Palo Alto Networks said it has seen strong customer response to its recently launched strategy of consolidating cybersecurity platforms, however acknowledged concerns expressed by some investors and analysts about the long-term ramifications on revenue.
“I’m delighted to report, despite the concerns around our platformization approach after our last quarter, the customer feedback has been nothing but encouraging,” Nikesh Arora, chairman and CEO of Palo Alto Networks, told analysts during the company’s fiscal third quarter earnings call Monday after the close of trading.
The leading cybersecurity provider roiled much of the industry during the prior fiscal quarter after it began offering free incentives to compete as an incident response provider and lure customers to consolidate their threat protection on the company’s security platforms.
Palo Alto Networks said customers could defer billings if they consolidated their spending with the company to give them additional time to exit expiring contracts with rival firms.
Fiscal third-quarter revenue grew 15% to $2 billion for the quarter ended April 30. Non-GAAP earnings rose to $454.9 million, from $359.4 million in the year-ago quarter.
Arora said the company has initiated more conversations than expected, with meetings up 30%.
Of the company’s top 5,000 customers, about half are using two or more of its platforms, Arora said. About 900 companies, representing almost 1 in 5 of its top customers, are fully consolidated on all of its platforms.
Palo Alto Networks also snagged a few major new customers, including a healthcare provider that was recently breached. Arora said Palo Alto Networks helped provide incident response to the provider. Later, the healthcare organization signed the largest ever contract in the history of the firm, worth $150 million in total contract value, Arora said.
CFO Dipak Golechha said there has been significant volatility in Palo Alto Networks’ billings in connection with the new strategy. One analyst asked to get clarification on how long the platform consolidation strategy would continue.
Arora reiterated the platform consolidation should last until Q2 of next year, which was disclosed by Palo Alto Networks previously.
Palo Alto Networks entered a broad agreement last week to acquire IBM’s QRadar SaaS assets and become IBM’s preferred cybersecurity partner.
Golechha also confirmed the total consideration for the acquisition of IBM’s QRadar SasS cloud assets was $500 million, plus consideration for converting remaining on-premises customers to Palo Alto Networks XSIAM over the next several years.
QRadar's revenue for calendar year 2023 was about $100 million, according to Golechha.
