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Atlassian Corporation Plc (NASDAQ:TEAM)
Q4 2019 Earnings Call
Jul 25, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. Thank you for joining Atlassian's Earnings Conference Call for the Fourth Quarter of Fiscal 2019. [Operator Instructions] As a reminder, this conference call is being recorded and will be available for replay from the Investor Relations section of Atlassian website following this call.

I will now hand the call over to Ian Lee, Atlassian's Head of Investor Relations.

Ian Lee -- Head of Investor Relations

Good afternoon. And welcome to Atlassian's fourth quarter fiscal 2019 earnings conference call. On the call today, we have Atlassian's co-founders and co-CEOs, Scott Farquhar and Mike Cannon-Brookes; our Chief Financial Officer, James Beer; and our President, Jay Simons.

Earlier today, we issued a press release and a shareholder letter with our financial results and commentary for our fourth quarter and full year fiscal 2019. These items are posted on the Investor Relations section of Atlassian's website at investors.atlassian.com. On our IR website, there's also an accompanying presentation and data sheet available. We'll make some brief opening remarks and then spend the rest of the call on Q&A.

Statements made on this call include forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking 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. Further information on these and other factors that could affect the Company's financial results is included in the filings we made with the Securities and Exchange Commission from time to time, including the section titled Risk Factors in our most recent Form 20F and quarterly report and 6K.

In addition, during today's call, we will discuss non-IFRS financial measures. These non-IFRS financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with IFRS. There are a number of limitations related to the use of these non-IFRS financial measures versus their nearest IFRS equivalents and they may be different from the non-IFRS measures used by other companies. A reconciliation between IFRS and non-IFRS financial measures is available in our earnings release, our shareholder letter, and in our updated investor data sheet on our IR website.

I'll now turn the call over to Mike for his opening remarks before we move to Q&A.

Michael Cannon-Brookes -- Co-Founder and Co-Chief Executive Officer

Good day. Thanks everyone for joining today. Fiscal 2019 was another outstanding year for Atlassian. We surpassed 150,000 customers and exceeded the $1 billion revenue mark for the first time in a fiscal year. We achieved this while generating more than $400 million in free cash flow during the year. I'm incredibly proud of the work of more than 3,600 Atlassians who come together each day, to build the great products that our customers love. Our customers have always been our guiding light. Over the past 17 years, our commitment to these customers has led us to make pragmatic decisions about the evolution of Atlassian and our products. Today, they are leading us toward the cloud.

Demand for our cloud products is increasing, both from new customers and from existing customers using our on-premises products. It's natural that the cloud is our primary focus and the key driver of our growth. In fiscal 2020, we will continue to invest deeply in improving and expanding our cloud offerings and platform. We will also be investing to serve larger customers in the cloud as well as to accelerate the pace of migration of server and data center customers to our cloud.

Our pricing and packaging strategies will be roughly aligned with these goals. Scott and I have always been focused on driving sustainable growth over the long term. Our increasing cloud focus supports this long-term view. In Jay Simons' section of the shareholder letter, we outlined the financial implications of our cloud strategies in fiscal 2020. And we encourage you to read his commentary.

And with that, I'll pass the call over to the operator for Q&A.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Bhavan Suri with William Blair. Please go ahead.

Arjun Bhatia -- William Blair -- Analyst

Hey guys, it's actually Arjun Bhatia for Bhavan. Just wanted to start off with, with the premium model that you talked about in the shareholder letter. It seems like this is a nice shift to the strategy. Just wondering why this is the right time to go premium in the cloud for specific cloud products? And then what do you think is the benefit over offering a one week or one month trial for customers?

Michael Cannon-Brookes -- Co-Founder and Co-Chief Executive Officer

Hey, Arjun, it's Mike. I can take that. Sure. I guess I would start by saying, it's, but it's not really a shift in the strategy. We have three versions of a whole series of cloud products today. And we have always tried philosophically, to have the lowest entry point price that we can. A lot of our cloud investments over the last couple of years have made this possible. So this is sort of the -- from that point of view, it's a culmination of a longer-term journey in the cloud. We've always tried to get -- to get out to the Fortune 500,000. We've got to have as many on-ramps as possible to get customers on board as friction literally as possible at the low end. And then we deliver the value in terms of the products. And then as they grow, they will start to become customers. That's always been our pricing desire. So this is just another step on that journey in terms of getting out of the Fortune 500,000.

Arjun Bhatia -- William Blair -- Analyst

Great. Thanks. And then maybe -- maybe a quick follow-up. Just trying to get a better understanding of where customers are in the migration path, especially larger customers from server or on-premise to cloud. Is this something that your larger customers haven't -- have planned already or are we still too early for that and something you expect to play out over the next few years here?

Jay Simons -- President

Hey, Arjun. It's Jay. It's been playing out over a while. I think the signal that we -- that we articulated in the letter, is that we're seeing increasing demand from a lot of on-prem customers mainly the larger to consider moving to the cloud. And that's been ongoing and we anticipate it will be ongoing. And maybe there's a couple of great examples of like really large US based asset firm that's beginning to plan a move to the cloud. And that's a large existing server customer that has 8,000 users of JIRA, and 10,000 users of Confluence and on the other side of that cloud journey, they can anticipate taking it up to 50,000 users. There is a large European athletic clothing manufacturer that's going through the same journey and a lot of the catalyst for it is just the broad secular shift that's been happening around us in the market, you know where 90% of new customers are in the cloud. But a lot of it is these large customers, see the investments that we've made in cloud. And then the advantages that cloud brings to them in terms of performance, the ability to have the service manager and update it for them and then more reliability in some cases.

