Q4 2025 Atlassian Corp Earnings Call

For the fourth quarter of fiscal year 2025.

as a reminder, this conference call is being recorded and will be available for the

for replay on.

Website following this call.

I will now hand the call over to Martin lamb. The lucky and head of investor relations.

Welcome to our last name's fourth quarter, and fiscal year, 2025 earnings call. Thank you for joining us today.

On the call. Today we have Alaskan CEO and co-founder Mike Cannon Brooks.

And Chief Financial Officer. Joe bins.

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'll 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 proved 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 we are made

and we undertake no obligation to update or revise such statements, should they change or seek 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 and 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 Superior to measures of financial performance prepared in accordance with gaap, a 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'd 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 1 question at a time.

With that, I'll turn the call over to Mike for opening remarks.

Thanks, Martin, and thank you all for joining us today.

As you've already read in our shareholder letter, we closed out fy2 with Stellar execution from our Enterprise sales teams and partner teams.

In fy2 we generated over 5.2 billion dollars in revenue and over 1.4 billion dollars 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, Walworth globant 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 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'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.

Our platform powered teamwork, business processes and workflows, 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 and helping both businesses and Technology teams collaborate.

If you'd 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 realized the power of going wall-to-wall with the atlassian system of work. With many of them consolidating from a variety of other tools onto the Alaskan Cloud platform.

The result is continued Revenue growth across our core apps of dura. Confluence steer a service management and Loan all of which are growing in line or 5,000 total company Revenue with significant Runway ahead of all

as we Forge ahead into FY, 26, we're bringing a new level of intensity to our pursuit of the massive Market opportunities in front of us.

We're playing offense and relentlessly innovating in order to further strengthen our competitive position delivering differentiated customer experiences and value.

And making atlassian Z system work for the fortune 500000 and Beyond.

Also this quarter, we're announcing that a new has decided to transition away from her role as atlassian. President at the end of December, after almost 12 years,

While we're very saddened to see her leave, we're incredibly grateful for all of her impact—like everything we do. We're long-term in our thinking and thoughtful, always in our plans. The greatest legacy she leaves is the talented team of leaders that she has built and developed. We will have more updates on leadership transitions soon.

And before anyone on the call asks I'm not going anywhere. So you're gonna have to put up with me for many more years. I lost my job and this is the most exciting time to be at a lesson. We're creating amazing products.

And capabilities which are delighting our customers like never before.

We have a fantastic Tailwind from new AI Technologies and it's incredible to see our vision. Our vision Vision resonating with our 3, major transformations of AI Enterprise and system of work, all bearing fruit, and multiplying together.

With that, I'll pass the call to the operator for Q&A.

We will now begin the question and answer session. If you have a question, please press star followed by the 1 on your phone. If you'd like to withdraw from the queue, please press star followed by the 2.

Your first question comes from Keith Weiss from Morgan Stanley. Please go ahead.

Thank you guys for taking the question and congratulations on a really strong end to the year. Um, Mike reaching the shareholder letter and kind of listening to, um, uh, what you've been describing going on at last. And it's a little bit of an odd that we hear in the marketplace frankly. Um, there's a lot of concern around call generation tools and the changing role of a developer, um, 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 are more broadly and what you think is going to transfer on a go forward basis in terms of how these Innovations are going to affect that Core Business from atlassian, going forward?

Sure. Keith good. Good to hear from you.

Um, let me just stop by saying, we're not seeing any impact from this on any numbers that we have so expansion rights growth rights, um, uh adoption rights of our, our technical products and again, the technology teams and the software business is a, a part of our business alongside service strategy, and a broad collaboration, but we're not seeing any impact from it. So we're being very clear about that. Um, when customers integrate, uh, uh, code generating, AI tools. Um, there's no change in their usage of our products and we continue to see really healthy uh, user growth. Uh, in fact, we even have some early data that shows that when people do connect code, generation tools, uh, the business users in those. Dear instances is actually growing faster than they are for the customers that don't have those connected right demonstrating? Uh, we think, you know, jira continue to be the center of gravity and how work gets done.

