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DATE
Thursday, Aug. 7, 2025, 5 p.m. ET
CALL PARTICIPANTS
Chief Executive Officer & Co-Founder — Mike Cannon-Brookes
Chief Financial Officer — Joe Binz
Head of Investor Relations — Martin Lam
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TAKEAWAYS
Total revenue— Over $5.2 billion in revenue for fiscal 2025, reflecting continued top-line growth.
Free cash flow— $1.4 billion in free cash flow for fiscal 2025; free cash flow (non-GAAP) was $360 million for Q4 fiscal 2025, down 13% year-over-year, chiefly due to collections timing related to server and support in the prior year, which impacted free cash flow.
Net revenue retention (Cloud)— 120%, indicating ongoing expansion within existing cloud customers.
RPO (Remaining performance obligations)— $3.3 billion RPO at period-end Q4 fiscal 2025, up 38% year-over-year; 74% of RPO balance to be recognized as revenue in the next twelve months, up 29% year-over-year.
Large deals— Record number of deals exceeding $1 million in annual contract value in Q4 fiscal 2025, up over 2x year-over-year.
AI adoption— 2.3 million AI Now users in Q4 fiscal 2025, up 50% from the prior quarter, with AI feature token usage up 5x quarter-on-quarter.
Teamwork Collection performance— Teamwork Collection has been available for three months and is outpacing expectations, cited by customers as a key driver of migrations and large deals.
Data center to cloud migrations— Data center to cloud migrations increased 60% year-over-year, contributing a mid- to high-single-digit percentage to fiscal 2025 cloud revenue growth.
Enterprise penetration— Over 300,000 customers globally, with 80% of the Fortune 500 as customers but representing approximately 10% of total business.
Operating margin guidance— Projected non-GAAP operating margin of 24% for fiscal 2026, slightly lower than fiscal 2025, with non-GAAP operating margin target in excess of 25% for fiscal 2027.
Cloud segment drivers— Paid seat expansion, cross-sell, and new migrations were primary contributors to cloud revenue outperformance.
Q1 data center growth guidance— Approximately 8% growth forecasted for Q1 fiscal 2026, lower due to a smaller renewal base and impacts from one-year deal terms and prior migration programs.
Cross-segment AI impact— Confluence users who use the editor AI create 15% more pages and make 33% more edits than before; Premium and enterprise editions had about 40% year-over-year growth.
Strategic partnership— New partnership with Google Cloud announced to integrate Atlassian Corporation AI-powered Teamwork platform with Google Cloud AI infrastructure.
Executive transition— President to depart in December after nearly twelve years, with future transition updates forthcoming.
SUMMARY
The call confirmedAtlassian Corporation(NASDAQ:TEAM) delivered broad-based financial and operational momentum, particularly in cloud, enterprise, and AI-driven offerings. Management indicated ongoing strength in large enterprise deal velocity, supported by a material increase in $1 million-plus annual contract value transactions in Q4 fiscal 2025, as well as a cloud net revenue retention rate of 120%. Migration from legacy data center products to the cloud remains robust and continues to support top-line cloud growth. The company outlined expectations for a sequenced transition in data center revenue contribution, with Q1 fiscal 2026 data center revenue guidance of approximately 8%, reflecting a step down due to a smaller expiration base and incremental headwinds, and provided clarity on AI’s impact on product usage, monetization prospects, and customer platform consolidation trends.
CEO Cannon-Brookes said, “we are not seeing any impact from this on any numbers that we have,” countering market fears about developer headcount reductions affecting demand.
CFO Binz clarified, “guidance approach for [fiscal] ’26 is consistent with the approach we took in [fiscal] ’25,” emphasizing a continued “conservative and risk-adjusted” posture amid macro uncertainty.
Management reiterated a multi-year 20% compounded annual growth target from fiscal 2024 through fiscal 2027 and cited fiscal 2025’s execution as validating this trajectory.
Customers attributed migration decisions, including large-scale Teamwork Collection wins, to integrated AI capabilities and tighter business-technology alignment.
Management set expectations for cloud migration’s mid-single-digit contribution to cloud growth in fiscal 2026, citing increasing complexity among remaining on-premise enterprise customers.
The Teamwork Collection, cited for its rapid enterprise uptake, has become a focal point for expansion into non-technical user segments.
INDUSTRY GLOSSARY
ACV (Annual contract value): The value of recurring revenue within a single year from individual contracts, used to size large enterprise deals.
RPO (Remaining performance obligations): The total value of contracted future revenues that are yet to be recognized as revenue under ASC 606 accounting guidelines.
Token usage (AI): Metric indicating the amount of AI computational activity consumed by end users when interacting with integrated AI features across Atlassian Corporation products.
Teamwork Collection: The bundled suite designed to drive cross-functional platform usage, spanning both technical and business teams, integrated with advanced AI features.
Data center to cloud migration: The process and business transition of moving customers from self-managed, on-premises deployments to the cloud-based SaaS model.