Arjun Bhatia -- William Blair -- Analyst

Great, thanks for taking my questions. And congrats on the quarter.

Operator

The next question comes from Gregg Moskowitz with Mizuho. Please go ahead.

Gregg Moskowitz -- Mizuho Securities -- Analyst

Okay, thank you very much, and good afternoon guys. So I was at Atlassian Summit a few months ago where you offered all attendees up to 2,000 free cloud software licenses to accompany their on-prem licenses and obviously it looks like you've now opened this offer up to your entire community, and on the managing basis as well. Would it be fair to conclude that as a result, you've seen high levels of interest in activity from that promotion a few months back? Any color kind of around that in terms of what you've seen from customers would be helpful?

Jay Simons -- President

Yeah. Hey, Gregg. It's Jay again. I think in part, it was a response -- it is in response to a lot of interest in the cloud and the goal is just making the journey that customers are considering easier for them. And part of that is in the offer that you mentioned and in the matching free cloud trial license that we're offering to existing server customers so they can begin to plan out migration. The other component, it's just the investments that we made in product and migration tooling. The migration tooling has come a long way from where we've had the opportunity for customers to export and import. And now I think some really innovative work in helping to move project by project pieces in JIRA and Confluence, from their on-prem installations into the cloud, being over the broad backdrop of that is in response to where customers are signaling they want to go. And our goal is to make it as smooth and as friction free as possible.

Gregg Moskowitz -- Mizuho Securities -- Analyst

All right. That's really helpful. Thanks, Jay. And then, congrats as well on eclipsing 150,000 customers. And you've now provided another long-term goal of more than 100 million active users versus over 10 million cloud that use today. And we look forward, obviously to track at that progress as you continue to grow. But my question there is, if you could talk to the investments required in infrastructure and engineers and acquisitions that you think are required to make this call, a reality? Also does this require an accelerated multi-year investment in cloud? Or would you say that you're currently on a good pace from an investment standpoint?

Scott Farquhar -- Chief Executive Officer

Gregg, it's Scott here, I can take that. With the investments we're making on the cloud. We've been a cloud company for 10 years, and we are making continued investments in improving our cloud for our customers. As Mike mentioned earlier, some of the investments around Vertigo, we talked about, which was moving our cloud off our own data centers into third-party data centers, has allowed us to reduce our COGS. So we can now offer a free version. Investments we have made in infrastructure and platform have allowed us to bring access. I'll use the management product to market. They have also allowed us to get a premium product to market as well.

So we've made a lot of investments over the time that are paying off now. As Jay mentioned, we're making investments in migrations as mentioned earlier that Confluence, we've got a great migration tool and we are continuing to improve it. That's going really well. We are investing in JIRA migrations tool as well, which we expect to have be similarly as successful. And then over time, one of the things this year is going through that journey of migrating customers with some of the largest customers of ours to the cloud. And through that we will -- I'm sure there'll be little things we will discover that will be working with our customers on that. Broadly, I don't see a change in our investment mix in order to do this. In order to sort of more of continuing what we've been doing all along.

Gregg Moskowitz -- Mizuho Securities -- Analyst

Terrific, thanks very much guys.

Operator

The next question comes from Heather Bellini with Goldman Sachs. Please go ahead.

Ian Lee -- Head of Investor Relations

Hi, Heather. Are you there? Heather. Operator, could you move to the next question first, please.

Operator

The next question comes from John DiFucci with Jefferies. Please go ahead.

John DiFucci -- Jefferies -- Analyst

Thank you. So Mike and Scott, you talked about the opportunity to help your customers migrate to the cloud. I guess, given your new name, is there, are there any thoughts around the undersea opportunity? That's a bad joke, I'm really sorry. But the real question --

Michael Cannon-Brookes -- Co-Founder and Co-Chief Executive Officer

No, I think John, it's correct.

John DiFucci -- Jefferies -- Analyst

The real question is this, is there a reason that clouds better for Atlassian like its pricing, stickiness? Or is this just doing what customers want, which seems to be part of your D&A and part of your success all along? Is there something else though that from a financial perspective cloud would be better than on-premise deployments?

Michael Cannon-Brookes -- Co-Founder and Co-Chief Executive Officer

John, we've always been customer-led in whatever we do, and that's why we have both deployment options at the moment. And we are not trying to push our customers one way or another from a financial perspective or any other reason. We are very happy with kind of both sides of our business. The demand is there for customers to go to cloud. I do think that as, when customers are in cloud, it allows us to get the feature usage information that allows us to be a bit sharper with our R&D investments. It doesn't show up in any balance sheet or P&L or anything like that, but it does allow us to kind of build better products quicker.

It allows us to cross-sell our products a lot easier, because they are on the same system. They can suddenly -- we can expose them to opportunity without the need to set anything up in their environment. So, it allows us to do that better. And from a variety perspective, it is helping people sign up to products, it allows us to effectively, with all the analytics we've got, we can make sure that people go through that journey a lot quicker. And you know, I think we shared in our shareholder letter that the financial results over the long term are marginally better for us at last year, and we feel good about that as well.

John DiFucci -- Jefferies -- Analyst

Okay. That all makes sense. Thank you.

Operator

The next question comes from Nikolay Beliov of Bank of America Merrill Lynch. Please go ahead.