Um, I think you kind of have to look at a high level, right? Did let me give you some assumptions that, that, that I have or some some beliefs. Do I think there will be far less developers in the world? 5 years from now? Nope, I don't think so. I think they'll be far more and far more people creating software in other functions, right? Whether they're in finance or HR marketing, there's going to be a lot more people creating software.

Do I think developers roles change and augment with these tools? Yes. Develops the use of that. This is a big change. It's super productive. We see that internally um but there's still a lot of awful lot of work to do. Right. Do I think more people will be creating software? Yes.

Do I think more software will be made in the world? Yes, I think there'll be far more software and Technology made that there need to be managed right far. More people creating software and far more technology, significantly expands our opportunity.

This is all really good for Alaskan and our workflow tools again in that, uh, uh, software teams and Technology teams world that we, uh, that we sit in. Um, it also shows at the moment here is criticality to a lot of those workflows and processes.

If you look internally, for example, we're pretty world class at using AI code generating tools, right? Uh, uh, we have Robo Dev our own which sits on top of of Sweden's full bench Benchmark time at the moment. Um we use a whole series of other uh code generation tools. We have 3 or 4 in operation with over a thousand. Uh, now each at at at at work lets us create software faster. Let's us create better software and let's just create more software.

And yes, we're still hiring a lot of Engineers and developers uh uh, and with the growth in the business. So uh, I just want to be clear that we're not seeing that in our numbers. We don't believe in that in terms of our collaboration things, um, collaboration products again.

And last thing is here to solve people problems, not technology problems, there will be collaboration, there will be projects, there will be teamwork uh and we see AI as a, as a huge Tailwind for the business and I think we're putting up a lot of numbers that show that are very strongly.

Your next question comes from Alex Newman. From Jeffrey's please go ahead.

Hi. This is Alex from Jeff, please, call Brent Hill. Um, I want to touch on the free cash flow number. So this year, the number came in broadly flat. This is last year around 1.5 billion. How should we think about the treasury for free cash flow in 2026 and then I have a follow-up

Yeah, this is Joe. Thanks for the question. So, uh, free cash flow in the quarter was $36,060 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 to support Dynamics.

All free cash flow came in online with our expectations entering the quarter. Uh, there are some temporal headwinds in the short term as we transition. Multi-year agreements from upfront to annual billing terms.

and we have more back, loaded sales in the area in the quarter, as a natural result of growing, our Enterprise Cloud business,

Accounting for those 2 factors cash flow in the quarter. Reflected the strong performance. We delivered in the quarter, uh, in terms of modeling, long term or over the future. Um, 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 between accounting and cash flow such as such as what you typically see with the employee bonus payout, we do in q1 uh in relation to non-gaap operating margin. We 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.

Year to year for various timing reasons. But that remains our expectation for FY, 26 and moving forward.

Hope that helps.

Your next question.

Comes from Katherine gone. From Goldman Sachs, please go ahead.

Hi, I will not ask you the AI, takeaway developer and support jobs question because I've asked, and I think we all kind of know what the answer is. It's not happening. But uh, but that, that's what's happening in the Market at least Wall Street. I think any reasonably individual will will, look at these Tech cycles and say every time there's a change in the tech cycle, on from the cloud, cloud AI, whatever it is. Number of software related jobs, just keeps growing exponentially. So maybe you'll keep reinforcing the message at some point, the market will believe it. So, we're, we're on the same page with you, but my question is more to do with the the progression of numbers. We really came off a big transition here, self comparisons in admirable that growth rate that you put up is very solid. But going into fiscal 26 and looking at 27, it does look like if you were to maintain your longer term growth guidance. There is a sort of implied acceleration setup in fiscal 27. So Mike and James just wanted to have you talked through what are the things uh

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 this, the data the the server server and data center base to the cloud. What are the levers that you think you have with your hand uh that you could help to put forth that accelerating Revenue growth that the numbers seem to imply in fiscal 27, from fiscal. 26, thank you so much.

Yeah. Thanks Cash. This is Joe. Great question. And I'll start and then pass it to Mike uh, for more details. So, the first point I'd make is we have not changed our approach from last year with respect to our guidance for q1 and FY, 26.

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.

