Yahoo Finance

Michael Cannon-Brookes

Thank you all for joining us today. As you've already read in our shareholder letter, we executed well in Q2 as we scaled passed $5 billion in annual run rate revenue, driven by subscription revenue, which grew 30% year over year.
Our investments in our key strategic priorities of serving enterprise customers, delivering innovation in AI, and breaking down knowledge silos with our system of work on driving momentum across the business and increasing customer commitment to the Atlassian platform.
Companies like Cisco, DHL, and Reddit are turning to Atlassian to help solve their toughest team collaboration challenges, bridging the gap between that technology and business teams. And our world-class cloud platform with AI threaded throughout is delivering. With more than 20 years of data and insights on how software, IT, and business teams planned track and deliver work, we're uniquely positioned to help to teams across every organization on the planet work better together.
Today, more than 1 million monthly active users are utilizing our Atlassian Intelligence features to unlock enterprise knowledge, supercharge workflows, and accelerate their chain collaboration. These features are clearly delivering value as we've seen AI number of interactions increased more than 25x year over year.
These powerful AI capabilities, along with automation and analytics, are also driving increasing adoption of premium and enterprise editions, with sales to higher value skews up over 40% year over year.
With the breadth of our offering, the pace of innovation, and the recognition of our product leadership across all the markets we plan, the Atlassian platform is incredibly well-positioned to further connect technology and business teams across the Fortune 500.
We had some incredible customer wins in Q2, including a record number of deals greater than $1 million in annual contract value signed during the quarter. With some of the largest companies in the world committing to the Atlassian Cloud and embracing the Atlassian System of Work.
If you're interested in hearing more about the ongoing evolution of our go-to-market motion, checkout the Loom that just posted to our IR website. The progress we're making across our business and the signals we're getting from our customers reinforces our conviction that we're making the right investments to help us scale to $10 billion in revenue and beyond, where are you going to get after it and build on this momentum, pushing ahead on our mission to unleash the potential of every time.
With that, I'll pass the call to the operator for Q&A.

Question and Answer Session

Operator

(Operator Instructions) Keith Bachman, BMO Capital Markets.

Keith Bachman

Hi, thank you very much and congratulations on the solid results. Michael, Joe, and Martin, I wanted to ask you about the goals with really the larger enterprise accounts. Mike in the shareholder letter, you reiterated the sort of 10% of your revenues are being driven by the large customers. And I really wanted to hear a little bit now about how you increase that penetration.
Now, certainly part of it go to market. In your Loom, you referenced that you now have 100 sales reps versus virtually none previously. Where does that go to, you think, over the next 12, 18 months as you continue to try to penetrate the larger accounts?
And secondly, from a technology perspective, when you think you have the most opportunities to harness the situation in terms of -- what product areas? I would think here Sam would be the largest opportunity, but I want to hear a little bit more about it because I'm not sure that would impede your seats specifically on the software development side but love to hear any color on those two areas. Thank you.

Joe Binz

Thanks, Keith. Look, it's a broad question to start with. But look, I would say, firstly, we had a great Q2 in the enterprise segment, just fantastic execution by the sales and success team across-the-board.
So when you asked about which markets or which products, one of our advantages right now is a really broad scale growth profile. Jira, yes, continues to expand seats really strongly in business teams as well as technology teams.
Again, we combined Jira Work Management and Jira Software together after the customer demand to do so because of the desire to connect their business and technology teams together. So that gives us a great expansion profile across those larger enterprises.
There are lots of seats and lot of employees that we don't yet touch in most of those larger customers. So that is a huge, obviously, growth vector for us going forward.
On the go-to-market motion, just generally in the enterprise, I would say, look, we have a very highly effective flywheel. Great financial profile, as I'm sure you're aware, that lands both small customers and big customers in terms of the size of the company, small team lending. But both of those where we use our enterprise over the layers we keep evolving and adapting our go-to-market motions to make those customers more and more successful.
\If and how we take that increasing landing size and grow it into a larger impact for that customer, as you see, we have more than 500 customer spending $1 million. We had a record quarter of $1 million deals that is showing across the board of products across a set of markets we have just great momentum.
As customers continue to pull us in front, the CIOs and CEOs I speak to continue to form a deeper strategic relationship with Atlassian, not because of any single product we have, but because of our R&D speed, the innovation we're delivering, AI was just the latest example of that, but also the breadth of the platform.
The amount of things I can see improving their goals, all the way down to the day-to-day work they do. And that's it's really positive for us. It's really giving us a good sense of momentum.

