Check Point Software Aktie

Greetings, and welcome to Check Point Software's 2026 Third Quarter Financial Results Video Conference. I'm Kip Meintzer, Global Head of Investor Relations. Joining me today are 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. [Operator Instructions] During the 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 uncertainties 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 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 e-mail at [email protected].

Now I'd like to turn the call over to Nadav.

Thank you, Kip, and thank you all for joining us today. So let me start with the headline. In July, we said we expected the third quarter to mark the trough in product revenue, and believe it did. Our third quarter results came in within the range we expected. Total revenue was $670 million, pretty much at the midpoint of our projections. At the same time, subscription revenue grew 11% year-over-year, driven by the strong growth in our e-mail, continuous threat exposure management and AI technologies. While non-GAAP EPS and adjusted free cash flow finished above the midpoint of our projections.

The go-to-market changes that we've been talking about in the beginning of the year are now embedded. And we're making progress in sales capacity expansion that we outlined in July. Just as important, several of the leading indicators that we watch closely moved in the right direction during the quarter, including multiple wins of 7 figures or even greater across critical infrastructure and regulated industries. So as I said, we believe Q3 marked the bottom for revenue, and we expect sequential improvement beginning in the fourth quarter.

At the same time, I want to be clear that the pace of recovery is more gradual than we previously anticipated, and you'll see in our fourth quarter outlook. It reflects that a measured recovery. On the product side, we continue to redefine network security for the AI era. In July, we launched our AI network firewall, bringing visibility and control, specifically over AI traffic, directly to the checkpoint by firewalls that our customers already rely on. Our new genetic security management platform can now translate business intent into policy and specifically zero trust policies across both Check Point and multi-vendor environments per our open platform vision.

And just a few days ago, we introduced our next-generation Maestro Hyperscale orchestrator, which is designed to support neo clouds, telcos and governments as well as large enterprise to inspect AI traffic in the data center without compromising security or performance. While the recovery is taking a little bit longer than we initially expected, we believe we have turned the corner. And we expect product revenue to begin improving in the fourth quarter and beyond. I'm also very excited about the continued success of e-mail, [Indiscernible], our exposure management and AI solutions. These solutions extend Check Point well beyond the network security. And as we bring them together, they continue to deliver a strong ARR growth in Q3.

Let me start with the exposure management, which connects directly to how we are redefining network security. As you all know, security teams are now buried in vulnerabilities and the noise level is rising. And so our agentic exposure validation checks eats exposure simulating real attackers in order to enable a preemption approach. In fact, this approach proved itself in the PHP 2 shell vulnerability and provided runtime prevention for our customers. In fact, we've already started to implement this vision signing a significant 8-figure deal with Fortune 200 energy company to deliver solutions through both network modernization and exposure management.

At the same time, Security for AI obviously remains top of mind for the CISOs we work with. And we continue to grow rapidly, including a 7-figure deal with a leading global electronics manufacturer to secure their employee AI usage. In this case, we're talking about over 80,000 employees. In same with our defense -- with our AI defense plane, we're securing not just employees but applications, agents and continue to work alongside OpenAI, anthropic and NVIDIA to enable our customers' AI transformation. Of course, securing AI also means protecting the people who use it, all of us. And that starts in the inbox.

Phishing is now written by AI and attackers can hide instructions in those e-mails that try to hijack the AI assistance and that actually read them. these agents. And we have to be able to stop both before they reach users or the AI workflows. Workforce security anchored by our leadership in e-mail security actually remains a very strong growth engine. We recently crossed the $200 million in ARR in e-mail security. And we believe the market potential continues to be significant. And that's the strength of our portfolio, one company that can secure the network, manages the exposures, protects AI applications and agents and defense the workforce.