Full Conference Call Transcript
Martin Lam: Thank you for joining us today. On the call today, we have Atlassian Corporation CEO and co-founder, Mike Cannon-Brookes, and Chief Financial Officer, Joe Binz. Earlier today, we published a shareholder letter and press release with our financial results and commentary for our fourth quarter and fiscal year 2025. The shareholder letter is available on the Investor Relations section of our website, where you will also find our other earnings-related materials, including the earnings press release and supplemental investor data sheet. As always, our shareholder letter contains management’s insights and commentary for the quarter. So during the call today, we will have brief opening remarks and then focus our time on Q&A. This call will include forward-looking statements.
Forward-looking statements involve known and unknown risks, uncertainties, and assumptions. If any such risks or uncertainties materialize or if any of the assumptions prove incorrect, our results could differ materially from the results expressed or implied by the forward-looking statements we make. 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, and we undertake no obligation to update or revise such statements should they change or cease to be current.
Further information on these and other factors that could affect our business performance and financial results is included in filings we make with the Securities and Exchange Commission from time to time, including the section titled Risk Factors in our most recently filed annual and quarterly reports. During today’s call, we will also discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and are not a substitute for or to measures of financial performance prepared in accordance with GAAP. Reconciliation between GAAP and non-GAAP financial measures is available in our shareholder letter, earnings release, and investor data sheet on the Investor Relations section of our website.
We would like to allow as many of you to participate in Q&A as possible. Out of respect for others on the call, we will take one question at a time. With that, I will turn the call over to Mike for opening remarks.
Mike Cannon-Brookes: Thanks, Martin, and thank you all for joining us today. As you have already read in our shareholder letter, we closed out FY ’25 with stellar execution from our enterprise sales teams and partner teams. In FY ’25, we generated over $5.2 billion in revenue and over $1.4 billion in free cash flow, delivering another year of balanced rule of 40-plus performance. All up, our Teamwork platform powers workflows at over 300,000 customers, like Infosys, IAG, Woolworths, Gorbant, and Honeywell. We feel a real sense of momentum coming out of Q4, as we signed a record number of deals greater than $1 million in ACV in the quarter, up over 2x year on year.
We reached 2.3 million AI Now, up 50% from last quarter, and in less than a full quarter since its launch at Team 25, the Teamwork collection has seen incredibly strong momentum and is exceeding our expectations. We are making significant progress on our key strategic priorities of serving the enterprise, delivering game-changing innovation in AI to our customers, and connecting all teams through the Atlassian Corporation system of work. These big bets are paying off, resulting in a cloud net revenue retention rate of 120%. To further accelerate our progress, we are partnering with Google Cloud to bring our AI-powered Teamwork platform together with Google Cloud’s AI-optimized infrastructure.
This partnership marks a major milestone in Atlassian Corporation’s multi-cloud strategy, accelerating our cloud transformation and delivering advanced AI solutions to millions more users worldwide. In the AI era, we believe the need for collaboration increases significantly. As more people are able to create and more ideas can be brought to life, this creates a huge opportunity for Atlassian Corporation. Our platform powers teamwork, business processes, and workflows across all types of teams. With now 50% of users of our core apps being business users, reinforcing the mission-critical role that our platform plays in helping both businesses and technology teams collaborate.
If you would like to hear more about how this sets us up to win in the AI era, check out the loom that I just posted to our IR website. This quarter, we saw more enterprises realize the power of going wall to wall with the Atlassian Corporation system of work, with many of them consolidating from a variety of other tools onto the Atlassian Corporation cloud platform. The result is continued revenue growth across our core apps at Jira, Confluence, Jira Service Management, and Loom, all of which are growing in line or faster than total company revenue with significant runway ahead of all.
As we forge ahead into FY ’26, we are bringing a new level of intensity to our pursuit of the massive market opportunities in front of us. We are playing offense and relentlessly innovating in order to further strengthen our competitive position, delivering differentiated customer experiences and value, and making Atlassian Corporation’s system work for the Fortune 500,000 and beyond. Also this quarter, we are announcing that a new decided to transition away from her role as Atlassian Corporation president in December after almost twelve years. While we are very saddened to see her leave, we are incredibly grateful for all of her impact. Like everything we do, long-term in our thinking, and are thoughtful always in our plans.
The new greatest legacy is the talented team of leaders that she has built and developed, and we will have more updates on leadership transitions soon. And before anyone on the call asks, I am not going anywhere, so you are going to have to put up with me for many more years. I lost my job. This is the most exciting time to be at Atlassian Corporation. We are creating amazing products and capabilities, which are delighting our customers like never before. We have a fantastic tailwind from new AI technologies, and it is incredible to see our vision resonating. With our three major transformations of AI, enterprise, and system of work all bearing fruit and multiplying together.
With that, I will pass the call to the operator for Q&A.
Operator: We will now begin the question and answer session. If you have a question, please press star followed by the one on your phone. If you would like to withdraw from the queue, please press star followed by the two. Your first question comes from Keith Weiss from Morgan Stanley. Please go ahead.
Keith Weiss: Excellent. Thank you guys for taking the question and on a really strong end to the year. Mike, reading the shareholder letter and kind of listening to what you have been describing going on at Atlassian Corporation, it is a little bit at odds with what we hear in the marketplace, frankly. There is a lot of concern around cogeneration tools and the changing role of a developer, which you seem to see as a positive versus the market seeing as more of a negative.
Maybe you can walk us through what you guys are seeing in the business today in terms of seat expansion with developers and more broadly, and what you think is going to transpire on a go-forward basis in terms of how these innovations are going to affect that core business from Atlassian Corporation going forward.
