This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk07: Head of Investor Relations and joining me today, our founder and CEO, Gil Schwed, and our Chief Financial Officer, Roy Gallon. 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, checkpoints representatives may make forward-looking statements within the meaning of the Securities and Exchange Acts of the early 1900s. 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 Checkpoint 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 except where required by law. In our press release, which has been posted on our website, we present GAAP and non-GAAP results, along with a reconciliation of such results, as well as reasons for our presentation of non-GAAP information. 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 Schwedt.
spk03: You're on mute.
spk07: You're on mute, Gil.
spk12: Hi, everyone. Very, very excited to be here today with both, I think, very good results that we have and some exciting news. Before I move to Roy and let him share a little bit about the financial results, let me speak a little bit about the exciting or the big news that we have today, and that's the appointment of Nadav to our CEO. will be effective December. And we've concluded a very thorough search, looked at candidates around the world, met a lot of very good people, very experienced people. And I think that we found the perfect candidate. And I'm really excited about it because I know Checkpoint for me, it's like a It's like a child and passing that responsibility to somebody else. They really need to find the perfect person. And I think that we found the perfect person. For those who don't know Nadav, he became the last 10 years the established teammate. And what he did was much more than being like an incubator or a VC for startups. He really established himself as a key leader in cyberspace. He's probably the most well-known amongst CISOs around the world, built a huge community of CISOs that consult with him, that work with him, that he's able to work with, and I think it's a huge asset. He has a lot of vision experience in cyber, establishing over 17 cyber companies, so definitely knows all the different aspects of cyber and how we can grow and where we should look for and work with all the industry players at any level. And he has a lot of experience both in the public space and not in the public space. Again, I've been working with, I know Nadav for many years. I've been working with him and spent many, many dozens of hours in the past few months And there is no better choice. I'm very honored that he decided to join Checkpoint. I feel that we can work together and he can lead Checkpoint to a next phase, next phase of success, growth, innovation. And I think I'm very excited to work with him. And I think that my management team should be thrilled to have such a leader. So that's the big news of today. And with that, we can switch to Roy to go through the financials, which actually are also important. Pretty good, and then I'll give another business update, and I think you'll see that we have some very exciting and good news today. Thank you, Gil.
spk02: Yeah, thanks, Gil. One moment, I'll show my screen. So, as Gil mentioned, first of all, thank you, everyone, for joining the call. As Gil mentioned, we had a very good quarter. We'll start with the revenues. revenues in EPS, revenues grew by 7% to $627 million, and $5 million above the midpoint of our projection. Our EPS grew by 8% to $2.17, non-GAAP EPS, and $0.02 above the midpoint of our projection. Moving forward to the deferred revenues and billing, so Deferred revenues grew by 2% to $1,818,000,000, while our short-term deferred revenues grew by 3% to $1,342,000,000. Our calculated billing grew by 10% level digit growth to $620,000,000, while our current calculated billing grew by 7% to $622,000,000. I think this quarter, we mentioned it a few times also in the previous quarters, we did see very strong billing that came, first of all, from strong performance in our business. And second, the Infinity. Infinity, we do see a lot of, we did see a lot of utilization of allowances from Infinity business. We do see more bookings from Infinity and that also drives the growth that we see in the building. In terms of product and subscription revenues, We are in double-digit growth, 10% growth, highest that we had in the last few years. Again, we can see the turnaround that we've seen since the end of 2023, and we hope that we'll show continuing and consistent growth, double-digit growth in the next few quarters. In terms of Infinity, I mentioned Infinity. Infinity is doing great. Both in terms of bookings and in terms of revenues, strong double-digit revenues growth. In terms of booking yield, we'll discuss it later in this slide, but we had very nice A figure Bs in infinities. So again, very strong performance from the infinity. In terms of revenues by GEOs, so we can see here the distribution. It's important to say that In terms of new business annualized booking, not revenues, new business annualized booking, all the GEOs grew by double digits. So that's very important. So in terms of revenues, it usually comes a few quarters later. It translates into revenues. But again, we did see another quarter with double-digit growth in new business annualized booking. In terms of P&L, another strong operating performance. Our gross profit was $557 million, 89% margin. Our operating expenses increased by 11%. That was mainly driven by additional, by parameter 81 acquisition that we had last year. And imagine we did the acquisition of parameter 81 in Q3. So this quarter we had additional expenses that are not included last year in Q2. So that was the main, and of course, additional investment that we've done mainly around sales and marketing. In the end, the net income grew by 4% to $246 million, while our EPS grew by 8%, non-graph EPS, to $2.17. On July 11, we announced the expansion of $2 billion to our buyback program, with up to $325 million a quarter. So again, we keep doing the buyback. We expanded the buyback. So again, something that we feel very positive about it. In terms of cash flow, our operating cash flow grew by 5% to $200 million. As I mentioned, the buyback, we did another buyback of $325 million, buyback of our shares. And our cash balances, cash masterpieces, and deposits amounted to approximately $3.1 billion. To summarize before we move to Gil, a very strong financial result. Revenues and EPS above the midpoint of our projection. Our quarterly revenues accelerated, maybe double digit growth in product and subscription revenues. And another quarter with strong Infinity business and Harmony email, another strong performance by Harmony email is becoming more and more significant to our business. And a strong profitability with growth both in EPS and in operating cash flow. Gil, your turn.
