Check Point Software Technologies Ltd.

Thank you, Keith. And good to see you all. So we delivered a strong third quarter marked by double digit growth in calculated billings, driven by disciplined execution and the rising demand across all of our portfolio. And, you know, nearly a month into Q4, we remain confident in our trajectory, and we're raising our midpoint for 2025 revenue guidance, and Royu will share more on this shortly. As we discussed during our second quarter earnings call, our strategy continues to be anchored in four core principles that we believe define the foundation of a modern cybersecurity stack. shaped predominantly by the accelerating adoption of AI. As we continue to shape the future of cybersecurity, our strategy is guided by these fourth principles. First, securing the connectivity fabric as it evolves from a traditional infrastructure into an agentic autonomous reality. Second, our prevention first approach. which I believe is now more important than ever. As attackers leverage sophisticated agent capabilities, it's literally imperative that we dramatically improve the signal-to-noise ratio and limit our reliance on detection to a minimum. Our open platform philosophy. The open platform philosophy is not the easiest path, but it's the only viable one for achieving security resilience. Building an open, collaborative ecosystem among vendors demands communication and cooperation, sometimes even with fierce competitors. Yet, I can tell you from the trenches of cybersecurity, it's clear to us that it's essential. And our recent acquisition of Veri is a powerful example of how we're advancing this vision. By integrating Verity into our exposure management organizations, we've expanded integrations across endpoint, firewall, cloud providers, reaching over 100 deployments, and delivering automated remediation based on what's the best security possible. And finally, as I've emphasized before, securing AI is top priority. We are in the very first innings of the most impactful technological revolution of our lifetime. Moving from current phase of human enhancement to replacement and delegation to the next phase of crossover where sophisticated agents are taking over and crossing lanes, it's both exhilarating but also extremely challenging. And I think it's a race for relevance for everyone. And we must remember, and we see that at the same time, we're seeing how rapidly attackers are leveraging AI to outpace us as defenders. And this drives our mission to build a full-stack AI-powered security platform. Last week, we closed the acquisition of Lakira, a Zurich-based AI native security leader with deep expertise in protecting large language models and autonomous agents. But Kira enables real-time defense against prompt injections, data leakage, and model manipulation. And it gives us a unique security-oriented model that ensures evolving defense to stay ahead of emerging AI threats. And I believe that together we're building a comprehensive AI security platform that will enable our customers, the enterprises that we work with, to scale AI adoption securely and confidently. And what does that mean? It means securing employee usage of AI tools through observability and data loss prevention. It means protecting AI applications and agents with runtime defenses. And then finally, strengthening model robustness via continuous testing and compliance readiness. You should know that Liqueur is already trusted by Fortune 500 enterprises, including some of the biggest banks and largest technology companies worldwide. And we're just getting started. As AI adoption accelerates, it exposes new threats. And we're committed to leading the journey to enable organizations to adopt AI securely. We're investing organically in research and development. And we're identifying strategic acquisition opportunities that will reinforce our leadership position. Beyond that, I want to touch briefly on our latest go-to-market updates. During the quarter, we achieved FedRAMP authorization for the Infinity platform for government. This positioned us as a trusted partner for the most demanding federal environments. Our go-to-market organization is now fully staffed. Rachel Roberts joined us as President of America Sales. She brings deep enterprise sales expertise from her leadership roles at Cisco and Paolo to further build and scale our sales organization. Avi Rambam was appointed president of technical sales. Avi's been with us for a long time, and from here on, he'll lead the efforts to drive technical excellence and strengthen consumer-customer engagement. And finally, Brett Dice joins us as Chief Marketing Officer to strengthen our brand presence to fuel demand and position Check Point for its next chapter of market leadership. To close, before I hand over to Rui, so with over 10 months in my role as CEO at Check Point, I think that our strategic vision is taking shape. And I'm energized by the progress we've made already and where we're going in the future. And with that, I'll turn over to Rui.

Rui, can you see my screen?

