What happened

Shares of cloud-based software provider Apptio Inc. (NASDAQ:APTI) soared on Tuesday, following a third-quarter report that easily beat analyst expectations. Subscription revenue grew by a double-digit percentage, and the company noted an improvement in its subscription net dollar retention rate. The stock was up about 16% at 3:40 p.m. EDT.

So what

Apptio reported third-quarter revenue of $47.0 million, up 15.7% year over year and about $2 million higher than the average analyst estimate. Subscription revenue jumped 18% to $39.4 million, accounting for 84% of the company's total revenue. Services revenue rose just 4% to $7.6 million.

Apptio's software shown running on two computer monitors

Image source: Apptio.

Non-GAAP (generally accepted accounting principles) earnings per share came in at a loss of $0.02, up from a loss of $0.45 in the prior-year period and $0.08 better than analysts were expecting. Non-GAAP gross margin jumped to 72%, a 5-percentage-point improvement compared to the third quarter of 2016. Free cash flow surged to $8.5 million, up from a loss of $2 million in the prior-year period.

In a press release, Apptio co-founder and CEO Sunny Gupta commented: "In the third quarter, we achieved record revenue of $47.0 million and returned our trailing twelve months subscription net dollar retention to approximately 100%. ... Our value proposition is resonating with companies of all sizes, as is evidenced by our third quarter customer acquisitions, the early success of our new IT Financial Management (ITFM) Foundation offering, and our strong competitive position."

Now what

Apptio expects to produce between $49.5 million and $50.0 million of revenue during the fourth quarter, along with a non-GAAP operating loss between $3.5 million and $4.0 million. For the full year, revenue between $185.7 million and $186.2 million is expected, along with a non-GAAP operating loss between $10.9 million and $11.4 million.

Shares of Apptio plummeted following its initial public offering late last year, partially recovering this year prior to the third-quarter report. Tuesday's surge pushed the stock to a new all-time high. The company will need to keep up its double-digit growth rate to prevent giving those gains back.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.