half of this fiscal year, as well as the two subsequent fiscal years, fiscal 2020 and 2021. You're right, by looking at that sequential path of both short-term and long-term deferred revenue, you can get something for a steer as to the balance of where that pull-forward activity came from.
Makes sense. Thanks for the color.
Okay, thanks. The next question comes from Ittai Kidron with Oppenheimer. Please go ahead.
Thanks, congrats, guys. Great quarter. Couple of questions for me. First of all, since you know how many people pulled in revenue, can you roughly tell us what was billing growth without this pull-in effect? The second question, more on the competitive front, now that GitHub is part of Microsoft, you haven't talked much in your prepared remarks about Bitbucket, but can you tell us if anything is changing competitively? How's momentum in that business? Is anything changing out there in the marketplace?
Yeah, just briefly to the first point, I just sort of reemphasize our focus on revenue as the top-line metric that we track to really understand the underlying relationship with our customers over time. Scott, are you going to take the second one?
Yeah. On the GitHub acquisition from Microsoft, we haven't seen any material change this quarter in the competitive market. We believe what we have said previously, which is that Microsoft's primary goal in acquiring GitHub was to get more of their developers into Azure, that's what we continue to see to be the Microsoft focus. There's no real change in the last quarter on that front, even with the changes in how they priced their GitHub.
Very good.
Okay. The next question comes from Keith Weiss with Morgan Stanley. Please go ahead.
Excellent. Thank you guys for taking the question, and very nice quarter indeed. I was hoping to sneak in two questions, one on Opsgenie and kind of the competitive environment that you see out there, where kind of like the combined offering that you guys are bringing to market is going to sort of be able to gain some competitive advantage. Then on maybe one for James on the operating margin side of the equation. Also like a really impressive quarter for operating margins. You saw some real nice year-on-year improvement. The guidance doesn't have that. The guidance is a much kind of more muted on year-on-year compare in terms of operating margins.
Can you talk to us a little bit about sort of where those areas of investment are and sort of why, on a year-on-year basis, it would be so much lower kind of improvement on operating margins in Q3 versus Q2?
Scott here. I'll take the question about the Opsgenie in the competitive market. We feel incredibly bullish and excited about the market for incident management. For those of you who sort of new to the story, as developers move their workloads to the cloud, as companies become more of a software company, developers are increasingly being on call. They're responsible for making sure that their code stays up through production and is performant. When it's not, companies need ways of sort of alerting their developers and coordinating responses. Those responses could be around downtime, they could be around security incidents, all these things that are involved when you're running code at scale in the cloud. Opsgenie is a response and plays in that space. We feel really very bullish about that. We have Opsgenie that does the incident alerting part.
We have Jira, which handles a lot of the tasks before and after. We know Jira is the way that work gets done in organizations, putting those two things together is very powerful. We also have Statuspage, which is the leading provider of status pages on the web to communicate with your customers if you're having downtime. When customers have problems, they want to know that something's up with the provider, and we use Statuspage for that. That combination of those three products is, in my opinion, unmatched out there in the market, and we're really bullish about bringing those together.
Excellent.
Keith, on the margin side of things, let me handle that. In Q2, obviously, we did see a strong operating margin really driven by some nice performance on the revenue line. On the spending side of things, both in the cost of goods sold, we saw some nice benefits there as we continue to work on the efficiency and effectiveness of our hosting expenditures. On the operating expense side, I'd point to some timing issues around the arrival of additional headcount, and also some lesser than expected spending around certain professional services. All of that combined to drive the Q2 result. As you note, we are expecting margins to be lower in the back half of the year. As you think about the Q3 story, there are a few different things driving that.
First of all, Q3 is when we issue additional salary increases to our team. That begins to kick in. Also, Q3 represents the start of the calendar year, obviously, and therefore the payroll tax reset associated with our employee expenditures. In addition to that, as we talked about on the last call, we've really been putting effort and investment into our hiring engine, if you will. We're pleased with the progress that we're making in that regard. While we increased our employee count substantially in Q2, obviously about half of that was driven by Opsgenie. I would expect the organic level of headcount to continue to increase in Q3 as we particularly invest in our R&D-centric model. Within the R&D area, we see a lot of different opportunities, obviously, right across our business.
