Security vendor Palo Alto Networks exceeded earnings and revenue expectations in its fiscal Q2 2018. The company reported $542 million in revenue, a 28 percent year-over-year increase. It reported non-GAAP net income of $91.5 million in the quarter, or $0.97 per share.

In its earnings call with investors this week Palo Alto Networks CEO Mark McLaughlin noted that the increased demand and growing revenue was a result of the increasing need for security as businesses digitally transform their networks.

“This digital transformation is creating significant cyber risk that requires a corresponding security transformation,” said McLaughlin, according to a Seeking Alpha transcript. “We have been consistently delivering on the transformation of security.”

He added that the company is seeing an increase in encrypted traffic. “It's not uncommon for us to see in a customer environment north of 35 percent to 40 percent of all traffic being encrypted these days, which is simply because the bad guys know that the legacy technology is not going to be able to decrypt it.”

In addressing this dilemma, the vendor pointed to the hardware appliances it launched in fiscal Q3 2017, which McLaughlin said had been performing well.

In addition, last week Palo Alto Networks released new appliances, adding to a previous line, including a ruggedized next-generation firewall that increases SSL decryption throughput and brings high performance — about 20 times the performance according to McLaughlin — and capacity for securing large data centers.

During its fiscal second quarter 2018, Palo Alto Networks became the only security vendor to achieve Amazon Web Services (AWS) networking competency. It also added enhanced features and simplified and centralized its management for Microsoft Azure, AWS, and Google Cloud environments.

Mark Anderson, Palo Alto Networks' president, added in the earnings call that “The go-to-market relationships that we have with all three of these large public cloud vendors are really strong. They're becoming very important distribution partners for us.”