Check Point Software - Earnings Call - Q2 2025

Transcript

Kip Meintzer (Head of Investor Relations)

Relations and joining me today are our Chief Executive Officer Nadav Zafrir and our Chief Financial Officer Roei Golan. Before we begin, I'd like to remind everyone that this conference is being recorded and will be available for replay on our website at checkpoint.com. During the formal presentation, all participants are in a listen only mode that will be followed by a Q and A session. During this presentation, Check Point's representatives may make forward looking statements. Forward looking statements generally relate to future events or our future financial or operating performance. These statements involve risks and uncertainty that could cause actual results to differ materially from those projected in the forward looking statements. Any forward looking statements made speak only as of the date hereof and Check Point Software undertakes no obligation to update publicly any forward looking statements.

In our press release, which has been posted on our website, we present GAAP and non-GAAP results along with reconciliation of such results as well as the reasons for our presentation of non-GAAP information. If you have any questions after the call, please feel free to contact Investor Relations by email at [email protected]. Now I'd like to turn the call over to Nadav.

Nadav Zafrir (CEO)

Hey everyone, good morning to you and thanks for joining us today. As you already know, our industry is undergoing a generational transformation. It's marked by unprecedented change and I think more importantly the unprecedented pace of change. We're still in the very early innings of this revolution and I believe that at Check Point, you know, we're well positioned to lead it. In today's call I want to take some time to talk a little bit about our guiding principles and our vision.

Obviously, before elaborating, I'd like to share we had a solid quarter, both revenue and EPS in line with our outlook. It was relatively back end loaded and resulted in several slip deals that have already closed in the last few weeks. The third quarter is shaping up well with strong indicators so far in July. Beyond that, we see a very healthy pipeline for the remainder of the year and we are reiterating our 2025 guidance and of course Roei will elaborate about the financials and the outlook shortly. If you bear with me for a few minutes, I'll try to be very brief. To lead the future, we are focused on four guiding principles. Number one, securing the connectivity fabric. Number two, a prevention-first ethos. Three, an open platform philosophy, and finally, an AI for security. The modern connectivity fabric is hyper.

It's hyperconnected, and it's not only a critical infrastructure for every digital transaction, but it's also become a potential source of knowledge that can provide the ability to read between the nodes, revealing patterns, anomalies, emerging threats. I think that's an opportunity we must embrace. I can tell you that in Q2, our Quantum Force AI-powered firewalls posted another robust quarter, growing 12% year over year. It was driven by the refresh momentum and a growing demand altogether for AI-powered inspection. We also continue to accelerate our investment in SASE. We've opened a new R&D center in India that's coming up nicely. We doubled the size of our SASE R&D team, and we're only seeing the momentum that comes with that with sort of a steady growth across all regions.

Recently, this progress was also acknowledged with our inclusion at the 2025 Gartner Magic Quadrant for SASE and also the recognition as a leader in the Forrester Wave for Zero Trust platforms. On the Workspace front, as I shared in our previous call, we continue to make progress under Gil Friedrich's leadership. The Workspace platform now brings together endpoint, email, and SaaS security, ultimately helping our customers' operations and improve protections. Also under Gil, we're expanding our MSP and pay-as-you-go offerings so that we can support onboarding and more flexible consumption models. This is contributing to a steady customer growth. Tens of thousands of new customers and millions of users are joining annually through this program. To summarize the first principle, our vision is to securely connect and optimize security across devices, networks, users, and clouds.

To do that, we need to look at it as a holistic solution that ultimately delivers a consistent, unified security across what we call the modern hybrid mesh network. The second principle out of four is prevention-first. You know, it's been foundational for Check Point forever that we must strive to stop attacks before they cause damage. Now, preventing attacks may not be glamorous. It's difficult to receive sort of acknowledgments for things that did not happen. At the end of the day, it's like a constant behind the scenes effort that requires discipline, smart design, and a proactive mindset. True prevention is about acting in real time. You need to stop the zero day phishing site before a user engages so that you can also block Log4j exploit before it runs.

The secret sauce is to be able to deliver this in real time so that you can get prevention without a negative impact on the user experience. That's the hard part. It takes intelligent engines that are working silently across data streams and are now driven by AI that make those split second decisions without disruption. It may not be flashy, but it's foundational. In some ways, I'm seeing a renaissance of the importance of prevention. Especially when you look at the AI driven threat landscape, you know, it's expanding really, really fast. Just last week, the SharePoint tool shell zero day vulnerability was exposed. It's a vulnerability that affects on premise Microsoft SharePoint servers, and at the end of the day it allows unauthenticated attackers to gain full access. Our customers at Check Point were protected.

