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spk00: You started it. No, no, I didn't.
spk11: All right, guys.
spk04: Okay, keep us a recording, which means higher listed.
spk11: No, we got to wait till we get to the. Well, we'll start it away then. All right, guys. Greetings. My name is Kip B. Meinzer, Global Head of Investor Relations for Check Point Software. I'd like to welcome everyone to our first quarter 2022 financial results video conference. At this time, all participants are in a listen-only mode. during the formal presentations, which will be followed by a question and answer session. Joining me remotely today on the call are Gil Schwed, founder and CEO, along with our CFO and COO, Tal Payne. As a reminder, the video conference is live on our website and is 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 would like to reach us after the call, please contact Investor Relations at email at kip at checkpoint.com. During the course of this presentation, checkpoints representatives may make certain forward-looking statements. These forward-looking statements within the meaning of Section 27A of the Securities and Exchange 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 our products and solutions, expectations regarding our customer adoption of 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, services, and general market, political, economic, and business conditions. including as a result of the impact of the COVID-19 pandemic. These forward-looking statements are subject to other risks and uncertainties, including those more fully described in our filings with the Securities Exchange Commission, including our annual report on Form 20F filed with the Securities Exchange Commission. The forward-looking statements in this presentation are based on information available at the checkpoint as of the date. Our checkpoint 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 a 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.
spk04: Great. Thank you, Kip. Just one sec. Okay. So I hope you can see the presentation. Good morning and good afternoon to everyone joining us on the call today. I'm really pleased to begin the review of the first quarter. And the safe airborne, the forward-looking statement, I'm sure you're familiar with. Kip covered that one, so I'll go straight to the results. And let's start with the top two metrics, the revenues and the EPS, both of them at the high end of our projections. revenues reaching $543 million, which is at the high end of the guidance and the 11 million above the midpoint. If we're looking at the earning per share as well, earning per share $1.57, 4 cents above the midpoint and also at the top part of our guidance. Before I proceed further into the numbers, let me just remind you that our gap financial results include stock-based compensation charges, amortization of acquired intangible assets, and the acquisition related expenses, as well as the related tax effect. Keep in mind that as applicable, non-GAAP information is presented excluding these items. Now let's dive into the numbers. And I will start with the first one that might resolve most of your questions regarding the billing. So let's start with the top one. Revenues grew 7% from $508 million to $543 million. Really nice results and ahead of our plan. If we look at deferred revenues, deferred revenues increased in 14% for reaching 1,666,000,000. When you calculate the billing, the billing increased by 4%. Let's make two things very clear to start with. The booking was very strong, double digit growth in our annualized booking and in the total booking. It was across all regions and it was almost in any metrics that we looked at, this was one of the strongest quarters that I remember. with significant growth in the booking, but significant part is still not part of the billing. Remaining performance obligation, which I never provide quarterly, but I thought it would be helpful for you to see that this quarter, just because of the misalignment between the actual strong booking that we had and the billing, you can see remaining performance obligation, which all of you are familiar with. It's somewhat a reflection of the backlog, deferred revenues plus the booking that was not invoiced yet. increased by over 20% year over year. So really strong quarter. Moving ahead, let's look at the revenues by product and security subscription. Again, quite an exciting quarter when it comes to the breakdown. Product increased, you can see, from negative in the last two year over year, both in Q1 and in Q1 2021. This year we are in 6%. It's an acceleration from the growth that we've seen in Q4. which is in line with what we're seeing also in the booking, which was actually significantly stronger. When we're looking at security subscription, again, 10% moving to 12% growth, moving to 14% growth, strong growth there. Let's dive a bit to the drivers behind the growth. So when we look at the product, appliances were very strong. We see a growth both in units and in dollars when it comes to appliance product bookings and revenues. And it came from across the appliance family, SMB appliance, mid appliance, large appliance, maestro switches, both in dollars and in cents. Can you hear me well? Okay, it went away. Good, thank you. So I'll repeat the last sentence just in case you didn't hear it. Erika R. A appliances SMB midsize large size the maestro switches all increased both in dollars any number of units so very strong quarter when it comes to products. Erika R. subscription revenues growth continue to be strong with 14% coming from the same drivers, so we see success in harmony. Erika R. cloud God both in revenues double digit infinity revenues, which include two or three pillars of our solution. continue as well to be strong