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spk01: We'll tell you guys set. I'm set. Yep.
spk11: All right. Hiya. Feel free.
spk01: All right. Keep in mind that it takes time until everybody's connected. So you need to be, but everyone is getting on the call. We're alive.
spk11: Greetings. My name is Kip E. Meinzer, Global Head of Investor Relations for Check Point Software. I'd like to welcome everyone to our fourth quarter and full year 2021 financial results video conference. At this time, all participants are in 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 Schwedt, founder and CEO, along with our CFO and COO, Tal Payne. As a reminder, this video conference is live on our website and is recorded for replay. To access the live web 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. 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 Check Point's expectations regarding our products and solutions expectations related to cybersecurity and other threats, expectations regarding our 2022 initiatives, our ability to continue to develop platform capabilities and solutions, customer acceptance and purchase of our existing solutions and new solutions, the market for IT security continuing to develop competition from other products and services and general market, political and economic and business conditions, including as a result of the impact of COVID-19 pandemic. These forward-looking statements are subject to risks and uncertainties, including those more fully described in our filings with the Securities and Exchange Commission, including our annual report on Form 20F filed with the SEC. The forward-looking statements in this presentation are based on information available to Check Point as of the date hereof, and Check Point disclaims any obligation to update any forward-looking statements 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 the reconciliation of such results, as well as reasons 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.
spk06: Great, can you hear me? Yeah. Can you see the presentation? Wonderful. Wonderful. Okay, great. Thank you, Keith. Good morning and good afternoon to everyone joining us on the call today. I'm pleased to begin the review of the fourth quarter. Revenues for the quarter, $599 million, which is above the midpoint of our guidance in $17 million. Quite nice. Earning per share reached $2.25. Mirha Vlahovljak- Above the top end of our guidance, which was $2 and 22 cents three cents above the top end of our guidance now before I proceed further into the numbers, let me remind you that I get financial results include. Mirha Vlahovljak- stock based compensation charges and what is additional required intangible assets and acquisition related expenses. Mirha Vlahovljak- As well as the related tax effect, keep in mind that as applicable and then gap information is presented, excluding these items now let's dive. More into the numbers, and I will start with the revenues. Revenues for the quarter, as you can see, $599 million, 6% increase year over year. On the right side, you can see the billing. Billing grew to $851 million, 14% growth in our billing. Very significant acceleration from the 8% you see in Q4 last year. Deferred revenues, it's some kind of a, Mira of the billing, we can see growth very strongly as well. 15% growth reaching $1,707,000,000. Moving into the drivers. So first let's talk about product and security subscription continue to accelerate reaching $371,000,000 and 9% year over year. Product increased nicely with Maestro continue to be differentiator and drives wins with customers. We've seen strength in many product categories in SMB all the way to large enterprise discorders. So there was a nice quarter for the products as well. Subscription revenues in line with our expectation continue to accelerate, reaching 14% versus last year we can see 10%. So it's already $204 million a quarter. Where the main drivers are, we can see the double-digit growth in Harmony, very nice growth there, and double-digit growth also in the Cloud Guide. So the focus on those areas are barefoot already. Moving to revenues by geographies. Revenues by geographies, 49% of the revenues came from EMEA, 40% came from Americas, and 11% from Asia Pacific. As you can see, EMEA had a great quarter and led the revenue growth. I know when you calculate, you will see lower results in America and APAC, so I'll just give you a highlight regarding the booking. All three regions had a great booking and grew with a strong growth. Great result with new customers and in many countries in those regions. As usual, there's a gap between the revenues and the booking as a result of timing and the timing of the booking. Examples of reasons, the delivery of the goods, the consumption of infinity products. The customer needs to pull the product in order for us to recognize revenues. And rendering of the services, of course, it's over the period of the service, say one year and so on, of providing the service. Moving on, gross profits. Remains strong at $524 million. The margin is 88%, very nice, still one of the strongest in the market. We deliver to our customers with higher costs relating to the supply chain constraint. So let's talk a bit about that. As you know, there's a supply constraint in the market, which affects all of us. Many components cost increase, leading to higher costs of the goods sold and slightly lower margin, which is between 1% to 1.5% depends on the quarter. We believe it's a temporary situation until the supply chain goes back to normal. Maybe in the second half of next year, I think most of the people think it's going to be resolved towards the end of next year. So just taking that into account as part of the guidance as well for next year. Now, our new pillars, CloudGuard and Harmony, continue to show great results with double-digit growth. The gross margin on Harmony Connect and Harmony email security is lower than the average on the quantum. Therefore, it's also part of this reduction. So all in all, very strong result and taking into account the fact that while there's a lot of constraint, we still meet the target and deliver to our customers. Operating expenses highlights. You can see operating expenses reached $239 million and 11% growth. Its main two drivers as usual. First, we were very successful towards the end of the year to recruit our plan in the headcount. So we accelerated the growth and reached the 9% that we were aiming for for the year-over-year growth. Most of it came towards the year end, so we will see it also as part of the higher run rate that we start next year. And the dollar effect, the dollar weakened against