Jacqueline Cheong -- Bank of America Merrill Lynch -- Analyst

Hi, this is actually Jacqueline on for Nikolay. Two questions. First, in light of the fiscal '19 billing seasonality, how should we think about fiscal '20 billings trajectory. And number two, how do we think about the used cases of the Premium addition? Will the channel be involved in selling Premium?

Scott Farquhar -- Chief Executive Officer

Okay. Jacqueline, I can take the first one. Now just a reminder, obviously, we are very much focused much more on revenue than billings, and that's for -- of course, deferred revenue is relatively small part of our overall sales picture, particularly the long-term deferred revenue because we really don't enter into very many multi-year contracts at all. And then when you add to that of course the cloud business is growing very strongly as we've been discussing. And more than three quarters of that comes with a monthly subscription. So those are some of the key reasons why we really focus on revenue as opposed to billings. So, as you know, we don't guide to billings in fiscal '20 but what I would just observe is that in the last couple of years, the billings pattern has moved around somewhat based on the timing of price increases that we rolled out.

So for example, in fiscal '19 last year, we announced some price increases in the middle of September and so there, we saw a pull-forward activity occurring to benefit Q2. And that benefit was pulling activity from the second half of fiscal '19 and in fact from fiscal '20 and even beyond that. Now conversely, in fiscal '18, we announced price increases a little earlier right at the start of September. And in that year, the pull-forward benefit was really balanced between both Q1 and Q2. And that benefit was pulling in part from Q2, but then more so from Q3. So that's really all I would just remind everyone on. Obviously, we haven't made any price increase announcements for fiscal '20, but that gives you a sense for the recent historical pattern and how price increase activity can impact billings by quarter.

Jay Simons -- President

And Jacqueline, this is Jay, I'll tap on to the second part of your question. There's two kind of unique components of the Premium cloud additions. The first is kind of common across them, which are our platform capabilities that offer a higher level, higher service and support level and in some cases, depending on the product higher storage levels as an example. The second component is premium features that really target more advanced and sophisticated users that are specific to the product. And so roadmaps in JIRA or usage analytics and Confluence are two of the examples. And so the customers that Premium additions target are can be small and just more sophisticated users, but more often than not will be larger. So that's where we're targeting. Absolutely, the channel is engaged in and selling and supporting customers both upgrading from standard cloud to Premium additions, but in many cases just starting with Premium.

Jacqueline Cheong -- Bank of America Merrill Lynch -- Analyst

Well thank you.

Operator

The next question comes from Keith Weiss with Morgan Stanley. Please go ahead.

Sanjit Kumar Singh -- Morgan Stanley -- Analyst

Hi, this is Sanjit Singh for Keith Weiss. Congrats on a very strong Q4. I had two questions. The first is on the sort of cloud unit economics, if you will. You had a really nice chart in the earnings letter and that basically shows a breakeven time between cloud and server of about two years. And about 40% higher lifetime value. So to maybe dovetail on John's question, what do customers get for that for paying that extra 40% over five years? Is it more about the performance scalability or from a -- is there a feature functionality aspect to this as well that gives the maintenance based customers that nudge to flip over to cloud?

Scott Farquhar -- Chief Executive Officer

Hey, Sanjit. Look from a pure value point of view, probably the biggest difference, they get is obviously, we're doing all the operations and maintenance of the software for them. So if you think about someone paying a licensing fee, they then have to download their own server in-house, run their own upgrades, patches, etc of the software. That takes time, as well as integrating it, connecting it to other things, administering it. That is a large lift that we can take off, and that's often well more than the price of the software itself. Obviously, we can provide that at a small uplift over a multiyear period, as you said, but we can scale that cost across many, many instances, right. Obviously, we are deploying tens of thousands of service, if you want to think about it virtually on a constant basis we've automated all that and we can spread that cost across a lot of customers. At the same time, they get a better updated, more frequently updated application that should be faster, more secure, more scalable, without them having to do anything, right. That's the goal of the cloud is that they just sign up with 10 users, and they can go all the way to 10,000 without really having to think too much about that scale effect. That's exactly what we do and our R&D and engineering teams just make sure that that will happen for them. And obviously, any new innovations, all the way through the new security patches get applied instantly. They just appear sort of magically for them. So it's a far better offering. It's generally the premise behind cloud software.

Sanjit Kumar Singh -- Morgan Stanley -- Analyst

Understood. That's really helpful. And if I could revisit the pricing strategy question. So for the last two years, I think, about two years ago, we moved to this cadence of annual price increases. And the view was that was going to be more predictable for the customer base to expect that on an annual basis. It seems like this year is a little bit of an anomaly. And I'm wondering, is this sort of a -- should we look at this fiscal year '20 as a sort of anomaly, given the sort of push to cloud, and that we revisit this annual price increase on the server-based after fiscal year '20? Or has the cadence on pricing changed with this crowd push?

Michael Cannon-Brookes -- Co-Founder and Co-Chief Executive Officer

The first thing I'd say, Sanjit is that, as we think about pricing and packaging, we continue to be very focused on remaining the high value, low price leader. And we have said in the past, and continue to believe that, well within that construct have continuing opportunities to make price changes very much commensurate with the value that we're delivering to our customers. Now, obviously we've been talking quite a bit on this call already about our focus on the cloud and continuing to really bring more and more customers, be they current, by migrations or new customers into the Atlassian frame. And so I would expect that benefits around price increases on the cloud side of our business, would probably be less so in fiscal '20 than was the case in fiscal '19. Now again, we haven't made any announcements about price increases more broadly, but I think that's a reasonable thing for you to consider.

