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spk04: Greetings. I'd like to welcome everyone to our third quarter 2022 financial results video conference. At this time, all participants are in listen-only mode during the formal presentations, which will be followed by a question and answer session. Joining me today 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'd like to reach us after the call, please contact Investor Relations by email at kip at checkpoint.com. During 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 our expectations regarding our products. and solutions, our expectations regarding customer adoption of our products and solutions, expectations related to cybersecurity and other threats, expectations regarding our Q4 in full year 2022 projections, and our projections regarding growing markets for IT security. Our expectations and beliefs regarding these matters may not materialize in actual results or events in the future are subject to risks and uncertainties that could cause actual results or events to differ materially from those projected. These risks include our ability to continue to develop platforms and solutions, customer acceptance and purchase of our existing products and solutions, and new products and solutions, the continued effects of our business, related to COVID-19 pandemic, the market for IT security continuing to develop competition from other products and services and general market, political, economic, and business. I think we covered everything. These forward-looking statements are also 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 Securities and Exchange Commission. 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 a reconciliation of such results, as well as reasons for our presentation of non-GAAP information. And finally, now if I would like to turn the call over, to tell Payne for a review of our financial results.
spk11: Thank you, Kip. Let me start the presentation. I will show you this slide again in case you missed what Kip was reading to you. Okay, now let's move to the presentation. Can you see the presentation?
spk04: We got the presentation. We got the forward-looking statement still.
spk11: Excellent. Okay, so let's start with the result. Thank you, Keith. Good morning, good afternoon to everyone joining us on the call today. I'm pleased to begin another quarter, which ended up to be a great quarter. Revenues reached $578 million, which is in the top part of our projections, $8 million above the midpoint of the projections. Earning per share, non-GAP earning per share, reached $1.77, which is, again... G.L.A. A five cents above the top end of our projection so really good results, both in the revenues and the earning per share. G.L.A. Before I proceed further into the numbers, let me just remind you. G.L.A. That our gap financial results include stock based compensation charges and what additional required intangible assets and acquisition related expenses. G.L.A. As well as the related tax effects as applicable non gap information is presented excluding these items now let's dive into the result so. Revenues increased from $534 million to $578 million. This revenue growth is the acceleration from the 5% that we've seen last year, reaching 8% in total. We see deferred revenues, $1,647,000,000, a 13% growth year over year, an increase of $191 million. Billing also this quarter was strong and grew by 8%. reaching $559 million. So that's from the high level. If we dive into the revenues, we can see the product and security subscription as a whole increased by 13%. This is the third quarter, consecutive quarter of double digit growth in our product and security subscription revenues. Remember, we had the big target to have above 10% and to reach there the double digit. Three quarters in a row, it's very nice to see that, reaching $348 million. If we look what drives this total growth of the 13%, we can see it's coming from both items separately. One of them is the product and licensed revenues, which is mainly our gateways and appliances. We see, again, second quarter in a row of double-digit growth, 11% growth versus a negative, actually, last year. The growth came from many appliance lines, large appliances, SMB appliances, Maestro switches, which is the hyperscale network, and also the smart one, which is the management appliances. So pretty much across the board, we've seen a nice increase in quantum. If we look at the subscription line, also double digit, 13% growth, reaching $216 million. The double digit growth coming from cloud and Harmony, just we've seen in the last few quarters, both of them are in a double digit growth and continuing to grow nicely. Just as a reminder, we purchased the Avanade in September last year. So Q4 this year will be the year of Apple to Apple compared when it comes to the email security acquisitions. So nice results in the subscription. If I'll move into the revenue by geographies, we had the growth across all geographies also this quarter. 44% of the revenues came from Americas. 43% of the revenues came from EMEA. And the remaining 13% come from Asia Pacific. Nothing dramatic here. If you look at the gross profit, gross profit this quarter increased from $474 million to $506 million. This is a nice 7% growth with gross margin remains around 88%. It's quite impressive taking into account that we continue to pay additional costs for raw materials and shipping as a result of the shortages. There is some relief in the shortages, but we still pay quite a lot in order to get the inventory on time and to be able to deliver to our customer. This storage was as well about maybe between $8 to $10 million in the cost of goods sold relating to the extra costs. Hopefully by 2023, we will see more relief and improvement in that number, which will help as part of next year. Although I can say that While the relief on the shortages is starting to be seen, we see an increase in the raw material price across many components. So I think it will end up in a lower cost, but not all the way to the original level. Having said that, still the margin is amazing with 88%. So nothing to complain about. Looking at the operating expenses, if you remember last quarter, I think it was 20 something percent, maybe 24%. This quarter, the year over year growth is 14%. So it's starting to normalized, reaching $244 million. The increase mainly comes as usual from compensation, return