Q3 2025 Earnings Summary
- Cloud Revenue Growth and Enterprise Momentum: The team delivered 25% year-over-year cloud revenue growth driven by robust paid seat expansion, pricing increases, and strong enterprise deals—even if some deals landed later than expected—supporting an upward trajectory going forward.
- Efficiency and Margin Strength: Achieving 86% gross margins along with high free cash flow margins demonstrates that strategic engineering investments and cost optimizations (e.g., in cloud COGS) are creating sustainable operational efficiency.
- AI Adoption and Embedded Innovation: The rapid adoption of AI, evidenced by over 1.5 million monthly active users, combined with the integration of Rovo into core products, underscores a significant long-term growth opportunity driven by enhanced product value and enterprise stickiness.
- Delayed Enterprise Deals Impacting Cloud Revenue: Enterprise deals were falling back-end loaded and experiencing longer cycles than anticipated, which pressured Q3 cloud revenue growth and could create near-term revenue recognition challenges ** **.
- Data Center Revenue Headwinds: The shift toward shorter-duration contracts in data center deals resulted in lower upfront revenue recognition, compounded by ongoing migrations to cloud, potentially dampening overall quarterly performance ** **.
- Margin Pressure from Investment in AI and Isolated Cloud: Continued investments in Rovo, AI capabilities, and single-tenant isolated cloud solutions may increase cost-to-serve, potentially eroding gross margin improvements despite operational efficiencies .
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenues | +14% (from 1,187,781K in Q2 2025 to 1,356,716K in Q3 2025) | Total Revenues improved by 14% in Q3 2025, building on the Q2 2025 base. This increase reflects stronger overall demand and continued momentum from the previous period’s growth, driven by a combination of higher subscription adoption and diversified revenue streams. |
Subscription Revenues | +12.4% increase (reaching 1,272,876K in Q3 2025) | Subscription Revenues grew by approximately 12.4%, continuing the positive trend seen in Q2 2025. This growth is attributed to ongoing customer migrations to cloud offerings, paid seat expansions, and increased uptake of premium editions, which builds on prior period successes. |
Other Revenues | +50% increase (up to 83,840K in Q3 2025) | Other Revenues surged by about 50% in Q3 2025 compared to Q2 2025. The sharp rise indicates enhanced performance in third-party marketplace sales and possibly additional non-subscription revenue channels, marking an acceleration over the previous quarter’s modest contribution. |
Gross Profit | +17% improvement (reaching 1,137,041K in Q3 2025) | Gross Profit increased by roughly 17%, reflecting the benefit of a healthier revenue mix and improved operational efficiencies relative to Q2 2025. The higher subscription and other services revenue percentages, along with better cost management, contributed to this improvement. |
Operating Cash Flow |
| Operating Cash Flow rose dramatically by over 700%, driven by remarkable improvements in collections and a significant boost in deferred revenue. The Q3 2025 performance built on improvements from Q2 2025, further enhanced by adjustments in operating assets and liabilities and higher stock-based compensation impacts being managed more effectively. |
Net Loss | ~42% narrowing (from a loss of 123,769K in Q2 2025 to 70,807K in Q3 2025) | Net Loss improved by nearly 42%, reflecting better operating performance, improved revenue growth, and cost management despite higher overall operating expenses. The Q3 2025 results show that the prior period’s operational improvements and revenue gains were extended, contributing to lower net losses. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue Growth | Q4 2025 | no prior guidance | in excess of 20% CAGR through FY '27 | no prior guidance |
Cloud Revenue | Q4 2025 | no prior guidance | Continued growth in cloud revenue with better migration contributions anticipated in FY '26 and FY '27 | no prior guidance |
Data Center Growth | Q4 2025 | Approximately 7% year-over-year growth for Q3 2025 | Continued growth driven by pricing and expansion, offset by increasing data center to cloud migrations | no change |
Gross Margin | Q4 2025 | no prior guidance | 86% | no prior guidance |
Free Cash Flow Margin | Q4 2025 | no prior guidance | 47% | no prior guidance |
Risk Adjustments | Q4 2025 | no prior guidance | Accounted for potential impacts of macroeconomic uncertainty and execution risk in Q4 guidance | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Cloud Revenue Growth and Migration | Q1 2025: Highlighted strong cloud revenue growth driven by better-than-expected paid seat expansion and migrations contributing mid‑to‑high single‐digit growth. Q2 2025: Emphasized stable paid seat expansion and hybrid ELAs with migration momentum, though facing some execution challenges. Q4 2024: Noted deceleration due to the roll-off of server migrations and complex data center transitions. | Q3 2025: Reported 25% YoY cloud revenue growth, driven by premium enterprise sales, paid seat expansion, and data center migrations – albeit with some delays in enterprise deals affecting revenue recognition. | Consistent positive growth: The narrative remains upbeat regarding cloud expansion, although challenges (e.g., delayed enterprise deals and migration timing) persist. The overall sentiment continues to be positive with an emphasis on sustainable growth. |