spk12: Thank you, Raleigh. And once again, I'm happy to be back again. Let me repeat some of the highlights that we shared. So in terms of the business, great results, revenues and EPS in the upper hand of our projections, double-digit growth in products and subscription revenues, strong double-digit growth in Infinity, which is all good. I'll show you a little bit later in the presentation. We had some very large eight-figure deals. We had some very large Infinity deals. We've continued to see a strong performance of our email sector. And the new quantum force set of gateways, which is the core of our business, also started to show some good signs and take off of the new models that we had, what we call force. So let's start and review some of these news. First, look at logos that embrace the Infinity platform from Check Point. This is not all the logos that we had this quarter, but it just shows you a tip of the iceberg of how Infinity wins in different sectors. And what you can see here is the different geos. Spark from New Zealand, New Zealand's largest telecom provider. NASDAQ, don't need to introduce NASDAQ to this forum. from the U.S., Catay Pacific, another airline that buys into the Infinity platform and sees the value, and PPP, Workless Pension Provider from Europe, a less known name maybe, but also very important and shows that Infinity can add value in every sector in every category. But this is not even the largest deal of the quarter. Actually, this year, the quarter, we had some very, very large deals. Three of them together are $130 million in bookings. Here we're talking about total contract value, which is multi-year deals. But still, the commitment that we are showing to customers and the commitment that our customers are showing to us with three deals that are combined, $130 million is amazing. These are not just global 500 companies. Two out of the three are actually global 50 companies. And again, they like the value. They like the security and show their long-term commitment to work with us, to continue to us. And in all these deals, they've expanded their install base. They acquired more products and got to use more of the checkpoint technology. So we are very, very proud with those deals, especially as they came this quarter. Another sector that we are seeing a lot of success is in the public sector, and the public sector is every government agency, and there's a huge amount of them around the world. This quarter alone, we had 92 government agencies in 32 countries getting more and more of the Check Point platform, and you can see it goes from Australia to Asia to Middle East, Africa, many in Europe, and then going left into South America, Central America, and North America. I think this is a very good sector, a sector, by the way, that requires a lot of effort to win. We need to prove the superiority of our technology. In many cases, it's also very competitive on other business terms, and I think winning that makes us very proud. So it shows the potential in different spaces that we have. Moving a little bit to the technology side, and I think we said that the big focus of what everybody is doing in the world, but definitely what we're doing is around AI. And AI everywhere delivers security and simplicity. So this is a... This is showing some of the AI innovations that we had. AI Infinity Copilot doesn't even appear here as new because we launched it at the first quarter in our CPX conferences, but it's still very new. How AI can assist security admins to manage their Checkpoint Infinity infrastructure. Threat Cloud AI, we have four new threat prevention engines, over 50 by now. The CloudGuard family, new AI-powered engine to fully automate web application firewalls. Again, another growth sector for us and a new one. And last but not least, which hasn't come out yet, which is really new and will come out in the coming weeks, is a new product called GenAI Protect, where we will actually show customers what AI products their users are using. It's actually pretty amazing because there's hundreds of AI products products that an organization that employees of an enterprise organization can use and are using and we can show that control what people can do from the organization and especially which content can be exported because one of the major issues with using gen ai is not just using different tools but also which information are we exporting from the organization to the ai so organization will be able to set policies of using ai applications so this is a Also something very, very positive that's coming. And again, this is not the end. We will come every quarter with new AI innovation to transform cybersecurity into the AI generation. So if I need to summarize, I think we had a strong quarter. I'm very thrilled with the announcement on the DAV, the new CEO. We will start in December. So we have a few more. months to continue and I think Nadav will get every week will get more familiar with Check Point so we can start his leadership and his CEO role here with the knowledge and the energy that's needed. Q2, above the midpoint of projection. Infinity, continuous strength. And some of our largest deals are not even Infinity. Some of them are just using our gateways, using our network security, the $130 million of deals that I mentioned. Double-digit growth in product and subscription, which is a very positive trend. And continued new and innovative technologies in quantum, in AI, in harmony, in the cloud guard. continue that trend. So I think we are very thrilled with what's happened so far. A little bit about projections for the next quarter. So our projection remains within the range that we said in the beginning of the year. So far, the first half was slightly even on the high side of what we expected. I truly hope that the second half will be even better. This time we're starting the projection a little bit early in the quarter, so we had limited data about the quarter pipeline and so on, but still the projections are pretty healthy within the ranges. Revenues are expected to be between $615 to $650 million. EPS between $2.19 to $2.29. Gap EPS is expected to be $0.43 less. And again, full year projection, remain unchanged. We are definitely within the range, maybe slightly towards the upper half after two quarters that were slightly better than expected. So thank you very much for listening, and we'll be very happy to hear your questions and answer them.