At the same time, we are continuing to strengthen our leadership. Earlier this year, Adam Ely joined us to lead the AI pillar. He's now expanded his role to lead business operation as our new Chief Business Officer. As you know, Adam brings first-hand CISO experience and deep relationships across the security community. He will now own company-wide strategy and growth, working across product, go-to-market, corporate development and strategic partnerships to turn customer and market needs into Check Point's platform strategy and execution.

Now I also want to share that we launched a new marketing campaign. It's time AI had a Check Point. We're bringing this message to enterprise decision-makers in major markets with a very simple message. As AI becomes a part of every business, it's time, AI had a Check Point. So to summarize, given the growing demand in our market, our improving execution, we're cautiously optimistic about the path ahead. During our upcoming Capital Markets Day at CPX in Las Vegas on February 10, we intend to share our long-term strategy. I hope you all can make it and join us.

And with that, I'll turn it over to Roei to talk a little bit more about some of the financials. Roei, go ahead.

Great. Sorry. So thank you, Nadav, and thank you, everyone, for joining the call. As Nadav mentioned, our third quarter results were in line with our guidance. Our total revenues were $670 million at the midpoint of our guidance, representing a 1% decrease year-over-year, mainly due to a lower firewall [Indiscernible] activity as expected in this quarter. Our total subscription revenue remained strong, reaching $339 million, $1 million above the midpoint of our projection with 11% growth [Indiscernible]. Our adjusted free cash flow was $258 million, $8 million above the midpoint of our projections, while our non-GAAP EPS was $2.49 per diluted share, $0.01 above the midpoint of our projection. [Indiscernible] our revenues reached $670 million. And as I indicated, declined by 1%. This was mainly as a result of decline in our product revenues primarily reflecting less refresh project of firewall plants this quarter.

This lower refresh project impacted negatively also our software updates and maintenance revenue and services revenues due to lower tax support and less revenues for professional services. This was offset by another strong quarter of subscription revenues with 11% growth in [Indiscernible]. Based on the pipeline and our internal maxes that we see today, we believe Q3 revenues will present the trough, and we expect to see the beginning of the improvement starting in Q4. We do expect, as Nadav mentioned, the recovery to be more gradual, but we are encouraged by the direction of the internal indicators we're seeing.

Our deferred revenues as of the end of the quarter were $1.992 billion, 6% growth year-over-year. Our calculated billings totaled to $636 million, represents 5% decrease compared to last year. It is important to remind you that Q3 last year benefited by approximately incremental 5 points from deal slippages from Q2 and early [Indiscernible] from Q4 more than the usual, creating a tougher year-over-year comparison. Our remaining performance obligation grew by 5% and reached $2.530 billion.

Turning into subscription revenues. So we continue to see strong performance there with 11% growth year-over-year, driven by strong demand for our growth technology. And subscription revenue today already represent 51% of our total revenues. And this brings me to the key drivers behind that performance. e-mail security, AI security and CTM continue to demonstrate strong momentum with ARR growing by more than 38% year-over-year and calculated billings growing by more than 47% this quarter. It is important to note that our email security ARR passed $200 million this quarter. These technologies are becoming an increasingly important part of our business and remain a key driver of our overall growth.

As for the next quarter, we do expect it to see slightly deacceleration in our subscription revenues due to the headwind from loyal firewall appliance refresh, both in Q3 and in the beginning of Q4, the presorted lower attach firewall subscription, but we do expect the subscription got accelerate back in H1 2027, driven by our price increase that we recently announced between 12% to 20% on our firewall products and also a continued strong demand for the new growth technology of AI, CTM and e-mail, and expect our annual subscription next in 2027 to close to $1.5 billion.

Reviewing the P&L in this quarter. So our revenues of $670 million were composed of 46% of them were revenues that came from EMEA, 41% of them came from America and the remaining 13% came from Asia Pacific. Our gross profit decreased from $602 million to $585 million, representing a gross margin of 87%, the decrease in gross margin was explained due to higher memory costs. Our operating expenses, excluding R&D grants, increased by 12%, while on a constant currency basis, our OpEx increased by 8% and was primarily as a result of -- it was primarily as a result of increase in our workforce and our investment in AI security and the investment in sales and marketing.

