Good afternoon, ladies and gentlemen. Thank you for joining Atlassian's earnings conference call for the third quarter 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. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star then 2. 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 third quarter fiscal 2016 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, Murray Demo, and our President, Jay Simons. Scott and Mike will begin by recapping some of the highlights from the third quarter. Murray will cover Atlassian's financial results for the third quarter and provide our financial targets for the fourth quarter and full year fiscal 2016. Following our prepared remarks, we'll have a brief question and answer session. Jay will be joining for Q&A. The press release with our results for the third quarter was issued earlier today and is posted on our investor relations website at investors.atlassian.com. There's 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 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-1 previously filed with the SEC in connection with our IPO, and Form 6-K 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 third quarter of fiscal 2016, we achieved revenue growth of 40% year-on-year, non-IFRS operating margin of 15.5%, and $40.7 million 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 three 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. 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 three core pillars.
A focus on R&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 are core to everything we do, solving complicated collaboration issues for our customer teams, also by Atlassian serving as a role model for team best practices. We view our unique culture as a competitive advantage, I'm proud to share two notable events that took place during the third quarter. 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 that different backgrounds and ways of thinking are represented in every decision that we make, in every team in the company. 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. Second, 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 the U.S. for companies with less than 1,000 employees, and the number 1 place in Australia for companies of all sizes, Atlassian is now a best place to work across Asia Pacific, Europe, and the U.S.
Mike and I have had a long-term focus on creating a workplace where great teams thrive, 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 third quarter.
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 third quarter 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 two 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. Second, 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 third quarter of fiscal 2016, we added start-up technology consulting firm, Brillio, Chinese financial institution, CITIC Bank, and automotive company, Nissan Australia.
In terms of breakdown by deployment, over half of our existing customers are cloud-based, and over three-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 a customer study that showed software teams release 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 Healthcare 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. Jira 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 three times faster, going from a release every three weeks to one 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 three 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 1,600 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. 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 fourth quarter and full-year fiscal 2016. Total revenue for the fiscal third quarter was $117.9 million, 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 nine of the 40 percentage points of the revenue growth in the third quarter of fiscal 2016 were attributable to these pricing optimizations. Turning to revenue by line item, I will provide a brief overview of each. First, 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 $38.7 million, 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. Second, maintenance revenue represents fees earned from providing customer updates, upgrades, and technical product support for our perpetual licensed products. Maintenance revenue is recognized ratably over the support period, which is typically 12 months. For the quarter, maintenance revenue was $56.2 million, up 36% year-over-year. Maintenance revenue has been the primary beneficiary of the prior pricing optimizations to Jira and Confluence. Third, 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 third quarter of fiscal 2016, license revenue was $16.4 million, 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. Finally, other revenue includes our portion of the fees received for sales of third-party add-ons and extensions in the Atlassian Marketplace and for training services. For the quarter, other revenue was $6.6 million, 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 third quarter of fiscal 2015, unless otherwise noted. Gross margin in the third quarter of fiscal 2016 was 85.9%, compared to 86.7% last year. Third quarter operating expenses were $83.1 million, up 34.6% from $61.7 million last year. Looking at operating expenses, R&D expense for the third quarter was $44.7 million or 37.9% of revenue, compared with $31.3 million or 37.3% of revenue last year. Marketing and sales expense was $21.7 million or 18.4% of revenue, compared with $18 million or 21.4% of revenue last year. G&A expense was $16.8 million or 14.2% of revenue, compared with $12.4 million or 14.8% last year.
Total employee headcount was 1,669 at the end of the third quarter. Headcount growth was across all operating expense categories, with the majority in R&D. Third quarter operating income was $18.3 million or 15.5% of revenue, compared with $11.1 million or 13.2% of revenue last year. Net income was $17 million or $0.07 per diluted share, compared with $9.4 million or $0.06 per diluted share last year. Moving over to the balance sheet, Atlassian finished the quarter with $723.3 million in cash equivalents, and short-term investments. Free cash flow for the third quarter of fiscal 2016 was $40.7 million, comprised of cash flow from operations of $48.2 million, less capital expenditures of $7.5 million. Free cash flow margin, defined as free cash flow as a percentage of revenue, was 34.5% for the third quarter.
Some capital expenditures that originally had been planned for the third quarter of fiscal 2016 are now expected to occur in the fourth quarter 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 fourth quarter and full year fiscal 2016. For the fourth quarter of fiscal 2016, our financial targets are as follows. For total revenue, we expect a range of approximately $123 million-$125 million. 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 -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 million-233 million shares on a fully diluted basis.