Mike Cannon-Brookes: Sure, Keith. Good to hear from you. Let me just start by saying we are not seeing any impact from this on any numbers that we have. So expansion rates, growth rates, adoption rates of our technical products, and, again, the technology teams and the software business is a part of our business alongside service, strategy, and broad collaboration, but we are not seeing any impact from it. So we are being very clear about that. When customers integrate code-generating AI tools, there is no change in their usage of our products, and we continue to see really healthy user growth.
In fact, we even have some early data that shows that when people do connect code generation tools, the business users in those Jira instances are actually growing faster than they are the customers that do not have those connected, demonstrating we think, you know, Jira continues to be the center of gravity in how work gets done. I think you kind of have to look at a high level. Right? Let me give you some assumptions that I have or some beliefs. Do I think there will be far fewer developers in the world five years from now? Nope. I do not think so. I think there will be far more.
And far more people creating software in other functions. Right? Whether they are in finance, or HR or marketing, there is going to be a lot more people creating software. Do I think developers’ roles change and augment with these tools? Yes. Developers use of that. This is a big change. It is super productive. We see that internally. But there is still a lot of awful lot of work to do. Right? I think more people will be creating software? Yes. Do I think more software will be made in the world? Yes. I think there will be far more software and technology made that then need to be managed. Right?
Far more people creating software and far more technology significantly expands our opportunity. Software creation becoming more efficient, cost of software building going down, this is all really good for Atlassian Corporation and our workflow tools. Again, in that software teams and technology teams world that we sit in, it also shows at the moment Jira’s criticality to a lot of those workflows and processes. If you look internally, for example, we are pretty world-class at using AI code-generating tools. Right? We have RoboDev, our own. Sits on top of Suitebench’s full benchmark time at the moment. We use a whole series of other code generation tools.
We have three or four in operation with over a thousand now each at work. Let’s just create software faster. Let’s just create better software, and let’s just create more software. And, yes, we are still hiring a full lot of engineers and developers with the growth in the business. So I just want to be clear that we are not seeing that in our numbers. We do not believe in that in terms of our collaboration things. Collaboration products, again, Atlassian Corporation is here to solve people problems, not technology problems. There will be collaboration. There will be projects. There will be teamwork. And we see AI as a huge tailwind for the business.
And I think we are putting up a lot of numbers that show that, very strongly.
Operator: Your next question comes from Alex Neelyn from Jefferies. Please go ahead.
Alex Neelyn: Hi. This is Alex Neelyn from Jefferies for Brent Hill. I want to touch on the free cash flow number. So this year, the number came in broadly flat. This is last year around $1.4 billion. How should we think about the trajectory for free cash flow in 2026? And then I have a follow-up.
Joe Binz: Yes. This is Joe. Thanks for the question. So free cash flow in the quarter was $360 million. That was down 13% year over year. And just a reminder for everyone, that was driven primarily by strong collections in the prior year related to the server and the support dynamics. Overall, cash flow came in online with our expectations entering the quarter. There are some temporal headwinds in the short term as we transition multiyear agreements from upfront annual billing terms and we have more back-loaded sales linearity in the quarter as a natural result of growing our enterprise cloud business. Accounting for those two factors, cash flow in the quarter reflected the strong performance we delivered in the quarter.
In terms of modeling long term or over the future, we continue to expect our cash flow will correlate to our non-GAAP operating income trends. And any such differences in the short term are driven by timing differences accounting and cash flow, such as what you typically see with the employee bonus payout we do in Q1. In relation to non-GAAP operating margin, expect about a 500 basis point difference over time between non-GAAP operating margin and free cash flow margin, but again, that may vary plus or minus quarter to quarter and year to year for various timing reasons. But that remains our expectation for FY ’26 and moving forward. Hope that helps.
Operator: Your next question comes from Kash Rangan from Goldman Sachs. Please go ahead.
Kash Rangan: Hi. I will not ask you the AI takeaway developer support jobs question because I have asked, and I think we all kind of know what the answer is. It is not happening, but that is what is happening in the market, at least Wall Street. I think any reasonable individual will look at these tech cycles and say every time there is a change in the tech cycle from the cloud to AI, whatever it is, the number of software-related jobs just keeps growing exponentially. So maybe you will keep reinforcing the message. At some point, the market will believe it, so we are on the same page with you.
But my question is more to do with the progression of numbers. We really came off a big transition here. Tough comparisons seem admirable that the growth rate that you put up is very solid. Going into fiscal ’26, and looking at ’27, it does look like if you are to maintain your longer-term growth guidance, there is a sort of implied acceleration set up in fiscal ’27. So Mike and Kim just wanted to have you talk through what are the things that are potential inflection points in the business, how do you go about achieving them? Is it more of a go-to-market tweak, more enterprise flex?
More of a transition from the server and data center base to the cloud? What are the levers that you think you have at your hand that you could help to put forth that accelerating revenue growth that the numbers seem to imply in fiscal ’27? Fiscal ’26. Thank you so much.