with triple digit growth year over year in the revenues. So really nice results from any angle that we looked at from this perspective. First time in a few years that product and subscription revenues together reached the first metric that we put for ourselves with the target to reach double digit growth in our new business, which is typically the product and the and their subscription revenues. So increased from 5% to 7% and heating for the first time, I think from 2017 to 11% growth. So that's very, very nice to see and in line with our plans. Moving ahead by geographies. Also here, when you calculate the revenues, you will see clearly it was quite a nice quarter. America with 43%, EMEA with 44% and 13% for APAC. When you calculate, you will see two things. You will see that all regions increased this quarter. We're super excited about America, which moved to a nice growth. I can give you in the background the data that you don't see. Very strong double-digit growth in new business booking across all regions. New booking means it's not renewed. So we see growth of double-digit in all regions, in America as an APAC. Also annualized booking, which is excluding the multi-year on purpose, so we will see the health of the business, was double-digit in all regions, and America leading the growth under the new leadership with a super exciting quarter. So really nice to see that. Moving to the P&L details, start with the gross profit. So gross margin continues to be strong at 88%. Naturally, as you all know, there are supply constraints in the market which affect all of us, many components costs increased significantly leading to higher costs. And you will see it as part of our cost of goods sold, which led to the margin moving down in between one and a half to 2%. It's a small portion of our total gross margin. That's why it's still very strong at 88%. But when you look at the cost of goods sold, you will see significant increase there. For us, number one priority is to deliver to our customers and to focus on the top line growth as we all defined in the beginning of the year. We were very successful at that. And so far, there's some delays, maybe a week, two weeks, three weeks, but we are way ahead of the market in terms of our ability to deliver. I hope it will stay that way. I will tell you exactly the same like the previous quarter. I cannot guarantee it, but we're working really hard and paying what we need to do in order to be able to deliver to our customers. As for the situation, I hope this is temporary. These supply chain constraints, It looks longer than people thought last year. I hope it will be finished by the end of the year, but we cannot guarantee it. All of us seen the news about the China and the lockdown. So hopefully it will be resolved quickly. Moving ahead with operating expenses highlights. So you can see operating expenses increased significantly in 15%. For us, it's good news because I remind you, we discussed in our plan that we want to increase the workforce, mainly sales and R&D. and continue the elevated investment in our rockets, Cloud Guard, Harmony, in order to continue the strong momentum that we've seen already in the fourth quarter of last year. And we see the continued momentum also in the first quarter of 2022. So in line with that plan, we increased our workforce in about 15%, which is, as you see, very much in line with the increase of the expenses that we see here. Of course, it's including also Avanon and Spectral acquisitions. Avana was Q4, so in year over year, it's part of the growth. And Spectral was in February 2022, so it's partially part of that number. Operating income, operating income, non-GAAP operating income continue to be strong at $239 million, which is 44% operating margin. Very strong, still under the growth of the 15% in the headcount. Our financial income in line with our projection, about $7 million, reflecting the reduction in the portfolio yield, which should happen in the last two and a half years. I think this is it. We are in an environment that the interest rates are going up. So over time, as the portfolio will release, we will be investing it in higher interest. So very, very slowly, probably we will start to see in the next two or three years, the growth in the In the interest income, assuming that everything else will stay the same, meaning excluding M&As and activities like that. Non-GAAP tax rate for this quarter was around 17% and in line with the plan, expect similar rates for next quarter. Non-GAAP net income was $204 million and $1.57 DPS, which is 4 cents above our midpoint and 2% increase year over year. Gap net income was $169 million, or $1.30 per diluted share. Moving to our cash flow. So cash flow balances of $3.8 billion, very similar to the end of Q4. It's actually a slight increase. Operating cash flow this quarter was super strong, almost $400 million, an increase of 6% year-over-year. If we eliminate the acquisition effect, it's actually 7%. Sharda Ganga, During the quarter we continue our buyback program and purchase 2.5 million shares so it's less than we planned, because the share price moved up. Sharda Ganga, The average share price that we acquired was $131 per share so it's 2.5 million shares for a total of $325 million in line with our buyback program. Sharda Ganga, And now. I will just summarize it. So very strong financial results, revenues and EPS at the high end of our projections. We've seen growth in all geographies, which is nice to see America joining that growth. We have double digit growth in the product and subscription revenues together. A very nice milestone. And we continue to focus on the top line growth. And that's where we are at this point of time. And now I will turn the call over to Gil for his business review. Thank you.