Operator

The next question comes from Michael Turits with Raymond James. Please go ahead.

Michael Turits -- Raymond James -- Analyst

Hey guys, thanks. I guess maybe to drill down on Gregg Moskowitz's question about any change in financial impact on investment. And maybe if we just extend it to the long run, obviously you are moving the costs, in many cases, seems like an acceleration. But is there relatively different we should think in the long-term either opex or a capex framework, anything that the degree of impact on gross margins and that of capex we anticipated, or any breaks that we might expect in terms of significant changes over a multi-year period?

Michael Cannon-Brookes -- Co-Founder and Co-Chief Executive Officer

Yeah. So, Michael. As we think about the cloud continuing to become a larger and larger proportion of our overall business. I would expect that to have some impact on our gross margins. You would expect obviously as Mike was pointing out, we're doing all the work of operating the software on behalf of the customer. And so you would naturally expect there to be an increase in the proportion of cost of goods sold. And indeed, we have in the last couple of years being investing quite significantly in the sort of physical infrastructure to make sure that our cloud customers wherever they are in the world have the sort of response time and reliability that they would look to receive from our cloud services.

But at the same time, I'm very pleased with how as we work with AWS, we find significant opportunities to continue to make more efficient our usage of the cloud infrastructure. And so you can expect us to continue to be focusing on that over time. And then of course, there are other lines embedded within cost of goods sold. And we'll -- areas such as support and we would look to continue to seek efficiencies there as well. And so it's a mixture of a variety of effects around gross margin. Net-net I have been pleased with how we continue to progress on the gross margin line. And in terms of capital expenditure, the way our relationship now works with AWS, really the capital expenditure related to cloud infrastructure sits with AWS on their balance sheet.

And our capital expenditure is very much driven by our own physical facilities around our primary offices. So I wouldn't expect the growth of our cloud business to particularly be driving that capex line per se. We'll see that effect flow through operating expenditures, as we work with AWS.

Michael Turits -- Raymond James -- Analyst

And then Jay, a follow-up for you on the guidance for this year and I don't know if this is related to the cloud push or not. But your guidance margins, op margins, EBIT margins down a point. I assume some of that is from the Agile acquisitions and maybe you could specify how much that impact is? But, if you look at the cash flow from ops guidance, perhaps it has come down about 6 points. Now I understand based on the math, you gave us about two of that $30 million comes from higher taxes, but there is still more impact cash flow in the net taxes? Maybe you could specify that for us.

Jay Simons -- President

Michael, the first thing I'd say about margins is very pleased that we've been able to grow in fiscal '19 both the operating margin up a point and the free cash flow margin, up 2.9 points year-over-year. As you know, we've been saying how we will continue to look to build our margins both operating and free cash flow over time. And so, the guidance that we put out today as you correctly indicated in your question, on the operating margin line, one of the key impacts there is the acquisition of AgileCraft now branded JIRA Align, because remember that that has more of a services component to the business model, and of course for certainly the first three quarters of fiscal '20. We'll be working through that typical deferred revenue haircut that comes along with an acquisition. So that will particularly impact that.

And then on the free cash flow guide, again you correctly referenced there, quite sizable swing in cash taxes year-over-year. So in fiscal '19, we actually received $7 million of cash related to taxes. I would expect that to return to much more normal situation in fiscal '20, and so net-net between the two years, it will be a swing of around $30 million approximately in cash taxes. So that will have an appreciable impact on the free cash flow margin. The other thing I would note on free cash flow margin of course is the capital expenditure. We've indicated would be $30 million for fiscal '20. So that will be down quite substantially year-over-year, and that just reflects going back to my facilities point that we've worked our way through some of the key facilities projects that we've been working on in fiscal '19, hence a smaller capital expenditure projection for this year.

Michael Turits -- Raymond James -- Analyst

All right. Jay, there is still a doubt. In other words, still coming down a lot more on cash flow margin, than you were on EBIT margin even accounting for the taxes swing. So I was wondering if you --

Jay Simons -- President

Yeah, but the only thing I would further add, Michael, is we're coming off a very strong year on cash flow. And so again, we would look for these margins to build over time and we had a very strong build in fiscal '19.

Michael Turits -- Raymond James -- Analyst

Thanks.

Operator

The next question comes from Alex Kurtz with KeyBanc. Please go ahead.

Alex Kurtz -- KeyBanc -- Analyst

Yeah, thanks for taking a couple of questions. Kind of go back to the opportunity around cloud within its sort of expansion rates with existing customers, can you just kind of outline for us again what you see as far as adoption and expansion rate maybe by users within your larger customers when one customer goes the cloud path and the other one goes the on-prem path. I mean, is there a way to quantify that for us a bit?

Scott Farquhar -- Chief Executive Officer

Alex, this is Scott here. I wanted to give specific numbers around that. But I can give you some anecdotes that are very exciting for us. We've got a growth team here at Atlassian who run a lot of growth experiments, maybe similar to what you see in some consumer type companies. And I mean I think that team is growing pretty substantial over the last year, and we've had some really successful experiments in our cross selling, outside JIRA -- into the Confluence -- Confluence into the JIRA base, which is very well overlapping product in server, very well overlapping product in cloud, but because we're running those products in the cloud, we have the opportunity to run these experiments where we can adjust the interface, promote something in product and see if it works, before we spend the effort in productionizing it and rolling out to our entire base. And so we think that work in those particular pair of products over the last year, which is a focus area. We're expanding that to look at other sort of product -- in the coming years and again stuff that we can do in the cloud that we have done in the server, but it's a lot harder and takes a lot longer to see the returns.

