Check Point Software Technologies Ltd.

Welcome to the Check Point Software 2023 First Quarter Financial Results video conference. I'm Kip E. Meinzer, Global Head of Investor Relations, and it's my pleasure to be here today. Our founder and CEO, Gil Schwed, and acting CFO, Roy Golan are joining me remotely. Before we begin, I'd like to remind everyone that this conference is being recorded and will be available for replay on our website at Checkpoint.com. During the formal presentation, all participants are in listen-only mode, and this will be followed by a question and answer session. During this presentation, Checkpoint's representatives may make certain forward-looking statements. Within the forward-looking statements, within the meaning of Section 27A, of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. Forward-looking statements generally relate to future events or our future financial or operating performance. Forward-looking statements include but are not limited to statements related to our expectations regarding our product solutions, expectations related to cybersecurity and other threats. 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 developing platform capabilities and solutions, customer acceptance, purchase of our existing solutions and new solutions, the market for IT, security continuing to develop, competition from other products and services, general market, political, economic, and business conditions, including as a result of the impact of COVID-19 pandemic. These forward-looking statements are also subject to risks and certainties, including those more fully described in our filings with the Securities and Exchange Commission, including our annual report on Form 20F. The forward-looking statements in this management 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 and the reasons for our presentation of non-GAAP information. If you have any questions after the call, please contact Investor Relations at kip.checkpoint.com. Now I'd like to turn the call over to Roy Galan for a review of our financial statements.

Thank you, Kip. And thank you for everyone for joining the call. Let me just share the presentation. Yes, so I'm excited to be with you to present our results for the first quarter of 2023. Our revenues this quarter reached $566 million, which is $1 million above the midpoint of our projections. Our earnings per share were $1.80, surpassed our endpoint of our projection, and $0.07 above the midpoint of our projections. So despite the market uncertainty and the tough macro environment, we delivered 4% growth based on our projection and enriched our projection and delivered 15% growth in our earnings to $1.80. Now let's dive to the detail of the view of the quarter. As I mentioned, the revenue increased by 4% to $566 million. Our deferred revenues was halved by 8% to $1,797,000,000. Our shortened deferred revenues were up 2% by 8%. Our calculated billing reached $485 million, a decline of 3% year over year. Let me remind you that our billing is affected by duration, payment terms, and in this kind of market uncertainty, we saw this quarter fewer customers willing to pay upfront for multi-year deals, which resulted in shorter billing duration. If we are looking on our current Calculate billing, it was actually up 2% year-over-year. Our product revenues declined by 7% year-over-year. This was as a result of the market uncertainty that resulted in extended sales cycles and in deferral of projects, mainly refresh projects in the quantum appliances. And we see more cautious spending by customers around refresh projects and deferral of projects. If we're looking on the security subscription, we had a very strong quarter with 13% growth year-over-year and reached $228 million. This double-digit growth was driven by our cloud guard and our money email businesses that were both at a strong double-digit growth, both in revenues and both in new business bookings. Also, we see that we had a great quarter with Infinity to continue to flow in and accelerate its way to our revenues and reach the growth of over 140% in revenues. We see that we reached a key milestone of 80% of recurring revenue out of our total revenue. Actually, 81% of our revenues are recurring revenues, which are the subscription revenues plus the support and maintenance revenues. And out of the 81% recurring revenue, 50% of them are subscription-based. And we see a consistent growth of our subscription and our recurring revenues over the last few years. Now let's look at the revenue by GEOs. 45% of our revenues came from EMEA. 43% of our revenues came from Americas, while 12% of our revenues came from Asia Pacific. And let's dive now to the P&L highlights for the quarter. Our gross profit was increased by 5% to $502 million, which represents a gross margin of 89%, which is higher than 88% that we had last year. Those store margin are impressive, considering we still see pricing increases by many vendors. We see an improvement in the supply chain environment that was very challenging last year, and we hope to see this trend continue in the remaining of 2023. Our operating expenses were increased by 11%. This was mainly as a result of our continuing investment in our workforce, cloud infrastructures, and in-person marketing activities, including our CPX event that took place this quarter. So we reached a very strong operating income of $238 million. That was 42% of operating margin this quarter. Our financial income this quarter reached $19 million as we invest in higher interest rates over time. And we expect that this income will increase in the next few quarters by a million or two every quarter. Our non-GAAP tax rate for this quarter was around 15%, mainly due to indexation and updating tax provision because of several tax assessments we have worldwide. Our non-GAAP net income increased to $218 million, 7% growth year over year, and $1.80, EPS of $1.80, which represents 50% double digit of 50% growth year-over-year, very strong results. Our gap net income was $184 million or $1.52 per diluted shell. If we're moving to our cash flow and cash position, so our cash balances as of the end of the quarter were $3.6 billion. Our operating cash flow was strong at $386 million this quarter. During the quarter, we continued our buyback program and purchased 2.6 million shares for $325 million at an average price of $127 per share. In the past 12 months, we acquired in total, we purchased in total $1.3 billion of shares. So if we summarize our financial results, so we had a double-digit growth in subscription revenues driven by our Harmony, Eman, and CrowdGuard products. Our recurring revenues give the key milestone of more than 80% of our total revenues. The macro environment resulted in extended sales cycle that resulted in a decline in our product revenues. And we finished a very strong profitability of 15% growth in EPS. Now I'll turn the call over to Gil.

