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.

All right. Now we'll move to the Q&A. First up today will be Adam Tindal followed by Taliani of B of A.

All right. Thanks, Kip. Good morning, Nadav. I just wanted to maybe start with the elephant in the room here with the announcement that Palo Alto is acquiring CyberArk and a $25 billion deal. And as it relates to your comments, specifically to Check Point, you're talking about how an open platform is the right approach. So I'm wondering if you could maybe just expand on that areas where you're thinking it makes more sense to partner versus maybe own or acquire and certainly any comments that you can make on the identity space given that large transaction this morning. Thank you.

Yeah, thanks, Adam. Yeah, well, sure. Very interesting announcement. Impact on us is, I think, minimal as we're not a player in the identity space. And as I said, our vision is to focus on where we think we can do best. In my opinion, it's the breadth of the connectivity fabric. And that has the hybrid mesh on one side, workspace on the other side, and creating a unified platform for everything connectivity fabric. And on top of that, winning with AI. Having said that, our philosophy is to focus on an open platform, to focus on an open platform for a couple of reasons. Number one, you know, when I spend my time speaking to dozens of CISOs a month, at least when you go to the enterprise and up, I think that between this idea of best of breed and best of suite dilemma, an open platform is the right approach. It's unified layers, deeply integrated, allowing it to be extensible, collaborative. That's from the CISO perspective. And also, they don't want to be in a vendor lock. I can tell you as someone that's been in the industry on all of its side for many, many years, I also think an open platform makes more sense from a security perspective. If you think about the attackers, you don't want to have a monolithic approach. You don't want to come from one shop with the same philosophy, same software, same people, same intelligence. You want to have an open approach to it that allows you to have sort of an open garden and approach that allows you to import and to use different platforms working together. And I think that it's not a technical framework, but it's a real differentiator. And our vision and approach to the market.

Thanks. Up next is Taliani of B of A, followed by Joseph Gallo from Jefferies.

Hey, Nadav. Good morning. Question, I look at your growth, 6%, your bidding growth, even if I add the delay, the deal that slipped, we're not seeing acceleration. And the question, I asked you the question last quarter. I asked, what I want to focus on is to understand what are the challenges that you see in accelerating growth? Meaning I understand what you're doing, but it does take time. It looks like it takes time from the numbers perspective. So what are the challenges when you talk about operational challenges, culture challenges, product challenges, go to market Can you just discuss what prevents the company today from accelerating growth and what would take for the growth to accelerate in the future?

Yeah, well, great question, Tal. And you're right. It's not an overnight shift. It's a vision. You have to have the principles and you have to make the investment. That's number one. Number two, as I said, and this is something that is already coming around, it's building the right go to market approach and the sense of urgency culture. And we're doing all of that. But like you said, it's nothing that's going to happen overnight. Having said that, I don't think that there is a specific challenge. I think we have the right products. I think we're in the right market. I think we have the vision. We need to focus on what we do best on executing it and up our game and go to market. And that's the plan.

Got it. Then would you say that if you have to kind of rank in order the things you're dealing with, would you say that most of the focus is on go to market or most of the focus is on improving the portfolio? Where is the focus of the company that would drive growth acceleration?

I think for the short run, definitely go to market. Right. For the short run, definitely go market. Having said that, I do think we are in a pivotal time in the industry. I really believe that AI is going to change the way we live, operate, do digital infrastructure. And so we need to make a hefty investment here and lead the way. So if you ask me what are the three areas, one is go to market. We've been speaking about that. It doesn't happen overnight, but we're making the changes. The second is heavily investing in AI. I think we're already leading up with embedding AI in our own products. And number three is a culture of execution and sense of urgency. Now it all happens in parallel. Some will have impact in the short run. Some will have impact in the medium term and some in the long term.

Right. Thank you.

Thank you, Tom.

All right. Next up is Joseph Gallo followed by Junaid Sidiqvi.

Hey guys. Thanks for the question. I understand the impact of the discounting, but can you just talk through some of the confidence and why that's a positive long-term? Is it upsell to SASE or where should we see some of that goodness over time? And then just any quantitative metrics regarding the performance on the new logo side of the business.

Thanks. Yeah, sure.

