Check Point Software Technologies - Earnings Call - Q1 2025

Transcript

Kippy Meintzer (Global Head of Investor Relations)

Greetings and welcome to the Check Point Software 2025 first quarter financial results video conference. I'm Kippy Meintzer, Global Head of Investor Relations, and joining me on the call today are Chief Executive Officer Nadav Zafrir and Chief Financial Officer Roei Golan. Before we begin, I'd like to remind everyone 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 listen only mode. That will be followed by a Q&A session. During this presentation, Check Point's representatives may make forward looking statements. Forward looking statements generally refer to future events or future financial and 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 made such speak only as the date hereof and Check Point 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 a 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 [email protected]. Now it's my pleasure to turn the call over to Roei Golan.

Roei Golan (CFO)

Thank you Kip and thank you everyone for joining the call. In the first quarter of 2025 we did see a continuing strong demand for Quantum Force appliances that drove our revenues above the midpoint of our guidance. Our revenues grew by 7% to $638 million, $4 million above the midpoint of our projections, while our non-GAAP EPS was $2.21 per diluted shares, $0.03 above the midpoint of our projection and represent 9% growth year-over-year. Moving into the deferred revenues, our deferred revenues grew by 5% to $1,915,000,000 billion. Our calculated billing reached $553 million which represents 7% growth year-over-year, while our current calculated billing grew by 5% year-over-year.

Let me remind you that our billing is affected by duration and payment terms and I also want to remind you about the next quarter modeling that in the second quarter last year we did have a benefit of approximately two points from upfront billing from two large multiyear deals. If we're looking at our remaining performance obligation, the RPO. The RPO grew another quarter by double digit 11% and reached $2,424,000,000. As I mentioned, we did see another strong quarter of demand from our Quantum Force Appliances since launching these appliances in the beginning of 2024.

We do see strong trend of demand for these new appliances and that was the main driver for the revenues growth in this quarter and resulted 14% growth year-over-year in the product and license revenues. Moving into Infinity, another strong quarter for Infinity which continue to flow in an accelerated way to the revenues with a strong double-digit growth year over year. Same as in previous quarters, the revenues from Infinity agreements keep increasing and already exceeded 15% of our total revenues. We can see more and more customers adapting our platform which answering their needs under one umbrella of product and service. Looking on our global revenue distribution, we can see that 45% of our revenues came from EMEA which represent 5% growth year-over-year.

42% came from America with 6% growth year-over-year while the remaining 13% came from Asia Pacific with 12% growth year over year. Moving into our P&L, as indicated, our revenues grew by 7% while our gross profit grew by 5% to $564 million, representing 88% gross margin. Our operating expenses increased by 7% to $305 million. This increase was mainly as a result of our recent acquisition of Cyberin that was closed in the end of Q3 last year and the continued investment in our workforce organically. During the quarter, our non-GAAP operating income continues to be strong at $259 million or 41% operating margin. Our net income was $246 million, representing 5% growth year-over-year, while our non-GAAP EPS grew by 9% to $2.21. Moving into our cash flow.

Our cash flow was operating cash flow was strong this quarter with $421 million, represent 17% growth year-over-year. If we are excluding the reduction in the income tax paid, the growth was 14% year-over-year. Our cash balances as of the end.

We will be back through the resolution, so apologize for any disruption to your workflow. Still able to click on the link but just not going to the portal.

Our cash balances as of the end.

Of the year. Do you have a great day?

Our cash balances as of the end of the quarter was $2.9 billion. During the quarter we continued our buyback program and purchased approximately 1.5 million shares for $325 million at an average price of $211. To summarize our financial results, revenues and EPS above the midpoint of our projection, we did see another quarter with strong quantum force demand for Quantum Force appliances, strong operating cash flow and maintaining high profitability margin. Happy to move the call to Nadav. You are on mute. Nadav.

Nadav Zafrir (CEO)

Hey folks, great to be with you again. As Roei said, indeed a solid quarter. When we look at the appliances demand, I think this already shows a trajectory that's been going on for the last four, last four or five quarters. It is a continuous positive trajectory, which makes us optimistic. If you remember, we met last time, my first time as CEO at the end of January, and I told you that I was going to be focusing on listening and learning with a target of meeting over 100 customers, partners, prospects and hundreds of our own Check Pointers. 100 days, my first hundred days are over plus 28 days and counting. Happy to report that I think I exceeded my target of the meetings that I told you I was going to do. Listening to our partners, customers, etc.

I think that regarding our strategy, which we articulated, which is to provide the leading platform for the hybrid mesh architecture, at the end of the day, it resonates well with everybody I've met so far and is well received. Also very pleased to say that in speaking to channel partners, I believe there's a genuine want to reinforce the partner with Check Point and we definitely intend to double down on that. Finally, February was our CPX, which is our user conferences. We had them across the world. Traveling the world, meeting Check Pointers and thousands of customers and partners in Vienna, in Bangkok, in Vegas, re-enthused me, at least in our potential going forward in our strategy.