Thank you, Kip. Thank you, Roiv. That was a very good presentation. update on the financial side. On the business side, I'd like to reiterate some of the messages and give some more color to the technology, to the trend that we see. As you know, the need for cybersecurity remains high. The level, the number of attacks keeps growing, the sophistication of attacks keep growing, and we vet what we are doing. But just to reiterate a little bit about some of the quarterly highlights that we see. So first, I'm very, very proud of the financial results. Our revenues were above the midpoints. 15% EPS growth is actually exceptional. And we had a very healthy business in the renewal, which shows that our customers are loyal and care about that. Having said that, we are still operating in a challenging economy. We saw the effect of that economy on our business. We've extended sales cycles, project being postponed. And I the decline in new deals with product sales. Still with that, double-digit growth in CloudGuard and Harmony email, 140% growth in Infinity revenues, 13% growth in all the security subscription. And again, I'm very proud that we now reached over 80% of recurring revenues. This is all driven by many, many important initiatives and many technologies that we are delivering this quarter and every quarter. Let me give you some highlights for the things we launched in the first quarter. First and foremost is the Infinity Global Services. Second is getting into the new market of Security Operations Center SOC with Horizon XDR, XPR, and I'll dive into each and every one of them. And last and not least is the expansion that we did in the cloud with cloud native application protection. Again, each and every one of them addresses an important market in the security landscape and all presented pretty good results for the quarter. So let me start with the new Infinity Global Services. I think we all know that customer wants to have better security, more security. We all know that there's a huge skills shortage in the market for cybersecurity. Our partners, our customers all have a lot of expertise in cybersecurity, but none of them have everything included. And the idea here with introducing our Infinity Global Services is to augment the needs of our customers and partners. When they want to run fast and get the best security and get the full deployment, whatever stage they need, they will always miss something. It can be on the security assessment side. It can be in how to optimize their security environment. It can be in a training process. certifications and things like that. And it can be in the full operation and response to incidents and managed security services. We are here to help them. So we're taking many, many services that we have, adding to them a whole new set of services based on the needs that our customers have and coming to our customer with a simple value. proposition. We are here to help you to augment that. I believe that this is serving a very important market. The security services market is a $75 billion market. We're not going to be a giant player here, but we are going to participate in this market and help our customers accelerate their value realization from the security technology. So last quarter we introduced Infinity Global Services and we look forward to expand our capabilities and show results in the next few years. Next is I think I've talked about the new family for Horizon. This is another important market. Today it's a sub $1 billion market expected to grow to almost $3 billion market in five years. And our approach here, XDR, XPR, it's meaning how do you collect information from multiple sources and out of them get additional security value. Now, most XDR products today, they're actually called EDR endpoint detection and response focused about detection, focused about endpoint. What we're talking about XDR and also XPR is extensive detection prevention and response to all types of security events. Our approach here is very different because we turn things into automatic prevention very, very quickly. AI-driven, and again, focused on the prevention-first approach. We include the network, we include the endpoint, we include the email, we include the checkpoint architecture, but we also connect today to many, many third-party platforms tools that are available in the infrastructure from Microsoft, from other vendors, all part of the system we already know how to include. And I think through that system in the last few months since we introduced it, we're seeing on a weekly basis, new incidents that we find in our customer's environment and immediately turn that into prevention. So I think you see some of the analyst quotes here from ESG, Dave Gruber from ESG, The integrated approach here is unique. We can drive change across the broader security industry. I think it's a very, very good start to us. It gives access to the CISO, access to the security operations center. And for our customer, it's tremendous value that they derive from this family and from the rest of the checkpoint technologies that they have. Last and not least is the expansion of the CloudGuard family. We've seen up our CloudGuard native application protection platform. Here we are combining six different technologies into one solution. And when you look at the market for cloud security, it's a multi-billion dollar market, not a giant one, but a big one. but he spread them around many, many different technologies. Some of the stars in this market today are speaking mainly about posture management, something we do for more than five years. Others are talking about workload protection, other in the development cycle, the DevOps, the pipeline or source security. And there's many, many sub-segments. And when the customer is getting into that, they simply need too many technologies to