Operator

Ryan MacWilliams, Barclays.

Ryan MacWilliams

Thanks for taking the question. One for Mike. It was great to see Rovo at the Team Barcelona conference. I'd love to hear about how Rovo adoption and progress has been so far. How you think features of Rovo like autos dev can change the daily workflow process for developers?

Joe Binz

Thanks, Ryan. Look, Rovo, as all of AI world, it's pretty early days. There is no doubt about that. In what's a massive change in the technology industry, which is a very positive trend. I would say right now, we are very pleased with the feedback we're getting from customers about what we are trying to build, and the reception from customers, those who have proof of concepts running, those who have deployed, and those who have purchased continues to be incredibly positive.
Interest evaluations are all really high levels as customers are realizing the value and also playing with these technologies in their own businesses and seeing how they can adapt. And look, we obviously at the broader level, as we've talked about with Atlassian Intelligence, passing 1 million now is a major milestone for us right across all of the Atlassian Intelligence features, which includes Rovo.
A huge milestone in the rest of the usage that we have, which is always our number one thing that we tried to do with Atlassian as a result of R&D, 25 times improvement in the number of features used over the last year. And it is driving monetization of those premium in enterprise editions, as we talked about, with growth over 40% in those additions.
And in terms of Rovo inhouse trending in auto dev, we continue to invest heavily, I would say, in the R&D around all things to AI. We continue to believe in our strategic advantages that we have there. With Rovo specifically that surround the quality of search, the depth and density of the teamwork graft to enable better answers for customers that are unique and differentiated, and the amount of data that we connect to.
We shipped a whole lot of new connect as this quarter, and there's even more coming in the quarter ahead to allow customers to really unlock all of the value in the knowledge that they have and enable them with agents to automate a series of different tasks. As you've mentioned, that saves that uses hours per week. In terms of auto dev and the development features, continues to be an area of work on. It's right on the cutting edge.
We are delivering a great number of completed pieces of software to customers and to ourselves, and an area that we will continue to invest in. But, obviously, it's still incredibly bullish building on the Atlassian Intelligence stack and then the Rovo agent platform. So it's all stack that continues to go there. But great progress made so far. A lot of work still to do continue to go and chase that customer value we're excited to get after each quarter.

Operator

Michael Turrin, Wells Fargo.

Michael Turrin

Okay, great. Appreciate you taking the question. Impressive fiscal Q2 results. Joe, I think, given its mid-year, just an update to the risk-adjusted framing at the start of the year, any commentary you can add on how things like expansion are tracking relative to what you're expecting. And how to think about things like transition risk with [Brian] now starting alongside. Just any commentary on the second half guide, assuming assumptions are still somewhat similar, but your update on the pulse of everything is certainly useful. Thanks.

Joe Binz

Yes, thanks for the question. It's a good one. So I'll start with the Q2 trends that we see and I'll put in the context of the guide for second half. As we mentioned, we really benefited this quarter from a stable macro environment. And trends in the business were very consistent in Q2 to Q1.
We saw continued signs of stabilization in our SMB customer segment and low-touch sales channel. Paid seat expansion rates in SMB were stable to Q1, and top of funnel health remains healthy. So both of those feel like they're in a very good place, having been stable for two plus quarters now.
And then Mike talked a lot about the enterprise trends. Overall, very healthy and consistent with Q1 and excellent results on annual and multi-year deals, migrations, and upsell to premium and enterprise editions of our SKUs.
In terms of the guidance philosophy for H2, we highlighted at the start of the year that we had taken a different approach to our guidance this year. In that it was more conservative and risk-adjusted than in the past, and we reiterated that approach on the call in October. We continue to believe this is the prudent approach given the two factors we have previously discussed.
The first is the uncertainty in the macro environment, and the second is execution risk related to the evolution and transformation of our enterprise go-to-market motion. Nothing has changed with respect to that approach in our updated guidance for Q3 and the rest of FY25. And we believe the risks we've previously highlighted are still relevant the operating environment we face in the second half of the year.
So I hope that helps give you a sense of how we're thinking about the H2 guide relative to where we are in Q2.