Yep. Great. So thank you, everyone, and thank everyone for joining the call. As Nadav mentioned, we had a strong quarter driven by strong demand across our portfolio. If we are looking on our revenues, our revenue grew by 7% to $678 million, exceeded by $6 million our midpoint. Our non-GAAP EPS reached $3.94 per diluted shells and exceeded our guidance. It is important to note that this number includes a one-time tax benefit in connection with a tax settlement we signed during the quarter that resulted in an update for our tax provision, and that had the benefit of $1.47 both for our GAAP and non-GAAP EPS. Excluding the one-time benefit, our EPS exceeded the midpoint of our projection by approximately $0.02. Moving to our results, as I indicated, our revenues grew by 7%. Our deferred revenues grew by 8%, $1,887,000,000. Our calculated billing totaled $672 million, reflecting a robust 20% growth year-over-year that was driven by strong demand across our portfolio and across our geographies, that all of them grew by double digits. I do want to remind you that our billing also affected by approximately three points. from deals that were slipped from previous quarter. We talked about it in our last earning call. In addition, we had one large deal, early renewal that resulted in a 2% benefit, early renewal from Q4 that came in in Q3 and resulted in the benefit of two points to our biddings. If we're looking on our current calculated biddings, so that grew by 14% to $642 million. Our remaining performance obligation grew by 9% to $2.4 billion. I'll move forward. As I said, we did see a strong demand across our portfolio. If I were looking on our services calculated billing, services calculated billing is actually the calculated billing excluding our product business, and that grew 21%. compared to 7% last year. And, again, that's not only from certain products. That's across our portfolio. If it's the Quantum Firewall, Harmony Email, Harmony SASE brought these great results. If we're looking on our merging technology, so that's the ARR, we do see that it's a free – I calculated the free main product, the free companies that we acquired in the last few years – Harmony SASE, Harmony Email and Collaboration, and External Risk Management. All of these products grew organically more than 40% in ARR year-over-year, and we do see them becoming more and more significant to our total business. Moving back to our global revenues distribution, so we did see double-digit growth in America, a 10% growth that represents today 42% of our revenues in Q3, EMEA, which represents 45% of our revenues this quarter, grew by 3%, while APAC, Asia Pacific, grew by 8% and representing today 13% of our total revenues. Moving into our P&L, into operating performance, so our gross profit increased from $563 million to $602 million, representing a gross margin of 89%, similar to last year. Our operating expenses increased by 11%. The increase was mainly as a result of our continued investment organically and also the impact of cyberint and verity acquisition that were not part of Q3 last year, P&L. Our non-GAAP operating income continues to be strong at $282 million, 42% operating margin. Also, something that I discussed also in our last earning call, and I want to touch base on it again in this call, the U.S. dollar got, in the last few months, I would say, since the beginning of Q3 2020, The U.S. dollar got weakened significantly. This is the Israeli shekels. Given the fact that we have significant expenses in shekels, and although we are hedging a significant part of that expenses, still we do see a negative effect of this weaker dollar on our P&L. In this quarter alone, that affected our P&L by approximately one point to our margin, approximately, I would say, six cents. Looking ahead, if we're already talking about next quarter, so we continue to add, of course, our foreign exchange currencies, and we do expect to see approximately one point headwind to our margin in Q4. In addition, as Nadav mentioned, we closed last week the acquisition of Lakira, leading AI native security. for platform for agentic AI application. This acquisition that was closed last week will result in approximately after point headwind for margin in Q4. As we look further into 2026, and as I indicated in the previous earning call, based on the current FX rates, that can have an increase for our NL expenses next year in 2026 of approximately $50 to $60 million. That's something that we discussed last quarter, and again, because the current rates are similar to what we discussed last quarter, I wanted to bring it back again here. Moving into our cash flow... Our cash flow was very strong. Operating cash flow was very strong with $241 million operating cash flow. That included a $66 million one-time tax payment in connection with tax settlements signed during the quarter. I talked about it when we talked about the EPS. Excluding this one-time tax payment, our operating cash flow grew by 23%. very strong cash flow. People are looking on our total cash. Our total cash in the end of the quarter is $2.8 billion for cash and marketable securities and deposits. Another point that we had during the quarter, another two points that I want to mention here that we had during the quarter, we talked about it also last quarter that We are building a new checkpoint campus in Israel, in Tel Aviv. And during the quarter, we paid approximately $160 million for the land. And that's going to see it in the cash flow from investments. I do have to say here that we don't expect any significant additional investments until 2027. In addition, we continued to do our buyback, and we purchased our share. We purchased approximately $325 million of shares at an average price of $198. So to summarize, strong quarter revenues and EPS exceeded our projection, accelerating growth across our portfolio, driven by 20% growth in calculated billings, driven 20% growth in calculated billing and another strong operating cash flow and profitability quarter. Moving to the business outlook for Q4. Before we move to the Q&A. So if we're looking on Q4, so we'll start with Q4 and then touch base on the full yield. So Q4, our range is between 724 to 764. represents 6% in the midpoint. The non-GAAP EPS is between $2.70 to $2.80. GAAP EPS is expected to be $0.60 less. If we're looking on the annual guidance, so first I'll remind you that in the middle column you see the original guidance we provided in the middle of the year. Our midpoint or the updated midpoint of the revenues guidance will be $15 million above the original midpoint. So the range is between 2.705 and 2.745, midpoint of 2.725, 6% growth. Our non-gap EPS is expected to be between $11.22 to $11.32, and the gap EPS is expected to be approximately $2.29. Again, the EPS also includes the tax benefit that I discussed. And two items that I want to address here about revenues and EPS. Q4, which is more typical for Q4, it's a very heavy back-and-loaded quarter that also includes heavy hardware and heavy, heavy hardware projects. We see also in our final today significant a refresh project that's supposed to come in in Q4. And because it's more heavy, so again, there is more, we are providing the range. The range is mainly for the hardware portion that, again, we do expect to see more refresh projects, but because the hardware is more significant in Q4, that's something that we need to take into account in the guidance. And as for the EPS, I mentioned it when I discussed the P&L, the EPS in Q4 will be affected by two main items. One is the FX that will have approximately $0.07 to $0.08 effect based on the current rates in Q4, the weaker dollar that will affect our P&L, and LACIRA that will have approximately between $0.04 to $0.05 effect in Q4 EPS. That's it, and I'll turn it to keep to managing the Q&A.