AI Adoption, Innovation, and Integration | Q1 2025: Focus on a two‑pronged AI strategy with Atlassian Intelligence integrated across products and the rapid launch of Rovo, with usage reportedly increasing 10x. Q2 2025: Noted over 1 million monthly active users and a 25x increase in AI interactions; strong emphasis on innovation in R&D and integrations like AutoDev. Q4 2024: Continued steady innovation and integration of AI features such as virtual agents and Atlassian Intelligence. | Q3 2025: Emphasized further integration of AI with the inclusion of Rovo in core products, scaling to over 1.5 million monthly active users, plus the launch of new cloud offerings to boost AI-powered capabilities. | Accelerating and deepening: AI continues to be a central strategic priority with increased adoption, broader integration, and product enhancements that build on previous momentum. The sentiment is increasingly positive and forward‐looking. |
Enterprise Deal Execution and Go‑to‑Market Transformation | Q1 2025: Discussed longer, more complex enterprise deals with evolving go‑to‑market motion and a new CRO hire to drive enterprise sales. Q2 2025: Reported record enterprise deals (>$1M ACV) and highlighted hybrid ELAs while stressing enterprise engagement. Q4 2024: Focused on leadership transitions, disciplined pricing, and the ongoing search for a transformational CRO, underscoring execution risks. | Q3 2025: Addressed ongoing delays in enterprise deals due to complexity, with the newly appointed CRO (in role for about three months) actively steering the transformation, reinforcing the strategic shift toward enterprise despite evolving challenges. | Ongoing transformation: The enterprise focus remains consistent and strategic. While execution challenges (e.g., delayed deal closures) persist, the commitment to evolving the go‑to‑market approach is clear and the leadership transitions are gradually stabilizing the initiative. |
Operational Efficiency and Margin Management | Q1 2025: Brief mentions of cost management in AI initiatives and developer productivity through internal tools. Q2 2025: Reported 85% gross margins with an emphasis on reducing cloud COGS while anticipating lower margins due to the cloud mix. Q4 2024: Highlighted a lower non‑GAAP operating margin expectation for FY 2025 due to migration dynamics and pricing changes. | Q3 2025: Delivered 86% gross margins, attributing the improvement to price increases, upselling, and investments in optimizing cloud infrastructure, alongside strong engineering-driven efficiency improvements. | Stable and slightly improved: Operational discipline and cost management remain central, with Q3 showing marginally better-than-guidance margins. Efficiency continues to be a priority even as product mix changes impact long‑term margin outlook. |
Data Center Revenue Dynamics and Contract Changes | Q1 2025: Focused on migration timing, hybrid deployments, and the interplay between renewals and customer migrations. Q2 2025: Cited approximately 7% YoY growth driven by pricing, seat expansion, and hybrid ELAs, with execution challenges due to evolving contract structures. Q4 2024: Noted migration complexity and variable impact from server end‑of‑support, though contract specifics were less emphasized. | Q3 2025: Analyzed shorter average contract durations leading to less revenue recognized, with growth driven by pricing but partly offset by customers migrating to the cloud – highlighting ongoing challenges in contract dynamics. | Persistent complexity: The challenges associated with migration and contract durations continue to evolve, with Q3 underscoring the impact of shorter contracts on revenue recognition while maintaining a focus on pricing as a key lever. |
Macroeconomic Uncertainty and External Risks | Q1 2025: Noted uncertainty stemming from U.S. elections, regional conflicts, and moderated IT spending, leading to a conservative guidance approach. Q2 2025: Emphasized a risk‑adjusted view given macroeconomic uncertainty and execution risks, influencing guidance assumptions. Q4 2024: Adopted a cautious forecast due to macro concerns and leadership changes affecting execution. | Q3 2025: Acknowledged that despite a complex macroeconomic environment, strong customer demand persists; the company remains vigilant, using risk‑adjusted guidance to balance potential external risks, while clarifying deal delays aren’t attributed solely to macro factors. | Consistently cautious: Macroeconomic and external risks remain a persistent backdrop across periods. While uncertainty is acknowledged, a cautious yet optimistic tone prevails as the company leverages its diversified customer base and strategic planning to mitigate these challenges. |
Leadership Transitions and Organizational Changes | Q1 2025: Announced the hiring of a new CRO (Brian Duffy) to steer enterprise strategy, highlighting the dual focus on SMB and enterprise. Q4 2024: Addressed leadership transitions with the departure of a sales leader and an ongoing search for a transformational CRO, noting execution risks during the change. Q2 2025: No specific mentions were provided. | Q3 2025: Emphasized that the new CRO, having joined three months prior, is performing well and learning Atlassian’s complex business, with strong support from the executive and sales teams ensuring a smooth leadership transition. | Gradual stabilization: Leadership transitions remain a key focus as the organization shifts toward a deeper enterprise orientation. The consistent narrative of evolving leadership is now supported by early positive signs of smooth integration in Q3. |