I'll start. Yeah. Okay. So I think when I'm looking on, we have our internal indicators, when we were looking on the customers that are doing refresh, we are seeing that over time, the ARR from this, I'm not talking about the appliances. I'm talking only about the ARR associated with these customers is increasing, increasing nicely. And we see that on the long term, maybe not on the first quarter, on the second quarter, but on the long term, the ARR is increasing. So we have this internal indicator that we feel confident that because we see very strong demand for these appliances from our existing customers, sometimes it's coming also with cross-selling SASE or email or ERM. But even without that, we see that even with the firewall, we see that the ARR is increasing over time when they are buying from us the appliances. So therefore we feel confident. It's not only this quarter we feel it. We see these indicators over the years. And that we want to add around the, want to add something.

Yeah. To your question on where we see we're seeing the growth, I would say two main areas. Number one is the new product lines. So if you look at email, ERM, SASE, those are growing above 40% year over year. So a very healthy growth. And as I said, we just, you know, we doubled the size of our SASE team and we're making a huge effort to grow it as fast as we can. The other place is the, what we call the infinity platform that at the end of the day, I think we have a real, you know, differentiation with our roadmap to create this unified platform that allows you to have all of your connectivity fabric in one. In my opinion, this is not long-term. This is midterm with what we're seeing coming from the attacker's perspective with the, you know, becoming AI ready enterprise, having that holistic view into your network fabric and being able to read between the notes and go from a static reactive to a predictive proactive approach. I think that's going to have a huge impact. And when you couple that with the fact that we are going to be making more investments in our marketing, I think that over time, you will see the impact and the growth coming. At the same time, this investment, and we've been talking about this for a long time, we'll also call for, you know, probably having to give up a few points on the margin so we can grow faster.

Makes

sense. Thank you. All right. Junaid Siddiqui is up, followed by Rob Owens.

Great. Thanks for taking my question. Nadav, you've talked about SASE being one of the key folks here for you. Could you just give us an update on the premier AD1 acquisition and, you know, where you are from a -to-market and from a technology integration perspective? And, you know, overall, what's the vision that you're trying to articulate to customers that's a bit differentiated from the many vendors that are providing SASE solutions to customers?

Yeah, thanks. So, since the acquisition, we first, in terms of numbers, we are seeing a solid 40% ish growth. So, solid. What we're doing is moving it up to the large enterprise level. So, we're now at a position where we have a full, fully deployed capabilities in up to 10K. And the beginning of 2026, we're already going to have the ability to do that beyond that. So, that's one part of the answer. And as I said, this is a critical aspect for us, both on the R&D and on the -to-market. Talking about -to-market, the idea is that it's no longer just a small sales force of an overlay, but we are bringing up to speed the mass field capability that we have that comes from more from the gateway side to also be able to go out there and showcase what we have in SASE. To your question on the differentiation, I think the differentiation has two parts. Number one, it's the whole connectivity fabric platform approach. On the one hand, we have the hybrid mesh, which we've been talking about. On the other side, we have the workspace where we're unifying different capabilities so that we can look at personas and not different technologies. SASE is sort of something that is the glue that connects all that. Our architecture is different than others. Most of the architectures out there of some of the incumbents are architectures that are cloud only. The fact that we have the hybrid capability, the fact that we're also on-device means that I believe we can do three things better and we're proving it in the market. Number one is better user experience, sometimes 10x, because we're able to, in every transaction, find the right way. We don't have to go to the cloud every time we do it. That leads to a 10x faster capability on the user experience. Number two, it's cloud cost. The fact that we have this hybrid approach allows us to not use the cloud in every transaction. That controls cost. And number three, the fact that we have all of the capabilities on a small agent, on the device, in the AI era means that we can protect you where the threat is coming. And I think that when you put all that together and with what we've seen so far, I'm very optimistic about it.

All right. Next up is Rob Owens, followed by Brian Essex.

Great. Thanks, Kippy, and good afternoon, everybody. Hoping you could drill down a little bit just into the slip deals that you mentioned. I know you quantified them and I appreciate that, but rhyme or reason for the slippage, geos that they slipped in, and anything that you're seeing more broadly out there in the environment. Thanks.

So based on what we've seen, especially this quarter, I think, again, we still, again, I think it's a combination of macro and execution, but in the end, we did see more deals that were slipped than usual. I mean, we have every quarter slip deals. We have, to be honest with everyone here, it's not that we don't have, there is no quarter that you don't have any slip deals, but this quarter we had more than usual. But I think why we feel confidence that this, most of these large deals, we're talking about seven digit deals, all of most, I would say all of them were closed in the first three weeks of the quarter. So we feel confident that it's just an issue of timing. You know, sometime we mentioned that we did see much more back in loaded quarter than usual. I think that was the most back in loaded quarter that I've ever seen since I'm in checkpoint. And therefore there is a risk when you have more back in loaded, there is a risk that some deals will be, more deals will be slipped. But we feel confidence because we are, we close them and we feel more confidence around it.