the currency, also this quarter, which affected the results. Mainly you can see it in the R&D expenses as the Israeli shekel and where the R&D is in Israel. So that's the effect you see here. So resulting in operating expenses increasing in 11%. Operating income strong at $285 million. We can see the operating margin, 47%. We planned to be at 47% before, but we reached it only now, that this 47%. We start to see also the results already in the booking, as you can see. Net income margin also very strong at 49%. Financial income in line with the guidance that we provided. I remind you the yield on the cash is lower as a result of lower interest rates, and therefore the $10 million. And the taxes, you see the break even at 0% as the statute of limitation laps on the provision at Q4. Typically, it also laps this year in line with our expectation, bringing our tax rate in Q4 to a typical around 0%. Gap net income was $260 million, which is $1.98 per dilution. Cash flow and cash position, our cash is at $3.8 billion, very strong. $294 million, our operating cash flow. It represents an increase of 1%. It includes the hedge effect, the balance sheet, the hedge income of 4 million. Last year, since the dollar weakened even more, we made the $26 million in income in the cash flow. If we exclude the hedge effect, which happens every quarter, the operating cash flow was super strong at 9% growth year over year. So that's quite significant. Diana Popescu- A during the quarter we continue our buyback $325 million a were used to buy a shares 2.8 million shares a for an average price of $116. Diana Popescu- So, moving to the full year. We're very pleased with the result of 2001. This just shows our results versus the original guidance from the beginning of the year. So we can see the revenues for the year reached $2,167,000,000, an increase of 5% year over year, $37 million above the midpoint of our guidance. Looking at our non-GAAP EPS was $7.02, again, above the high end of our guidance, which was $6.85. 17 cents, actually, above the top of our guidance. A few more details. If we calculate the billings for the full year, we see also a double digit for the full year, 11%, reaching almost $2.4 billion. And deferred revenues, we discussed already, quite strong at 15% at the year end. When we look at the full year and what caused this success, I will focus on Infinity Strategy and the three pillars. the Quantum, the CloudGuard, the Harmony showed great success. Subscription revenues led the growth with 13% growth year over year versus last year, there was 10% growth, reaching $755 million. Already around 35% of our revenues are coming from the subscription. The growth driven mainly by the success of the CloudGuard and Harmony, both again, double digit also for the full year. Infinity revenues, which include two or three pillars that we sell to customers at a great year with a triple digit growth, which also fuels that growth. Looking at the full P&L, just a few highlights. I don't want to repeat everything, but just a few highlights. Gross margin strong at 88.7%. Operating expenses increased by 7%. Bear in mind that the majority of the increase in the income came towards the end of the year. So the effect on the P&L was at the lower rate, but expect to come more towards next year, well, in the beginning of next year. The effect on the margin next year just from that item is probably around 1%. The weakening of the dollar had $20 million effect on the full year. So those results are quite impressive when you take into account that we got a hit of $20 million just from the currency effect. During Q4, the dollar continued to weaken against the shekel, reaching around 3.1, which means that we predict also next year a negative effect on our operating margin. Nothing to be concerned about. It always fluctuates, but it's part of the guidance, of course, and that's about 1% effect on our operating margin. Still very strong operating margin with 48% non-GAAP operating margin. Looking at the financial income here, you see the drop. Again, completely in line with what we expected. Lower interest rate, the portfolio opens and invested in lower interest rate than the 2.5% that we used to have historically. So we see the lower interest rate. Tax expenses ended around 14% as a result of the index, which was higher than everybody expected for this year. Looking into next year, the guidance remained the same, meaning for the financial income, we expected to drop maybe one, two million for the next quarter or two, and that's it. We expect it to stabilize on those levels, around seven to eight million dollars a quarter. Taxes expected to be 17 percent Q1, Q2, Q3, as we predicted for this year, and around zero and Q4 for the same reason. Assuming there will be no surprises, the statute of limitation laps in Q4 and will bring us to the zero percent. Average for the year, somewhere between 12 to 13 percent. Of course, it can be 1% more or less. We close the year with a net income, a gap net income of $860 million, which is $6.08 per diluted share, a non-gap net income for the year, strong at $942 million, $7.02. We talked about how it is versus the range, 4% growth and 17 cents above the high end of our guidance. When we look at the operating cash flow for the full year, again, very strong cash flow. Operating cash flow was $1 billion, almost $1.2 billion, very much in line with the operating profits. So it's nice to see the link that we have between our cash flow and our P&L. Very untypical, but for us, it's continuous. So that's nice to see. Very strong collection. Healthy DSO. Excluding the effect of the hedge and the acquisition-related costs, it grew in 6%. So that's very strong. We purchased about 11 million shares for the full year. for $1.3 billion, average price of $109. I'm just reminding you the last quarter, we announced the extension of the buyback program in an amount of the $2 billion, additional $2 billion, again, up to $325 million. For 2022, next year, we expect the average diluted share to be somewhere around 127 million shares. starting in 129 million and going down by the year end to somewhere around 125, 26. So that's also the forecast for the number of shares. Moving to the summary, strong year, change in the trajectory, which is nice to see. Revenues in the top part of the guidance, EPS exceeded the guidance, strong billing, growth, Across all the focus areas, Harmony double digit, Klauga double digit, new customers growing nicely and continue to have a strong profitability. So very pleased with the year. And with that, I will turn the call over to Gil for his business highlights and insights. Thank you.
