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Palo Alto Networks CEO: The Reorganization 'On Track,' Company Sales Rebounding

Sarah Kuranda

After announcing a sales force reorganization last quarter, Palo Alto Networks said it is "on track" with the changes and starting to see improvement.

"We are making solid progress in these efforts and are on track with our project plans," CEO Mark McLaughlin said on the company's third quarter earnings call on Wednesday. "While we have much more to do and it will take time to realize changes, early feedback from customers, partners and our sales team has been good," he said.

Palo Alto Networks, on the heels of a disappointing performance in the second quarter, recalibrated its sale strategy and reorganized its account coverage model. The company also said it was retooling its sales and marketing resources and updating its second half revenue expectations.

[Related: Palo Alto Networks Overhauls Sales Strategy, CEO Says Channel Partners Not Affected]

CFO Steffan Tomlinson said the company's third quarter numbers showed "early positive indicators of the changes in the go to market strategy." Palo Alto Networks reported sales for the quarter, which ended April 30, of $431.8 million, up 25 percent year-over-year. Of those sales, $164.2 million were product sales and $267.6 million were subscription and support.

Palo Alto Networks reported a net loss in the quarter of $60.9 million, compared to a loss of $64.1 million in the same quarter last year.

McLaughlin said Palo Alto Networks still has some work to do on its sales strategy, saying the company is in the "bottom of the second, top of the third" if compared to baseball innings. He said Palo Alto Networks is taking a four-step approach to updating its sales strategy: designing what needs to be done differently, communicating those changes, re-do account mapping strategies, putting the right people in the right places to run those accounts, and then executing on that strategy. He said the company has finished the design, communication, and account mapping over the past quarter and now will look to finish making sure the right people are in place and executing on the strategy in the quarters to come.

"We will be continuing that through the fourth quarter for us and hopefully you will see positive impacts for that through fiscal 2018," McLaughlin said.

One area McLaughlin said the reorganization ought to benefit Palo Alto Networks, in particular, is the acquisition of new customers. Palo Alto Networks now has 39,500 customers worldwide, he said. He said Palo Alto Networks has done well in the higher end of the market when it comes to new customer acquisition, and he expects the sales reorganization will help the company bring that effectiveness down market. He said customer acquisition through the channel is "strong and continues to grow over time."

"The better we get from a go-to-market perspective, we should be able to acquire even more customers. It's important now that we be able to do that," McLaughlin said.

Palo Alto Networks also highlighted strong growth in new product areas during the quarter. The company announced a major PAN-OS update in February, which added upgrades across cloud security, multi-method threat prevention, management at scale, credential threat prevention and new hardware.

McLaughlin said Palo Alto Networks saw continued momentum around its WildFire solution, adding 1,500 new customers in the quarter, and saw "strong growth" for AutoFocus and a "solid uptake" in its cloud security offerings. He said Traps also continues to "grow nicely," with 1,000 customers and hundreds of partners selling the endpoint security solution. Finally, he said the company's February acquisition of behavioral attack detection company LightCyber drove a "high degree of interest" in the quarter, with a subscription service from the acquisition on track to delivered by the end of the year.

Palo Alto Networks said it expects sales for the fourth quarter between $481 million and $491 million, up 20 to 23 percent annually. Those estimates reflect the company's go-to-market changes, CFO Tomlinson said. The company expects billings between $625 million and $645 million and product revenues between $188 million and $191 million .It expects non-GAAP earnings to be between $0.78 and $0.80 per share.

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