Uh, in in addition I'd say there's no change to our Outlook that we will be able to deliver 20% compounded, annual growth from fy24 through FY 27. And we believe with 20% growth in FY 25. We 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've built around those strategies as Mike laid out in the shareholder letter and it is opening comments, we have multiple levers of growth from Paid seed expansion to cross. Sell upsell pricing and new customer growth, and AI opens the aperture for even more opportunity. Given the structural position we have with our Cloud platform and teamwork, graphs and deep investment in R&D. So taken together, the guidance approach and the opportunity for growth that we have, uh, there's no change to the 3-year Outlook, we provided our investor Day last year and we will remain very optimistic about our ability to to grow and at a very healthy rate overall sustained period of time.

Yeah, C just to follow on from what Joe said. Firstly, I agree with you on uh the first part of your comment. Um, thank you for saying that um,

Look, I just want to read over my point of view. Firstly, the commitment to those long-term targets, uh, double down on. What Joe said. We feel incredibly confident in them. Um, hopefully our FY 25 gives.

Um, credibility to the fact that we can achieve those, and we feel increased increasingly confident in our ability to deliver on what we've laid out, both on the revenue growth side and on uh the margins side. Um, I will say 1 of the things I want to point out. Teamwork collection uh was very strong. So Joe pointed out. We have a whole multitude of different growth vectors that are going uh strongly. We've long had a portfolio of different uh growth happening. Uh, 1 of the new elements, there is obviously 2 more collections. Um it's been in the market for 3 months and we had a very strong first 3 months given uh where we landed? Uh we feel incredibly strongly about that that it's it's almost at the Apex of our 3, different transformations.

So both the Enterprise Ai and that system of work shows, great strength, right? We had 1 of the world's largest automaker uh Auto motive manufacturers uh bought teamwork collection in the quarter.

High, tens, of thousands of users, uh, in combination with strategy, collection, and going wall to wall and teamwork collection to standardize on Alaskan for all teamwork, delivery goals, and they mentioned AI being deeply integrated as 1 of their core reasons for moving. So, it's showing all 3 of those working together. Uh, we had another in the world's

1 of the world's leading chip companies. Uh, the the companies that are powering the AI Revolution that we're all benefiting for again, in the tens of thousands of users, migrating to improved scalability collaboration and governance. Uh, from on-prem, in that case to, uh, from data centers to the cloud. Um, that was a big consolidation story for us, moving off, uh, a bunch of different tools onto the alassian, uh, Cloud platform. Um, 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 3 of the Transformations that were invested deeply in a really driving that that durable growth that we can deliver on.

Your next question comes from Michael Turan from Well, Fargo, please go ahead.

Hey great. Thanks. Appreciate you. Taking the question and congrats on the end to the fiscal year. Um Joe just building on some of those prior comments. I was hoping you could expand a bit more around the framework or use you're using in fiscal. 26, in the Enterprise, go to market language. And, and really what I'm wondering is, maybe you could compare and contrast how fiscal 25 clothes for us, relative to some of the execution risk you were batting. It looks like the RPO. And and booking numbers were looking at are certainly supportive of some of the large deal commentary, uh throughout the the latter but would be just useful to get your perspective there. Just and how the year closed maybe relative to what you're forecasting and compare that with the the initial guide for 26. Thanks very much.

Like, highlighted a lot of these things in his opening remarks, from the record number of deals with over 1 million dollars to Data Center to Cloud, migrations being up 60% year-over-year, uh, to the strong momentum, we had in teamwork collection. All of that culminated in the RPO balance, increasing to 3.3 billion, that's up 38% year-over-year. Roughly 74% of that balance will be recognized in Revenue in the next 12 months. And that's up 29% year-over-year. Uh, and the remaining portion, uh, is increased 71%. And that's on the strength of large Cloud. Multi-year agreements signed in the quarter, which is a great sign of customer commitment, and confidence in our platform and our road map. Um, 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, um that was also better than our expectations. As you saw in the numbers, we had outperformance on a cloud and Marketplace and inline performance on data center on cloud Revenue. Guidance coming into the quarter, we'd assume some negative impact on paid seed expansion rates in Cloud migrations from macro uncertainty. And our Enterprise, go to market Evolution, and to your point, neither 1 of those were fully materialized.

