Check Point Software Technologies Ltd.

Kip Meintzer, Global Head of Investor Relations for Check Point Software At this time, all participants are in a listen-only mode during the formal presentation, which will be followed by a question-and-answer session. Joining me remotely today on the call are Gil Shwed, founder and CEO, along with our CFO and COO, Tal Payne. As a reminder, the video conference call is live on our website and recorded for replay. To access the live conference and replay information, please visit the company's website at checkpoint.com. For your convenience, the replay will be available on our website. If you'd like to reach us after the call, please contact Investor Relations by email at kip.checkpoint.com. Before we begin with management's presentation, I'd like to highlight the following. During the course of this presentation, Check Point's representatives may make certain forward-looking statements. These forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 include, but are not limited to, statements related to checkpoints expectations regarding business, financial performance, and customers, the introduction of new products, programs, and success of those products and programs, the environment for security threats and trends in the market, Our strategy focus areas demand for our solutions, the impact of COVID-19 on our business, including our product development, sales, marketing efforts, and our financial condition and results of operation, the impact of COVID-19 on our customers, suppliers, business partners, and macroeconomic environment as a whole. and our business and financial outlook, including our guidance for Q2 2021. Because these statements pertain to future events, they are subject to risks and uncertainties. Actual results could differ materially from checkpoints, current expectations and belief. Factors that could cause or contribute to such differences are contained in checkpoints earnings press release issued on April 26, 2021, which is available on our websites and other factors and risks, including those discussed in checkpoints latest annual report on Form 20F which is on file with the SEC. Checkpoint assumes no obligation to update information concerning its expectations or belief except as required by law. In our press release, which has been posted on our website, we present GAAP and non-GAAP results along with a reconciliation of such results as well as the reason for our presentation of non-GAAP information. Now I'd like to turn the call over to Tal Payne for a review of our financial results.

Great, thank you, Kip. Good morning, good afternoon to everyone joining us on the call today. I'm pleased to begin the review of our first quarter results. Revenues for the quarter increased by 4% to $508 million and our non-GAAP EPS grew by 9% to $1.54. Both revenues and EPS are in the upper part of our guidance. Before I proceed further into the numbers, let me remind you that our GAAP financial results, including stock-based compensation charges, amortization of acquired intangible assets and acquisition-related expenses, as well as the related tax effects. Keep in mind that as applicable, non-GAAP information is presented excluding these items. Now let's take a look at the financial highlights. Revenues for the quarter reached $508 million, $8 million above the midpoint of our guidance. Product and security subscription revenues were $287 million, a 7% increase year-over-year. Our security subscription revenues continue to be the driver of the growth with strong 12% increase year-over-year, up from 10% before, reaching $177 million. Our software update and maintenance revenue increased to $221 million, representing 2%, up from 1%. In January, we announced three main pillars. Quantum, the most complete network security solution. Harmony, driving highest level of security for the remote workforce. And CloudGuard family, which drives cloud native security to prevent threats and manage posture across all cloud workloads in a multi-cloud environment. Our CloudGuard family continues to show great results with a high double-digit growth. As customers move to more holistic solutions with subscription-based pricing like Infinity, CloudGuard, and Harmony, more of the business is allocated to subscription and support and less to the product portion. Deferred revenues as of March 31, 2021 reached $1,458,000,000, a growth of $109,000,000, or 8% over March 31, 2020, this quarter. For all of you that calculate the implied booking, implied booking was 8%. Revenue distribution by geography for the quarter was as follows. 44% of revenues came from Americas. 43% of revenues came from Europe, Middle East and Africa region and 13% came from Asia Pacific. Our non-GAAP operating margin was healthy at 49%. The margin was higher as a result of our higher level of revenues on the one hand and as some expenses remained low due to COVID continued effect worldwide on the other hand. Our financial income for the quarter was $13 million, reflecting the reduction in the portfolio yield as a result of the interest rate drop in the U.S. last year, as we guided. Effective non-tax rate for this quarter was 18%, in line with our expectation, which was 17-18%. We had some indexation effect this quarter versus the quarter last year. GapNet income for the quarter was $183 million, or $1.33 per diluted share. Non-GapNet income was $211 million, or $1.54 per diluted share, an increase of 9% year-over-year, and towards the high end of our guidance. The accelerated growth is related to the growth in the revenues and the continued reduction in our diluted outstanding shares. Moving to our cash flow. Our cash balance for the quarter increased to $4.1 billion. Operating cash flow for the quarter increased by 4% to $375 million with a strong collection from customers. During the quarter, we continued our buyback program and purchased 2.7 million shares for $325 million at an average price of $120 per share. Now let's turn the call over for Gil.