For net income per diluted share, we expect approximately -$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 million-$454 million. 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 -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 million-203 million shares on a fully diluted basis. For net income per diluted share for fiscal 2016, we expect approximately -$0.01 on an IFRS basis and approximately $0.33 on a non-IFRS basis.
For free cash flow, we expect a range of $87 million-$90 million. 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 lock-up release. We currently have no intention to do a follow-on offering ahead of or in connection with our early or regular lock-up releases. To remind everyone, our early lock-up release will occur after market close on May 9th and only applies to our current non-executive employees who will be allowed to sell up to 30% of their vested equity, or approximately 4.6 million shares. Our regular lock-up release will occur after market close on June 6, 2016. With that, I'll turn the call back 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. At this time, we will pause momentarily to assemble our roster. 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, 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 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.
Yeah. Hi, Sanjit. This is Mike. We obviously had 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. Murray, two small questions for you. On the tax side, was there anything this quarter that caused taxes to come in a little bit higher than expected? 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?
Yeah. In terms of tax, Sanjit, nothing really particular to call out there. Obviously, we're a multinational company, we can have varying tax expense in different jurisdictions. This quarter, we had a little bit more than in other quarters with our strong profitability. 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 fourth quarter. We'll share results on where the quarter ends up on our next call, but we expect it to continue to decline going forward.
My last follow-up is, I know you haven't discussed about fiscal year 2017 guidance, but is 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 2017 at this point. We're going through our entire strategic and operating plan processes that we'll wrap up here in the next month to month and a half, 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 in overall in our business in terms of hiring more employees, given our large market opportunity. 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. Also there's some interesting new seat 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 architecture, or is it just too early to make that call?
Thanks, Brent. 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 would prefer to outsource the setting up of infrastructure to us. That has opened up more opportunities. 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. We are seeing greater traction in smaller accounts. As we know with our land and expand model, those small accounts grow over time.
Okay. Murray, on Q4 op margin guiding to 10%, it was higher in the last two fourth quarters. Just curious what would be deriving that actually below what you saw the last two Q4s.
Yeah, Brent, a few things there. One is we're going to continue to invest in our business, which means headcount. That'll happen. We do have some plans around some additional marketing spend and other project expenses in the fourth quarter. 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 with that we have factored into our operating expense target. 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 ninth.
Okay. Thank you.
That's for the non-executives. The regular lockup is after market close June sixth.
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, how do you see the competitive landscape evolving here. I guess, along those lines, where are you seeing the most success in use cases to date? Then I had a follow-up on HipChat.
Hey, Heather. This is Jay. I'll take the Service Desk question. Great momentum in the product. We see uptake in both the server base and in cloud. 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 that can set up service desks to provide service for their companies. I think, great momentum. I think in terms of the competitive landscape, remember, 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. Mostly inside of the business, they're functional parts of the organization, whether it's IT, HR, finance, that are servicing other parts of their companies.
Oftentimes what 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. I think there's a tremendous amount of white space for that product that we're really excited about serving.
Okay, great. Thank you for that. Just on HipChat, I was wondering how the trends you're seeing around attach and cross-sell into the installed base. Obviously, that was a product you guys acquired a couple of years ago and are focused on, but just how do you see that attach and cross-sell ramping?
Hey, Heather, it's Mike. HipChat had a really strong growth quarter. It's clearly a product that lands with all sorts of different teams, much like Jira 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. An IT team might use HipChat and Jira Service Desk together to provide service. A software team might use HipChat with Bitbucket and Bamboo. 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 two-part question. Can Mike or Scott or Jay give any color on incremental traction of Jira and/or Confluence outside the software development community? I guess, then sort of a follow-up to the Jira Service Desk question. Are there any, and 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? Service Desk, Jira Service Desk, my understanding anyway, came about because of demand or observation that customers are using Jira that way. Given that the core of Jira is really, underneath it all, is 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. It covered 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. We started with software teams as kind of the clear land part in an organization. Often we land with one or two small teams and then expand out until a company standardizes on Atlassian. We're seeing with building out of Jira Service Desk and Jira Core, that those two ones now have more specific land parts inside an organization where you might land Service Desk in an IT team, or equally land Service Desk in an HR team that services requests from across the organization.
With Jira Core, we're seeing now that what we have is now purpose-built for business teams and general workflow processes with Jira Core. It does have some of those use cases you addressed of just handling generic workflow. 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. We do see what you described happening throughout our customer base.
