Check Point Software Technologies Ltd.

I'm Kipi Meinzer, Global Head of Investor Relations, and joining me today are founder and CEO Gil Schwed and our Chief Financial Officer Roy Galan. Before we begin, I'd like to remind everyone that the 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 to be followed by a Q&A session. During the presentation, checkpoint representatives may make forward-looking statements within the meaning section 27A of the Securities Act of 1933 and section 21 of the Securities and Exchange Act of 1934. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Factors that could cause actual results to differ materially include but are not limited to those discussed in Check Point Software's latest filings with the Securities and Exchange Commission. Any forward-looking statements made speak only as of the date hereof, and Check Point Software undertakes no obligation to update publicly any forward-looking statements. In our press release, which has been posted on our website, we present GAAP and non-GAAP results, along with the reconciliation of such results, as well as the reasons for presentation of non-GAAP information. If you have any questions after the call, please feel free to contact Investor Relations by email at kip.checkpoint.com.

Now, I'd like to turn the call over to Gil Sweb. Hi, everyone.

Good morning, and I'm glad to see all of you here. Before I turn it into really to go through the financial, I want to make a short statement. I think as you all know, Israel gone through a very terrible terror attack three weeks ago. And first and foremost, our hearts go to all the people that are suffering from the situation and all the people that lost their loved ones in the situation. And unfortunately, here in Israel and around us, there are many of them. We all know people that have suffered and we all know people that got murdered in this terror attack. Over the past three weeks, our employees proved that despite the siren reserve military draft to a few people around 5% of our entire headcount, we can continue to operate this plan uninterrupted. Over the last three weeks, we've been able to launch products, complete acquisitions, and of course, continue and support our customers, partners, executives, and plant. All of that is due to the fact that we're much more accommodated to work in a hybrid manner, that our operations are all around the world, and mainly due to our employees and their commitment to customers and partners. I want to thank all our employees for their resilience and for all our customers, partners, and you in the investment community, because I did receive plenty of support, plenty of emails and calls from people that are standing behind us and are supporting us at this time. I really, really appreciate it. I really want to thank you. And with that, I think we can turn to business and try to continue with business plans. Roy, the floor is yours.

Thank you, Gil, and thank you for everyone for joining the call today. I'm excited to be with you and begin the review of the third quarter for 2023. We had another strong, profitable quarter with 17% growth in EPS. both double digit growth in net income and EPS in the net income for the second quarter in a row, in the EPS for the third quarter in a row, very strong results. In terms of revenues, the revenues reached $596 million, $9 million above the midpoint of our projection, while our EPS, as mentioned, reached $2.07 at the top end of our projection. Let's go now to the numbers. So deferred revenues grew by 4% to $1 billion and $709 million. Our current deferred revenues, actually the short-term deferred revenue, grew by 6% to $1,246,000,000. Our calculated billing reached $531,000,000, while our current calculated billing, the short-term calculated billing, reached $535,000,000. Important to note that the calculated billing includes $8 million related to the acquisition of perimeter 81. Same as in the previous quarter, due to high interest rate environment, we saw fewer customers willing to pay upfront for multi-year deals, which resulted in shorter billing duration year-over-year. In addition, the infinity is becoming more and more significant to our business, and the billing terms in these deals are more flexible, some of them on a monthly basis, some of them on a quarterly basis, so that also affects our duration. It is important to note that we saw many positive indicators this quarter, and we saw that it's something that we are monitoring. The annualized booking actually grew year-over-year, and our RPO grew by meeting a digital year-over-year. So I think in general, we saw very positive indicator Q3, and we see a positive momentum also going to Q4. okay so after security and revenues were a group by 15 actually the the eyes grow that we had since 2017. a this goal was driven by strong demand for harmony products family and mainly for a harmony email security we keep seeing a very strong demand for for the harmony products and that's bringing this growth a On the product side, we still see delays in executing refresh projects. That's resulting in decline of product revenues by 14% . It is important to note that we did see strong renewal, strong and healthy renewal business as our customers continue to benefit from our security and support. We do see stronger pipeline for Q4 that include also refresh project that will postpone for prior quarter. So we hope that we're going to see the positive turnaround in Q4. In terms of infinity, so infinity and another great quarter continue to flow in accelerated way to the revenues with a strong double digit goal here over here. In the third quarter, the revenues from infinity exceeded the 10% of the total revenue, and we can see more and more customers adopting our platform, which answering their needs are the one umbrella of product and services. As for the revenues by geography, so 46% of revenue came from EMEA, 43% of revenues came from the Americas, while the remaining 11% came from Asia Pacific. Now let's move to the P&L. So our gross profit increased from $507 million to $534 million, representing a gross margin of 19% compared to 88% margin last year. This is a result of significant improvement in our supply chain this year, which had been challenging in 2022. Our operating expenses increased by 9%, and this increase is mainly as a result of our continued investment in our workforce, cloud infrastructure, marketing, and travel costs. In total, our non-GAAP operating income continues to be strong at $269 million, or 45% margin, same as we had last year. Very strong profitability. Financial income, this quarter reached $18 million. As we keep investing higher interest rate over time, our non-GAAP tax rate for this quarter was around 15%, mainly due to indexation and update in tax provision. Because of several tax assessments we had worldwide. Our non-GAAP net income increased to $242 million, or $2.07 per diluted share, reaching the top end of our projection and 17% growth year-over-year. Our GAAP net income was $205 million, or $1.75 per diluted share, 19% growth year-over-year. Moving to our cash flow and cash position, so our cash balances for as of the end of the quarter was $3 billion. Our operating cash flow was strong in $222 million this quarter, and it includes $22 million found in connection with our acquisition that we did this quarter. Excluding this effect, our cash flow grew by 2% over to $244 million. During the quarter, we acquired Perimeter 81 and Atmoseq for a total net cash amount of $477 million. We also continued our buyback program and purchased 2.5 million shares for $325 million at an average price of $131. Now, to summarize our financial discord, very strong subscription revenues with 15% growth, high growth since 2017, continuous strong adoption of our Infinity platform. And while we see a very fresh project that has experienced delay, we see very strong and healthy renewal business. And again, strong profitability with 17% growth in EPS. And now I'll turn the call over to Gil.