What we emphasized to the world is that we believe first and foremost that when you're securing a hyperconnected world in the AI era, first and foremost we need to remind ourselves and everybody else that security is about security. As I've shared with you, our strategy is to provide a real platform for this hyperconnected reality. I think it literally provides the best prevention that there is out there today. When you think about the hybrid mesh architecture, you always need to remember that we're living in a hyperconnected reality. In this hybrid mesh architecture, I believe that the Infinity Platform really provides the best solution that there is out there today, based on the flexibility and it meshes together or brings together our three families of products, our Quantum products, our CloudGuard products, and our Harmony products.

The way we are providing this, I think, optimizes for flexibility, performance and cost. At the end of the day, by providing this agility, not only can we provide better security, but also a better user experience. Finally, when you look at organizations and enterprise today, probably the second line item in their budget is cloud. This flexible hybrid approach allows for a better capability to control that cloud cost. Beyond that, in Q1 we also announced our partnership with Wiz. The reason I bring it up here is I think it exemplifies what we mean when we say that a real platform is also an open platform with an open garden approach and architecture.

It's not just Wiz, but Wiz is a good example of how you bring together one plus one best of breed and provide our customers with the best security in this hyperconnected reality. Also pleased with the latest recognitions of industry analysts you can see here and I think they're well deserved. When I look into our focus, two areas. One is SASE, which is front and center in our architecture, we articulated that and that's where we're focusing. The other of course is artificial intelligence. When you think about SASE, when you look at what we've done already. First of all, we're already serving thousands of customers and in terms of user experience, literally 10x faster and that counts in different situation. This hybrid approach allows for the flexibility.

At the end of the day, we have also embedded the Check Point security engines and we're talking about dozens, almost 100 AI agents that are running and being supported by or supported from the cloud going forward. This is a major focus that I'm overlooking myself because of its criticality to our architecture. Our focus is obviously on scaling this to larger and larger enterprises. As I told you last time, we intended to open a new R&D center in India that works well and we're getting great talent there. We're constantly going to improve the unified policy across the hybrid mesh network, improve user experience and the cyber practitioner experience going forward. Beyond the hybrid mesh and the SASE, which is front and center, obviously artificial intelligence is changing the world. I don't think it's just a technological revolution, but literally a new dimension.

When you think about it, at least from a cyber perspective, the first thing you need to understand is that enterprises must embrace this new technology. They have to embrace it, they have to leverage it, but they want to do it in a responsible, secure way. That's where we come in. In our CPX events, we launched and continued to reinforce Gen AI security as an example, but it's not only to look at the attacker's perspective and what they can do, but also leveraging AI for security. That's where Infinity Copilot integrated into our product was also showcased. Again today we have thousands of organizations across the globe using it already going forward.

At the same time, we're going to continue to focus on both how do you secure AI and how do you embrace AI and leverage AI to facilitate simplification and automation all the way to fully AI driven access control policy, which is where our roadmap is taking us. I think that when you think about a new dimension, one thing that you need to be is humble. I think as humans we have the limitation of imagination. Where is this world going? Last time we spoke, we spoke about starting an AI security research center which is already functioning. This is also an opportunity for me to introduce Jonathan Zanger who will be joining us in the next few weeks as our new CTO.

If you're not sort of within the cyber and AI community, his name might not mean much, but believe me, he's one of the sharpest and most talented minds I've ever had the pleasure to work with. I know him from our service days and in the last few years he's been in the startup world and within the community. He's really a well recognized talent both in AI and cyber, based on his national defense, academia, startup experience. I also believe that him choosing us is a show of confidence in our strategy and where we're going. Ultimately he's also a talent magnet. As you probably know, in this AI world it's all about the talent and the critical mass of talent that you can bring into the organization. That's going to be one of his tasks going forward.

I'm really proud that he's joining us. This is probably also a good time to acknowledge our current CTO, which you all know, Dr. Dorit Dor. You know, I've known Dorit for almost 30 years. I think she's one of the most recognized leaders in cyber globally and in Check Point specifically, she's an icon. She was a part of building this company and I couldn't be more, you know, appreciative of what she's done. She's agreed to stay as a Check Point fellow and a consultant. In the next few weeks, Jonathan will have to fill really, really, really gigantic shoes. Congratulations to both. Speaking of news, and again, going back to our January discussion, we spoke about the way we're going to orchestrate and focus our go to market approach and we spoke about creating a new division that works on SaaS.

We're going to be focusing on securing the workforce. When you think about the hybrid modern workforce, we work from everywhere and anywhere. We have different intents, personas and different identities and multiple devices. There are too many segmented solutions right now for different channels and devices. This lack of a unified solution is being taken advantage of by the hackers because hackers are always going to come through the cracks. Even if you have disparate specific products that are doing a good job, if you can't unify it, they're going to come through the cracks. The idea is to design an offering to secure employees in the modern hybrid mesh environment and provide a single product experience.

We're going to be pulling together different products that we have and we're going to be pulling this into our Infinity Platform and leveraging assets such as Threat Cloud AI. Again, I'm happy to introduce Gil Friedrich. For those of you who don't know Gil Friedrich, who's going to be leading this newly formed division to focus on the workforce. Gil joined us about three and a half years ago through the very successful acquisition of Avanan. He's 6x the business so far. We announced not so long ago that we already crossed $120 million of ARR. Our goal is to cross $200 million of ARR within the next year. Building on this success and the reception of this technology, we're going to put together different products to create the single product experience.