Joe Binz: Yeah. Thanks, Kash. This is Joe. Great question, and I will start and then pass it to Mike for more detail. So the first point I would make is we have not changed our approach from last year. With respect to our guidance for Q1 and FY ’26. As we discussed last quarter, our guidance approach for FY ’26 is consistent with the approach we took in FY ’25. Which is we are taking what I believe to be a conservative and risk-adjusted approach to account for macroeconomic uncertainty and potential business disruption from the evolution of our enterprise go-to-market sales motion because we believe those risks are still very relevant to the current operating environment.
In addition, I would say there is no change to our outlook that we will be able to deliver 20% compounded annual growth from FY ’24 through FY ’27, and we believe with 20% growth in FY ’25, have laid a strong foundation for achieving that. And are on track to that goal. Our confidence in that remains rooted in the significant market opportunities we have in front of us, our strategy to capture them through our investments in enterprise AI and system of work, and the strong momentum we have built around those strategies, as Mike laid out in the shareholder letter and in his opening comments.
We have multiple levers of growth from paid seat expansion to cross-sell, upsell, pricing, new customer growth. And AI opens the aperture for even more opportunity given the structural position we have with our cloud platform and teamwork graph and deep investment in R&D. So taken together, the guidance approach and the opportunity for growth that we have, there is no change to the three-year outlook we provided at our Investor Day last year, and we remain very optimistic about our ability to grow at a very healthy rate over a sustained period of time.
Mike Cannon-Brookes: Yeah. Kash, just to follow on from what Joe said. Firstly, I agree with you on the first part of your comment. Thank you for saying that. Look. I just want to reiterate from my point of view. Firstly, the commitment to those long-term targets. Double down on what Joe said, we feel incredibly confident in them. Hopefully, our FY ’25 gives credibility to the fact that we can achieve those, and we feel increasingly confident in our ability to deliver on what we have laid out, both on the revenue growth side and on the margins side. I will say one of the things I want to point out is the Teamwork Collection was very strong.
So Joe pointed out we have a whole multitude of different growth vectors that are going strongly. We have long had a portfolio of different growth happening. One of the new elements there is obviously the Teamwork Collection. It has been in the market for three months, and we had a very strong first three months given where we landed. We feel incredibly strongly about that, that it is almost at the apex of our three different transformations. So both the enterprise AI and that system of work shows great strength. Right? We had one of the world’s largest auto market manufacturers buy the Teamwork Collection in the quarter. High tens of thousands of users.
In combination with strategy collection and going wall to wall on the Teamwork Collection to standardize on our Atlassian Corporation for all teamwork delivery goals. And they mentioned AI being deeply integrated as one of their core reasons for moving. So it is showing all three of those working together. We had another in the world’s one of the world’s leading chip companies, the companies that are powering the AI revolution that we are all benefiting from. Again, in the tens of thousands of users. Migrating to improve scalability, collaboration, governance from on-prem in that case to from data center to the cloud.
That was a big consolidation story for us, moving off a bunch of different tools onto the Atlassian Corporation cloud platform. Lots of work needed to be done there. But, again, mentioning AI and integrations with all of the third parties and Robo Search and Robo Chat specifically as large-scale reasons for moving. So we have endless customer examples of this in the first quarter already. And a real deep belief that all three of the transformations that we are investing deeply in are really driving that durable growth that we can deliver.
Operator: Your next question comes from Michael Turrin from Wells Fargo. Please go ahead.
Michael Turrin: Hey, great. Thanks. Appreciate you taking the question and congrats on the end to the fiscal year. Joe, just building on some of those prior comments, I was hoping you could expand a bit more around the framework you are using in fiscal ’26 in the enterprise go-to-market language. And really what I am wondering is maybe you could compare and contrast how fiscal ’25 closed for us relative to some of the execution risk you were embedding.
It looks like the RPO and bookings numbers we are looking at are certainly supportive of some of the large deal commentary throughout the letter, but it would be just useful to get your perspective there just in how the year closed maybe relative to what you are forecasting and compare that with the initial guide for ’26. Thanks very much.
Joe Binz: Yeah, great question. Thanks for the question. So, overall, we had great execution from our sales team and partners, which drove a very strong underlying bookings and billings result this quarter, as you pointed out. Mike highlighted a lot of these things in his opening remarks from the record number of deals with over $1 million to data center to cloud migrations being up 60% year over year, to the strong momentum we had in the Teamwork Collection. All of that culminated in the RPO balance increasing to $3.3 billion. That is up 38% year over year. Roughly 74% of that balance will be recognized in revenue in the next twelve months, and that is up 29% year over year.
And the remaining portion is increased 71%, and that is on the strength of large cloud multiyear agreements signed in the quarter, which is a great sign of customer commitment and confidence in our platform and our roadmap. So overall, a very strong quarter of progress and execution in the enterprise portion of our business, which drove the bookings and billings performance you see in the results. Now if you go down to revenue, that was also better than our expectations. As you saw in the numbers, we had outperformance on cloud and marketplace. And in line performance on data center.
On cloud revenue guidance coming into the quarter, we had assumed some negative impact on paid seat expansion rates and cloud migrations from macro uncertainty and our enterprise go-to-market evolution. And to your point, neither one of those were fully materialized. We continue to benefit from relatively stable macro and business trends from the quarter. In terms of our cloud performance in Q4, paid seat expansion, cross-sell, and migrations were the primary drivers of the better-than-expected results. With in-line performance across the other cloud drivers. Notably, the rate of paid seat expansion in SMB and enterprise continues to demonstrate quarter-to-quarter stability.