Hi, everyone.

Once again, nice to see you all. Nice to be here. I'd like to shed some more light about technology and the business and what we've seen during this quarter. First, if we start with some of the highlights and the things we've already heard from Rohit, I think on the financial side, we had good financial results, exceeded our projections on the top end of the revenues, even beyond that on the EPS. We did experience strong renewals and we did see a lot of positive indicators of change. A change that I think will mark higher growth with the economy and with all the efforts that the checkpoint people do around the entire world. And on the technology and the other activities that we've done this quarter. First, I think we've talked a lot about the acquisition of Perimeter 81, new industry, more than 3000 new customers getting into the SaaS industry. I think the name is here several times on the slide and during in the next few slides, I will explain what is SaaS and why it's important and why is it such a big deal and I think a big opportunity for our business. but on top of it we've launched several other products especially during October the Horizon play blocks and several others and I think we remained very very active so let me start and drill down a little bit about some of the business activities that we've conducted during the last quarter so first and foremost is market expansion and our acquisitions that we've executed the In the last actually 60 days, in the last 60 days, we've acquired three companies, making it 20 total count for Check Point acquisitions in several spaces. The biggest one is Perimeter 81 for the Quantum SASE. And again, I'll explain what it is in a second. It's a $3.4 billion market that is very adjacent and very complementary to our customer base. And I think it's a must for us to play and be strong in that market. In addition to that, we've expanded our technology with a small acquisition of Atmosec, a small Israeli startup that will let us provide better technologies for the SaaS security market. providing a better technology to secure applications that are being run from the cloud and last and not least if you remember at the beginning of the year we launched our infinity global services an organization that aims to complete the set of services that customer can get from checkpoint and basically augment the capabilities that each customer has infinity global services has today more than 30 different services it provides around 400 security consultants. It's a pretty big organization. And what we've done now is added to it a few additional services. The main one is actually managed firewall service. It plays very well into our install base. And that's with the acquisition of RM Source. I think that we've completed just a week and a half ago. So this is another addition, important addition to our market space. And again, we've done all of that in a very short period of time and continue to that even during these days. and so let me jump right in and speak a little bit about the challenge of sassy and what is sassy so sassy means secure access service edge and that's actually a big name to the new types of connectivity that enterprises need these days. So if you're trying to understand what does that mean, for example, if in the past an enterprise was mainly remote users and a data center or a few corporate offices, today an enterprise network is far more than that. It has SaaS applications that are delivered from the cloud. It has cloud applications that are delivered from a private or public cloud. uh it has many many branch offices talking about what we call sd1 branch office security and branch office traffic optimization we need to secure the access of the remote users not just when they access the data center but also when they access the internet when they access the cloud application and these don't go through the traditional enterprise gateways so the connectivity becomes a little bit more challenging or a little bit more complicated, because obviously each element of that adds another layer of connectivity and a larger element of security. One approach to doing that is running a big part of it from the cloud. And many solutions today, by the way, what they do is tunnel all the user traffic. Today, when we speak about SaaS, it's mainly about taking remote user traffic and tunneling it through a cloud service that opens that communication, inspects it, and secures it. we've been trying and we've been active in this space for a long time but i think now we made a very important step with the acquisition of perimeter nt1 to build the industry best what we call a game-changing um architecture or solution that addresses all the elements not just the remote user and not just the branch office like many other vendors but addressing all the elements of SASE connectivity in one suite. I think where we've started by launching the Quantum SASE last the week of actually October 8. And we will continue in building that architecture into maybe the most complete SASE solution. So let me describe what it is and what are the benefits. For example, if we speak about current solution, they channel all the traffic through the cloud. So on one hand, you want to get more security. On the other hand, by tunneling it through the cloud, you slow it down and mainly jeopardize the privacy because you take all your communication that you want to keep private and secure and open it in a single entity that all the customers in the world share. So basically, you're taking a huge risk to the privacy of the communication. what we do with quantum sassy first we provide twice as fast internet security because we are operating in what we call the hybrid manner with on device and cloud network protection again it's controlled from the cloud but most of in most cases we cannot we don't actually need to go through opening and jeopardizing the privacy but we can do it from the