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Atlassian Corp (TEAM)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY25 delivered $1.357B revenue (+14% YoY), modestly above S&P Global consensus $1.353B*, and non-GAAP diluted EPS of $0.97, above consensus $0.93*; GAAP diluted EPS was -$0.27 reflecting stock-based comp and taxes .
  • Cloud revenue grew 25% YoY, Data Center +7% YoY; marketplace and other declined 5% YoY as fewer multi-year DC contracts reduced third‑party app sales .
  • Non-GAAP gross margin expanded to 86% on engineering-driven cloud COGS efficiencies; free cash flow was $638M (47% margin) .
  • Q4 FY25 guidance: revenue $1.349–$1.359B, Cloud ~23% YoY, DC ~16.5% YoY, non-GAAP GM ~84.5%, non-GAAP OM ~22%; FY25 revenue growth implied ~19% (at upper end of prior 18.5–19.0% range) .
  • Catalysts: Rovo AI included in Premium/Enterprise tiers across core apps, FedRAMP Moderate authorization for Government Cloud, and launch of Teamwork/Strategy Collections to drive attach and enterprise standardization .

What Went Well and What Went Wrong

What Went Well

  • Cloud momentum: “We delivered total revenue of $1.4 billion… driven by Cloud revenue growth of 25% year-over-year” and 1.5M AI monthly active users, with Rovo included across Premium/Enterprise to accelerate adoption .
  • Margin execution: Non-GAAP gross margin reached 86%, with CFO highlighting structural cloud COGS efficiencies: “We posted gross margins of 86%… engineering-driven investments… optimize cloud infrastructure and support costs” .
  • Enterprise/government unlocks: Achieved FedRAMP Moderate authorization for Government Cloud; introduced Isolated Cloud for highly sensitive workloads, broadening migration and addressable market .

What Went Wrong

  • DC/Marketplace headwinds: Marketplace & other revenue fell 5% YoY on reduced multi-year DC app purchases; DC revenue growth (+7% YoY) was tempered by stronger cloud migrations and a policy change limiting DC contract duration to one year, lowering upfront revenue recognition .
  • Deal linearity: Enterprise deals landed later than expected, shifting recognition to Q4; management attributed this to larger, more complex deal cycles rather than macro .
  • GAAP profitability: GAAP operating margin was -1% and GAAP diluted EPS -$0.27, reflecting stock-based comp and tax impacts; non-GAAP operating margin down 1ppt YoY to 26% given lapping of Server EoS event-driven purchasing in Q3’24 .

Financial Results

Headline Metrics vs Prior Year and Prior Quarter

MetricQ3 FY24Q2 FY25Q3 FY25
Revenue ($USD Millions)$1,189.1 $1,286.5 $1,356.7
GAAP Diluted EPS ($)$0.05 $(0.15) $(0.27)
Non-GAAP Diluted EPS ($)$0.89 $0.96 $0.97
GAAP Gross Margin (%)82% 83% 84%
Non-GAAP Gross Margin (%)85% 85% 86%
GAAP Operating Margin (%)1% (4%) (1%)
Non-GAAP Operating Margin (%)27% 26% 26%
Cash from Operations ($USD Millions)—$351.9 $652.7
Free Cash Flow ($USD Millions)—$342.6 $638.3

Q3 FY25 Actual vs S&P Global Consensus

MetricQ3 FY25 ActualQ3 FY25 Consensus*Beat/Miss
Revenue ($USD Millions)$1,356.7 $1,353.1*Beat
Non-GAAP Diluted EPS ($)$0.97 $0.93*Beat

Values retrieved from S&P Global.*

Segment Revenue Breakdown (Deployment)

Segment ($USD Thousands)Q1 FY25Q2 FY25Q3 FY25
Cloud$792,306 $846,962 $880,429
Data Center$335,594 $362,281 $388,516
Server— — —
Marketplace and other$59,881 $77,220 $87,771
Total Revenues$1,187,781 $1,286,463 $1,356,716

KPIs

KPIQ1 FY25Q2 FY25Q3 FY25
Customers with >$10k Cloud ARR (Count)46,844 49,449 50,715
Free Cash Flow ($USD Millions)$74.3 $342.6 $638.3
Cash & Equivalents + Marketable Securities ($USD Billions)$2.2 $2.5 $3.0