I would particularly point to our cloud products as a whole, to our work on our cloud platform, which you can think of really as us developing common componentry that we'll utilize across the different cloud services. Of course, this will allow us to build cloud services more efficiently and more quickly, as well as helping us adjust our ability, improve our ability to deal with larger deployment sizes while continuing to enhance our security and privacy compliance requirements, that sort of thing. We've talked a lot about the IT market opportunities. We'll be particularly investing there. I'd call out Opsgenie as one clear example in that arena. I'd also point to the Data Center offerings for our on-premises customers. We've been very pleased with the growth rate in recent quarters there, and I would expect that to continue into the future.
Excellent. Thank you, guys.
The next question comes from Richard Davis with DG Financial. Please go ahead.
Hey, thanks. It's CG, but that's okay. I think it was like 85% of your new customers came on as cloud subscribers. Is there any difference in lifetime customer value for cloud customers versus on-premise? I'm sure there's a different shape in the profitability, but I've just always wondered about that. Thanks.
Hey, Richard. This is Jay. Not materially. I think as we've mentioned before, cloud is a little more expensive than server. We also have the ability to operate cloud a little differently than we can in server because we have visibility into how the product's being used, and we have different avenues that we can leverage for cross-sell and expansion and connecting to the customer in product to open up different paths and avenues for cross-selling and other products. From a lifetime value, I think they're pretty comparable, and that speaks to the strengths I think that the products provide themselves and the value they provide to customers.
Yeah, Richard, this is Mike.
Hey, bud.
This is Mike. Just to add one thing. When Jay says the customer lifetime value is comparable, he means on a customer potential basis. We tend to calculate, for example, if someone is a 50-person company, going wall to wall in that company, we can sell 50 seats. If someone is a 50,000-person company, we can potentially sell 50,000 seats. For the size of the company, our potential return or lifetime value is equivalent. Generally, the larger the company, the less likely they are to choose cloud today. Obviously, that's changing on a timescale basis, if that makes sense.
No, that's super helpful. Thanks very much.
The next question comes from John DiFucci with Jefferies. Please go ahead.
Hey, guys. This is Zach for John. Could you talk a little bit about the Slack partnership, how it's going, the transitions from Stride and HipChat, and then any changes there competitively with Microsoft or anyone else?
Yeah. Hey, mate, I can talk to that. It's Mike. Sure. Look, I'd say the partnership's going very well. We have a great relationship there. We continue to work together and build our features and functions that help joint customers across our product portfolios to have the best experience that they can. We continue to move through the transition and migration period for HipChat and Stride customers. Again, there's about a month and a bit left of that. We continue to work with big and small customers to help them migrate and to get into that future world. I don't know if we have anything else to call out on the go-to-market side there, but it's been going pretty well so far.
Okay. Thank you very much. James, if I could, you guys raised that convert a few quarters ago. You're at like $800 million or something in net cash today. I was wondering how you guys think about the positioning there going forward. Any additional raises that you might looking make, what the ideal balance is?
Yeah, I think the converts as well as our ongoing free cash flow generation provides us with substantial financial flexibility. We're very pleased by that, given the scale of the market opportunity that we have in front of us. We're obviously very pleased with, in particular, the continued progression of our cash flow results.
Okay, great. Thank you guys very much.
Okay, the next question comes from Michael Turits with Raymond James. Please go ahead.
Hey, guys. Good evening, good quarter. On the upside on the billings, how much of it was in addition to the pull forward may have been, was there any particular shift to more Data Center and multi-year contracts, either on Data Center or on maintenance?
Yeah. Michael, I wouldn't point to anything in particular, other than what I've really commented on already. Remember that the price increases really applied to our server business. We did not increase prices on the Data Center business. It was really much more that part of the overall platform that we offer that was driving the pull forward.
Got it. Also a strong quarter on the other line, which includes Atlassian Marketplace. Anything that suggests any particular inflection there?
Yeah, we were very pleased with the Atlassian Marketplace performance as we have been now for a number of quarters. One additional accounting element, in terms of a technical issue, is that pull forward activity related to our customers buying Atlassian Marketplace apps. Our portion of those purchases drops straight into revenue in the quarter that they occurred, since we've already satisfied any conditions that we need to be able to execute on at that point.
Okay, thanks very much.
Okay, the next question comes from Rishi Jaluria with D.A. Davidson. Please go ahead.
Thanks. Hey, guys. Thanks for taking my questions. Two quick ones. First, just the stat you gave around cloud customers, definitely really impressive. It's nearly 75% of total customers. Can you just give us a sense for how this number has directly trended over time, and where do you think it'll end up over time, especially given that 85% of net new customers were cloud customers? Then I've got a follow-up.
Yeah.