We continue to benefit from relatively stable, macro and business Trends from the quarter uh in terms of our Cloud performance and Q4 paid seed expansion. Crosselle and migrations were the primary drivers of the better than expected results within line. Performance across the other Cloud drivers, notably the rate of paid seed expansion in SMB and Enterprise continues to demonstrate quarter to quarter stability.

Uh, 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 customers 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. Uh, and then finally, I'd also highlight that we saw a steady performance broadly across products customer, uh, segments and regions. So, all in all, uh, Michael really solid quarter overall, and we feel really good about how we ended the fiscal year.

Your next question comes from Alex Zukin from Wolf. Free pitch. Please go ahead, Alex.

Hi. This is our Sion for Alex zukin, thanks for taking the question. Mike it's 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 focused 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 the clown 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.

Hey, Ashley. Yeah, I can I can take the first half of that.

Look. Um, I said very clearly. I think I was 1 of the best things that's ever happened to alassian, right? We're in the knowledge of our business, we're in the teamwork business. The system will work is all about connecting Business and Technology teams. Um, helping our customers, achieve their missions, and they create a huge Tailwind for Alaskan, right? It's it's, it's really, really fantastic. You asked if you'll see new capabilities, um, I hope if you look over the last 12, and then 24 months you've seen us continuing to innovate and ship new capabilities. So I think you can you can you can probably take that 1 to the bank that there will be new capability shipping in the year ahead.

Uh, I can tell you that those new capabilities are going to be pretty fantastic, right? We're building some really amazing stuff and it's generating a results for us so you can hopefully see that in everything from our our net expansion rate of 120%. Uh the teamwork collection continued to exceed expectations in many of the customers purchasing it. Mentioning AI is 1 of the reasons and not just having AI features.

IC, uh, capabilities continuing to come through that are being demonstrated in our results.

Um, 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's showing that AI capabilities drive, further collaboration, further creation, and and further growth, right? And some of those stats are up a significantly. Similarly, you'll know that we always focus on Usage. Now is very important to us. We want our software to be used to deliver its value. Um 1 of the ways to look at usage in terms of AI, it's 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. Uh, I believe it's a huge Tailwind to us. Obviously, when we invest a lot in our R&D, we have a fantastic world-class engineering team. We have a fantastic platform teamwork, grass continues to grow in size as well as breadth and depth. So we feel like we have a real Tailwind from Ai and we're really starting to deliver those results. Um we will certainly have more uh 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, uh, and targets that we've we've given out

Joe, you can answer the the second question there.

You bet. Thanks Mike. So, really no change in terms of our outlook for migrations. We had a great Q4 on the migration front. Uh, thanks to the excellent execution from our sales team that I talked about earlier.

it capped off a great year, I mentioned the very strong data center to Cloud, migrations that we saw

So FY, 25 a really excellent outcome. Uh, we believe there are 2 primary drivers behind these results.

First are the Investments, we've been making to drive deployment and usage such as in C in our customer success team and in forward deployed engineering programs like Fast shift and second investments in R&D to 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. Altogether that resulted in a contribution to Cloud Revenue growth for fy2 in the mid to high single digit range, which was driven in part by the benefit of migrations related to server and to 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 some of the conservativism and our estimate. And the reason for that is the complexity of these migrations, uh, are remaining data center, customers are some of our largest customers with the most complex, environments, to migrate very different from the 1, to Due Date, to 2 de migrations for our smaller customers.

Further many of these customers when they do migrate do. So taking a hybrid approach over time. So there's going to be variability in the pace of these migrations quarter to quarter and they will take time to move. Uh, 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's where all of our R&D and product Innovation is pointed.

So, as I mentioned for fy2, migrations, made amid to high single digit contribution to Cloud Revenue growth. Uh, you mentioned, uh, appropriately, our guidance for fy6 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 I highlighted in my first answer. Uh, some of that is the Dynamics that I just walked through. In terms of uh migration 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 customer intentions to migrate to the cloud. We continue to expect migrates migrations to make a mid to high single-digit contribution to Cloud, Revenue growth over the next 2 to 2 to 3 years. So I hope that that guidance helps

your next question comes from agin Bhatia. From William Blair, please go ahead.