spk07: All right, ladies and gentlemen. First up for the Q&A is going to be Joseph Gallo from Jefferies. with Saul Leal from TD Callen to follow.
spk11: Awesome. Thanks, guys, and thanks for the question. Gil, congrats on finding a new CEO and the next guardian of your child. Can you just talk us through why, a little bit more, why Nadav is the right man for the job? Obviously, this timeline was on the quicker side, so he must have checked a lot of boxes. Where do you expect his style to be the same as yours, and then where do you expect the biggest changes, particularly on the go-to-market side? Thanks.
spk12: So first, Nadav and me are very, very different in personalities. Nadav, I think, is much more outbound, has amazing charisma, is an amazing leader, and I think that will complement very, very much what I can do, or Ann can help, and he can take it checkpoint to exactly where we need. I don't know how familiar you are, or everybody on this call, not just you personally with Nadav, but when we meet today with CISOs in the industry, every single CISO knows Nadav, mentions Nadav, and building that connection in a in the last few years is an amazing achievement. This is something I follow for the last five, six years, and Nadav has done a tremendous job on that. I think Nadav will know how to communicate extremely well outside, specifically with our target audience, the CISOs, and the C-levels in different organizations, I think you will know very well how to motivate our internal team. He has also a very good track record with that, working and motivating people inside. And I think, again, he's very different than me, and that's exactly what I was looking for. I was looking for something to complement and augment the skills the checkpoint already has and the skills that I have, and I think I found the perfect person for that.
spk11: Great to hear. Thank you.
spk07: All right, next up, Xiaoyu Yao, followed by Adam Tindall from Raymond James.
spk04: Thank you so much. Good afternoon, Jen. Congrats on results. Gil, product revenue came better than expected. The overall picture seems to be improving. Do you see Check Point as regaining share in the network security arena, or is it coming from different market categories? And maybe just a word about those three eight-digit wins, are these displacements or result opportunities? Thank you.
spk12: So I'll try to answer. So first, I think, again, I think it's early to say that we're gaining a lot of share, but at least in the last few quarters when I watched our results versus competitors, it seems that we have growth stability to growth in the core network security. And some of our key competitors had a decline there in the last few quarters. I'm talking about new business, new deals, new gateways. Subscriptions are stable and growing and enjoying what we did in the past. So I think from that perspective, it's a positive one. It's still the tip of the iceberg because I think we can win a lot of market share in network security. And I think there's plenty of potential in that core market. If we're talking about the large deals that I mentioned, if it's a displacement, it's not displacement, it's existing customers. But in few of them, I do believe that we are taking shares. Customers that have been dual vendors and shifted big share from other vendors to us. So it's deals that we've been working on for a long time, and they represent the commitment. It's not really, again, it's not just easy or not easy. It's not just simple renewal deals. It's deals with a lot of expansion and, again, in many cases, displacement of some competitive products.
spk07: Thank you. All right. Next up is Adam Tindall, followed by Tomer Zilberman, B of A.
spk09: Okay, thanks. Good morning, Gil. Congrats on your results. I wanted to ask a little bit more about recent industry events and CrowdStrike and the headlines, obviously. You've been in the industry a long time. I wonder if you might provide any reflections on this event. And then separately, there's a view that this may cause freezing of sending. I know you mentioned when you were giving your guidance, it's a little bit early for you to be recording. But any expectations or evidence of that freezing that you've built into the guidance? Thank you.