We also enhanced our prevention stack with the Veriti acquisition, which we announced recently. This now provides an automated threat intelligence and real time remediation. I think that this acquisition positions us at the forefront of preemptive prevention and threat exposure management, and it strengthens our leadership in proactive cybersecurity. Moving on to our next principle, it's all about an open platform. You know, there are different ways that we can approach a cybersecurity philosophy. We believe that an open platform is the right approach. When we speak about an open platform, it's the ability, not to, for us to create the core networking fabric, pulling everything together, but being able to collaborate and to create an extensible collaborative situation for our platform. Philosophically, I believe that an open platform also makes you more resilient.

I believe that trying to go for an all in one catalog option actually makes you more brittle and fragile. You know, again, the acquisition that we just made of Veriti gives us another capability to put together 70 other vendors that work together with us. That's the open platform strategy. Finally, we are embracing AI as a new tool. This means not only that we have cool LLMs that organizations are bringing together, but actually it's a shift in mindset because if AI is going to make decisions for us, we're going to have to trust AI to make those decisions, those predictions going forward. This is a major change in our industry. At Check Point, we now have an AI engine that runs to allow our customers to use AI on the personal level.

All the popular AI capabilities that we see, we're also embedding it in each one of our products. This takes us, I think, to the forefront of embedding AI, using AI to simplify and to provide a unified management that is actually making our customers' lives easier. Long story short, I've spoken to you about the four principles. They're important for our vision going forward and I think we're well positioned to lead the future of cybersecurity based on those four principles and our vision of the open platform. With that, I'll turn over to Roei.

Roei Golan (CFO)

Thank you, Nadav. Let me just open the presentation.

Nadav Zafrir (CEO)

Okay.

Roei Golan (CFO)

Okay, okay. One moment, one moment. I have some issue here. I will be with you in a moment. Okay. Can you see my screen?

Nadav Zafrir (CEO)

Great.

Roei Golan (CFO)

Okay, great. Sorry for the delay. As Nadav indicated, we had a great quarter. I think our revenues exceeded our midpoint of our projection by $3 million and achieved $665 million. Our non-GAAP EPS were $2.37 in the midpoint of our projections presenting 9% growth year over year. Moving to the results, as I mentioned, our revenues grew by 6%. That was mainly driven by strong quarter, another strong quarter for product revenues that driven by strong customer demand for new appliances and higher volume of product refreshes. I have to say that this refresh cycle reflects continuous investment in our platform and broader adoption of our latest technologies, our Quantum Force technology that we released a year ago. As a result of these refreshes, a larger portion of our deals were bundled including subscription and support and were offered at higher discount level compared to standalone renewals.

This dynamic has led to slight deceleration in our subscription revenues and declining our support. Slight decline in our support revenues for the quarter. However, we view this as a positive trend for the long term as this strengthens the customer relationship, expands our install base and positions us for increased renewal install revenues and upsell opportunities in the future. As for the billing, the calculated billing grew by 4% to $642 million this quarter. Our RPO grew by 6% and reached $2.4 billion this quarter. This quarter, as Nadav indicated, was heavily back-end loaded resulting as several deals that were pushed from the last few days to the first two weeks of July and were already closed. These deals alone we're talking about few seven digit deals affect our billing by approximately three points. That will benefit us in the third quarter.

As a reminder, in the same quarter last year we had a three multi-year deal totaling $130 million which also had a significant impact on our RPO last year. Moving to our revenues by geographies, we are looking at our America and EMEA grew by 5% this quarter while APAC had a strong quarter with double digit growth and reached 15% growth year over year. This quarter. Moving into our P&L, our gross profit increased from $557 million to $585 million representing a gross margin of 88%. Our operating expenses increased by 7%. This increase is mainly as a result of our continued investment in our workforce organically and also the impact related to Cyberint and Veriti acquisition that I remind you Cyberint we acquired during Q3 2024 and Veriti we completed the acquisition during June this quarter.

Our non-GAAP operating income continues to be strong at $271 million or 41% margin. I think it's important to discuss also the FX impact as we all see the US dollar is weakening. This is most of the currencies and especially against the Israeli shekel given that we are approximately 50% of our operating expenses are denominated in non-USD currencies and mainly the shekel and we are not adding 100% of these expenses. This currency movement resulting in an estimated half a point headwind to our margin this quarter.