to travel year over year, and face-to-face interaction and cloud expenses. You remember in the beginning of the year, we said that our focus is to continue to increase our workforce, both in sales and R&D, and to continue the elevated investment in our rockets as we see nice result there. So in line with the plan, we increased our workforce year over year, both in sales and R&D, of course, and also other departments. And we remain focused on continuing the growth in the sales. So operating income, actually this quarter it increased slightly, also in dollars, compared to previous quarter that we saw some reduction. Now we started to see an increase, $263 million operating income. The margin is higher than we planned. It's 45% operating margin. The plan, if you recall, was in the beginning of the year around 42, 43%. It's a reduction from last year and an improvement from the previous quarter. Our financial income continued to increase as we invest in higher interest rates over time. So it's increased from $9 million to $12 million and probably will continue to increase slightly every quarter, as we've seen also in the past few quarters. tax expenses, $54 million, around 19.5%. Again, everything is usual. We continue to see the indexation of the tax provision. That's why we're higher than the original plan. So the financial income higher, tax expenses are higher, net pretty similar to what we projected, which resulted in net income of $221 million and EPS of $1.77%. which is 5 cents above the top end and 7% growth year over year. Gap net income was $184 million or $1.47 per diluted share. If we look at our cash position, cash position remains very strong. Our cash balances are $3.6 billion. Our operating cash flow was strong at $240 million this quarter. Our collection from customers continued to be very healthy. Of course, payments naturally increased as a result of the elevated raw material costs that we have to pay for and investment in the workforce as we discussed. During the quarter, we continued our buyback program and purchased 2.7 million shares for $325 million on an average price of $122 per share. So if I'll summarize, strong quarters, strong revenues and earning per share, strong billing, revenues above the midpoint, Nanga PPS exceeded the top line. We see double digit growth, both in product and in security subscription. And we continue to focus on the top line while maintaining a very strong profitability. So now I'll turn the call over to Bill for his business review.
spk06: Thank you. Thank you, Tal, and very glad to see all of you here.
spk01: That's, I think, once, just like Tal said, another very good quarter that we had. So I would like to give you a little bit of highlights, both on the state of cybersecurity and mainly about many innovations and the new technologies that we've actually launched in the last couple of months that were pretty active. So first, I think, as we all know, the state of cybersecurity remains Very active, very challenging. You can see here just few attacks from the last few months. Australia hit pretty bad. Everything from, you know, retail to telco. U.S., we see a major case in L.A., school district, health care system in the U.K., attacks are occurring every day and are pretty big and i think this is very much reflected also in the statistics that we see 28 increase in the average weekly cyber attacks globally reaching over 1100 attacks per week per organization let's think about that on normal things and we never get to this kind of level one out of 63 organization is impacted by ransomware and these attacks are all over i mean we've seen countries being extorted It's a whole country. We're seeing the attacks are getting more and more sophisticated when Gen 5, fifth generation cyber attacks are taking a bigger place. And again, it's coming from everywhere and it's impacting pretty much everyone. And we do believe that there is an answer to that. I mean, when you look around us, everybody says, well, cyber, it's maybe an unsolvable problem. We think it is solvable. And we think that the checkpoint infinity architecture is very, very uniquely positioned to solve it. It's the only prevention first consolidated security that addresses all the key attack vectors on the network on the cloud to the users. And that's pretty much, by the way, the structure of our Infinity architecture. You can see the three pillars on the top, Quantum, CloudGuard, and Harmony, who handle the network, the biggest part of our network, the cloud, and Harmony for the users and their access. And this quarter, or last month, we've actually launched a new family horizon that focuses for the first iteration on managing the security operations on that. So let me speak a little bit about horizon. I think it's fairly exciting. So the first step product in the horizon family is the horizon, what we call MDR MPR. And MDR stands for managed detection and response, which means analyzing everything that's happened on your environment, the network, the endpoint, and so on. trying to detect and respond to attacks. Now we don't like to call it MDR. We actually like to call it MPR, managed prevention and response. And I think that's fairly unique in the checkpoint architecture. That's one solution that actually prevent the attack and not just detects them. It's also, and again, that's also fairly unique. The one solution that works across multiple attack vectors. So not just most of these solutions are addressing only one vector. We know how to combine better, more attacks. And it is based on a very solid foundation that we built in Check Point, a lot of engines, a lot of automation tools. And the idea here that this can be outsourced and be provided as a SaaS solution. So and then when you think about it, most organizations cannot afford having their own security operations center. Think about a center that you have security experts sitting 24 by 7. That's very, very hard to get access to these people to develop the work methodologies and very expensive. I mean, you know, something that works seven by 24 is millions of dollars to operate. And our service provide just vets and outsources vets as a SaaS service for organization. We launched that, if you remember, we talked about the rocket structure at the beginning of the year. So this is one of the rockets we launched in the beginning of the year. And now we are ready to launch the product for the