Operator

Keith Weiss, Morgan Stanley.

Keith Weiss

Excellent. Thank you for taking the question and congratulations on a really fantastic quarter.
I want to go back to Rovo, more broadly [agenda] computing and, Mike, you're talking about this being a really exciting and important transformation for the industry on a go-forward basis. Something that we just went through it. But we're also hearing about agents from a lot of companies are application companies and productivity companies. And it seems like we're getting bombarded with agents from every direction.
I'd love to hear your perspective on how agents are going to proliferate into organizations, what the competitive dynamic, if you will, like who is going to be well-positioned for that. And what's the Atlassian right to win on this ever increasingly crowded field for agents?

Michael Cannon-Brookes

Sorry, Keith, I can [degrees] from you. There's no doubt where we've been through these technology transformation before and when we go through them, you run through the hub cycle up and down. And there are certain words that means something and then nothing and then end up needing something.
I think agents just probably squarely in that camp. We, but at the word is used everywhere suddenly for all sorts of things that I would argue and agents,r but you can't control how the world uses the word. At Atlassian, we take a pretty pure approach to things, and we tend to be pretty clear.
We've been very good clarity on what we feel is and isn't an agent, and how we feel that we are building those agents. To me that have to have goals. They have to be any at outcomes. They generally have some personality and character. That sets of knowledge that they can do and sets of actions that they can take.
And some sort of control parameters in terms of commissioning and everything else. Which ends up making them look extremely lock virtual teammate and represented in the software as such. Again, Atlassian agents are unique in that they can basically anywhere that a human being can be used in our software, an agent can do the same sorts of things.
You can assign them issues. You can give them certain technology and given permission to certain actions and not other actions, et cetera. So that's pretty differentiated on the people who are building either some sort of a chat bot or fundamentally just not something I call it an agent.

Joe Binz

What differentiates us, we've been pretty clear on this, but it's really well worth reiterating. Firstly, we do have a significant R&D investment and an advantage in our ability to deploy that R&D. Why is that important Internet GenTek or AI world? Firstly, it's moving very quickly. So our ability to build, deploy, get customer feedback and learn in a loop is really, really important in order to navigate these transitions.
Anyone who tells you they know what this is going to be three years now is a fool. What I can tell you is that we have to be able to learn really soft and move really fast and take the latest and greatest innovations and deploy them and get them to customers quickly. That is the best strategic path to gain that value over time. And we are obviously doing that, and I think doing really well in the R&D team and how we do that.
Second, any agent is going to be qualified by the quality of models for sure. So what is underlying these agents is a series of different AI models. We have a very comprehensive multi modal strategy. So we believe that models will continue to get faster and cheaper and quicker to deploy and more capable.
Therefore, our Atlassian Intelligence needs to be able to keep adapting modern models as far as possible, again, we're running more than 30 models for more than seven different vendors today, we continue to evaluate new models. Obviously, you had a lot of movement in that space.
Thirdly, it's all about the data you have, the data you have access to the quality of that data, the ability to search across that data, and the ability to connected. That's where our investments in enterprise search, very big investment in the last few years. And in the team graph over a longer period of time.
Our graph has made major strides even in the last quarter about the speed of access the density of the graph, the number of connections which can support, et cetera. That all is the fundamental knowledge that gives those agents capability to actually deliver something to a user in whatever form of outcome. And we feel we're very uniquely positioned on the data side at the moment and continue invest there.
And lastly, it's about the interfaces. So the surface level is really important, both from a design perspective, but all also from the ability to have access to those customers. That where more than $1 million of Atlassian Intelligence now we're obviously continuing to grow that number as fast as we can with great features that let us learn in the interface layers, right.
Ultimately customers and users don't use an AI model that use a piece of software. They use some high-level technology to interact with an agent, how that interaction works. Everything below that is up to us to do in terms of the data of the models and the R&D. But we feel really confident in our unique positioning. And I'm going to continue investing behind that trend.

Operator

Fatima Boolani from Citi.