If I'm looking on the second half of the year, although we add significant portion of our foreign exchange exposure, we still going to have an impact because again we are not hedging 100% of our foreign currency and we do expect to see a headwind of approximately half a point to one point if the US dollar will stay in these levels. That's important to say and if we're looking into 2026 if the FX rates will stay at these levels this could increase our operating expenses next year by approximately $50 million to $60 million. Moving into our cash flow, we had a strong operating cash flow this quarter, achieved $262 million, a 31% growth year over year. I think it's important to mention here that it includes the benefit of $50 million from hedging transactions offset by $6 million related to our Veriti acquisition.

Our cash balance was $2.9 billion and we continue to do our buyback and purchase 1.5 million shares at an average price of $220. Also, we acquired Veriti during the quarter that was a net cash of around $90 million. That's also part of the cash flow for this quarter and two notes regarding the next quarter regarding Q3 that will impact our cash flow, we have two items. First, we announced that we acquired the land for building our new Check Point campus in Tel Aviv in Israel and we completed this purchase during July and paid a total of $160 million for that land. We do not expect any significant additional investments in CapEx in connection with this campus until the beginning of 2027.

In addition and other items relevant for the third quarter for the cash flow as part of tax settlement recently signed recently last week actually for prior years we're going to pay approximately $66 million during the third quarter to settle this tax disputes for prior years as we had higher provision in connection with this dispute. This settlement may also have a material positive impact on our third quarter P&L and EPS. We are still as this settlement was just signed few days ago, we are still assessing the effects. Please note that this potential impact is not reflected in the guidance that I'm going to share with you in the next few slides.

To summarize our second quarter, revenues and EPS in line with our projection, accelerated Quantum Force appliances demand, second quarter in a row of double digit, continued strong demand for email, SASE, and erm, I think very important, we do see strong, continued strong demand and another strong profitability quarter with great operating margin and strong operating cash flow. Before we move to the Q&A, I'll move to the guidance for the next quarter. As Nadav indicated, we started July, we started this quarter very strong.

We see, we are looking, we have some indicators, internal indicators and of course together also with the deals that were pushed from the second quarter, but also with the funnel and the deal that already closed in July and the funnel that we have for the remaining of the quarter, we feel very positive about the third quarter and the remaining of the year. Our guidance for the third quarter is between $657 million-$687 million. Midpoint sits at $672 million. Our non-GAAP EPS is between $2.40-$2.50 while the GAAP EPS is expected to be approximately $0.68 less. As for the full year, we are not changing the guidance. The guidance stays the same, same range that we gave you in the beginning of the year.

We feel positive that we'll be able to finish in the high end of the, but still the range is the same and same for the EPS and revenues and the GAAP EPS is expected to be $2.30 less. Thank you. Keep.

Kip Meintzer (Head of Investor Relations)

All right, now we'll move to the Q A and first up today will be Adam Tindle followed by Taliani of B of A.

Adam Tindle (Managing Director)

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

Thank you.

Nadav Zafrir (CEO)

Yeah, thanks, Adam. Yeah, sure. Very interesting announcement. Impact on us is, I think, minimal as we're not a player in the identity space. As I said, our vision is to focus on what we think we can do best. In my opinion, it's the breadth of the connectivity fabric and that has the hybrid mesh on one side, workspace on the other side, and creating a unified platform for everything. Connectivity fabric. On top of that, winning with AI. Having said that, our philosophy is to focus on an open platform. To focus on an open platform for a couple of reasons. Number one, I spend my time speaking to dozens of CISOs a month at least. When you go to the enterprise and up, I think that between this idea of best of breed and best of suite dilemma, an open platform is the right approach.

It's unified layers, deeply integrated, allowing it to be extensible, collaborative. That's from the CISO perspective. Also, they don't want to be in a vendor lock. I can tell you, as someone that's been in the industry on all of its side for many, many years, I also think an open platform makes more sense from a security perspective. If you think about the attackers, you don't want to have a monolithic approach. You don't want to come from one shop with the same philosophy, same software, same people, same intelligence. You want to have an open approach to it that allows you to have sort of an open garden and approach that allows you to import and to use different platforms, working together. I think that this, it's not a technical framework, but it's a real differentiator and our vision and approach to the market.

Adam Tindle (Managing Director)

Thanks.