spk05: Thank you, Tal. And hello, everyone. I hope you can see me well. I want to give you a little bit of color about how we did in the quarter for all about the industry in general, a little bit what we're seeing in cyberspace and also about the specifically about some color that Tal didn't share about the checkpoint. So let me start with the state of cybersecurity, which I think is also reflected somehow in the financial markets. We see constant increase in the level of cyber threats. You can see here on the chart, this is where we measure the number of attacks on every organization every week. on the global scale. And you can see that there is a 54% increase in weekly cyber attacks globally on organization. In the last quarter, one out of 53 organization was impacted by ransomware. That's again, a 24% increase. And on a qualitative side, we see continuous increase in sophisticated attack, what we call fifth generation cyber attacks, which is, I think, also something that we all need to worry about. So clearly we see that. And we look at the Gen 5 attacks, things that are called attacks that are called supply chain attacks, that get to us through software components and software that gets into our infrastructure and infiltrates the rest. We've seen last quarter the Log4j, one of the most devastating exploits vulnerabilities that we've ever seen this quarter it was followed by something similar not that strong but in the same order of magnitude spring for shell in log4j um we saw that more than 50 percent of corporate networks were targeted and that's a component by the way the log4j was a component that appears on almost every web server and web service spring for shell as i said something similar slightly lower magnitude but already in less than a month one third of corporate networks were exploited by that we're very very proud to say that checkpoint upsec cloud guard upsec was the only solution to provide preemptive protection against it so customers that listen to us you install our Infinity architecture, pull this AppSec, which is AI-based component in front of the web servers, we're protected. And that's where our message is about providing the best security and doing it in a preventative mode. It's not just indicated that, it's not just gave an alert, it's actually blocked the attack before the attack was even known to the world or to us. This is an interesting indication about what we can do. It's not just us that are noticing that. Sorry that I'm standing in front of your president. I'll move myself a little bit. But you see that Joe Biden issued a statement about the Manfaco. This is a critical moment. It's time to accelerate our work to improve domestic cybersecurity. And the next part is, Your vigilance and urgency today can prevent, he also says, or mitigate attacks. We are in the prevention. So if you can prevent, I think it's the best possible way. So I think there is the room for the world and there is a lot that we can do to actually make that happen and prevent the next cyber attack, prevent the next cyber pandemic. And I think that's what we are doing now. handling Gen 5 attacks, not just Gen 3 attacks, and doing that with prevention, consolidation, and providing the best security. So I'm very, very proud of that. And I think that's what we aim to do at Checkpoint. And that's what we do. In order to do that, I think last quarter we shared our five key initiatives for the... for the year and for the quarter. And I think we've started pretty well on all of them. Company rebrand with the new slogan, what we've been doing for almost 30 years, but the new slogan, you deserve the best security and you go to market organization, our checkpoint rockets organization, product breakthrough with our quantum light speed and continuous investment in growing the organization and specifically growing our frontline sales. I'll go through some of these initiatives in the next few slides and just give you a quick update on what we've done because I think we've done quite well and did a lot in the first quarter to make that happen. So I think you also already logo and I think that resonates very well and you deserve the best security. People are starting to get our message about the differentiation of checkpoint security. And that's not just based on slogan or marketing. That's actually based on the checkpoint infinity architecture about the fact that our network security, cloud security, user and access security are all built together, all using the same advanced technologies that can stop every threat on each one of the access vectors, all using our shared infinity vision, our shared threat cloud vision. with real-time threat prevention to actually stop these attacks. And again, I've demonstrated in some examples. I'll show you later more. Switching to our new go-to-market organization, we've brought new leadership to head our go-to-market organization, Rupal Hollenbeck. Rupal has been on our board for a little bit more than a year. So we started knowing her and we were very impressed. She has a very impressive record being a CMO for Oracle and more so more than 20 years in Intel and leading a $23 billion global data center sales organization. So she clearly understands what it's like to run a large-scale organization. And we also moved the headquarter of this organization to Silicon Valley, which I think is also a very positive thing, or it should be. And I think we have three goals in making that move. One is extend the reach of what we do to more customers, more segments and broaden what we do. Doing it with better integration between sales and marketing that will generate greater impact and scaling and extending our partner relationship, our relationship with the entire ecosystem. And I think this should work very well and should resonate very well. So we started that move and I think it was accepted very well. We've made a big push in order to grow our investment in the organization. And specifically, my number one focus is to grow frontline salespeople. Those work and call and deal with customers and sometimes partners. to grow the sales. My goal was 25% as soon as possible. As you can see in the chart, we're over one quarter, pretty much halfway there. And I expect that in the next two, three months, we'll hit that target or be very close to it. And we'll have more capacity to grow our sales in the second half of the year and mainly be ready for 2023. with the capacity that we need. We've also continued the hiring in other parts of the organization. R&D, we've been extremely successful, actually a little bit better than we anticipated. We already reached our year-end growth targets in many organizations, specifically in R&D. And that's despite the tough hiring condition, despite everything we're seeing all around the world of resignations and tough to recruit top talent. We've been more successful than we've anticipated. And by the way, that also has a slight impact on our expense level, which is higher than we anticipated because we hired too many people. But I think it's the right thing and we're building the right infrastructure. We've also formed along these lines the Free Rocket Organization. And just to remind you, the idea with the rockets is to make a much tighter combination