Atlassian's (TEAM) CEO Scott Farquhar on Q2 2017 Results - Earnings Call Transcript

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About: Atlassian (TEAM)
by: SA Transcripts

Atlassian Corporation (NASDAQ:TEAM) Q2 2017 Earnings Conference Call January 19, 2017 5:00 PM ET

Executives

Ian Lee - Head of Investor Relations

Scott Farquhar - Co-Founder and CEO

Michael Cannon-Brookes - Co-Founder and CEO

Murray Demo - CFO

Jay Simons - President

Analysts

Gregg Moskowitz - Cowen & Co LLC.

John DiFucci - Jefferies LLC

Jason Velkavrh - Robert W. Baird & Co.

Sanjit Singh - Morgan Stanley

Bhavan Suri - William Blair & Company

Brent Thill - UBS

Heather Bellini - Goldman Sachs

Patrick Walravens - JMP Securities LLC

Ittai Kidron - Oppenheimer & Co. Inc.

Benjamin McFadden - Pacific Crest Securities

Operator

Good afternoon, ladies and gentlemen. Thank you for joining Atlassian's Earnings Conference Call for the Second Quarter of Fiscal 2017. As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Atlassian’s website following this call.

I would now like to hand the call over to Ian Lee, Atlassian’s Head of Investor Relations. Please go ahead.

Ian Lee

Good afternoon and welcome to Atlassian second quarter and fiscal 2017 earnings conference call. On the call today, we have Atlassian's Co-Founders and CEOs Scott Farquhar and Mike Cannon-Brooks; our Chief Financial Officer, Murray Demo, and our President, Jay Simons.

Earlier today, we issued a press release and a shareholder letter with our financial results and commentary for the second quarter of fiscal year 2017. These items are also posted on the Investor Relations section of Atlassian's website at investors.atlassian.com. On our IR website there is also an accompanying presentation and data sheet available. We'll make some brief opening remarks and then spend the rest of the call on Q&A.

Statements made on this call include forward-looking statements. The 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 of 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 number of limitations related to the use of these non-IFRS financial measures versus the nearest IFRS equivalents and may be different from non-IFRS measures used by other companies. A reconciliation between IFRS and non-IFRS financial measures is available on our earnings release, our shareholder letter and in our updated investor data sheet on our IR website.

Further information on these and others 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 entitled risk factors in our most recent Forms 20-F and 6-K.

I will now turn the call over to Scott for his brief opening remarks before we move to Q&A.

Scott Farquhar

Good afternoon. Thanks everyone for joining today. We had another great quarter. This year’s annual revenue growth of 36% added over 3,100 net new customers and ended the second quarter with more than 68,000 customers in total. We saw great growth across our business with strong performance in our cloud, server, and data center products.

As most of you aware, the big news we announced just over week ago were our plans to acquire Trello. Trello is a collaboration service and provides teams with a simple way to visualize and productize work. Trello has attracted a great following and continues to expand rapidly.

Over the past year alone, Trello has nearly doubled its user base, and now has over 19 million users in over 100 countries. We believe that Trello is a great fit for Atlassian because it complements their products; extends our reach in the business teams and is strongly aligned with our strategy, business model, and culture.

We expect the acquisition to close in the third quarter of fiscal 2017. As Ian mentioned earlier, we've shared more information on the quarter, and Trello in particular, in the shareholder letter that we have published prior to this call.

With that, I’ll turn the call over to the operator for Q&A.

Question-and-Answer Session

Operator

Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] And the next questioner is Gregg Moskowitz with Cowen and Company. Please go ahead.

Gregg Moskowitz

Okay. Thank you very much and good afternoon, guys. So it's impressive to see your billings growth accelerate to the 40% level. I was curious if there was anything in particular that you saw with respect to, either product uptake or customer follow-on deployments that might have helped to drive that higher?

Murray Demo

Yes, we had strong growth across our entire business that drove that. We did see an increase in revenue coming through our channel partners. There might have been some of it around sort of year-end budget flush with some larger organizations, but it was broad across our business. We are quite pleased to see that we had that kind of growth in the quarter.