In data center, revenue was in line with our guidance with growth driven by pricing, and that was partially offset by strong migrations to cloud. Data center growth also benefited from the renewal of several large customer agreements in the quarter. And then in Marketplace, just to wrap it up, the outperformance was driven primarily by third-party app sales from data center. And then finally, I would also highlight that we saw steady performance broadly across products, customer segments, and regions. So all in all, Michael, really solid quarter overall. We feel really good about how we ended the fiscal year.
Operator: Your next question comes from Alex Zukin from Wolfe Research. Please go ahead, Alex.
Arsenije Matovic: Hi. This is Arsenije Matovic on for Alex Zukin. Thanks for taking the question. Mike, it is great to see the strong early traction with the Teamwork Collection. Given that momentum and the increased velocity shown this year and continued R&D focus next year, can we expect to see more AI capabilities or new feature launches within the collection this year to further kind of drive that momentum there? And then Joe, could you just help us understand the mid-single-digit migration contribution in cloud guidance? You had the same expectation set last year despite the go-to-market transition starting into the year. How did that migration growth contribution to the full-year cloud growth this year pan out?
And just help us understand the conservatism on the mid-single-digit migration contribution and guidance for FY ’26? Thanks.
Mike Cannon-Brookes: Hey, Arsenije. Yeah. I can take the first half of that. Look. I said very clearly, I think AI is one of the best things that has ever happened to us. Right? We are in the knowledge work business. We are in the teamwork business. The system will work. It is all about connecting business and technology teams. Helping our customers achieve their missions, and it creates a huge tailwind for Atlassian Corporation. Right? It is really, really fantastic. You asked if you will see new capabilities. I hope if you look over the last twelve and then twenty-four months, you have seen us continuing to innovate and ship new capabilities.
So I think you can probably take that one to the bank that there will be new capability shipping in the year ahead. I can tell you that those new capabilities are going to be pretty fantastic. Right? We are building some really amazing stuff. And it is generating results for us. So you can hopefully see that in everything from our net expansion rate of 120%. The Teamwork Collection continues to exceed expectations, and many of our customers purchasing it mention AI as one of the reasons. Not just having AI features, but fundamentally putting them into the core of our cloud platform. Right?
Our platform investment over the last ten years has enabled us to have that teamwork graph at the core, the AI at the core, which is giving really differentiated capabilities that people are noticing. As I said, we have reached 2.3 million AI now. I think we were one and a half last quarter, so strong quarter-on-quarter growth there. So you can certainly see that we are continuing to ship new improvements. You saw everything from the RoboDev CLI in the last quarter, MCP servers in beta and working with Anthropic. We continue to work with OpenAI on GPT-5 and other things that just launched.
So we have some really, really fantastic capabilities continuing to come through that are being demonstrated in our results. We have a lot of stats that show that this makes a difference. So for example, in Confluence, users who use our editor AI create 15% more pages and make 33% more edits than before. So it is showing that AI capabilities drive further collaboration, further creation, and further growth. Right? And some of those stats are up significantly. Similarly, you will know that we always focus on usage. Now it is very important to us. We want our software to be used to deliver its value.
One of the ways to look at usage in terms of AI is things like token usage. Right? And our token usage is up 5x quarter on quarter. So we are really getting customers to use our AI technologies. We talk about not marketing AI, but shipping it. I believe it is a huge tailwind to us. Obviously, we invest a lot in R&D. We have a fantastic world-class engineering team. Have a fantastic platform. Teamwork graph continues to grow in size as well as breadth and depth. So we feel like we have a real tailwind from AI, and we are really starting to deliver those results. We will certainly have more exciting things ahead.
I do want to reiterate that it is about AI, the system of work, and the enterprise transformation multiplying together, right, which gives us that confidence in the long-term sustained growth and targets that we have given out. Joe, you can answer the second question there.
Joe Binz: You bet. Thanks, Mike. So really no change in terms of our outlook for migrations. We had a great Q4 on the migration front. Thanks to the excellent execution from our sales team that I talked about earlier. It capped off a great year. I would mention the very strong data center to cloud migrations that we saw. So FY ’25, a really excellent outcome. We believe there are two primary drivers behind these results. First are the investments we have been making to drive deployment and usage such as in our customer success team. And in forward-deployed engineering programs like FastShift. And second, investments in R&D that continue to add differentiated value to our cloud platform and apps.
Through things like automation, analytics, and AI. Which makes the move to cloud more and more compelling over time. All together, that resulted in a contribution to cloud revenue growth for FY ’25 in the mid to high single-digit range. Which is also driven in part by the benefit of migrations related to server end of support in the prior year. Now going forward, we continue to believe the remaining customers on data center will take time to migrate to cloud. And so that is some of the conservatism in our estimate. And the reason for that is the complexity of these migrations.
Our remaining data center customers are some of our largest customers with the most complex environments to migrate. Very different from the one to two migrations for our smaller customers. Further, many of these customers, when they do migrate, do so taking a hybrid approach over time. So there is going to be variability in the pace of these migrations quarter to quarter. They will take time to move. Overall, however, our customers have been clear that their ultimate destination is in the cloud, because it is the best and most secure experience, and it is where all of our R&D and product innovation is pointed.
