Good afternoon, ladies and gentlemen. Thank you for joining Atlassian's Earnings Conference Call for the Q3 of Fiscal 2016. 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. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions.
I will now hand the call over to Ian Lee, Atlassian's Head of Investor Relations. Please go ahead, sir.
Good afternoon, and welcome to Atlassian's Q3 fiscal 2016 earnings conference call. On the call today, we have Atlassian's Co Founders and CEOs, Scott Farkar and Mike Cannon Brookes our Chief Financial Officer, Mario Dimo and our President, Jay Simons. Scott and Mike will begin by recapping some of the highlights from the Q3. Mario will then cover Atlassian's financial results for the Q3 and provide our financial targets for the Q4 and full year fiscal 2016. Following our prepared remarks, we'll have a brief question and answer session.
Jay will be joining for Q and A. The press release with our results for the Q3 was issued earlier today and is posted on our Investor Relations website at investors. Atlassian.com. There is also an accompanying presentation and data sheet available on our IR website. 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. In addition, during today's call, we will discuss non IFRS financial measures. These non IFRS financial measures are in addition to and not as 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. For example, other companies may calculate non IFRS financial measures differently or may use other measures to evaluate the performance, all of which could reduce the usefulness of our non IFRS financial measures as tools for comparison. A reconciliation between IFRS and non IFRS financial measures is available in our earnings release and in our updated investor data sheet on the Investor Relations section of Atlassian's website. Further information on these and other factors that could affect the company's financial results is included in the filings we make with the Securities and Exchange Commission from time to time, including the section titled Risk Factors in the company's Form F-one previously filed with the SEC in connection with our IPO and Form 6 ks report that was filed on February 10, 2016. I will now turn the call over to Scott.
Good afternoon. We had another strong quarter as a public company. For the Q3 of fiscal 2016, we achieved revenue growth of 40% year on year, non IFRS operating margin of 15.5% and $40,700,000 of free cash flow. This continued record of growth and positive free cash flow reflects the large markets we play in and the strength of our business model. Knowledge workers need to do 3 things, organize, discuss and complete work.
With our products, Bitbucket, Confluence, HipChat, Jira Software and Jira Service Desk, we offer a unique portfolio that enables teams to address these three needs. And our unique business model enables us to target all teams, not just the Fortune 500, but the Fortune 500,000. This unique business model targets this immense audience via 3 core pillars. A focus on R and D and innovation that flows from our belief that the best products win, a high velocity automated online distribution model and a transparent company culture. These three pillars contribute to a business model that is more long term focused and predictable than most enterprise software companies.
As reflected in our stock ticker, teams accord everything we do, solving complicated collaboration issues for our customer teams, but also by Atlassian serving as a role model for team best practices. We view our unique culture as a competitive advantage, and I'm proud to share 2 notable events that took place during the Q3. First, we publicly released our initial diversity report, taking an unprecedented approach by releasing diversity numbers at the team level. The benefit of diversity is ensuring the different backgrounds and ways of thinking are represented in every decision that we make in every team in the company. And by reporting diversity at the team level, rather than the traditionally reported corporate level data, we provide a clearer picture into how well diversity is spread throughout the company.
We sincerely hope that other companies adopt this focus on team level representation. 2nd, this quarter, Atlassian was recognized by the Great Place to Work organization as the best place to work in both the Netherlands and also across all of Asia. Having already been as number 2 in United States for companies with less than 1,000 employees and the number one place in Australia for companies of all sizes, Atlassian is now a best place to work across Asia Pacific, Europe and the United States. Mike and I have had a long term focus on creating a workplace where great teams thrive and this external recognition shows that we're well on our way. I'll now hand the call over to Mike, who will cover additional highlights from the Q3.
Good afternoon, everyone. As Scott mentioned, we had a strong quarter of revenue growth and positive free cash flow. We also added more than 3,100 net new customers during the Q3 of fiscal 2016, bringing our total customer base to 57,431 in over 160 countries. We have now added more than 8,800 net new customers since the beginning of fiscal 2016, which commenced in July 2015. As a reminder, our definition of a customer is an organization that has at least one active and paid license or subscription, for which they paid more than $10 per month.
Underlying the growth of our customer base are 2 important drivers. First, we have the ability to land within an organization through a variety of products and through any type of team, be it a technical development team or an IT or functional team within the business, such as marketing, finance, HR or legal. We make it simple for customers to find, try and buy our products via our online distribution platform without the need to haggle over pricing or complex documentation. 2nd, we expand from each initial land opportunity by offering additional products to existing teams. Building great products builds loyal customers.