mass market. Just to keep in mind, we already have a few hundred customers on our SOC platform. So this is actually having a lot of traction since the beginning of the year. And we hope it's now ready for a prime time. And I think that this one is going to get us access to a pretty big market. People expect it to be already a crowded market with many, many small companies. But I think what you can see here, just like IDC analysts are saying, the checkpoint horizon of prevention first is a game-changing feature for this market. So we definitely hope that that's going to be a good entrance to an interesting market and a platform, by the way, for more technologies and more products. Next, and I think if you remember, our commitment is to provide our customers with the best security. With our slogan, you deserve the best security. And we keep working very, very hard to elevate the level of security we give our customers. And just the last few weeks, we launched the new Quantum Titan platform. a set of technologies for network security customers. So that's right in the core of our business. And I think it's very, very important. So let me talk for two minutes about what's included in Quantum Titan. It's free to remember architecture based on what we call software blades. Three new software blades. The first two, the DNS security and the zero phishing are kind of hardening the security that any customer can have. And by the way, phishing and DNS are two of the most critical attack vectors that are being used by hackers today. DNS is one of the only protocol that remains open to the Internet from any company. DNS stands for the domain name. network service, and that's the one that resolves our IP address, checkpoint.com, into something that our computer can access. So it must be open, and hackers are more and more finding ways to use this simple protocol to send attack vector, whether it's to transfer information between a computer and its operator, or to leak information, or even for some other more severe cases. So now we have a new blade that focuses solely on DNS. It's based on AI, it's based on deep learning, and it can address as many, many attacks. And similarly, so the zero phishing prevention blade. Again, if you look at phishing attack, when somebody redirects you to the wrong site and there might take your credentials and use them to strike back, Many of these attacks are being analyzed and a few hours later after they start, there is a signature that this site should not be accessed. Unfortunately, most of the damage in phishing is done in these early hours and many of these sites actually go offline after a few hours and are being replaced with new sites. Our zero phishing technology does it in real time, analyzes many, many factors around the sites. and can block access to the wrong site. You can see the result of that. With zero phishing, we get 4x better ability to block phishing sites than signature-based technologies. With the DNS blade, 5x better, more attacks blocked compared to signature-based technologies. I think this is very, very impressive results based on advanced AI and deep learning technology. Last but not least is the Quantum IoT Protect software. And this is far more than better technology on the main gateway. It's actually a whole new system to protect IoT devices. And IoT devices now pose some of the biggest threats to any network because these devices cannot be controlled. In many cases, they are fairly simple. And that also means that in many cases, they are fairly simple to use them as an attack vector to get into our enterprises. Now, there is a whole industry of IoT security vendors. Many of them are our partners. We like them. We work with them. But what we focus today is what's called discovery. They map your network. They give you a list of all the devices that you have. And I just recently met the customer. I said, well, yes, we got the list, 30,000 IoT devices on the network. Now, what do we do with it? It takes months to map them and understand what's the threat from each one. And by the time you do that, there's new devices and there's new threats. And I think that's the beauty and the focus that we have on the quantum IoT protect, which I believe is unique in the marketplace. This is being translated from automatic discovery that's included in the product into the autonomous threat prevention. So we take the network map, we automatically map it into security profile and security rules that limits each IoT access and reduces drastically the attack surface and eliminates the ability for somebody either to get onto that device or mainly to use that attack as a launchpad for additional attacks. And this is, by the way, part of a much broader IoT solution that we have in Checkpoint. that we can harden IoT devices firmware and do far and analyze them and do far more than that to give the most comprehensive solution for IoT devices on the network. So we're very proud of that. That was just launched a couple of weeks ago. And I think it can be a a great platform for market expansion. And remember, all of these three blades that I just described, they don't require the customer to use another vendor, to build a new set of system. This is all plugged into the existing checkpoint quantum gateways and quantum management that they have. So this is, again, another breakthrough in this industry. And you can see that we got some good quotes here, a large automotive company in Germany, so that it works. Clark's in the US, again, used the two new blades and seen that it actually works. And I think this recognition comes from many different areas. You can see some additional quotes that we got from Forrester that once again put us in the, leaders, part of the Forrester wave, and even more important, because we've been on that leader for many, many years in many analysts, is to say what we liked about Check Point, customer obsession and admirable prevention vision. So they got it. And you see for other products as well, GigaOM for the CloudGuard posture management, GigaOM for our Harmony Connect SASE solution that's early in the market, but sits in the fast mover category. So we are very, very proud of this recognition and many others. And you can see some customer wins from financial services in the U.S. to a big university in EMEA, Carnival Cruise in the U.S. If you remember, we've launched another rocket based on our acquisition a year