When we talk about email, endpoint and other products, this is a newly formed division that I'm very, very optimistic about. Welcome to Jonathan, welcome to Gil. I think that's pretty much what I had to report back over Q1. Kip, back to you.

Kippy Meintzer (Global Head of Investor Relations)

Thank you, Nadav. We're going to start out with a little commentary around our business outlook. Obviously, we're seeing a nice pipeline build for the second quarter in second half of 2025. We're very pleased with the customer response about the Infinity Platform and also our Quantum Force appliances. You know, security spending for us is healthy, but we recognize it's not immune to budget concerns. Although history has shown it is insulated from most cuts from a macroeconomic uncertainty, specifically around tariffs. We haven't seen any behavior so far, canceled project, extended sales cycles, etc. However, you know, you recognize these sales cycles usually occur at the. The extended sales cycles usually occur at the end of the quarter. As such, we think it's prudent to take this into consideration. For the second quarter, we're looking at these, these dynamics and giving you our our business outlook.

Revenues are expected to be $642 million-$682 million. That's 2%-9% year-over-year growth. Non-GAAP EPS is expected to be $2.32-$2.42, year-over-year growth of 7%-12%. GAAP EPS is expected to be approximately $0.55 less. Our FY 2025 remains unchanged. A little bit of modeling commentary to reiterate off of what Roei said earlier. Last year in the second quarter we had three eight-figure deals that totaled $130 million. Two of those were paid up front. They contributed about 2% benefit to the calculated billings in the quarter. With that, we're going to open the call for Q&A and no need to raise your hands folks. There's a predetermined list of folks so we'll leave it at that. First up is going to be Robbie Owens from Piper Sandler followed by Joseph Gallo from Jeffries.

Robbie Owens (Senior Research Analyst)

Great. Thanks Kip and good afternoon everybody. Was hoping you could drill down just a little bit more into the business outlook commentary slide that you just provided that Kip read. Maybe as you think about the forward pipe, the obvious questions or puts and takes around the refresh cycle which seemed to come through in product revenue this quarter, but also just where our conversations with customers around tariffs and appetite to spend in this environment, understanding that security is typically resilient, we've seen that historically. Some of these things can push out as they sweat assets. Just some color from the customer conversations would be appreciated.

Thanks.

Nadav Zafrir (CEO)

Roei. You want to start?

Roei Golan (CFO)

Yeah, I'll start. Again I have to say that again as of today and we had the multiple discussion with ourselves today, we don't see and based on what we see in the environment today, we don't see any effect as of today from what's going on on the macro economy environment, we actually see that the pipeline is building very nicely. You mentioned the Quantum Force appliances that we see the positive trend in the last few quarters. I have to say that when I'm looking on the pipeline specifically for the Quantum Force appliances for the second quarter looks very good. Again it's something that we cannot avoid the volatility and what's going on in the market and as we all know most of the business is coming in the last month of the quarter, especially in the last two weeks.

We see that every day we have news and something can be changed. Again, as of today we do not see anything. When we build the guidance for the next quarter we took into account a more prudent approach in terms of there might be, because of the macroeconomic, more deals that will be slipped to the second half of the year. That is the main factor here.

Nadav Zafrir (CEO)

Yeah, Rob, I don't have a lot to add to be honest. As Roei said, I speak to our channels and customers and obviously sales leaders all the time trying to be out there and understand what the sentiment is. We haven't seen anything. The only thing I can add to that, and again this is looking back, doesn't mean that this will repeat itself in these terms of uncertainty and volatility, especially as our, you know, the offense is arming itself with very sophisticated AI capabilities. Unfortunately, I think we'll also see an uptick on the offense side. I think, you know, from a customer perspective this cyber budget line item will probably be at the bottom of the list of something to cut. Again, this is looking back, looking into the future, who knows.

Robbie Owens (Senior Research Analyst)

Thanks.

Kippy Meintzer (Global Head of Investor Relations)

Next up is Joseph Gallo, followed by Adam Tindle of Raymond James.

Joseph Gallo (Senior VP and Software Research Analyst)

Hey guys, thanks for the question. Maybe just following up on products.

How should we think about the runway left in the refresh and product versus subscription revenue growth this year and then is there any increased cost of goods sold from the tariffs? Thanks.

Roei Golan (CFO)

Yeah. I'll start with the second question around the tariffs. We are manufacturing today. Most of our manufacturing is done in Taiwan with the third party ODMs. We're working closely with them mainly around the development that happened in the last few weeks. I do have to say that even with the high tariffs that for now it will not impose. Even with these high tariffs that might be imposed, the max exposure on us will not be significant and will be expected to be less than half a point to our total margin. We are talking about the max exposure and we are doing a lot of work around doing some adjustment to our supply chains to try to minimize this additional cost.

In terms of product, we started to see this refresh cycle accelerating I think in the second half of last year in 2024. First of all, we have the refresh of our existing install base that we do see a very nice ramp up in the last few quarters. We see that they really like the new appliances that we launched a year ago and we actually see the acceleration in our revenues growth from product that mainly include these hours as for the remaining of the refresh. I think first of all we have the refresh of our existing installers but definitely there is an opportunity outside our competitors. Also, some of them mentioned that they have a large refill cycle that is expected to start sometime in the second half of 2025 and will last in 2026. We think that this should last.