All right. Just give us a brief moment while we get the speakers situated. Our first up is going to be Brian Essex from J.P. Morgan, followed by Amiya Kolpa from Patrick Colville in position number two.

Great. Good morning. Thank you, Kip, and thanks for taking the question. Maybe to start with really on that last point that you just talked about in terms of guidance, noting that Q4 tends to be a heavier hardware quarter. Can you talk about your underlying assumptions for subscription and recurring revenue in your guide and how much visibility you have? We'd love to just get the thoughts around the sensitivity versus hardware in 4Q.

So we expect to be, yeah, I can give more insight on that. So we are expecting to have, of course, a double-digit growth in subscription with slightly improvement even to Q3. I remind you that in Q4, last Q4, we have already in the comparable cyberint that the first quarter this year, the cyberint is included. But still, we do expect to see acceleration for subscription revenues from what we did have this quarter and support similar rates, growth rates for what you've seen in Q3. in queue in the third quarter. As for the appliances, we do expect to see growth. It will be more around the mid-single digit.

All right, super helpful. I'll keep it at one and keep Kip happy.

Thank you. All right, next up is Patrick Colville. Hey, Patrick.

Hey, I'll bow down, kiss the ring, King Kip, King Nadav, and King Roy, congratulations. Thank you. 20% Billings growth is, you know, I've covered Checkpoint for a long time, and it's hugely impressive, so good to see that. The question we're getting already is what is the sustainability of that growth? I mean, so you talked about there were a few one-offs, you know, push from 2Q, pull for 4Q. But as we think about 2026, is this a new chapter for Checkpoint? Yeah. and, you know, under Nadal's leadership and, you know, are there any puts and takes as we think, you know, we're just the models looking out a year out?

Sure, I can start. First of all, thank you, Patrick, for your kind words. I think it is a new trajectory. yes Q3 was a very strong quarter and I think and some of it as you said has some pull overs and pull ins but generally speaking it's a strong quarter and I believe that when we give our guidance for 2026 you'll see that we believe a trajectory of growth is in the cards for us but Having said that, you know us already. We're going to do this prudently, and we're going to make sure that we make investments at the right places in the right time. So I think it's a journey, but I do think that we're seeing the beginning of the fruits of this journey.

Christopher, thank you.

All right. Next up is Joseph Gallo, followed by Tahaliani.

Awesome. Thanks, Kip. Hey, guys, nice job on the results. On the go-to-market leadership changes announced, is there a change in strategy, and should we factor that into 4Q Billings? Maybe just give us some commentary on how we should think about 4Q Billings, and then where are you on a quota carrying rep basis, and how should we think about that growth going forward?

Yeah, thank you for that, Joseph. So the new strategy with the new leadership is actually going to take effect in Q1 of 2026. Q4, Avery Rambow is still going to lead the Americas, and we're keeping ahead full steam for all cylinders ahead. We are going to make changes as we go into 2026, and we'll announce some of them when we meet again and speak about guidance for 2026. I will say that we are going to be ultra-focused on making sure that we go back, not go back, but continue winning upsell in large enterprise with our current existing customer base, but also with our new products roadmap, with our new capabilities, go and acquire new enterprise customers across the world with a focus on the Americas.

Thank you.

There we go. All right. Next up is Taliani followed by Adam Tindall.

Great. Thank you. How long does it take for billing growth to translate to revenue growth? And then where would it be recorded? Meaning when I look at your revenues, product revenues, subscription, and services, it's all very predictable, meaning the only swing factor is maybe products, but very predictable. So as this increase in billing translates into revenue growth, where would you see it?