Thank you Tal and hello everyone. I'm pleased to have you. This time we're going to have a slightly different format than usual. We're moving along to the 21st century. So instead of just talking about our written comments, I want to share with you a presentation. And the focus this time won't be just general comments about the quarter, but to share a little bit more about our strategy, the Infinity 2021, The Checkpoint is Caring. There's a lot of slides here that we shared with our customers and partners. So let me jump right in and go ahead with that. Hope it will work well for the first time on an investor call. So let's start with... Forward-looking statement you heard from Kip, so we don't need to go through that. So I'll speak a little bit about three, four slides about business highlights, and the main focus here will be about the infinity strategy, the checkpoint, and the checkpoint strategy around that. So results, I think you've all heard from Tal. I'm actually quite pleased that we are continuing to execute on our plans. increased the EPS by 9%, increased revenue by 4%, and did, and you'll see it later in the presentation, and achieved a lot in our strategic areas. On the financial side, again, the numbers you heard from Tal, $22 million more in revenues, $0.12 more in EPS, and $109 million increased in deferred revenues, so we did increase our install base and our contract long-term and short-term. A little bit about news from Check Point. Over the past few years, we started the transformation in our sales force, re-energizing. I think we have amazing people, and we want to re-energize and move the sales force to a much more proactive and higher growth mode. Around two years ago, we started with APAC, with Sharad, is now with us for almost two years. And actually, the last few quarter, the results in APAC were amazing. This quarter specifically were very good. About six months ago, we had Torsten joining us to run Europe. I think it's too early to say how it will work, but the initial signs are very good. And again, we had a very decent quarter in Europe. And just today, we have Jeff joining us to run the Americas. He will join whenever he wakes up in the West Coast. And that will be his first day today. And we're looking forward for accelerated growth in America. I think we have Plenty of potential in the Americas market. We also held in the first quarter our conferences. Every year we start with employee and customers and partner conference. This year was no exception even though We did hold all these conferences in a virtual way in a very different way. I won't share much about the employees and so on, but you can see here the results about the partners and customers. We've much more than doubled the attendance of customers and partners, and that's a great achievement. We got amazing reviews from all the participants about the content, about the ability to participate. So at least the virtual model here generated some positive results for us. And moving forward, we'll have to find like everything else, the right balance between the hybrid model, between physical and virtual conferences. So this is a very good one. And by the way, the biggest increase was the customers from the US, which is, I think, as I mentioned, the highest potential for us moving forward. So that's a little bit about some of the highlights of the first quarter. Let me share more about our strategy for 2021. Again, I won't do the full presentation that we shared with customers and partners, that takes a little bit longer, so I'll jump right in without much background. But just to start, we started 2020 with an amazing architecture, 2021 with the Infinity architecture. This is really, I think, the most comprehensive set of security technologies that any company has, with a This unified architecture that combines all the elements together and if you look what it means is over 80 different products and technologies in all areas of the network, the cloud, the users and access. Our goal is to make that simpler, more accessible, more consolidated and elevate the level of security. So we decided to focus Infinity 2021 on an architecture and three pillars which are far much simpler and we'll elevate the level of security. So the three pillars, and I think Tal already shared, first is quantum, our network security architecture, and later in the presentation I'll talk, I'll show two or three slides on every one of the pillars, quantum to secure the networks, CloudGuard to secure the cloud, and the new one that we launched in the CPX in February, Right after our earning call for Q1 is Harmony. When that's something new that focuses about securing user access, this is especially important in today's hybrid work model. These three pillars, Quantum, CloudGuard, and Harmony are based on, are using the Infinity Vision shared management infrastructure with a lot of tools for stock management, XDR, and a lot of other advanced security tools, and are all based on the Threat Cloud The single infrastructure that collects, analyzes and makes security decision in real time and share them for real time threat prevention across all attack vectors and across all products and technologies. And I think that's the uniqueness of the checkpoint architecture. So the architecture now looks much, much simpler. and let me dive right in and speak a little bit about the different elements and what's new in each one of them for 2021. So Quantum, Quantum is our core business securing the network. It's far more than these appliance gateways versus the SMB product family, versus the perimeter gateways, versus the data center gateways, versus I think what's unique to Check Point and winning a lot of mindshare in the marketplace and actually a lot of growth is the hyperscaling technology, the maestro technology. We have tons of IoT technologies that we've introduced over the last two years and we're introducing more and more to handle IoT devices and to make the network secure from the malware that they can catch. All of that powered by our unified management and all of that contains more than 60 threat prevention engines that provides the highest level of network security. So that's the overview of the Quantum family. What's changed in Q1 in the Quantum family? So first we launched a new family called Quantum Spark. That's our SMB security family based on few