spk01: Thank you very much Tal and I'm very pleased to see everyone here and share, especially as we had this amazing quarter. I really, really mean that. This was a very, very unusual probably our strongest quarter ever, and I'm not just speaking about the external financial results, but about the internal measures that we see internally. Now, every quarter, I usually speak about the last quarter achievement. This presentation, I'm actually going to dedicate primarily to speak about our strategy getting into 2022. We're entering on the foothills of this amazing quarter that showed really business growth, real business turnaround in all three pillars, by the way, in the cloud, in the harmony, and even some very, very good metrics of our core business, the quantum network security business that's probably contributed a lot of growth last quarter. All the regions, EMEA, APAC, and the America showed very good internal metrics. So on top of that, we're entering a new year with a renewed strategy, a lot of energy, a lot of investment. And what I wanted to do here is share with you the key initiatives with which we start 2022. So, I mean, that's where we start. I picked here four of our major initiatives and there will be more. The number one objective, of course, is continue with accelerating our growth. We start that and the next 20 slides will go into each of these four initiatives with a new message, new logo, new branding, which I'll speak about in a second. We are continuing with a lot of innovation and I think we're starting the year with new products and leapfrogging the industry with unprecedented price performance we're going to create a new structure that we call the checkpoint rockets and i'm going to share and speak about that last and not least growing continuing and growing our investment in our frontline sales force our internal goal which i hope we'll be able to make is grow the frontline sales people by 25 supporting more customers reaching more customers and of course delivering growth this year, and mainly actually this investment will translate into results hopefully by the end of 2022 and in 2023. So let me start with the first message or the first initiative here, our new positioning, our new branding, best security. Now best security, by the way, has always been the checkpoint differentiator. I think that's our reputation. That's what we do. It's what we do for 29 years, delivering the best security. And one of the things that's very, very important is to show that message and to explain it to everyone, understanding why it's so important. So you see here, we start the year with a fresh new look, new logo, and a new message that says, you deserve the best security. First time in 29 years that we changed the logo. And I think so far it's being accepted with a lot of enthusiasm, showing all the new energy. But the most important message is understanding why is that so important. And I think we know, and I don't need to go too much into that, how much we're dependent on the internet, how much we're dependent on cyberspace, and we need to keep it secure. And I think the latest attacks that we've seen on ransomware, the log4j vulnerability, all showed us how important it is. But when it comes to cybersecurity, You can't get good enough. You can't get second best. That will get you breached. You know, when you drive a car, you can say, I want to pick brand A, brand B, brand C. Each one have its qualities, different prices, different positioning. At the end of the day, all three cars will get you to your destination roughly at the same time. roughly at the same shape. In cybersecurity, that's not the case. If you pick second best security, you will get breached. If there is one small thing that's open, or like almost our entire industry does, letting zero day infected file come through. If you let these files come through, that's where you'll get the ransomware. And with checkpoint, that's the small difference, which actually huge, you won't get breached because we won't let these files through. Many, many examples of how we deliver this best security. We believe that there is only one vendor that delivers the best security to protect against all these fifth generation cyber attack. And that's us at Checkpoint. Again, I can take now two hours, and by the way, you can register to our Checkpoint Experience CPX 360 conference that just ended today. Watch the presentation and understand better why. But I will try to summarize some of the differences even in one slide. It's all based on our Infinity architecture. Now, you've seen this slide before, the Quantum CloudGuard and Harmony network cloud user and access, all based on the same platform, all working together, all translating each information piece about the vulnerability to an immediate protection on all the different pillars. And when you see what it means, that's when you see the security coverage that we provide in Check Point. So if you look at the different attack vectors, mobile devices, network attacks, email, the number one vector in which malware gets in, web servers, also can't underestimate very important, endpoint devices, the cloud. And I picked here some of the best players in the marketplace. Some of them are our direct competitors. Some of them are not our direct competitors. but you can see that no one comes even close to give you the full coverage and the full spectrum of prevention and protection against all these types of attacks. And now let's see at the checkpoint infinity, and you can see full coverage to mobile, full to network attacks, including zero day, for unknown and prevention for unknown, corporate email, web servers, endpoint devices where we score amazing results and amazing scores on every review and every test, and cloud, which we just expanded. Only Check Point Infinity can actually deliver that, and that makes the whole difference between being penetrated or preventing the attack. And I think that's the message that we want to convey. We want to get our customers secure. We feel that each one of your organization and each customer deserves the best security. And we are here to deliver that. I think you can see that in this expansion, if a few years ago we were known to be the network security company and we were scoring now for 22 years in the Gartner market quadrant for firewall in the leaders quadrant. This one is actually a different vendor, G2, which captures audience, customers' feedback, real