So I'll touch base on that. I'll take it. The billing, of course, it's allocated between, as you said, services. I would combine support and subscription services and services. I think on the services side that grew this quarter, the billing grew by 21%. That's going to be, you're going to see it in the revenues in the next four quarters. Most of it because most of these billings came in the last month of the quarter. Every quarter it's back in loaded quarters. So you're going to see the effect in the next four quarters. I do have to say that we want to show sustainable growth of billing, of services billing, that if we're going to make sustainable billing, I mean, similar growth as we've seen in this quarter, so that in the end you'll see it also in our revenues. On the product side, most of the billing is coming together with the revenues because it's recognized immediately, and we are billing the customer when we are delivering the product. So it's easier, so you see it usually immediately. On the services, as I said, it takes more time. Got it. Thank you.

Next up is Adam Tindall, followed by Rob Owens.

All right, thanks, Kip. Nadav, congrats. Obviously, 20% calculated buildings growth. I was scrolling through my model. I don't think I've seen a number like that in the past decade at least. You talked about at the analyst day earlier this year, SASE being a very critical growth area for the company. I wonder, as you kind of reflect on the growth that you're seeing right now, if you could talk about the contribution from SASE, the upcoming roadmap that you have for that product area, And, you know, on the back of this, do you think we're at a point in time where it makes sense to step on the gas for investment for a checkpoint from here? And, you know, maybe any parameters on what that would do to margin if Roy wants to weigh in? Thanks.

Yeah, thank you, Adam. So I'll start with SASE. We are seeing a meaningful ARR growth in SASE, as Roy said, over 40% in Q3 of ARR growth. SASE for us is not a standalone. It's a part of the connectivity fabric and hybrid mesh, and that's one of the reasons this is such a critical factor for us. I also think that as our clients, as our customers start adopting AI, our SASE hybrid approach, the fact that we're not only – but also on device gives us another parameter or another, I would say, advantage. I will say that we've made substantial investments, as I've said before, in SASE in terms of hiring new talent. And we're talking, this is not in the dozens, this is in the hundreds, because this is a must-win product for us. And we are seeing success as we go into 2026. The good news is that we can upscale and go and start deploying in larger and larger enterprise as we go into 2026. So that's on the sassy side. Optimism, but to be completely transparent, it's never good enough. We need to move faster. We need to add features. We need to grow the larger enterprise. We need to integrate this into our hybrid mesh connectivity fabric and keep on moving. So that's on Stassi. Investment, generally speaking, The answer is yes, but we need to do it prudently. So we're investing in SASE, but we're also investing in our newly formed workspace. You know, we've had great success with email. Now we're bringing the other products so that we can secure our customers' employee base wherever they are and whenever they are. So that's endpoint mobile browser. The biggest investment that you are going to see from us is investing in the future, and that's building the full-stack AI security platform. Like here is just one example, but we're literally going after the best talent. Some of these are building products. Some of these individuals are just looking to understand what the attackers are going to do as they embrace phase two, phase three, and phase four. So that's going to be an investment in our future, and we really need to make investments across the board. And we've spoken about this, and I'll let Farid chime in as well. We are doing this calculation of profitability versus growth. and always looking at the two and trying to make the right calls prudently so that we can get to sustainable growth without sacrificing too much of our margins.

Yeah. And I think we're going to talk more about it, Adam, about 2026 when we're going to announce Q4 numbers, probably around in February, and we can have more color about 2026 growth margins. Yeah.

All right. Next up is Rob Owens, followed by Keith Bachman.

Great. Thanks. Always a pleasure to be behind Adam. So, Nadav, maybe you could just expand on some of your comments around the AI security component. I realize you laid out kind of the three different components of where your strategy is, but how much do you need to fill in from an M&A perspective? And I realize that It's changing rapidly. But, you know, at this point, where is Check Point just in terms of having the coverage that you want and how much more M&A do you think will be in the next 12 to 18 months? Thanks.