So as I mentioned, for FY ’25, migrations made a mid to high single-digit contribution to cloud revenue growth. You mentioned appropriately our guidance for FY ’26 assumes a sequentially lower contribution to cloud revenue growth from migrations in the mid to single-digit range. Some of that is the overall macro and go-to-market evolution risk that I highlighted in my first answer. Some of that is the dynamics that I just walked through in terms of migration of the complexity around data center migrations.
I would point out longer term, given the size of the data center installed base, the growing value of our cloud offering and intentions to migrate to the cloud, continue to expect migrations to make a mid to high single-digit contribution to cloud revenue growth over the next two to three years. So I hope that guidance helps.
Operator: Your next question comes from Arjun Bhatia from William Blair. Please go ahead.
Arjun Bhatia: Yes. Perfect. Thank you. I have a question on enterprise. Obviously, it seems like Q4 was very strong. You called out a million-plus ACV deals. As you look at 2026, I know you have Brian on board, but I am curious how you are just thinking about go-to-market and what we are changing. To continue to drive the enterprise acceleration when, you know, is that something that we should expect to be sort of done in ’26, or is this more of a continued journey that maybe bleeds into fiscal ’27 as well? Thank you.
Mike Cannon-Brookes: Hey, Arjun. I can take that one. Look. We have a really great enterprise business already. I like to start there. Enterprise is a little bit one of those things that we are always going to do next year. We have hundreds of customers north of a million dollars in run rate. As you saw, we had a fantastic quarter for million-dollar deals. So we have a really robust enterprise business already. And I think it will continue to improve as we go ahead. It is a big part and, again, one of our three major transformations. There is no doubt Brian has been on board six months.
He is better than the last CRO we had at the end of last calendar year. No offense. He does a far better job than I do, and we are really, really excited to have him here. He is bringing, like, a huge amount of experience across all manner of history of his to our sales transformation and continues to improve things. It is worth explaining. We still have, like, a $14 billion addressable market revenue opportunity within our existing customer base alone without any pricing changes, etcetera. Over 80% of the Fortune 500 are our customers today. But they represent around 10% of our business.
So again, lots of growth that you have seen on the back of as well, Joe mentioning, you know, data center to cloud migrations up 60%. They tend to be in the largest segment of the customers. Year on year, that is. And our Google Cloud partnership that we announced today, which is a really great milestone in terms of our multi-cloud strategy. It gives us resilience. It gives us a lot of different advantages there. And I would say in the quarter, also, we had some fantastic Teamwork Collection wins. That were ahead of our expectation for the speed of those types of deals happening in this size of customer base.
So it shows a lot of the faith that our customers have and the desire and the like they have for our products. There are a series of areas that Brian and the sales and success team continue to work on improving. I would expect them to keep improving over the next year, two years, three years. Right? Every quarter. These are things that are done. We continue to try to get more customer-centric in our processes, build deeper and stronger partnerships with our customers.
The biggest, Brian and myself, have both been all over the world in the last three and six months meeting customers from all manner of geographies that we have and helping them on their partnership journey. Continue to work on improving our customer success operation. There is a lot of things that we can keep doing there. Again, it is going from good to great kind of progress movement. We did a great job on sales execution and sales operations in the last quarter. That is something that we keep working on, building better systems as we are doing it at ever-increasing scale. To be able to deliver that deal velocity.
Plenty of changes in the partner ecosystem and strengthening that to make sure that we have the win-win-win triangle between ourselves, the partners, and the customers. Larger numbers of GSIs coming on board and really building big practices around Atlassian Corporation. And fundamentally, improving the culture in sales is really important. Right? There is a talent equation about people. Yes. But it is really about the culture. Right? Making people feel like we are a place that they can do fantastic work and build those partnerships with customers. So we are pretty bullish on our enterprise transformation as it continues to pick up speed. And a lot of work ahead, but we believe we can do it all.
Operator: Your next question comes from Kyle Keustig from UBS. Please go ahead.
Kyle Keustig: Okay, great. This one is for Joe. Joe, a couple of questions ago, you mentioned that you will get quarterly variability in the data center segment growth. But maybe you could just unpack the Q1 guide. It is a reasonably large step down in growth. Is there anything unique about September that might be in your head, where you are being a little more cautious? Thanks so much.
Joe Binz: Yeah. Thanks, Kyle. Thanks for the question. You mentioned, our Q1 data center guidance is approximately 8%. That is quite a step down from what we delivered in Q4. Part of that is related to Q4 in that we benefited from several large renewals that happened in the quarter. We have a much bigger expiration base in Q4 than we do have in Q1. That is a seasonally weaker, so we are going to have less opportunity for expansion and price increases off of that. In the quarter, Q4 growth was driven primarily by pricing.
And partially offset by cloud migrations as we continue to deliver significant improvements in the enterprise-grade capabilities and value to our cloud platform, and we are helping data center customers migrate to the cloud, as I mentioned earlier. The guidance, so for Q1, reflects not only the smaller expiration base but also the fact that we have some headwinds related to the one-year deal terms from a programmatic change that we made a year ago. And we are finally starting to fully lap the benefit of the migration from server end to support. So there are some modest incremental headwinds there in Q1 that are part of this as well. So that is basically the drivers.