user device and get a much faster and much more secure connectivity second is the consolidation i've described the challenge and today if you look at the industry the customers are using if they want to get the full sassy architecture full connectivity architecture we need around four different solutions usually from free plus vendors in some cases much more what we want to do is create a full mesh integrated connectivity from one vendor, one ability to manage it, one ability to deploy and get the highest level of zero trust security that actually works. Zero trust means that we make security far more granular, far more transaction to transaction or user to application grain security. So making security at a higher level. And last but not least, is optimizing the communication when we speak about branch office communication, and that's the sector that's called SD1. And SD1, not just by optimizing traffic, but by getting the proper level of security. And I think we are going to integrate it. We've launched our SD1 technology at the beginning of the year, and we will make it a very important part of our entire SASE architecture. as part of that solution. So overall, I think we do have a game changer with which we will be able to connect the data center gateway or quantum gateways or quantum firewalls with the branch office, with the cloud, with the end users, with the remote access and make both internet access and data access everywhere at the highest level of security and the highest level of performance. I think we really have a game changer here. So that's about the quantum SASE. And let me switch to that to a different technology that we launched last week. And that's the horizon play blocks i think that horizon play blocks can be a real game changer and maybe i should use the game changer maybe a breakthrough technology here that really may take security to the next level and i think you've heard me speak even at the beginning since the beginning of the year about the free seas of of security solutions that are um comprehensive consolidated and collaborative And I think the element is if we get so many security technologies and they actually don't work together, actually even worse, some of them, even within the same domain, don't work together. Let me give you an example. Let's say that we spot some entity or someone that's scanning our network by doing what's called technically port scanning to our network. So our gateway will stop the port scanner or not to stop the accessing different ports. and the user will keep trying to do the port scan and then they might even find there's some application that's open and they might find the vulnerability in that application and get inside the network they actually might even do it from a different location with play blocks even within the gateway security we can see somebody's doing a port scan let's put that entity in a penalty box and let's not have even the chance to access even places that are allowed access because maybe they are trying to exploit some vulnerabilities. Now, you can do it on the same gateway, you can do it in all the gateways in the company. Again, we've spotted one entity trying to get into our network, let's not get them in. Then you can do it with multiple products, not just with the network security, but it's also doing it across products. For example, if we're seeing suspicious activity by one of the endpoints in the company. We block access to that endpoint by all the gateways and by all the other security means. That endpoint cannot compromise any other places in the network. Again, the list goes on and that's what we call in Play blocks, the story blocks that take scenarios and turn them into automatic, simple out-of-the-box playbooks that can work and can turn security to be collaborative i believe that this is a breakthrough other solutions today in the industry that they talk about that are in a slightly different category super complicated requires huge investment required years of training and building different scenarios and don't always address the issues. What we are being able to do here is a real breakthrough in taking that idea of collaborative security, of automated security, and make it super simple and super effective. And you see a customer quote from one of the early customers that's using that technology that says the level of security that I get here was previously unattainable. So I'm very proud of that technology. That's the first step. And that's going to be included with all the checkpoint gateways and all the checkpoint products. And again, incorporate many other third party products into that game and in the future, even more. So I think it's a very, very good start to a breakthrough technology. And we've talked again, there's many, many more technologies that we launched mainly, by the way, in the last three weeks. And I think we already described the success that we have with Infinity and Infinity becoming not just an important part of our strategy, but a bigger part of our business. And you can see here a few examples of wins with Infinity. One is in Asia, a financial and insurance services company, full Infinity architecture with Quantum. CloudGuard, Harmony, single management solution, and facilitated all the security consolidation. Another one is Woodward and aerospace manufacturing in the Americas. Again, they are using here both the SASE, which is very nice to see the deployment with our quantum gateways. They get the scalability, they like the ease of deployment, but we're really, really differentiators because That's a very important part when you do security in the large scale. And they are utilizing our Infinity Global Services for optimizing the security policy and delivering better security. And last one in these examples, and again, you can imagine that we have many, many examples of different customer wins and customer scenarios that we sorted out. To get to this list is