Alex Kurtz -- KeyBanc -- Analyst

Okay, thanks. And the comment in the shareholder letter around the one point of revenue headwind for the year around these changes that you guys have outlined today, is there some way to kind of outline? Is this a base case assumption on the uptick in subscription in cloud? Or is it back-end loaded as far as how you think that headwind is going to play out during the year? Just any kind of additional context would be helpful.

Jay Simons -- President

Yeah, I would say obviously, we talked in the last year about there being really three drivers of that one point. So the free additions, the free cloud trials to our current, behind the firewall customers and then the revenue recognition mix effect. That mix effect would be occurring throughout the year. Obviously, the free cloud trials and the free additions that will start to play through as we implement those initiatives. So you'll see that come in the fullness of time during the year.

Alex Kurtz -- KeyBanc -- Analyst

Thank you.

Operator

The next question comes from Jack Andrews with Needham. Please go ahead.

Jack Andrews -- Needham -- Analyst

Well, good afternoon. And thanks for taking my question. I wanted to ask, kind of a high-level question, just about your overall product development efforts. I mean can you shed some light on, I guess it's a framework perhaps that you're using for resource allocation? I mean, you've got a lot of things going on in terms of besides the push to the cloud, you're introducing net new categories, things like Align, and in some cases to a new user base. So I mean could you just talk about how you're prioritizing spending more time and efforts on some of these other efforts versus adding incremental functions to your existing products? Or is there a way to kind of rank order your product development priorities?

Michael Cannon-Brookes -- Co-Founder and Co-Chief Executive Officer

Yeah, I'm Mike, I can take that. With business simple and easy way to communicate that. It's, I would say, it's something that we spend a lot of time thinking about, we've got a long history of doing that. You mentioned a few acquisitions. Obviously, we realize, it's very important to integrate acquisitions in the right timeframe, sometimes that's faster. Sometimes that slower. If you look at something like Trello, we've invested a lot in growing the Trello business, but not so much in integrating it in the short term and not seeing any, it's the opposite way around. And so we make, I would say horses for courses decisions depending on what that is. We at the same time do obviously try to lean into the future. So you can see a lot of our resource allocation is going into the cloud, while at the same time being practical about making sure that our on-premises customers get the improvements that they need in those applications.

I would say we are constantly making decisions on how we move resources around, while at the same time growing. We also have a global problem to constantly manage where resources are around the globe. We've been doing very well in Bengaluru. I was just there a couple of weeks ago. We're past 200 staff there now in India and continuing to grow really strongly, and where we put resources around the world and how new those resources are can affect how -- what projects we can put into. So I would say we're really good at managing that on a global basis now, and pretty comfortable where we sit, but there's no singular framework we use.

Jack Andrews -- Needham -- Analyst

Well, thanks for your perspective. And just as a follow-up. Is there any update in terms of how you're thinking about the enterprise advocate role at Atlassian? Do you feel you need to add any more resources in this area just given, again the emphasis of the cloud changes in pricing and things like that?

Jay Simons -- President

Yeah. Hey, Jack, this is Jay. I mean we're growing the team and we've been growing the team over the past handful of years. There won't be a material change. But we'll continue to add enterprise. I think in sort of direct sales as you know, as we attack the opportunity. I think keep in mind that the business model. I think what makes our business model so powerful is the combination of three things. This high velocity flywheel that really focuses on enabling customers to self-serve, and that just allows us to reach massive global volume of customers that can start easily on their own. That's number 1. And two is our direct enterprise advocate sales team and they can focus on targeting high value expansion opportunities that exist within our largest customers and the third is the channel. And oftentimes, our direct teams are working hand-in-hand with the channel, on the expansion opportunities that tend to be accompanied by some service delivery work that the channels enabled to help with. And that's what makes it so great. So you know we can land even the largest accounts really efficiently and we create as really fertile ground for our channel and our direct teams to expand from.

Jack Andrews -- Needham -- Analyst

Got it. Thanks for taking my questions.

Operator

The next question comes from Derrick Wood with Cowen & Company. Please go ahead.

Derrick Wood -- Cowen & Company -- Analyst

Great, thanks for taking my questions. My first one, James. It was a little surprising to see maintenance growth actually accelerate this quarter. And then on the flip side, a steeper deceleration on subscription growth. Are there any puts and takes that you'd call out in terms of the revenue mix this quarter? And then how should we think about how much license and maintenance growth steps down next year as you focus more on the cloud?

James A. Beer -- Chief Financial Officer

Yes. So for Q4, we are pleased with the maintenance growth rates. Obviously, you're starting to see the price increases from really the last couple of years layering into that figure now. On the subscription growth rate, the behind the firewall component of that subscription revenue line had a particularly strong comp back in Q4 of fiscal '18. And so that's really what drove the result there in this past quarter. We are continuing to be very pleased with our cloud business, our marketplace business, and our data center business in terms of growth. As we've been discussing now for a couple of years or so, we would expect that gradually over time, the license maintenance side of the business doesn't grow strongly and you see that flowing through in the -- the strong growth of the subscription growth line that we -- that we gave you a steer on for fiscal '20 with growth expected there of greater than 40%.