I think the primary one is it comes down to we just have a smaller expiration base in Q1 and therefore less opportunity to drive growth off of it.
Operator: Your next question comes from Gregg Moskowitz from Mizuho. Please go ahead.
Gregg Moskowitz: Okay. Thank you very much for taking the question. So Mike, you are actually not the first software company reporting earnings today to articulate a goal to drive more wall-to-wall deployments going forward. It is easier said than done, though. In Atlassian Corporation’s case, I know that about half of your licensees are in non-technical roles, and that is great. But your penetration rate of non-technical employees at a typical enterprise surely must be a lot lower than it is for technical employees. And so I guess the question is, how do you convince a lot more Global 2,000 organizations to equip every salesperson and every finance, HR, marketing, and legal professional with an Atlassian Corporation license?
Mike Cannon-Brookes: Thanks, Gregg. Well, it is a really fair and interesting question. I would say, firstly, we are doing it on a daily basis. We have had significant momentum in consolidation over the last year that has only picked up in the last quarter. It only continued to grow in the last quarter when we look at the other applications that customers are using, consolidation has become a real weapon for us, and we are really happy with where that is going. Secondly, we see continued progress in the business user segment. You are right in calling out there are many more business users out there. We see that as a huge opportunity for us.
We have grown that almost every quarter for the last few years, but it is certainly accelerating. Why is that? Lots of things. So for example, the Teamwork Collection is a broader offering. Separating out our software pieces from our broad collaboration pieces really helps with that. Secondly, we spend a lot of time investing in design. Speed, performance, all sorts of things that really make a difference as well as usability of things like Jira for broad business teams, and we are seeing some really great take-up with that. Thirdly, Loom makes a huge difference in business teams. Again, Loom does very well in sales teams and other areas, especially with outbound customer communication.
It gets the Atlassian Corporation stack used and understood by broader swaths of customer population. Obviously, we have Trello, which has long done extremely well in the broad set of users. So I would say collectively, when it looks at the products and the apps that we have as well as the platform, we continue to make great progress in those areas. And, of course, Robo continues that momentum in a big way. The connectors we have in Robo search enabling sales teams to connect, enabling marketing teams to connect, and to chat, connect, build agents that run across all their data in those business workflows.
Whether that is in service management, whether that is in broad business workflows in Jira, or whether that is connecting Confluence and a whole set of our applications together with all of these third-party tools. We just see that we have great momentum in continuing to attack that market. The business team usage continues to grow for Atlassian Corporation. I will say that the technology team usage always continues to grow as well. So it is not at one at the expense of the other, which is really important because that is where you often get this proportionality problem. Right? Our software business is doing really well. And so it is not necessarily one for the other.
We are trying to do both simultaneously.
Operator: Your next question comes from DJ Hynes from Canaccord. Go ahead.
DJ Hynes: Hey, guys. Thanks for taking the question. So Joe, how should we think about the bridge from MAU growth in Robo to eventual more robust monetization? Like, how do you think about that timeline and do you think it shows up first in consumption and usage or more effective cross-sell?
Joe Binz: Yes. Thanks, DJ, for the question. I will start, and then, Mike, feel free to chime in on top. As Mike articulated in the shareholder letter and in his comments, we are very excited about the strategic opportunity AI and Robo present for us. In terms of the revenue impact you asked about, we have mentioned in the past that the big focus for Robo from the very beginning was around deployment, usage, and engagement, and that revenue and monetization were secondary longer-term considerations. While we have some consumption-based revenue from Robo in our FY ’26 plan, our guidance assumes very nominal amounts just given the limits we set to incent adoption and usage of our AI services.
From there, we do believe some of the broader benefits from Robo to our overall apps and collection portfolio such as seat expansion, upgrade to higher editions, and migrations will play out over time. So and in addition to that, we are seeing, as Mike pointed out, very strong uptake on premium and enterprise edition already, and some of that is a function of the AI and Robo value that we put in the product. So we are super pleased with the reception to Robo’s launch. It has been exciting to see the reaction from customers and the increasing usage and adoption. And our big focus continues to be around deployment, usage, and engagement. And monetization later.
And since the launch, all three of those things are tracking along really nicely. Mike, anything else you want to add on that one?
Mike Cannon-Brookes: Yeah. I can add a few things, DJ. Firstly, look, we should talk about the Teamwork Collection. Again, I have mentioned a series of customer examples. We could keep going on with customer examples, to be honest. We had a very large gaming company, iconic gaming company choosing Teamwork Collection. Again, for AI and the things that come with it. So the Teamwork Collection uplift for customers moving to that across their seats is partially AI-driven for sure. Right? We are seeing that. We are putting it at the core. The platform. So that is one really important vector to make sure to understand.
Secondly, on the Robo specifically, we do have a for non-Atlassian Corporation users to get access to Robo in terms of search and chat and other things. But we think in the medium term, it will be another growth vector possible. We would rather those users to be on the Teamwork Collection to be actually collaborating. But it is a good stepping stone point to actually get to that. We are increasingly seeing and deploying consumption-based pricing aspects in a whole series of different places. You can see that with Forge and Forge usage for extensibility. We have done a lot in Bitbucket pipelines and JSN virtual service agents and assets. And then in AI itself and AI credits.