a very important customer for us, the US DLA, the Defense Logistic Agency. That's kind of the procurement army of the US Department of Defense. America's federal government using both the Quantum and our Cloud Guard, so Gateway and Cloud. And like the flexibility and the ability to deploy more and more technology with the Infinity Agreement that Dave signed. So these are a few important and interesting wins. There's many, many more. Another avenue of the business is the technology leadership and how it's being recognized by analysts. You can see here, and I won't go through the list, some of the awards and some of the mentions that we got in different analysts mentioned, Frost and Sullivan, GigaOM, Forrester, Gartner, and several more that I didn't include here versus I think about more than 10 Just here on this slide, most of them, seven or eight are just from the last quarter, shows the leadership on that. Again, I don't remember even how many years in the Gartner magic quadrant for network firewalls. But everything we are stepping more and more, even in new areas like the horizon for the security consolidation, the harmony for the user security, for the cloud guard, we're making more and more progress and winning more and more wins into the leader quadrant or the center of the circle that we have or the leadership of the wave in terms of the leadership of our technology. I think it's something we should be very proud that we should all understand which were able to lead in many different markets and especially consolidate them. Last but not least here, we were also recognized by a few publications, the Forbes 2023 World Best Employers, very proud to be here the fourth year in a row, to be the leading company in our industry. thank you for our employees for choosing us and for voting for us these are by the way both two surveys that are unaided we don't know how we are being managed we don't contribute to them so this is independent studies and the second one for the first time we were surprised to see us on the newsweek world's most trustworthy companies again leading in the industry so customers and partners and many people trust the checkpoint brand and I think that's a very very important thing especially when you speak about the brand that's important for cyber security so this is just completes kind of a spectrum of technology and innovation users and wins analysts that recognize that and our employees in general public that recognize the potential and the leadership of the Check Point brand. So to summarize my part, I think we had a pretty good quarter, very good financial results, strong profitability with 17% EPS growth, 15% growth in subscription, highest growth since 2017. I think we have game-changing innovation, free acquisition, the quantum SASE, horizon play blocks for collaborative security. And I think like Rui mentioned, we are seeing a lot of signs for positive change. If you remember last November, we started with And I think what we've seen is a major slowdown in our industry. I think it continued throughout the first and second quarter. And I think now in the third quarter, I'm seeing some good signs of turnaround. I think part of it is the economy and the industry, and part of it is the action of our people in Check Point. especially our people in the field that are working very hard. And I think we're starting to see that. And I'm very, very positive about the signs for the future that we'll get out of it. So before I open the calls for a question and answer, maybe it's the right time to speak about our projections for the fourth quarter. So in general, our projections, I'm actually first very positive. I think we shared the positive signs that we've seen. We see more positive sign in our internal indicators than you can see on the external numbers. We have decent and healthy pipeline and projections by our field. So with that, I think we can move to that. I think in terms of revenues, we expect revenues to be in the range of $636 to $686 million. It's a wide range because I think there is a lot of possibilities. Our field actually is even more positive and more optimistic than I do. Reza Azard, A I know you know my regular caveat that projecting the future is very challenging there is a very high level of uncertainty and results can be better or worse, so I think there are some good signs that it can be better and. On the EPS side, I think we're expecting very healthy EPS between $2.35 to $2.55. Gap EPS is expected to be approximately 32 cents less. And I think overall, these projections play very much well into the ranges that we provided in the beginning of the year so the next slide will show you how it plays into the ranges that we get in the beginning of the year in the beginning our regional range for revenues was between 2.34 billion dollars to 2.51 billion dollars in revenues you can see with the fourth quarter now the range is narrowed i mean we have three quarters behind us already and i think you see it's right in the middle so i'm actually It's pretty good to see that, especially as we had the year that wasn't easy, the first two or three quarters. Non-GAAP EPS, we are actually even revising the range here and taking the range up. So if the original rate was $7.70, to eight dollars and thirty cents the new range is already starts at eight dollars and twenty cents and goes up all the way to eight dollars and forty cents so this is already expected to be at the top end and maybe even over the original range that we provided i think these are a very good projection i think they show a lot of uh i think uh positivity on our side with a little bit cautious on the revenue side which i think is always a good thing to do So overall, I think that we had very good results. I think we're having decent projections and I would be very happy to hear your questions and comments about our business. Thank you very much. And let's open the call to your questions.