Yes. Um, perfect. Uh, thank you. Um, the I have a question on Enterprise. Um, obviously, it seems like Q4 was very strong. It's you called out the million, uh, plus ACV deals. Um, as you look at 2026, I know you have Brian on board but I'm curious how you were just thinking about go to market. Um, and and what we are changing to continue around with Enterprise acceleration and you know, is that something that we should expect to be sort of

done in 26 or is this this more of a computer Journey that maybe bleeds into Crystal 27 as well? Thank you.

Hey AJ, I can take that 1.

We have hundreds of customers, north of a million dollars in, in run rate. As you saw, we had a 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, 1 of our 3, major Transmissions.

Um, there's no doubt. Brian has been on board 6 months. He's better than the last zero we had at the end of last calendar year. Uh, no offense. He does a 5 better jobs than I do, and we're really, really excited to have him here. He's bringing like a huge amount of experience across, uh, all manner of, uh,

History of his to our sales transformation and continuing to improve things. Um, it's worth uh explaining we still have like a 14 billion dollar. Addressable Market Revenue opportunity, within our existing customer base alone without any pricing changes. Etc. Um 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've seen on the back of as well. Joe mentioning, you know, data center to Cloud migrations up, 60%, they tend to be oriented in the larger segment of the customers a year on year, that is and our Google Cloud partnership that we announced today. Uh, which is a really great milestone in terms of our multi-cloud strategy gives us resilience, or gives us a lot of different uh uh advantages there. Um, and I would say in the quarter also we had some

It's fantastic, teamwork collection, wins that we're 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, um, the desire and the like they have for our products.

There are a series of areas that Brian uh and the sales and success team continue to work on improving and I would expect them to keep improving over the next year. 2 years, 3 years, right? Every quarter. These are not things that are done. Uh, we continue to try to get more, uh, customer Centric in our processes, build deeper, and stronger Partnerships with our customers uh the biggest Brian and myself. Have both been all over the world in the last 3 and 6 months meeting customers from all manner of uh, of geographies that we have and and helping them on their partnership Journey. Uh, we continue to work on improving our customers success operation. Um, there's a lot of things that we can keep doing there. Um, again, it's going from good to great kind of uh, progress movement.

We did a great job on South execution and sales operations in the last quarter. That is something that we keep working on building better systems, as we're doing it ever increasing scale to be able to, to deliver that deal velocity. Um, plenty of changes in the partner ecosystem and strengthening that to make sure that we have, uh, the, the win-win-win triangle between ourselves, the partners and the customers. Um, larger numbers of GSI is coming on board and really building big practices around that Lassen, uh, and fundamentally improving our our

Uh, the, the the culture in sales is really important, right? There's a talent equation about people, yes. But it's really about the culture, right? Making people feel like we're a place uh, that they can do fantastic work and build those Partnerships with, uh, with customers. So, we're pretty bullish on our Enterprise transformation as it continues to, uh, to pick up speed. Um, and a lot of work ahead, uh, but we, we believe we can do it all.

Your next question comes from Carl Tuesday from UBS. Please go ahead, call.

Okay, great. This 1 is for Joe, Joe. A couple of questions ago, you you mentioned that you will get quarterly variability in the data center segment growth, but maybe you could just unpack the the q1 guide. It's a a reasonably large step down and growth, is there. Anything unique about the September quarter? That might, um, be in your head to where you're being a little more cautious. Thanks so much.

Yeah. Thanks Carl. Thanks for the question. Um, as you mentioned, our q1 data center guidance, uh is approximately 8% that's quite a step down uh, from what we delivered in Q4. Uh part of that is related to Q4 and that we benefited from several large renewals, uh, that happened in the quarter. Uh, we have a much bigger expiration base in Q4 than we do have in q1. That's a seasonally weak or quarter. So we're going to have less opportunity for expansion and price increases off of that. Um, in the quarter, Q4 growth was driven primarily by pricing and partially offset by Cloud migrations, as we continue to deliver sign.