Scott, could you even roughly gauge about what % or proportion of Jira or of your offerings 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 already had configured Jira to support the Service Desk use case. 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. 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? 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, then perhaps we might have anticipated maybe we should increase that, or maybe not yet.
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 4th quarter. 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 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. Over the 4th quarter and beyond, we're probably still looking at significant data center investments.
Great. Thanks a lot, guys. Nice job.
Thank you.
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 Jira Service Desk, I know a lot of us are focused on it, but this is 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 at ServiceNow, Inc., there's a huge partner channel to go and implement it, customize it. When you're doing workflows, 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? 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. I think we do two things. We focus on simplicity and configurability for smaller customers or smaller teams inside of large organizations to get started really quickly. 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.
Right.
That's typically where the channel pivots to. We've got already a global channel, I think, in 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 map Jira Service Desk under really complex workflows and service opportunities. It has been and will remain a part of our go-to-market strategy.
Bhavan, this is Mike.
Yeah.
Just to leave 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 Atlassian Marketplace.
Sure.
You get that in Jira Service Desk with the Jira Core workflow. Again, for the SIs and the experts in our channel, that's obviously a big piece of how they can help connect the Jira Service Desk into internal systems or whatever you need it to be to make it the most productive for your company.
Yeah. That all makes sense. I guess just one quick follow-up, and then I've got one for Murray. Typically, the sale of your products has been incredibly frictionless. It's on the website, 98%, et cetera. 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 the selling motion is still very similar to what you have today? I guess what I'm asking is if an SI comes in and says, "Oh, we've got to do a big global workflow review, and we're going to implement Jira Service Desk, but we've 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?
Is it sort of separate, and then you guys sort of just do the partnership piece?
Hey, Bhavan, this is Jay. Not really. Keep in mind that we've had the channels been an important part of the model for basically since the company was conceived. 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. One last one for Murray, just R&D spend, again, sort of another beat, sort of on the % of revenue based on I think where we were thinking, maybe other folks were thinking. How should we think of R&D spend moving forward? Obviously, we like the fact that it's a high level. How should we think about that moving forward, Murray? I know you're not giving guidance, but extra, but any color would be helpful.
We continue to invest in R&D. Obviously, it's the lifeblood of the company. It's critical to our future success. We will continue to invest in R&D. We did have a 5-year model out there in terms of 30%-33% for R&D. We haven't lost sight of that. For right now, we continue to invest in our future, and that means R&D.
Great. Hey, guys, nice job. Thanks for taking my questions. Appreciate it.
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, et cetera, and others, as well as Slack? 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, HipChat 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 HipChat, 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 Jira and project management. There's no difference in the model there.
I guess my question. I'm sorry, go ahead.
I'm sorry, Mike, 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. We've just seen great growth there. Remember, again, partly, I think that's a recognition of the success that the products have had in our largest customers over time. As companies continue to scale the tens of thousands of users and begin to standardize on a broad range of Atlassian products, they look to Data Center to support that really high availability and scale.
Also, I think it's a testament to the success of the channel, per the earlier question, because they're working alongside us with some of the largest customers to help with that standardization and scale process.
I guess my question was really separate between HipChat versus the go-to-market. My question, and just to clarify, was really, as you are going upmarket and working more with larger customers, does 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 describe, 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, three 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 service 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 sale.
It's an existing customer that we have that's asking for more services and a higher level of engagement as they standardize across a large company. It's not the same as going into a large company with a very large sale to start with.
All right, guys. Thanks very much.
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. Hey. As we mentioned a little bit earlier, part of what we identify within the Jira base was just already pretty wide adoption, where people have taken Jira and configured it for business team use cases. 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. I think two things. A, we don't break it out.
We've been super excited about the growth and the uptake that we've seen of that particular product, and maybe no surprise, because we'd already had a captive customer base that had been stretching Jira into those use cases anyway. 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 Jira Core can provide. Keep in mind that what we do around helping teams track work, create and share content, and communicate is universal. Confluence and HipChat is a really important complement to Jira Service Desk and Jira Core really provide that sort of four-legged stool of helping really up-level the productivity and communication that teams are looking for.
Perfect. Thank you.
If you would like to ask a question, please press star then 1 at this time. 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? I guess unlikely, but were there any that might have underperformed expectations a little bit? Thanks.
Matt, we provide some information. There's some geographic revenue information that's in our data sheet that's on our investor relations website. Nothing stood out this quarter that was any different from the trends that we've seen in the past, both in terms of geographies, verticals.
Great. Thanks a lot, 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, we appreciate your time and look forward to keeping you updated on our progress. Thanks a lot.
Thanks, guys.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.