Yeah, thanks, Rob. My favorite topic, you know, I look at this from two different perspectives that are outside of Check Point and where Check Point's role is. So outside of Check Point is the four phases of adoption. You know, I still need to sort of – I still haven't seen a meeting with C-level, whether it's the board, C-suite, CIO, chief data officer, where this is not front and center of their strategy. We're all there. We're there as people. We're there as organizations. We understand that we either start advancing in the journey or we become obsolete. And it's moving from enhancement, which is already where we are right now, right? So we're all better performers because of AI. Most of the organizations already have replacements. So they already have agents that are replacing humans in different lanes, but they're in their own lanes. And the first organizations, the more sophisticated ones, are starting to play around with crossover agents that are now making crossover decisions and getting access to different databases. That opens a whole new plethora of challenges, changing perspectives. the idea of what it means to protect a network. Not only because there is more to attack, but also because from the other side, we need to understand that attackers are usually one phase ahead. So if we are in the first and second phase, they're already experimenting with the third phase. So that's how we look at the outside world. And when we look at our customers, we want to be their partner to be able to quickly adopt AI when we are doing the security part for them. So You know, on the level of the users, I believe we already have the best security. On the level of runtime security for the second phase and approaching the third phase, I think that Lakira is unique. And with Lakira, I think we have the full stack of what's needed for today. However, we need to think about phase three and four, and that's where some of it will be organically, but to your question, Rob, some of it will be inorganically. And so we're looking at acquisition targets as we speak. I literally just had a meeting before this call with our M&A team. They're looking at multiple companies as we speak. Nothing is imminent right now, but there will be more.

Thank you.

All right. Next up is Keith Bachman, followed by the Purple Man, John DeFucci.

Well, thank you very much, team, and I appreciate going before DeFucci. I wanted to, Nadav, for you, is there anything different or changing on Harmony email in terms of the competitive dynamics specifically for And I just wanted to understand a little bit how that pipe is building. And the spirit of the question is driven by, you know, how should we think about Harmony Email potential growth in CY26 versus CY25? Is there deceleration, you think, even driven by just the base or scale, if you will? And then really, just if I could sneak one into, you mentioned that FX would be 50 to 60 million, I think, next year, headwind. Not trying to jump ahead to your guidance, but just what you've done so far in M&A, If you could just give us some context about what that would be, the CY26 margins, just the level set for those two. And I know you've talked about some other investments you might want to do as well, but just on the knowns that you have today between FX and M&A that will impact margins. Many thanks.

Okay, so I'll start with the email. So, no, we don't see a deceleration. In fact, we're hoping for an acceleration, and we'll speak about it in our guidance. And the reason is very simple. I truly believe that we have the best product in the market. And although email has been around as long as the Internet has been around or as long as cyber has been around, because attackers are already at phase two, email attacks are becoming much more sophisticated. And we're all seeing that. I mean, we all have these conversations. Did you get my email? No, I didn't get your email. Why didn't you get my email? Well, because somebody blocked your email. Why did they block your email? Because they are becoming more and more sophisticated. And so what we've built around our email is an AI capability, which I think is superior to what's out there. So this is a replacement business, right? We're going out there and we're replacing incumbents all the time, and I think that In terms of TAM, we're still relatively small, so I don't see a deceleration. Beyond that, as you know, we've asked Gil Friedrich, based on that success, to take all the other products that create the suite for employees. So now we're bringing in not just the email, but email, endpoint, browser, and mobile. At the end of the day, we want to look at the use case, and the use case here is employees that are working from everywhere, and are now being empowered by AI agents. And the fact that we can have an agent sitting at the endpoint, either at the browser level or at the SASE level, means that we can do more on the device itself, which is cheaper, more scalable, and brings better security. So I'm really optimistic about bringing all that together into our workspace.

And I'll continue regarding your second question about the FX. So, yeah, as I said, about the FX to $50 million to $60 million. And about the M&As, I also talked about the effect for Q4 like era. So we talked about $0.04 to $0.05 Edwin for Q4. We do expect to have from one end more investment, but from the other end we also do expect to see more revenues from Lakira. So in the end, it's tough to say right now. Again, we are working on the plan for next year, so it's tough to say how it's going to be the impact on our margin next year, the Lakira acquisition. And in general, margin for next year, I think that we are still planning, working on 2026. And as I said, we'll talk more about it in February when we're going to announce Q4 numbers.

Okay. Many thanks.

All right, next up is John DeFucci, followed by Srenik Kathardis.

Thank you, Kip. My question is sort of a high-level question for Nadav. Nadav, I've known you a long time, a long time, and I know that you mean what you say when you talk about an open garden approach, and it makes total sense for the customer. It really does. But I almost, and I was looking for the right word to describe it because it almost seems, and I know this isn't you, it almost seems naive to think you can do it because your competitors, I think you said fierce in your prepared remark, fierce competitors. And even though it's the right thing for a customer, no one's ever been able to do it. So I guess can you give us a little bit more, like are there any anecdotes you can share with us, anything you talk to us about how it's actually going in the right direction? And then finally, just a quick follow-up, it's great to have pricing power, but how should we think of the price increases in subscription lately and how they may be contributing? How should we think about that? It's great to have that, but just try to understand it. Sorry.