Our third quarter results include approximately $25 million of benefit from R&D grants to be received under the Israel incentive program law, reflecting the associated impact and -- reflected in the social depart in our financial results. Our operating expenses, net of R&D grants were $334 million and increased by 4% year-over-year. Our non-GAAP operating income continues to be strong at $251 million or 37.4% operating margin.

Turning into the FX. As we indicated last year and also during the previous quarter, we expect the currency environment to create -- we expected that the currency environment will create a meaningful headwind in our operating expenses in 2026. This has played out largely as we expected with an impact of approximately $30 million year-to-date primarily reflecting the weakening of the U.S. dollar against the Israeli [Indiscernible]. Based on the current exchange that we see today, we expect another -- we expect a greater impact in the fourth quarter and this compared to what we had in Q3. And this is already reflected in the guidance we will provide you for the fourth quarter.

When we are looking in 2027, if the currency environment remains broadly consistent with what we see today, we expect an additional headwind on our operating expenses as our hedging rates in 2027, mainly in the first half of the year are less favorable than those secured for the same period in 2026. At the current exchange rate, we estimate that the incremental impact in our operating expense in 2027 could reach up to $50 million incremental in 2027. Our non-GAAP net income reached $254 million, and our non-GAAP EPS was $2.49, while GAAP net income reached $185 million and GAAP EPS was $1.82. Our number of fully diluted outstanding shares were 101.9 million shares as of the end of the quarter. While we continue to do our buyback, we expect the number of shares for the next quarter to decrease by approximately 2 million shares.

Moving into our cash flow. So our adjusted free cash flow was strong this quarter and reached $258 million in the upper end of the range we provided. Our adjusted free cash flow for the last 12 months reached $1.179 billion. If we're looking on our share repurchases, we've done. So in Q3, we also continued our buyback program and purchased additional 2.5 million shares for $325 million at an average price of $132 per share. In the last 12 months, we purchased a total of 9 million shares for approximately $1.4 billion.

So to summarize our financials this quarter, so we continue to see strong demand for email security, CTM and AI security that driving the subscription revenues -- on the other hand, we did have a decline in our revenues and our product revenues and maintenance revenues because of less firewall appliances, bookings and revenues. We do expect that Q3, from here on, we're going to see improvement on that aspect. And we finished this quarter with another strong adjusted free cash flow above the midpoint of our guidance.

Moving into our guidance for the next quarter and then the updated full year. So the guidance -- the updated -- the guidance for the fourth quarter is the range for the revenues is between $720 million to $770 million, while the midpoint is $745 million representing a flat year-over-year. Our subscription revenues range is between $351 million to $362 million. Our non-GAAP EPS will be -- is expected to be between $2.71 to $2.83, while our GAAP EPS is expected to be $0.70 less while our adjusted free cash flow is expected to be between $260 million and $290 million.

Moving into the annual updated guidance. So this is how it looks. Our total revenues will be between $2.732 billion to $2.782 billion, revenues subscription between $1.345 billion to $1.356 billion. Our non-GAAP EPS between $10.25 to $10.37 while our GAAP EPS is expected to be $2.74 less. And our adjusted free cash flow is expected to be between $1.136 billion to $1.166 billion. This is our guidance for the year, and we can move the questions to the question, Kip.

[Operator Instructions] Today for questions will be John [Indiscernible] from Guggenheim Partners, followed by Joseph Gallo at Jefferies.

Nadav, listen, you say -- and Roei said it's going to take a little longer to shift back to recovery here. Check Point has always been a strong technology company. And this is sort of a high-level question. And it's great that your installed base is really loyal here. But gaining when we talk to people in the field, and we do a lot of that, so does everybody on this call, it really sounds like it's been hard for you guys to capture new customers. How do you -- and by the way, there's this sort of perception of Check Point as a really good technology company, but sort of a legacy technology company.