Kip Meintzer (Head of Investor Relations)

Up next is Tal Liani of BofA, followed by Joseph Gallo from Jefferies.

Tal Liani (Technology Analyst)

Hey, Nadav. Good morning. Question. I look at your growth, 6%, your billing growth.

Even if I add the delay, the deals that slipped, we're not seeing acceleration. The question.

I asked you the same question last quarter.

I ask, what I want to focus on is to understand what are the.

Challenges that you see in accelerating growth.

Meaning I understand what you're doing, but it does take time. It looks like it takes time from the numbers perspective. What are the challenges? When you talk about operational challenges, culture challenges, product challenges, go to market challenges.

Can you just discuss what prevents the.

Company today from accelerating growth and what would take for the growth to accelerate in the future?

Nadav Zafrir (CEO)

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

Tal Liani (Technology Analyst)

Got it. Would you say that if you have to kind of rank in order?

The things you're dealing with, would you say that most of the focus is?

On go to market or most of.

The focus is on improving the portfolio. Where, where is the focus of the.

Company that would drive growth acceleration?

Nadav Zafrir (CEO)

I think for the short run, definitely go to market. Right? For the short run, definitely go to market. Having said that, I do think we are in a pivotal time in the industry. I really believe that AI is going to change the way we live, operate, do digital infrastructure. We need to make a hefty investment here and lead the way. If you ask me, what are the three areas? One is go to market. We have been speaking about that. It does not happen overnight, but we are making the changes. The second is in heavily investing in AI. I think we are already leading with embedding AI in our own products. Number three is a culture of execution and sense of urgency. It all happens in parallel.

Some will have impact in the short run, some will have impact in the medium term, and some in the long term.

Tal Liani (Technology Analyst)

Great, thank you.

Nadav Zafrir (CEO)

Thank you, Tom.

Kip Meintzer (Head of Investor Relations)

All right, next up is Joseph Gallo, followed by Junaid Sidiqui.

Joseph Gallo (SVP)

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

Roei Golan (CFO)

Yeah. Okay, so I think when I'm looking on, on we have our internal indicators when we were looking on the, on the customers that are doing refresh, we are seeing that over time. The AR from this, I mean, I'm not talking about the appliances, I'm talking only about the AR associated with these customers, is increasing, increasing nicely. And we see that on the long term, maybe not on the first quarter, on the second quarter, but on the long term the AR is increasing.

We have, we have this internal indicator that we feel confident that because we see very strong demand for these appliances from our existing customers, sometime it's coming also with cross selling SASE or email or erm, but even without that, we see that even with the firewall, we see that the AR is increasing over time when they are buying from us, the appliances. Therefore we feel confident it's not only in this quarter, we feel it, we see these indicators over deals. You want to add. Around. You want to add something.

Nadav Zafrir (CEO)

Yeah. To your question on where we see, we're seeing the growth, I would say two main areas. Number one is the new product lines, right? If you look at email, erm, SASE, those are growing above 40% year over year, right. A very healthy growth. As I said, we just, you know, we doubled the size of our SASE team and we're making a huge effort to grow it as fast as we can. The other place is what we call the Infinity platform that at the end of the day, I think we have a real, you know, differentiation with our roadmap to create this unified platform that allows you to have all of your connectivity fabric in one.

In my opinion, this is not long term, this is midterm with what we're seeing coming from the attacker's perspective, with the, you know, becoming AI ready enterprise, having that holistic view into your network fabric and being able to read between the nodes and go from a static reactive to a predictive proactive approach, I think that's going to have a huge impact. When you couple that with the fact that we are going to be making more investments in our marketing, I think that over time you will see the impact and the growth coming at the same time. This investment, and we've been talking about this for a long time, will also call for, you know, probably having to give up a few margins, a few points on the margin so we can grow faster.

Joseph Gallo (SVP)

Makes sense.

Thank you.

Kip Meintzer (Head of Investor Relations)

All right, Junaid Citiqui is up, followed by Rob Owens.

Junaid Siddiqui (SVP)

Great, thanks for taking my question.

Nadav, you've talked about SASE being one of the key focus areas for you. Could you just give us an update on the Perimeter 81 acquisition and, you.

Know where you are from a Go.

To market and from a technology integration perspective and, and you know, overall, what's the vision that you're trying to articulate to customers that's a bit differentiated from the many vendors that are providing SASE solutions to customers.