Fatima Boolani

Good afternoon. Thanks for taking my question. Mike, you extolled the virtues of the Loom capability that's been a homerun to really getting really strong adoption. (inaudible) some remarkable statistics on engagement and adoption of the day.
I was hoping you could spend a little bit of time quantifying the monetization and the uplift that you're potentially seeing to your cloud performing as Loom is being used in some of your strongest and largest flagship products. And I don't believe Loom is included in your premium editions. But I would like some clarification in how that's actually moving the needle for you on the cloud side. Thank you.

Joe Binz

Hi, Fatima, this is Joe. I'll pass it over to Mike for color on this. We don't provide the specifics on Loom's revenue or growth rate on a quarterly basis.
You're right that we are pleased with the growth we're seeing, and we're excited by the customer reaction to the recent AI innovations we've been introducing into the product line. In terms of performance in the quarter, revenue in Q2 was in line to slightly better than our expectations.
And you may recall, we did give some guidance on the size of the Loom business when we provided FY25 guidance. And that we said there would be about 1.5 points of impact to FY25 cloud revenue growth for the year. And so you should be able to use that to back into a rough size of the magnitude of that business. Mike.

Michael Cannon-Brookes

Sure, Fatima. Look, Loom is doing very well. There's no doubt about that. And we continue to invest in the opportunity that we see. I would probably break the answer into three parts from me.
Firstly, the observations at the acquisition and the reason that we, as a company, fell in love with Loom and use it so heavily and then brought it into the Atlassian family. The ability to communicate and collaborate through video in a rapid form, bringing a really human element to the workplace is certainly resonating with customers in a more distributed work environment, in lots of different areas that's a really powerful device. And it is a unique capabilities, very different to just quote unquote, video per se. It's very collaborative, it's very rapid to create at most.
Secondly, AI is playing out well in the video space, both on the creation side, you see that in Loom AI. We had more than 38 million videos last year using Loom AI features which is a huge number if you think about it in terms of the amount of communication and the density of the information contained in the video.
AI's helping us on the creation side, lots of editing tweaks, titling, these sorts of things. Chaptering is doing really well, but also on increasingly natural modification of the video in terms of removal of stop words or allowing people to edit the video like they edit a text document. This is a really important innovation that we continue to invest in and, I think, are doing some really good work and practical application of our video in the workplace.
On the consumption side also, AI obviously helps you to consume large amounts of video in various ways giving you summaries and chapters. We're seeing that with the rewatch acquisition that's moving into meeting summaries and other areas and, generally, LOOM's ability to be a search archive for lots of types of video in the enterprise.
AI and the teamwork graph and integration at Atlassian is really bringing that to the full. So we feel really strongly about the Loom roadmap. It's not included at the moment at the premium or enterprise editions. I think you mentioned conference. It's a standalone skew in and of itself.

Operator

DJ Hynes, Canaccord.

DJ Hynes

Hey, thank you, guys, congrats on nice quarter. Joe, we obviously have your guidance for data center growth in Q3, but can you just unpack a bit of what underpins the assumptions that there are a number of moving parts here in Q3 with the pricing changes, the potential for early renewals to lock in pricing? I think you've made changes to partner commissions.
Just help us kind of wrap our arms around that and what you're factoring into the growth rate for Q3?

Joe Binz

Yes. Great question. Thanks for asking. Our Q3 data center guidance for revenue is approximately 7% year-over-year growth. That reflects growth driven by pricing, seat expansion and cross-sell, which we believe will remain healthy, but and execute high-touch sales channel that I mentioned earlier, as well as continued momentum in migrations to cloud as we continue to deliver significant improvements in the enterprise grade capabilities and the value to our cloud platform and as we continue to help our data center customers migrate.
And then lastly, recall that we had significant growth in the prior year Q3 related to server end of support and pricing changes. And that creates a very challenging growth comparable this year.
In terms of the pricing change, we haven't seen any significant or unexpected change in customer behavior from the recently announced data center price changes. Historically, there have always been fairly predictable changes in customer purchasing patterns with whenever we implement those price changes.
And so when we have those in the plans, we model out the expected impact and we incorporate that into our revenue guidance, which is what we've done this year for the February data center price increases. The increases this year are slightly higher than in the past, and we've tried to take a prudent and conservative approach of incorporating that into our guidance.
And with respect to those price increases, we haven't seen anything unusual to date relative to historical experience or our expectations in terms of the whole forward. So we feel like we've captured that in the guidance.