ago of email security. So Harmony Email continues to be a fast-growing platform for us and being... being both and recognized by many customers. And last and not least is the new Horizon MDR-MPR. ARCH, one of the large energy companies in the US, picked that up and see that it works, that this is actually enables them to to stop attacks in real time. And last but not least is the third year in a row that Forbes speaks us as one of the world's best employer. And I think we're number one in terms of cyber companies here, which makes us very proud. And I think it's also shows a lot about the employees of Check Point, how proud they feel in the portfolio that they bring to the market. So to summarize, I think we finished the quarter with very strong financial results, revenues above our midpoint and better than your expectation. EPS even better outside our range, $1.77. And more important than that is the innovation, because I think this quarter we really, really delivered on our vision and mission with the Horizon platform, with the Quantum Titan, really elevating the level of security that we deliver on the customers. So I'd like to thank you for being with us. And actually, before we open it to your question, one more thing. Let me speak about our projection for the fourth quarter and update the ranges for the year. No big surprises here, and I think this is fairly good. Revenues are expected to be between $608 to $658 million, very much in line with what we planned at the beginning of the year. And despite all the turmoil that's going on in the market, I think we're seeing steady and very, very good results. Non-GAAP EPS is expected to be between $2.22 and $2.42. Gap EPS is expected to be approximately 31 cents less. And I think these are all very good and healthy numbers that we will have. I always remind you my caveats. Projecting the future is always very, very challenging. There is a high level of uncertainty. Now, in particular, I think on one hand, we see Very good feedback from channel partners. The need for cybersecurity is obvious, but on the same time, we can't ignore the economical uncertainty around us. And I think there's a higher level of uncertainty now than ever. I hope that the good signs that we see, again, from the channel, from the need for cyber, and from the amazing technologies that we launch will end up with very good results. Last and not least is how does VET fit into our full year projection. So what you see here in gray is the full year ranges from $2.2 billion to $2.375 billion. Now that we give the guidance for the projection for the fourth quarter, you can see that the updated range for the year will be from $2,299,000 to $2,349,000. That means that we are placed very much at the high end of our projections from the beginning of the year. No surprise, but makes us proud in VET. And similarly so for the non-GAAP EPS. Original range was $6.90 to $7.50. And the updated range is $7.20 to $7.40, which is, again, at the high end. of the EPS expectation, gap EPS expected to be $1.22 less. So this is an update on the projection, and I think it's a very good one. So thank you very much, and I would love to open the call for your question.
spk04: All right, gang. Excuse me. As always, please limit your questions to just one so the rest of the analysts don't have to make stuff up later on.
spk03: um our first question is going to come from keith bachman from bmo followed by hamza padhawala uh from morgan stanley keith all right many thanks kip and uh good morning good afternoon good evening everybody i wanted to ask uh i don't know if it's tallard gill but i'll throw it out there for both is what does the journey to double digit billings look like in other words you had a good quarter eight percent kind of billings growth Mark Warren, And even sequentially I would argue it was better than normal seasonality to buildings, but what needs to happen from here. Mark Warren, In order to reach the double digit rain that we've talked about for a while, and specifically within the context of the question if you could give us any update. Mark Warren, On current demand trends, in other words. During the quarter, as you look over the corner into December, have trends gotten any better? Has demand across the industry gotten any better, stayed the same, or gotten a little bit worse? Just sort of a micro update within your journey to double-digit billings growth. That's it for me. Thank you.
spk11: Maybe I'll start. Can you hear me? Yeah.
spk06: Yeah, I can hear you.
spk11: Maybe I'll start with a double digit question. So when you talk about billing, and you remember, that's one of the metrics that we don't really use. You're using this, well, we give it to you. But in essence, if the billing would have been a reflection of the annualized, which means you will issue a billing for one year, then it should be in line with the revenues over time. So to your question, how do you get to billing double digit is when the revenues will reach double digits, right? Maybe it can be slightly earlier, and I'm avoiding fluctuations that can happen between quarters when you get a deal early or you get a deal sometimes a quarter later, but in general, in the essence, for a stable double-digit, You need to be in a stable digit in the P&L, excluding the deal that you can get a multi-year deal and then it can get you to a strong double digit. Look at Q4 last year, for example, that was a strong double digit. You reach that strong double digit because also there was a few multi-year deals that were built and Q4 typically can be that type. You can get a very large deal or it can be earlier and that can create a higher number. but the stable one has to be in link with revenues reaching double digit. The good news is we reached a double digit, both in product and in subscription. Support is not a double digit anymore, right? It's a low single digit. So to get to a total double digit, you need even more acceleration of the product and the subscription in order to get to a total double digit. I hope that answers your question.
spk03: Yeah, and Tal, any comments on just within the, How did demand transfer within the quarter? Companies like Microsoft have called out incremental weakness in demand trends. ServiceNow, not so much. But just any change in aggregate demand that you're sensing that occurred during the quarter of September or as you look over in the December quarter?