get all of that work together. And I think with the Check Point Cloud Guard seen up, we are combining all these elements into one framework family that get more context, more actionable security, smarter prevention. And again, turning some of these things are prevention all the time, like the web application protection and the cloud network security. Some of them like the posture management, turn configuration, incident analysis, things like that into very quick prevention by changing configuration and by putting the right information in front of the security operations. So this is good. And by the way, I hope it helped us drive some of the cloud revenues that we've seen increasing last quarter. All of these elements plays into the, what we discussed last quarter, the free C strategy that we've talked about. How do we make security comprehensive, consolidated and collaborative? And I think it's not enough to come up with a bunch of security technologies. It's not enough to come with a lot of different elements. We really need to make the whole architecture work together. And I'm putting a lot of emphasis on the collaborative element of that strategy, making all the different elements of the security work together. But also if you look at the other two Cs, I think no one has a more comprehensive architecture than Check Point and no one has an architecture that's truly consolidated when you can get into one unified portal management to automate, to do the same security management operation from one single management console. And I think this is reflected in some of the wins that we've experienced in the last quarter. Of course, we are doing thousands of deals every quarter, so it's hard to pick the leading ones, but we picked here a few examples that show all the different elements, the Infinity, the Harmony, the Cloud Guard, For example, here is an airline that got our security assessment. We got in with our services, delivered a quick security assessment. Despite this vendor using 12 different vendors, they don't have the skills to manage. They don't have the personnel to manage all these different vendors. And we weren't getting the highest score. They decided that the approach of using a platform consolidating many solution is the right approach. We did a very fair process and I'm very glad to see that they standardize on infinity. It's a new customer to us and we are very proud on that. Another one is a giant media companies. One of the most complex cloud environments that we've seen thousands of cloud accounts, different cloud platforms using different cloud security solutions. in the environment. And again, they found it almost impossible to manage, not addressing all the needs. And the new cloud project that they have drove this consolidation. We went in, we went live in less than a month and showed them how we can really elevate the level of security, consolidate so many elements. And all of that is just the beginning of the very strong roadmap and vision that we liked about what Check Point does. Last example is about our Harmony email. something that's actually a fast-selling solution that we have now. In this case, we're talking about a giant telco suffered two embarrassing incidents that resulted in emails that got through their security defenses. They used multiple solutions from multiple vendors and both solutions fail to improve, fail to address the issues and show them that next time this attack won't happen. We got in, showed them within days that we can immediately, that we can block this attack, but even more important, that we can scale our solution and provide a solution The solution to a very large environment. Usually, by the way, our email business started with mid-sized kind of customers. And here we showed them that within a few weeks, we were able to scale to thousands and tens of thousands. And finally, we won the contract with over 100,000 mailboxes on Harmony email worked. real world production and protecting that customer that failed to achieve the same thing with our solution. So these are just demonstrating some of the successes that we have in different areas of the cybersecurity. So to summarize, this quarter we had very good results despite the economic slowdown which affected us and that we see in the marketplace. Very glad to see the double-digit growth, the 13% growth in subscription revenues, the 15% growth in EPS, which is exceptional. And I think we're demonstrating the values that we're talking about of providing the best securities with the FreeSys strategy, with the new launches of the Infinity Global services, the new Horizon family with XDR, XPR, and with the smarter cloud prevention that's part of our strategy. So I think that summarizes a pretty good quarter. Before I get to your question, I'd like to share our projections. So I'll start with the projections for the year. These are unchanged. We are just including that slide as a reminder. It's the exact same slide that we showed last quarter's revenues for the years are expected to be between two point three, four billion dollars to two point seven. $2 billion, $510 million. Despite the economy, despite the challenges, we believe that we can still be in that range. Non-GAAP EPS, same thing, ranges between $7.70 to $8.30. Non-GAAP EPS is expected to be approximately $1.22 less. Again, same slide that we showed last quarter. And I'm going to share the range for the second quarter, which we haven't shared before. And this, again, within the same landscape here, revenues are expected to be between $570 to $605 million. And non-GAAP EPS is expected to be between $1.85 to $1.95, pretty healthy EPS. And GAAP EPS is expected to be approximately 31 cents less. This is the update for the quarter, for the projections. I'll be very happy to open the call for your questions. Thank you.