Oh, look, I can answer that. Directionally, it's clear in the numbers. As we've said, it's more than 85% of new customers come into the cloud. I would say we expect that to continue to trend upwards as companies increasingly Fundamentally, if you zoom out, the cloud can provide a better offering than I think most companies can run themselves. It can be more secure, it can be faster, it takes away the operational management hurdles. You don't have to upgrade it. There's inherent obvious advantages in the cloud. Our belief is it's going to be a decade-long transition, and the vast majority of software will be run in the cloud. We're seeing 85% plus of new customers coming in choosing that. It's logical that our overall customer base would trend to that and then continue to trend up as that's the case.
At the same time, we don't force migrate customers. It should be very clear. We are pro-customer choice, and there's a significant number of companies for whom that's not their choice. That is a distinct advantage of Atlassian over a pure cloud vendor, is that we can provide a better or more holistic offering as companies go through that transition internally over the next decade.
Got it. Thanks. That's helpful. Then one follow-up for James on the gross margin guidance. I guess just how should we be thinking about why implied Q4 gross margins should be dropping from where they are? With the AWS migration being done, what should the longer impact on gross margins be? Thanks.
In the back half of this fiscal year, we'll continue to be investing in some of the Data Center infrastructure in Asia Pacific in particular. That will drive some additional cogs for us. Over the longer term, obviously, as Mike was just pointing out, we would expect cloud to continue to steadily grow as an overall proportion of the business. We know cloud comes with lower gross margins than the behind the firewall platform offerings that we have. Obviously we're doing the hosting work, whereas behind the firewall, our customer is paying for that activity.
Okay, got it. Thank you.
Okay, the next question comes from Keith Bachman with BMO Capital Markets. Please go ahead.
Hi. Thank you very much for taking the questions. I had two quickies and a longer-term question. Was there any inorganic help, or was the inorganic help in any way material in the quarter you just reported? In addition, Europe looked like it had some strength there. Was anything you wanted to call out in Europe as being unusual, or what was the driver of strength? I'll wait to ask my follow-up. Thanks.
Yeah. In terms of inorganic activity, we closed the Opsgenie transaction at the start of the quarter. When we announced that transaction, we indicated that it would drive around a point of revenue growth for us during fiscal 2019. That would be the only factor. We would have got a full quarter effect of Opsgenie on the revenue side there. In Europe, what I would point to there is that our channel is a very important component of our distribution generally. Indeed, around half of our channel partners are in Europe. It's a particularly important part of our European distribution business. Those channel partners in Europe in particular, worked effectively with our customers around some of the pull-forward activity that we spoke of earlier.
Some of that activity, I mentioned the Marketplace activity in an earlier answer, does drop immediately in the quarter to revenue. That would have also benefited that EMEA growth rate that you see.
Okay, fair enough. Then the question I wanted to ask, again, directional and philosophical, is when you're thinking about your revenue growth profile, there's a few things that impact it. One is prices, the other is mix. I'm also just trying to understand how we should thinking about subscriber growth as being a driver of future revenue growth. Is there any kind of metrics that we should be thinking about? Is it the key driver of your growth going forward, or just any kind of categorization of how that impacts the top line? Thanks.
Yeah. Good, [Amanda]. I can talk about that, I guess, philosophically. Look, we've been very clear that we have a lot of different growth vectors in our quite unique business. That's a constant intellectual challenge for us to manage between the different levers. I think we've done, if you look at our history, a pretty good job so far. When we talk about that, obviously, you get the headline customer number, which was past 138,000, which is a great number. That only means that is a singular domain name, think of it as a singular company that's become an Atlassian customer.
They have a lot of different ways to grow. You've seen us over time build out the portfolio. We add more products, there are more things that that particular customer can buy. Secondly, obviously, the customer themselves can grow inside the product that they're already in. If they land in Jira Software, if they land in Trello, they land in Confluence, they can just literally add more of their company to that. If they've got 10,000 employees, they might start with a 50-person team somewhere, and our job is to continue to deliver value to them over time so that they will grow into a 100-person customer for us, then a 1,000-person, and hopefully to a 10,000-person customer. That's just within our stable.
The other thing, obviously, is things like the Marketplace, which has been called out a couple of times on the call, which is an ability for that customer to grow outside of things that Atlassian builds, and we provide the platform for that, to connect those vendors and the great ecosystem we have with those customers in a transactional way. Lastly, you've seen us, I would say, judiciously exercise our acquisition model over time as another way for the business to grow. The headline customer number, 138,000, is a very good one, but we have a lot of ways to grow those customers within that number.