Gregg Moskowitz

Okay, perfect. Thanks, Murray. And then, I guess a question for either Mike or Scott. There has been a lot of noise in the chat-based workspace market with Microsoft Teams and Facebook. Can you talk about the competitive positioning of HipChat going forward?

Michael Cannon-Brookes

Sure. We maintained our position, being bullish about HipChat and how it is growing. We continue to invest in it as a product. I think it’s a good validation of a space that’s going to change how our 900 million plus knowledge workers work together over the coming years. And it’s obviously still very early, so we continue to invest in HipChat, and are excited about the prospects there.

Gregg Moskowitz

Okay, great. And then just one last one if I could. Have you had a chance to look into customer overlap between Atlassian and Trello and any color there would be helpful. Thank you.

Murray Demo

Obviously we looked at that, but we'd like to go ahead and disclose the acquisition first before we provide any specifics in that particular area, but clearly that was one element that we considered as part of our acquisition of Trello.

Gregg Moskowitz

Okay. Thank you.

Operator

Our next questioner today is John DiFucci with Jefferies. Please go ahead.

John DiFucci

Thanks. Murray, first question for you. Is the guide down a little bit here on margin, is that all entirely due to Trello? Or are there any other investments you're making that are causing that?

Murray Demo

John, there are two things. One is yes, Trello is part of it, but also as you will see last year, if you look at our trend in operating margin through fiscal 2016, we sort of had a bit of a downward trajectory throughout the course of the year. There are seasonal elements in the third quarter that we are in now, that is when our employees get an annual salary increase and we start with a more employer taxes and things like that around payroll. So that's part of it and also we're obviously bullish on our long-term opportunities and so we're going to continue to invest for long-term growth.

John DiFucci

Okay great. And then, Scott or Mike, I guess it looks like all your businesses are strong. But I'm just curious, when we look out across the world, and not just at Atlassian, but at the rest of software, are you seeing any trends on how customers are consuming your products? For instance and what I’m really drive in or is there any acceleration in cloud versus on-prem consumption?

Scott Farquhar

It’s Scott here. As we’ve talked about before and about three quarters of that new customers come in to our cloud products today. So cloud is definitely the long-term future because we have both cloud and server offerings. We're very agnostic as to the particular time line of what that future happens. We have customers on both products that are very happy and we’re investing in both sides of the business. So we are pretty agnostic to the trend, but the long-term trend is definitely towards the cloud.

John DiFucci

Okay great. And I'm sorry just have to Trello because this is the opportunity to ask about it. It seems like something that can be sold on its own as it has been or even become part of a lot of other things. And could you talk a little bit more about how you see that going forward? Is it something that just will be another line item in a purchase order or purchase on the web or is it going to be – or will you also sort of take that technology and integrate it with some of your other technologies?

Michael Cannon-Brookes

Yes. John, look we are obviously hugely bullish about the potential for Trello as a standalone product. This is not something to be folded into other products that we have. It has a lot of unique capabilities as well as fitting very well into our broader product family. Obviously it expands our reach into business teams, which is a part of our goal unleash the potential of all teams across the Fortune 500,000. We are going to continue to penetrate more and more business teams and Trello obviously does that very well.

And you can see from its reach and momentum, 19 million users almost doubling in the last year across 100 different countries, very big geographic spread. This is by itself. It has great momentum and is a product that we’re very excited about. If you think about the types of work that teams do, there is a lot of different types of work and no two teams work the same way.

So we really think Trello fits very well into the family there because were JIRA does very well, it's structured process based type of work and Confluence is obviously completely unstructured. Trello fits very well in between them with sort of a free form unstructured approach, but enough of a structure and scaffold that you build yourself to work out what the work is that it needs to be done in the middle.

The last thing I would say that sort of relates to your previous point as well, Trello does sell very well into home teams and it is used by people in their home team as well as their work team. So the ability to use it in your home life if you like with a small group of people when you are planning a wedding whether you're planning a renovation, managing some sort of process like this or just collaborating with your wife about what you’re going to do for the kids. We're seeing that in the consumerization of IT were people are taking those products then into the workplace, they are more familiar with them and this is really thing out of that trend.