Nadav Zafrir (CEO)

Yeah, thanks. So since the acquisition, we first in terms of numbers, we're seeing a solid 40% ish growth. So solid, what we're doing is moving it up to the large enterprise level. So we're now at a position where we have fully deployed capabilities in up to 10,000. And the beginning of 2026, we're already going to have the ability to do that beyond that. So that's one part of the answer. And as I said, this is a critical aspect for us both on the R&D and on the go to market.

Talking about go to market, the idea is that it's no longer just a small sales force of an overlay, but we are bringing up to speed the mass field capability that we have that comes more from the gateway side to also be able to go out there and showcase what we have in SASE. To your question on the differentiation, I think the differentiation has two parts. Number one, it's the whole connectivity fabric platform approach. On the one hand, we have the hybrid mesh, which we've been talking about. On the other side, we have the workspace where we're unifying different capabilities so that we can look at personas and not different technologies. SASE is sort of something that is.

The glue that connects all that.

Our architecture is different than others. Most of the architectures out there of some of the incumbents are architectures that are cloud only. The fact that we have the hybrid capability, the fact that we're also on device, means that I believe we can do three things better and we're proving it in the market. Number one is better user experience, sometimes 10x, because we're able to in every transaction find the right way. We don't have to go to the cloud every time we do it. That leads to a 10x faster capability on the user experience. Number two, it's cloud cost. The fact that we have this hybrid approach allows us to not use the cloud in every transaction that controls cost.

And number three, the fact that we have all of the capabilities on a small agent on the device in the AI era means that we can protect you where the threat is coming. I think that when you put all that together and with what we've seen so far, I'm very optimistic about it.

Kip Meintzer (Head of Investor Relations)

All right, next up is Robbie Owens, followed by Brian Essex. Great.

Rob Owens (Managing Director)

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

Roei Golan (CFO)

Based on what we've seen, especially this quarter, I think again it's a combination of macro and execution. In the end, we did see more deals that were slipped than usual. I mean, we have every quarter slip deals. We have to be honest with everyone here, it's not that we don't have, there is no quarter that you don't have any slip deals. This quarter we had more than usual. I think why we feel confident that these, most of these large deals, we're talking about seven-digit deals, I would say all of them were closed in the first three weeks, three weeks of the quarter. We feel confident that it's just an issue of timing, you know, sometime we, we mentioned that we did see much more back-end loaded quarter than usual.

I think that was the most back-end loaded quarter that I have ever seen since I'm in Check Point, and therefore there is a risk when you have more back-end loaded. There is a risk that some deals will be, more deals will be slipped, but we feel confident because we close them and we feel more confident around it.

Kip Meintzer (Head of Investor Relations)

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

Rob Owens (Managing Director)

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

Nadav Zafrir (CEO)

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

Rob Owens (Managing Director)

Thank you.

Kip Meintzer (Head of Investor Relations)

All right, up next is Brian Essex, followed by Shauli Al.

Brian Essex (Executive Director)

Hi, good morning and thank you for taking the question.

I was wondering if we could dig in on Quantum a little bit. Nadav, what do you see in terms of, you know, the Quantum product cycle, refresh cycle, like how far through your installed base is the penetration there and what are you seeing architecturally? Are your customers kind of taking a step back and reassessing the network architecture and maybe throttling spending into other areas of their network security environment. Thank you.

Nadav Zafrir (CEO)

Yeah, thanks. On the reefer cycle. I'll let Louis also chime in on the architecture part though. Again, this is sort of the principles that we're talking about. The first one is to look at the whole connectivity fabric. A Quantum gateway is one instance. It's a critical instance. We're seeing everything stay hybrid. The ability to do it on prem is important. We also have our CloudGuard, the ability to do the same thing to the cloud and more importantly, bringing all that together as one connectivity fabric platform. That's where I think we're going. With that, where are we investing? We're investing on creating one unified management that could push all the policies at the same time, whether it's on the cloud, multi-cloud, on prem, branch, data center, et cetera. It's connecting that to the SASE.

Each one of the nodes in this very complex environment can get the same capabilities that a data center can get. All of them together are giving you sort of that sense of what a network is really about. Number three, embedding AI in this to simplify and automate. Again, I think we're in the very early innings. It's going to take not just engineering, it's going to take not just bringing AI in, but also a change in sentiment because at some point, which we're already seeing, we need to trust that AI to make real decisions in split seconds because the attackers are not going to give us any more time. For me, when you think about Quantum, I think about the whole connectivity fabric and what that brings to our customers.