Okay. All right. Thanks very much. Good luck.
Okay, the next question comes from Jonathan Kees with Summit. Please go ahead.
Great. Thanks for taking my questions. Hey, guys. It was indeed a ripper of a quarter, That's impressive given the gloom and doom you see in the headlines, you read in the headlines in the news. I guess my question is more what concerns you in terms of the macro issues, Are you not seeing much? I would think you at least encounter stuff like the government shutdown. You do have exposure to the government, the federal business. There is indications of IT slowdown, That would impact software. You obviously don't manufacture stuff in China, so that doesn't impact you. In general, what are the macro issues that you are seeing and that concerns you?
Yeah. Jonathan, I'll take that one. We aren't seeing anything specific in terms of macro weakness. As you pointed out, our exposure to China is really immaterial. While we certainly wouldn't say that we're immune to a recession, we also believe that, as was quoted back around the IPO times, that our business is very much built for stormy weather. The company has been able to very nicely weather the last two recessions. I think our low-cost, high-value model is a big driver of that. Another thing to consider, of course, is that the way we distribute our product, it's really chosen by the end users rather than sold top-down and pushed onto those users. Feel good about the business model's ability to withstand a dip economically.
Okay. All right. That's helpful. If I can ask one other question. You've mentioned, James, that obviously margins are going to be going down in the second half, specifically operating margins. Sales and marketing ticked up substantially on a sequential basis there and actually over the last several quarters. Is this going to be the new norm? I know in the past you've talked about initiatives to try to promote Trello, focus on that first, launch it across the world, and then focus on monetization later. Are we talking about we're going to be seeing increased levels of sales and marketing going forward, even beyond second half?
On the call last quarter, we spoke about the fact that we were going to enter into a specific marketing campaign around Opsgenie, in combination with, as Jay was discussing earlier, the price reductions that we rolled out into the marketplace. You may have seen some of that activity around the country. That was a big focus of Q2. I would say that we do have some plans for the balance of this year to continue to push on that IT market opportunity. The other thing that I would point to is Jira Software Cloud was relaunched just back in October, and Jay and his team have been putting considerable marketing effort behind that as well. I wouldn't necessarily draw a long-term trend around the current level of activity in the sales and marketing arena.
We're very pleased with the investments that we've been making there and expect to make for the balance of this fiscal year.
Okay, great. That helps. Thanks a lot. Congrats, guys.
Thank you.
Okay, the next question comes from Derrick Wood with Cowen and Company. Please go ahead.
Great. Thanks for taking my questions. I guess on that comment, the relaunch of the Jira Software Cloud and the increase in the user scale capabilities with Jira and Confluence, I'm curious, are you seeing increased interest from your on-premise base looking to migrate to the cloud? Or you generally see kind of the cloud versus the Data Center base swimming in two different lanes?
Yeah. Hey, Derrick, I'll take that. Migration between server, from server to cloud has been kind of ongoing as different segments of the market, to the point that Mike made earlier, move to cloud for all of the advantages that Mike described. We also kind of open the aperture on cloud to support larger companies, where we moved kind of, as you noted, the user limit increase from 2,000 to 5,000 for Jira Software. Confluence, as we do that, it'll open up the opportunity for larger customers to move. The Data Center business continues to grow for companies that, for reasons of their choosing, want to remain on server, but run our products at scale to support thousands to tens of thousands of users.
I think the way we think about server and cloud still is celebrating the choice of a customer to run the product where it best fits them, but provide incredible value in both server and cloud to support where they want to go and where they want to move to.
Great, thanks. Can you give us some color on what the reaction has been from your installed base on the Opsgenie acquisition? I guess given the price reduction, are you already starting to see transaction volume move significantly higher, or is there some time needed to digest the offering?
Derrick, it's Scott here. We've been very pleased with the response to all the things we've done. We've acquired Opsgenie, we've rebranded it, we've changed pricing, we've put advertising dollars behind it, we've improved the integration to the rest of our products. We've been happy with the results that have come from all those things. We do have examples of many people in the base who have moved from competitive products to Opsgenie purely on the basis of our acquisition and knowing that the increased integrations will come over time. We're already seeing some of that earlier on. Overall, we're very happy with how that's working out.
Great. Thank you.
Okay. The next question comes from Jack Andrews with Needham & Company. Please go ahead.