No, thank you, John. I'll be as, you know, open platform, sort of open mind. I'll tell you this. First of all, it's a philosophy. I agree with you. And I've been in the trenches for more than 30 years in cybersecurity. I think that where we're going, trying to come to this with a vendor lock, closed guard in, a monolithic approach will really not be enough to secure our customers for many reasons. Now, I agree, it's not an easy path, but we're seeing a glimpse of first success. So I've brought up Verity as an example. Verity already has the ability to integrate with over 70 other vendors, from our CTAM, we see where the danger or the threat is coming from, and we can take these IC and actually fix them, not only at Check Point, but even at other vendors. And we already have 100 implementations of that within customers. All right, so I'm not saying this is sort of all the story, but it's a glimpse of the story. Another one is our unified management. Our unified management today, with some of the cloud-native firewalls, we can manage in our unified management those other firewalls so that from the customer's perspective, you know, whatever they're using, they can have the access to truly our best-in-class Threat Cloud AI with over 100 engines that is blocking billions of attacks all the time. So it's forming. I agree that from a business perspective, some might say, ah, that's naive. It's never going to happen. I think it needs to happen. I think there isn't another way to really secure our customers. And we are seeing early success with this open platform approach. There's a lot of investment that we need to do in order to put more meat on the bone and create a real alternative to this idea of – and we see how it resonates with our customers, right? They want to listen to this. Some of them because, you know, it's just the nature of the beast. You know, they have one vendor, but then they make an acquisition. Now they have three. How are they going to consolidate this? And the attackers are going to come through the cracks. So it's a philosophy, but it's also a roadmap, and some of it is already happening not only, you know, in our labs, but at customer sites. As I said, over 100 deployments of Verity only and more to come around that. You know, I'll give you one more sort of way to try to defend this. You know, when you think about detection, for example, right, we look at the Mitre attack sort of chain, right, and kill chain. And we say, okay, at every point, we need to have multiple guarding capabilities in order to be successful at blocking attackers. Within that framework, we're saying a lot goes into the detection and response. I can tell you that I'm constantly trying to imagine what I would do if I were on the bad side, guys. And I tell you that with a gentic AI, a lot of what's happening on-prem that gives us the ability to detect is going to become obsolete. So now if we're in a client's or customer's environment with a competitor and we don't share what we see immediately, it's going to be game over for the customer. So now afterwards in the aftermath, I'm going to say, yeah, but it wasn't my firewall, it was their firewall. The customer doesn't care.

Thank you. Thank you, Nadav.

And to your question about the price increase, so we did the price increase for the subscription firewall effective July 1st. It didn't have any effect on our revenues for Q3 because Most of the business is coming in the last month, so it has a very immaterial effect. On the bidding side, we do see some benefit from that, yet not significant from the price increase. Again, it's when we're managing the same discount, so we can benefit from this price increase. I do want to add that we have another price increase of 5% across all our quantum firewalls, which will be effective 1-1-2026.

Thank you. Thanks, Ray.

All right, next up is Shrenik, followed by Joshua Tilton.

Yeah, team, echoing my congrats.

Nice of you to join us from Alaska or whatever other place you're from.

A little sensitive. Great, great execution. Just continuing on with the big picture team following John. So, Nadav, you have been firm in your belief that not everything goes to the cloud and lean hard into the hybrid mesh value proposition, especially as the cloud and for costs are rising. We have been hearing that a lot of AI-native use cases also staying on-prem. So can you elaborate from your use case perspective, like where are you winning the most in these hybrid conversation, hybrid mesh, and then add a quick follow-up on the quarter market?

I think our advantage is in large-scale, complex hybrid environments. where you have on-prem, with cloud, multi-cloud. You need to manage all that, and I think that's where our advantage is. Looking into the future, there are use cases that we're seeing with the use of AI, data sovereign issues and governance that are going to take some of the use cases back to either private or quasi-private establishments that are going to offer that. Again, I think this is an opportunity for us on two fronts. First, it's our sweet spot. Second, when you think about data centers that are providing either data centers as a service or a private data center for AI usage, This is where performance and speed matters more than anything else. And, again, that is our sweet spot. So I'm not saying this is the only use case, but I think it's a growing use case.

Got it. You made some big go-to-market hires and some ongoing transitions. Just if you can walk us through how this factors into your operating model, both near-term and fiscal 26. We appreciate that.

operating model in terms of our investment in marketing?

Yeah, investment, just execution, assumptions, yeah.

Yeah, we are starting to be more aggressive in our marketing dollars across the board, and we'll see an increase in that in 2026, hopefully to be offset with operational excellence so that we don't hurt our margins but are more effective in our go-to-market

Got it. Appreciate it. Thanks.