These are customers who not only love our products and want to buy more, but who also want to share them with other teams inside of their organizations. With regard to landing in organizations, we continue to attract new customers across virtually every industry and business function and of all sizes. For instance, in the Q3 of fiscal 2016, we added startup technology consulting firm, Brilio, Chinese Financial Institution, Citic Bank and Automotive company NIS in Australia. In terms of breakdown by deployment, over half of our existing customers are cloud based and over 3 quarters of our new customers in fiscal Q3 were from the cloud. We were also pleased with the continued cross sell and expansion within our existing customers.
While our products are designed to work flawlessly by themselves, the real beauty is how they work even better together. Customers often choose Atlassian based on the breadth of the portfolio and the strength of the integration between the products. In fact, during the quarter, we released the findings of customer study that showed software teams released 14% more often on average when Jira Software is integrated with Bitbucket when compared with teams using just one of our products. This is a testament to the additional benefits our products provide when deployed together. Let me give you a few examples that show the power of Atlassian.
Healthcare technology company Global Health Exchange has seen the usage of our products expand across its organization from technical teams to a broad range of business teams. The company's engineering team collaborates and manages workflows using Bitbucket, Bamboo and Jira Software. Confluence has grown from being used primarily by the engineering team to other teams such as product management, executive leadership and sales, where it's used for tracking projects and communicating information. Endura Service Desk has now become the de facto way of requesting and tracking progress of work for teams, including HR, sales operations, contract management, facilities, information security and finance. Collectively, Atlassian enables many diverse teams to work together towards their shared goals.
Next generation real estate brokerage firm Redfin uses Jira Software, Bitbucket and Bamboo to drive a faster release of its products. With Atlassian's products, Redfin is releasing code 3 times faster, going from a release every 3 weeks 1 per week, plus another one that ships daily. Redfin says Atlassian's impact actually goes deeper than technology by influencing its culture and creating greater employee satisfaction. A third example, specialized bicycle components uses Jira Software and Confluence across business and technical teams throughout the company. Specialized tells us our products help their teams speak the same language and deliver greater levels of understanding, better workflow and overall employee enjoyment at work.
These are just 3 of the many thousands of customers collaborating more effectively with Atlassian's products. As companies adopt more of our products and more teams use those products, Atlassian not only enables software teams, but also IT and business teams to work more effectively. We continue to focus on initiatives that support this expansion beyond software teams. For example, last month we received ITIL certification, which is the most widely recognized approach to IT service management in the world. Achieving this certification will allow us to be considered by even more potential IT customers, particularly large enterprises.
In closing, I'd like to note that this past quarter marked our 14th anniversary as a company, and we truly believe that we are just getting started. Scott and I feel extremely proud of the more than 1600 Atlassians who are changing the face of team collaboration. Our customers tell us our products make working across and within their teams easier, more productive and more enjoyable. It's what inspired us 14 years ago and what still inspires us today. And with that, I'll turn the call over to Murray.
Thanks, Mike, and good afternoon. I'll cover Atlassian's fiscal Q3 2016 financial performance and our financial targets for the Q4 and full year fiscal 2016. Total revenue for the fiscal Q3 was $117,900,000 up 40% year over year. As we discussed last quarter, our revenue over the past few years has benefited from some pricing optimizations to Jira and Confluence that we initiated in calendar year 2012. Approximately 9 of the 40 percentage points of the revenue growth in the Q3 of fiscal 2016 were attributable to these pricing optimizations.
Turning to revenue by line item, I will provide a brief overview of each. 1st, subscription revenue primarily relates to fees earned from sales of our cloud products. A small portion of this revenue also relates to sales of our data center products, which are server products sold to our largest enterprise customers on a subscription model. We recognize subscription revenue ratably over the term of the contract. For the quarter, subscription revenue was $38,700,000 up 71% year over year.
The growth in subscription revenue reflects more of our customers choosing the cloud as well as strong growth in enterprise data center offerings during the quarter. 2nd, maintenance revenue represents fees earned from providing customer updates, upgrades and technical product support for our perpetual license products. Maintenance revenue is recognized ratably over the support period, which is typically 12 months. For the quarter, maintenance revenue was $56,200,000 up 36% year over year. Maintenance revenue has been the primary beneficiary of the prior pricing optimizations to Jira and Confluence.