And I'm just like how do you actually shake that perception? Because usually when we see that happen, and it's really rare in history, it requires massive change, like dramatic change. And I know you're part of that and bringing on was really part of that. But is it enough what you're doing now like hiring these new people like I get it. But is it enough? Like do we just have to be patient this? I'm sorry for the [Indiscernible].

No, John, you're perfectly legit question. And obviously, this is something that I spend about 23 hours of my day planning and thinking about. I'll say the following. First of all, perception is perception, like you said. I do think it's changing, and I'll tell you why I'm optimistic. I would say 2 things. Number one is what we actually said about the Q3 numbers. If you look at our emerging technologies, right, so e-mail, CTM, AI, these are exceptional technologies that are growing at almost 40% year-over-year across the board, representing a much larger part of our portfolio.

But that's not the only thing. They also allow us to talk to new buyers, new people and new logos. And it's very, very important because they're obviously, in my humble opinion, they really provide better security. So that's one thing.

The second thing is we're no longer a firewall company, and we're no longer a network security company. We are looking at where the attackers are going, and I personally believe after 30 years in this industry, that the current paradigm, we're seeing holes in the current paradigm, and I think it won't be long between -- before many of the things that we were accustomed to will become less and less relevant. And so we have to move from a -- looking at the back mirror -- at the rearview mirror, and we have to start anticipating a tax. This is what we call preemptive security.

And we'll be talking at length about that strategy and that vision and how we're going to implement it in our February checkpoint x event. But I believe that with these emerging technologies that are becoming more and more prevalent and the new vision and as we start to implement the strategy and some of it is already happening with customers, moving from a reactive state of mind to a proactive, preemptive state of mind is where the world needs to go. And that's where I believe checkpoint will create the new perception around it.

Okay. Okay. So we'll just be patient a little bit more. So we'll turn on. Listen, really, I have a quick follow-up for you. You mentioned and you gave us a little bit of a hint in the maintenance and support line. But in your line, you have that services line and the services was weak. Sequentially, that line was down about 1%. You just look at maintenance and support sequentially, what did that do?

So it's -- if you're looking today on the decline that we had Q-over-Q, so half of it came from -- actually from professional services, half in terms of dollars and half of it came from the maintenance revenues. So that's the main. And again, that's -- we believe that's the trough also of Q3 in terms of maintenance because that's coming because of the lower refresh that we see -- we did see in Q2 -- and also with the guidance takes in that we see still a decline in the product revenue. So this has -- this is the impact of that we have less refresh and therefore, less professional services.

On the other hand, as I mentioned also on my deck that we did announce price increase for all our firewall products, including support attach support and subscription that will be effective -- not will be -- is effective from October 4, and that would have an impact mostly from Q1 because it's over time. So we'll see it -- we'll see, we do expect that support the maintenance line item will be improved in the next few quarters.

Next up is Joseph Gallo from Jefferies, followed by Patrick Colville from Scotiabank.

I want to follow up a little bit on that last part. I think durability of subscription is extremely important to the story next year. Can subscription grow double digits in '27? I mean, [Indiscernible] want both your takes, but 3Q subs decelerated a point, 4Q is implied another deceleration, current service billings declined and you have pricing and inorganic benefits this year. So just help us think about the durability of subscription next year.

So just the last comment that actually we didn't have inorganic benefit this year. So it's -- there's no -- everything is organic DCL specifically. And pricing, actually, we did the price increase, which was mainly affected the H1 but less H2 back then in July. So I think definitely, it's doable. I mean we are looking on today on our business. I'll start and Nadav you want to add on that. But when you are looking on our technologies, the CEM, our AI security, which is becoming more and more significant every quarter, and the e-mail security that we mentioned that already crossed the $200 million ARR.