John DiFucci

Great. Thanks guys.

Operator

And our next questioner today is Jason Velkavrh with Robert W. Baird. Please go ahead.

Jason Velkavrh

Great. Thank you for taking my question. The first one, you mentioned competitive win in an aerospace manufacturer for service desk. I was just wondering if you can elaborate more on the dynamics of a competitive win like that. For instances are customers and sales reps involved at all there or is that purely driven by the customer and just more generally, are you seeing more competitive displacements like that as you grow into larger enterprise deals?

Jay Simons

Yes, Jason, this is Jay. As we mentioned about JIRA Service Desk as a product that can start with a known kind of IT help desks use case and again the example that we highlighted in the letter that was a competitive migration from an existing help desk where we might have a channel partner in that organization working that particular use case, but virtues of the product allowed to expand to service use cases across the business from marketing to sales to finance and HR, and I think that's the real opportunity with JIRA service desk is landing within IT and then expanding to all the other functions for the types of collaborative service applications they're going to run.

Jason Velkavrh

Okay. That’s helpful. And then just one follow-up. This is for Murray. It looks like full-year guide was if you back out Trello, increased about $9 million to $10 million. Is there any FX we should be thinking about there or no FX affects the guidance there?

Murray Demo

Again we sell in U.S. dollars, so there is no impact on revenue. One of our largest expenses is Australian dollars. We have our hedging program going right now. So at this point, we've done a good job I think sort of muting any kind of movements from a currency standpoint. So really nothing is from FX standpoints having an impact in our guide.

Jason Velkavrh

Great. Thanks guys.

Murray Demo

Thank you.

Operator

Our next questioner today is Sanjit Singh with Morgan Stanley. Please go ahead.

Sanjit Singh

Thank you for taking the question. I wanted to get your updated view Scott or anyone on the team on how the expansion outside of software is going along two dimensions. First, maybe into broader IT with service desk and Bitbucket, and then also how would you sort of assess the expansion into the business market where you guys seeing good signs of progress and what do you think you have room to improve?

Scott Farquhar

Hi, Sanjit. This is Scott here. We’re still really early in that opportunity. As you know we’re incredibly well renowned among software teams and historically that's been a land that’s little known - that most of the users using our products today are not writing code. People using all of our products are in broader business teams today because we are bottoms up in an organization and we start with small teams, we struggle to quantify that, but we're really happy with the progress in sale of JIRA Service Desk, JIRA Core though little bit newer is going great in terms of broad business teams and obviously Trello, it helps round out that capability.

I do think they are very complementary to everything. Trello is complimentary to existing products. And another example that we have is our enterprise and Data Center areas of the business. As we know Data Center flows into that subscription line is still a small part of that, but it’s growing really strong and really those products only kick in when you have thousands of users and growth of those products is indication of how widely we are deployed inside organizations.

Sanjit Singh

Great. I appreciate that. And then I thought the comments on the partners this quarter was interesting, given a lot of debate on whether you guys are sustainable without enterprise sales force. It seems like your partners are being really productive, so I wanted to get a sense of how much of the business is going through your partners or whether you have any sort of goals either in terms of number of partners or increasing the partner capacity that you're teaming up with?

Scott Farquhar

Yes Sanjit, we did have strong growth with our channel partners. It was stronger as we went through December. Part of it is for larger organizations when they buy software. They tend to have partners that they work with, they buy all their software from and so it's not a surprise that we’re seeing sort of larger deployments from these organizations that they're buying from their preferred partner and that's flowing through to us.

So we've got a broad expert and partner channel that Jay can add on to here, but we did see it in the quarter. Data Center was a big part of that, larger server offerings for broad deployment. So it’s a number of factors that we're sort of aligning to drive that.

Jay Simons

I’d just add that the channel really supports the land and expand part of the model where they can start as an – the example I gave with JIRA Service Desk kind of a really known use case within IT and then help organizations expand with that product and others to reach other parts of the business.

Also keep in mind that Summit I think is a good activation point for just the customer base in the channel and data center in particular. There are a number of really high demand features like JIRA downtime upgrading that I think kind of help drive growth within Data Center through the quarter and the channel plays a really important role in that.