feedback about product. And you see, we're not just scoring now in the network security or in the firewall sector. We are scoring in nine categories. We are leading in nine categories, all coming. And you see, by the way, in many of these categories, there is more than one checkpoint technology in the leader's quadrant. We are capturing and we are leading in the entire infinity category. Reza Azard, Architecture framework securing the entire enterprise, and I think that's a huge difference customers love checkpoint and our leadership now extended into all these areas cloud endpoint mobile management intrusion prevention remote access firewall link everything. Reza Azard, and. And I think we use that and we continue to use that to drive innovation. Now, of course, if I would give you our roadmap, that would be another two hours, but I want to point here one important product that we just launched at the beginning of 2022 that can change the dynamics of our industry. I think it's one of the most important, if not the most important network security product launch in the last decade. And let me talk a little bit about that. We call it Quantum Lightspeed. focusing on the data center, focusing on where data moves very, very fast, where people need super fast, low latency data security. And here we're going to introduce the world's fastest data center firewall, 20 times better, 20x better in security price performance than before and much better than the competition. So if you try to see where the markets were until now, again, the car analogy, And you can see three, the leading vendors here, and you can see the differences. With Palo also, you would get for roughly $200,000, 58 gigabits per second. Checkpoint before, much better, 78 gigabits per second at almost $140,000. And you can see how Fortinet gives almost three times better performance, almost 200 gigabits at 40K. Huge difference. And I think that's what Fortinet built itself on, on this huge gap in price performance that they can deliver. And we are going to change that and change the dynamics in our marketplace and say that you don't need to compromise with the new quantum light speed. And that's where light speed would come in. 250 gigabits, 45K. That's by the way, the low-end model. That's not the highest end here. 20% better than Fortinet, 20 times better than Palo Alto. That's unbelievable. That's a lot of work done by our development team. And for the first time, utilizing ASICs in our core products to accelerate these firewalling performance. First time for Check Point, we've partnered with NVIDIA, the world's most successful ASIC providers these days to deliver these super high performance and our product line for Quantum Lightspeed is four models from 250 gigabits to 800 gigabits. Hyperfast throughput, ultra low latency, less than three microseconds. It's 10 times faster before it was 30 microseconds. And scalability with Maestro up to three terabits per second. No one in the industry actually can deliver that kind of scalability and that kind of price performance. So we are very, very proud of that. we think that can change the dynamics, at least in the data center part of the network security industry. So that's, I think, a very good place to start the year with. And then we move to my next initiative, to our next initiative, and we call it rockets. So what are rockets? Rockets are will be kind of new types of internal organization. What we want to drive and invest in places that are strategic, what we feel that there's a high potential for growth. So we want to focus with agility and growth. We want to align all the resources. If in the past Check Point was a very unified company, everything is together. One R&D, one sales organization, one marketing. We want to create new structures that will reside within that, that have the ability to move very fast. Developers tied with marketing, tied with sales. to drive growth in all these areas and to be able to invest much more and much faster in key areas. It's not the entire business is moving to this direction. We are trying a new model here. And we start with three areas, cloud, which is a big area for us, hundreds of people. Harmony email, that's an emerging market, very important one based on the acquisition that we did recently. And then new one that I won't spend too much time here, maybe next time, MDR, MPR, managed detection and response, or the way I would like to call it, managed prevention. And this is kind of automatically managing the customer assets. We detect things that needs that are not working and immediately prevent the attacks. I think we can create here a new industry or take on a new industry that we haven't been playing in before. This is a small startup. It starts from few people and no revenues. Again, the Harmony emails is tens of millions of dollars and the Cloud Guard is over a hundred million dollars. So each one trying a different model in different way to try this new model. Let me focus a little bit on the CloudGuard rocket. I think we're very proud of what CloudGuard delivered today. Our preemptive prevention was the only one that handled Log4j before it was known. So I mean, once we've seen attack on Log4j without a signature, without the attack being known, our AI technology blocked it. And that's based on new CloudGuard technology, CloudGuard AppSec introduced Around a year ago, exactly the right time, exactly the right place, the technology that protects APIs and web servers really blocked log4j before it was even known. And this is one example about how our CloudGuard rocket is being able to address so many areas. You can see the list of workloads, posture management, the upsec, the network in the cloud, a lot of threat intelligence, and we continue to expand that. We continue that with the fifth acquisition in recent years, and that's expanding our cloud presence to what we call code security. or developers first security. That's a new area that puts inside the new type of customers for us, developers by developers. And I think it has a lot to do with the challenges that code in the cloud has. Now we found this company Spectral, it's a small startup. We really fell in love in the platform and the technology, and we felt it has wide range of use cases that we can go into because it's such a good technology to analyze the cloud code, scan the infrastructure code, look at code tempering prevention, and maybe the first application, which we call