Thank you, Gil. As a reminder, please ask one question and one question only, and hopefully we can come back around and go through everybody once again. Starting today is going to be Shaul Eyal as our first up with a question, followed by Keith Bachman from BMO. All right, Shaul.

Keith, good afternoon, everybody. Good to see, Gil, that you're keeping fiscal 23 guidance intact. I had a question on the product decline. How much of that was attributed to Infinity actually showing a very solid performance?

The product decline obviously doesn't come from Infinity, which actually showed very good performance when customers are buying more of our architecture, more comprehensive solutions, and showing that. It's coming mainly from refreshed projects that are being delayed. As I mentioned, since I think Q4, since November, we see a very big change in the industries. And again, I think you've seen it in many other companies' results. You've seen it in the decline in PC shipments in the first quarter. We've seen it in results of other companies in the industry. And it's part of our business as well. That's why I'm so proud in the results that we've achieved, because despite the fact that customers are holding back on refresh projects, are trying to tighten up our budgets, our results are excellent. The renewal rates that we have and the recurring business that we have is very healthy. But again, I can't do without sharing the concern that we have about the tightening spending that we see across the marketplace.

All right. Next up will be Keith Bachman from BMO, followed by Patrick Colville of Scotiabank.

Hi Gil, thanks very much. It's Keith Bachman from BMO. I wanted to ask a question about why do things get better? What's the driver of improvement? And what I mean by that, let's break it into, you commented that Billings growth net of duration changes was call it 2%. What's the catalyst in terms of a product acceptance driver that gets that to mid single digits or even higher? And if you could comment, do you envision billings being a positive or a negative number during the course of calendar year 23? Thank you.

I can let Troy maybe speak a little bit more about the technicalities of the billing and so on. But in terms of the business trend, which I think is the most important, there are several elements. that I think can improve and can cause us to get into much higher growth. First, again, it's the economy and that's not up to us, but what we can do, there's plenty of we can do. First, I think the new products that we have, everything from Horizon, Harmony, CloudGuard, and the full Infinity architecture can drive accelerated growth. Second is our engagement with customers. There's so much potential in the market that we don't touch within our install base and outside our install base. You know, we are meeting with so many CISOs, with chief information security officers. They love Check Point. They like our... They like our brand and they don't know the full checkpoint story. They don't know how much value we can provide to them. And I believe that we can do so much more by engaging more with customers and covering more the market. So if I take all these elements, I'm actually I think that we have plenty to do to drive more business. And I think we're doing that. I think it takes time until we will see the results. And I think, again, we can't forget the economy that also has either tailwind or headwind. Right now is very strong headwind, unfortunately.

All right. Our next up is Patrick Colville, followed by Tomer Zilberman-Tagliani of B of A.

Thank you so much, Kip. So last week at RSA Conference, CNAP was the talk of the town. So it was really exciting to see the launch this morning of CloudGuard CNAP, which you called out combined six technologies into one solution. I guess my question is, of those six technologies, what's new here? Is it just kind of rebranding and bundling, or is there a new product launch alongside CNAP? this announcement. And then I guess kind of the second part of the question is, do you expect CloudGuard CNAP to allow Check Point to land new customers, or do you think it's mostly going to be kind of cross-sell into the existing base? Thank you.

So I think there are several things that are new in the CloudGuard Synapse. The pipeline source security is new. The entitlement management is more new. There is a lot of new capabilities and new technology and AI technology that drives the posture management into much more focused security results and security outcomes. I mean, again, when you analyze the cloud infrastructure or any infrastructure, you see thousands of different issues. The point here is to take the important ones, highlight them and fix them. And I think our new technology with the Synapse launch is part of that. In the workload protection, we had several new technologies in the last few months, and that's also helping. So clearly we have a lot new in that package. And last and not least, I don't think it's the newest technology, but it's a very important one. It's the web application protection that protects all the connection between application. This technology has proven to be one of the best technologies to provide prevention. All the latest technologies, web vulnerabilities or cloud vulnerability with log for shell web for shell all these latest vulnerabilities that existed in the marketplace checkpoint was the only vendor that blocked them on zero day there was a recent uh by one of the a recent uh survey by one of the actually vc is in the security marketplace. We tested, I think, around 20 different web application security solution and said that they were all vulnerable to this attack, except one, which was Check Point. I mean, they basically said our industry can deal with it, except Check Point. So, I mean, combining all of that, there is a lot new here. There is a lot that I think the offer of combining all of them brings plenty of value to customers because I think no customer can take all these technologies and apply to multi-cloud environment in an effective manner.

Thank you, Gil. Thank you, Kit.

All right. Next up is Taliani slash Tomer Zil. Ah, Taliani is here. All right. Followed by Gray Pal from BTIG.

Hi, guys.

I'm sorry to hear about your brother, Tom.