spk12: I don't have too much insight if this will cause change in behavior. I think the need for security is huge. I think what we've been seeing consistently in the industry in the last few months is an escalating level of risk. just to be super clear. And I think when actually you look at the challenge, first, what happened with CrowdStrike has little to do with cyber. It's more about automatic updates. Couldn't happen to a non-cyber vendor with some automatic updates. Now, there is a big, by the way, when I look at it both as a customer and as a vendor, There is a big challenge there because in the past, some organizations were very careful not to let automatic updates and to check automatic updates, which in many cases can prevent this type of damage. On the other hand, these days, you see the level and the timeliness of security threats, and you realize why you need automatic updates, why there is a new trend. There is dozens of new CVs every month, critical CVs. CVs is the new threats that are discovered in critical software, all types of software. And then, by the way, if you look at the number of threats that are being identified, it's growing. And the hackers are learning how to exploit them very, very quickly. And that's why you need automatic updates, because you don't want to live weeks and months when you have known vulnerabilities, but the entire world knows about it, and you are vulnerable. And that's why automatic updates are important. So there is a clear challenge in the industry. I hope everyone will learn the lesson how to, on one hand, do more automatic updates. On the other hand, make sure that the quality of these automatic updates doesn't cause such damage and such a disaster. And I think we're all humble in our industry and we're learning from it. That's what we need to do.
spk07: All right. Next up is Tomer Zilberman from BFA, followed by Dan Ives from Webhush.
spk19: Hey, guys. Thank you for the question. I'm on for Taliani today. I just wanted to ask, you talked previously about the opportunity for new business bookings to support, I think, revenue acceleration and maybe reach the top end of your guidance. Can you talk about any updated thoughts around that from last quarter trends?
spk02: So I'll take it. So I think we mentioned that also this quarter we did see strong new business bookings. We did see double-digit growth, same as we mentioned also in the last two quarters. This is the turnaround that we talked about from Q4. And also this was a strong performance. We did see a strength in the new business. And that, in the end, we should translate into growth in revenues. Again, it needs to be consistent. It should be more than two or three quarters. But in the end, if we're going to be able to sustain this double-digit growth in your business, this will translate it into higher revenues growth.
spk19: Maybe just to double-click on that, since you said you need to see a couple of consistent quarters of that, does that mean that we should consider the back half to be more in line? Are you seeing less opportunity now than you saw maybe last quarter in terms of reaching the higher end of the guidance goal?
spk02: No. I mean, we're still positive also on the second half. I mean, we're still positive about the second half of the year, very positive about the second half. We see the pipeline. Gil mentioned that it's still too early for the first quarter because We announced these earnings a bit earlier than usual, but still the pipeline looks healthy, looks good. And mainly for even for the fourth quarter, it even looks healthy, it even looks better. So I think we feel positive about the second half of the year and hopefully we'll be able to show to be in the upper end of the guidance. But again, too early to say.
spk12: And I would just add to that, I'm super positive about the second half. Q3 is always kind of a sleepy quarter, and you kind of look and say, what's going on? Because everybody's on vacation, and everybody's afraid that the customers will be on vacation, and even the deal that we win won't move. At the end, by the way, all Q3s end up pretty well, because at the end, the world continues to move. If I look at the indicators that I have for the full year by our Salesforce, I think we're mostly very positive, higher level of engagement, higher level of pipelines, and so on. I think over the last year and a half, our commercial organization and Rupal did a very good job establishing better cadence and better process and better measures. As far as I see this process at the macro level, it's improved significantly.
spk19: Great. Thank you so much. All right.
spk07: Thanks. Well, it looks like Dan Ives is on a TV show, so he's not going to be making it in today. But we have Gabriela Borges from Goldman Sachs, followed by Rob Owen.
spk18: Hey, good evening. I'll follow up on the macro question from earlier. Gil and Roy, I'm trying to reconcile some of the positive company-specific comments that you're making about Pipeline. With your comments from last quarter on overall budgets still being generally tight and under pressure, how should we think about from a macro standpoint, if 1H at a macro level is coming a little bit under pressure, again, a broader comment, not a checkpoint comment, could we actually be setting up for a stronger than usual budget flush in the third quarter, second half of the year? Thank you.
spk12: First, again, I'm always saying predicting the future is always, there is a big risk and big unknown in that. And that's an art I don't know. We've seen years when, you know, like every year we see a budget flush towards the end, maybe in my career, except one year. It was, I think, towards the end of 2022. And that's the only time I didn't see a budget flush in December. I do hope that this year will be a very good year. It started when actually the entire industry was under pressure and budgets were tight, when we've actually seen pretty big growth the first two quarters. I just want to be super clear. The rest of the industry reported about pressure. We saw these pressures in 2023. In 2024, we started by getting out of these pressures. I do hope that, therefore, that the indicators that we are seeing will mark a good second half But that's not even the macro. That's the short-term one or two quarters. The bigger trend in our industry, every customer that we meet with, whether it's not just the CISO, which obviously cares about cyber, but the CIOs, the CEOs, every company, we all believe that more cybersecurity is needed. We also believe that it doesn't go without challenges. how we can make the products collaborate, how we can create things that are less vendors, more unified architectures. How do we fight the future threats? There is a lot of challenges in our industry. I do think that we are super well positioned to fulfill the needs of the customers and to take advantage of these trends. But no doubt in everybody's minds that cybersecurity remains a high priority. And even when times when people say, are speaking about challenges in IT, cyber remains the only area that people invest in. Thank you.