There in q1 that are part of this as well. So that's basically the drivers. I think the primary ones that comes down to we just have a smaller expiration base in q1, and therefore less opportunity to to drive growth off of it.

Your next question comes from Greg moscowitz from Miss. Please go ahead.

Okay. Uh, thank you very much for taking the question. Uh, so um, Mike, you're actually not the first um, software company reporting earnings today to articulate a goal to, uh, drive more water wall, deployments going forward, uh, it is easier said than done though. And and alaskans case, you know, I know that about half of your licenses are in non-technical roles and that's great. Uh, but your penetration rate of non-technical employees at a typical Enterprise. Surely must be, you know, a lot lower than it is for technical employees. And so, I guess the question is, you know, how do you convince a lot more Global 20000 organizations to equip every salesperson in every Finance, HR marketing and legal professional within that lasting license?

Thanks Greg. Look, it's a really fair and uh 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's only picked up in the last quarter.

Um I only continue to to to grow in the last quarter, when we look at the other applications that customers are using consolidation has become uh, a real weapon for us and we're really happy with where that's going.

Secondly, we see continued progress in the business user segments. You're right at calling out. There are many more business users out there. We see that as a huge opportunity for us. Uh, We've grown that almost every quarter for the last few years, um, but it's certainly accelerating. Why is that lots of things? So, for example, the teamwork collection is a broader offering, uh, separating out, our 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're 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, uh, it gets the elastin stack, uh, uh, used and understood by broader swats of, uh, uh, customer population. Obviously we have Trello, which is 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 uh progress in those areas. Uh and of course Roo continues that momentum in a big way.

uh the connectors we have in Roo search enabling sales teams to connect enabling marketing teams to connect, and to uh chat connect and build agents that run across all their data and those business workflows, um,

Whether that's in service management whether that's in Broad business, workflows in jira or whether that's connecting Confluence, and a whole set of applications together with all of these third-party tools, um we just see that we have great momentum in continuing to to attack that market.

Um, the business team usage continues to grow for alassian. I will say that the technology team usage, always continues to grow as well. So it it's not at 1 at the expense of the other, which is really important because that's where you often get this proportionality problem, right? Our our software business is doing really well and so it's it's not necessarily uh uh 1 for the other but we're trying to do both simultaneously.

The next question comes from DJ. Hinds from Kord. Go ahead.

Hey guys, thanks for taking the question. So Joe, how should we think about the bridge from MAU growth in ROU to eventual more robust monetization? How do you think about that timeline? And do you think it shows up first in consumption and usage or more effective cross-sell?

Yeah, thanks DJ for the question. I'll I'll I'll start and then Mike, feel free to chime in on top um 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've mentioned in the past that the big focus for Rosal from the very beginning was around deployment, usage, and engagement, and that revenue and monetization were secondary, longer-term considerations.

Time so and in addition to that we are seeing um as as Mike pointed out very strong uptake on premium and Enterprise Edition already and some of that is a function of the AI and rovo value that we put in the product.

So we're super pleased with the reception to robo's launch. It's been an 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, uh, and monetization later. Since the launch, all three of those things are tracking along really nicely.

Like anything else, do you want to add on that?

Yeah, I I can add a few things, DJ firstly.

Look, we should we should talk about the teamwork collection. Again, I've mentioned a series of customer examples. We could keep going on with customer examples to be honest. Um, uh, we had a very large uh, gaming company. Iconic gaming company choosing tumor 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. Alright, we're seeing that we're putting into the core of the platform. So that's that's 1 really important Vector, to make sure to understand

Um secondly on the Roos specifically, we do have uh uh a SKU for non atlassian, users to get access to rovo in terms of search and chat and other things. But we think in the in the medium term that will be another growth Vector possible, uh, we'd rather, those users to be on the teamwork collection to be actually collaborating. But it's a good, it's a good stepping stone. Uh uh point to actually get to that.

Um, we are increasingly seeing and, uh, deploying consumption based pricing aspects in a whole series of different places. Um, you can see that with, uh, Forge and Forge usage for extensibility. Uh, we've done a lot in bitbucket, pipelines and JS and virtual Service agents and assets. Uh, and then in AI itself, and AI credits, um, 1 of the built-in pricing and packaging, uh, uh, things that I know a few people have commented on is when you buy the team or collection, you get a much larger set of AI credits.