Again, I believe that's not the whole cyber state market, but it's a core and I believe that it can be the core platform and being an open platform, open up to other better breed platform, just like we did with Wiz and we're going to do with others.

Roei Golan (CFO)

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

Brian Essex (Executive Director)

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

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

Helpful.

Thank you so much.

Kip Meintzer (Head of Investor Relations)

All right, up next we have Shaoli Al, followed by Keith Bachman. Thank you.

Shaul Eyal (Managing Director)

Hey, good afternoon guys. Roei or Nadav on Harmony Email, is it still growing at similar rates like we've seen in prior quarters? Maybe on those slipped deals, are they like geographic based or across the board pretty much.

Roei Golan (CFO)

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

Nadav Zafrir (CEO)

Yeah, no, I mean just to reiterate on the slip deals, there's no common thread. It's not many but it's a few big ones and it's not geographically based. We have it both in the Americas, EMEA, etc., and again it's deals that have already closed in the last few weeks giving us a really good head start for the next quarter. On email, the answer is absolutely yes. It's continuing to grow at a very healthy rate. Not only is it continuing to grow at a very healthy rate, but also around that, around the leadership and the capabilities. We're baking together a few different solutions. Instead of looking at different products, different devices or different locations, we want to look at the modern workforce. This is the new Workspace division under Friedrich where we're bringing together email, endpoint, SaaS security, browser security and putting together a holistic capability.

At the end of the day we can look at personas and what they do, their security, their efficiency, their effectiveness as personas that are moving around the world and hopefully that can lift the whole Workspace solution, not just email.

Shaul Eyal (Managing Director)

Thank you.

Kip Meintzer (Head of Investor Relations)

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

Keith Bachman (Analyst)

Hi, thanks guys. I wanted to go back to subscriptions and discounting and a couple different threads to pull on. I think you said the impact was 50 basis points this quarter on subscription, but I just want to make sure I heard that clearly and we did hear from the channel that Check Point was more flexible in the pricing this quarter. My question is that that's not a one time event, right? We should be assuming that that discounting impacts presumably the next four quarters' growth on that subscription line item.

I just wanted to hear any thoughts you might want to offer. Excuse me. On how we should construct our subscription line. Candidly, the number looks disappointing. Even if we layer in 50 basis points, what investors want to see is that line not holding steady but increasing. You know, there's not a lot of conviction that firewalls over the next three years, the product revenue will be a durable source of growth. Is that sort of the line item that investors really view as important? Maybe just help us think about the ongoing headwind associated with the next couple quarters if there is this discounting that's going to be involved.

Roei Golan (CFO)

Yeah, so first of all, you're right I mentioned the half point effect. The headwind that we had from aisle discounting related to the subscription which is part of the refresh, the bundle with the refresh. You're right around that. I do expect that as long, I mean I'm talking about the refresh from existing customer. We do expect to see the refresh. We're gonna see this refresh and we see in the final that the refresh is going to be strong hopefully in the next four quarters at least. That will have a headwind effect on the subscription. On the other end we have tailwinds. I mean we see that the email is getting bigger and bigger out of the total subscription revenues and that has higher portions. It should drive because that email is growing much higher than the 10% subscription.

Also SASE and also, erm, all of them are growing farther north of 40% year over year. All these items are getting bigger in the subscription line items. Of course we also expect to have more competitive replacement in the quantum on the firewall. Together that should drive us, should drive the accelerate growth on the subscription. I, we do expect to see if we'll see the trend. We do expect to see slight acceleration in the next few quarters pushed by these specific emerging technologies that I just mentioned.

Keith Bachman (Analyst)

Okay, perfect. All right, many thanks.

Kip Meintzer (Head of Investor Relations)

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

Andrew Nowinski (Senior Research Analyst)

Thanks, Kip.

Good afternoon.

Nadav, at the analyst day you.

Talked about the need to win the.

SASE market, you know, to drive subscription growth. But it seems like identity is the foundation for that zero trust SASE market. I mean you have to verify the user is who they say they are.

Before connecting them to an application.

I'm trying to understand how critical is identity security to your SASE solution and to the future adoption of SASE as you push more into that large enterprise space.

Thank you.

Nadav Zafrir (CEO)

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

Andrew Nowinski (Senior Research Analyst)

Okay, thank you.

Kip Meintzer (Head of Investor Relations)

All right, next up is Shrenik, followed by Patrick Colville.