Operator

Brent Thill, Jefferies.

Brent Thill

Thanks, Joe. Good upside on margin relative to the street. I guess for that the guidance you're not really flowing that magnitude of margin forward into the guide. And maybe if you can just discuss what those investments are going. Is there some one-time investment you still need to clean up? Just give us a sense of what's happening in the back half of the fiscal year?

Joe Binz

Yes. Thanks for the question, Brent. It's a good one. In terms of the rest of the year, we are expecting operating margins in H2 to be slightly lower than H1. This is driven primarily by two factors on the cost side, as you point out. The first is spending we expected to occur in Q2, but actually push H2. So that's a timing issue.
And the second release, something Mike talked about earlier on the call it that we are going to slightly increase sales and marketing and R&D investments in the enterprise space and H.2, and that's given the strong positive signal we're getting there on the progress and the momentum and the returns on our existing investments. We believe we can accelerate progress in that strategically important areas of our business. So we're going to invest against that.
And so when you add all that together for the full year, we expect our non-GAAP operating margin to be roughly flat year over year at 23.5%, and that's despite the challenging prior year comps related server and support. So overall, I feel very good about the expected trajectory of operating margins through FY25 and how that lays a good foundation heading into FY26.
And then lastly, I would just add, continue to expect we will deliver greater than 25% non-GAAP operating margins in FY27, consistent with our guidance at Investor Day in May.

Michael Cannon-Brookes

Just wanted to add on one thing. We from a broader color perspective, we're incredibly excited about those go-to-market investments that Joe talked about. There will be more, in a little bit of time, as we drive that part of the business further forward.
And to reiterate that the long-term targets we gave at the Analyst Day last year, probably nine months ago, in terms of the general moderated and increasing go-to-market and investments as a proportion of total revenue and a moderate decrease in R&D. While those are still maintaining sort of historical levels, those long-term targets is still applicable in all of the guidance suggested throughout.

Operator

Kash Rangan, Goldman Sachs.

Kash Rangan

Sure. Thank you very much. There's been a lot of discussion of consumption models that are interrelated with subscription. Curious to get your thoughts, Mike. And also with respect to the price increase, are you going to be offering certain things that will justify that price increase because you've had a one series of price increases that we went through a couple of years ago. And I'm curious what is for the customer feedback?
Is it because the trade off is that okay, we're going to get something more by way of features, maybe this consumption overlay on top of the future product road map. How do we rationalize the price increase in return for the VAT levy ehe customer is getting from that leasing? Thank you so much.

Joe Binz

Thanks, Kash. Let me take those in reverse order. Firstly, on the price increases, look, we have a long history of continuing to optimize products across our portfolio and in line with the value that customers are getting. Whenever I talk to customers, I remind them of the heavy R&D investment we have, which ultimately results in a product improvement.
And we have a great history and track record of delivering continued product improvement. If our product gets 25%, 30% better every year as we continue to build out the feature set, our customers do realize that is why it's worth a moderately increasing price. And as always, philosophically, we keep the value delivered vastly ahead of any pricing, as a philosophy.
So that tends to resonate really well with customers and is very clear to them. They see our investments, they see the results of those investments and generally happy with it broadly. On the consumption side. Looking very hot topic, it seems, suddenly. We have quite a good history in this area, I would say. Obviously, we have a lot of elements and consumption-based pricing already across the portfolio.
That's already in our results that you see today from a bit for pipelines through Jira Service Management with both virtual agents and assets in Rovo and Atlassian Intelligence spaces, automation, storage, and now with Forge.
So consumption-based pricing is something we are very familiar with. I think over time, it probably will further into the broader piece of the overall mix. But again, we continue to learn and adapt as that grows up something we are quite familiar with over time in terms of pricing.
There are definitely areas of in a process broadly or in our business where within some sort of subscription offering, you get a certain amount of usage of a given facility, let's say. And then at some point, you'd pay for more of that facility, which is orthogonal to your usage by users or whatever the core billing unit is. That's very familiar.
Bitbucket pipelines is a great example. You might have 50 developers on Bitbucket. How many builds you run and how much CPU time you use is kind of up to you. You can use millions of minutes, or you can use tens of minutes because of the scalable nature. Computing customers tend to understand if they use more minutes so path for those pipelines. And again, as long as we keep that value delivery rideshare right, it's a good deal for everybody concerned.
So I don't think it's particularly different to the broader consumption-base philosophies we have. Something that we continue to, but on the data and again, it's all about us learning and adapting with customers and making sure that they see the value they're getting before that price comes in or the bill comes in. And they feel comfortable about what they paid for.