Sanjit Singh

Great. Thank you.

Operator

Our next questioner today is Bhavan Suri from William Blair. Please go ahead.

Bhavan Suri

Hey guy. Thanks for taking my question and then congrats on the numbers there. Just to start off a little bit on JIRA Service Desk. Just some color on how growth has progressed with the product? And then obviously the conference you announced the customer facing version of JIRA Service Desk, I know it's early, but just sort of you seen uptake and what does it look like additionally? What sort of size deals are you seeing there in terms of number of agencies or things like that? Some color there would be great too.

Scott Farquhar

Sure Bhavan. Yes look, obviously to be clear at Summit we announced a series of features more in a customer service angle for service desk, what’s interesting what we’re seeing is service teams adopting service desk for help desk and then start using for customer service, different teams. So there is a lot of different usages in the sort of broad category of service teams. And the goal obviously is for us to be able to land in any of those and expand to the other ones.

The product is going very strong; we’re very excited about the position, obviously it's built on a huge foundation in JIRA that gives us a great advantage in the event workflow and field and things, capabilities that we've had many years now. So we continue to invest strongly there and we are very positive about the opportunity. Summit was a great reaction from customers.

Michael Cannon-Brookes

I just want to add something to that Bhavan is that because of our business model, [indiscernible] bottoms up in the organization and because we have such attractive pricing for our customers, our customers are finding thousands of use cases for our products that we don't really even go head-to-head in any sort of competitive battle there because we're getting bottoms up and spread across.

Now that could be public facing customer support, which is one of our most popular features that was really requested by our customers or it’s being used for help desk in other parts of organizations that typically wouldn’t have thought that they would use a help desk and a market that is not really able to be accessed with a top down or a sales team and so really the business model allows us to be more successful and often find use cases that aren’t captured by anyone previously.

Bhavan Suri

Got it, it’s helpful and then turning to Confluence. We sort of seen Confluence displace share points in a couple of cases and I was wondering if that's an anomaly or you're actually seeing that become a trend where sort of the workflow/object management, document management piece of the Confluence provides especially if it's bottoms up from developers is a regular displacement of share point. Is that something you're seeing a lot of from a growth perspective or displacement second or is that something I'm sort of an anomaly?

Scott Farquhar

Look Bhavan, I wouldn't call it an anomaly. I also wouldn't say we were seeing a huge amount of it right. I mean given our model of consent has been hard to see these things, people often run Confluence alongside share point. So that’s integration between the two of them for sharing search content and another content between the two.

Obviously from a product point of view Confluence is a lot easier and more friction was to actually using and get content to your colleagues. It's also open by default goes back to Atlassian’s values that we believe that the content should be open and broadly shared, which tends to lead to greater viral adoption as well within the products.

And obviously Confluence is very, very tied into a lot of modern tools that people used today, which I think things like SharePoint can sometimes struggle with obviously heavily tied into things like JIRA in Confluence, but a whole lot of other products that enterprises use Confluence in the marketplace is a huge number of integrations with all sorts of products that modern teens are going to use, which makes Confluence a great option that the larger project like SharePoint can struggle with.

Bhavan Suri

Got it. And then one quick one for me on Trello, you sort of broke out the split between or you sort of describe sort of the home life and work life, just give any percentage of – any idea what percentage is work teams versus home teams or is that something hard to do?

And then Trello obviously doubled users, but it’s a fairly small revenue base. Just sort of how you guys think about approaching the way to monetize the 19 million or whatever percentage we do monetize out of that? That’s it for me. Thanks to my questions guys.

Scott Farquhar

Sure. Look on the workforce and homes, but we haven't disclosed any numbers there, except to say that we're targeting work teams as a company. So obviously that's important to us and it wouldn’t make a lot of sense if there wasn’t a big component of their customer base.

Bhavan Suri

Great.

