Check Point Software Technologies Ltd.

relations and joining me today are Chief Executive Officer Nadav Zafir and our Chief Financial Officer Roy Golan. Before we begin, I'd like to remind everyone that this conference is being recorded and will be available for replay on our website at Checkpoint.com. During the formal presentation, all participants are in a listen-only mode that will be followed by a Q&A session. During this presentation, Checkpoint's representatives may make forward-looking statements forward-looking statements generally relate to future events or our future financial or operating performance. These statements involve risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. Any forward-looking statements may speak only as of the date hereof and Checkpoint 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 reconciliation of such results as well as the 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 at Checkpoint.com. Now, I'd like to turn the call over to Nadav.

Hey everyone, good morning to you and thanks for joining us today. As you already know, our industry is undergoing a generational transformation. It's marked by unprecedented change and I think more importantly the unprecedented pace of change. We're still in the very early innings of this revolution and I believe that at Checkpoint, we're well positioned to lead it. In today's call, I want to take some time to talk a little bit about our guiding principles and our vision. Obviously, before elaborating, I'd like to share we had a solid quarter, both revenue and EPS in line with our outlook. It was relatively back-end loaded and resulted in several slip deals that have already closed in the last few weeks. And the third quarter is shaping up well with strong indicators so far in July. Beyond that, we see a very healthy pipeline for the remainder of the year and so we're reiterating our 2025 guidance. And of course, Roy will elaborate about the financials and the outlook shortly. So if you bear with me for a few minutes, I'll try to be very brief. To lead the future, we're focused on four guiding principles. Number one, securing the connectivity fabric. Number two, a prevention-first ethos. Three, an open platform philosophy and finally, an AI-first security. The modern connectivity fabric is hyper, it's hyper-connected and it's not only a critical infrastructure for every digital transaction, but it's also become a potential source of knowledge that can provide the ability to read between the nodes, revealing patterns, anomalies, emerging threats. And I think that's an opportunity we must embrace. I can tell you that in Q2, our quantum force AI-powered firewalls posted another robust quarter, growing in 12% year over year. It was driven by the refreshed momentum and a growing demand altogether for AI-powered inspection. We also continue to accelerate our investment in SASE. We've opened a new R&D center in India that's coming up nicely with double the size of our SASE R&D team. And we're only seeing the momentum that comes with that, with sort of a steady growth across all regions. Recently, this progress was also acknowledged with our inclusion at the 2025 Gartner-Madden Quadrant SASE. And also the recognition as a leader in the Forrester wave for zero trust platforms. On the workspace front, as I shared in our previous call, we continue to make progress under Gil Friedrich's leadership. The workspace platform now brings together endpoint email and SaaS security, and ultimately helping our customers' operations and improved protections. And also under Gil, we're also expanding our MSP and -you-go offerings so that we can support onboarding and more flexible consumption models. And this is contributing to a steady customer growth, tens of thousands of new customers and millions of users are joining annually through this program. And so to summarize the first principle, our vision is to security connect and optimize security across devices, networks, users, and clouds. And to do that, we need to look at it as a holistic solution that ultimately delivers a consistent, unifying security across what we call the modern hybrid mesh network. The second principle out of four is prevention first. It's been foundational for Checkpoint forever that we must strive to stop attacks before they cause damage. Now, preventing attacks may not be glamorous. It's difficult to receive sort of acknowledgments for things that did not happen. At the end of the day, it's like a constant behind the scenes effort that requires discipline, smart design, and a proactive mindset. And true prevention is about acting in real time. And you need to stop the zero-day fishing site before a user engages so that you can also block a lock for J exploit before it runs. And the secret sauce is to be able to deliver this in real time so that you can get prevention without a negative impact on the user experience. And that's the hard part. And it takes intelligent engines that are working silently across data streams and are now driven by AI that make those split-second decisions without disruption. It may not be flashy, but it's foundational. And in some ways, I'm seeing a renaissance of the importance of prevention, especially when you look at the AI driven threat landscape. It's expanding really, really fast. Just last week, the SharePoint tool shell zero-day vulnerability was exposed. It's a vulnerability that affects on-premise Microsoft SharePoint servers. At the end of the day, it allows unauthenticated attackers to gain full access. Our customers at Checkpoint were protected. We also enhanced our prevention stack with the Verity acquisition, which we announced recently. And this now provides an automated threat intelligence and real-time remediation. And I think that this acquisition positions us at the forefront of preemptive prevention and threat exposure management. And it strengthens our leadership in proactive cybersecurity. Moving on to our next principle, it's all about an open platform. There are different ways that we can approach a cybersecurity philosophy. We believe that an open platform is the right approach. And when we speak about an open platform, it's the ability for us to create the core networking fabric, pulling everything together, but being able to collaborate and to create an extensible collaborative situation for our platform. Philosophically, I believe that an open platform also makes you more resilient. And I believe that trying to go for an -in-one catalog option actually makes you more brittle and fragile. And again, the acquisition that we just made of Verity gives us another capability to put together 70 other vendors that work together with us. And that's the open platform strategy. And then finally, we are embracing AI as a new tool. This means not only that we have cool LLMs that organizations are bringing together, but actually it's a shift in mindset. Because if AI is going to make decisions for us, we're going to have to trust AI to make those decisions, those predictions going forward. And this is a major change in our industry. At Checkpoint, we now have an AI engine that runs to allow our customers to use AI on the personal level, all the popular AI capabilities that we see. And we're also embedding it in each one of our products. And this takes us, I think, to the forefront of embedding AI, using AI to simplify and to provide a unified management that is actually making our customers' lives easier. So long story short, I've spoken to you about the four principles. They're important for our vision going forward. And I think we're well positioned to lead the future of cybersecurity based on those four principles and our vision of the open platform. And with that, I'll turn over to Rui.