spk07: All right. Up next is Rob Owens, followed by his twin brother, Hamza Fadarwala.
spk14: Thanks, Kip, and good afternoon, guys. I was hoping maybe you could touch on perimeter 81. I know that Roy touched on it from an OpEx perspective, and driving some of the incremental costs year over year. But what about from a revenue perspective? Where is it relative to your expectations? How additive was it to the quarter? And what are you seeing competitively on that front? Thanks.
spk12: So I think this is a very important area for us for now and for the future. I think in terms of business, it continues to operate and deliver results. But our main focus is actually integrated into our main platform. Unlike, for example, our email business, which can be sold as a complete separate product or add-on product separate from the network security, so customers do get the benefits of the collaboration and the better security engine and so on, but the buyer and the product are not the same. The entire... SASE solutions needs to be tightly integrated into the same network security platform. And most of our efforts today are about integrating them. As far as I understand, all these R&D efforts are on plan. We plan to demonstrate to be ready to show this super integrated platform that I believe no other vendor has ever of integrated network security, remote access security, network security from the cloud, the network security in a hybrid mode and on-prem, all working together. I think it's on plan and the R&D teams are doing their job.
spk07: All right. Next up. Followed by Brad Zelnick.
spk17: All right. Thank you, Kip, for the intro. And Gil, congrats on appointing the new CEO and for the strong results. I think if we step back a little bit, it does seem like there's a lot of things that are reflecting a checkpoint. You just had double-digit billing growth. The channel feedback has been more positive lately. You've launched a number of new products. And now you've appointed Nadav as the next CEO, who, as many people know, is very well-respected in the venture community, has had a lot of successful exits recently with Talon, Digg, and others, and likely helps Check Point a lot on the M&A front. So my question really is, when you talk to Nadav about Check Point over the next five years, and you said he's very different from you in terms of style, are we thinking more of a radical transformation or building on the existing strategy that you've been executing for the last year or so?
spk12: First, I think it's too early to say. Sid Nadav will join. He will learn. He will provide his experience. I think we've already spent a lot of time together. So I think we will have bigger changes, and hopefully I'm pushing for bigger changes. But I do think the checkpoint built an amazing foundation, and we should use that foundation. That's the strength that we have. We have loyal customers that love us for many years. We have quality products that people love. So it's not that we need... you know, to take it to a different direction. We need to strengthen the things that work and augment them with additional things. So Nadav has his ideas. I have my ideas. So far, these ideas actually coincide quite well. So we are, so I think we are, and again, coincide means that some of them we already committed in checkpoint and we are doing them. And some of them, we still need to think about them and analyze them. And I think it's too early to say which direction we will choose. But I think we will do more, and I think in every respect, in innovation, in go-to-market, in M&A, I think I'm looking to energize and do more in Check Point.
spk07: Thank you. All right. Next up, we have Brad Zelnick, followed by Roger Boyd.
spk21: Great. Thank you. Congrats, guys, on all the success. I don't know, for Gil or Roy, it's good to see the continued investments in sales and marketing and the results clearly paying off. How should we think about where we are in the go-to-market investment cycle? And can you give us some color on sales versus marketing, maybe direct versus indirect? And if anything structurally is changing in terms of channel rebates or anything else that ultimately ends up on that line? Thank you.
spk12: Or you can try.
spk02: Yeah. So on the sales and marketing investing, so we keep investing. I think we keep hiring sales people. We actually grew our sales force in the last few quarters. Again, not in the same pace that we've done a year ago, two years ago, but we're investing a lot. We're investing a lot on that. We're going to continue. In the end, we see much productivity on the sales force because as we talked a few quarters ago, we're joined us 12 months ago or nine months ago, and it takes time to be productive. We see this productivity now in the last two quarters, or in talking about this quarter, we do see the productivity, the much better productivity from the sales force. In terms of indirect or direct, again, we continue to invest significantly also in marketing, in direct marketing. was part of the plan to invest more in marketing. And so that's definitely also we see the investment and hopefully we see also the accelerated growth coming from that. And that's, again, we see the results and we hope hopefully we'll see the results also in the next few quarters. Gil, you want to add something or?
spk12: I think we hear good feedback from the channel partners about the new channel program. And again, some of it, I don't think it's just a financial parameter. I think it's the relationship. I think it's the flexibility. I think it's tackling the joint challenge that we have, which is providing better security to more customers. If we do that right, I think the opportunity is huge.