I mean, this refresh in this trend, we should expect it to last in the next, we last until the end of 2026. I think that we need also to take into account macroeconomic environment that sometime, you know, because of uncertainty, there will be some customer that will decide to sweat in their asset. Right now we do not see that. Again, you know, you do not know. I mean, we still, there is a lot of uncertainty today around it.

Robbie Owens (Senior Research Analyst)

Thank you.

Kippy Meintzer (Global Head of Investor Relations)

All right, our next caller is Brian, Brian Essex, followed by Keith Bachman.

Brian Essex (Executive Director and U.S. Software Equity Research)

All right, thanks, Kip.

Kippy Meintzer (Global Head of Investor Relations)

There we go.

All right. We on?

Brian Essex (Executive Director and U.S. Software Equity Research)

Yeah.

Yeah. All right. Thanks Kip.

Nadav, I just wanted to ask.

You know, one thing about being at CPX.

It was really evident that you're very engaged with customers, partners, employees, particularly employees.

The number of employees that commented that you're pushing them to grow the business maybe more forcefully than has been done in the past. Maybe. If you can help me understand.

What kind of incentives, initiatives and benchmarks?

Are you holding your management team to?

That are meaningful to call out? They kind of hold their feet to the fire to reaccelerate growth.

Nadav Zafrir (CEO)

Yeah. I would say that first and foremost, and we've spoken about this in different instances, we're focusing on accelerating our growth. In order to do that, we're also expanding our spend on go to market. The way we are orchestrated around go to market. I think culturally being a more vocal and customer closer to our customer. I think that from a cultural perspective, the word that what I like the phrase that I like to use and I'm pushing is sense of urgency from a compensation commission. We are more focused on ARR than we were before subscription and ARR. Finally a target of putting ambitious, achievable targets and making sure that we are all accountable for those targets.

Every employee in the company, by the way, not just the people that are forward looking and talking to customers, but also the folks here that are doing most of the R&D.

Brian Essex (Executive Director and U.S. Software Equity Research)

That's helpful. Thank you.

We'll keep it to one.

Kippy Meintzer (Global Head of Investor Relations)

All right. I had a big faux pas there. The next question is actually Mr. Tindle, and that'll be followed by Mr. Bachman.

Adam Tindle (Managing Director and Senior Equity Analyst)

Nadav. You give Kip one slide to read and he forgets how to do the Q&A.

Nadav Zafrir (CEO)

He's lost too much weight, you know, he can't think right.

Kippy Meintzer (Global Head of Investor Relations)

Oh, there we go, go.

Adam Tindle (Managing Director and Senior Equity Analyst)

Love it.

Thanks guys. I wanted to ask, obviously I think that the key theme here is the growth acceleration and product in particular. The flip side, just to get it out there, Nadav, is from the margin standpoint. I know Roei unpacked a little bit of the drivers, but we're nearing 40% EBIT margin. Sales and marketing's at record levels. You did have a filing intra quarter where you're expanding corporate headquarters. I think a lot of this makes sense as growth accelerates, but I think it would be helpful to maybe put some parameters around this, just how you think about the optimal operating model. What you would need to see, for example, to take margins into the 30s, how you think about the balance of growth versus investment, broadly speaking. Thanks.

Nadav Zafrir (CEO)

Yeah, I'll start and Roei, you can follow up. I shared this last time and the strategy or the targets haven't changed. We need to gradually improve our growth, but we want to do it in a responsible, prudent manner to create sustainable growth. I think we do have flexibility in our margin, but we need to do it very carefully. Like you said, we need to see the uptick that that brings. I do think there's some flexibility there. As you can see, no big changes in Q1 or minimal changes to our operating margins in Q1. I don't see that changing in the very near future. We are, you know, following very closely and seeing where every dollar we put into go to market, what it brings and how it affects our total financial situation.

Roei, you want to add anything to?

Roei Golan (CFO)

Yeah, so we mentioned, I think we discussed it in our, in the CPX that we are doing also, also part of what we've done with Wiz. We are doing more focusing on where we need to invest. It doesn't mean that the all investment needs to be increasingly. I think we need, we are looking, I think Nadav is doing since he joined in terms of he decided well we need more to focus as we discussed a lot hybrid, mesh and other items. We are moving budget from areas in that we less focus to areas that we need to focus more. Like SASE, like AI. In the end, when you're looking on the full budget, on the full operational. I don't think that we don't expect in the near term to see any significant change to our operating margin in order to accelerate our top.

Kippy Meintzer (Global Head of Investor Relations)

All right, our next question comes from Keith Bachman followed by Shaul Eyal.

Keith Bachman (Senior Research Analyst)

Many thanks team. I wanted to try to get more update on Perimeter 81, your SASE solution. I'll break it into a couple parts. As we think about the year unfolding, how do you think about the enhancements that you need or want on the solution side? You talked a little bit about this at CPX, but maybe update us on go to market activities and then see as we get to end of year, what does success look like and what metrics might you be able to provide to us? Whether it's contribution to ARR, number of customers, anything along those lines, but just maybe just a broader update on your SASE solution and Perimeter 81. Many thanks.

Nadav Zafrir (CEO)

Thank you. I'll get started and Roei can add a little bit of maybe about the parameters. I'll start with the product side.

