TEAM Q4 2025: Free Cash Flow Falls 13%, FY26 Margin Seen at 24%
- Enterprise Strength: Management highlighted record million‑dollar+ deals and a robust enterprise sales pipeline—including strong cloud migrations and renewals—underscoring a solid base for sustained revenue momentum.
- AI-Driven Innovation: The leadership emphasized that AI initiatives (e.g., AI-powered Teamwork collection, RoboDev, growing token usage) are significantly accelerating product usage and setting the stage for future monetization, reinforcing the long‑term growth story.
- Multiple Growth Levers: The company’s diversified approach—leveraging paid seat expansion, strong cross‑sell/upsell dynamics, and a resilient revenue retention rate of 120%—positions them well to achieve their target 20% CAGR through FY '27.
- Slowing Free Cash Flow & Margin Concerns: A 13% YoY decline in free cash flow in Q4 2025, along with conservative operating margin guidance for FY 2026 (24% versus a target over 25% for FY 2027), suggests potential pressure on profitability and cash efficiency going forward.
- Enterprise and Data Center Migration Challenges: The transition from data center to cloud is facing complex migration challenges that are yielding a seasonally weaker Q1 outlook (e.g., Q1 data center growth guided at only 8% due to a smaller expiration base), indicating potential delays and execution risks in the enterprise go-to-market strategy.
- Reliance on AI and New Capabilities Uncertainty: While AI innovations are touted as a future growth driver, the emphasis on adoption over immediate monetization and the early stage of AI capability integration in products leaves uncertainty regarding how quickly these investments will translate into robust revenue growth and sustainability.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +10% [N/A] | The +10% YoY increase to $920 million is likely driven by an improved subscription mix and modest cross‐sell initiatives compared to the previous period’s lower base, suggesting that prior investments in product enhancements are starting to pay off [N/A]. |
Cloud Services | +17% [N/A] | A +17% YoY growth in Cloud Services revenue reaching $450 million indicates stronger customer adoption and migration to cloud solutions, building on past efforts and pricing adjustments that boosted cloud performance relative to earlier periods [N/A]. |
North America | +7% [N/A] | A +7% YoY growth in North America revenue (now at $500 million) reflects steady performance in a mature market, with improvements likely underpinned by renewed subscription renewals and incremental upselling relative to the previous period [N/A]. |
International | +12% [N/A] | The +12% YoY rise in International revenue suggests effective global expansion and stronger market penetration, as previous period groundwork in tailoring cloud offerings to regional demands is now yielding higher numbers compared to the earlier base [N/A]. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue Growth | Q4 2025 | in excess of a 20% CAGR through FY '27 | no prior guidance | no prior guidance |
Cloud Revenue | Q4 2025 | Continued growth in cloud revenue is expected | no prior guidance | no prior guidance |
Data Center Growth | Q4 2025 | Continued growth driven by pricing and expansion, offset by increasing data center to cloud migrations | no prior guidance | no prior guidance |
Gross Margin | Q4 2025 | Reported gross margin of 86% for Q3 2025 | no prior guidance | no prior guidance |
Free Cash Flow Margin | Q4 2025 | Reported free cash flow margin of 47% for Q3 2025 | no prior guidance | no prior guidance |
Risk Adjustments | Q4 2025 | Mention of potential macroeconomic and execution risks | no prior guidance | no prior guidance |
Data Center Revenue Growth | Q1 2026 | no prior guidance | 8% | no prior guidance |
Revenue Growth | FY 2026 | no prior guidance | 20% compounded annual growth from FY 2024 through FY 2027; includes 20% growth in FY 2025 | no prior guidance |
Operating Margin | FY 2026 | no prior guidance | 24% | no prior guidance |
Cloud Revenue Growth Contribution | FY 2026 | no prior guidance | mid- to single-digit range for migrations (with longer‐term expectation of mid- to high single-digit) | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Enterprise Strength and Go-to-Market Transformation | In Q1–Q3, enterprise strength was highlighted through record million‐dollar deals, a growing enterprise revenue share (e.g., over 40% of sales) and evolving go‐to‐market strategies with a new CRO and integrated customer success efforts | In Q4, leadership emphasized a record number of million-dollar deals, accelerated cloud migrations, key partnerships (e.g., with Google Cloud) and a transformation in go-to-market with continued enterprise focus | Consistent focus on enterprise growth with a stronger shift from SMB to enterprise through evolving GTM strategies. |
Cloud Revenue Growth and Migration Challenges | In Q1–Q3, cloud revenue was consistently driven by paid seat expansion, data center migrations and price adjustments, while migration complexities for large customers were noted regularly | In Q4, cloud revenue outperformed expectations with similar drivers – particularly paid seat expansion and migration challenges due to complex, multi-year data center transitions – maintaining the narrative of steady cloud growth amid challenging migrations | Steady cloud revenue expansion persists with recurring migration complexity, highlighting a consistent challenge across periods. |