Uh, on purpose. So again, it drives that usage. Uh, and we are doing a very good job, I think, at managing margin while investing heavily in AI and doing those things simultaneously.

Uh, we do have a lot of different growth vectors that are also driven by AI, which leads to monetization in the long term. I mentioned also virtual service agents with zero service management. The service management business is doing very well; it had a great quarter and we had a lot of great wins and migrations off some legacy vendors at large scale.

So, that is is really driving it. And then, of course, in software, we have Rover Dev, uh, and Rover Dev CLI. Um, it's unmetered at this point because again, to Joe's point we want to drive usage first and then understand where we're early in the AI wave. Uh, but I think we can see, a lot of examples of where it's already working for us. In terms of usage, in terms of driving adoption. Uh, again, I mentioned that we had, uh, 5x token usage growth. Uh, quarter on quarter, uh, we have a 50% ish Now growth rate of AI tools. So, that's all really heading in that direction of usage, first, and we will we're very good at monetizing in the long term. Um, I will say that our our premium and Enterprise editions again, uh, had a growth rate of about 40% year-on-year, for those core offerings. So that's another reason where you're seeing AI monetization. So, um, we are thinking about it. We're spending time on it, it's coming. A lot of different places.

In the next question comes from Jason tamino from keybanc Capital markets.

Please go ahead.

Hey great, thanks for the question. Uh, maybe just 1 for Joe when I look at the operating margin guidance, it looks like it's 24%. You know, very modest compression over 2025. I know you're awfully close to your to your mid 20s you know, 2027 number. So you're not too far. But when we think about some of the investment priorities this year, um maybe can you just outline a few of them? I know 1 of Brian Duffy's priorities was

610 sales count for the service management side, curious, if that's 1 how that might ramp, and if there's anything else, thanks,

And lay the foundation for sustained, healthy revenue growth in FY27 and beyond.

In terms of operating margin You're right. Our operating margin guide for next year is 24%. That's slightly lower than FY. 25 in terms of the drivers of that. I'd start by saying we took what I believe to be the same conservative risk adjusted 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. Uh, I talked about the investments that we're making. So, given all these factors, you land at a 24% operating margin guide to start the year in FY26. And just to reiterate, you made the point, uh, we remain confident in our ability to achieve that FY27 non-GAAP operating target, uh, in excess of 25%.

And then just 1 final comment in terms of how we think about margin and managing it, I would expect us to do what we've done over the last 2 years, which is the manage costs 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've seen us do in the past, it will mean letting revenue and growth margin outperformance, drop to the bottom line, that's the framework. We'll use to make those decisions. Um, going forward and we'll continue to remain a maintain a focus. As I as I mentioned earlier on meeting our

Profitability commitments.

Anything I wanted to follow on just briefly uh Jason to Joe's comment, he covered most things. Uh firstly, a small 1, again, we were ahead of Target for sales hiring in the quarter. Um, it shows our our, uh, Talent acquisition pipeline continue to be very strong and also execution, those are the types of opportunities that we want to take. We believe in the strength of the Enterprise opportunity and the momentum. We're seeing across all the 3 Transformations, but specifically in the Enterprise. So, uh, sales hiring being ahead of ahead of forecast is a, is a good thing for us. In the, in the medium term. Uh, I do want to reiterate the commitments that we've made. Um, the, the 25%, uh, margin Target for FY. 27 is very important to all of us. We are spending a lot of time. Making sure that we we target those numbers. While at the same time, doing all the investing that you can see, it's important that we are investing in AI. We are investing to win in that space. And we're trying to balance this on a continual basis and I think we did we've shown

A a really good job in FY. 25 and I expect that to continue in FY, 26.

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

Thank you, everyone, for listening. I just want to extend my thanks to all of the Atlassian team. We worked incredibly hard over the last quarter to deliver some fantastic results across the board, and we maintain incredible bullishness on the future.

Uh, thank you all for listening and I hope you have a kick-ass weekend.