Yeah, look, to add to that, I think, Rob, each one of them is sort of a snowflake. There's no one thing, you know, good news is that it's already closed and we're seeing a great start to the Q3 July. So far has been great. And we're optimistic about Q3 and the rest of the year.

Were they equally split amongst the GOs or were they predominantly in one?

Yeah, pretty much. Pretty much. Yeah, pretty much. There is no common denominator to it. I really think it's back in loaded execution. And again, all of them have been already been closed. So we're confident that doesn't have a meaningful impact.

Thank you.

All right. Up next is Brian Essex followed by Shauli Al.

Hi, good morning. And thank you for taking the question. I was wondering if we dig in on quantum a little bit. So, so now, Dov, what do you see in terms of, you know, the quantum product cycle, refresh cycle, like how far through your installed base is the penetration there? And what are you seeing architecturally? Are your customers kind of taking a step back and reassessing the network architecture and maybe throttling spending into other areas of their network security environment? Thank you.

Yeah, thanks. On the refresh cycle, I'll let Rui also chime in on the architecture part. Again, this is sort of the principles that we're talking about. The first one is to look at the whole connectivity fabric. A quantum gateway is one instance. It's a critical instance. We're seeing everything stay hybrid. So the ability to do it on-prem is important. But we also have our cloud guard, the ability to do the same thing to the cloud. And more importantly, bringing all that together as one connectivity fabric platform. That's where I think we're going. And so with that, where are we investing? We're investing on creating a one unified management that could push all the policies at the same time, whether it's on the cloud, multi-cloud, on-prem, branch, data center, et cetera. It's connecting that to the SASE. So each one of the nodes in this very complex environment can get the same capabilities that a data center can get. And all of them together are giving you sort of that sense of what a network is really about. And number three, embedding AI in this to simplify and automate. And again, I think we're in the very early innings. It's going to take not just engineering. It's going to take not just bringing AI in, but also a change in sentiment. Because at some point, at which we're already seeing, we need to trust that AI to make real decisions in split seconds, because the attackers are not going to give us any more time. So for me, when you think about quantum, I think about the whole connectivity fabric and what that brings to our customers. And again, I believe that's not the whole cyber estate market, but it's a core. And I believe that it can be the core platform. And being an open platform, open up to other best served platforms, just like we did with Wiz and we're going to do with others.

Yeah. And for the reverse cycle, I think we're in the middle of that. I think when I'm looking on the potential for the potential is huge. We are looking on the funnel for the second half of deal. And when I'm looking even on the funnel for the first half of 2026, the potential is there. I mean, we still have a significant installment that's up to refresh. And the potential is also competitive replacement. And we did see some of them during the first half of the year. We need to have more of them. But definitely there is a huge potential on

that front. Any sense of the duration in the back half of the year or into next year? Like, is it an acceleration that you might expect or how can that be?

Just based on my this my way, when I'm looking on the funnel and discussion, it should last at least until the first half of 2026. Tough to me to say it will be but again, this trend continues to I mean, expected to continue in the next 12 months. Thank you so much.

All right. Up next, we have Shauli Al followed by Keith Bachman.

Thank you. Hey, good afternoon, guys. Ray or or not. On a harmony email, is it still growing at similar rates like we've seen in prior quarters? And maybe on on those slip deals? Are they like geographic based or across the board pretty much?

So yeah, go ahead, I think the slip is your answer.

But I know, I mean, just to reiterate on the slip deals, it's there's no common thread. It's it's not many, but it's a few big ones. And it's not geographically based. We have it both in the Americas, the media, etc. And and again, it's deals that have already closed in the last few weeks, getting us a really good head start for the next quarter. On email, the answer is absolutely yes. It's continuing to grow at a very healthy rate. Not only it's continuing to grow on a very healthy rate, but also around that around, you know, the leadership and the capabilities were baking together a few different solutions. So instead of looking at, you know, different product, different devices, or different locations, we want to look at the modern workforce. This is the new workspace division under Friedrich, where we're bringing together email, endpoint, SaaS security, browser security, and putting together a holistic capability. So at the end of the day, we can look at personas and what they do, their security, their efficiency, their effectiveness as personas that are moving around the world. And hopefully that can lift the whole workspace solution, not just email.