Thank you. Life moves on, unfortunately. I have a question on kind of the correlation between historical orders and supply constraints and what we're seeing now with products. And I'm trying to understand if you can take us through the history of You had some, all the companies that you didn't provided the data, but all the companies had some elevated orders in the past that were not, they were not able to ship because of supply constraints. So as we go into this year, we were, we thought that the product revenues of all companies will be safe for a quarter or two. because now there are deliveries of supplies so the question is as we see today the product declines despite some historical orders or or backlog of orders um is it going to get worse the next few quarters because of the environment because you're you're running out of kind of backlog of historical orders or are we seeing now a reflection of the environment

I believe I can, again, I don't know if you want to add, but I believe that we've been able to ship product all the quarters. I mean, it's not that we had the huge backlog that we can fulfill. Last Q1, by the way, we had one of the strongest quarters that we had in terms of driving new business. So the compare this quarter to last Q1 is a tough one, but still I think the comparable is fair. We are seeing a real change in the business environment. I want to be very clear on that. It's the second quarter. It's not the first quarter that we see that. And the... And again, I don't think that we have any overhanging product supply. Unlike other vendors, we were able to supply pretty much all the orders that our customer expected us to ship every quarter. We paid the price for that in previous years. We've extended costs that we've worked really, really hard to secure components for our manufacturing of appliances and so on, which is actually helping us a little bit now on the margin side, but not on the revenues or the shipment side. Roy, anything you want to add on that?

Yeah, yeah, I think it's definitely right. We didn't have any, I mean, we didn't have any significant issues last year in terms of delivering on time. Again, as Gil mentioned, it was mainly affected our costs. We had increased costs, but in general, we delivered on time and it's mainly the effect of the environment that we did. The numbers that you see now, it's mainly the effect of what we see in the environment in QA in the first quarter, what we've seen in the environment in the first quarter. Great, thanks.

For those of you that are new to the call, the call list has been predetermined. You'll be called in the order that it's brought up. Next up is Gray Powell from BTIG, followed by Joshua Tilton from Wolf Research.

All right, great. Thanks for taking the question. Um, is it possible to parse out how much of the, uh, the billings weakness in Q1 was related to uncertainty in the banking sector around things like SBB and just dynamics that are maybe more temporary in nature versus the general slow down and refresh activity that we saw, um, back in November. And then anything that, um, you can say in April trends would be really helpful. Thanks.

So I think you want me to start in terms, I think in terms of quantifying it, we don't, we cannot, it's not something that we can quantify. We saw it, I mean, we saw it broadly. I mean, in terms of refresh project that being postponed, not specifically in certain industry. So I don't see, it's not something that again, in terms of something that we can quantify in dollars. And as for your second, what was the second question that you had?

Just anything on April that, in terms of recovery in April trends, in terms of deals that they have flipped and closed, or just anything on April that you can say.

First, we usually don't... First, I think it's too early in the quarter to say where we are. But again, when we are getting ready for this call, we do collect all the information for the projections about our pipeline, about the trends in the marketplace, about everything our salespeople are saying. Our salespeople are generally actually positive on the second quarter. They have an increased pipeline. I think if I want to be very, very honest, I would say that Rui and me are a little bit more cautious because of what we saw. again that's the usual trend sales people tend to be optimistic finance people tend to be i don't want to say pessimistic but realistic and and i think i i mean i think that we are realistic in our projection and i think our sales people are a little bit more positive than us in the in the range that they provide understood i appreciate the candor there thanks

All right. Next up is Joshua Tilton, followed by Brad Zelnick from Deutsche Bank.

Hey, guys, thanks for thanks for taking my question. I just want to clarify quickly, did the macro impacts that you saw in 4Q actually get worse in 1Q? And then could you just remind us what exactly is baked into that full year guidance that you reiterated today in terms of your expectations for the macro environment for the rest of the year?

So I think from Q4 to Q1, the situation became a little bit worse in the internal trends that we've seen. But I think also we had a very tough compare because Q1 last year was an exceptional quarter. I think in terms of the internal metrics that we have, Q1 of 2022 was the exceptional quarter that I don't think we've saw in a decade. So the compare is tough. I think for the full year, there's really no change. I mean, when we did the forecast for the year, we were a little bit more optimistic in terms of the, you know, preparing the plan for the year than we are now. But I think we're still in the range and we still hope to deliver on that. And there's a lot of expectation for improvement in the second half. It would put us in the, you know, in the upper end of the range, but there's also risks involved.

So we have to remember that. Thanks, guys. Thanks, Josh.

Next up is Brad Zelnick, followed by Ray McDonough.

Great. Thanks so much for taking the question. Gil, I've always appreciated the vision that you have within cybersecurity. Any thoughts on the impact of generative AI on the space, and in particular, how it might be used by both good and bad actors? Thanks.