spk11: Yes, September was very strong for us. But for us, it's very hard to know because remember that majority or big part of the booking actually comes in the last month. And September and Q3 is quite a small quarter because of the vacations. So it's very hard to conclude out of it. Also, by the way, when you talk about Q4, majority of the number actually comes in the last month and in the last week. So it's very, very hard to have also visibility when you look into Q4. And Q4 is a huge quarter, right? So it's also very important for going forward. It's very early to say.
spk03: Okay, I'll get back into you. Thank you.
spk04: All right, our next question is coming from Hamza Fadawalla and with Rob Owens in the hole.
spk16: Well, thank you so much for taking my question. And Tal, congrats on a well-earned sabbatical. I'll keep it to one. Tal, just can you remind us what the pricing impact on the growth rate looks like after the discounting? And just any thoughts you have around pricing going forward, just given the fact that the dollar has gotten so much stronger and you do price in US dollars in a lot of the regions?
spk11: It's a good question, because on the one hand, if you build it in an Excel file, then it should be a nice tailwind, right? Because you have an increase in the price and the dollar getting stronger. But on the other hand, you have the customers, which we have many around Europe and Asia. And for them, the budget actually effectively shrink in that regard. So I think previously we've seen somewhat this phenomenon balance themselves. So when I looked at Q3, it looks like it balanced. We didn't have an increase in the discount rate, probably because it balanced each other. Q4, again, it's a big quarter. Q3 is almost not indication for anything because it's a small one. So in Q4, I think we'll have more colors.
spk16: Thank you.
spk04: Next up is Rob Owens followed by Michael Turrence.
spk13: Great. Thank you very much. And thanks for taking my question. I'll take the opposite side of Hamza's question and maybe FX relative to OPEX. Number one, can you remind us of the breakdown of OPEX, shekel versus non-US dollar versus dollar? And number two, maybe around your hedging policies for the shekel, what hedges you have in place when they roll off and impact of re-hedging? Thanks, Tal.
spk11: Sure. I'm putting aside the balance sheet hedge because that have an effect on the cash flow, but the P&L is pretty much minimal, right? So you're talking about the operational, and we hedged in the beginning of the year pretty much the whole shekel and also the euro. And that's majority of the exposure. It's probably together maybe 50%, right? So I think the shekel might be 30%, and that's the major one. So if I'm looking now, it's actually working for our benefit for next year, meaning if it will stay that way, this year we got the hits from all directions, right? We had the raw material, we had increased costs, we had the currency against us. We had probably around 3.1, I think, if I recall. So next year, if the dollar will stay that way, hopefully it will help us. So for this quarter, we enjoyed from it slightly, but nothing dramatic because most of the amounts were hedged. We actually enjoyed from the currencies that were not hedged, but it's a smaller amount because the majority of the exposure is in Israel, which is the shekel, all the R&D is located in Israel, and Europe, which is the euro, which we also hedged, and the US, which is dollar and US.
spk00: All right, thanks.
spk04: Our next caller is Michael Turretts, followed by Andrew Nowinski.
spk14: Hey, thanks, everybody. A very solid quarter in obviously a tough environment. So maybe I'll pursue Keith Bachman's question about double digit. So thanks for the clarification, Tal, regarding revenues and billings. But from a fundamental perspective, in terms of what would be the catalyst to get you to growth, what we call a billingser. Revenue, but economic growth, that's over 10%. There's so much that's wonderful in your product line, and it keeps expanding. So is the real trigger for that acceleration to something where you're really gaining share within the industry? In the double digits, is that trigger on the sales and marketing side? Is it something else within the product line? So fundamentally, what gets us there?
spk01: I think over the last few months, we built a lot of infrastructure for vets. Part of it is, of course, having better products and better technologies, which has always been our strong point. But I think a lot of it is also about our sales execution. Just to remind you what we did this year, and I think we did a lot, and we're still in the building phase. We've started a new structure with rockets that push some of the new technologies. We've created a new go-to market or what we call commercial organization. And they have a new head of that, Rupal, that joined us in March, I think. And we've put a big investment into getting more frontline sales, more people that would address them with the customers and go there. And I think we're making very good progress on all of these initiatives. I think there is definitely plenty of potential. You're all absolutely right. And I think I'm quite positive about both the mid-term and the long-term potential for that. And in the short term, since the beginning of the year, we actually saw pretty good signs internally. How it would translate now in the fourth quarter with everything around us, that remains a good question. But as you see, we have very solid projections for the revenues and EPS.
spk06: Thanks.
spk04: Next up is Andrew Nowinski, followed by Fatima Bulani.