One of the built-in pricing and packaging things that I know a few people have commented on is when you buy the Teamwork Collection, you get a much larger set of AI credits on purpose. So, again, it drives that usage and we are doing a very good job, I think, at managing margin while investing heavily in AI and doing those things simultaneously. We do have a lot of different growth vectors that also are driven by AI that leads to monetization in the long term. I mentioned also virtual service agents with Jira Service Management. The service management business is doing very well. It had a great quarter.
We had a lot of great wins and migrations off some legacy vendors at large scale. So that is really driving it. And then, of course, in software, we have RoboDev. And the RoboDev CLI. It is unmonetized at this point because, again, to Joe’s point, we want to drive usage first. Then understand we are early in the AI wave. But I think we can see a lot of examples of where it is already working for us in terms of usage, in terms of driving adoption. Again, I mentioned that we had 5x token usage growth quarter on quarter. We have a 50% ish now growth rate of AI tools.
So that is all really heading in that direction of usage first, and we are very good at monetizing in the long term. I will say that our premium enterprise editions, again, had a growth rate of about 40% year on year. For those core offerings. So that is another reason where you are seeing AI monetization. So we are thinking about it. We are spending time on it. It is coming in a lot of different places.
Operator: Your next question comes from Jason Celino from KeyBanc Capital Markets. Please go ahead.
Jason Celino: Hey, great. Thanks for the question. Maybe just one for Joe. When I look at the operating margin guidance, it looks like it is 24%, you know, very modest compression over 2025. I know you are awfully close to your mid-twenties. You know, 2027. Numbers, so you are not too far. But when we think about some of the investment priorities this year, maybe can you just outline a few of them? I know one of Brian Duffy’s priorities was to expand sales count for the service management side. Curious if that is one, how that might ramp, and if there is anything else. Thanks.
Joe Binz: Yeah. Thanks for the question, Jason. I will start with big investment areas, and I will talk about operating margin specifically. So in terms of operating expenses, we expect to maintain largely consistent growth rates FY ’25 to FY ’26 on operating expenses. Within that, we will continue to invest primarily in sales and marketing and R&D. Against the core strategic priorities Mike laid out earlier around enterprise cloud, AI, and our system of work. Where we have tremendous opportunity and we have great signal and momentum coming out of fiscal year ’25 across all of these, and we believe these investments have compelling return profiles and lay the foundation for sustained healthy revenue growth in FY ’27 and beyond.
In terms of operating margin, you are right. Our operating margin guide for next year is 24%. That is slightly lower than FY ’25. In terms of the drivers of that, I would start by saying we took what I believe to be the same conservative risk approach to our revenue guidance for FY ’26 that we took last year for FY ’25. From there, we expect gross margins to be relatively stable year to year. As we expect the work done to optimize our cloud infrastructure and support costs will offset the impact of greater cloud revenue mix and expected costs, related to increasing AI usage, I talked about the investments that we are making.
So given all these factors, you land at a 24% operating margin guide. Start the year in FY ’26. And just to reiterate, you made the point, we remain confident in our ability to achieve that FY ’27 non-GAAP operating target in excess of 25%. Just one final comment in terms of how we think about margin and managing it. I would expect us to do what we have done over the last two years, which is to manage cost carefully, to invest in a super disciplined way around the highest return opportunities we have, and to ensure we meet our profitability commitments.
And at times, that will mean taking upside from outperformance on revenue and investing it to accelerate progress or go after new things, and at other times, as you have seen us do in the past, it will mean letting revenue and gross margin outperformance drop to the bottom line. That is the framework we will use to make those decisions. Going forward, and we will continue to maintain a focus, as I mentioned earlier, on meeting our profitability commitments.
Mike Cannon-Brookes: Anything I wanted to follow on just briefly, Jason, to Joe’s comment. He covered most things. Firstly, a small one. Again, we were ahead of target for sales hiring in the quarter. It shows our talent acquisition pipeline continues to be very strong and also execution. But those are the types of opportunities that we want to take, believe in the strength of the enterprise opportunity. And the momentum we are seeing across all the three transformations, but specifically in the enterprise. So sales hiring being ahead of forecast is a good thing for us in the medium term. I do want to reiterate the commitments that we have made.
The 25% margin target for FY ’27 is very important to all of us. We are spending a lot of time making sure that we target those numbers. While at the same time doing all the investing that you can see. It is important that we are investing in AI. We are investing to win in that space. And we are trying to balance this on a continual basis. And I think we did we have shown a really good job in FY ’25, and I expect that to continue in FY ’26. Thank you.
Operator: That is all the questions we have time for today. I will now turn the call over to Mike for closing remarks.
Mike Cannon-Brookes: Thank you everyone for listening. I just want to extend my thanks to all of the Atlassian Corporation employees that worked incredibly hard over the last quarter to deliver some fantastic results across the board. And, we maintain incredible bullishness on the future. Thank you all for listening, and I hope you have a kick-ass weekend.
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Annie Dean, a Vice President at Atlassian, is a member of The Motley Fool’s board of directors. The Motley Fool has positions in and recommends Atlassian. The Motley Fool has a disclosure policy.