AI-Driven Innovation, Adoption, and Monetization Uncertainty | Across Q1–Q3, discussions focused on embedding AI (e.g., Atlassian Intelligence and Rovo) into core products, robust increases in adoption metrics and early customer excitement, while monetization was approached cautiously | In Q4, AI remains a strategic priority with integration into products via partnerships (e.g., with Google Cloud), strong user engagement on premium editions and continued cautious guidance on immediate monetization | Ongoing emphasis on AI innovation with growing adoption; monetization remains a longer-term consideration with a cautious pricing approach. |
Financial Performance and Margin Dynamics | Q1 had limited financial details, while Q2 and Q3 emphasized strong revenue growth, improved free cash flow margins, and efficiency gains from pricing and cost optimization (with enterprise and cloud segments driving performance) | Q4 showcased robust total revenue and free cash flow numbers, record ACV deals, stable gross margins through cost management and disciplined investment in high-return strategies | Consistent financial strength and margin improvement over time, with later periods providing more detailed evidence of balanced growth and cost discipline. |
Evolving Investment Costs in AI and Isolated Cloud Solutions | In Q1–Q3, substantial R&D investments were noted for AI initiatives (Atlassian Intelligence, Rovo) along with efficiency efforts in cloud cost optimization and initial moves toward advanced cloud solutions | In Q4, discussions highlighted heavy ongoing investments in AI to drive product innovation and enhanced cloud capabilities (including isolated cloud solutions) while managing cost pressures through efficiency initiatives | A clear evolution where sustained investment in AI and advanced cloud offerings is balanced by initiatives to improve cost efficiencies. |
Declining Emphasis on SMB and Product-Specific Segments | In Q1–Q2, remarks indicated a stabilization in the SMB segment with hints of broad, product-agnostic growth and an emerging shift toward higher-value enterprise deals and broader product integration | In Q4, there was no explicit mention of SMB or product-specific segments, reinforcing a continued strategic focus on enterprise expansion over SMB initiatives | A gradual shift from an earlier focus on SMB stabilization towards prioritizing enterprise opportunities and broader product adoption. |
Macroeconomic and External Risk Factors | In Q1–Q3, executives consistently noted a stable yet unpredictable macro environment (citing factors like U.S. elections, regional conflicts, and IT spending) that called for a conservative, risk-adjusted guidance approach | In Q4, the conservative and risk-adjusted approach to guidance persisted, with emphasis on macro uncertainty and potential business disruptions informing financial outlooks | A persistent theme of macroeconomic caution with risk-adjusted guidance, maintaining consistency across periods. |
-
Free Cash Flow
Q: Free cash flow trend for FY26?
A: Management explained that Q4 free cash flow was $360M and, despite short‐term timing headwinds from billing changes, they expect cash flow to track non‑GAAP operating income—a conservative view that instills confidence in steady performance. -
Growth Inflection
Q: What drives revenue acceleration in FY27?
A: They cited a mix of strong enterprise sales, paid seat expansion, cross‑sell efforts, and significant AI investments that together underpin their long‑term target of 20% compounded annual growth from FY24 to FY27. -
Operating Margin
Q: What is the operating margin outlook?
A: The guidance points to a 24% operating margin for FY26—slightly lower than FY25—reflecting disciplined investments in AI, enterprise, and R&D while aiming for a mid‑twenty‐plus target by FY27. -
Data Center Outlook
Q: Why does Q1 data center growth drop?
A: The anticipated 8% growth in Q1 is attributed to a smaller expiration base and headwinds from one‑year deal terms after a robust Q4 with strong renewals and migrations. -
Enterprise Strategy
Q: How will the enterprise go‑to‑market evolve?
A: They emphasized continuous improvements in customer success and sales operations, with leadership enhancements and deep partnerships to fuel the already robust enterprise segment. -
AI Monetization
Q: When will AI boost revenue?
A: Initially, AI efforts like Robo are focused on driving usage and deployment; monetization will follow later as enhanced AI features fuel premium and enterprise adoption. -
Business User Adoption
Q: How to expand non‑tech user licenses?
A: Management is leveraging improved design and user-friendly products such as Loom and Trello to drive broader adoption among business teams, boosting overall engagement. -
Teamwork Collection Pipeline
Q: Will new Teamwork features launch soon?
A: The management reaffirmed that continued innovation—especially AI integrations—will generate new capabilities in the Teamwork collection, further enhancing customer outcomes. -
Developer Impact
Q: Do AI tools impact developer expansion?
A: They clarified that integrating AI code generators has not altered usage or expansion rates, as developers continue to drive, not detract from, core business engagement.
Research analysts covering Atlassian.