secret prevention, something we may understand even us that are less developers. these days. For example, if you leave the keys to your application or to your safe box on your desk at the office, the chances of somebody taking advantage of this are very slim. It's a mistake. You shouldn't leave the key written on your desk or the physical key on your desk. But again, the office is... isolated and protected in many layers, so nothing will happen. In the cloud, it's completely the opposite. A developer puts a secret key that enables access to the other application inside the source code. That source code is being shared on public repositories. And within minutes, there will be a bot that will scan the network, will find the key, and will take over our servers. And we see it, again, a lot in the cloud. We know how to detect that. We know how to block it. And the developers that will use it can install that in a few minutes and within seconds get very accurate results and block that. We are also getting into that with a nice open source community. There's over 30,000 downloads of the Spectral open source version of the product. And I think this is great because it lets us play into a new audience. Not only the CISOs and the security administrators will support us, but we can get to the developers from the time they start developing the code. So we are very happy with this acquisition that we just announced and completed this week. So to summarize, and again, there's many much more that I can speak of because we do so much more in all the aspects of the business. We're entering 2022 with a lot of energy based on our accelerated results from Q4, 14% billing growth, which is a great number. And again, I wouldn't share it. I mean, the billing you can calculate and you do calculate on your own. But I think this time it's really an indicator to a lot of the internal things that we see in the company, which a lot of the internal indicators, strong financial, double-digit billing growth. We're accelerating our innovation. And two examples that I just talked about, Lightspeed and Cloud Code Security. And we are going... accelerate our investment you know it would be very easy to say this is our growth rate we will keep doing that we will keep monitoring resources and delivering and and get our profit margin to go to the sky we have the highest profit margin in the industry and we decided to actually take the money that we make and invest all the excess one and make the right investment in growing further and changing the mode of operation into high growth. So we are going to expand the Salesforce. I mentioned that 25% is our internal goal. create the rocket when we can make very focused investment in growth areas. And I think we really think that our business can grow faster. It's not going to be easy. It will take time for all the initiatives to show the results. But we are more optimistic than ever about what we think we can deliver here. So before I open the call to your question, that's the time for a projection. I think I already stated some of the assumptions that we have in the projections. We feel that our billing can keep growing and growing in a nice rate. Our internal projections are definitely for, or internal goals are definitely for double digit growth. Not all of that will translate immediately into revenues, partly because, We are growing the subscription part of our business and the deferred revenues, partly because there's risks associated with the supply chain and others that may slow us down on some things. Even the introduction of quantum light speed, which is great because it can enable us to capture new markets and new market share, has some risks in it. Let's not forget that. because when we are bringing to the market 10 to 20 times better price performance, where it can also be price cannibalization that can hit us right away. But again, that's the right thing to do to capture the market and to win in these segments. So we will be a little bit more I mean, the translation of the billings to booking may be a little bit more conservative, but we feel that we can drive very nice growth in revenues as well, much faster than we projected in the past, of course. And we will invest a lot in the business. So if we start with that, let's look at the projection for the full year. For the full year, we actually have here quite a wide range. And again, based on everything I just said, plus revenue, the uncertainty about the economy that we are seeing every day. So between $2.2 billion to $2,375,000,000, that's the range for the revenue. If you translate that, that's a 6% growth target at the midpoint and 10% growth at the high end. I mean, as you know, my regular caveat, projecting the future is very challenging. There's always a high level of uncertainty. Again, there is the potential of better results or even worse results in our projections. I hope it's to the better part, but you can never know. Non-GAAP EPS is expected to be between the range of $6.90 to $7.50. And GAAP EPS is expected to be approximately $1.22 less than that. That's for the full year. For the quarter, the range for the revenues is expected to be between 517 to $547 million. And non-GAAP EPS is expected to be between $1.48 to $1.58. GAAP EPS is expected to be approximately $0.32 less. So let's kind of conclude our presentation. And we'd very much love to hear your questions. So who's going first?
spk06: Well, we're waiting for Kip. He's probably going to do that.
spk11: My apologies for that. Please, everyone that's going to be asking a question, don't raise your hand. We already have a list and you'll be selected. I will call out your name and also call out the person who's in the hole. Please limit your question to one so we can get as many of the panelists in for Q&A as possible. Our first question is going to come from Patrick Colville of Deutsche Bank. We'll be followed by Greg Moskowitz from Mizuho.
spk05: Thank you, Kit. Thank you for having me on. I mean, congratulations on a really excellent set of results. I guess The standout was the guidance you just gave. Very impressive, no doubt. Can you just kind of pick apart the factors behind that? I guess the contributing factors are probably the cybersecurity spending environment, the product mix and suite, and then any changes around pricing. So can you just kind of give us some color around how those factors are playing into that guidance?
spk01: Albert, it's for you.