3rd, license revenue is related to fees earned from the sale of perpetual licenses for our server or behind the firewall products and is recognized at the time of sale. For the Q3 of fiscal 2016, license revenue was $16,400,000 up 11% year over year. While the majority of our revenue today is from the sales and maintenance of server products, we are experiencing a transition to cloud as more customers choose that deployment option. Consequently, our license revenue growth rate this quarter is reflective of this transition. And finally, other revenue includes our portion of the fees received for sales of 3rd party add ons and extensions in the Atlassian marketplace and for training services.
For the quarter, other revenue was $6,600,000 up 26% year over year. I'll next spend a few minutes reviewing our margins, operating expenses and our results of operations. Unless otherwise noted, all references to our expenses and operating results are on a non IFRS basis and are reconciled to our IFRS results within the tables posted in our earnings press release in our Investor Relations website. All comparisons listed here are with the Q3 of fiscal 2015 unless otherwise noted. Gross margin in the Q3 of fiscal 2016 was 85.9% compared to 86.7 percent last year.
3rd quarter operating expenses were 83 point 4.6 percent from $61,700,000 last year. Looking at operating expenses, R and D expense for the Q3 was $44,700,000 or 37.9 percent of revenue compared with $31,300,000 or 37.3 percent of revenue last year. Marketing and sales expense was $21,700,000 or 18.4 percent of revenue compared with $18,000,000 or 21.4 percent of revenue last year. G and A expense was $16,800,000 or 14.2 percent of revenue compared with $12,400,000 or 14.8 percent last year. Total employee headcount was 1669 at the end of the 3rd quarter.
Headcount growth was across all operating expense categories with the majority in R and D. 3rd quarter operating income was $18,300,000 or 15.5 percent of revenue compared with $11,100,000 or 13.2 percent of revenue last year. Net income was $17,000,000 or $0.07 per diluted share compared with $9,400,000 or $0.06 per diluted share last year. Moving over to the balance sheet. Atlassian finished the quarter with $723,300,000 in cash, cash equivalents and short term investments.
Free cash flow for the Q3 of fiscal 2016 was $40,700,000 comprised of cash flow $48,200,000 less capital expenditures of $7,500,000 Free cash flow margin defined as free cash flow as a percentage of revenue, was 34.5% for the 3rd quarter. Some capital expenditures that originally had been planned for the Q3 of fiscal 2016 are now expected to occur in the Q4 of fiscal 2016. This is reflected in our full year fiscal 2016 free cash flow target that we will cover shortly. Now I'll provide our financial targets for the fiscal Q4 and full year fiscal 2016. For the 4th quarter of fiscal 2016, our financial targets are as follows.
For total revenue, we expect a range of approximately $123,000,000 to $125,000,000 For gross margin, we expect approximately 82% on an IFRS basis and approximately 85% on a non IFRS basis. For operating margin, we expect approximately minus 13% on an IFRS basis and approximately 10% on a non IFRS basis. For share count, we expect the weighted average share count to be in the range of 231,000,000 to 233,000,000 shares on a fully diluted basis. For net income per diluted share, we expect approximately minus $0.05 on an IFRS basis and approximately $0.05 on a non IFRS basis. For the full year fiscal 2016, we are updating our financial targets as follows.
For total revenue, we expect a range of approximately $452,000,000 to $454,000,000 For gross margin, we expect approximately 83% on an IFRS basis and approximately 86% on a non IFRS basis. For operating margin, we expect approximately minus 2% on an IFRS basis and approximately 16% on a non IFRS basis. For share count, we expect the weighted average share count to be in the range of 201,000,000 to 203,000,000 shares on a fully diluted basis. For net income per diluted share for fiscal 2016, we expect approximately minus 0 point 0 $1 on an IFRS basis and approximately $0.33 on a non IFRS basis. For free cash flow, we expect a range of $87,000,000 to 90,000,000 Before I conclude, I'd like to cover one final topic.
Following many IPOs, companies often plan for a follow on offering ahead of or around their lockup release. We currently have no intention to do a follow on offering ahead of or in connection with our early or regular lockup releases. To remind everyone, our early lockup release will occur after market close on May 9 and only applies to our current non executive employees who will be allowed to sell up to 30 percent of their vested equity or approximately 4,600,000 shares. Our regular lockup release will occur after market close on June 6, 2016. And with that, I'll turn the call back to the operator for Q and A.