spk17: Okay, thank you. Congrats on a nice quarter this morning. So I wanted to ask about Infinity and some of the enhancements you've made to that subscription. So first you noted that Horizon, the new one, could be a game changer. And you launched some other enhancements to Quantum that you mentioned. So the question is, do you think these new product launches and enhancements will be enough for your subscription growth to accelerate going forward? Because it seems like it may have peaked at that 14% level and is maybe decelerating. I'm just wondering if you have enough in the portfolio now to get this to keep going higher. Thanks.
spk01: I think we have plenty on our portfolio. I think our portfolio today is very, I want to say too wide, but it's very, very deep and wide. And I think no other vendor has this kind of portfolio for addressing all the need of security. The challenge that we have today is actually to educate the market, to get the adoption of the Infinity architecture. Once again, we get great feedback. I mean, you can see some of the feedback that we get from customers, from channels about the message about Infinity resonating. And again, I'm glad to see it. Remember, it's a few years into that. And so now we are getting more and more traction. Business-wise, the potential is almost unlimited. We are really, really at the early stages of that. And that will be the catalyst of growth and the subscription growth and everything that's our number one focus.
spk04: Thank you. All right. Our next step is Fatima Bulani, followed by Brad Zelnick.
spk10: Hi, this question's for Tal. Tal, thank you so much for your partnership. I hope you have a very productive sabbatical. I wanted to focus on the product growth performance in the quarter. I understand there's a number of factors here, especially with pricing. I was hoping you could break the inputs down for us. I know you mentioned in your prepared remarks that The appliance families, all of them did well. But if you can give us a sense of how much some of the pricing actions you took this year, and if you can remind us how many you took this year, how much that impacted the product performance, as well as I think historically, you've talked about customers who've purchased the infinity package. They tend to pull product at their discretion. So how much of the product performance was more of a catch up? from some of the infinity transactions that you may have done in the past quarters that didn't necessarily have a product revenue recognition component. So just some more granularity on the product revenue strength, because I appreciate there's a number of factors in there. Thank you.
spk11: So I'll say, remember that infinity is now part of the model, right? So every quarter you sign deals and every quarter you recognize some deals based on the pool. So there's no discrepancy between the signing and the and the pool at this point of time. They're probably around similar number. If we looked at the beginning of the year or last year, it was a big discrepancy because you signed contract, but you still didn't have it. Again, not extra dramatic, but still it takes some time for people to pull it. Let's look first at the product. What I was referring to is, if you ask me from the beginning of the year, so I can tell you product, you can see it's performing well from the beginning of the year. It's both in units and in dollars. It's not all the product family this quarter. I mentioned the specific one. It was the large, it was the small, it was the SMB, it was the smart one, and it was the switches. So it's majority of them, but not all of them, just to be correct, okay? But it was a strong quarter. It's coming from units or dollars. When I look at the full year, it's probably similar. This quarter, I think, when you talked about the price increase, there were two price increases this year. I think the first one was in the beginning of the year and the second was in the beginning of this quarter. And probably, again, I'm not throwing it from my mind. I think the previous one was 7% and this one had a range, maybe around 6%, 7%, right? But it had a range depending on the appliance. Most of it was eating by the discounts, right? So it's balanced itself. That's what I was referring to when I said at the end, It sort of balances itself. Thank you, Tom.
spk04: Next up is Brad Zelnick, followed by Jonathan Ho.
spk08: Great. Thanks so much. And good morning, everybody. And congrats, Gil and Tal, on the strong execution, even if Q3 isn't necessarily seasonally indicative of what's happening out there. But I wanted just to revisit the investments that you've made into sales and marketing capacity. Can you remind us exactly where you are and specifically the productivity ramp and how it's playing out versus what you'd expected and how we should think about additional capacity coming online even into next year? Thanks.
spk01: So first, I don't want to say specifically from a competitive reason exactly where we stand in each place, in each location. But in terms of productivity, I'm actually not expecting improved productivity because as we add more salespeople, the new people are coming at very low productivity. And it takes them between six to 12 months to ramp up to the normal productivity. That's kind of the productivity scale that we have. Our focus this year, and again, I think it is very important, was to get a much higher number of frontline salespeople, people that address customers. I think that's one of the key elements that we have is simply being bold enough and going to new customers and showing them the Check Point portfolio. We are seeing a lot of these customers. I'm now seeing a lot of people visiting us on our executive briefing center here in our headquarters from all over the world. The reactions are amazing. People that love us, no doubt that they keep liking what we, but people that didn't know us, people that haven't heard from us for many, many years, they really like our vision. And we need more people on the ground to actually deliver the checkpoint message to existing and to new customers.
spk08: Great. Thank you.
spk02: next up is jonathan ho followed by saka kalia thanks and let me echo my congratulations as well tal on your well-deserved sabbatical you know one thing i wanted to dig in a little bit is with your announcement around horizon mdr and mpr you know how do you think about going to market with that product is there a need to sort of educate the channel as well around your capabilities here And it does sort of strike me as being a little bit of a different go-to-market than what we typically see on the product side. So yeah, just any color there would be helpful. Thank you.