Scott Farquhar

We're all into wedding planning, but not as a corporate objective. Look on the broad side of things with Trello, which is extremely bullish about how it goes and so I think you'll see that there. But it is very early in its monetization journey right. So I think you'll see that they've only been monetizing the product for about two and a bit years and that that's in line with the patient for revenue sort of philosophy and so we are very culturally aligned with that team there and we'll be growing all the numbers.

Bhavan Suri

Great. Thanks guys.

Operator

Our next questioner today is Brent Thill from UBS. Please go ahead.

Brent Thill

Hi, Murray just back to John's question on the operating margin. Last year you guided third quarter to 12%, you’re guiding similarly for this third quarter? Can you just give us a sense – any sense why you're not seeing more leverage there?

Murray Demo

So Brent again we do have the salary increases for the employees starting January 1. That's third quarter starting the employer payroll taxes again in the third quarter and then we've got the Trello business coming in that. We've signaled as dilutive this year and so that’s affecting the margin as well. So that's kind of how it is. We continue to invest in the business going forward, so that's what's factored into those targets. That’s kind of how we are looking at for the third quarter.

I would also just if I could just for a moment there Brent is just the way to think about this year obviously the revenue that we're guiding that's related to Trello is posed the haircut on deferred revenue and so it has more of a compressing effect on margins this year as we get into 2018 obviously that starts to roll-off and renewal bit of a different situation. So you've got to bear in mind that we're not getting all the revenue in a sense because of that haircut that it would be more helpful to margin.

We're not in a position right now. We're given a specific EPS number for dilution this year because of we got to close the books and get the purchase price allocation sorted out and finalize all that and then the IFRS to non-IFRS reconciliation it provide, but I think if you kind of look at EPS in Q2, you kind of look at where we were on EPS last quarter in terms of guide for the year kind of what we're doing now. I think everyone can kind of back into what that EPS dilution would look like for fiscal 2017.

And we did say when we made the announcement that it would be neutral to slightly accretive on a non-IFRS basis in terms of EPS for fiscal 2018. And just so that everyone understand the assumptions there is we're not assuming any revenue synergies, there's no cross sell factored into that, it's all coming through cost synergies contributed from both sides to get to the neutral to solve the accretive.

Brent Thill

Okay. Thanks. And just I think last quarter you mentioned that deceleration in the Americas growth is related to the larger cloud uptake is that the case again given the deceleration in growth?

Murray Demo

Well, I think this quarter the growth was just slightly up from Q1, so 34% versus 32.6% last quarter, so all of our geographies they grew from Q1 to Q2 in terms of those growth rates. The growth we saw in revenue and deferred revenue in the quarter it was just broad-based across essentially all product families, cloud and server and geographies very, very broad-based.

Brent Thill

Thanks Murray.

Operator

Our next questioner today is Michael Turits with Raymond James. Please go ahead.

Unidentified Analyst

Hey guys. This is [indiscernible] filling in for Michael. I was wondering how impactful is the move to the data center pricing model and the cloud and what impacted that move to subscription on our revenue this quarter? Thanks.

Murray Demo

Yes, we haven't provided those specific numbers. The move to data center probably has more impact just because under the perpetual model we’ve get 50% of that upfront and data center is just growing very fast, but we have not provided specifics on it. I think it's important to remember that. We’ve kind of been subscription ask, really – since the beginning because we have such a high maintenance rate relative to the perpetual license and so the kind of that transition from perpetual and maintenance to subscription is just so much less and you see other software companies that are making that big move in terms of their deployment models.

Unidentified Analyst

Great. And then second one if I may. I know a fair amount of customers came into the StatusPage acquisition, so just be curious to hear how many efforts to cross-sell in the Atlassian products to the space [have been today]?

Michael Cannon-Brookes

Look Michael, it’s Mike here. I think we're really early in the StatusPage story; again they haven't been with us for more than six months now I guess. We've got a lot of things we want to do in the StatusPage business itself that we're really working hard on before any sort of major efforts to cross sell into the Atlassian base.

There is a lot of revenue and customer synergies already between the two, we have a lot of shared customers so there's a natural kind of things that happens there, but there's nothing exclusively we are doing at the moment really focusing on the product and StatusPage itself. Really nice data point to Trello was actually a StatusPage customer you can see in a public website before they came on board, so that was just nice.