between R&D, sales and marketing, and specific growth areas so we can launch it fast and be very, very agile and make bigger investment and bigger growth in key organization. We started that structure with free organization, the cloud organization, which is pretty big, over $100 million. And second is the Harmony email, which is mid-size, tens of millions of dollars in sales based on acquisition we did last year. But again, a great expansion area when we see a lot of success. And third one is more a startup, is a rocket that's hardly being launched. And that's the MDR, Managed Detection and Response, or what I'd like to call it, Managed Prevention and Response. Because in Checkpoint, we don't just detect, we actually prevent the attack. So we've launched these three rockets and I think it's starting to work quite well. And hopefully we'll see better, more results and better results later in the year from that. So I think all in all, you see that we're executing on all the pillars and all the initiatives that we had. And I think that reflects in some of the business momentum that we've seen in the quarter. And without interfering too much with the financial slide that you already show from Tal, just if you look at revenues, you can see that over the last three quarters, we had a very nice steady increase in the revenue growth. And if you remember, we've talked in the past about the fact that APAC, we got things pretty much right. EMEA, we did the major turnaround last year and brought new leadership. And last year had an amazing results in EMEA. And we're saying US is a little bit behind. And here you can see that the US, this quarter, was starting to make this turnaround and produce very, very good growth rates across the board, which is something we are very proud of. So three quarters after we've had the new leader of our US organization exactly a year ago, I think it was April or May of 2021. So three quarters later, we We are seeing good traction here, and I really, really hope that this traction is a sign for continuation of these charts. And this is best demonstrated by, not just by, you know, the chart and the overall numbers, but where we win. And you can see a few examples. I've talked about the Harmony email rocket. So you can see some results with real customers, a big US government agency, 40,000 users. tested our solution. Within 10 minutes, we found 50,000 phishing attacks with our solution. We replaced the other vendor that was there before. Very proud of that. And we're very happy about the results that we had. Another one, a big manufacturing, actually a sophisticated one in the technology space in North America, had an email-based attack. Wasn't happy that they weren't ready with our previous solution. And they found that with Checkpoint, they got the best catch rate and, again, zero-day malware. See, slightly different than phishing attacks. That was the thing about the other customer. 15,000 users implemented it on their cloud email. Again, great results, great success for this company. But as I said, our success lies not, or our vision is not just about individual components, but it's about the integration and the infinity vision that we have. And you look at that and you see a few examples of customers that are expanding the use of our technologies with infinity. All of them deploying more and more pillars from our technologies and look at the checkpoint, best security as the main reason to switch You can see on the left side, the U.S. transportation in the rail industry in America, new customer where we replaced Cisco and Sophos. They were looking at both our Quantum and Harmony families. They purchased our Harmony and Quantum family. Again, great success in the new customer. In the middle, in the sports industry in the U.S., And they actually implemented the full three pillars, Quantum, Harmony and CloudGuard. They found their testing that we provide much better security, much better management, one against Palo Alto. And again, I gave all the examples so far about the US because we truly had a good quarter in the US, but the rest of the world, wasn't much behind the rest of the world was also good so one example from europe a european energy and utility vendor implemented quantum and harmony one against fortinet and cisco new customer i think that they found again the checkpoint security to be the best and these are all good example by the way these are not the largest deals of the quarter we had some really, really large deals and expansion of giant customers that we have in sectors that we all know. We chose here to show some new examples of new things and new initiatives that we are doing. And I think we're doing quite well on them. So if I need to summarize, we had a very good quarter. I couldn't be more pleased. And again, some things you see here on the revenue side and on other metrics, some things I see internally. And internally, the measures that we see are are even healthier and better strong performance on the revenue and eps america strikes back i think overall our market despite all the challenges despite the supply chain issues that are real despite the tension in around the world all of these have impact on us but despite all of that i think the market remains healthy our results continue to be quite good And we continue to invest in growth. And this quarter, I'm very, very pleased to see that we saw the results, both on the investment side, but more important, on the top line side. And I hope that this traction will continue. So thank you very much. And I would be very happy to open it to your questions. Or I don't know, actually, first, let me speak about projections. So projections, you know, my regular caveats. always upside, always challenges. These days specifically, there's plenty of challenges. And on the same token, I think we had the pretty good beginning of the year. Actually, I can't remember such a good start for the year. Many, many, many years. Usually we start Q1 slow and then we accelerate. This year, we started very strong and I hope it will be able to keep up with the pace of business that we had in the fourth quarter. And so projections, I mean, we're keeping the projections for the year and for the quarter, for the second quarter, which we didn't provide projections. Revenues are expected to be in the range of 545 to $575 million. I think it's slightly higher than some of the models and some of the analysts. Non-GAAP EPS between the range of $1.55 to $1.65. GAAP EPS is expected to be approximately 35 cents less. I think... Again, I'm very optimistic. I don't want to be over-optimistic. I don't want you to raise your expectations too much, but I think we had a very strong beginning of the year, and I hope that the rest of the year will show even more of that results flowing from our business pipeline to our business bookings to the revenues and to the EPS. So thank you very much, Tal. I don't know if you have something to add before we switch to the Q&A on the projections. No, I think it's fine.
spk04: We can start with the questions.
spk11: All right. Our first question of the day is going to come from , followed by Jonathan Ho from William Blair.
spk03: Okay, great. Kip, can you hear me okay?
spk11: Yeah, we can all hear you.