On the product side there are two things or three things we're focused on. Number one, we have a relatively nascent solution. If you look at the incumbents in the market, I think it's a unique solution. Sometimes when you come late to the market, you can already see the kind of mistakes that were done and come with a more modern solution. I think the hybrid approach allows us not just to give a better user experience, but also to provide security based on the parameters of identity, intent, geography, and location. Based on those, you can consume the security from the right place, especially in the world that's moving from the attacker's perspective in the speed of AI. I think this is crucial.

Having said that, we still have a feature parity that we need to complete and I'm following that very, very, very closely. The other is to go up the stack in terms of very large enterprise. The other thing on the go to market side, the way I look at it is to really try to go out there and showcase everywhere we can, but also with existing very successful deployments in large enterprise of what this really means to provide this hybrid architecture. What does it really mean to have a better user experience? What does it really mean that you have a better control of your cloud costs and go out and prove that with our partners, with our channels in industry events such as the one happening next week at RSA.

I think that for me success is first of all, can we actually showcase in large enterprise that's consuming this? What are they saying? I think if they come and say, listen, this actually works better because SASE, unlike other products and security, is right in front of the long tail of hundreds, thousands and sometimes tens of thousands of employees of one enterprise. The feedback that you get is very direct. That is on the user experience side. We are seeing the same thing here at Check Point. Once we are deploying this here, what is the user experience? What does it mean? What does it allow us to do? Because at the end of the day, we not only want to secure and prevent, we also want to get better user experience.

The other thing is how this as an Infinity Platform sale, that's the other metric or perimeter that I want to look at, not as a SASE standalone, but SASE is a part of our hybrid mesh and the Infinity platform. That is another metric that we need to look at closely. I can tell you very openly that so far so good, but it's only the beginning of the journey. I'm following this very, very closely. It's one of the I like. To the question about investment, this is one area where we don't have lack of resources.

Kippy Meintzer (Global Head of Investor Relations)

All right, thank you. Next question is coming from Shaul Eyal, followed by Shrenik Kathori.

Shaul Eyal (Managing Director and Equity Research)

Thank you. Good afternoon, guys. Nadav, on the heels of your Wiz announcement partnership and thank you for this slide you guys have put up, we've been getting some questions from investors on whether Check Point is actually giving up on CNAPP or is actually double downing on CNAPP maybe being one category you add of the broader cloud security arena. If you can address that and maybe Roei, just a word about the mix between new logos and existing customers this quarter. Thank you.

Nadav Zafrir (CEO)

Yeah, thanks for that, Cheryl. I want to be very direct and very simple about this. When we're doubling down on cloud, we are focusing on partnerships when it comes to observability and CNAPP specifically. We are repurposing these resources in the areas that are core and strategic for us, such as SASE. I want to be very clear on that. We're very transparent internally with our customers, with our channels, and we are within a migration process within our existing customers to start using Wiz. We are able to actually showcase Wiz in our unified platform. I believe this is also the right philosophy when you think about an open platform. That's a very direct answer.

Roei Golan (CFO)

To your question, Shaul, about existing customer and new customers. I think if we're looking on our product revenues, of course the majority is coming from refresh and from our existing customers, but definitely we do see uptick in our new business from new logos, from appliances. Again, I think since we launched, I think since we launched the new families last year, the price performance of these appliances become much more attractive in the market than it was before. Definitely we do see that in the competition.

Nadav Zafrir (CEO)

I would add one thing about new customers, Shaul. I spoke about Gil Friedrich and the newly formed workforce division. That is one of the ways that we expect to win new logos with sometimes even different buyers within the enterprise.

Shaul Eyal (Managing Director and Equity Research)

Thank you.

Kippy Meintzer (Global Head of Investor Relations)

All right, next up is Shrenik Kothari followed by Andrew Nowinski from Wells Fargo.

Shrenik Kothari (Senior Research Analyst)

Great. Can you guys hear me all right?

Kippy Meintzer (Global Head of Investor Relations)

Nice, nice little vest.

Glad to see somebody.

Shrenik Kothari (Senior Research Analyst)

Test dress for the occasion. You did touch upon tariffs and global macro uncertainty and also around the Israeli Taiwan based supply chain. Just curious to what degree has some of your relative kind of tariffs insulation? The non U.S. status has kind of helped you either win business from other hardware heavy peers and in areas like Europe, Canada and anything you have seen in terms of win rates, upticking or competitive kind of take off or take out activities specific to these dynamics. From a margin standpoint, very quickly, Roei, you mentioned sub 50 basis points kind of impact assuming that is based on the existing or the original tariff framework. Just wanted to clarify could that change for the better if things are evolving in the right direction?

Roei Golan (CFO)

I'll start maybe because it's a short one. That's based on the 32%—that's the italics—that for now it's not imposed. That's based—the less than half a point is related to the 32 percentile, not for the 10% that's already imposed.

Nadav Zafrir (CEO)

Yeah, I'll say from my perspective that, you know, these are early days and uncertainty right now is such that I'll be very honest. I'm not, I don't, I'm not counting on having an advantage over our peers at this point. I do believe that in an era that with the volatility that we have, unfortunately we will see an uptick in attacks and in the sophistication of attacks. I believe that our approach of prevention first and that security is about security will be heightened and well received and I'm optimistic that we can get our points based on.

