What happened

Australian Workflow Management System Provider Actions Atlassian (NASDAQ: TEAM) surged in Friday trading, ending the day up 9.7% after the company smashed its second-quarter 2022 earnings report late Thursday.

Prior to the report, analysts had expected Atlassian to earn $0.39 per share on sales of $641.3 million in the period ending Dec. 31. top and bottom lines.

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So what

Sales in its fiscal second quarter jumped 37% year-over-year, and Atlassian’s revenue share of subscriptions did even better: up 64%. (And because subscription revenue accounts for three-quarters of company revenue, chances are that future revenue growth rates will approach that latter, higher figure).

That’s the good news. The bad news is that it turns out Atlassian’s $0.50 per share profit was a non-GAAP figure. Calculated under generally accepted accounting principles (GAAP), Atlassian actually lost $0.31 per share for the quarter, although that’s much better than the $2.49 per share it lost during the period. of the previous year.

Now what

The other good news, however, was much better. While Atlassian may not have had GAAP net income, it did generate strong free cash flow in the quarter – $197.5 million, which when applied to its $688.5 million of revenue, equates to a free cash flow margin of 29%.

Translation: for every dollar of revenue Atlassian made, it generated $0.29 in actual cash profit, which is a pretty good number, especially as revenue continues to grow nicely. (Management expects revenue in the range of $690 million to $705 million in the third quarter of the fiscal year, for example). If Atlassian can maintain that free cash flow margin, I see every chance it will beat analysts’ forecast of $651 million in free cash flow this year — and keep its stock up throughout the year. ‘year.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and recommends Atlassian. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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