spk03: Okay, excellent. Great, everyone. Thanks for taking my questions here. Tal, maybe just to start with you. I appreciate you addressing the billings and bookings point up front. I think you said double-digit growth in bookings and let's call it 4% growth in billings. I was wondering if you could just dig into that divergence between bookings and billings a little bit more. Is that because of supply chain challenges as we've been hearing about? Is that because of infinity? And related to that, when do you think those two metrics maybe start to converge a little bit more?
spk04: Good question, because if you recall, we've been here for a few years, and I always said, I don't want to give the billing because it will confuse you. So two quarters after we started, it's already confusing. The reason is there was always a gap. I mean, it's not the first time it happened. Many times there is a gap. Over time, of course, it closes, but in specific quarters, it can be higher or lower, and the reaction is always dramatic. So I thought in advance I will give the explanation because now we give the billing. So I'll just give you two examples. Let's take infinity. So infinity typically, I'll give you three examples just to give you a sense why they can be gap. First, if you have a deal that is inverse quarterly, then of course you will see only the first quarter in the billing, but in the booking you will have the full amount. If you have a infinity, that the invoicing of the product is only once they pull it. And if you recall, we said in infinity, they have a year. If they didn't pull it yet, you will not see the billing. That's another example. Another example, much simpler. In product delivery, we issue the invoice only once we deliver. Now, since this end of the quarter is typically very back and loaded, in a regular universe where you deliver in five hours since you get the order, In the new universe, sometimes it takes you a week or two weeks or maybe three weeks. So you will see the billing only once you deliver. So all of the above can create a gap between the booking and the billing. So it's the same reasons that always been. So there always was a difference between the billing and actually, and then it translates, of course, to revenue. So there's like three legs, first the booking, then the billing, then the revenues. So you're a bit behind, two steps behind the revenues. But it's never close. Sometimes this is higher, sometimes this is higher. Over a year, you should be aligned in a high level.
spk03: Okay, got it. Maybe the follow-up then for – maybe I'll make it for you, Gil. You've talked about investing more in go-to-market, and I think some of the hiring numbers show that here as well. You've added new regional leadership as well to enable that. Gil, the question is, can you just maybe go one level deeper into some of the changes that you'd like to see in go-to-market to really sustain this type of growth?
spk05: I think there's many, many. First, I think we have amazing team of people in our field and they're doing the job. But I think we need to be far more aggressive in addressing customers, far more intimate with customers. I think one of the things that's holding us back is that we have very loyal customers. They like us. They stick to us, but they work with us on the firewall side, on the network security side. And we have to work really hard in order to be elevated in the organization and get customers to other projects in other areas. We have to attack more and get more new customers. And I think we can do that. I think we need to, in many cases, be more aggressive on that, expand the methodologies that we work, get to the relevant points about providing the best security. Again, we've always stood to provide the best securities. When you're already a customer, you take that for granted. You don't even see that. You think that that's the world. We need to make sure that people understand that, and people understand that there is a huge differentiation in products. and vendors in the level of security. We get too many environments where our competitors were, we replaced the competitive product and we see that the product was activated with very, very basic rudimentary security capabilities. And when we start enabling more advanced security capabilities, we find so much things that can be stopped. And so I think these are some of the biggest changes that we had. And it's a coverage and it's, again, there's all these things that needs to be done on the field. And again, the combination of sales and marketing can also add to that. I think we're making good progress on all of that and hopefully we'll do even more.
spk03: Very helpful, guys. Thank you.
spk11: Thank you. Our next question is going to come from Jonathan Hove, followed by Keith Bachman from BMO.
spk10: Fantastic. Congratulations on the strong quarter. I just wanted to follow up on Saket's question regarding RPO and supply chain challenges. If you expect RPO to continue growing from here, or do you think maybe this could maybe reverse course? I just want to get a sense, like I know you're not guiding, but just how we should think about maybe that normalization and what that pattern could look like this year, given the impact of Billings.
spk04: I think at the end, I'll take that and Gil, you're welcome to add. I'll just say, remember, all these measurements, including RPO, is basically a reflection of the backlog. And backlog is affected by the billing minus whatever, by the booking, minus whatever you recognize as revenue, right? This is your remaining obligation. So... If the booking is good, then it should increase. If the booking is not good, it will decrease. But I will always say you need to watch out for fluctuation between quarters. That can happen very easily. If I get a very large contract that is a multi-year, then your RPO will increase. That's why I'm actually not using that as a metric because I don't want to confuse you. I just try to give you color from a few angles so you will feel comfortable to understand. And that's why I didn't only tell you the RPO, which I never do, and I don't intend to as well, but just to give you, to fill you the comfort level so you will have transparency. I give you also the booking, and I told you annualized booking on purpose because annualized booking takes away the multi-year and that increase in double digits. So it was really healthy quarter. When we look at product, product was also double digit. So the business was really healthy in any cut. What will happen in a specific quarter? I don't think it's the right metrics, to be honest. I always said it because I think it can fluctuate. It depends on large deals that can come in in one quarter and move between quarters. So you need to look at the full picture typically.