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

Great, guys. Can you hear me? Yes. Yep. Awesome. Congrats on a good quarter. Maybe though just stepping back, just a broader spending question from my end. I think the first half for security was a little challenging. We had Liberation Day. There was a lot of uncertainty. So I'm just trying to understand, like, how would you characterize the spending environment in 3Q? How does it compare to what you saw in the first half? and maybe help us parse out how much of the success today is just pent-up demand from the first half versus, you know, better execution on your end, and just kind of what are you seeing heading into Q4? You know, will there be a budget flush? What are your expectations? Just level set that for us, if you could, please. Thank you so much.

Mr. Gholani, you want to take that? Yes, so I'll touch, I'll start, and then you can continue. I think, again, I think it's, first off, it was more challenging, mainly Q2, I think. You mentioned deliberation there, so definitely it was more uncertainty in the markets. I do have to say that you ask if, I mean, beside the three points that we mentioned, that the deals that actually will slip from the first half to Q3. So as I look at and we are analyzing from across, I mean, many metrics, internal metrics, it's definitely much better execution. Q3 was much better execution. And when we are looking at Q4, so Q4, again, we do see very nice deals in the pipeline. Q4 is like almost every quarter, but Q4 is more tricky. It includes a lot of large refresh, large hardware deals. And again, it also depends on budget flash. You asked about budget flash. For example, last year we did see, I would say, less than average budget flash. So it's hard to say what's going to be this year. Again, when you're talking with the field, with the sales leaders, too early to understand if we're going to see more budget flash this year. Our guidance, our midpoint of the guidance didn't take into account any significant budget flash. So that's how I see it. Nadav, I don't know if you want to add something.

Yeah, no, I agree. I think America, I think, is good and steady. We are hoping to see an increased demand in Europe going forward. But as Roy said, what we're guiding right now does not take, you know, an optimistic view on how demand is going to be growing beyond that.

Super helpful, guys. Thank you so much.

Next up is Brad Zelnick, followed by Jonathan Ho.

Hey, guys. Thanks for taking the question. Congrats. It's great to see you. the success in Q3, and I love seeing when Patrick Colville can admit he's a real gentleman, that he's able to admit when maybe he's got it wrong. Happens to the best of us. Nadav, I wanted to ask, as you reflect on changes you made to sales incentives this year, specifically paying on ARR growth, how much of an impact might that have had, and how much might that be contributing to the strong buildings we're seeing this morning? And along those lines, maybe, Roy, can you talk about the trends in ARR growth as we look through all the billing's noise, because, you know, externally, obviously, there's always puts and takes, but ARR is obviously a very pure metric. So you've added students are coming.

Yeah, I'll start also by – I want to – regarding your first question. So I think we – this year we paid – our comp plan was at a significant factor. The ARR was a significant factor of our comp plan. Definitely, it's something that we did see improvement when we are looking on the discounts. on the discounts that we are giving that, again, for renewals, for example. So we did see improvement on that effect after we implemented the ARR factor into the compliance. So that's something that definitely, I mean, we see the change. We see the mind and how the salespeople are, when in the past it was mainly around bookings, and now they need to think not about booking only, but also about ARR. And that's definitely, we see the positive effects of it, mainly around the discounts around renewals. So that's one aspect that I want to touch. The other stuff, anything else? What was the next one that you had, Brett? Or Nadav, if you want to add on that.

The only thing I would add is that I think we're seeing the beginning. I agree with Rory that I would attribute the better performance in Q3 mostly to execution. I do believe that as we progress, the change in how we measure things and our comp plan, et cetera, will take effect. But it's work in progress.

That's helpful. I guess related, is there a future where maybe you would disclose ARR as a key metric for us externally to measure the business?

Might be. Might be. We'll see. I mean, it's something that we are considering every time, but it might be in the future, yeah. Great. Thanks for taking the question.

All right. Next up is Jonathan Ho, followed by Gabriela Borges.

Good morning and congratulations on the strong results. Can you maybe give us a sense of what you're seeing from the impact of the federal government shutdown? And can you talk a little bit about the investments that you've made on the federal side, maybe where those opportunities lie? Thank you.

Yeah, I would say that because our current business is relatively small, we're not seeing a strong impact. Having said that, our investment in FedRAMPing our products is something that we're going to continue to do for a couple of reasons. The obvious one is it's a big market. The second one is that this is what we're passionate about doing, securing the most under threat environments, the most complex environments, And I think we really have an advantage there to really bring better security. So we're going to continue investing in that. And investing in that means in our product, but also FedRamping and focusing our selling focus on that. Because I think there's a big potential there.

All right, next up is Gabriella Borges, followed by Fatima Boulani.