Derrick Wood -- Cowen & Company -- Analyst

Great, thanks. And I guess more of a product question regarding the new free cloud license for on-premise customers. Can you give us a sense as to how long those customers will get the free license? And at what time period, they'll have to start paying added fees for the cloud service?

Scott Farquhar -- Chief Executive Officer

It's Scott here. The Premium model, there's many different ways that the companies do that. We have free trials for many of our products and we have Premium for many of our products. For the free trials, they are generally a couple of weeks. But what we're talking about here is moving many of our products from a free trial approach to a Premium approach where there is effectively a feature or user limited version of that product that are free forever. And we found through the experiments we've done over a long period of time, the fact that we have multiple products with different pricing models that the Premium approach while it has some short-term headwinds in terms of revenue for us actually provides the best long-term sort of revenue for us as a company. And as Mike mentioned earlier, when you were after the Fortune 500,000 and the markets are so large, that's the trade-off we'll make every day of the week, trading out some short-term revenue for long-term customer acquisition. So that's what we're doing now, we have free trials that are moving to a Premium feature and user-based model.

Derrick Wood -- Cowen & Company -- Analyst

Got it. Okay, thanks.

Operator

The next question comes from George Iwanyc with Oppenheimer. Please go ahead.

George Iwanyc -- Oppenheimer -- Analyst

Thank you for taking my questions. So you had really strong growth with your larger customers, the ones that over 50,000 and 500,000. Can you give us a sense of the factors that are driving the expansion there? And maybe also a sense of the penetration of your newer products with those larger customers?

Michael Cannon-Brookes -- Co-Founder and Co-Chief Executive Officer

Well, the factors are a couple things, like one we've created in both the on-prem business and now in cloud with Premium additions. Really important upgrade opportunities for those customers as they continue to scale. And so that's one factor. We've also expanded the portfolio. So we have more products to talk to those customers about that are meaningful. And we're doing that well. And so I think those are kind of the two things that are contributing to growth in those -- customers are spending more than 50k and customers are spending more than 500k. There is still a lot of latent opportunity for us to continue to do that. And in concert with the stronger signals of cloud, I think we're really excited about the opportunity for Premium additions in the cloud as both a similar upgrade path for just the existing cloud-based that's on standard. It's on the version of cloud that exist today. But also as server customers consider the move to cloud, they've got the opportunity either stay on-prem with an upgrade path to data center or to move to a premium version of our cloud products. And both those are opportunities I think to increase in two cohorts that you described.

George Iwanyc -- Oppenheimer -- Analyst

So with the multi-product opportunities they are opening up, can you give us a sense of just the competitive landscape? Are you seeing yourself go up against more companies with the larger customers?

Scott Farquhar -- Chief Executive Officer

Not materially, I think you know, the competitive landscape as we've described before is different by product and by category. I think we've got a really strong, I think advantage with just our existing base and we're expanding from. A lot of these products are deeply connected into, as an example to JIRA. And so the JIRA affords us an opportunity with a champion and a kind of a key fanatical base inside of our customers. They're going to look for the best product that actually allows them to extend or that weave kind of capability into an adjacency like IT operations management or incident management. So OpsGenie as an example benefits a lot from the existing JIRA software base of 65,000 customers. And part of the momentum that we're seeing OpsGenie is exactly related to that and so the competitive landscape doesn't change. I think we lean into our advantages and we're focused on building the best product in any category and then using all the levers that we can to introduce that product to the customer.

George Iwanyc -- Oppenheimer -- Analyst

Thank you .

Operator

The next question comes from Keith Bachman with BMO Capital Markets. Please go ahead.

Keith Bachman -- BMO Capital Markets -- Analyst

Hi. Thank you. James, I'm going to start with you. You did mention or talked about the pricing impact to subscription. I wanted to extend that, if you thought about the guidance that you gave, is pricing, that's still a tailwind as you think about the overall opportunity associated with FY '20?

James A. Beer -- Chief Financial Officer

Yes, it is. Yeah, it's a reasonable way to think about it.

Keith Bachman -- BMO Capital Markets -- Analyst

And specifically you said subscription would probably be less so in '20 than '19. Is that broadly true of the balance of the portfolio as well?

James A. Beer -- Chief Financial Officer

Well, just to be very clear there. My comment was around the cloud part, and now remember, there are two parts of the subscription renew, there is data center as well as cloud. But for the cloud part of the business, I would expect price increase activity to drive less growth for us than was the case in fiscal '19.

Keith Bachman -- BMO Capital Markets -- Analyst

Okay. And if you could just answer that broadly speaking, is that true for the rest of the portfolio or --

James A. Beer -- Chief Financial Officer

No, I wouldn't really extend the commentary beyond that. Obviously, we haven't made any pricing announcements yet to our customers. We just wanted to give you a sense for what might be helpful in some of your modeling.

Keith Bachman -- BMO Capital Markets -- Analyst

Okay, great. My second question is if -- could you provide any update on Align. Just any kind of traction or metrics associated with that particular offering?

Jay Simons -- President

Hey Keith, it's Jay. No metrics. But in terms of traction, really pleased in just the response that we've seen from customers and the momentum we saw in the first quarter. I think the timing of the announcement with summit certainly helped. And I think you heard, I think you were absent, but you heard some of the interests directly from ANZ Bank on the stage. When we talked about their interest in Agile transformation and the consideration set around your Align and AgileCraft prior to that. Q1 was our first full quarter with the team integration pipeline channel enablement, all those things are humming. We're pleased with the results.