spk10: That's helpful. And then just given some of the shorter delays that you have in terms of product availability and supply chain challenges relative to competitors, are you seeing this dynamic help your business in terms of win rates or any, and also are you seeing any early order activity from customers as well?
spk04: I didn't hear the end of the sentence. Can you repeat the end?
spk10: Are you seeing any early ordering activity? So pre-ordering activity from customers who are worried about delays?
spk04: Okay, maybe I'll start with the end. You can't really know, but remember that we don't sell to inventories, except for very low level that needed by the regular business. We make sure there's a customer at the end of the road. So if the customer decided to order earlier, maybe it happens, but I don't see something very big relating to that. We looked at it last quarter. I didn't really hear it in a big way. but it might happen. I'm just not aware of that.
spk05: Maybe I'll jump in here. I think we did win some projects because we were able to supply products and some competitors didn't, and that's good. But on the same time, we had the opposite effect because some customers were building data centers and They couldn't get their other equipment, servers, networking equipment, and so on from other vendors and delayed the whole project even though we were ready to supply. So I can say that our ability or Tal's team ability to work with our suppliers and deliver products Of course, it was very important to us, but I can say that it increased the business by a big way because, again, there is an impact. If the customer can't get their switches routers, then they delay the order for their security.
spk10: Thank you.
spk11: That's very helpful. All right. Our next question comes from Keith Bachman, followed by Philip Winslow. And if we could keep the questions to one, that would be greatly appreciated. Thank you.
spk12: Hi, can you hear me okay? Yes, we can. Great. Thank you. Tal, I wanted to come back to you. on the last quarter you had talked about as you look out over the course of calendar year 22 the opportunity to grow double digits and I just wanted to hear based on you know a lot of questions on the difference between billings and kind of underlying fundamentals but as you think about you know the opportunity for billings for the year how should we be thinking about that or would you rather characterize that as you know the opportunity to reach double digits in revenue in terms of growth. So we're all just trying to filter the disparity between, I think, the solid revenue performance and underlying bookings versus the billings. And Kip, I know you asked me to keep one, but I was hoping also, Gil, you could just touch on any initial thoughts on light speed would be great kind of traction and how we should be thinking about this over the course of calendar year 22. Many thanks.
spk04: I keep asking not to ask two questions, not because we mind, just because we don't remember the first question.
spk12: I'm hoping Kip doesn't remember that I asked two questions.
spk04: I think it was about the projection for the year. So I'll say the following. In order to reach, if you remember, one of our biggest milestones that we were looking for was And internally, we also defined it in new business double-digit growth. Because new business, when you sell product, when you sell a new Harmony or a new Quantum, because that's the way they grow. Because renewals are really healthy, so it was never the concern, right? So we are focusing on the new business. So our focus on double-digit new business remained the focus, and we believe we're going to achieve that. That's what we're aiming for. We need that in order to be able, over time, to get to the double-digit growth in the revenues. On the revenues, you have the first step, which is, of course, the milestone that we actually hit this quarter, and I hope it will stay that way. The combination of the product and the subscription, a lot of it is the new business, because product is a new business, and subscription, some of it is renewal, some of it is new. But when you're in double-digit growth there, you got to have new business in order to get to double-digit. Otherwise, if it's just renewal, then you're in low single-digit, just like the support. So to answer your question, we need to grow double-digit on our on our new business in order to achieve our target of growing our revenues.
spk12: Okay, great.
spk05: And I think you asked about Lightspeed. I think with Lightspeed, we had good traction. We didn't have too many deliveries, but we did what we do have some major customers that are big enthusiastic about that. And we do have good pipeline and I think good order book for Lightspeed in general. So I think it didn't have much impact on the first quarter in terms of revenues, but so far the traction is pretty positive.
spk11: Okay, thank you. Our next question comes from Philip Winslow, followed by Patrick Colville.
spk06: Great. Thanks for taking my question. Just a question focusing on the pricing environment. Obviously, there are a lot of moving parts here. Just curious what you're seeing out there. Obviously, you've got component issues, component price increases, but also you generally do price in U.S. dollars, and there's obviously been some FX fluctuations there. So I guess maybe if you could break down sort of just what you're seeing in terms of the product and the new subscription market. bookings and any sort of pricing impact there. And then also just as you think about just the renewal side, maintenance and subscription, anything there as well. Thanks.
spk04: Okay. I can say one thing is clear. The price of the component definitely moved up. One-way streets. Okay. So you can see it in our cost of goods sold. It's moved up and it's part of the gross margin that you see. So that's the only thing that is clear. When it comes to the revenue side, then you have a lot of things moving and it's very hard to know, of course. So we increased the price, if you remember, in 7%, which I think is the lowest for any other vendor. I think Fortinet increased in like 30% and Palo Alto maybe in 8% and we increased in 7%. But if you ask if it's rich, the end user, I would say it depends. Some it did, some it didn't. It depends on the project. It depends on the competition, just like any product. So it's harder to measure that. And when it comes to the expenses, then that's the only thing, again, clearly you can measure. Year over year, we actually align. So the effect on the expenses of the currency Q1 versus Q1 is very minor, maybe $1 million or $2 million. The real effect is the growth in the headcount, which is, again, you will see it also in Q2. You saw it as part of the guidance as well because we recruited them toward February, March. So you actually see the effect more fully in Q2.
