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Palo Alto Networks

shares were gaining ground in late trading Tuesday after the security software company posted fiscal third-quarter results that edged profit expectations.

While top-line performance was about in line with expectations, despite what CEO Nikesh Arora described as “a market that continues to become more challenging,” the company is seeing margins improve, driving better-than-expected earnings performance.

In after-hours trading, Palo Alto Networks shares were 4% higher at $197.75.

For the quarter ended April 30, Palo Alto Networks (ticker: PANW) posted revenue of $1.7 billion, up 24% from a year ago, toward the high end of the company’s guidance range of $1.695 billion and $1.725 billion, and in line with estimates. Billings for the quarter were $2.3 billion, up 26%, and slightly ahead of the company’s forecast of $2.2 billion to $2.25 billion.

Palo Alto reported adjusted profits of $1.10 a share, ahead of both the guidance range of 90 to 94 cents a share, and Street consensus at 93 cents.

Under generally accepted accounting principles, the company earned 31 cents a share, its fourth straight quarter of GAAP profitability. In the year-earlier quarter, the company lost 25 cents a share.

For the fiscal fourth quarter ending in July, Palo Alto Networks sees billings of $3.15 billion to $3.2 billion, up between 17% and 19%. Revenue is projected to range from $1.937 billion to $1.967 billion, up 25% to 27%, with non-GAAP profit of $1.26 to $1.30 a share. 

That compares with consensus estimates that had called for $1.95 billion in revenue, and profit of $1.20 a share on an adjusted basis.

Palo Alto said it now sees full-year billings of $9.18 billion to $9.23 billion, up 23% to 24%, revenue of $6.88 billion to $6.91 billion, adjusted profit of $4.25 to $4.29 a share, and adjusted free cash flow margin in the 37.5% to 38.5% range. 

The company slightly increased most measures at the midpoint of the guidance ranges: Its previous forecasts had called for billings of $9.1 billion to $9.2 billion, revenue of $6.85 billion to $6.91 billion, and profit of $3.97 to $4.03 a share.

Write to Eric J. Savitz at eric.savitz@barrons.com