Thank you. We will now begin the question and answer And our first question will come from John DiFucci of Jefferies. Mr. DiFucci, your line is open. Are you on mute?
Okay. We'll move to the next person and that is Sanjit Singh of Morgan Stanley.
Hi, guys. Thanks for taking my questions and congrats on a nice quarter. I wanted to get your take on the product portfolio and what parts of it seem to be maybe seeing the most traction, whether it's a HipChat or Service Desk or Bitbucket? Any sort of color you could provide on where within the product portfolio you're seeing the most momentum?
Yes. Hi, Sanjeet. This is Mike. Look, we have seen a very strong quarter across all the product lines. We don't again disclose individually by product or by product line growth numbers or individual figures.
But we had an excellent quarter across all the products. At the same time, you can see from the subscription revenue up 71% that the cloud and the data center for our largest customers continues to also grow very strongly.
Great. And Murray, 2 small questions for you. On the tax side, was there anything this quarter that caused taxes cut in a little bit higher than expected? And then in terms of the impact of the pricing, I know you discussed a 9 point impact this quarter. How should we think about that in Q4 and maybe an early view into next fiscal year?
Yes. In terms of tax, Sung Ji, nothing really particular to call out there. Obviously, we're a multinational company, and so we can have varying tax expense in different jurisdictions. And so this quarter, we had a little bit more than in other quarters with our strong profitability. So nothing really to call out there though.
In terms of pricing, we had a great quarter again, 40% top line. We did have the 9 points related to the pricing optimization. It's continuing to decline. We would expect it to decline again in the Q4. We'll share results on where the quarter ends up on our next call, but we expect it to continue to decline going forward.
And then my last follow-up is, I know you haven't discussed about fiscal year 'seventeen guidance. Was there anything from an investment standpoint that you guys have planned that would cause free cash flow margins to be down versus what you're forecasting for fiscal year 2016?
We're not providing any specifics on 'seventeen at this point. We're going through our entire strategic and operating plan processes that will wrap up here in the next month, 1.5 months, and we'll be in a position to share more on our next earnings call. We'll continue to invest in, obviously, in capital expenditures around our data centers and facilities and overall in our business in terms of hiring more employees given our large market opportunity. So but at this point, we're just not providing any specifics on free cash flow margin.
Fair enough. Congrats again.
Thank you. Thanks.
The next question will come from Brent Thill of UBS.
Good afternoon. I think you've been pretty clear that the cloud is economically indifferent to you. But also there's some interesting new seed opportunities that I would think that could open up as your customers move to this architecture. Can you maybe just expand on are you starting to see some broader deployments that maybe you haven't seen before with the new architectures? It's just too early to make that call.
Thanks, Brendan. It's Scott Farquhar here. As we've sort of stated before, cloud opens up a whole bunch of opportunities for us, particularly as we move outside of software into IT and business users where they prefer to outsource the setting up of infrastructure to us. And so that has opened up more opportunities and specifically at the low end when we land inside companies with small teams, they are particularly attracted to the cloud, they don't have to get set up in those situations. So we are seeing greater traction smaller accounts.
And as we know with our land and expand model, those small accounts grow over time.
Okay. And Murray, on Q4 op margin guiding to 10%, it was higher in the last 2 4th quarters. And so just curious what would be driving that actually below what you saw in the last 2 Q4s?
Yes, Brent, So a few things there. One is we're going to continue to invest in our business, which means headcount. So that will happen. We do have some plans around some additional marketing spend and other project expenses in the Q4. We also we have the lockup coming off for the release for employees and for those obviously that have put in years of their personal investment in the company.
We're expecting that they will sell some of their shares and there'll be employer payroll taxes associated that we have factored into our operating expense target. So that's what's driving the higher OpEx and the margin target of 10%.
Murray, sorry, the lockup date for those employee shares is when?
After close on May 9.
Okay. Thank you.
That's for the non executives. The regular lockup is aftermarket close June 6.
Great. Thanks.
Okay.
The next question comes from Heather Bellini of Goldman Sachs.
Great. Thank you, guys. I just had a couple of questions. I was wondering if you could share with
us how you see the momentum
building in
Jira Service Desk
and how
do you see
the competitive landscape evolving? Kind of where you've seen the where you're seeing the most success in use cases to date? And then I had a follow-up on HipChat.