Scott Farquhar

I just think it's also important to understand that our patience for revenue model and not having the sort of direct sales forces out there, it’s also means that we have to be patience for cross-sell as well, and so clearly there is tremendous cross-sell opportunities for us. It's not like that we have this direct sales force all over the world is going in the next day and pushing StatusPage is part of the portfolio. It's more in our sort of patience model through our funnel or engagement engine.

Unidentified Analyst

Great. Thanks guys.

Operator

Our next questioner today is Heather Bellini with Goldman Sachs. Please go ahead.

Heather Bellini

Great. Most of mine have been answered, but thank you for taking the questions. I guess I just had one. I was wondering if you could share with us a little bit of kind of how you're thinking about HipChat and Bitbucket and just share with us, maybe any cross-sell trends into the installed base and in general maybe how you see your products starting to kind of your portfolio of products permeating through an organization? And then I've got a couple follow-up.

Jay Simons

Hey Heather. This is Jay. Remember the virtues of our product portfolio allow us to expand – land and expand through a couple different dimensions. So at a really high level, remember, we're focused on a couple of kind of key universal capabilities that teams need. The ability to share and manage work in projects, the ability to create content together where for development team’s part of the content they're creating is code. It's managed in Bitbucket and then communication.

So I think with both HipChat and Bitbucket, they are simultaneously opportunities for us to land and begin a relationship in the case a Bitbucket with a development team that might start with code and then expand through JIRA Software to better manage software projects, expand with Confluence and HipChat to better manage constant communications with HipChat.

It's a vehicle that allows us to land with teams that start with communication first maybe because they're small, maybe because they have some other products that they're going to plan to replace with the rest of our portfolio over time.

So I think land and expand which you’ve heard us talked about before is vital to the model and then in the customer examples that we included in the shareholder letter, I think you see that kind of the natural expansion opportunity that exist both with one team that might start with our products like a technical team or IT and expand IT business functions.

And then lastly, you’ve heard in the server business, I just think it's worth restating the data point that that kind of expansion is companies look to serve a myriad of different teams in the organizations with our products to help them work better that drive standardization within really large organizations around Atlassian products that includes the JIRA family, Confluence, Service Desk, Bitbucket and HipChat and that’s kind of the real opportunity over time for us is to continue to do that.

Heather Bellini

Okay. Yes, I was just wondering specifically if you had any steps that you can share directionally kind of how multi-product customers and maybe the average number of products per customer?

Jay Simons

We don't break that out. Other than just to talk about as we've shared in the past, HipChat’s kind of momentum around the number of teams it's supporting with volume of messages that it's sending and then with products at JIRA Service Desk with 20,000 organizations now docked in JIRA Service Desk.

And then previously we've talked about customers at Summit where they'll share sort of like the wide percentage of teams that are using the JIRA family and Confluence. I think the number that we shared was over 35% that we’re using products by business teams. And so that's kind of the natural expansion of moving from one product to many and moving from one team to many.

Heather Bellini

Okay. That’s helpful.

Michael Cannon-Brookes

Heather, this is Mike. Just to echo Murray’s comment from before maybe from a standalone that patience for revenue gives us – we believe gives us great strength and grow predictability. And so when you think about cross-sell or HipChat, Bitbucket or the products that cross-sell doesn't come through a sales motion that cross-sell comes much more through logical and flow through integrations between the products and pods for the customers to move from A to B.

It can take time for them to find those pods, time for us to build those pods, and those pods don't apply to all customers using all products, but we continue to invest as we see some of our R&D dollars going is in building those pods that give us great strength over time in the logical patient cross-sell.

Heather Bellini

Okay. Thank you. And then just one last quick one, obviously you guys are the low cost provider in your go-to-market strategy. I'm just wondering in areas like JIRA Service Desk for example where you've obviously started to see some very good success. Are you starting to see your competitors changed their pricing, they’re trying respond to the success that you're having?