Shrenik Kothari (Senior Research Analyst)

Got it. Thanks.

Kippy Meintzer (Global Head of Investor Relations)

All right, next up is Andy Nowinski followed by Tal Liani of BofA.

Andrew Nowinski (Senior Research Analyst)

Okay, good morning. Thank you for the question. Nadav, you have a very impressive background. I'm sure you've seen more cyber attacks than most executives in the market. I'm wondering, have you been able to leverage your background to speak with CISOs? How might that be driving new logo growth, which has historically been the Achilles heel of Check Point? Just a quick clarification, the maintenance decline this quarter, is that just a lagging impact? I think that lags even though product revenue is really strong. That typically has a lagging impact and comes back to growth later. Thank you.

Roei Golan (CFO)

I can start another maybe regarding the support. Yeah, it's lagging. We do expect it to pick up in the second half of this if you're going to see the trend continue with the refresh and definitely we expect it to be positive back in, in the second half of deal and adapt to you. I think.

Nadav Zafrir (CEO)

Yeah, look, I. The answer is yes. I always, you know, from the nascent days when the Internet started, and I've been doing this for the last 30 years, remind myself that at the end of the day it's a learning competition between offense and defense. That's true for Check Point when we protect Check Point. That was true in my previous life when I was at the front lines protecting national infrastructure. It's always a learning competition. In a learning competition, what you need to do is appreciate how the world is changing, try to imagine different futures, assign probability, come back to the present and decide how you want to allot your risk management and your budget. I'm super passionate about this and I've seen it from many, many different aspects in the last 30 years.

For me to talk to leaders in the enterprise world, whether it's boards, CEOs, CFOs, CIOs and CISOs, is something that I'm very passionate about and I am very enthusiastic about. I'm very enthused about going out there and talking about how we approach this at Check Point. Generally, specifically, I think that all of us are sort of trying to understand how we leverage this incredible new technology. That's a double edged sword. We all get it. I think if we can be a good partner for the journey of embracing AI for our customers, that's a very, very important capability that we have. Jonathan Zanger joining us in that respect.

Being able to hire some of the best talent in the industry, trying to imagine what it's going to look like and I don't fool myself, we're going to imagine a thousand scenarios and we're going to get hit by scenario 1001. By thinking about it, practicing it, simulating it, I think is a great advantage. Now when you think about Check Point, with 30 years of experience, a hundred thousand customers, the vast data that we have, the fact that we've seen every mutation and every permutation doesn't mean that we're going to get it all right. I think it means that we're at a good springboard.

Andrew Nowinski (Senior Research Analyst)

Thank you.

Kippy Meintzer (Global Head of Investor Relations)

All right, next up is Tal Liani, followed by Patrick Colville.

Tal Liani (Managing Director and Technology Analyst)

Hello. Here you go. Now you can see me. Also, Nadav, I have a kind of high level question for you. The stock went up following your entry to the company. What we are looking for now is for the growth not to be in the 6%-7% area. That is not exciting. We wanted to see above 10%. The question is, how long does it take you and what needs to happen to get to this 10% level in order to justify additional upside in the stock? I just want to, I looked at the numbers differently. I know that firewalls will go to a refresh cycle, but firewall market is not going to grow in the long term. When I look at your other parts of the portfolio outside of firewall, it needs to grow substantially to get to 10%.

If I remove this firewall refresh temporary kind of, you know, upside down, it needs to grow substantially to get to a sustainable 10% level. So how do you get there? What do you need to add? How do you, what do you do with go to market? I know these are big questions, but I think that's what's going to drive the share price from here.

Nadav Zafrir (CEO)

Thanks. Yeah. First of all, I agree, you know, take as as an example, the newly formed workforce division led by Gil Friedrich is one way or one vector to get there to that sustainable double digit growth that we are aiming to achieve. Like you said, I don't expect anything to happen overnight and we want to reach it in a sustainable manner. Having said that, this is an example which I'm happy to elaborate on. You know, Gil came here as an acquisition. It was a very successful acquisition. This is completely outside of our Quantum business. This is completely outside of our sort of 30 years of experience and in a very mature sort of saturated market. We've been able to innovate and get a meaningful part of this market. Again, crossing the $120 million and leading this into $200 million within the ARR.

Our goal is to get to $200 million. That's becoming meaningful and adding other components to this and creating a distinct division that's working on that. That's one way to get there. The other is to reinvigorate and focus on our go to market. I think that you can look at our spend and it'll grow. I think that we have some of the best products out there, if you ask me. One thing that surprised me is how little the world knows about what we're doing. We need to be more vocal. We've been shy. We need to be more vocal. We will be. The other thing is focus, focus, focus. That's why we decided to get out of different businesses. We spoke about that. Focus on our hybrid mesh platform approach so that where we play, we play to win.

Where we play, we play to become a podium player. Beyond that, we're obviously always looking at potential acquisitions to close some of the gaps that we have in our strategy and getting some of the best leaders and talent in the world. I think that when you combine all that, that's the path, that's the strategy, that I don't fool myself that this is going to happen overnight, and I don't fool myself that we're not going to have our hurdles along the way. I can tell you that I'm optimistic and you know, we'll come back to report every quarter.