spk06: Okay. So I'll say the following. We've seen last year, we came into the year with the expectation of 3%, but we have seen through the year an acceleration. If you look at the billing, both short-term and long-term, but even if you look at the short-term, we see billing growing, so it's starting to translate into the P&L, so we start to see our revenues increasing from 3% to three and a half to four to four and a half to five, even higher the Q4. So we came in more optimistic because we see a really nice business. You see in the revenues, that's why I talked about it, that some regions look weaker than the other, but actually billing the three of them finished strong. So hopefully it's an indication that we're starting to see the result of some of our investment. We invest in CloudGuard and in Harmony. So while it's starting from small numbers, it's starting to have also an effect on our revenues. So that's nice to see that as well. So taking all of that into account, we feel that the midpoint moving up to the area of that, whatever it was there, 6%, right? So that's the beginning point. The range you take into account, and that's something very hard to calculate. And I think Gil was very open about it. How much each risk translates, very hard to know. But we do know that we're going into a year that there's higher risk when it comes to the supply chain, because we see like a Q2, Q3, Q4, We see more and more issues. We solved all of them. We're working on them daily, closing items, new problems opening, solving them. So it's a very fast run with these shortages. We assume it will continue probably the first half of the year and start to elevate towards the second half. I'm not sure it will happen, but I'm hoping it will happen. So that's really relating to the shortages. Microeconomic, I don't know what will happen. I hope it will continue to be strong. COVID. Sharda Ganga, Ph.D.: : Travel is going back more and more people travel how much it will affect we took an assumption midpoint within assume a full return to. Sharda Ganga, Ph.D.: : level we assume stronger levels of travel in this year, hopefully, but we don't know we see different waves showing up in different regions when different reaction so travel is somewhere in the middle currency, we took the current rates. Sharda Ganga, Ph.D.: : So if it will change dramatically i'm not talking only about the expenses it's also change. customers' behavior with their budgets. So I'm assuming that what we know right now about the currency will stay. So it affects the expenses, but hopefully no effect on the revenues. So the assumption there is no additional shift there. Growth in the cloud guard, growth in Harmony, growth in Infinity, definitely part of the assumptions there. I hope they answer your question.
spk05: Yeah, I mean, that's excellent. Thank you so much.
spk11: All right, next up, we have Greg Mostowitz from Mizuho, followed by Adam Tindall of Raymond James.
spk09: All right, thank you, Kip. Nice to see the great results. Just terrific to see the improved growth and execution at Checkpoint. I have two related questions, if I may. So, you know, from what we've heard, some of your competitors are also doing pretty well. And I guess my question for you, Gil, is within network security, is there anything that you can pinpoint that perhaps is driving stronger demand. And then for CheckPoint specifically, I believe you said that internally you're expecting double digit billions growth for 2022. Now, obviously there's a sales productivity ramp, but my question there is how reliant is your growth projection on your ability to expand your frontline Salesforce by 25% this year?
spk01: That's an excellent question. First, I think that many of the initial numbers that we enter are based on the existing Salesforce, but we are pushing very, very hard for the Salesforce to hire fast and actually even higher at the beginning of the year. Usually when we say 25% growth or 5% growth, we do that growth along the year. This one, my message to the Salesforce is hire salespeople as fast as you can in the first quarter. Again, I'm not sure that we'll be able to make it. It's hard to recruit people these days. And such growth is not a trivial growth to an organization our size, but still that's the message. I think if everything works, we are set to very nice numbers, but I think not everything will work. I think we won't be able to recruit all the people. They won't all be productive. But I think that we can get to the numbers that we've set to the range that we put in. based on what we have now and based on the productivity we have now. So that's the kind of the general. And again, I can tell you, we just finished our CPX conference. CPX conference says for customers, partners, and employees, we had three in APAC. In Europe and in the Americas today, the European one is going to end and it went very, very well. 25% increase in attendees, excellent scores, excellent feedback, excellent energy. So I think we're starting the year on the right track.
spk09: Thank you.
spk11: If I can highlight for everybody also, if you'd like to see the CPX event, you can actually sign up and register and we'll have video on demand. Next up, we have Adam Tindall followed by Gray Powell from BTIG. Go ahead, Adam.
spk02: All right. Thanks, Kip. Just a clarification for Tal and then a question for Gil. Tal, six consecutive quarter with accelerated billings. You're now approaching mid-teens growth in the billings metric. I just want to dispel any skepticism there. You've talked before how billings can be impacted by duration. Was there anything notable in the quarter on that? And I think you also implemented some price increases here in the early part of 2022. Any sense of pull forward in Q4 ahead of that price increase based on what you're seeing here for billings trends in early February? And Gil, if you could just talk about that broader decision for price increases in any customer or partner response based on your conversation. Thanks.
spk06: Okay, that was a long question. I'm not sure I remember it, but I'll try. So first on the billing, the billing was strong. You can see also when you calculate the short-term billing, you see a double-digit growth, right? I think it was 10% or 11%, which is also an acceleration from, I think, 6% last quarter. I can't find the numbers, but you can calculate them. So the growth is, if you look total billing or even short-term billing, you see that it's good. So even if some of this came from multi-year, which it always does, you can see that the that it's accelerated also in the short term. Long-term is a good phenomenon. It's not the focus, but it's a good phenomenon because customers are going with you for the long run. So that's always good, but both of them increased. The second part of the question, I don't remember. Ah, if there was maybe an effect on the price increase. Remember, we sell to the distributor, we sell to the partner, we sell to the end user. So it's very hard to know what caused the billing. I would say probably there was an effect, I don't think it was hundreds of millions, right? But it might've been maybe $10 million. Yeah, there probably was some effect of trying to avoid the increase in the pricing.
spk01: And remember, there were price increases would start from January 1st. So again, the impact is that maybe some of the people did the purchases or the renewals a little bit earlier. But again, I think we wouldn't be proud of the billing growth unless we felt it's meaningful. Let's put it that way. As you know, every quarter, we're trying to play down the billing number because again, in many cases, it doesn't represent. This quarter, I think we've seen some very good indicators who were not just showing these numbers because they are impressive, but because at least last quarter, I don't know if you predict the next quarter, but last quarter, we've seen very good internal metrics.