Absolutely. That's a subject that we are very busy with. I think AI in general is something that we've been investing in in the last few years. And generative AI that's in the market now for like five months, I think is really... creating a change in everything in technology. I'm not sure if it's going to be a real change revolution in technology or not, but I believe in it. I think it has the potential to be one of the biggest revolution that we saw. We are kind of in the middle of the change. early to say now it has an effect it has a big effect on cyber security and i don't think that we can even comprehend the the effect of a change we've shown already in december where researchers showed how you can use a generative ai to write attack code which again have access to all the code the repositories it can take hold from them and without being a security expert write sophisticated malware. If you're talking about phishing attack, which are fairly common actually, actually email and phishing attacks are the number one entry points of attacks into organization, which plays into our Harmony email. But when you look into them, when you look at most phishing emails, you see that they don't have the perfect English or the perfect other language. And you can spot that with generative AI, it becomes seconds to write a very convincing phishing email. You can link that email to a code that, let's say, collects customer information, collects personal information. Again, this code can be written by the generative AI, and you don't have to be a real expert. You actually get all the instruction from the generative AI how to create this kind of code. So this is pretty scary about access to malicious things. Equally on our side, there's plenty of usage that we can get from generative AI, and we are investing a lot in AI. We just had the First, I mean, just to be clear, we are on AI for many, many years. And last year, we've introduced 12 new threat cloud engines that are based on AI. By now, our threat cloud, which is the kind of brain of our central system, is 70-something threat engines. 42 of them are AI-based. So AI is pretty big in what we do. But just for the first quarter, based on this AI revolution, we did the hackathon, for example, within Checkpoint. and let different teams here see what they can do with generative AI. And I was very positively surprised with the level of innovation. I'm participating in these hackathons for years. Seeing the innovation, it's the first time that like they presented 10 finalist project and all the 10 I said, we can use them now. Like good technology. It's not like, OK, doesn't belong here. Maybe not the right quality. Almost all 10 were something I said, why aren't we using it now? Some were more internal, but seven or eight out of the 10 were things we can actually incorporate into our products. And I think we will incorporate most of them. So generative AI has the potential to change our markets as well.

Thanks, Gil. All right. Next up is Ray, followed by Max Gambrell from Goldman Sachs.

Great, thanks for taking the question. Gil, maybe for you, how would you characterize the level of discounting you're seeing industry-wide, and how do you think about pricing concessions in this environment? And along with that, how much of an impact is the increase in financing costs that customers have to bear having on deal activity at this point? Would you characterize it as material, and has it become more apparent in recent months?

I don't think it changed materially. We are operating in a tough environment, not in tough, but we are in a competitive environments and sometimes customers get high discounts. I don't know, Rui, did we have an increase in discount the last quarter? I didn't see something big, but I think it was relatively consistent, Rui.

Relatively consistent, a bit higher discount because we also raised our prices this quarter. So in the end, we had a bit higher discounts, but pretty consistent what we've seen in the last few quarters.

And again, I think the one thing I'm very encouraged with is the healthy renewal business that we've seen in this past quarter. Customers are renewing, which means that, A, they are using the technology. Second, they like it. And that's actually a very, very good sign. I'm hearing from other colleagues, not necessarily in the cyber industry, but in other industries that for them, the renewal business was always a source for growth and the expansion, especially SaaS vendors. And suddenly this business is also under pressure. So far, we haven't seen, again, it's tough. People ask for discounts. People want that, but it was relatively healthy. In the samples that I've seen, I can't even say that I've seen a consistent drive for more discounts. Actually, some deals were even lower discounts this year in the few that I've spotted.

Thank you. All right. Next up, Max.

Followed by Saket Kalia of Barclays.

Yeah, thanks for taking my question. I wanted to ask on Salesforce productivity, given that you substantially hired in 2022, especially towards the end of the year. How are some of the changes that you made to your go-to-market organization last year playing out this year? And do you still plan to grow your sales headcount by double digits in 2023?

So sales productivity remains, I mean, our targets for the salespeople remains healthy and remains similar. We are not planning to grow the sales force significantly this year, given the economy and given the fact that we want to digest and we want to make the people which we hire productive. I do believe that our sales force can be far more productive. engage more with customers we can do more so i think that we can do more with the people that we have on the same time i think because we are cautious because we are not overspending because i think we watch everything we have the freedom and the flexibility to add people whenever we see it makes sense so i'm i mean it's same message that you're hearing from me that our sales force hears from me if you have opportunities to add people if you see that if you'll add certain people in certain segments, certain countries, certain places that add value, I'll be happy to add them because we can.

All right. Next up is Saqib Khalia followed by Jonathan Ho.