existing products. But extending that actually a little bit higher to the broadest and the biggest market segments in terms of dollars on the branch office and SMB. And again, that's a great place to be. and with models that deliver two gigabits per second, I think the highest segment, very easy to use, very intuitive, set up in a minute or a few minutes, on the go management, including mobile app that can give anyone the alerts and the management capabilities. So Quantum Spark has been a great addition to our family. We're updating the management platform for the network security, the Quantum Smart One, new set of management appliances that can manage double the number of gateways, almost double the amount of log processing in the latest version. And last and last list, I talked about Maestro. Maestro actually takes a cluster of gateways. Any size and make them behave like one virtual gateway is actually bringing a lot of benefits. That means that they can all behave as one but provide resiliency, provide high reliability, provide elasticity. If you need more bandwidth, you don't need to buy a new system. You just plug in on the go another one and you get more capacity. So in Maestro, we introduced a new model that pretty much doubles the capacity of the Maestro gateways to 3.2 terabits per second. The previous model high end was 1.5 terabits. Now it's up to 3.2 terabits per second. I think it's probably the highest performance. And again, that can scale any security operation. to the hyperscaling that Maestro provides. So I think we've had very nice addition just in the first quarter to Quantum. Remember that last year, last Q2 introduced a whole new set of Quantum appliances that I think resulted in pretty good results so far. And actually customers are pretty happy with them and see a lot of performance with them. So I think we're pretty pleased about that. A few just reminder highlights about what is the quantum family doing in the marketplace. We are 21 years in the leadership quadrant of the Gartner Magic Quadrant for network firewalls. I think that's a big achievement, keeping the leadership for so many years. And I think we'll keep going. Over the years, more than 60% of the global 2,000 have purchased quantum appliances. So again, that's also, I think, On one hand, there's potential to the ones that didn't buy, and there's plenty of potential for the ones who did buy to expand and do more with them. But I think it has a huge footprint and a huge impact on the world. And if you look at almost every sector, the majority, in some cases, 90% of the leading companies are using the checkpoint quantum family of products. So that's for quantum, and that's our core business. Let's speak a little bit about the Harmony family, and that's the newest one. Here we're actually connecting to a need that emerged now in the pandemic era. We are seeing that more and more employees are working from mobile devices, are working from their non-corporate devices, from their PCs, personal computers, not the company-provided computers. And on the same time, people work for the office. And the access now is not to a single data center like it used to be in the past. The access needs to occur to cloud application, to SaaS application, to web application, to the data center, even things that we didn't do before, like remote desktop access, because we now work on our development or trading or any other environment from home and so on. And we need to secure all these connection. And that's a pretty big mess. If you look at the set of technologies that company needs, It's a lot of technologies. Technologies for remote connectivity from old VPNs to new SaaS-based connections. Technologies for device poiture to verify that our home computers are working well. Technologies, of course, to secure the mobile and the endpoint devices from the next generation AV to the traditional ones. and so on and so forth. This is becoming quite complicated and if you look at what the company needs to achieve that, it's a combination of a few dozen technologies that don't always work together. And that's the revolution that Harmony provides. One family provides all of that to all users from everywhere to everywhere with the highest level of security. One solution for the hybrid world. And if two years ago you asked CISOs on their priority and end-user security was quite low on the priority list, it did become the number one priority now with the pandemic that we've seen and likely to stay that with the hybrid model we will face. And by the way, with the level of the sophistication of attacks that we are seeing in recent months. So that's Harmony combining at least six different categories of products. I don't think that anyone can deliver that because this is, again, dozens of different technologies that I think no one else has those technologies except for Check Point. We've built them. We invested in them over two decades. And we are now, I think it's ready for prime time as a unified platform that will roll into the market gradually. So that's Harmony. You can see some of the market recognition harmonies already receiving. AV-Test, top product in corporate endpoint security. IDC already put that in leader in mobile threat management. By the way, across our competitors, we're the only one that also has anything to do with mobile, and we have the best mobile device security suite here. And last but not least, from last week, this is something we're very proud of, the Mitre platform. in-depth security analysis. We came very, very high on the list with 100% detection. I think that we have the best prevention capabilities here. And I think that's something we should all be proud way ahead of our competitors, many of the new emerging one and almost all the traditional competitors in this category. Last and not least, let me run quickly, CloudGuard. CloudGuard is all about securing the cloud, and the cloud, again, is a pretty big creature. It includes the private cloud. It includes things like workloads and containers. It includes, of course, the Google Cloud, the Azure Cloud, and, of course, the AWS Cloud. We have one platform that can secure all the cloud, provides highest level of security, Connect at all the levels, doing everything from fixing the cloud and ensuring that you don't make configuration error with cloud security posture management, which