As always, during the question and answer period, please limit your questions to one so we can get through everybody. Today we're going to start off with Gabriella Borges from Goldman Sachs, followed by Adam Borg of Stifel.

Good evening. Thank you. And our thoughts are with you and all of the Check Point employees on the ground in Israel. I wanted to ask a little bit about your 2024 planning assumptions as you think through what next year could look like. Maybe Gil, share with us some of the positive indicators that you mentioned in your prepared remarks that are leading you to perhaps help us think through what the implications are from the positive indicators through to billings growth. In other words, when do you think we'll see a more material inflection in billings growth? Thank you.

So I think first, thank you for that. And it's too early. We still don't have the 2024 projections. We're just starting to work on the 2024 plans, but we already have some thoughts about that. And I would say there's three factors that contribute to that. One is the technology and the new areas that we are in and so on. Second is our customer engagement and the level of activity that we have in the field. And the third one is the market itself, which is a little bit beyond our control. so from the and i think this year we really we did our field did an amazing job in increasing the engagement that we do with customers we pretty much double our engagement rates with our customers both with the existing customers and even more so with the prospects and there's still plenty that we can do we still can reach many more prospects for example and we still can do more in the qualitative side of the engagement, but we've made a real revolution. And I think there's plenty of credit with our people on the ground in the different countries in the field have done this year. So now all of these things, when you engage with the customer that you haven't met for a long time, when you start the conversation, it takes between, I would say, It depends on the situation. I would say between six to even 18 months until it's fruitful. And the reason I'm saying that, because usually the field will say, I'm already engaged with the customers that have a current opportunity. Getting me to meet with somebody new, it's usually the one that's not knocking on our door and doesn't have a current opportunity. So these are a little bit longer term customers. I think that we will see the results. from there and i think we've seen a big revolution in this engagement in the second and third quarter so that means that we can be optimistic about some of his engagement turn into deals and pipeline in next year we already see the correlation i mean the more meetings the more engagement with the customers the bigger the pipeline we've had customers it's a very direct correlation so i think that's one sign and that's about our activity second in technology we have much more and we've seen that some of our new technologies are sticking and are working well i think we will see a lot of demand for sassy solution it's a healthy market with high growth so i expect it's we're again we just in the first few weeks in that market so i don't have indicators that are too strong but i'm very optimistic on there for example on the email side of things that we've got into like two years ago i think a year and a half ago we already see a very healthy not just pipeline we see very good results and very high growth so i hope that we will can repeat that success with the SaaS industry. Same thing with our overall vision, our overall architecture, which I think is the most important, and that's the Infinity umbrella. And I think with Infinity, we're seeing very nice growth. And again, it, of course, ties to are we engaging with high enough people in the organization? Do they buy into our vision? The answer is yes. The more qualitative engagement we have with the customer, the more likely they are to choose us as an architectural solution with the Infinity architecture. So if I'm talking about these two, I think that we have a good pipeline of technologies, a lot of innovation, and turnaround in the engagement that we have. The third element, which is the market itself, and especially our large market for firewall gateways, the market is went all the way to the bottom i think in the second quarter which was the bottom and in the third quarter started showing signs of improvement if that improvement is changing and if we combine it with the other two we have reasons to be optimistic if customers are going to keep tight on the refreshing and by the way the fact that we don't refresh is I mean, we want them to refresh their install base and buy more, but that means that they stick to us and they love our solution and they just pay the renewal fee. Doesn't generate enough growth, but in general, the rates that we have of renewal are very high and we have a good renewal business. So that means that customers like our products and they keep working for them. So if that will change, that will be a big, big change. And I hope, and this is a little bit beyond our control. It's a long answer, but I think we've covered many.

Thank you for the detail.

all right next up we have adam borg from stifel followed by brad zelnick of deutsche bank

Awesome. Thanks, guys, for taking the question. And again, I'll echo my thoughts for you and your families. Maybe just for Gil on Permit 81, obviously, great to see your entry deeper into SASE with it. And I was hoping you could talk a little bit more about the near-term integration priorities from a sales and marketing and R&D perspective, and how we should think about the CapEx impact as you look to build out POPs, I'm assuming, over time. Thanks so much.

um i think in terms of the integration we built them in checkpoint a model that we call rockets that we kind of let these businesses on one hand keep their little bit of their independence their vision their integration of activities on the other hand work with the checkpoint both r d and sales and marketing organization to drive things more forward and move fast and integrated i think quantum sassy is going to be very tightly integrated to check point because it's a network solution. And in many cases, it's integrated with our gateways and integrated with our project and Salesforce. So it's not necessarily different buyers within the organization. It's similar buyers. I think that's the synergy and that's extremely positive. We already see a high level of interest in the field. People are super positive and super optimistic about that. And it will take us some time to build all the bridges, but we're working very hard. I mean, there's kind of two caveats. On one hand, we want to create one product suite, integrate all the checkpoint security technologies into the Perimeter 81 offering. connect the perimeter 81 management with checkpoints so we have a very strong roadmap of what we want to develop on the other end it's been growing very nicely on its own and we don't want to disrupt that so And I think, by the way, with the Harmony email that it's been a similar acquisition, we've built the right bridges for the first six months. Kind of most of the growth was driven by their pipeline. Six months later, they're already reporting that huge part of her pipeline is already driven and brought to them by the checkpoint salespeople and by the checkpoint channels. So I hope we will see here even a faster transition, because unlike email, this is even more central to our technology. And in terms of capex, I don't know if we have any... No, so in terms of capex, not capex.

I mean, we expect to invest in capex related to pyramid ATMs, a few million dollars a year or something. It's not significant in terms of that.

Great. Thanks so much.

All right. Next up is Brad Zelmick from Deutsche Bank, followed by Tal Liani of B of A.

Great. Thanks so much for taking my question and best wishes to all the good people of Israel. Gil, I don't recall Check Point having a significant US federal business, but we saw the DLA deal that you highlighted, which I think was a $6 million deal, which is a really great win. Can you remind us, is there a broader opportunity that you're going after in U.S. federal? And is this also maybe a reason why we don't necessarily see all of the success that you're having in billings? Because we all know that the U.S. federal customer doesn't necessarily pay multi-years in advance.