Heather, this is Jay. I'll take the Service Desk question. Great momentum in the products. And we see uptake in both the server base and in cloud. And as Scott mentioned, part of what accelerates the adoption in cloud is just the ease of setup, both for IT to service the rest of the organization and then in other business functions like HR and Finance, they can set up service desks, provide service for their companies.
So I think great momentum, I think, in terms of the competitive landscape. Remember, like we're approaching the market a little bit differently. The service desks that our customers use Jira Service Desk to set up are deeply collaborative. And so mostly inside of the business, there are functional parts of the organization, whether it's IT, HR, finance that are servicing other parts of their companies. And oftentimes, where we're displacing is either something that's really clunky and legacy or email and spreadsheets that people are flinging across the organization trying to get help.
And so I think there is a tremendous amount of white space for that product that we're really excited about serving.
Okay, great. And then, thank you for that. And then just on HipChat, I was wondering how the trends you're seeing around kind of attach and cross sell into the installed base. And obviously, that was a product you guys acquired a couple of years ago and are focused on. But just kind of how do you see that the attach and cross sell ramping?
Hey, Heather, it's Mike. Look, Hitcher had a really strong growth quarter. It's clearly a product that lands with all sorts of different teams, much like Service Desk. It can land inside business teams, inside software teams or inside IT teams. It does, as you said, cross sell very well to all of our different product sets.
So an IT team might use HipChat and Service Desk together to provide service. Software team might use HipChat with Bitbucket and Bamboo. So it has a really great logical connection to all the other products that we have.
Great. Thank
you. The next question comes from John DiFucci of Jefferies.
Thank you. I also have a product question and sort of a 2 part question. Can Mike or Scott or Jay give any color on incremental traction of Jira and or Confluence outside the software development community? And I guess, sort of a follow-up to the Jira Service Desk question. Are there any maybe you don't want to talk specifically because of competitive issues, but are there any other areas that you're working on right now?
I mean, service desk, Jira service desk, in my understanding anyway came about because of demand or observation that customers are using Jira that way. But given that the core of Jira is really underneath it all's workflow, it seems like automating processes, those are applications. It potentially could become a lot of different things.
Thanks, John. It's Scott here. I could probably spend the next hour answering that question in capital. A lot of things, in terms of the way we think about it is that we have been strong in all collaboration across organizations, whether that's workflow management with Jira, whether it's content with Confluence or whether it's communications with HipChat. And we started with software teams as kind of the clear land part in an organization.
Often we land with a small ones or 2 small teams and then expand out until a company standardizes on Atlassian. And we're seeing with building out of Jira Service Desk and Jira Core that those two ones now have more specific LAN parts inside an organization where you might LAN Service Desk in an IT team or equally LAN Service Desk in an HR team that service requests from across the organization. With Jira Core, we're seeing now that what we have is now built a purpose built for business teams and general workflow processes with Jira Core. So it does have some of those use cases you addressed of just handling generic workflow. And we do see companies take HR using service desk to handle requests with the rest of the organization and using Jira Core to handle internal workflows inside the HR organization.
So we do see, I guess that what you described happening throughout our customer base.
Scott, could we could you even, I don't know, even roughly gauge about what percentage or proportion of Jira or of your offerings that overall are beyond software development? Is it a quarter or just trying to gauge the opportunity there?
Well, we've said it earlier actually that when we were exploring the service desk this is Jay, by the way, John. When we were exploring the service desk opportunity, we'd identified inside of the customer base that 40% of Jira customers were already had configured to Jira to support the Service Desk use case. And at Summit last year, in a survey prior to that of the customer base, we identified that 30% of customers that were using Jira were using it within business teams, business workflows and business projects.
Got it. Okay. That's helpful. Okay. And if
I just might just real quick, because Jay, you mentioned more engagement for cloud solutions and that's something we've seen at Atlassian now for a while. I'm just curious, I guess maybe Murray, how should we think about CapEx going forward? I mean we have it modeled, but I'm just wondering, I just want to make sure we model it appropriately. If you're seeing a greater adoption than perhaps we might have anticipated, maybe we should increase that or maybe not yet?
So in terms of CapEx, John, we've got our free cash flow target for the full year, which obviously we're 3 quarters of the way through. So you can see what it is for the Q4. We will have some significant CapEx investments in the 4th quarter around data center and facilities, and we would expect to continue to do that in going forward in both of those areas. Over time, the mix between investing in our own data centers versus going to cloud providers, that trend probably moves toward cloud providers over time. But over the Q4 and beyond, we're probably still looking at significant data center investments.