spk13: Thank you.
spk07: All right. Next up is Roger Boyd, followed by Saket Kaliya.
spk13: Thanks, Kit. Gil, the partners we're talking to are suggesting that SASE interest is starting to pick up again. And as you get closer to being able to sell the full single vendor SASE SSE product, we'd love to just come back to SASE for a second and get your comments on the pipeline you're building, the confidence you have in selling that into the install base, and just any update you can on when you see that starting to contribute. Thanks.
spk12: We hear similar feedback. SASE remains a very interesting area. I think customers at the end will need a unified platform. They don't want five network security platforms. One for remote employees, one for site-to-site, one for cloud access, one for data centers. They will want one. I don't think that there is any other vendor that can supply one. We are working on it. We've acquired the right technologies, and we're investing in making it one. We do make progress in selling SASE standalone, but the main kind of thing that we need to achieve is that integrated platform, and I hope that we'll reach it faster than some people expect.
spk07: All right, next up is Saket Kalia followed by Joel P. Fishbein Jr.
spk20: Okay, great. Hey guys, thanks for taking my question here and echo my congrats on bringing Nadav on board. Roy, maybe my question is for you. Can we just talk about what percentage of billings is coming from Infinity? And congrats, by the way, on those three very sizable deals. Can you talk about maybe how much of the $130 million in TCV impacted billings as well in the quarter?
spk02: Yeah, so I'll start with the second question. So in terms of the TCV, so one of these deals, actually the third largest one, affected the billing because it was upfront billing, multi-year billing. The other ones didn't affect significantly because, again, it was upfront, one year upfront, so it's not something significant. It's, again, something regularly. In terms of your next question about the infinity billing, it's tough to quantify it. I would say that, again, the infinity becoming more and more significant for us, for the business. We mentioned last quarter about 15% of our business is in terms of bookings and revenue. Sorry, in terms of revenues is infinity actually in bookings is much more than that. So again, the thing with Infinity is that there is lumpiness and some fluctuation in the billing because it really depends on the payment terms, the billing terms. So again, this also depends on sometimes on the customer needs and when he needs the product to utilize the allowance that they're buying, that they committed for. So I think this quarter we did see a very strong demand for the Infinity. also in terms of utilization of the allowances that they had. So I think that also affected the billing. But I think, again, in the end, the billing grew beside, I mean, the billing grew because of the strong performance this quarter. Congrats. Thanks, guys.
spk07: All right.
spk16: Joel P. Fishbein, Jr., followed by John DeFucci. Thanks for taking the question. Gil, for you, you mentioned a lot of new AI initiatives and security. Obviously, it's been a pretty hot topic. What I'm curious to know is, is this driving incremental revenue, or do you think this is just gaining your competitive differentiation from a product perspective?
spk12: I think right now it's competitive differentiation. It's not yet at the revenue stage. Again, Infinity Code Pilot, for example, it's already used by hundreds of customers, but I don't think that it even have any revenue impact by now. If you look three, five years from now, I think that we can drive a lot of value and generate more revenue based on that value.
spk07: Thank you. All right, next up is John DeFucci, followed by Ben Bolin.
spk03: Thanks, Kip. And, well, Gil, it's nice to be back covering you. I remember your vision for Infinity more than five years ago. And the world didn't seem like it was ready for it then. And I'm not even sure that Checkpoint was really ready to provide it, though the vision was there. And now it's even sort of been copied by some of your peers out there. I guess, because you're hearing, you know, Roy's mentioned infinity several times and the strength, and you have too. Is the market now ready? Is it time for sort of an inflection point in this? Or should we continue to think that this is still going to take, you know, further years for customers to evolve and just continue to grind forward towards this vision?
spk12: It's a very good question. I hope that we are more ready now than we were before, and I hope that customers are more ready now than they were before. I definitely think that the world needs it. I mean, you do hear from every CISO that on one hand, I want the best security. On the other hand, I do want to consolidate vendors, for example. I do see that from security value, the fact that you have 15 or even 50 different security technologies, if they don't collaborate, It's not only that you don't get the full value from the technologies you acquired, you create the same hole. Blocking a malware from getting you an email doesn't mean that you cannot download it when it sends to your Gmail, for example, because one is email security and one is web download security. And another one is security to your mobile device, and another one is another vector when a file can get into the company. So I think the value that we are providing with our platform, the collaboration, the consolidation is very, very important for customers at all sizes, by the way. For the midsize and small one, they can't afford multiple systems. For the large one, it's a big savings. And not only that, it's additional security. So each customer can see from different perspectives. How far are we in the world in that? I think we're still in the single digit of customers that actually standardize on fewer number of vendors. And I think the potential is for that to be 10x bigger or more, a big percentage of customers will standardize on more consolidated architectures.