Operator

Rob Owens, Piper Sandler.

Robbie Owens

Great. Thank you very much for taking my question. And just wanted to drill down on the gross margin performance and you did speak to in the letter higher gross margins on the cloud side. So just how sustainable is that moving forward? Is that a moving target as some of this new subscription services get rolled out? And as you look at achieving that target operating margin, where she gross margins be in that timeframe? Thanks.

Joe Binz

Yes, thanks for the question, Rob. Gross margins were 85% this quarter. That was solidly better than our guided range of 84%, and that was driven by two things. One is the revenue outperformance, and then lower than expected cloud COGS in the quarter.
It was also up about 100 basis points year over year, and that's because of higher cloud gross margins are partially offset by the revenue mix shift to cloud. In cloud specifically, we continue to benefit from price increases, upsell the premium editions, and engineering investments we're making to optimize cloud infrastructure and customer support costs.
So focusing on and managing cloud COGS efficiently now is particularly important given the expected growth we expect in that part of the business. I'd also say this highlights one of the many benefits of the engineering investment model that Mike talked about earlier that we have here at Atlassian. In that we can invest in engineering talent that can be deployed to many things, including solving tough technical challenges that unlock these cost savings and efficiency improvements in serving our cloud customers in addition to product innovation.
And I would just say that been really great work by our engineering and support teams in this area, and there is more to come on that. So overall, we feel really good about the performance there and the overall performance on gross margins.
In terms of long-term operating margin guidance, at the Investor Day, we mentioned that we expected gross margins to be lower over the next three years, just given the mix shift in revenue to cloud. We're obviously going to continue to work really hard to reduce those cloud COGS and to optimize cloud gross margins.
But that is still the way we think about the long term, and that with the shift in revenue to cloud, which have structurally lower gross margins, that will offset, more than offset, the improvements that we think we can drive on the cloud, gross margin side. So that guidance from the Investor Day last May still holds.

Operator

Adam Tindle, Raymond James.

Adam Tindle

Okay, thanks. Good afternoon. I wanted to start on cloud growth. Maybe with Joe, Paid seat expansion was above your expectation again this quarter. Just maybe level set and remind us where we are on seats. I know it's been kind of stable along the bottom sequentially, but not really growing. Has that metric returned to growth yet. And if not, maybe the timing or expectation on when that might return to growth?
And Mike, on this topic, it's relevant because investors are paying attention to the potential for AI and all these innovation to cannibalize seats. I think you understand kind of that fear or structural fear now that you're deploying AI yourself and see it in practice, I wonder if you might revisit that structural fear of AI eating seats. Thanks.

Michael Cannon-Brookes

Yes, thanks for the question. On the paid seat expansion, in the cloud specifically, we are seeing absolute growth in the expansion, but the rate has been stable quarter to quarter, Q2 versus Q1. That has been stable for several quarters. Within that overall paid seat expansion rate, we've discussed weakness in SMB.
The good news that we see is that paid seat expansion rate in SMB has stabilized over the last two quarters. So from our perspective, we feel like we've stabilized there on. We don't have a timeline on when to expect that to turnaround. A lot of that is driven by macroeconomics.
We talked about the approach to guidance. We continue to assume that macroeconomic uncertainty will have an impact in future quarters on that paid seat expansion rate, and that's baked into the guidance. But beyond that, we don't have a very specific view on when to expect that to turn around and start to expand again.