Okay, great. Thanks a lot guys. Nice job.
Thank you.
And next we have a question from Bhavan Suri of William Blair.
Hey guys, thanks for taking my question. Just to focus a little bit on Service Desk and I know a lot of us are focused on it, but just to follow-up on John's questions a little bit. When you look at the go to market there, if I look at the guys like ServiceNow, there's a huge partner channel to go and implement it, customize it. And when you're doing workflow, certainly the SIs, whether it's the global SIs or the smaller guys, have a lot of interest in changing workflow and helping define workflow. Is that a go to market strategy that's applicable here given the ease of use and ease of configuration?
Or do you think that that's something that you guys may see in the future as opposed to being a big driver of reach right now?
Hey, Bhavan, this is Jay. Absolutely, as you know, channels is and has been an important part of our go to market model. And so I think we do 2 things. We focus on simplicity and configurability for smaller customers or smaller teams inside of large organizations to get started really quickly. But we've also built a product in Jira Service Desk that is supremely configurable, where you can tackle really advanced workflows or business processes for really large scale
deployments and organizations. And that's
typically where the channel pivots to channel. I think and I don't even know how many countries, but kind of all over the world that are working with customers of all shapes and sizes to basically match your service desk under really complex workflows and service opportunities. So it has been and will remain a part of our go to market strategy. Bhavan, this
is Mike. Just to be with one more thing that I hope you guys have thought about. Obviously, extensibility has long been a hallmark of our products. You can see that in the marketplace. You get that in service desk, which is your core workflow.
But again for the SIs and the experts in our channel, that's obviously a big piece of how they can help connect the service desk into internal systems or whatever you need it to be to make it the most productive for your company.
Yes. So that all makes sense. And I guess just one quick follow-up and I've got one for Murray. But so typically the sale of your products has been incredibly frictionless. It's on the website 98%, etcetera, etcetera.
With the SIs getting involved and sort of them saying, hey, let's make this more strategic and let's make this a bigger deal, does that change the selling motion at all? Or is that something that happens separately and then selling motion is still very similar to what you have today? I guess what I'm asking is like if an SI comes in and says, oh, we got to do a big global workflow review and we're going to implement Jira Service Desk, but we got to do all these pieces and Jira Service Desk is a component of a larger RFP. Does that change the sales motion for you at all? Or is it sort of separate and then you guys sort of just do the partnership
piece? Yes.
Hey, Bhavan, this is Jay. Not really. I mean, keep in mind that we've had the channel has been an important part of the model for basically since the company was conceived. So no real changes there. We can both start small either independently where a customer can just get started with sort of a team license and then bring in a channel partner to kind of help aid in standardization or expansion or the channel can work on with the customer to sort of open a wider initial opportunity or help the customer with a more complicated larger initial deployment.
All those things sort of work in our model.
Got it. It's incredibly helpful guys. It helps sort of understand how that model plays out continuously in the long term. And then one last one for Murray, just R and D spend, again, sort of another beat sort of as a percentage of revenue based on, I think, where we were thinking, maybe other folks were thinking. Just how should we think of R and D spend moving forward?
Obviously, we like the fact that it's a high level, but how should we think about that moving forward, Maury? I know you're not giving guidance for next year, but any color would be helpful.
Yes. So we continue to invest in R and D. Obviously, it's the lifeblood of the company. It's critical to our future success. So we will continue to invest in R and D.
We did have a 5 year model out there in terms of 30% to 33% for R and D. We haven't lost sight of that. But for right now, we continue to invest in our future and that means R and D.
Okay, great. Hey guys, nice job. Thanks for taking my questions. I appreciate it.
And the next question comes from Michael Turits of Raymond James.
Hey guys, thanks for taking my question. Two sets of questions. First, can you comment a bit more on the competitive landscape around HipChat and how you're competing both with larger incumbents Microsoft, etcetera and others as well as Slack? And then also the other direction would be, how is the self-service model going with respect to larger customers and getting uptake around premium support and TAMs?
Sure. Hi, Michael. It's Mike. I can take that.
Hey, Mike. Thanks.