spk06: Got it. All right. Thank you.
spk11: Keep you on mute. Next up is Patrick Colville followed by Shauli Al.
spk01: Hey, thank you so much for taking my question. So I'm just gonna ask about the kind of geographic segmentation. I mean, Checkpoint's business over the last four years has done extremely well in EMEA. I mean, that's been the standout success for the company and maybe America's somewhat underperforming. If I look at results this quarter, To me, actually, the trend has very much changed. If I look at sequential growth, America's was actually very healthy and above trend. If I look at EMEA, it was somewhat disappointing versus recent trends. If my numbers are correct, it's 19% sequential decline. So can we just talk about geographic segmentation?
spk04: Wait, wait, let's stop here. I'm not sure I understand. All of them increased. If you compare quarter to quarter, all of them increased in the six, seven, eight percent. So all of them increased year over year.
spk05: In terms of revenues, actually, year over year, it may increase a little bit more. But that's, again, because of projects we won in previous quarters. I think all in all, they were very healthy. This quarter, we had a big turnaround in America in terms of the internal metrics. America had the best results. But Europe remained as healthy as it could be. And remember, Europe also suffered from lack of sales in Russia and Ukraine. But still, I mean, I'm taking that apart. Europe had a very healthy quarter, everything included.
spk04: But you're right that the growth was slower than what you've seen in Q3 and in Q4.
spk01: Yeah, the metric I was referring to was sequentially from looking at the dollar amount in 4Q and then looking at the dollar amount in 1Q. no doubt healthy, but I guess it was anything to call out. So, you know, Gil, you mentioned Russia, but is there anything just we should be aware of so that we can kind of factor that into our thinking?
spk04: The main effect in Q1 is Russia, of course, where you have basically no revenues that sits in Europe, of course.
spk05: But again, Europe is healthy and I'm very, very, very happy with what's going on for us in Europe. I wish everything would behave like that.
spk01: Great. Thank you so much.
spk11: All right, next up is Shauli Al followed by Matthew Hedberg.
spk09: Thank you. Good afternoon. Good morning, everybody. So Gil, you're essentially keeping guidance intact for the year. You've accelerated your year-over-year growth to 7%, as we've seen in the first quarter. Sound very bullish. Some of us who covered you for ages, like we haven't seen you as bullish as you are for some time now. But still, you're keeping your wide annual guidance intact. And still at the bottom of it, it implies a decline. why not narrow the bottom range of your guidance? And maybe also, I know you've just mentioned Russia, but kind of what's your view on holding business in China? Are you getting out? Are you still conducting business in Russia? I'm sorry.
spk05: So I think you're right about that. We haven't got too much into the annual guidance and updating the model just in terms of analyzing it. I'm very bullish and positive. So I think you're reading me right. So I'm not trying to do that. Remember, there are still risks. I mean, there are still a lot of unrest in the world economy. We don't know what will be the impact of the inflation. We don't want to know what will be the impact of the inflation. of other effects, even the unrest in Europe. We hope it will be peace resumes and the business is going to go all over the world. But Russia and Ukraine represent many tens of millions of revenues that are right now pretty much lost for us. And I don't know if we will recover them in the reminder of the year, or if we will start doing more business there, again, hopefully will be some peace reached. So I think overall, I'm positive. I would like to say in usual circumstances, but there is never usual circumstances. In usual circumstances, I would probably easily raise the lower part of our guidance, because we just had one quarter that was a little bit better. And again, I'm optimistic, but again, remember, there is a lot of things that can change, and I hope that I don't want to jinx it by being too optimistic.
spk04: I would just say, because when you think of where the sensitivity is in the range, it's typically in the products, right? Because support and subscription, you have slightly better visibility, much better visibility. And product is sort of every quarter as you go. And in the universe, that's the situation in the supply chain is be more prudent to keep a wider range.
spk09: Understood. Thank you, guys.
spk11: Next up is Matthew Hedberg, followed by Adam Tindall.
spk13: Great. Hey, thanks, Kip. Hey, Tal, I had a question for you. I really do appreciate your comments on annualized bookings. That's super helpful. I guess I'm wondering, could you put a little bit more color on that and maybe comment on booking's duration and maybe how it changed from 4Q to 1Q? And were there any very large sort of multi-year deals that impacted Q1 this quarter?