Scott Farquhar

Heather, this is Scott here. Without [indiscernible] individual competitors what we've found over the sort of 15 years of running Atlassian is that the philosophy that a Company takes early on about how they go-to-market is really difficult to change, and we’ve had a philosophy that we believe markets are very larger than many of our competitors do when we talk about the Fortune 500,000, many of our competitors really targeted the Fortune 500.

And it’s one thing that sort of to say [I have lower] prices, but you need your entire organization to be build up around high volume, lower touch models, the patients that we have by not having venture capital for long periods of time, all those things that up to our model and it's not a matter of someone trying to match up price and many of them can’t do that just the way they set up. So it's a pretty comfortable about the model we've got and how difficult that is to replicate.

Heather Bellini

Okay. Thank you very much.

Operator

Our next questioner today is Patrick Walravens with JMP Securities. Please go ahead.

Patrick Walravens

Oh Great. Thank you very much. I was wondering on the sort of following up on the competition side. Do you see the competition trying to evolve, I mean there's sort of more copying I would say of your broader messaging and do you think there's anything that that you would do differently over time as they do evolve?

Michael Cannon-Brookes

It’s Mike here Pat. It's certainly see people copying messaging and things over time and they're welcome to do whatever they want to do would pretty used to that now after 14 years. The thing that’s hard for them to copy and the business model and the synergies we have between the product in a level of R&D investment in focusing on the customer and the pricing model and the way the sales machine that we have works right that those three in a way that tied together is incredibly hard for somebody else to copy. So yes, they can put the same text on their website, but that tends to be way less relevant to customers and the entirety of the picture in the system that we have built.

And you sometimes see that too in – we often slightly amused by saying some trumpeting of a customer when for simple where we have lots and lots of deployments in that individual customer 10 or 20 different servers running and someone also trumpeting a single customer win that that doesn't make any sense to us, because of the way we go-to-market. They can't copy the 100s of different lending spots that we have within that company that grow up into data center standardization as their adoption of a lasting products continues to grow.

Patrick Walravens

Great. Thank you.

Operator

Our next questioner today is Ittai Kidron with Oppenheimer. Please go ahead.

Ittai Kidron

Thanks and congrats guys on a great quarter and good acquisition. Murray, I wanted to follow-up on the Trello acquisition details. You've talked about how you had to write down the deferred? Can you give us maybe a little bit of a perspective on how long will it take to get Trello to the same revenue run rate that it would have had if you didn't have to write down the deferred?

Murray Demo

Well, the majority of their business is going to be like on annual agreements and so you're going to have at most 12 months of deferred revenues that's going to be rolling off as we go forward here. So we will have more to say about fiscal 2018, but the impact is really primarily on fiscal 2017.

Ittai Kidron

Okay very good. And then headcount, I didn't see it in your slides is there we can give us an update on what was the headcount change in the quarter?

Murray Demo

Yes, we increased by 55 heads in the quarter from Q1 to Q2 and it was hiring across the whole business, but the majority of the primary area was in R&D as you would expect.

Ittai Kidron

Very good. And then lastly Scott, again we bring in Trello in and makes complete sense. I guess the question is how do you avoid confusion for customers? Ones that would have been interested in JIRA Core how do you kind of fine tune pitching JIRA Core to them versus Trello and the [Invision] team is using both, if you can help us kind of understand how you got to create that differentiation and a lack of confusion that will be great?

Scott Farquhar

Sure. Thanks Ittai. Look that’s really important for us. It's important now to JIRA Core and Trello as a very different purposes and we're going to continue to sell both products into customers. I know they work very well together. They're very complementary. Again, the important thing to note there is that there's lots of different kinds of teamwork and it's our job to communicate the types of teamwork and the types of teams in the types of organizations that’s small or large and which product works best for them at a given time and how they work together and how you flow to the set of products.

So JIRA Core works very well for managing structured processes, so you are not going to do your quarterly financial close for a public listed company in Trello. That's not going to make sense to you. We have to make sure that the more structure you have in your process the more compliance, the more control of that process is generally as a company gets bigger or team gets bigger it’s going to make a lot more sense in JIRA Core for our business team to run as you get that.