Thank you. All right, next up is Keith Bachman, followed by Andrew Nowinski.

Hi, thanks, guys. I wanted to go back to subscriptions and discounting and a couple different threads to pull on. I think you said the impact was was 50 basis points this quarter on subscription, but I just want to make sure I heard that clearly. And we did hear that clearly. And hear from the channel that Checkpoint was was more flexible in the pricing this quarter. But my question is that that's not a one time event, right? So we should be assuming that that discounting impacts, presumably the next four quarters growth on that subscription line item. But I just wanted to hear, you know, any thoughts you might want to offer, excuse me, on how we construct our subscription line. Candidly, the number looks disappointing. And so even if we layer in 50 basis points, what investors want to see is that line not holding steady, but increasing. And, you know, there's not a lot of conviction that firewalls over the next three years, the product revenue will be a durable source of growth. That's sort of the line item that investors really view as important. So maybe just help us think about the ongoing headwind associated with the next couple quarters, if there is this discounting that's going to be involved.

Yeah, so so first of all, you're right. I mentioned the point the fact the headwind that we had from from our discounting related to the subscription, which is part of the refresh, the bundle with the refresh. So that's you're right around that. I do expect that as long I mean, I'm talking about the refresh from existing customer, we do expect to see the refresh, we're going to see this refresh and we see the in the final that the refresh is is going to be strong hopefully in the next four quarters at least. So that will have a headwind effect on the subscription. But on the other end, we have tailwinds. I mean, we see that the email is getting bigger and bigger out of the total subscription revenues and that have higher portions should drive because that email is growing much higher than the 10% subscription. And also SASE and also ERM, all of them are growing farther north of 40% year over year. So all these items are getting bigger in the subscription line items. And of course, we also expect to have more competitive replacement in the quantum on the firewall. So that's together that should drive us should drive the accelerated growth on the subscription. And we do expect to see if we see the trend, we do expect to see slight acceleration in the next few quarters pushed by by these specific emerging technologies that I just mentioned.

Okay,

perfect. All right, many thanks. All right, next up is Andrew Nowinski, followed by Shrenik.

Thanks, Kip. Good afternoon. So, Nadav, at the Analyst Day, you talked about the need to win the SASE market, you know, to drive subscription growth. But it seems like identity is the foundation for that zero trust SASE market. I mean, you have to verify the user is who they say they are before connecting them to an application. So I'm trying to understand how critical is identity security to your SASE solution and to the future adoption of SASE as you push more into that large enterprise space. Thank you.

Look, secret managements and identity are part of the of the whole estate. Creating zero trust with the capabilities that we already have is actually, I believe, very doable. And we are leaving it where and you know, the customer needs to choose to choose actually, what provider they want to use as an identity broker. Again, that goes back to the open platform approach. So I don't see this as a big impact. And I definitely don't think that this is a big impact on the SASE solution that we have.

Okay,

thank you. All right, next up is Renek followed by Patrick Colville.

Yeah, sorry. Yeah, thanks, Kip. Nadal, you have articulated a strong version around AI powered prevention, talked about, of course, quantum force to unified management, real time detection, just like how are you thinking about monetizing these structurally, also get a little bit into timing, like overall, the net new SKUs, pricing uplift, for broader adoption. And just on that note, since you've said in the past about being brutally honest and takes a village and verity being integrated for real time prevention, just on M&A front, given your cash position and the cash generation, how you're prioritizing AI focused M&A and also internal R&D in your just your philosophy.