spk03: Thank you, Gil. And by the way, I really like the combination of you and Nadav because I know him too. So good luck. Thank you.
spk07: All right, guys. We have Ben Bolin followed by Andrew Nowinski. Thanks, Tiff.
spk08: Good afternoon, everyone. I was hoping you could share any perspective you have on new logo momentum in particular and how any changes that you've made to direct and partner incentives this year may be influencing that pipeline through year-end into 2025.
spk12: Rui, do we have any data?
spk02: Yeah, so in terms of new logo, we had a good quarter in terms of new logo, continuing the trend that we had also in the Q1. Actually, our business from new logo go nicely this quarter compared to last year. And we see very nice traction in America with very nice new logos, mainly on the government side. So I think, again, a very good quarter in terms of new logo. In terms of... Program for channels. So we started already from, I think, the second half of last year. We have a special program for partners for bringing new logos. And together with the new partner program that we launched that gives them even more incentive to bring new logos. So I think the incentive become even more attractive. And we see right now, I mean... Again, based on the last two quarters, we do see a very positive momentum from new logos. Again, we think that we should bring much more new logos in terms of quantity and value. But still, we do see very nice improvement compared to the first half of last year. Thank you.
spk12: I will join Rui and Seth. I think we're seeing some good trends. I've been, by the way, doing reviews for all our different countries around the world and different areas and see what's their plans. I think they all understand the importance of winning more new logos. They are doing a good job, and we can do so much more. So I'm actually, I like these calls because I see that people understand, put it as a priority, and I think we all realize that we can do more.
spk07: All right, our next caller is Andrew Nowinski, followed by Joshua Tilton.
spk15: Okay, good afternoon, everyone. So thank you for taking the question, and congrats on a nice quarter. You had a lot of positive improvements this quarter, highlighted by the large deal activity, I think. But I wanted to ask about your EBIT and your free cash flow, because both had pretty lackluster growth this quarter. So I'm just wondering – how you're expecting EBIT and free cash flow growth over the next one to two years as you turn the company over to a new CEO?
spk02: So I can comment about DC, about 2024. And again, I think that the EBIT and the free cash, I mean, free cash flow, we don't provide any, actually, we don't provide any guidance for EBIT and free cash flow, but But I can tell you that we discussed when we gave you the guidance in the beginning of this, that was on, I mean, the numbers are on plan in terms of operating margin and in terms of EBIT. We mentioned that it will be in the area between 42% to 43% in 2024 because of the acquisition that we had and the investment that we are doing around the integration of Perimeter 81. And we discussed it in the last, we had some discussions about the product. So there is a lot of investment around it. So we knew that 2024 was, we'll see more investment that will cause the margin to be in this area. In terms of free cash flow, it's really on the billing. This quarter, our operating cash flow grew by 5%. Free cash flow up in 4%. So, and again, this quarter, we see that the billing came by 10%. So, hopefully, if we can So it really depends on the billing, and as long as we see the growth in the billing, also district cash flow will go high. In terms of the next two years, it's too early to say about 2025. Again, I think we have a very healthy operating margin, very healthy habit margin, so we'll discuss probably 2025 next quarter or in the next two quarters. Thank you.
spk07: All right, next up is Joshua Tilton, followed by Greg Moskowitz.
spk10: Hey, guys. Thank you for taking my question. I kind of want to go back to Hamza's question, although it's very important, but maybe ask it a little bit more directly. Nadav is clearly a sales guy. He comes from a VC that just sold a bunch of portfolio companies to one of your competitors. Do investors need to expect or should they prepare for a big investment in Salesforce? Or maybe any changes to how you guys think about M&A over the next few years?
spk12: First, it's a very good question. I think I will let Nadav join, learn, understand, and develop better plans. I think he's not just a sales guy. He's definitely a strategist. He knows how to work with large teams. He knows how to encourage people to innovation. And I think he's the real CEO material from being successful. very rounded in his skills and what he did. Remember, he wasn't just VC the last 10 years. He had a much longer career. And even in the VC career, he's got much more involved in some portfolio companies in helping them and building them than just investing. I do feel that I'm, by the way, a big believer in sales and marketing. I do think that our industry, it doesn't always work that way, but at least according to my book, Investment in sales and sales and marketing should have a very good ROI. An enterprise salesperson should generate a million to two million dollars in business. If you look at the calculation, even if it takes a year to ramp up, in the enterprise space, it should have a very positive ROI if we can hire and if we should hire more people, as an example. And the biggest investment is hiring. So, again, I can't comment about our future plans for 2025, 2026. I can tell you that we want to make Check Point better than it was, not the other way around. And if we can grow faster, I think that's the number one priority that we all have.