Shrenik Kothari (Sector Head Director)

Yeah, sorry. Yeah, thanks. Kip, Nadav, you have articulated a strong vision around AI-powered prevention. Talked about, of course, Quantum Force to unified management, real-time detection. Just curious, like how are you thinking about monetizing these structurally? Also get a little bit into timing, like overall net new SKUs, pricing, uplift, broader adoption. And just on that note, since you've.

Said in the past about being brutally.

Honest and takes a village and rarity being integrated for real time prevention just on M&A front, given your cash position and the cash generation, how you're prioritizing AI focused M&A and, and also internal R&D in your.

Just your philosophy there.

Nadav Zafrir (CEO)

Yeah. To start with the second question, this is one of the four guiding principles in AI First Security. In order to get to AI First Security, we're doing mainly three things. Number one is hiring the right talent to lead this future. To this end, we announced last quarter that we're going to be hiring about 500 new individuals that can lead us to that future, both on SASE and AI. We're already halfway through this program. Number two, as you said, there's always the opportunity to make acquisitions. We have a strong position and we're looking all the time to the right people, the right IP, the right market access. We're doing this as we speak. I believe that we will make moves there as well.

It's the balance between these two, the acquisitions and the talent that we already have, the talent that we're onboarding together to lead this future. That's on the investment that we're making. Generally speaking, on the monetization front, I think that there are three things that you need to look at. Number one is a standalone product. We already have that. In fact, we're already selling the capability to allow users to have access based on policy and governance so that organizations and enterprises can embrace these technologies safely and not block them. That could be a standalone product. We're also looking at this as a new platform because when you think about AI, cybersecurity or security for AI, you're looking at observability, you're looking at users' capabilities, you're looking at governance, you're looking at runtime, and you're looking at CICD. We're looking at the whole gamut.

It's an evolving space, making our first moves. The next, which is more about optimizing and being more competitive with our capabilities that we already have, usually mostly on the management side. We've launched almost 12 months ago Playblocks and AIOps, and we're seeing that play a major part. As you can see, it's a very wide range. Absolutely, to your question, we already have, and we'll have more separate SKUs, if you like, that are actually being sold either as a part of our network fabric and Infinity consolidated platform, but also as a standalone. These are going to be a part of our Workspace platform, they're going to be a part of the network fabric, and as a standalone.

Shrenik Kothari (Sector Head Director)

Got it. Thanks a lot.

Kip Meintzer (Head of Investor Relations)

All right, Patrick Colville, followed by Jonathan Ho.

Patrick Colville (Lead Equity Research Analyst)

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

Nadav Zafrir (CEO)

In the pace of tuck-in deals, so there is no new information? Patrick, it's part of our vision. We've spoken about that. We are looking to accelerate growth. It's a journey. I think we're already seeing good initial cues that we're going the right way. In order to go there, you need to galvanize the strategy, and that's what we're doing. You've seen the four guiding principles, and yes, you are going to see an acceleration in the way that we either build in-house to be ready for the future that we've been speaking about extensively, but also acquisitions. For 2025, we already gave the guidance, we already reiterated it in January of next year. We'll give the guidance for 2026. As we've spoken about on the analyst days and in other calls, we are willing to make the investments for a faster, more, faster but sustainable growth.

These tuck-ins and these acquisitions are going to be within the strategy that are articulated and within the four guidelines. You know, when we're talking about the connectivity fabric and how we lead that, we don't have everything. Some of it we can build, some of it we can acquire. Same thing goes for workspace and definitely for AI. We're very active in assessing the possibilities that are out there. We're willing to—not willing—we are making the strides to make sure that we see the best in class in each one of these categories.

Patrick Colville (Lead Equity Research Analyst)

Very clear. Thank you, Nadav.

Kip Meintzer (Head of Investor Relations)

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

Jonathan Ho (Partner)

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

Nadav Zafrir (CEO)

Yeah, thanks. I think first and foremost it's about the leadership. All right, so in the C suite today we started out, when I started out, we had one leader. Today we have six, or sorry, we had two and now we have six. So President of Americas, President of International, CMO, Customer Success, CRO are all a part of this.

And so the balance between the product engineering and the rest of the folks and the go to market folks is differentiated. The second is the people that we are looking to attract, right. So, you know, we are hiring people that are coming more from a marketing perspective. The second is on a cultural level, being less shy about what we stand for and why we stand for it. And all this is, you know, in the process of happening. More news to come shortly.