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Revenue ($USD Millions)Q4 FY25—$1,349–$1,359 New
Cloud Revenue Growth (YoY %)Q4 FY25—~23.0% New
Data Center Revenue Growth (YoY %)Q4 FY25—~16.5% New
Marketplace & Other Growth (YoY %)Q4 FY25—~Flat New
GAAP Gross Margin (%)Q4 FY25—~82.5% New
Non-GAAP Gross Margin (%)Q4 FY25—~84.5% New
GAAP Operating Margin (%)Q4 FY25—~(-5.0%) New
Non-GAAP Operating Margin (%)Q4 FY25—~22.0% New
FY25 Revenue Growth (YoY %)FY2518.5–19.0% ~19.0% implied Maintained at upper end
FY25 Non-GAAP Operating Margin (%)FY2523.5% “About one ppt higher than FY24” Slightly higher vs FY24 (qualitative)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 FY25, Q2 FY25)Current Period (Q3 FY25)Trend
AI/Rovo initiativesRovo GA announced; expanding Premium offerings Rovo included in Premium/Enterprise; 1.5M AI MAUs; agents deployed in tens of thousands of workflows Accelerating adoption
Enterprise GTM & deal cyclesStrong enterprise sales execution; AWS partnership to streamline migrations Larger/complex deals closing later; building enterprise muscle; CRO onboarding Maturing GTM; longer cycles
Cloud migrations & platform parityConfluence Cloud scale to 150k users; migrations momentum FedRAMP Moderate; Isolated Cloud announced; major cloud deals closed Strengthening
Data Center policy & pricingDC growth strong in 1H; DC to Cloud migration path DC contract duration limited to one year; price increases drove DC growth; fewer multiyear deals dampened revenue Mix shift to Cloud
Margins & AI COGSNon-GAAP OM 23–26%; cloud margin improvements Non-GAAP GM 86%; structural efficiencies; AI COGS manageable, expected to decline with competition Structural improvements
Macro/tariffs—Management vigilant; no specific macro impact; diversified base of 300k+ customers Stable vigilance

Management Commentary

  • “We delivered total revenue of $1.4 billion in Q3, driven by cloud revenue growth of 25% year-over-year and a free cash flow margin of 47%” — CEO Mike Cannon‑Brookes .
  • “We posted gross margins of 86%… engineering-driven investments… optimize cloud infrastructure and support costs… we believe those efficiency gains will be structural” — CFO Joe Binz .
  • “Including Rovo in all Premium and Enterprise subscriptions… we’ll forgo some revenue opportunity in the near term, but this is a tradeoff we’re willing to make in favor of the huge long-term upside” — Shareholder letter .
  • “Government Cloud now has FedRAMP Moderate authorization” — Press release and detailed FedRAMP announcement .

Q&A Highlights

  • Rovo inclusion strategy: Management sees adoption-first approach expanding users and editions; confident in >20% CAGR through FY27 despite near-term monetization trade-off .
  • Deal linearity: Enterprise deals back-end loaded due to complexity; revenue recognition shifting to Q4; not macro-driven .
  • DC duration change: Limiting DC contracts to one year reduces upfront recognition; pricing drove DC growth; migrations healthy .
  • Migration contributions: Expect stronger Cloud migration contribution in FY26–FY27 vs FY25 mid-single-digit contribution .
  • Margins and AI COGS: Cloud GM efficiencies are structural; AI COGS manageable near-term with expected long-term cost declines; blended margins to decline over next two years given mix shift to Cloud, consistent with prior guidance .

Estimates Context

  • Q3 FY25 beat: Revenue $1,356.7M vs $1,353.1M*; non-GAAP diluted EPS $0.97 vs $0.93* .
  • Street likely raises Cloud growth confidence but monitors enterprise deal timing and DC duration impacts on near-term revenue recognition.
  • FY25 revenue growth implied ~19% sits at top of prior range; non-GAAP OM commentary suggests incremental upside vs FY24 baseline .

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Near-term growth modestly above expectations with structural margin improvements; watch enterprise deal timing and DC contract duration for quarterly linearity .
  • AI strategy is offense-first: bundling Rovo into Premium/Enterprise aims to drive seat expansion, higher editions, and stickiness; monetization ramps later .
  • Government and Isolated Cloud expand TAM and reduce migration friction for regulated and sensitive workloads; migration contributions expected to strengthen in FY26–FY27 .
  • Q4 guide is prudent: $1.349–$1.359B revenue with solid non-GAAP margins; Street models should reflect mix effects (Cloud up, DC variability, Marketplace transactional nature) .
  • Free cash flow remains a key strength ($638M; 47% margin), supporting investment in AI and enterprise GTM while absorbing near-term bundling impacts .
  • Collections simplify buying and drive attach across Jira/Confluence/Loom; expect longer-term uplift in seat counts and edition mix, not immediate Q4 driver .
  • Risk checks: macro vigilance, AI COGS trajectory, execution on enterprise GTM and migration programs; management reiterates long-term >20% CAGR through FY27 .