Look, again, HitChat had a really strong quarter. There's clearly a shift going on in how people collaborate inside organizations towards messaging and messaging related applications and the connection of that to content and workflow and other applications that you have. We're early in that space with HitChat and we think we're in a great position to take advantage of the opportunity ahead. In terms of how we actually take it to customers, again, it's the same model that we have in the other products. It's not any different in the way it gets into a small team and then grows within the organization.
The same frictionless automated go to market model that we have applies as much in HipChat and Messaging as it does in Enduro and Project Management. There's no difference in the model there.
So I guess
my question I'm sorry, go ahead.
I'm sorry, Michael. I was just going to tack on to the data center and enterprise products. We've seen great uptick. I think it was mentioned around the subscription line. Part of the contribution subscription line is data center, which are server products that are sold to largest customers on a term basis subscription.
And we've just seen great growth there. And remember, again, partly, I think that's recognition of the success the products have had in our largest customers over time. And as companies continue to scale the tens of thousands of users and begin to standardize kind of in a broad range of the lasting products, they look to data center to support their really high availability and scale. And then also, I think it's a testament to the success of the channel per the earlier question because they're kind of working alongside us with some of the largest customers to help with that standardization and scale process.
So I guess my question was really separate between HipChat versus the go to market. So my question just to clarify was really, as you are going upmarket and working more with larger customers, does the model, the self-service model continue to be as successful? Or is there any push for more dedicated resources? And is that being supplied sufficiently by the premium support offering and the technical account managers?
Sure. This is Mike again, Michael. Look, I would say we've been in the high end of this customer base as you described for a long time now. This is not a new shift for us that we're suddenly getting into this segment of customers. We continue to improve how we get in.
Again, you've seen with the enterprise program over the last, what, 3 years, the data center offerings, premium support, technical account management programs that we have, those have all come through talking to our largest customers about how we can serve their needs better and how we can generally make them happier. It's important to note in terms of it often comes up with sales activity that data center sales and those things tend to be an upgrade to an existing cell, right? It's an existing customer that we have that's asking for more services and a higher level of engagement for their as they standardize across a large company. So it's not the same as going into a large company with a very large sale to start with. All
And our next question comes from Steve Ashley of Robert W. Baird.
Terrific. I was going to ask about Jira Core, how the early kind of adoption and response has been to that And how you may be trying to go to market and drive awareness of that outside the developer community?
Well, I'll take that, Steve. So as we mentioned a little bit earlier, I mean, part of we identified within the Jira base is just already pretty wide kind of adoption where people have taken Jira and configured it for business team use cases. So what you saw with the Jira 7 release with Jira Software and Jira Core is dedicated products that could support those types of needs, where in Jira Software, we could go a lot deeper in just software teams and expand capabilities that are really going to be either irrelevant or confusing to people outside of the software development process. In Jira Core, what we did was sort of a purpose built dedicated product around the type of project management and project workflows that business teams engage in. And so I think 2 things, A, we don't break it out.
We've been super excited about the growth and the uptake that we've seen that particular product and maybe no surprise because we'd already had kind of a captive customer base that had been stretching Jira into those use cases anyway. And then I think just finally in terms of the market question, I think our model is a way to sort of reduce a lot of friction for business teams that want to go quickly into the type of project workflow and project management that the Gericore can provide. And then keep in mind that what we do around helping teams track work, create and share content and communicate is universal. And so Confluence and HipChat is a really important complement to Jira Service Desk and Jira Core really provide that sort of kind of 4 legged stool of helping really up level the productivity and communication that teams are looking for. Perfect.
Thank you. Our next question will come from Patrick Walravens of JMP Securities.
Hi, guys. This is actually Matt on for Pat. Thank you very much for taking my question. I guess I'll just ask a little bit more about various geographies or verticals. Were there any that were particularly strong for you guys in the quarter?
And I guess unlikely, but were there any that might have underperformed expectations a little bit? Thanks.
Yes, Matt. We don't we provide some information. Obviously, there's some geographic revenue information that's in our data sheet. It's on our Investor Relations website. But nothing stood out this quarter that was any different from the trends that we've seen in the past, both in terms of geographies and verticals.
Great. Thanks. Thanks a lot and congrats on a great quarter.
Thank you.
This concludes our question and answer session. I would like to turn the conference back over to the company for any closing remarks.
This is
Scott here. I want to say thanks everyone for joining our call and we appreciate your time and look forward to keeping you updated on our progress. Thanks a lot. Thanks, guys.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.