Keith Bachman -- BMO Capital Markets -- Analyst

Okay. Yeah, Jay there did seem to be a lot of interest at your User Group event. So thanks very much for the questions.

Operator

The next question comes from Rishi Jaluria with D.A. Davidson. Please go ahead.

Rishi Jaluria -- D.A. Davidson -- Analyst

Hey guys, thanks for taking my questions. Nice to see continued strong results. Two kind of broad class of questions. First on the cloud migrations and then I've got a follow-up on Trello. But on cloud migrations side to kind of piggyback off Sanjit's observation earlier, in the chart that you gave us is really helpful when you talk about -- it certainly comes out to about a 1.4x uplift from server to cloud or even if we look at year five maybe close maybe 1.6x, 1.7x uplift. I know with other software companies when they've talked about migrations to cloud, they've talked actually about the 2x to 3x. So maybe just help me understand why the delta, it feels silly complaining about it but why is that uplift not bigger? And alongside that in terms of driving the migrations. Should we start to see something like cloud-only features or cloud-only products as an incentive to help customers migrate? And then I've got a follow-up on Trello.

Scott Farquhar -- Chief Executive Officer

This is Scott, I'll answer the first part, which is the cloud migrations and the uplift. Firstly, it's an illustrative example we put either the document -- at each segments, there is different pricing characteristics. Two, is that we have always been patient for revenue with our customers and making sure that there are less barriers to move across to the cloud is very important for us as well. And so a lot of the pricing, we set there is to help customers move across to the cloud.

Rishi Jaluria -- D.A. Davidson -- Analyst

Okay, got it, thanks. And then just in terms of from a product perspective, anything in terms of -- should we expect to see cloud-only features or cloud-only products to help kind of incentivize customers to migrate?

Michael Cannon-Brookes -- Co-Founder and Co-Chief Executive Officer

Yeah, it's Mike here. We do have a series of cloud-only features and products, if you think about it. So Opsgenie, Statuspage, Align are all cloud-only products, where Align does support on-premises instances in terms of the data it can attract. And then you've seen us introduce specific cloud-only features like Access and within -- even within the JIRA family, within Confluence, there is some slight feature differences between on-premises products and cloud products. So yes there are already, I guess some feature differences but by and large, if you're using Confluence or JIRA Software or JIRA service, they are still largely the same product on both sides. We do make sure that data compatibility is really important. So for the customers that are migrating, we mentioned the Confluence migration assistant we released a few versions up during the year and the upcoming JIRA migration assistant. That requires us to be able to move, especially for the large volume of smaller customers to move that data automatically. So we do make sure that data compatibility is really important but there are feature differences between the two for sure.

Rishi Jaluria -- D.A. Davidson -- Analyst

Got it. Thanks, that's helpful. And then just quickly on Trello. You did mention in the material that you had an uplift in customers or paying customers with the result of the kind of the board limits to TV. I think just help us understand what kind of the result of them was that a conversion of free to paying or was that something else? And then maybe talk a little bit about the traction you've seen with Trello enterprise? Thanks.

Michael Cannon-Brookes -- Co-Founder and Co-Chief Executive Officer

Sure. Look Trello is continue to -- to parallel and very strongly. We're very happy about how it's going. As we've said look, our primary goal with Trello is still to continue to establish Trello as a brand, Trello as a product and continue to grow the momentum that it has as a stand-alone business. We are doing more and more integration over time but that's a long-term journey. We did introduce some pricing changes throughout the year. You've seen some of the impact of that, as we've called out in the customer number this quarter. Some of that is a one-time benefit that we've talked about, because while the flow of Trello customers will be marginally higher, we are changing some of the free to paid conversion rates and that's from a large existing free base. Obviously, you get some of the existing base converting over to a faster rate, which is what we've called out in the customer number there. At the same time, we are focused on Trello enterprise. We've had a really good couple of quarters in Trello enterprise as we continue to invest in features there, we put that into the shareholder letter as well. As businesses adopt Trello with tens of thousands of users and beyond, they do have different sets of requirements that we continue to work with the customers on establishing, when you have hundreds of thousands of boards across the customer you need methods of organizing that content, finding that content, managing large scale users, etc, which is exactly what we've been doing in the Trello enterprise product and obviously with such a large installed base in Trello that has a very good future.

Rishi Jaluria -- D.A. Davidson -- Analyst

Got it. Great, thank you. That's helpful.

Operator

The next question comes from Heather Bellini with Goldman Sachs. Please go ahead.

Heather Bellini -- Goldman Sachs -- Analyst

Great. I just wanted to do an apologize for missing the slot earlier. I just wanted to ask real quickly about OpsGenie, you commented about how it accelerated the pace of additional paid users and I was just wondering if you could talk a little bit about, how you're seeing that cross-sell opportunity into your JIRA installed base and like, is there any color that you could share about kind of where you're seeing the success of kind of cross-sell across those products? Thank you.

Scott Farquhar -- Chief Executive Officer

Heather, I can't get into specifics, but as you mentioned, we mentioned in our shareholder letter that we've doubled the pace of customer acquisition and we feel really good about that acquisition. If you go through our internal charts, there is a distinct change when OpsGenie, we came at last June, and we feel great about that. If you in trading with customers it is a great product. Sometimes I mentioned at the acquisition, sometimes you require something and you have to add features to it or make it enterprise ready. OpsGenie actually scales better than any of the other products out there in the market. And so for us, it was just a matter of getting in front of our customers.