Yeah, so to start with the second question, this is one of the four guiding principle in AI first security. In order to get to AI first security, we're doing mainly three things. Number one is hiring the right talent to lead this future. To this end, we announced last quarter that we're going to have, we're going to be hiring about 500 new individuals that can lead us to that future, both on SASE and AI. We're already halfway through this program. Number two, as you said, there's always the opportunity to make acquisitions. And so we have a strong position, and we're looking all the time to the right people, the right IP, the right market access. And we're doing this as we speak. And I believe that we will make moves there as well. And it's the balance between these two, the acquisitions and the talent that we already have, the talent that we're onboarding together to lead this future. So that's on the investment that we're making, generally speaking. On the monetization front, I think that there are three things that you need to look at. Number one is a standalone product. We already have that. So in fact, we're already selling the capability to allow users to have access based on policy and governance so that organizations and enterprises can embrace these technologies safely and not block them. And that could be a standalone product. We're also looking at this as a new platform, because when you think about AI cybersecurity or security for AI, you're looking at observability. You're looking at users capabilities. You're looking at governance. You're looking at runtime, and you're looking at CI, CD. So we're looking at the whole gamut. It's an evolving space, making our first moves. The next, which is more about optimizing and being more competitive with our capabilities that we already have, usually mostly on the management side. So we've launched almost 12 months ago PlayBlocks and AIOps, and we're seeing that play a major part. So as you can see, it's a very wide range. But absolutely to your question, we already have and will have more separate SKUs, if you like, that are actually being sold, either as a part of our network fabric and Infinity platform, but also as a standalone. And these are going to be a part of our workspace. They're going to be a part of the network fabric and as a standalone.

Got it. Thanks a lot. All right. Patrick Colville followed by Jonathan Ho.

All right. Thank you for taking my question. I'm actually going to ask Nadav this one, please. I mean, you mentioned earlier in the call that you'd be happy to give up a few points of margin to achieve your goals. I guess my question is, should we interpret that as new information or should we interpret that nugget as consistent with the messaging from last quarter and the analyst day? And the reason I ask this is because many had thought, you know, this time last year when your appointment was announced, that given your background at teammate, there would be an acceleration of tucking deals. And we haven't seen that. So, you know, any color you could provide there on a margin comment or, you know, might there be a change in the pace of tucking deals?

So there is no new information, Patrick. It's part of our vision. We've spoken about that we are looking to accelerate growth. It's a journey. I think we're already seeing good initial cues that we're going the right way. But in order to go there, you need to galvanize the strategy. And that's what we're doing. You've seen the four guiding principles. And yes, you are going to see an acceleration in the way that we either built in-house to be ready for the future that we've been speaking about extensively, but also acquisitions. 2025, we already gave the guidance. We reiterated it in January of next year. We'll give the guidance for 2026. And as we've spoken about on the analyst days and in other calls, we are willing to make the investments for faster but sustainable growth. And so these tuckings and these acquisitions are going to be within the strategy that are articulated and within the four guidelines. So, when we're talking about the connectivity fabric and how we lead that, we don't have everything. Some of it we can build, some of it we can acquire. Same thing goes for workspace and definitely for AI. And we're very active in assessing the possibilities that are out there. And we're willing to, not willing, we are making the strides to make sure that we see the best in each one of these categories.

Very clear. Thank

you, Nadav. Thanks, Patrick, for telling us you're European with your outfit. Next up is Jonathan Ho, followed by Keith Weiss.

Good morning. With your -to-market changes, what have been sort of the most relevant changes that you've made? And can you give us a sense of the timing of when you expect these impacts to be more meaningful and maybe where you are seeing those impacts work today? Thank you.

Yeah, thanks. I think first and foremost, it's about the leadership. So, in the C-suite today, we started out, when I started out, we had one leader. Today we have six. Or sorry, we had two and now we have six. So, America's president of international, CMO, customer success, CRO are all a part of this. And so that the balance between the product engineering and the rest of the folks and the -to-market folks is differentiated. The second is the people that we are looking to attract. Right? So, you know, we are hiring people that are coming more from a marketing perspective. The second is on a cultural level, being less shy about what we stand for and why we stand for it. And all this is, you know, in the process of happening and more news to come shortly.

Thank you.

All right. Next up is Keith Weiss followed by Saket Kalia. Go ahead, Keith. I know you don't have a camera open.

Hey, can you guys hear me?

Yes.

Excellent. Thank you. Maybe a question for Rowe. Great. Madaf talked about the necessity for more marketing dollars to get more of the message out. And that makes sense to get to a pace of acceleration. I think one of the things investors broadly have been hoping for or expecting within software companies is the internal use of generative AI and more AI technologies to be able to drive more efficiencies within the business. So maybe you could talk about the potential within Checkpoint of you guys utilizing the technologies yourself, maybe get more productive in development, more productive in go to market using generative AI. What ability is there to offset some of that necessity for higher investment so you can sustain the operating margins and maybe do both, right? Get to that level of acceleration just by being more productive and still putting incremental investments where

they're needed. First of all, great question. I think definitely that's one of our priorities when we're looking also, we're talking a lot about AI and security for AI, but definitely AI is an opportunity also to be more productive internally and to optimize operations. And definitely that's something that we are already working on today and definitely should help us in the future. I don't think that in the short term we see it contributed to our emerging this optimization, but definitely we have actually a task force in the company that with the development team, with the go to market team, with my team, everything is working to see how we can leverage these AI tools today and how we can be more productive and optimize what we are doing. But I have to say again, to quantify it for now today, it will be difficult, but definitely in the long run and the long term it should benefit us. So more like a 2026,

2027 benefit. Hopefully yes.