spk04: No, because remember, if I say annualized booking is on purpose eliminating that. I can tell you off the record, nobody's listening, that also booking was double-digit. But I wanted to give the annualized, so there won't be a follow-up question of, ah, did you get a really big, large deal of booty here? So I wanted to put the father away and just to say, actually, annualized business run rates moved up in a double-digit booking. So that was really nice to see that. So that was my point. I eliminated. Did we have in the booking also a nice double, also a nice, Large deal? Yes, every quarter we have a large nice deal. So yes, it was a good quarter also for transactions or customers that purchased above 1 million. We had an increase in that, both in number of deals and in dollars. So that was also a healthy metric.
spk13: Got it. Thanks, Tal. Sure.
spk11: Next up is Adam Tindall, followed by Andrew Nowinski.
spk02: All right. Thanks, Keb. Gil, I just wanted to ask on the go-to-market investments, particularly around the Americas region. Investors often compare this to a few years ago with the hiring of Chris Scanlon and others and have mixed feelings looking back at that period of time, and Chris has now moved on. This time, you're off to a very strong start with acceleration and metrics in the Americas. What did you learn from that period before, and maybe what's different this time with Bupo and the investments that you're doing?
spk05: First, I think every person that we hire, we hire because we think that they are good. And by the way, we did have a lot of good people. Some fit and some were able to execute better and some didn't. Some of it, by the way, is the people in the field. Some of us is us in headquarter, but don't always provide the best things. For example, in the past, I focused a lot about improving the sales productivity, which I think we still can. We can improve the individual productivity. And today I think that we can do that in conjunction with bigger investments. So not just stop and say, that's what we have. Let's grow the productivity by 10 or 20% of the existing people, but let's do that. But also add in this case, 25% more headcount. So overall, if we, if we succeed on both, we'll have double the, I mean, we'll have more capacity. If we succeed only on one, we will still do well. So right now, I mean, I would say I've learned that I want to invest more in the business and maybe we could have done it in the past too. And I think overall, I think time will tell. Again, now three quarters in the job. Jeff, our new leader in America, has produced a very, very good quarter. I hope it will remain that way. I'm very pleased with that. Would have liked it to be two quarters in. Yes. Could have happened five quarters later. It could. I mean, there's no secrets here. And we'd like, always we'd like better results faster. That's, I think you like it. I like it too. And free is not bad, by the way. Free quarters to make a change.
spk11: All right. Thank you, Adam. Our next question is from Andrew Nowinski, followed by our last question from Greg Moskowitz.
spk07: Great. Thank you for taking the question. I wanted to ask about your product revenue. Obviously, up 6% this quarter on the heels of the recent Lightspeed launch. I'm wondering... You know, given that that was an acceleration in light of the chip shortage that you're dealing with as well. Are you seeing any sort of perhaps cannibalization with the new light speed appliances? Maybe seeing growth there versus cannibalizing some of your other next gen firewall solutions are both doing well. If you just give us some color on the appliance, you know, growth you're seeing and how sustainable it is going forward. Thank you.
spk05: I think overall, I don't have all the data in front of me. We had very, very healthy growth in appliance sales. Lightspeed didn't have much impact on the quarter results. It's still, I mean, again, I mentioned we had a good order backlog. We had some big customers that have adopted it, but I don't think it has significant or any impact on the quarter results and overall when i look at what's happened to appliance sales extremely positive almost all product families grew grew nicely a number of units grew very well i think asp i'm not sure if it went up or it remains steady on the different families again the mix of the families can cause that to fluctuate a little bit I don't know Talifer is more color to it, but I think overall it is very good.
spk04: I think when you look at the product, except for anecdotes, it grew in unit and grew in dollar by each family, both in ASP, which was steady, didn't go down, again, except for anecdotes. But in general, it was It was healthy and the new product didn't affect it yet because it's small. We need to monitor it, of course, because I know you asked, we talked about it in the beginning of the year. It's one of the reasons that there might be some cannibalization there. So it didn't start and we're planning to try to avoid that part, right? So it's not there yet.
spk07: Thank you.
spk11: All right, our last question is from Greg Moskowitz. Go for it, Greg.
spk08: All right, thank you for taking the question. I'll echo what some others said about appreciating the additional bookings and RPO disclosures on this call. From a booking perspective specifically, I just would love to hear kind of how you would characterize the linearity of this quarter as compared with a typical Q1. Thank you.
spk05: slightly first our linearity is still very much back and loaded but I think this quarter looked well from the very beginning of the quarter so again still the majority of orders we get in the last few weeks of the quarter but I think this quarter it was a slightly I mean actually I don't know I don't want to mislead us I don't know if it was more or less backloaded but from the beginning it was very healthy We had a very healthy growth of the booking from the first few weeks of the quarter.
spk08: All right. Very clear. Thank you. All right.
spk11: Thank you all for joining us today. We appreciate your participation. And we look forward to seeing you throughout the quarter. And if you would like to have a chat with us after the call, please reach out. Send me an email at kipatcheckpoint.com. Thank you, guys. Have a great day. Thank you. Bye-bye.
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