Joe Binz

And, Adam, I can you talk to the second one on cannibalization. We take a pragmatic view on this, I would say. I understand the concerns that people have that float around. I don't think we're seeing any signs of that at the moment. We're going to continue to be watchful.
The reason I believe we're not seeing those signs is [Geron's] paradox is floated around a lot in the last week or two, drove some of that from the energy space. But fundamentally, it does apply here, right? We don't have a shortage of ideas of things that we want to bring into reality that software help us with. Technology has greater turning IDs into actual services or products. We are not constrained by supply of ideas and human trade activity.
So anything that [Gamesys] efficiencies, with all the short-term bumps that we can have, generally we will be filled with conservation and profits and other things in the longer term, right. Most of the tasks that we are moving are generally not things that people want to do that, not the creative part of the job.
And so we're allowing people to have higher fundamental efficiency in doing that job. Whether that means lots of parts of the economy will suddenly be done with magically smaller numbers of people. I'm not sure I believe that I think they'll come up with many more things to do it, right, but it does make users far more productive. And that's generally a broadly good thing for us, all, we are seeing customers increased productivity in the one, two, three hours a week per person broadly across a set of knowledge workers.
This is fantastic. I don't know if those people are going three hours early. I think they're probably taking off the next things on their tasks left to do. So as an example of sort of -- most people don't end the week in a knowledge where job with an empty list of tasks. This just helps them get through more stuff more quickly and helps those firms survive and thrive in more competitive industry wherever they are. They're competing and someone else is also trying to gain those efficiencies.
From a thoughtful point of view, again, as we mentioned, we do have consumption-based pricing kind of make sure that that's there at lots of different areas of the business. Certainly, in the Atlassian Intelligence area, and we'll continue to learn and evolve. Whether that turns into task-based pricing or job-base pricing, we would be ready to adapt to that. If that seems like an area that's growing that way. We don't have a lot of customer signals if that's what's desired yet.
But from Atlassian last point of view, we maintain that flexibility to be able to capture that value as we as we get. The first thing for us to do is to build fantastic products that people really want and will consume in volume.
And secondly, we have a still a relatively small state penetration within most of our largest enterprise customers. So the upside there, it's very hard for us. We feel that that's what we continue to stress.

Operator

Gregg Moskowitz, Mizuho.

Greg Moskowitz

Great. Thank you. I'd like to follow-up on Bachman's question from earlier, because it is fascinating that you have 85% of the Fortune 500 and yet they only make up 10% of your revenue. Mike, can you touch on how challenging do you think the path is or maybe for Atlassian to get in front of C-level executives a lot more frequently? And how does Brian and the rest of the team plan to add materially to go after this?

Michael Cannon-Brookes

Hi, Greg. Not challenging in trying to look at how to answer this question. Is it hard for me to get in front of C-level executives or Brian or the Atlassian sales team or Atlassian broadly? No, I would say it's not hard for us to do that.
I've met with tens, probably almost into hundreds now in the last 12 months of C-level executives across massive organizations all over the world. They're all Atlassian customers. They are all looking to increase their Atlassian spend. They have very high demands of Atlassian. That's great. We love customers that are demanding rather than have high requirements and high needs and it's up to us to deliver those.
They see our continued delivery of value, whether that's scale in performance in compliance and cloud. They'd ramp all the facilities that Joe talked about in terms of enterprise requirements is a long list and it's going to continue to get longer as we get to lots more global regulation and different rules. Were all up for delivering that to customers and at the same time delivering them fantastic products that actually make a big impact on their business.
Getting in front of them is not the problem, continue to be pulled in as they want to have us be a larger strategic partner. I love customers. I met with a large telco in Europe that explain to me, they wanted us to be one of their top four strategic vendors. The other three are dauntingly large technology companies that we are increasingly putting less leverages, is very humbling. And then they presented us with a list of things that we need to get there. And we're probably in that top 20 vendors, top 10 maybe today, and they wanted us to be in the top four. I was like, give me the list. Let's go.
We're working on a lot of things on that list already. We're delivering for that particular vendor. What they saw was the power of the Atlassian platform, the very insightful CIO that saw the breadth of what we're doing across what we call the system of work. So connecting technical and business teams together as one of their biggest problems.
Strategy and Planning, AI, the depth and breadth of the team we're crafting a truly unique data assets for them that they don't have a big problems connecting all the data together from. So we love those most complex and demanding businesses. We don't have problems getting in touch with them or getting it to talk to them.
We are continuing to improve the way that we tell the Atlassian story, to explain to them how we can help and continuing to help them get that value faster, right. What are the things we pride ourselves on is on speed of deployment, speed of getting access to that.
Again, in enterprise search, it's no different you can get our enterprise search engine stood up very, very quickly. We can connect to lots of enterprise data very, very fast and get results. And if we keep that possibly in my mind and deliver on all their requirements in terms of compliance regulations, scale performance, et cetera, I think we stand in a really good stead. I think Brian, and myself and success team just continue to deepen our capabilities in those areas. So we feel very bullish about the better part of the business.