spk01: First, you're absolutely right. And we are doing that. And we are doing that since the beginning of the year. The good news is that we have a lot of pool. I mean, when people hear about it, they like the idea. They try it. In many cases, they start on the mid-level or small scale, and then they scale up. and the demand is there we created what we call a rocket which is an organization that focuses around that so we can give it the right focus and attention but the good news that the demand is actually coming from our sales people and from our channel partners there is by the way theoretically a potential of being with some conflict in the channel partners because some channel partners may offer services and that's always we are very very careful whenever we launch new services to limit the competition or the conflict with our channel partners. And so far, the reaction from the channel is very good, because most channels cannot perform this level of service. And they actually like to be in that market. And when it goes to other companies in the field or other startups in that field, they do not participate here. They can participate with us. So overall, the reaction is, again, it's very, very small. Remember, we're talking about very small numbers, but we're already at hundreds of customers that are connected to our stock, and that's a big number. I mean, I'm looking into other companies in that space, and there is not a lot of companies that have hundreds of customers that we are serving.
spk06: Thank you.
spk04: Our next caller is Saka Kalia, followed by Shaul Liao.
spk09: Okay, great. Hey, thanks for taking my question here and congrats, Tal, as well. Gil, maybe for you, just to zoom out a little bit, you've been through several firewall cycles before over the decades that you've been in the industry. I guess based on your customer conversations, Do you still feel like there are drivers for healthy growth in firewall going into next year? Or do you maybe see a little bit more of a normalization? And, you know, I know that there are a lot of factors, whether it's supply or pricing, but from a demand perspective, how do you feel about, and understand I'm not looking for 23 Guide, but as an industry, how do you feel about sort of growth prospects for firewall going into next year?
spk01: It's a very good question. And I think if there is one mistake that we've made in the last few years is actually thinking that we should invest more in other technologies and less in firewalls, because I think there is a very, very healthy demand in firewalls today. I think people more and more realize that as much as we speak about advanced technologies and more environment, the network is the best and it's the most important vector to defend our enterprise, especially as you look at more applications and more applications and more IoT devices and things like that that simply cannot be protected using our technologies. Now, when I look into next year, I don't have any strong indication one way or the other. I am very, very positive about our potential because we have plenty of potential, not just to grow with the market, but also to grab market share. And I think with the level of security that we provide now with Quantum Titan, with everything we're doing to our Quantum platform, We need to work much, much harder to show the differentiation. Our gateways, our network security platforms are doing far more than any other solution in the marketplace. You can also see the consolidation. Things that a few years ago everybody thought would be a separate subsystem in a new category are now, it's very obvious to everyone that they are part of the gateway, that they are part of the firewall. So the consolidation does take place. Sometimes it's a big struggle. Sometimes it takes a few years. Clearly, we're seeing that there is, let's put it that way, there's not many other platform that emerges critical or major platform in cybersecurity. And the gateway, it's not just a firewall, is actually today maybe the biggest one.
spk09: Very helpful. Very helpful. Thanks.
spk04: Next question is with Shaulial, followed by Joel Fishbein.
spk05: Thank you. Good afternoon, guys. Congrats. Tal, quick question. So two quarters ago, you shared with us your RPO number indicating you're going to be doing it on just a one-time basis. Maybe just before you depart on your brief sabbatical, can you leave us with some color on it? Just color. And also, if I recall correctly, and I think Gil might have mentioned that or maybe you did, you had some mega deals back in 4Q of 21. How should we be thinking about it in the context of your updated 4Q22 guidance?
spk11: I can start with the first part. I'm sorry, because I didn't listen to the second part. I might have even answered the second part. But I'll start with the first part. So we talked about the, we said we don't provide it because, again, it's a backlog issue. which is affected by many, many factors, including mainly the multi-year transaction. But if you really want it, I can tell you it's a double digit as well.
spk06: Got it.
spk05: Double digit growth. Okay. Good. Thank you. Congrats.
spk11: And you will see it in the annual, of course, because we do provide it every annual, right, as part of our financial reports.
spk05: We'll have to wait patiently, I think, to February. Next question. Oh, wait, go on.
spk11: It was the second part. Sorry. Can you repeat it?
spk05: No, no. The second part was about the mega deals in the context of your mega deals of 4Q21 in the context of the updated 4Q22 guidance.
spk11: It's a good question. Q4 last year was heavy on mega deals. Probably maybe four deals or five deals around 10 and above. So it's quite heavy, which can again affect the billing. It's very hard to predict those ones because multi-year can affect significantly, but the ACV is very healthy and growing, so I'm not concerned around that. Billing can be affected always. That's why I always say, watch out from the billing number. It can fluctuate between quarters easily.
spk05: Understood. Thank you.