Thank you. I don't know if it has a better answer about the billing and so on. I think the opportunity on the US federal government is huge, even though the US federal government is a very, very is a kind of it's a tough customer, especially for foreign companies and foreign, not just Israelis, even Canadian companies. very hard to penetrate them if you are not an American. I think the fact that we have a good success there, hopefully it's a good sign moving forward. The opportunity is huge. I mean, the opportunity in the federal market is almost untapped. We are making good progress on other government business in the US, especially the local governments. And again, the opportunity there, it's also very big. And I think we still have plenty of potential and we're doing a lot of different things. The good news, again, we have many industries and many sectors that are still Again, we are active in all of them. We have presence in all of them, but in some cases, like US federal, we're too small. And really, does it have much effect on the federal side?

It doesn't. I mean, it doesn't have any effect on billing. I would have about the billing because I would assume that I would get the questions on that. So again, on the billing side, the timing and the duration really affect the billing. I can give you as an example, something that I wasn't in. I didn't mention it in the script, but for example, where the large mega deal that was expected to be closed this quarter and was due to certain administrative delays was closed two days after, and that something like that affect the billing. It's a timing of billing. It's a classic timing of billing that these kind of things affect the billing. I understand that you are covering the billing and it's important, probably important metric for you to understand the business, but we can say that again we saw this quarter very i mean positive indicators as i mentioned the booking went up year over year we see very positive indicator for the pipeline for q4 again we need to be cautious it's still only pipeline and not not converted yet to business but uh but we see many positive indicators ahead thanks for the color yeah all right next up is taliani of bfa followed by joseph gallo of jeffries

Hey, good morning, guys. Two questions. Gil, at the end of the day, you're only growing 3%. And we talked about it like last year, you talked about Infinity and you talked about the year before about other products, but it's very evident that it's hard for the company to translate technology superiority into higher growth versus competition. And the question is, what other parts do you need to invest in, go to market, marketing, whatever it is, what other parts do you need to go to? And what are the challenges that you have in order to translate your technology into better growth rate? The second question is kind of related, not related. Subscription, very nice growth, 15%. What are the trends in the non-subscription? It's down about 4%. So what is their substitution or what are the other trends that we see in non-subscription? Thanks.

so first you're absolutely right we need to do better we should do better i by the way believe that we were on the same big market trajectory that we've been a year ago i think our results today would have been double digit growth i think we've faced a double digit decline in the core market of buying new gateways delaying what we call delaying refresh and uh in a nice way and i think we've shown it in our slides and despite that we've seen we've seen growth and the growth comes from both from customers sticking with us and doing the renewals both from the fact that we've been able to transition big part of the business from product purchase to subscription and also from some of them some of it comes from the infinity deal with our multi-architecture both a user cloud and other elements of the security elements and some of it comes from the new technology like email and few others that are gaining traction but relatively still small but are gaining traction so that's how we offset that again if you just looked at it on a neutral basis of just selling gateways it wouldn't been it wouldn't been that it wouldn't even been three percent now again i'm not happy with that percent i think we should aim much much higher i think We've made investment. Last year, for example, we hired a lot of salespeople. We can still hire more. I think this year my focus internally was on customer engagement, making sure that our people actually go and meet with their customers and prospects. I think I already mentioned that we had great progress there, doubling the rates, which is not trivial, and much more activity by the field. Next step, by the way, is twofold. One is to elevate the level of quality, making sure that we reach the right people that we go broader in the organization and so on. And second, I think, is seeing the translation of that. Again, you engage with the customer. It doesn't always come with, oh, sure, we'll give you the next order. You say, well, if we had the project, we would come to you. But what we'd like to have happen is once this project comes, and I would say every enterprise will have a project within a year, then we will have a very much higher chance of winning that project because they are there, because we know that we're presented. Unfortunately, and again, I would admit our shortcomings, That's the feedback I get from when I meet with CIOs and CISO, they all tell me, we know Check Point is a leader. Check Point is a very good brand for us. We knew Check Point many years ago when we started our career and we love your story. That's the main thing that they tell me. We love what you're, the architecture and the vision, that's the positive side. The negative side, they said, and how come we didn't hear from you for so many years? And that's what I want to fix, because if they say all these good things, that we have good technology, good brand recognition, that we have a good story today, then what we need to fix is making sure that they know it. And if they know it, because we need to be in front of them. And I think, by the way, as I said, we have the people, we have the bandwidth, we just need to execute on that. And I think we're making progress there. And I truly hope that it will bear fruit.

All right. Next up is Joseph Gallo from Jefferies, followed by Saket Kaliya from Barclays.