I know it's still very early in the journey of putting it on the Atlassian platform, now we're really happy with the pace that we've only -- it's required less than a year ago. We've already done identity and user interface and stuff like that. So we're sort of at the start of what I think of in terms of cross selling into our existing base.

Michael Cannon-Brookes -- Co-Founder and Co-Chief Executive Officer

And then Heather, I would just add that when we announced the acquisition of OpsGenie, we noted that it would drive a point of revenue growth on these then revenue guidance for fiscal '19 and I'm pleased to say that we achieved that. So strong momentum.

Heather Bellini -- Goldman Sachs -- Analyst

Okay, that's great. Thank you, Mike. Just a quick follow-up, is there, is it -- so it's net new customers that you're getting from these two plus expansion into the installed base. So you see the opportunity on both fronts, is that correct?

Michael Cannon-Brookes -- Co-Founder and Co-Chief Executive Officer

That's right.

Jay Simons -- President

Yes, that's right. Thank you very much.

Heather Bellini -- Goldman Sachs -- Analyst

Thank you very much.

Operator

[Operator Instructions] The next question comes from Pat Walravens with JMP Securities. Please go ahead.

Joe Goodwin -- JMP Securities -- Analyst

Hi, this is Joe Goodwin on for Pat. I just wanted to ask, real quickly about how is the relationship with Slack going? And can you speak to some of the opportunities that may be on the horizon?

Michael Cannon-Brookes -- Co-Founder and Co-Chief Executive Officer

Hey, Joe, it's going great. I mean we've got I think good relationship, great integration that we continue to improve between the products. We are in the market I think talking to customers at both of our user conferences and events about the relationship that exists in the value for customers when they integrate that more deeply you saw that at Summit where we talk a lot about just how we use Slack internally and extend their products and their users of our products at the same time and doing the inverse. So it's good.

Joe Goodwin -- JMP Securities -- Analyst

Right. And then just a quick follow-up is the monitoring space -- a space that you guys would have entered into?

Scott Farquhar -- Chief Executive Officer

Scott here. At the moment, it's not an area that we are actively looking at. There are a lot of thought players in that space and there is a -- there is no clear winner. We benefited a lot more from integrating with the leaders in that space, and we have a great relationship with all the leaders in that space.

Michael Cannon-Brookes -- Co-Founder and Co-Chief Executive Officer

Again, it's Mike. I might just add philosophically if you look at our history, we do try to solve human and people problems, not technology problems. And so where we strive into areas where you're solving a technology problem, with language specific features or analytics specific features, it's not our core DNA right, we're a collaboration company around teams of people. Something like OpsGenie where you're coordinating people is much more in our wheelhouse of strength in our DNA as a business around solving people and collaborative problems around technology rather than actually solving a technology problems per se.

Joe Goodwin -- JMP Securities -- Analyst

Thank you.

Operator

The next question comes from Gray Powell with Deutsche Bank. Please go ahead.

Gray Powell -- Deutsche Bank -- Analyst

Great, thanks. You may have already touched on this. I joined a little bit late, but I just want to make sure I understood some context behind the fiscal '20 guidance. How should we think about the acquisition contribution to revenue growth in fiscal '20? And then is there any residual impact on operating margins particularly from AgileCraft?

Michael Cannon-Brookes -- Co-Founder and Co-Chief Executive Officer

Well, we haven't broken out any specific acquisition element off the fiscal '20 guide. Obviously, we have just been talking about how pleased we're always with OpsGenie and JIRA Align, and so we're looking for those both to continue growing strongly during fiscal '20. In terms of the operating margin effect around JIRA Align in particular, we will be working through the deferred revenue haircut that comes along with every software acquisition. And so that will impact the JIRA Align revenue growth rate during fiscal '20. It will still have some of that for OpsGenie as well, but we are three quarters further along that pathway with OpsGenie. So during fiscal '20 that their deferred revenue haircut should start to ebb.

Gray Powell -- Deutsche Bank -- Analyst

Okay, that's helpful. Thank you very much.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to the management team for any closing remarks.

Scott Farquhar -- Chief Executive Officer

Thanks everyone for joining our call today. I think from the bottom of the sea to the top of the clouds, we continue to work hard to deliver for our customers. We appreciate your time today and look forward to keeping you updated on our progress.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Ian Lee -- Head of Investor Relations

Michael Cannon-Brookes -- Co-Founder and Co-Chief Executive Officer

Jay Simons -- President

Scott Farquhar -- Chief Executive Officer

James A. Beer -- Chief Financial Officer

Arjun Bhatia -- William Blair -- Analyst

Gregg Moskowitz -- Mizuho Securities -- Analyst

John DiFucci -- Jefferies -- Analyst

Jacqueline Cheong -- Bank of America Merrill Lynch -- Analyst

Sanjit Kumar Singh -- Morgan Stanley -- Analyst

Michael Turits -- Raymond James -- Analyst

Alex Kurtz -- KeyBanc -- Analyst

Jack Andrews -- Needham -- Analyst

Derrick Wood -- Cowen & Company -- Analyst

George Iwanyc -- Oppenheimer -- Analyst

Keith Bachman -- BMO Capital Markets -- Analyst

Rishi Jaluria -- D.A. Davidson -- Analyst

Heather Bellini -- Goldman Sachs -- Analyst

Joe Goodwin -- JMP Securities -- Analyst

Gray Powell -- Deutsche Bank -- Analyst

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