Thank you, Nadav. Let me just open the presentation. Okay. Okay. One moment. One moment. I have some issue here. I will be with you in a moment. Okay. So, can you see my screen? Great. Okay, great. Sorry for the delay. So, as Nadav indicated, we had a great quarter. I think our revenues exceeded at our midpoint of our projection by 3 million and achieved $665 million. And our non-GAP EPS were $2.37 in the midpoint of our projections, presenting 9% growth year over year. So, moving to the results. So, as I mentioned, our revenues grew by 6%. That was mainly driven by another strong quarter for product revenues that's driven by strong customer demand for new appliances and higher volume of product refreshes. I have to say that this cycle reflects continuous investment in our platform and broader adoption of our latest technologies, our quantum force technology that we released a year ago. And as a result of these offers, we have a higher discount level compared to standard on renewals. This dynamic has led to slight de-acceleration in our subscription revenues and decline in our support revenues for the quarter. However, we view this as a positive trend for the long term as this strengthens the customer relationship, expands our install base, and positions us for increased renewal, revenues, and opportunities in the future. As for the billing, so the calculated billing grew by 4% to $642 million this quarter. Our RPO grew by 6% and reached $2.4 billion this quarter. This quarter, as Nadav indicated, was heavily back-end loaded, resulting in several deals that were pushed from the last few days to the first two weeks of July and were already closed. These deals alone, we're talking about seven-digit deals, affect our billing by approximately three points. So that will benefit us in the third quarter. As a reminder, in the same quarter last year, we had a -multi-year deal totaling $130 million, which also had a significant impact on our RPO last year. Moving to our revenues by geographies, so we are looking that our American email grew by 5% this quarter, while APAC had a strong quarter with double-digit growth and reached 15% growth over this quarter. Moving into our P&L, so our gross profit increased from $557 million to $585 million, representing a gross margin of 88%. Our operating expenses increased by 7%. This increase is mainly as a result of our continued investment in our workforce organically and also the impact related to cyberint and verity acquisition that I remind you cyber required during Q3 2024 and verity we completed the acquisition during June this quarter. Our non-GAAP operating income continues to be strong at $271 million or 41% margin. I think it's important to discuss also the FX impact as we all see the US dollar is weakening. This is most of the currencies and especially against the Israeli shekels. Given that we are approximately 50% of our operating expenses are denominated in non-USD currencies and mainly the shekel and we are not adding 100% of these expenses, this currency movement resulting in an estimated 0.5 point add-win to our margin this quarter. If I'm looking on the second half of the year, although we add a significant portion of our foreign exchange exposure, we're still going to have an impact because again we are not adding 100% of our foreign currency and we do expect to see a headwind of approximately 0.5 to 1 point if the US dollar will stay in these levels. That's important to say and if we're looking into 2026, if the FX rates will stay at these levels, this could increase our operating expenses next year by approximately 50 to 60 million dollars. Moving into our cash flow, so we had a strong operating cash flow this quarter, achieved 262 million dollars, a 31% growth over the year. I think it's important to mention here that it includes a benefit of 50 million dollars from edging transactions offset by 6 million dollars related to our verity acquisition. Our cash balance was 2.9 billion dollars and we continue to do our buyback and purchase 1.5 million shares at an average price of 220 dollars. Also, we acquired verity during the quarter that was a net cash of around 90 million dollars, that's also part of the cash flow for this quarter. Two notes regarding the next quarter, regarding Q3 that will impact our cash flow, we have two items. First, we announced that we acquired the land for building our new checkpoint campus in Tel Aviv in Israel and we completed this purchase during July and paid a total of 160 million dollars for that land. We do not expect any significant additional investments in CAPEX in connection with this campus until the beginning of 2022. In addition, another item relevant for the third quarter for the cash flow, as part of tax settlement recently signed last week, for prior years, we're going to pay approximately 66 million dollars during the third quarter to settle this tax dispute for prior years. As we had higher provision in connection with this dispute, this settlement may also have a positive impact on our third quarter P&L and EPS. We are still, as this settlement was just signed a few days ago, we are still assessing the effects and please know that this potential impact is not reflected in the guidance that I'm going to share with you in the next few slides. So to summarize our second quarter revenues and EPS in line with our projection, accelerated quantum force appliances demand second quarter in a row of double digit, continuous strong demand for email, SASE and ERM, I think very important, we do see a strong, continuous strong demand and another strong profitability quarter with great operating margin and a strong operating cash flow. Before we move to the Q&A, I'll move to the guidance for the next quarter. So as Nadav indicated, we started July, we started this quarter very strong. We see, we are looking, we have some indicators, internal indicators and of course, together also with the deals that were pushed from the second quarter, but also with the funnel and the deal that already closed in July and the funnel that we have for the remaining of the quarter, we feel very positive about the third quarter and the remaining of the year. Our guidance for the third quarter is between 657 to 687, midpoint sits at 672. Our non-GAAP EPS is between $2.40 to $2.50. While the GAAP EPS is expected to be approximately 68 cents less. As for the full year, we are not changing the guidance. The guidance stays the same, same range that we gave you in the beginning of the year. We feel positive that we'll be able to finish in the high end of guidance, but still the range is the same and same for the EPS and revenues and the GAAP EPS is expected to be $2.30 less. Thank you. Kip.