Tal Liani (Managing Director and Technology Analyst)

Great.

Kippy Meintzer (Global Head of Investor Relations)

All right, thank you. Next up is Patrick Colville, followed by Jonathan Ho, William Blair.

Patrick Colville (Director, Equity Research Analyst, and U.S. Software)

Thank you so much for taking my question. I guess I want to focus on the demand environment. I mean, the message in the prepared remarks was very clear that no effect from the macro. I think I just want to make sure that we're clear on the timing of that comment. Do those comments refer to post close of the quarter? So post March and including the last few weeks and then, you know, if I think back to 2020 Check Point's this quarter, five years ago, pulled the fiscal year guidance. Was there a world where you considered pulling the fiscal year guidance and what were the puts and takes there? Thank you.

Roei Golan (CFO)

I'll start maybe first of all, yeah, that's based on what we see. I mean the comments are based on what we see today, not based on what we've seen in last quarter. I mean, that's following the Liberation Day and all the development since this announcement in the Liberation Day. I have to say again, I don't want to compare to 2020. I'm talking about what we see, do see today. We are, as Nadav also mentioned, we are doing a lot of, we had a lot of discussions with channels, with customers, with our sales leaders as of today. We're talking today in this earning. We don't see any, any, any changes in the macro environment in terms of the demand for the security for specific for the security.

As I said, actually even the pipeline is building up for this quarter mainly around the Quantum Force appliances and that's what we see today. It doesn't matter. It doesn't mean that we won't see a change because there is, you know, we all see what's going on in the market, we all see the volatility and it doesn't mean that it won't be changed in the next few weeks. That is why we need to be more cautious in terms of when we are providing guidance for the second quarter. Definitely based on what we see, that's currently what we see today on the demand. Therefore we also didn't change the guidance for the full year. I mean because that's based on what we see today. We didn't think that there is a need to change the full year guidance.

Kippy Meintzer (Global Head of Investor Relations)

Hey Patrick, thanks for wearing the competitives gear.

Hey. Next up is Jonathan Ho, followed by Brad Zelnick.

Jonathan Ho (Research Analyst, Technology, Media, and, Communications)

Hi, good morning. Nadav. You spoke a little bit about reinvigorating sort of the messaging and the go to market for the company, can you talk a little bit about the messaging around the hybrid mesh firewall and maybe how that's resonating with customers, how you can maybe change the narrative around Check Point over time. Just give us a little bit more detail. Thank you.

Nadav Zafrir (CEO)

Yeah, for sure. My favorite topic, the debate around whether the world is going to be on prem or in the cloud or multi cloud, whether we're going to be working from the offices or working remotely. I think that debate is over. The answer is yes, yes and yes. We're going to be doing both. And that's sort of the hybrid environment. Now the hyper connectivity that the world is going into is also not going to change. AI is not going to change that. Some people anticipate that AI will change the way we operate.

At least in the foreseeable future we need to remember that at the end of the mesh there are humans like you and I and we're fallible and we get lazy and sometimes we do stupid things and sometimes we're useful idiots. The idea of providing a platform for the hybrid mesh is the idea of acknowledging that this is the real architecture that the world has embraced and that you need a platform to support that. At front and center of this hybrid mesh is the network. If you cannot have the trust that your infrastructure is actually your infrastructure, then it's very, very difficult to operate. When you add the need to embrace AI, this is where you really need a platform that provides three or four things. Number one, it needs to provide real security. Real security starts with prevention.

Because in the AI world, if you do not prevent, it might be too late. Trying to run after it, after it has reached your network through your SOC system, for example, could mean that you are just a historian telling everybody about the past, but the damage is already done. The second thing is user experience. At the end of the day, you and I and all of us are traveling the world, we have multiple devices and we are looking for user experience with security. We do not want to, you know, give up on our user experience, speed, and capability to work from anywhere and everywhere. That is sort of the hybrid mesh reality when we look at it.

At the center of that we're providing a suite of products that at the end of the day have a unified management, the Infinity Platform, and are all taking or ingesting the data and the intelligence from our Threat Cloud AI. What that means is that you're getting flexibility because sometimes you're going to receive and consume security from an endpoint device. Sometimes you want your data center to be able to connect directly, sometimes you want to and you're working in a multi-cloud environment. That's sort of the essence of what we're saying with a hybrid mesh platform. Beyond that, you also must remember that it's not only about security and usability, it's also about cost. This hybrid approach allows you to optimize the connectivity not just per security and usability, but also per cost. That's the message that we're going out there to the world with.

We're augmenting this with a single product experience at the workforce level. Both of those are complementing this hybrid mesh environment. It's not everything and that's why it's an open platform. I can tell you that so far it's resonating, it's a process because this is sort of a concept that is not. That hasn't been around. We need to invest in explaining and showcasing and to the point that we spoke about before, it also means that we're going to have to up our marketing game.

Jonathan Ho (Research Analyst, Technology, Media, and, Communications)

Thank you. I can see the passion.

Kippy Meintzer (Global Head of Investor Relations)

All right, next up is Brad Zelnick, followed by Saket Kalia.