Ryan McCabe- hey guys thanks for the question congrats on another quarter of double digit EPS growth you've talked a ton about top line drivers and product drivers, as we think about 2024. Ryan McCabe- How do you think about leverage in the face of these investments and the m&a integration and then what, if any, impact is fx have as we look out over the next 12 months thanks.

why don't you start on the effect side so i would say that on the next 12 months of course we're going to benefit probably from the shekels we i remind you that we usually edge our currencies between three to four quarters ahead so some of it already edge for next year but some of it will be edged i mean the second half of the will be edged uh and we'll be edging the next quarter or two so there will be a benefit next year from the effects again it's still early to say to quantify that but there will be a benefit as for this quarter we also again because this quarter was already edged a year ago or three quarters ago so we so the benefit was less than the the what the FX Council that you see today which is approximately around we benefit around one point uh I would say between five to six million dollars of FX benefit this year compared to last year what was the second part of the question

Just you talked a lot about drivers and trying to drive growth higher, but how should we think about the leverage or investment needed to drive that or the M&A integration costs?

I think we need investment and we keep investing, but we also need to see more leverage from the investment we already made. We had today many, many people that work in driving new technologies. And again, we need to see more results of that. We've been building, and I think I'd like to see us seeing the fruits of all these efforts. Again, we are going to keep investing, but I think the main thing for me is seeing the investments that we already made make bear fruit, and then we can invest more in the areas that we've been working with.

Thank you. all right next up is second kalia from barclays followed by pamsa farawala from morgan stanley okay great hey uh good morning everyone uh same here by the way thoughts to everyone on on the checkpoint team

Roy, maybe for you, maybe just broader, can we talk about the M&A impact here on the model, both in terms of annualized revenue and just annualized margin impact as we start to incorporate these deals into our model for next year? And maybe just a quick clarification. I think you said that there was a large deal that signed two days after the end of the quarter.

i mean can you give us a sense for kind of what billings would have been had that deal had closed on on time okay so let's call your first question on on the m a so i think we mentioned when we when we announced on perimeter 81 we mentioned approximately air out on the mid-20s so that's something that uh that when we acquired them that was the annual recalling revenues that uh The other acquisition doesn't have any significant effect. I mean, I'm talking about the Atmoseq one, which didn't have any significant revenue. And the one that we just recently announced, I think in the beginning or in the middle of October, also will have a few millions of dollar effect, not significant effect on our total revenues. So that's from the top line. And again, in terms of perimeter, I mentioned that it's a startup. I mean, right now, it's losing money. I mean, hopefully, again, in the long term, I mean, the aim is to be profitable. They're going to be profitable. But again, in the next, I would say that in the short term, it will be dilutive to our margins. So that's how you should think about it. What was your next, the second one that you had?

yeah the large deal yeah the large deal that closed two days after that impacted buildings so the last year's approximately two points approximately two points on our buildings i think it is like that very helpful thank you all right next up is hamza farawala from morgan stanley followed by patrick colville from scotiabank

Thank you for taking my question. And I'd also like to offer my support to you and all your families. I'm sorry we couldn't be there in person this year as well. So I wanted to ask a question about the product refresh. And I think this was hit on earlier, but maybe in a different way. I think if we look at your historical product cadence It suggests there should be, I think, new hardware coming out possibly early next year. What are you seeing in terms of demand and interest around that? And to what extent are customers sweating their assets in anticipation of new appliances that may be coming out at that point?

It's a good question. I wish I knew the answer. I think we again, we are getting very good indicators about the price performance and about our products. Like every time we are always looking to refresh and renew. But I don't I don't know if there is a built in expectation in the market or not. And I obviously can speak about the timing of new solution. By the way, last week we did announce a small new appliance. but we didn't mention it here it's actually for ruggedized environment for a mission critical application and so on it's a small market small sub market but we have a very good offering so we did come up with a new one already last week thank you our next question is from patrick colville from scotia bank followed by joshua dilton from wolf research

Thank you so much for taking my question, echoing the other analysts' thoughts with you and your family. I just want to ask a clarification question, and then it's a proper question. The clarification is, did you say that you thought 2Q was the bottom in terms of product demand and 3Q you saw signs of improvement? And then I guess the other question I want to ask is, why perimeter at 81? Because in our field of work, their traction was kind of really strong in the SMB space and maybe lower mid market, but not really the enterprise. And, you know, Checkpoint as a business has had excellent success in the enterprise. So why that asset?