spk10: Super helpful, and congrats on the appointment.
spk07: All right, next up is Greg Moskowitz, followed by Ty Kidron.
spk05: All right. Well, congratulations on the results and for adding Nadav as well. Roy, you mentioned that you saw a lot of infinity utilization of allowances this quarter. Were many of these allowances expiring, or was there some other reason why you saw more of this activity in the Q2? And then also, what are your expectations on the pace of utilization going forward? Thanks.
spk02: So in terms of that, some of them, it's Infinity agreement that are expiring maybe next quarter. Some of them are not related. It's really on the demand that the customer needs. I can tell you that the majority of them are from agreements that were signed in Q1. So it's not something that is expiring. In terms of how we should look in the next few quarters, again, the number, the amount of allowances, the amount of Infinity business is growing every quarter. So in the end, Mathematically, it should grow every quarter. But again, it really depends. We cannot control it. It really depends on the customer and on its needs. And sometimes they decide not to utilize in a specific quarter. And sometimes we see more significant utilization in certain quarters. So again, that's, I think, the benefit of the infinity that the customer likes. To have the flexibility to utilize whenever he needs it.
spk12: But just to augment what Rory is saying, which is actually very positive, if most of the spending is customers that purchased in Q1 and started utilizing or utilizing more in Q2, that's the best thing to do. Customers buy because they need it. Don't buy because they have excess budget. They don't buy because they like how nice we are. They buy because this fulfills the real needs, and that's, at the end, the aim of what we do, and that's the best proof to a quality of business.
spk05: Very helpful. Thank you, guys.
spk07: All right. Next up is Ty Kidron, followed by Peter Levine, if we can get a quick one in, Ty. All right.
spk06: Thanks, Kip. Appreciate it. Maybe a question on the firewall business. Roy, can you give us what was the growth of the firewall business on a year-over-year basis? How do we think about the progression of quantum force within that portfolio? And maybe, Gili, you can talk about the pricing in firewalls. I mean, Apollo has a refresh as well if it's firewall. Any changes there on the pricing environment would be greatly appreciated.
spk02: Yeah, so in terms of the firewall, we did see, we mentioned that we launched the Quantum Force in the beginning of, actually, in the end of 2023 and the beginning of 2024. We do see very nice demand for the Quantum Force. I think we do see the product revenues, which is mainly coming from the appliances, mainly coming from From the firewall appliances, we do see growth. Again, only 1%, but in terms of bookings, the booking growth grew higher than the 1% that we see in revenues. Again, because some of them are coming for infinity. Some of the bookings for the firewall are coming for infinity, and you don't see it in the revenues yet. Sometimes it comes after, as I mentioned in the previous question we had. Sometimes it can come a quarter after. Sometimes it can come two or three quarters after all. But in general, when we're looking on the bookings for the first two quarters, we do see significant improvement in the demand for appliances. Again, I would say that's something that even more than what we expected because of the launch of the Quantum 4. I can also add that in terms of the pricing, we didn't see any significant pressure on the pricing. I mean, when you're looking on the ASP, on the average selling price of our appliances, No significant change. I mean, I can talk only about the second quarter. Nothing significant that we've seen. Similar discounts range. Nothing that I can comment that I see any significant change today. Again, as of today on the price.
spk12: And the pricing used to be competitive and is still competitive. It's not in the tight pricing environment.
spk06: Appreciate it.
spk07: All right, our last question, if you can make it quick, is Peter Levine.
spk01: All right, thanks, guys, for squeezing me in. So maybe just to piggyback off the last one, you know, I don't know if you can kind of give us some color, but your thoughts into hitting double-digit growth next year and obviously, you know, any conviction around we're getting closer to more of a massive kind of refresh cycle that you're seeing from your conversations, your pipeline, because I know that is part of the equation to hitting that double-digit number for next year. Thanks, guys.
spk12: I think we're doing a lot of things to get there and I think we're doing it for quite some time and the indicators are positive. I think the new change in our leadership is definitely going to help and augment that. It will give people more energy and and a lot more customer focus and so on. So that's a positive. And I think if the economy will go in the same direction, I think we can have a very good year next year. If all these things will happen, that's a good question. I'm positive and I'm optimistic about that.
spk07: All right. We'd like to thank you all for joining us today. We appreciate it. We'll see you during the quarter without a doubt. And we'll meet here in probably a little over three months or so once again. All right. Have a great day. Thank you.
spk02: Bye-bye. Thank you.
spk07: Thank you very much.
Disclaimer