spk11: Thank you. All right. Next up, we have Gray Powell from BTIG, followed by Matthew Hedberg from RBC. All right, great.
spk12: Thanks for taking the question, and congratulations on the good numbers. So yeah, how should we think about the upsell opportunity with Avanon? Did that acquisition contribute meaningfully to the improved billings growth in Q4? And then just, you know, how should we think about that acquisition in the context of your 2022 outlook?
spk06: Just look at the total number now. They had an effect, but very small one. Of course, it's a very small company, but we definitely believe in them and believe that they will grow significantly next year. And that's why Gil said, We announced it as one of our rockets, the Harmony Email Security. They are a major part of it. Also, we consolidated it, of course, with Checkpoint Email Security. So we believe it's a fast-growing. We want to invest in it. If anything, it's actually increased our investment, which is different profit profile than Checkpoint, which is part of the margin plan for next year, because we want to invest in it, as we believe it's a very nice and fast-growing market.
spk11: Okay. Thank you very much. Next up is Matthew Hedberg from RBC Capital Markets, followed by Sterling Audi of JP Morgan.
spk03: Hey, thanks a lot, Kip. Congrats, guys, on the results. And by the way, I love the new logo and branding. It's great. You know, Gil, what really stood out to me is the 25% Salesforce growth expectation. I'm curious, how does that relate to maybe prior targets that you've had? Because it seems like it's a substantial increase. uptick from what you've done historically. And then, you know, can you talk about the challenge of finding good sales talent these days? And is that maybe an inhibiting factor as well? But the number, the target looks really, really strong.
spk01: First, it's your right. It's much, much bigger than what we had before. In the last few years, the numbers were all single digit growth. And in many cases, we didn't achieve them. And some of them, we didn't achieve them because we weren't investing. And some of them, because the general tendency of the sales force is actually, you know, the salespeople, they like to, you know, keep their territories very big. So they keep the opportunity for themselves. And if they got the budget for hiring, they like to hiring support people that will help them. So over the last few years, if I actually analyzed our growth in the sales, big parts of it came in the form of creating overlays that can support our strategic products in more technical help to the salespeople. But in some areas, particularly in America, we almost didn't increase the capacity, the salespeople. And we need more salespeople. So this investment is not just an investment from... It's a big change internally in the mindset of people. Yes, we want to go and... and attack yes we want to go and find new customers yes we want to go and serve our big customers and not only the big customers in all segments better and it's a big change internally now i think it's doable i think the target i've set for the people is that they can hire all the people in the first quarter i don't think that we will necessarily achieve all of that in the first quarter but i think there are good people many people do want to work for checkpoint we understand that they sometimes working for a other company. I mean, there's a lot of promise, for example, working for many startups, but on the other hand, trying to build your reputation and establish yourself in the marketplace is not as easy as it sounds. So I think that we do have a good cadence. We do have a good pipeline of salespeople. It will probably take us some time to hire that, but I think the change should be should be meaningful. Some of it this year, some of it we may rely this year, and a lot of it next year.
spk11: Thank you. Thanks, Matthew. Next up is Sterling Audi from JP Morgan, followed by Joel P. Fishbein Jr. from Truist Securities.
spk10: I want a full name like that, Kip. Thanks, guys. So Tal, can you help us? I wasn't completely clear. What was the magnitude of the price actions that you took? What was instituted during the December quarter? What was instituted after? And how should we think about that impacting the gross margins in light of the EPS guidance that you gave?
spk06: Actually included as part of that, right? So let's talk about it one second. First, the price increase was announced in December or maybe in October for the beginning of 2022. That's one.
spk01: The price increase in the fourth quarter. It starts on January 1st, just to be clear.
spk06: Yeah. So that's one. Secondly, we didn't do an increase. I know many people increased significantly more. We increased, I think, only in 7%. So it's not a huge increase. So that's part of the next year. You will start to see that. And that's why to the question, maybe some of them put it before. It's not like 30% more increase. So it might have shifted the millions, but I don't expect it to be 50, 60 million increase, right? So it might have been 10, right? Just throwing an expectation. But it's very hard to know. For next year guidance, we took into account everything. So on the one hand, you have that. On the other hand, you have price competition is regular. You have Fariba R. A light speed, which might pull this be actually down and you have the higher costs, the increase in the cost is higher than 7% so it's included this part of the margin right.
spk10: David Price- got it all right, thank you.
spk11: David Price- All right, our next caller is from junior and then it'll be followed by Philip winslow from credit Suisse.
spk07: Thanks, Kip. Gil, just one for you. Log4J has made a lot of noise, but we really haven't seen a lot of breaches from it right now. What do you think the potential impact is of that for the overall market? And then also, you hit on it a little bit in your prepared remarks, but I'd love to hear how that could be an accelerator for you guys to the overall results.