OK, great. Hey, thanks and good morning, everyone. Roy, maybe for you. I was wondering if you'd just talk a little bit about the impact that ITP is having on billings. And I know that we don't guide to billings, but even qualitatively, can you just touch on how you're sort of thinking about billings through the rest of this year as you sort of balance ITP, a higher mix of ITP, obviously duration changes within the industry. Any thoughts that you could have on billings for the year would be helpful.

Yeah, thanks for the question, Saket. So I think in general, again, infinity, most of the infinity, these are not being built up front. Most of them, we have a specific payment terms. Usually it's annual payment terms, not paid up from. So the duration of the billing for Infinity deals are usually not more than one year. So that's something that, again, we see very strong Infinity environment. I mean, we see very strong implementation of our Infinity platform and we see it growing in all regions. But in terms of billing, it can fluctuate because again, it's specifically based on on the payment terms for each deal. In terms of billing in general, so again, we've seen this behavior in the last two quarters that we see customers that less intent to repay upfront for multi-year deals. Again, in this kind of market environment that we have higher interest rates, so it's something that we see and we understand. But again, still see healthy, healthy billing, annual billings, healthy renewals, as Gil mentioned, healthy billing in terms of all of the growth pillars, mainly around the cloud business and the Harmony email business. So, again, in terms of billing, it's tough to me to say how it will affect in the end, how it will impact the annual billing for 2023 because we just finished the first quarter. But that's how we see it.

Very helpful. Thanks, guys.

Next up is Jonathan Ho from William Blair, followed by Joel P. Fishbein Jr. from Truist.

Fantastic. Can you maybe help us understand the impact from some of the deal postponements and delays that you talked about on the quarter, if there's a way to quantify that? And perhaps relative to the guidance, like why not sort of take the opportunity to take a more conservative view here? What's maybe giving you the confidence to support that? Thank you.

First, I think you see some of the impact in the product revenues, and I think we were very straightforward about that. And that's the impact of the changes that we've seen, and especially, again, it's refreshing what we call new deals and new business that we have in the business. About the forecast, right now we're basing our projection based on our expectations our sales forecast based on our pipeline and so on. And they still seem to support the projection for the year. I definitely don't, again, I definitely don't want to, you know, lower guidance just so that we can, you know, show better numbers in the future. I think we have to be very responsible here. So as I said, the range that we have is wide. There's a good potential that will be on the upper hand. There is a risk that we want. We have to take it into consideration. I think we are, again, kind of very realistic about the range that we provide. And I don't want to lower a range unless I'm sure that I'm not going to hit it. Let's put it that way. And I think, by the way, I mean, what will happen in the second half, guys, I think we don't know. I mean, I don't want to bore all my experience, but just if we look at the last two or three years, there's been ups and downs that nobody could have predicted in the last two or three years, including the last quarter and a half that were pretty dramatic in my mind, and whether that will take, you know, a quarter to... whether it will stabilize, take a quarter to go back to modest growth or take two quarters to get to high growth. I have no clue. It's really something that's very hard to predict at this point.

Thank you. All right. Our next caller is Joel P. Fishbein followed by Greg Moskowitz.

Thanks for taking my question. And Gil, I'm just curious, you know, we have 3.6 billion in cash in the balance sheet. You generate a lot of cash. I wanted to ask you, I know you've been buying back a lot of stock. If there's been any change in your appetite for potential for doing more M&A, what the environment looks like on the M&A side, would love to get your input for that. Thanks.

So first, absolutely, we have more appetite to doing M&A. We are looking at additional deals. I think I'm kind of cautiously optimistic about that because I see that companies' valuation become a little bit more realistic. More companies understand that they need to partner with someone because the market consolidation will happen in this part, just like we're seeing in the market change from... unlimited supply of money to profitability, which is, again, part of the economy rules. It's bound to happen. I think consolidation in the industry that's so fragmented like cybersecurity will happen too. At this point, I think it's still hard to see that happening. Some of the let's say I'll give you a few examples, not without specific companies, but some of the companies, the valuation went down are still not profitable. So it's hard to justify that. I mean, and the, but I, but as I say, I mean, I felt cautiously optimistic. We see more opportunities in all market segments from small companies to midsize companies that we're looking into that. And I hope that we'll find the right opportunities.

Thank you. Thanks, Joel. Next up is Greg Moskowitz, followed by Shebly Serafi. Thank you for taking the question.

So Gil, we've spoken a lot about the macro on this call, but since this is the lowest product revenue growth that we've seen from Check Point since mid-2018, I just wanted to ask, would you attribute the weakness entirely to macro, or were there any execution areas that may have also contributed to some degree? Thanks.

