Cloud-based information security company Zscaler Inc. today announced the acquisition of network security startup Edgewise Networks Inc., but investors got more jazzed when it beat analysts’ estimates in its latest earnings report.

For its third quarter ended April 30, Zscaler reported revenue shot up 40%, to $110.5 million, from a year ago, with a profit adjusted for stock option and other expenses of $9 million, or seven cents a share. Analysts had been predicting only a two-cent profit on revenue of $106.1 million.

As a result, shares surged almost 17% in after-hours trading.

The company’s net loss in the quarter came in at $19.3 million, up from $12.2 million year-over-year. Cash flow provided by operations came in at $20.8 million or 19% of revenue, compared to $13.5 million or 17% of revenue a year ago. Deferred revenue — money earned for services that have not been delivered, a gauge of future growth — came in at $300.8 million as of April 30, an increase of 42% year-over-year.

For the fourth quarter, Zscaler is predicting revenue of between $117 million and $119 million and an adjusted profit of $2 million to $4 million, or 20 to 21 cents per share.

“Our strong results are a reflection of our sales execution and the entire Zscaler team stepping up to help our customers succeed in these difficult times,” Jay Chaudhry, chairman and chief executive officer of Zscaler, said in a statement. “The mitigation activities taken by every enterprise in response to the COVID-19 pandemic created an immediate need for strong security and access to the internet and business applications, all while working from anywhere.”

As for the acquisition, Zscaler said that it bought Edgewise Networks to provide better protection of applications in the public cloud and private data centers.

Founded in 2016, Edgewise offers a network security service that proactively prevents application compromise and attack progression by network-borne threats. The company’s platform is designed to verify the identity of application software, servers and processes to achieve a zero-trust environment that reduces the attack surface and lower the risk of application compromise and data breaches.

The company emerged from stealth in 2017. Edgewise’s software uses machine learning to scan a network build a rule set of trusted applications, which can then be managed with policies. Edgewise claims that its policy set is so efficient that the system can manage 13,000 connections with just 180 policies.

Experts can also drill down to see application-centric policies described in natural language. Application services are protected whether deployed on premises or in the cloud.

The price of the acquisition was not disclosed, but Edgewise had raised $18 million in venture capital funding prior to the deal. Investors include Pillar Ventures, .406 Ventures and Accomplice.

The acquisition is Zscaler’s third in the last two years. Prior acquisitions include TrustPath Inc. in August 2018, Appsulate Inc. in July and most recently Cloudnetti Corp. April 9.

Image: Edgewise Networks