spk04: Our next question is coming from Joel Fishbein, followed by Tal Liani.
spk15: from B of A. Thank you for taking my question. And Tal, congrats again to you for your sabbatical. I'm going to follow up with a question from my good friend Shaul on number one, visibility into 23. Obviously not asking specifically, but also asking if there was any deals that may have been pulled into 3Q or early renewed in 3Q. We've heard that happening as well in this environment. Love to hear any color on that. Thanks, Tal.
spk11: And I don't think I saw anything major pulls from Q3 to Q4. I did see actually some pulls in Q1 and Q2 from Q3 and Q4. And you always have pulls. So yeah, we had in Q1, I think we had in Q4 from Q1 last year. It's always happened. That's why I always tell you, watch out from the billing, not to get overexcited, over depressed. It can fluctuate easily. Many times it depends on customer budgets and timing. I didn't see anything dramatic between Q3 and Q4. I did see a few multi-year that relates to Q4 that came last year and also collected last year. That's relating to the previous question. That's why I mentioned it.
spk15: Great. And then just to follow up on that, are there still mega deals in the pipeline in this 4Q coming up? I think that was Joel's point about there being maybe a hole in this 4Q relative to last 4Q.
spk11: We have a lot of large deals, of course, because Q4 is heavy on large deals, but... multi-years is many times depends on the customer, not on us. And that's where it can create big shifts because if you're supposed to renew 10 million and because you have a budget, you decide to take five years and renew 50 million, it's really not in our hands. And even now when I'm thinking, because you asked, because the interest rates are so high, it's probably less attractive to customers to pay in advance with such a high interest rate around. So probably you would expect less multi-year. Again, no effect on the run rate or anything, but it can affect billing and booking.
spk15: Gotcha. Thank you so much.
spk04: All right. Our next call is coming. Our next question is coming from Taliani's line. It doesn't look like Taliani. It must be his associate. Followed by Greg Moskowitz, who will be our last question.
spk07: Yeah, hey, this is Tomer Zilderman on for Taliani. Just a quick one for me. EMEA growth was a little bit lower this quarter than the past few quarters. Is there anything to call out there? And how is the new sales leadership across the region progressing? Thank you.
spk01: I didn't hear the first part. The question was about EMEA. It may look like it's a slower growth. So EMEA is actually doing well. There's few issues, by the way, around Russia. Keep in mind that Russia has been a good market for us in the past. And right now, the revenue from Russia is very, very minimal, given the political uncertainty and its reflection on accounting. I'm beyond that. Again, Europe for us is doing well. The sales leadership, the latest senior sales leader that we added was in the US, but in the next few levels of regional directors and so on, both in the original VPs now, we've elevated that level in both US and Europe. We got some new people and we got some very good people that are doing a good job and restructuring and building things the right way. tell anything else that I missed on that?
spk11: No, you're absolutely right. It's mainly Russia affecting the revenues, as it was a nice part of Europe as well. So it was expected.
spk07: Got it. Thank you, and congrats, Tom.
spk06: Thank you.
spk04: And our last question of the day will come from Greg Moskowitz. Please proceed.
spk12: Thank you, Kip. Alex Demma, congrats to Tal. You know, I think one interesting analysis, Tal, would be comparing the number of miles that you log over the next six months with the number of hours that each of us spend processing earnings during that same time. So my question for you is on net new business. I recall you saying that You did see double-digit growth in that new business in Q2. Curious kind of how that looked in Q3. And then any comments as it relates to not sort of expansionary business per se, but just the prospects when you look at new customers as part of the pipeline. Any commentary that you could add around that, Gil, would be helpful as well. Thank you.
spk11: So I'm trying to remember now. I apologize. think it was a high single digit, the new. Maybe Gil, take the second part and I'll just verify it, OK?
spk01: Second part of what? About the new customers. We do see every quarter some very nice win of new customers. Their shares are still not big enough. We need to focus and do more about getting new customers. Our people are still finding good and a great place to expand within our existing customers. but that actually varies across region in asia there is more new customers there are some markets in the world that people have learned how to bring new customers and that's a very very big focus that we invest by the way some of the new hires to our sales force we make them hunters and focus solely on new customers it's a long journey it's not an easy one it's not coming easily but it's an investment that's i think well worth it because the potential is huge
spk11: Yeah, and to your question, it was high single digit, as I remembered. There's a large deal that was supposed to be in Q3 and been pulled to Q1. That's what I answered two questions before. And that new portion actually been brought earlier.
spk12: All right, terrific. Thanks both. Appreciate it.
spk10: You're welcome.
spk04: Well, thank you, everyone, for joining us today. We appreciate your participation in our earnings call, and we look forward to seeing you throughout the quarter and into the new year. Thank you, and all of you take care. Bye-bye.
spk06: Thank you very much.
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