This together are growing very nicely. They're going above 38% in ARR, calculated billings this quarter, 47%, very strong, it's not 1 quarter. We see sustainable growth in these 3 products. And even with the headwind that we have this year specifically in Q2 -- specifically in Q3 and also in Q4 on our subscription that's coming from the lower refresh that we had this year. Even with that, we managed to go double digit. I think that we are starting to see also stabilization on the refresh, and we're going to start to see improvement also on the refresh that will also help have the subscription -- the subscription next year.

And on top of it, the price increase that I just mentioned that the pricing is on the firewall that, of course, we are not going to benefit 100% of it. But historically, we managed to benefit from this price increase. And that's something that all together, we believe that, that dribble and definitely can be -- can grow double digit also next year.

Yes. To add to that, Joe, the answer is yes. I will add what we've already spoken about, but it merits territory. We made a major change in the beginning of the year. It's taken us a little time to settle things, but it's now embedded. And as we've been -- as we said in July, we're also hiring more people at the front line across the board, strategic accounts, major accounts, specialist sales engineers, increasing our capacity substantially, so that when we go into 2027, we're set to start accelerating. So that's one thing.

The second thing is the market dynamic. The market dynamic is favorable, right? I mean, there's never been a bigger need for a proactive security. And I think what we're offering is extremely relevant. And I think it's on us to -- on the execution part, to have better delivery. But we're confident that we're in the right direction. And the signs that we're seeing are good signs so far. And that's why we confidently say that Q3 was a trough, and then we're going to see some improvement in Q4 and going forward into 2027.

Next up is Patrick Colville followed by Todd Weller of Stevens Bank.

I guess I'm just going to ask a very technical one and a more strategic one. The tactical question is in terms of the price increase that, Roei, you've kind of teased a few times. Would you be able to provide some guardrails around quantifying that? And then for you Nadav, the more strategic questions around firewalls to protect AI data centers. We're going through this gigantic CapEx build-out is going to accelerate next year in terms of the amount of AI compute coming online. Just talk us through the opportunity that the Check Point has against that? And is there stuff in the pipeline? Or would that be incremental from here?

So I'll start with the question on the price increase. So the full impact, I mean, if we'll manage to benefit 100% of this pricing because it can be up to 3 points equal to 3 points to our growth in total growth of revenues. So that's -- again, if we managed to benefit 100% of this price increase because I can tell you, historically, we managed to benefit slightly less than half of it. But again, we are working very hard with the team with everyone on the firewall aspect, mainly on the renewals that we'll be able to monetize more of it, but that's to quantify that. And Nadav, you can add on.

Yes. Look, I think it's unprecedented, right? The investment in data centers and specifically AI data centers, whether it's for training or for inference is just mind bottling. And these data centers need security. In fact, that's some of the places where we believe this is going actually to be incremental starting 2027. We're making meaningful investments to make sure that we have the capacity and the security to enable the east-west traffic in some of these data centers, which is unprecedented. And so I think these abilities are going to be a tailwind for us.

And to your question, is it in the pipeline or incremental? I think some of it is already in the pipeline. But as real revenue, we started to see it in 2026 and we hope to see this growing in 2027. By the way, it's not just the infrastructure that's being built, it's also the kind of traffic that moves east, west or north south in these data centers. A lot of it is new kind of traffic. Some of it is -- a lot of it is encrypted. It takes real [Indiscernible] capabilities. Some of it also has to do with data sovereignty and the ability to run different kind of models, not just the traditional generalist models that we all talk about, but also open weight models.

And so it's a brand-new world out there. To the question below about -- before about the legacy part. I know that this is something that we need to deal with and shake it off. But remember that in actuality have the abilities that we've built over 30 years, in many ways, are becoming more relevant, not less. It doesn't mean that we don't have to have a larger portfolio and better integration, better execution, better go-to-market, but the abilities that we have, the engineering capabilities that we have the telemetry that we have from over 100,000 customers, the fact that we are training our own small language foundational model based on the acquisition that we did in Zurich, [Indiscernible] if you remember.