Brad Zelnick (Managing Director and Software Equity Research)

Great. Thanks, Kip, and nice to see everybody. Nadav, along the lines of Tal Liani's question, Check Point's in as strong a position as we've seen in years. Everybody's got a lot of enthusiasm that you're here to win and not just win small, but to win big. The company's on a strong footing, has a really strong balance sheet. Now that you're over 100 days in, how are you thinking about corporate development opportunities and what criteria are you using as you're looking at deals? Thanks.

Nadav Zafrir (CEO)

Thank you. The criteria is very straightforward. We have our North Star in our strategy and our focus areas. Acquisitions are a means to fulfill that strategy. That's how we're looking at it. It's not a very broad aperture, but like we said, SASE, AI. That's where we're looking. You know, unified management, that's where we're looking.

There are many opportunities out there. Our, you know, we. Last time we spoke, I announced that Roi Karo is joining us and alongside with Alon Ely who leads this. They are constantly looking and we have a real appetite. Sometimes it will be to accelerate the roadmap, sometimes it will be because something we will see is truly novel and it is not just an add on, but something that can actually leapfrog. We are looking at both. Stay tuned. Great, thank you.

Kippy Meintzer (Global Head of Investor Relations)

You. All right, next up is Saket Kalia, followed by Roger Boyd.

Saket Kalia (Managing Director and Equity Research Analyst)

Okay, great. Hey guys, thanks for, thanks for fitting me in here. Nadav, maybe, maybe to go back to the SASE discussion again, front and center. No shortage of resources. Maybe the question is how do you sort of see the swim lanes in this market developing? You have some established pure play SASE vendors like the Zscalers and others. On the private side, you have other firewall vendors that are providing this as well. Maybe you have some that are very focused on secure web gateway, some that are really focused on private access or VPN as a service. Where do you see Check Point SASE sort of fitting into this market as you think about SASE in the coming years?

Nadav Zafrir (CEO)

Yeah, great question. The first thing I want to say is that we're focused on enterprise customers.

When we think about the hybrid mesh architecture at its best, these organizations are usually quite complex. They have some of everything. They have data centers, they have branches, they have multi clouds, and they work in different geographies with different regulations, with many moving parts and a changing environment that they must embrace and continue the competition. That is the kind of customer that we're looking at. We're talking about big and complex. Many of our customers are also financial organizations with incredible regulation needs. They're industrial companies that are working globally, and you're seeing what's happening in the world right now. Our focus is first and foremost to come up with a solution, and I think we're already showcasing how this works, that allows, that doesn't compromise security for usability.

This is where the unique architecture that we have at our SASE, which is hybrid, I think is going to win. Most of the incumbents have a cloud-only SASE and I'll be very honest, it made a lot of sense when they came up with it many years ago. I think now having the ability and the flexibility to be both on-prem and cloud, multi-cloud is a big advantage. Beyond that, it's the unified approach so that you can look at your connectivity infrastructure as one and build on that. That's where I think we can win again, being very transparent. We don't have all the features.

We have to mature some of our things and that's where we're going to focus both internally and by corp dev to make sure that we find the right solutions and with a big sense of urgency because this is still a relatively nascent approach, the SASE approach. If you look at the market today, I think that below 20% of enterprises already embracing this, but it'll continue to grow because that's what a margin infrastructure calls.

Kippy Meintzer (Global Head of Investor Relations)

All right, our last question of the day is going to come from Roger Boyd of UBS.

Roger Boyd (Executive Director and Software Equity Research)

Awesome. Thanks, Kip. I wondered if you can come back to the macro assumptions and the commentary around the potential for slip deals in 2Q. When I look at the revenue and EPS guides for 2Q in the full year, I think they still look pretty good. I know you do not guide to it, but wonder if you could speak to any directionality around your expectations for billings or RPO in 2Q or any color on the 1/2 versus 2/2 seasonality acknowledging the color you gave around large deals in the year ago quarter. Thanks.

Nadav Zafrir (CEO)

Go. You're on mute.

Roei Golan (CFO)

Yeah. For billing we are not providing. I'll start with billing and RPO. We're not providing any guidance for billing and RPO. I do have to. We did, we did mention that in the second quarter last year we did have two large deals that were billed up front. That benefited us approximately 2 points last year. We should think about again, billing should, should grow in line with what we see in the revenues. You should think something in this area in terms of again what was taken into the guidance again. We didn't see. I'll repeat myself, but we didn't see anything, anything, any change as of today. Of course, the significant portion of our revenues is already in our backlog, mainly the subscription and support.

I remind you all that the main, the main not uncertainty, but the main revenues that we still need to bring out are the product revenues that usually are coming, are building, and are recognized immediately. In terms of that, we do see very good pipeline for the Quantum Force appliances both for Q2 and for the second half of the year even. I would say that for the second half of the year, we do see even a better, even a stronger pipeline, and we do expect that again, taking aside the macro environment effects because we never, I mean, it's tough to expect, to predict that. Putting aside the macro environment, we do expect to see even acceleration in terms of the Quantum Force refresh in the second half of the year.

Roger Boyd (Executive Director and Software Equity Research)

Very helpful. Thank.

Kippy Meintzer (Global Head of Investor Relations)

All right everyone, we appreciate you guys attending the call today and we look forward to seeing you throughout the quarter and have a great day out there.

Bye bye now. Thank you.

Nadav Zafrir (CEO)

Nice.