Hey, good evening. Thank you. Nadav and Roy, I wanted to follow up on how you think about the impact of hardware refresh on your business. More specifically, I know that 2024 was a big year for quantum refresh. I know that 2025 was also a good year for quantum refresh. Obviously, it's not binary, but when you look at 2026 and the cohort that's up for renewal in 2026, is there anything that we should keep in mind on the size or how being in year three of the quantum refresh impacts that cohort? Thank you.

So definitely the refresh cycle is a big part of our business. But I have to say that, again, when we're looking today on the opportunities, I think we're in the middle of the refresh cycle. When I'm looking – on the final for Q4. When I'm looking on the final for 2026, there's a lot of opportunity just for refresh of our existing install base. And I'm not talking even about the competitive replacement that we see more of them in the last few quarters. So that's definitely a factor on our total business. And definitely we see more cross-selling of our other products in our portfolio. As we said, A lot of the business is coming from ERM, external risk management, or from SASE. It's coming from actually opportunities that will be part of a refresh that we did for a customer. Part of this refresh project, they also purchased a few of our products online. So that's definitely a big factor. And, again, as of today, based on what I see today, the potential is definitely also there for the next 12 months.

Thank you.

All right. Next up is Fatima Boulani, followed by Peter Levine.

Thank you, Kip. Nadav, I wanted to ask you a question about product strategy. You have absolutely not been shy about thinking about the portfolio in a holistic manner, both from an M&A standpoint, but also from the standpoint of, hey, these products or these capabilities aren't necessarily our forte. We're going to take a partnership route. So I'm referring to you know, your partnership with Wiz on the CNAP front. So first and foremost, are there opportunities in the current portfolio as it stands where there is scope for rationalization, where you can, you know, take your wins where you are very strong and maybe exit certain product areas? So that's the first question. And then the second question is just with respect to LaCara and the vision around building a full stack of AI solution kit for your customers. How much of a budgetary attribution and allocation are you actively seeing from CISOs and CIOs who I can't imagine aren't getting absolutely inundated with the next new mousetrap and technology? So just helping customers be ready to purchase when the technology around AI security is changing dramatically. probably the most rapidly than we've ever seen in our lifetime. So very big picture, but wanted to get your opinion on it. Thank you.

No, thank you, Fatima. So on the first one, yes, we do want to focus and become a podium player where we play. So a couple of examples that you brought up, the Wiz example, but we also announced that we're going to be partnering with Illumio on microsegmentation. because I think that's an important piece of becoming secure in a hybrid mesh environment, especially as agents are coming our way and starting to cross these lanes. So segmentation becomes very, very important. So we're doing that with them. We're partnering with others on OT and IoT, and we're partnering on identity. So, yes, there's a lot more where that comes from. Some of it is just being able to go through the, you know, normal APIs, but just be very mindful about that so that we can actually do it. Some of it is actual integration, and some of it is going to market together, like what we've done with Wizz. With regards to the full stack, I think this is just really the beginning, right? This is not a huge market yet because, as I said, it's about these phases, and most organizations are in phase one. We have our product, for example, we call it GenAI Protect. So GenAI Protect could come as a standalone, but it could also be a part of our browser, a part of our SASE solution, and I think you'll see a lot of that. As we move to Phase 2 and 3, we will need standalone products like what we're bringing with Akira, which is already deployed in some of the largest organizations of the world. But those are the early – I wouldn't even say the early. These are the great innovators that are starting to do this. I think we'll see more and more. I don't think we'll see this blow up in 2026. We'll see substantial growth, and I think we'll see much more in 2027. Thank you.

All right. Next up is Peter Levine for our last question of the day.

Great. Thank you, guys. Maybe to piggyback off that last point, Adabri and Rory, you talked about those different levels. And maybe this is just a pricing question is, how do you view the current subscription licensing model? Is there room to kind of evolve towards a more usage-based, flexible kind of consumption model? You've seen many of your peers kind of move. towards this solutions-based model as you talk about AI, SASE, cloud security. What are your thoughts here as you think about pricing to get customers to maybe expand and adopt more of your products over time?

Yeah, I think as we – and, Rui, you can chime in as well. I think as you see, our portfolio, its breadth is expanding, but also its nature, right? So when you think about SaaS models of consumption, I think that is becoming more relevant today. The first thing that we must do is not only sell our products, but make sure that our clients and our customers are using it and are satisfied with it. We still haven't moved to a consumption base, but I'll be honest, it is something that we're speaking about in the corridors, specifically, for example, for areas like workspace.

Yeah. All right, Jeff. That's it for today, folks. Thank you for joining us. And with that, we'll see you next quarter.

Thank you, everyone, for joining. Bye now.