I think they have the best. Protecting workloads, for example, serverless, I think we are way ahead of everything else. Network threat prevention in the cloud, everything that has to do with the cloud. I think we are evolving this platform, but I think we already have the broadest platform for cloud security. And this quarter, what we've added in the CloudGuard family is what we call the CloudGuard AppSec, which is sort of, but again, very, very advanced next generation WAF or web application firewall. But this time it's not just protecting the web servers, which are important by themselves, but the interconnections between cloud application, the different APIs that work on the web and connect them, It's using a new, what we call contextual AI architecture that means that customers can put it in prevent mode. Again, sounds obvious, but most of these technologies in the marketplace are not working in prevent mode. They're working in detection only, which as you know, our religion is everything needs to be prevention. Very quick deployment. You can measure it in hours instead of months. And as you can see, I think we are starting to see the results, even though this is very, very new. A few highlights about our cloud. That's not just the CloudGuard AppSec, but our CloudGuard family in general. This quarter, we had a 50% increase in ARR compared to a year ago, and we had very, very good internal foundation for the CloudGuard family. I think we have one of the largest install bases for the CloudGuard family. Over 4,000 customers protect their cloud with CloudGuard. and one in five of the global 2000 is already a CloudGuard customer. So we're very proud of that achievement. We have plenty of potential here to grow, but I think we have one of the most advanced and most successful cloud security businesses today in the marketplace. So altogether, these create the new Infinity architecture. Quantum Cloud Guard, Infinity Vision, the foundation for advanced security analysis and management, and the Threat Cloud in the middle. That's the Infinity 2021. We are big believers in that, but before I go to the summary and finish, I want to challenge myself and maybe the marketplace in terms of, is there another way? We need, let's remember, we need to secure this new world when People are everywhere, data is everywhere, digital transformation to the cloud is there. We need to fight the cyber pandemic, and in the last few months we've seen the emergence in what we call Gen 5 security attacks. If you remember, we've been speaking about the fifth generation of cyber attacks for almost two years, and it's now a reality. Not a reality that happens once a year, a reality that happens every week, a new Gen 5 sophisticated attack that threatens our fundamentals of the network. So what's the way to secure against that? Is there another way beyond infinity? So if you're a customer and you can try and build your own security stack, I have a simplified version here, but this is how it will look like. You'll need to choose the different network vendors, network firewalls, advanced threat prevention, IoT and OT, and several more categories, maybe even two platforms to manage that. Cloud security, plenty of alternatives, how to secure workloads, how to secure applications on the cloud, how to secure the cloud infrastructure, how to do the cloud posture management, and you need to select the right vendors. Then on the users and access, endpoint security, mobile security, remote access and SASE security, and you need to take all these elements and start connecting them. And guess what? It doesn't work. They don't connect well. It's not just the work of getting this Solution is very, very hard, and the deployment is complicated, but they don't work together. And what you'll end up, if I'll compare it to my analogy here, is which car should I buy? You'll buy a lot of nice, cool cars, but what you'll end up is a big, big traffic jam. They will all, each one will go to a different direction, and you won't necessarily achieve the level of security that you want. It won't fly. So this is the analogy of building your own stock, what it will be like to build it with the new Infinity 2021. I think the analogy is much better. Quantum CloudGuard Harmony. I believe it's like three supercars. Each one of them excels in its category. They all drive together. They all drive the highway and they will take us to the security of the future of what we need. This is the difference between Infinity and building your own. So to summarize, I believe that we started the year with a strong first quarter with good financial results, revenues and EPS towards the high end of our range, good momentum in Europe, excellent result in Asia, and not less important, double digit growth, cloud guard, harmony, and even more on the total infinity platform. On the same time we're in the new world, there are new opportunities and I believe that we have the right platform to build the best security for the future of the marketplace and secure all your organization and every organization around the world with Harmony, CloudGuard and Quantum. So I think that there's plenty of potential ahead of us, there's plenty for us to do and I think we will continue to lead with the highest level of security as being found in every almost every industry benchmark that checks that. Thank you very much and actually want to open it for your Q&A, but before I open to Q&A, it's actually also a good time to speak about our projection for the second quarter. You know my regular caveats for... Let me stop the sharing. You know my regular caveats about projections and forecasts. Very challenging. There's always a high level of uncertainty. Results can be better, results can be worse. But still, we are doing our best to collect the information that we have around the market. And our forecast for the second quarter, with that being said, Revenues are expected to be in the range of $510 to $535 million and non-GAAP EPS in the range of $1.50 to $1.60. So again, $510 to $535 million for the revenues and $1.50 to $1.60 for second quarter EPS. GAAP EPS is expected to be approximately 22 cents lower than that. So with that in mind, I hope You've learned something from the presentation and I hope you like our vision. I know that it works and I'd love to open the call for your Q&A, for your questions. Thank you.