Jonathan Ho (Partner)

Thank you.

Kip Meintzer (Head of Investor Relations)

All right, next up is Keith Weiss, followed by Sacket Kia. Go ahead, Keith. I know you don't have a camera open.

Keith Weiss (Managing Director)

Hey, can you guys hear me? Yes. Excellent, thank you. Maybe a question for Roei.

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

Roei Golan (CFO)

First of all, great question. I think definitely that's one of our priorities when we are looking. Also, we're talking a lot about AI and security for AI. Definitely, AI is an opportunity also to be more productive internally and to optimize operations. That is something that we are already working on today and it should help us in the future. I don't think that in the short term we'll see it contribute to our operating margin. This is optimization, but we have. We're actually a task force in the company with the development team, with the go to market team, with my team, everything is working to see how we can leverage these AI tools today and how we can be more productive and optimize what we are doing.

I have to say again, to quantify it for now today will be difficult, but in the long run, in the long term it should benefit us.

Keith Weiss (Managing Director)

More like a 2026, 2027 benefit?

Roei Golan (CFO)

Hopefully. Yes. Yeah.

Nadav Zafrir (CEO)

To add to that, Keith, because I think that's on everybody's top of mind. You know, every organization on the planet is dealing with this. We need to lead it, but we need to lead it on different fronts. One of the fronts that you said is being an AI first company. I think we're at the front line, but it's one of those things that, how do you know if you're at the bleeding edge when there, you know, there is no sort of benchmark. So we're never going to be content enough. The way I look at it is yes, to become more efficient, more effective, but rather than try to, it's the latter. It's sort of the last piece of what you said. It's not.

Since we are investing in our future, I think that will allow us to do more, not with less, but with the same.

Right.

And enable us to go for growth. Lastly, I'll say, you know, because Roei talked about the task force, Jonathan Zanger, who I told you about last time we spoke, our new CTO, you know, he's obsessed with those three things. How do we become an AI first company? The second part is how do we help, and I think this is one of our number one tasks in the world today, is how do we allow our customers to become an AI first company without, you know, taking huge risks on privacy, security, governance, etc. And then finally, constantly having an eye open. That is why we put together the research center that's looking to where the puck is going. I think attackers have less, you know, they're flexible, they don't have procurement committees, governance, etc. They're embracing these technologies extremely fast.

We at Check Point have to do all three of these things in parallel. I think we're already, we're off to a really good start, but a lot more to come of that.

Keith Weiss (Managing Director)

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

Nadav Zafrir (CEO)

Yeah, obviously it was a big deal and we can talk about the implications for the next few hours.

Specifically on Check Point, no, you know, we're a global company, we have people around the globe. We didn't see any direct impact, but believe me, we probably have one of the best BCP DRP programs in the world for obvious reasons. No, it didn't have an impact, but what it did have is it shows us what kind of a world we're looking at. You know, obviously we all know most of the world has been looking at the impact, the direct impact, the kinetic impact, but behind the scenes there's a cyber war going and Iran is one of the proponents of that war. They have good capabilities, they have a lot of motivation and we're seeing an increased, I would say, boldness and the amplitude of what the Iranians are doing with some of their friends around the world.

Keith Weiss (Managing Director)

Got it.

Kip Meintzer (Head of Investor Relations)

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

Saket Kalia (Managing Director)

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

Nadav Zafrir (CEO)

Yeah, to begin with, we're still a relatively small player in SASE per se, but we are the leading player when it comes to a connected fabric platform and the hybrid mesh and SASE is embedded in that. Many of our wins, I would say most of our wins, are customers that are already using our Quantum base and want to, you know, have a more holistic connectivity fabric capability. I do not think there is any other company that has sort of the inspection engines, the AI engines, the intelligence that comes from 32 years and dozens of thousands of customers that now once you put the SASE in, you immediately get all that benefit and bring it together as a platform. You are right.

Today it is mostly the upsell from existing customers, you know, through our new division that also is going to bring up our MSP pay as you go. I think we are all. We also have an opportunity in the downstream and I do see opportunity for SASE to come into customers that do not have Check Point and hopefully then embrace the other Check Point customers. You are right that the beginning of the journey is the upsell from existing enterprise customers.

Saket Kalia (Managing Director)

Very helpful. Thank you.

Kip Meintzer (Head of Investor Relations)

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

Nadav Zafrir (CEO)

Thanks, guys.

Roei Golan (CFO)

Thank you.