Okay, so first you're correct about what we said about the market and Q2 being the bottom and Q3 seeing some turnaround and improvement in demand for firewall gateways. So that's correct. About why perimeter 81? Not only because the traction that we have, but because of the technology. I think they have a differentiated technology, their hybrid model of doing some work in the cloud and some work at the client side, I think is a very good one in terms of the right architecture. I believe in that. And what we also found that in many cases, and again, we looked at many companies in the SASE space. I can tell you that in the past, we've almost completed two acquisitions in that space. And somehow during the due diligence, we decided to back off. And the main reason that we've seen some companies that have nice numbers and so on, but the main challenge that we had with them, that some of them didn't have an offering that's simple but straightforward to set up. And that's critical. If you want to go big on the market, you can't be in a solution. Again, you look at all these startups, many of them, or almost all of them, lose plenty of money. Now the question, if you can really make money. And if you can make money, it's because it can scale. Because you can take that and to sell it 10 times more customers without increasing the effort. If every customer win means huge efforts, huge installations, very slow to deploy, then you can scale it. And getting it to the checkpoint install base, getting it to 100,000 customer install base means that the solution have to be simple, straightforward, and scalable and by the way that in many cases when you take smb technologies that have to be like that because otherwise you can support them and you can't install them and add to them all the enterprise capabilities that we have in checkpoint then you can get a true winner And I think we have a very, very good, by the way, experience with that, with the acquisition of the email security that we have. We also took an SMB product, and now our largest installation are kind of in the 100,000 seats. So we took a solution from 200 seats, and we're now making very nice progress scaling it up. So again, we've checked that on the due diligence. We know what's our limitations. We know what we need to scale and so on, but we believe it's doable.

Terrific. Thank you, Gil. Thank you, Kit.

Keep you on mute. Keep you on mute. Can you guys hear me?

Thanks. Thanks. Thanks, Gil. Joshua Tilton's our next, followed by Fatima Boulani as our last question of the day.

Thank you. All right. Great, guys. Thanks for squeezing me in. And I will just say my thoughts and prayers are with not only you and the team, but with everyone in Israel. I just want to sneak two quick ones in. My first is just what is your guys' current expectation around a 4Q budget flush? And do you feel like you need to see one in order to kind of hit out the numbers that you laid out for us? And then my second question is, do you guys view the Perimeter 81 acquisition as a way to kind of fill a hole that's sort of been left behind by weaker firewall appliances? Or do your customers kind of still view SASE as an incremental purchase to firewalls with the expectation being that just firewall demand will come back at some point?

so let's let's start first i do hope to see budget flash in the fourth quarter which usually happened i think the only year that it didn't happen in my experience was last year and when you look at our growth model it doesn't assume high growth huge growth in products in q4 so we kind of don't assume that there will be a big budget flush if there will be a huge one but we didn't anticipate i think it will all be an upside for us But again, every year except 2022, I believe in my career, we've seen the budget flash in the end of the year. Last year was the exception. and second part was about the perimeter 81 i don't think it fills in whole it fills a big hole but we didn't have because we weren't active in that space i don't think that in the enterprise space where like 90 some percent of our sales are people are going to shift to a tunnel very traffic through the cloud they will keep their data centers they will they will do that but there's plenty of opportunity when we see a change when things can happen is on the branch side branches are important part and there's you know when you take a company with 300 branches or 20 000 branches then an architecture like uh like what we have with sassy can work very well um i think incorporating branch offices but some will have our appliances with SD1 and some will have pure SASE is also a good architecture for a network. I think in terms of remote user access, it's a good solution. So I think most of it augment what we do. They are directly in our industry. I can paint it as a different industry. It's not a different one. It's the connectivity. I think 80, 90% of that is not a replacement for our products, but it's an addition. Maybe 10 or 20% is an overlap between some products, but most of it is not an overlap from a dollar standpoint.

Super helpful. Thank you, guys.

All right. And last up, welcome back, Ms. Fatima Boulani.

Thank you very much, Kip. And Gil and to your entire team, just sending my thoughts and prayers in this very difficult, tumultuous time. I wanted to ask Arroy a question regarding the security subscription segment. So the 15%, the acceleration we saw this quarter, I wanted to get your thoughts on where that potentially could trend up towards over the next couple of quarters. And if you can help us with some very specific pieces on You know, are you seeing very strong expansion activity into other product pillars, are you finding that. Really, making more meaningful impact in driving the acceleration there, so you know any thoughts around where that 15% could go in the next quarter in the near term and medium term and some of the key components that you expect are going to drive that acceleration.

So first of all, again, we hope we will see the acceleration of this growth. I mean, I remind you that we also bought a parameter 81 that hopefully will also help us with accelerating this growth and the subscription because the revenues from the quantum SASE will be part of this line. I mean, we'll be including this line item. uh in terms of where from where the growth is so i would say again in there hopefully it would be higher than the 15 that we see but again it really depends on the execution on where we see today i mean the the the drive for the 50 grow it's mainly coming i mean it's coming first of all from the email security it's becoming more and more significant for our business it's growing in a strong double digit growth a very strong double digit growth and it's it's a uh we don't disclose the numbers but becoming more and more significant to the uh for to the subscription revenues and also it's driven by uh by expansion mainly around under the infinity platform that company customers are expanding and getting getting more services from us so all this stuff together with the growth in the cloud guard that also grew double digit in revenues this quarter all of these came brought us to this 15 gov and hopefully will be

even higher in the next few quarters but it's uh still too early to to see all right and with that we'll conclude for the day um thank you guys for joining us and we look forward to speaking with you after the call and throughout the quarter thank you very much appreciate that thank you