FedRAMP Compliance and U.S. Public Sector Opportunities | Q4 2024: Touched on FedRAMP progress with a “FedRAMP in process” milestone, setting the stage for U.S. public sector engagement, with implications for government-adjacent customers. Q1 & Q2 2025: No specific commentary on this topic. | Q3 2025: Announced achievement of FedRAMP moderate authorization for U.S. federal customers along with the launch of Atlassian Government Cloud and Isolated Cloud solutions, reinforcing its public sector strategy. | Emerging and accelerating: While initiated in Q4 2024, the FedRAMP and public sector focus has come to the forefront in Q3 2025, representing a strategic maturation with expanded product offerings for government customers. |
SMB Segment Performance and Declining Focus | Q1 2025: Reported stable SMB performance with healthy top‑of‑funnel indicators, though noting that enterprise growth is becoming a larger focus. Q2 2025: Confirmed stabilization in the SMB segment but acknowledged macroeconomic headwinds still affecting growth. Q4 2024: Emphasized that the efficient SMB land motion remains important despite evolving enterprise strategies. | Q3 2025: There is no specific mention of the SMB segment, suggesting that the narrative in this period largely shifted to other growth priorities. | Potential deprioritization: While SMB performance remained stable earlier, its absence in Q3 2025 indicates a possible shift of focus toward enterprise and public sector opportunities, reflecting evolving strategic priorities without implying a negative sentiment toward SMBs overall. |
Product Innovation and Cross‑Selling Strategies | Q1 2025: Focused on robust product innovation with new AI capabilities (Atlassian Intelligence, Rovo) and enterprise-centric products like Focus, driving cross-selling across platforms. Q2 2025: Emphasized heavy R&D investment in AI and highlighted cross-selling via enterprise solutions, with strong performance in high-value deals. Q4 2024: Noted multiple new product launches, integrations, and enhanced cross‑selling opportunities (including Loom and virtual agents). | Q3 2025: Continued momentum with deep AI integration (e.g., Rovo), new cloud offerings (including government cloud solutions), and cross-selling strategies that contribute to strong cloud revenue growth, underpinning a unified enterprise message. | Consistent and positive: Ongoing innovation and effective cross‑selling remain a core strength, with a sustained focus on AI and cloud enhancements reinforcing broader adoption and customer expansion, particularly in the enterprise segment. |
-
AI & Revenue
Q: Does embedding Rovo slow revenue growth?
A: Management emphasized that integrating Rovo into core products is accelerating user adoption and premium enterprise sales—bolstering a 20% CAGR outlook over the midterm—by driving broader usage while remaining patient with monetization. -
Margin Efficiency
Q: What drives improved margins this quarter?
A: Management highlighted that gross margins reached 86%, driven by pricing benefits, significant engineering optimizations in cloud infrastructure, and cost control initiatives that are expected to sustain profitability even amid growth uncertainties. -
Revenue Timing
Q: How did timing affect cloud and data center revenue?
A: Management explained that enterprise deals were more back-end loaded than expected, delaying revenue recognition in cloud and shortening data center contract durations, which resulted in lower Q3 recognition with recovery anticipated in Q4. -
Bundle Pricing
Q: How will bundled collections impact future revenue?
A: Management noted that the teamwork collection simplifies the buying process with a bundled discount approach, having a limited immediate Q4 impact but offering significant long-term attachment opportunities to over 10M Jira users. -
Isolated Cloud
Q: What is isolated cloud’s strategic role?
A: Management stated that isolated cloud is aimed at large, complex customers by providing dedicated compute, storage, and networking—ensuring tailored service and controlled margins as these customers increasingly require such specialized cloud environments. -
Deal Cycle
Q: Why are enterprise deals taking longer?
A: Management attributed the delay to the inherent complexity of large, innovative deals, requiring extra time for customer education and confidence-building rather than due to any macroeconomic factors. -
Migration Outlook
Q: What is forecast for cloud migration in FY26?
A: Management expects a stronger contribution from cloud migrations—projected in the mid-to-high single-digit range—alongside sustained data center growth that will be partly offset by ongoing transitions to the cloud. -
Q3 Cloud Guidance
Q: What drove Q3 cloud growth variance?
A: Management observed that better-than-expected paid seat expansion and active data center migrations propelled Q3 growth, even though seasonal factors made the quarter slightly slower compared to the early parts of the year. -
Tariffs & CRO
Q: How are tariffs and new CRO affecting sales?
A: Management confirmed that tariffs have not impacted customer activity and that the new CRO, with a strong enterprise background, is settling in well—further strengthening their go-to-market efforts and customer pipeline. -
Go-to-Market Change
Q: Will the new CRO change market strategy?
A: Management noted that while the go-to-market approach continually evolves, the addition of experienced leadership is enhancing enterprise focus and aligning strategies with the shifting customer mix. -
AI Adoption
Q: What are barriers to enterprise AI adoption?
A: Management explained that enterprises are still in the early stages of AI adoption, cautiously evaluating ROI and the practical integration of human-agent collaboration, which means that full-scale deployment will be gradual.