Shares of Palo Alto Networks Inc. edged down in late trading today despite the cybersecurity company beating expectations on earnings and revenue in its fiscal third quarter and raising its outlook for the rest of the year.

For the quarter that ended on April 30, Palo Alto reported adjusted earnings of 85 cents per share, up from 80 cents in the same quarter of the previous year, on revenue of $3 billion, up 31% year-over-year. Analysts had been expecting earnings of 80 cents per share on revenue of $2.94 billion.

The revenue figure included $388 million from CyberArk Software Ltd. and observability platform Chronosphere Inc., which Palo Alto bought for $3.35 billion in a deal that closed in late January. Stripping out the acquisitions, organic growth still accelerated, Chief Executive Nikesh Arora said.

Next-generation security annual recurring revenue grew 60%, to $8.1 billion, with CyberArk and Chronosphere contributing $1.6 billion. Remaining performance obligations, a measure of contracted future revenue, rose 36%, to $18.4 billion.

The acquisitions pushed Palo Alto to a net loss of $177 million for the quarter, compared with net income of $262 million a year earlier, as amortization of acquired intangibles and integration costs weighed on reported results. Adjusted net income, which strips out those charges, rose to $684 million.

“Q3 was a standout quarter for Palo Alto Networks, with accelerating organic bookings growth as customers turn to us to secure their AI deployments at scale,” Arora said in the company’s earnings release. “The latest advancements at the AI frontier have increased the level of urgency around cybersecurity and redefined the shape of the industry for the coming years.”

Cash generation also improved. Adjusted free cash flow reached $910 million for the quarter, up from $578 million a year earlier and trailing 12-month adjusted free cash flow margin rose 430 basis points to 38.5%. Chief Financial Officer Dipak Golechha said the company remains on track to reach a 40% adjusted free cash flow margin in fiscal 2028.

For the fiscal fourth quarter, Palo Alto expects adjusted earnings of 96 to 98 cents per share on revenue of $3.345 billion to $3.355 billion, ahead of the $3.28 billion analysts were expecting. The company lifted its full-year revenue outlook to a range of $11.415 billion to $11.425 billion.

Palo Alto has leaned on a string of acquisitions to broaden beyond network security into identity, observability and cloud. The company entered an agreement to acquire Koi Security Ltd. for $400 million in February.

Photo: Palo Alto Networks