I want to be, I don't want to sound arrogant here. I think we can do so much better in checkpoint and we have so much potential with our sales force. But what we've seen now is completely the result of the economy. I think our sales force is performing better, is doing better on every parameter that I'm looking into. Again, I can think that they can do so much more. I mean, I don't think that we are at 100% productivity. I think we can... get much more productivity from our sales force but our sales force is improving in the last year we hired a lot of good people actually in the last six months the level of attrition went drastically down and so on we did hire some new people in the second half of 2022 i think if you remember when we went into 2022 i came in with pretty aggressive hiring targets for the sales force. Some hired them at the first half of the year. Some only got to vet hiring the second half of the year. But still, I mean, our sales force, I think, is not the source of the challenge. The source of the data challenge is clearly the economy.

Thanks, Gil. Thanks, Greg. Next up is Shebly Sarafi, followed by Dan Ives from WebBush.

Thank you. Any vertical call outs, especially in the financial services vertical and the technology vertical?

No, I think the trends in the marketplace are very universal. We had some challenges in the financial sector. We had some big wins in the financial sector. Same with the technology sector, which is the financial sector is maybe our largest sector. And again, I think that's what we've seen in terms of the trends in the marketplace are pretty universal, I must say. Roy, anything you want to add to that?

Not in specific vector industry, vertical industry. I think we've seen broadly in everything, not specifically, we didn't see it in finance or some other industries.

All right, it looks like Dan Ives is on CNBC or some other place, so we're going to move forward with Irvin Liu, followed by Michael Turretts.

Hi, thanks for the question.

perhaps another one on macro. So I wanted to better understand the thought process behind some of your customers delaying project refreshes. Are some of these longer sales cycles the result of lower than expected IT spending budgets broadly, or if there was a specific targeting of moderating cybersecurity spending just following a few years of accelerated spend there?

From what I can say, it's the general trend in the industry and nothing about cyber. When I speak to people, everybody, and I'm saying everybody from CFOs, CEOs, CISOs, they all say that cyber is still a great source for investment. It's still very much needed. When you see the attack landscape, there is definitely, you see the reasons for that. So nobody's thinking that cyber, that cyber security spending should go down. So I believe that what I see is the general trend from friends that I have in the industry, in other areas of IT, the situation in other segments is much worse actually than in cyber.

All right. Great. Thanks for the call. Our next caller is Michael Turretts, followed by Itai Kidron, who will be our last call for the day.

Hey, Gil and Roy and Kip. Just wanted to come back to the Salesforce growth, which I think, Gil, you just said not significant growth. I think you'd said for this year, I think you'd said double-digit growth previously. So is there a change there? Are you pulling back on your expectations? And if so, what does that mean in terms of some of the things you're trying to achieve from a go-to-market perspective to get that greater sales engagement you're talking about?

I think we've invested a lot in the sales force last year. We want to see it pays off. We want to see that it being digestible. If we see that, as I said, when we see in areas that we believe that we can hire more people to increase customer coverage or productivity, we'll not be shy to do that. We have the resources. To do that, I think our sales engagement can be much higher. I think we are not meeting enough seesaws. I think we're not, we can convey better our story at the higher levels in the organization. I think we can engage our customers in multiple ways. We see good examples of that every day when we are meeting with customers and say, whoa, I know Check Point. I've been working with you for 20 years. I didn't know that you have such an amazing platform today. I didn't know that you have this architecture. I should consider you for other projects. So I think we can do so much more, even with the people that we have today, and we have good people.

All right. Thank you, Michael.

Next up, Itay. Thanks. And thanks for the time, Gil. I guess I had a question about the productivity that you just talked about. You've tried for quite some time to improve productivity. So what is it you think that you're not doing internally to get the productivity up? Why is it so hard? What are things that you're trying that are not working? What is the process to fix the things that are not working right?

first we are doing and we are improving and i'm glad to see that and and again we have a lot of new people in the sales force in the management ranks and in all the different ranks and we are doing i think the main thing is how the sales force is being structured it's being It's a very distributed organization that over the years grew in an environment that's not very structured. That's been a pull mode. That's being how to provide the best technology, how to best serve our customers. And I think we can instill far more discipline in being more aggressive, going to more outbound, going to more customers, fighting for the customers or for the customers. or for getting to the people that don't know us, not just for the people who know us. And I think creating that environment, creating that change in the 3,000 people distributed organization that doesn't have that discipline is challenging. By the way, in some cases, that may be the good thing in our Salesforce, that we have very good people that know how to work with customers, to keep the customers happy, to keep the customers loyal, but know the technology. But some of it can be changed and can be improved.

Thank you.

Thank you guys all for joining us today. That's going to conclude our call. We'll look forward to seeing you guys throughout the quarter and the best to everybody. Thank you guys. Bye-bye. Thank you very much. Bye-bye. Thank you.