TEAM Q1 Earnings Call: Cloud Expansion, AI Integration, and Evolving Go-to-Market Drive Outlook

Yahoo

16-05-2025

IT project management software company, Atlassian (NASDAQ:TEAM) met Wall Street's revenue expectations in Q1 CY2025, with sales up 14.1% year on year to $1.36 billion. The company expects next quarter's revenue to be around $1.35 billion, close to analysts' estimates. Its non-GAAP profit of $0.97 per share was 5.2% above analysts' consensus estimates.
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Revenue: $1.36 billion vs analyst estimates of $1.35 billion (14.1% year-on-year growth, in line)
Adjusted EPS: $0.97 vs analyst estimates of $0.93 (5.2% beat)
Adjusted Operating Income: $348.3 million vs analyst estimates of $321.9 million (25.7% margin, 8.2% beat)
Revenue Guidance for Q2 CY2025 is $1.35 billion at the midpoint, roughly in line with what analysts were expecting
Operating Margin: -0.9%, down from 1.5% in the same quarter last year
Free Cash Flow Margin: 47%, up from 26.6% in the previous quarter
Billings: $1.53 billion at quarter end, up 2.5% year on year
Market Capitalization: $57.98 billion
Atlassian's first quarter results reflected ongoing momentum in its cloud business and rising adoption of AI-powered features. CEO Mike Cannon-Brookes attributed the quarter's performance to rapid advancements in the company's AI platform, Rovo, and a continued emphasis on enterprise customers. Management highlighted that embedding Rovo into core products has already led to over 1.5 million monthly active AI users, and that premium enterprise editions are seeing significant uptake, with sales up more than 40% year-over-year.
Looking ahead, management explained that the decision to broadly include Rovo is intended to accelerate user adoption, even if it may defer some near-term monetization. CFO Joe Binz stated, 'We remain confident and on track to the plans we laid out at Investor Day,' reaffirming Atlassian's multi-year revenue growth targets. Executives pointed to expanded enterprise offerings, cloud migrations, and continued product innovation as key drivers for the company's full-year outlook, while also noting increased deal complexity and a cautious approach to macroeconomic risk.
Atlassian's leadership focused on the integration of AI, expansion of enterprise offerings, and enhancements to its cloud platform as primary factors shaping the quarter.
AI Platform Expansion: The integration of Rovo AI into core products is increasing user engagement, with over 1.5 million monthly active AI users. Management sees this as a foundation for long-term growth and wider platform adoption.
Enterprise Customer Growth: Sales of premium and enterprise cloud editions grew by more than 40% year-over-year, reflecting heightened demand from larger, more complex customers. The company noted that enterprise customers now account for over 40% of sales, up from 15% five years ago.
Cloud Migration Progress: Atlassian achieved FedRAMP Moderate authorization, enabling it to serve U.S. federal government customers and partners. The launch of Atlassian Government Cloud and Isolated Cloud addresses customers with high security and compliance requirements, supporting continued migrations from data center to cloud.
Operational Efficiency Gains: Engineering investments have improved cloud gross margins, with management attributing these gains to optimized infrastructure and support costs. These efficiency improvements are expected to be structural and sustainable.
Go-to-Market Evolution: The appointment of a new Chief Revenue Officer is expected to further align the company's sales approach with enterprise needs. Leadership indicated that ongoing changes in go-to-market strategy are necessary to address a diversified and expanding customer base.
Management's outlook centers on expanding cloud adoption, embedding AI across the product suite, and capturing more enterprise business, while balancing efficiency and risk.
AI Adoption and Monetization: Embedding Rovo AI throughout Atlassian's platform is expected to increase user engagement and drive future upgrades, though management is patient with near-term monetization as adoption ramps up.
Enterprise Expansion and Migrations: Continued focus on large, complex customers and facilitating migrations from data center to cloud are expected to contribute to multi-year revenue growth and support Atlassian's long-term targets.
Evolving Deal Complexity: Management noted that longer sales cycles and greater deal complexity, particularly among enterprise accounts, may impact revenue recognition timing and require ongoing investments in sales and support resources.
Sanjit Singh (Morgan Stanley): Asked if embedding Rovo AI in core products would affect Atlassian's long-term growth targets. Management said maximizing user adoption supports durable growth and that multi-year targets remain intact.
Gregg Moskowitz (Mizuho): Questioned the impact of late-closing enterprise deals on cloud revenue. CFO Joe Binz explained the timing led to some deferred revenue recognition, but underlying demand and billings remain healthy.
Mark Cash (Raymond James): Inquired about the effects of cloud migrations and changes to data center contract durations. Management expects stronger migration contributions in future years, with ongoing data center growth driven by pricing and expansion.
Keith Bachman (BMO): Sought clarity on risk adjustments in guidance and the impact of bundled pricing (Teamwork Collection) on long-term growth. Management said guidance remains conservatively risk-adjusted and views bundling as a long-term growth driver by simplifying customer purchasing.
Rob Oliver (Baird): Asked about the strategy behind Isolated Cloud and the margin impact of supporting single-tenant solutions. Leadership cited the need to serve customers with strict compliance requirements, while maintaining a focus on cost management and sustainable margins.
In the coming quarters, the StockStory team will monitor (1) the pace of enterprise cloud migrations, particularly among government and highly regulated customers, (2) growth in adoption and usage of Rovo AI across the product suite, and (3) the impact of ongoing go-to-market changes, including the new Chief Revenue Officer's influence on large deal execution. Progress on cost optimization and structural margin improvements will also be key areas of focus.
Atlassian currently trades at a forward price-to-sales ratio of 9.8×. At this valuation, is it a buy or sell post earnings? The answer lies in our free research report.
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