At the same time if you have a very unstructured process so a blogging calendar or planning a marketing campaign, brainstorming what have you might be doing. That's going to work much better in Trello, so depending on how much structure you have that they're going to be quite different. We believe that no two teams work in the same way and it's our job to make sure that people understand when the different tools are applicable for different challenges they have and may vary from day to day and at the same time that those tools do work very well together, so once you have one you can flow into the next one or you can use them in concert for a given process.

Ittai Kidron

Got it. That's helpful. Do you think that the competition for you changes now that you're adding Trello there are other companies that you think you're going to rub up against a little bit more with this company in your portfolio?

Scott Farquhar

I mean look we've always had a lot of competition for each individual product. I think Atlassian wide level and I don't believe the competitive match changes particularly with this acquisition from the sort of large scale view, but at the same time it's not something that we spend a huge amount of time obsessing on you. We always try to focus very much more on the customers and how our individual products serving their needs and growing and serving more of their needs then responding to what others are doing.

Ittai Kidron

Got it. Very good. Congrats and good luck guys.

Scott Farquhar

Thank you.

Operator

[Operator Instructions] And our next questioner today is Ben McFadden with Pacific Crest Securities. Please go ahead.

Benjamin McFadden

Hi guys. Thanks for taking my questions. I just want to start with the fact that your growth both on the revenue side and the billing side seem to accelerate a little bit in the quarter and I'm just wondering if there's any shift in seasonality that takes place in this model for the December end quarter given the fact of how much larger these data center deals are or whether this is just continued execution on your growing portfolio of solutions?

Murray Demo

So I guess if you were to look at it from the budget flush December there must be some element that we're benefiting from there, so I think that's a seasonal factor that's part of it, but it's so broad-based, it's across all the geographies, it was just strong performance, it's just a continuation of what we've been focused on for the last number of 14 years and just seeing more broader deployments, we're just seeing more larger organizations that are kind of moving from a bunch of servers and they are moving to data center that which comes at a higher price and they're just getting thousands of users.

So that all kind of broader adoptions theme, we clearly saw that in a quarter and not sort of beat on the old pricing benefit thing, but this was the last quarter that we just got a little fraction. We saw a more benefit in the previous quarter so to see revenue growth higher this quarter relative to last quarter and facing if you well over that headwind I know it’s very pleasing to us in terms of our overall performance as well as the deferred revenue, calculated bookings and some of look that.

Benjamin McFadden

Great. And then I wonder if you could just kind of help us understand how much of JIRA Core traction is coming from new customers versus existing customers and tying that into the Trello acquisition. Is there an opportunity from a cross sell standpoint for Trello to potentially drive more viral adoption of JIRA Core than JIRA Software has historically done just any color you can provide there would be great?

Scott Farquhar

Ben, it’s Scott here. JIRA Core primarily today has been an expand product for us and with 68,000 customers with the huge opportunity inside our existing installed base to expand and that’s a lot cheaper for us to acquire those customers for that product.

One of the reasons you're attracted to that is installed base with 19 million users of which they've achieved just under half of those in the last year. So it has incredible momentum in acquiring new users and new customers and so we believe that will help us attract a group of users that perhaps previously at move to Atlassian and echo’s the things Mike said earlier. Trello is less structured than JIRA Core. It is used in more ad hoc use cases. I've seen one or two get huge amount of value from Trello where as we say traditionally Atlassian's products provide value once you're much larger team or have more structure and process.

And so we're really pleased with it. It really allows us to acquire customer much earlier in their lifecycle and for many more ad hoc use cases. And once we've got them up selling in JIRA Core, once they need more structure up selling them to JIRA Software once they become a largest software team and cross-selling all the product suite we have, but not really – it’s an opportunity for us at some stage down the line.

Benjamin McFadden

Great. Thank you.

End of Q&A

Operator

[Operator Instructions] It looks like we have no further questions, so I would like to turn the conference back over to management for any closing remarks.

Scott Farquhar

Thanks everyone for joining the call today. We really appreciate your time and we look forward to keeping you updated on our progress as we go forward. Thank you very much.

Operator

The conference is now concluded. Thank you all for attending today's presentation. You may now disconnect your lines.