Operator

Jason Celino, KeyBanc Capital Markets.

Jason Celino

Great. Thank you for being in the shareholder letter. It looks like data center, strong large deal activity. I don't know if this is referring to renewals or net new lands, but I know it's going to be a multi-year journey migration. But for this cohort of customers that are renewing these multi-year data center and contracts today, what is holding them back from the cloud at the moment. Thank you.

Michael Cannon-Brookes

Jason, I can take the first part of that and Joe might want to follow on from a financial perspective. Look, I think the first thing I would say is I don't run into any data center customers nowadays if they're moving to cloud. They're all when -- they're all making plans to move on. They are not questioning our abilities.
And that's credit to the engineering teams broadly over the last few years, delivering on a lot of those compliance and regulation and needs of those businesses that we talked about. That, for a lot of these very large and complicated enterprises, so they might have and 30, 50, even 100 data center instances around their enterprise.
They are often smartly looking to do some cleanup on the way through about workflows they're using or the data. Some of those instances are 20 years old plus and have a lot of a legacy content in them that they may not need, et cetera. So that's a process.
Fundamentally, it can take some of those businesses some time to most. Certainly off and a lot of time multiple years to move holistically. Maybe all of those 50 or 100 instances around, that doesn't mean they're not moving into hybrid states.
We're increasingly to the holiday offering as a powerful things for those customers to learn about cloud, test cloud, use cloud, and maybe forward-thinking parts of the business or are they more fast moving parts of the business. A lot of people are moving their AI initiatives, for example, to the cloud.
It's something I've talked to a number of customers about and some of the slow moving more and more legacy parts of the business may move later on. So we want to make sure that we gave the customers that flexibility to be customer-led in how they manage that migration journey for themselves.
It's very unique for a lot of those bigger customers at the same time, making clear to them about when we are headed as a business, demonstrating the value of cloud. And again, we continue to have large customers. We had the financial institution that we talked about last quarter and the shareholder letter that assigned a very large cloud deal on the basis of Atlassian Intelligence and Analytics to fundamental capabilities that they saw as powerful in the cloud and was moving their migration front.
So thousand success in doing a fantastic job across the customer base, especially a lot of these area to explain to customers what that value is and help them on those movements. So herein we feel pretty bullish. And Joe, do you want to follow-up on the finance part?

Joe Binz

Yes, Mike. Jason, the only point I'd make is to reinforce Mike's point that the vast majority of these deals and data center where hybrid ELAs, which give the customer rights to the cloud, and we continue to see really strong interest in these hybrid deals, given the value in the flexibility they provide, specifically to our largest customers. And Mike talked about all the benefits that brings in our ability to migrate them in a way that makes the most sense for them.
And these deals were a significant driver of the billings outperformance in the quarter that you see that even though the robust of a driver of revenue performance just given the revenue recognition on these deals. So hopefully that color helps as well on the big deals and the data center space.

Operator

Thank you. That's all the questions we have time for today. I will now turn the call back over to Mike for closing remarks.

Michael Cannon-Brookes

Thank you, everyone, for attending today. And thanks to all of the Atlassian team for a fantastic quarter and huge progress across R&D and customer delivery, cross-marketing and cross-selling success and all of the G&A functions that support us all. So another quarter in the books. Thank you, everyone, for attending and we look forward to talking to you all in three months and also seeing you in Anaheim. Hopefully, a lot of you attend '25 in Anaheim in April. Thank you very much.