Hi, gentlemen. It's Khanh Ngo filling in for Jack today. Congrats on the great quarter. It seems that a majority of the IT first responders are still relying on legacy tools like Excel to manage their alerting system. What gets IT users to shift behavior to next-gen tools like Opsgenie? How far away are we from seeing a critical mass of users rely on software to automate their alerting processes?
I'll take that again. It's Scott here. We've experienced this over a long time. The majority of people 10 years ago were using spreadsheets to manage their software development process, too. As people have to move at a faster pace, as people have to be more collaborative, we see the shift to tools dedicated to this purpose. We'll see that, and we are seeing that today with IT first responders. There's a large number out there. As you have to be quicker in response, as you have to run more cloud services and increasingly as you become more of a software company producing software for your customers, those things need to change. I would say there's two areas of this. One area is people moving from spreadsheets. I would say there's a huge opportunity also from people that just aren't first responders today.
Many corporate IT, they don't make change very often. They'll release once a quarter or once a year. Internally, it's a very convoluted release process. They're not using public cloud. As a result, when things don't change, they break less frequently. We all know that these days, the pace of change in the environment is increasing. People are using cloud products, whether you're internal IT teams or you're producing software for your customers, that pace of change means that you're releasing more often, you're going to have more downtime, and all those things drive the need for products like Opsgenie to help responders. I view this like there's lots of different areas that are going to be growth opportunities here, even for people that aren't using spreadsheets today.
Okay, that makes sense. As the features and integrations between Jira Ops and Opsgenie kind of converge, how does the messaging around IT change? Do you guys go to trying to sell more of a platform solution, kind of emphasizing the synergies that having multiple products bring to the IT user?
Yes, that's a really great question. We've been known for 15 years now of being amazing for software teams and providing all the products that software teams need to get their jobs done, from Confluence that handles requirements and documentation all the way through. Over time, we've seen IT teams start adopting those products as well, particularly in the software area of the business, but also they use Jira Service Desk across their help desk environments. They'll use Confluence for IT run sheets and runbooks. We've had a deep presence in IT for a long time.
What we're seeing now is as we provide more of the solution, we're becoming more of a trusted vendor at a higher level of the organization, CIOs and down, who are now look to Atlassian as a trusted vendor to provide most, if not all, of what they need in their IT teams. That's the sort of market shift that we're seeing at the moment.
Okay, great. Thanks, guys.
Again, if you have a question, please press star then one. The next question comes from Patrick Walravens with JMP Securities. Please go ahead.
Great. Thank you. Congratulations. Can I step back and ask how you guys think about when you should build it yourselves and when you should buy it. Maybe you can use Opsgenie as an example.
I'll take that one. It's Scott here. We have strong bias to building things. We've got a long history of building, bringing products to market. We brought Bitbucket server to market. We brought Confluence, Jira Service Desk, Jira Ops. There's a lot of products we bring to market, so that's our strong preference. Beyond that, if the time to market aspect is really the reason we would look to bring something in where we want to move faster or there's an existing product out there. We also have a very strong marketplace. Where there's an existing solution in the marketplace where we believe it's something core to our customers, we lean towards acquiring something from the marketplace rather than trying to compete with them. We sort of have a preference there to make things rather than competing with our own marketplace.
Then down the way, if there's a time to market area, we will look to acquire something. On the acquisition side, we've got a very strong track record of success there in terms of products and making sure that they're successful inside the organization, and that comes from our strong bias on acquiring companies that have a strong cultural fit with Atlassian, a strong business model fit in terms of bringing a high volume, low price product, and also having a fit with our customer base. Opsgenie specifically, that fits very strongly in all three of those. Great cultural fit, perfect business model alignment, and fits right into the customer base and the next thing they need to buy.
Great. Thank you. Are there still major gaps sort of functionally for IT ops, or do you have most of what you need now?
It's an interesting question. I'd say we provide a huge amount of what IT do today. If I think internally of the areas we're focused on, one is that we're changing that perception so people do turn to us and look through the stable of products and see what we already have to serve them. We are still building and investing. We have a huge R&D investment to tackle the areas we don't have at the moment. Some of those are very small adjacencies on top of the platforms we've already got. You see with Jira, we've got this incredible platform in Jira that handles a lot of workflow, and often it's a case of just targeting specific workflows in IT on top of the platform that we've already built.
Okay, great. Thank you.
Okay, this concludes our question and answer session. I would like to turn the conference back over to the management team for any closing remarks.
Thanks, everyone, for joining the call today. We appreciate the time and look forward to keeping you updated on our progress. Thanks a lot.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.