All of these are coming together to make to where we believe there's never been a bigger need for what we can actually do. So this gives us the ability to be cautiously optimistic about 2027.

All right. Next up is Todd Weller, followed by Adam Tindle from Raymond James.

Nadav, you mentioned kind of leading indicators giving you confidence. Could you expand on what you're seeing there? And then related to that sales forecasting, I'm sure with all the go-to-market changes you've gone through that it's been more challenging over the last few quarters. So maybe talk about how you're feeling about that kind of confidence in the outlook.

Yes. So on the indicators, it's a few, right? First of all, it's the funnel and the quality of the pipeline. That's number one. Second, as I mentioned in the script that we prepared for you today. It's these large deals that we're winning with some of our new technologies, such as AI and the integration of exposure management to modern network security. These are 7 figure deals, 8-figure deals which are encouraging. And obviously, we need to do a lot more of it and we need to get into new logos much faster, but we're seeing the first indicators of that happening.

Roei, I'll let you add anything if you want to add on the leading indicators, et cetera.

Well, I think you covered it. I think definitely the funnel that we do see the final -- the qualified finance specifically for the next quarter, I think we feel more confident with the what we see for the current quarter. Of course, like always, Q4 is -- there is a lot of refresh activity and more product revenues. But in the end, we do see the final -- we feel confident with the funnel we see. And I think the other leading indicators, again, we -- it's more for long term, less for the Q4. But definitely, we talked with you 3 months ago about expanding our sales capacity. I think since -- in the last 3 months, we expanded by dozens of new sellers that increased our sales capacity, and we have more of them that already signed will join us in the next few months, we'll be able to start with much higher sales capacity 2027 compared to what we had in the beginning of this year.

And then to add to that, Todd, to your question about the sales force, I'd say 3 things that we're doing in 2026. Number one is leadership. So getting the right leaders in the right places, so a new leader for America, a new CRO and some other very consequential leadership positions that joined us this year. The second thing is the nature of how we go to market. This is -- now that we are a portfolio, which is much more diverse. And as we're moving into our strategy of preemptive security and bringing together some of these technologies, it also takes some training for our existing people and bringing new people on board.

And finally, it's the underlying, I would say, structure and execution. As you already know, we -- these changes slowed us down in 2026, especially until now. But we think these changes are embedded. And again, are cautiously optimistic that we'll now start harnessing some of the outcomes so that we can go back to growth.

Next up is Adam Tindle from Raymond James, followed by Shrenik Kothari from Baird.

Just one [Indiscernible] a follow-up for Nadav, I'll ask them at the same time. I think really I caught in the script that you talked about annual subs over $1.5 billion for 2027. And if so, I was just wondering if you could break apart the drivers of that, whether that's maybe the maintenance portion versus the subs portion, it sounds like there's a pricing contribution to that as well. So just a little bit more granularity on that build, and so it will be important for investors to hang on to.

And Nadav on that pricing point, I just wanted to double-click on the decision and impact expected from price increases. We're in a situation, obviously, hopefully troughing here, but product has been down double digits. It's an accelerating decline. Just a little uncommon to see a company raise price when demand is deteriorating so much. Would love to understand when that was announced and goes into effect, feedback and fear that, that could lead to further deceleration?

So I'll start with the subscription. We talked about 1 point -- the $1.5 billion subscription revenues in 2027. Again, that's coming from several items. First, sales driven by our product by AI security [Indiscernible] equity and [Indiscernible] that keep growing very nicely and becoming more and more significant to our total business, they are already less today, almost 30% of our total ARR subscription ARR and that's a long growing 40%. On the -- of course, we take into account some benefit from the price increase that we did in Q4. Of course, we didn't take into account 100% benefit. This $1.5 billion if we take into account the trends that usually we got that we've seen historically when we did the price increase.