spk01: We are not relying on any specific break as an accelerator for our growth, but it will have an effect on the market. It's one of the most... challenging vulnerabilities ever found, not only because it's easy for a few reasons. First, it's easy to exploit. Second, it's on interfaces that are open. Many vulnerabilities are on interfaces that are behind closed doors, that are internal to the data center, but there's a higher level of protections. But Cloud4j is almost on every web server and many, many web services outside there. And it's really easy to exploit. One string causes a remote code execution. So that's the worst part. Now, I think the industry created the load. And by the way, that's evident. Usually, you see vulnerabilities every day. We see that inside the industry. But the most of them, you don't find an exploit And maybe there are exploits that are being used rarely, so we don't see them, but you don't see the exploits. In Cloud4j, within 48 hours, we saw like 60 different variants of exploitations. So it was very, very easy to understand how to use that to attack systems. I think that enterprises around the world did the right thing and patched it and tried to fix things and so on. And that's great. But I think there remain tens of millions of servers out there that nobody touched because nobody knows that they're there because nobody's managing or nobody in the handling. And they will be the source of infections for probably many years. Because again, the attackers are not just on day one. On day one, they showed that they know how to do it, but And maybe I'll explain. When you look at the attack, there's multiple steps. There's a model, the Mitra model, which shows how it works. So first is collecting intelligence. Second is finding the entry point. And then inflecting it with the malicious, the malware. So this is the new entry point. It's an easy entry point. And this can be used in the future by many hacking groups, whether it's by many criminals. And I'm sure it will be used and will have impact on the industry.
spk07: Thank you.
spk11: All right. Our next question is from Philip Winslow, followed by Jonathan Ho of William Blair and Company.
spk08: Great. Thanks for taking my question. Great to see you all are doing well. Gil, a question for you on cloud security. If you think about the commentary we've seen from the hyperscalers the past couple of quarters, it was accelerating shift of workloads to the cloud, but also just the mission criticality of the workloads that are shifting, not just to a single cloud, but multiple clouds. When you think about the impact of that, the checkpoint, and just sort of call it attach rates of security in the cloud, what are you hearing from customers? And maybe if you give us just more color on CloudGuard in particular, that'd be great.
spk01: I think cloud security is very high priority for every customer. We see that every conference or every interaction. It's not a giant industry at the moment, and it's unclear, by the way, how it will shake up. There is plenty of startups that are targeting it from multiple directions. The big cloud providers, Microsoft, Google, and Amazon are investing in that. I think we shouldn't be blind to that. They are investing in creating, on top of that, by the way, one of the biggest the big confusions. The big cloud providers are investing in making and are doing a good job in making their platform secure. They're not usually taking care or of the customer application. That's the customer responsibility. But now we are making investment in securing the whole thing and making security also part of their business, even in some cases in multi-cloud environments. Because one of the arguments for our industry is that we will deal with everything. So there is an investment there. I think it still remains a very important challenge. Area for us to protect, very important opportunity in the marketplace. How it will shake up, I still don't know. I mean, we've seen markets that have taken, I mean, I'll give you another example. Mobile security is a good example of a market that I think for me, it's evident that people need to invest, but companies are not investing in mobile security enough. I think that cloud will change that because the structural impact of that is much, much bigger. It's not an individual device. It's the whole company. It's the whole assets. And I think the benefits of Check Point remain very important. The fact that we are connecting the private cloud to the public cloud, the fact that we are connecting all the different elements, but it's still a very interesting and a very challenging market. And so, I mean, we'll... continue to invest in that. And I think we were expecting some good, good evolution in that marketplace.
spk11: Great. Our last question is going to come from Jonathan Ho of William Blair. Go ahead, Jonathan.
spk04: Thank you for squeezing me in and let me echo my congratulations as well on a strong quarter. I wanted to touch on sort of the light speed comments around cannibalization that you made. And one thing I did want to understand a little bit better is that I don't think I've ever seen Check Point play the sort of price performance game And so does this sort of shift, signal a shift in your own strategy going forward? And how do you think about your potential impact, just given that the ratio dramatically changes with something like Lightspeed? Thank you.
spk01: First, we've been competing in that, and not necessarily on our release price, but we have been very competitive. And by the way, we win many of the big data centers, especially of the big financials, when we compete head to head with other companies that are making price performance their only business. So I think that's the reason that we feel the light speed can change this dynamics. Again, there is some risk when we put in place the measures to try and contain it for cannibalization. Because again, when you sell 10 times more or 10 to 20 times more performance for the same price or for a much lower price, It can change the behavior. But I think overall, it's the right move for us. And we want to win that. And there is many, many hundreds of me. Let's put it that way. The opportunity in the data center is far bigger today than, for example, cloud security. In five years from now, I don't know. But in 2022, the data center market is bigger than the cloud security market. And it's a market that's ours. We know the customers, they love us, they use us, and so on. So expanding our market share in the data center is an important opportunity.
spk11: Gareth J. Alright guys, thank you very much, we appreciate you attending today we'll look forward to speaking with you after the call and in the coming days and weeks. Gareth J. Again, if you guys would like to revisit cpx go ahead and sign up, we have it on video on demand for those of you that missed it and we'll see you in the coming weeks, thank you.
spk07: Thank you very much.
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