To add to that, Keith, because I think that's on everybody's top of mind, every organization on the planet is dealing with this, we need to lead it, but we need to lead it on different fronts. One of the fronts that you said is being an AI first company, I think we're at the front line, but it's one of those things that how do you know if you're at the bleeding edge when there is no sort of benchmark. So we're never going to be content enough. The way I look at it is yes, to become more efficient, more effective, but rather than try to, it's the latter, it's sort of the last piece of what you said. Since we are investing in our future, I think that will allow us to do more, not with less, but with the same, and enable us to go for growth. And then lastly, I'll say, because Roy talked about the task force, Jonathan Zanger, who I told you about last time we spoke, our new CTO, he's obsessed with those three things. How do we become an AI first company? The second part is how do we help, and I think this is one of our number one tasks in the world today, is how do we allow our customers to become an AI first company without taking huge risks on privacy, security, governance, etc. And then finally, constantly having an eye open, and that's why we put together the research center that's looking to where the puck is going. Because I think attackers have less, they're flexible, they don't have procurement committees, governance, etc. They're embracing these technologies extremely fast. And we at Checkpoint have to do all three of these things in parallel, and I think we're already, we're off to a really good start, but a lot more to come with that.

Got it. Maybe one quick follow-up for Nadav. Not to try to put excuses in your guys' mouths, but in Israel, you guys had a 12-day war during the quarter, and I think it could be forgiven if that created some disruption or some distraction for the workforce within Checkpoint during the quarter. I mean, do you think that had any impact on slip deals or execution in the quarter? It was a pretty big deal.

Yeah, well, obviously it was a big deal, and we can talk about the implications for the next few hours. Specifically on Checkpoint, no. We're a global company, we have people around the globe. We didn't see any direct impact, but believe me, we probably have one of the best BCP DRPs programs in the world for obvious reasons, and so no, it didn't have an impact. But what it did have is it shows us what kind of a world we're looking at, and obviously most of the world has been looking at the impact, the direct impact, the kinetic impact, but behind the scenes there's the cyber war going, and Iran is one of the proponents of that war. They have good capabilities, they have a lot of motivation, and we're seeing an increased, I would say, boldness and the amplitude of what the Iranians are doing with some of their friends around the world.

Got it. All right, our final call, our final question will come from Saket Kalia from Barclays. Excellent.

Thanks so much for fitting me in here, guys. Nadav, maybe we can end with one of the things you said in your prepared comments, which was steady growth and SASE. Clearly, Checkpoint has a big customer base to cross-sell SASE too. Maybe the question is, what are you seeing in terms of your SASE wins, in terms of why you win? And Roy, maybe the related question is, anything that you can or want to share just on the scale or run rate of this business, as we think about the future of Checkpoint?

Yeah, to begin with, we're still a relatively small player in SASE per se, but we're the leading player when it comes to a connected fabric platform and the hybrid mesh, and SASE is embedded in that. And so, many of our wins, I would say most of our wins, are customers that are already using our quantum base and want to have a more holistic connectivity fabric capability. I don't think there's any other company that has sort of the inspection engines, the AI engines, the intelligence that comes from 32 years and dozens of thousands of customers that now, once you put the SASE in, you immediately get all that benefit and bring it together as a platform. So you're right, today it's mostly the upsell from existing customers. Through our new division that also is going to bring up our MSP pay as you go, I think we also have an opportunity in the downstream. And I do see opportunity for SASE to come into customers that don't have Checkpoint and hopefully then embrace the other Checkpoint customers. But you're right, at the beginning of the journey is the upsell from existing enterprise customers.

Very helpful.

Thank you.

All right, thank you all for joining us today. We appreciate it and we'll look forward to seeing you throughout the quarter and also this time next quarter. Thank you. Thanks guys.

Thank you.