And second, back to stabilization. I think we already start to see it in Q4 stabilization in terms of -- you asked to about the product revenues to start looking at better and stabilization and back to growth in product revenues. So all of that together put us in a position that we believe that we should be able to cross -- we should cross the $1.5 billion. I'll touch base only on the 1 sentence on the pricing increase because you asked about the let Nadav to -- so I think, of course, it's a very, very good question to asking how come we are increasing pricing when we see this decline in our product revenues.

And then, we are -- when we -- before we decided on increasing the pricing, it was back then and we announced it back then -- in the beginning of September, we increased our pricing. It was not because, again, there are several factors there. One, I think the most important one is the memory cost. The memory cost is inflated. I mean it keep increasing. We paid this year, we said that it's going to impact our margin by approximately 1 point. Next year, probably we're going to have a similar effect. Again, it's too early to say because the memory costs keep changing all the time. So definitely, that's the first thing.

And second, we looked on the market. We're looking at everyone right now hardware, even if it's not security, everyone is increasing now because of the components. Everyone increasing. I mean you've seen our competition, if it's [Indiscernible] I think they both announced in the same time that we announced the price increase. So I think in the market, the customer also understand, I can tell you that base -- I'm talking with our sales leaders. And the customers understand the price increase because of the memory cost. I mean everyone is paying more now because of what's going on with the memories. So that was the thought around it.

And Nadav, you want to add something about it?

What I would say, Adam, is that we are doing this after carefully analyzing. And so when you say it's accelerating, -- it's -- what we see now in Q3 and some of what we see in Q4 is obviously still a part of the funnel that we created in H1, now we see the improvement. And so we believe that not only we've reached the trough, but that we're reversing sort of the trend in our appliances in our product revenue. This will already improve in Q4 and continue to improve throughout 2027, but also take into consideration that the demand is high, not only for the traditional enterprise data center, but just as we spoke a little bit before, the -- when we look at where the market is going and when we look at where the attacks are coming from, where the dollars are going into infrastructure.

A lot of these technologies that we've built in the last few years are very relevant as we augment them. And augmenting them also means that we're making huge investments. I can tell you that in 2026 alone, the investment in security for AI and in AI for security in order to simplify everything that we deliver to our customers. Because remember, the future is about anticipating that future is about simplifying and the future is about automating. So there's a huge amount of investment that goes there. And we do expect to see some of that coming to fruition in 2027 with new capabilities, new products, like we said, we just announced the new AI firewall, our Agentic management system that is maturing, is becoming much more relevant and much more to come after that.

And so we believe that it's a very reasonable price increase that won't hurt the demand.

All right. Next up is [Indiscernible] followed by Joshua Tilton.

Nadav a related note, with the recovery now taking longer and then you did touch upon it a little bit. But could these extensions and delays and the refreshes, represent a more structural change? Just wanted to understand a little bit about how much of this sort of refresh backlog or expansion is attributable to the budget constraints versus sort of broader architectural decisions for modernization. And since you mentioned about all these AI-centric product [Indiscernible] how much confidence do you have at this requirement, high inspection will ultimately [Indiscernible] moderization.

And just a very quick follow-up on that front, like the introduction of the firewall and a service, can you talk a little bit about that? Does it potentially reduce the upfront capital? Is that a factor and gives customers more flexibility in this modernization [Indiscernible].

No. So great question, [Indiscernible]. I'll tell you, it's a little bit ironic. But when you think about where network security is going, it's not the same trend that we've seen until about a year ago, especially when you talk about AI focused data centers and infrastructure, some of it is actually becoming a sort of changing the reverse trend that we've seen in the last few years. Again, it goes back to some of the customers around the globe that are focused on data sovereignty. It's the fact that what goes on in these data centers is a little bit different, a lot more east-west traffic, especially when you're doing training for these new models, and we're seeing more and more demand for that.

And so there are different trends that we're seeing. At the same time, obviously, we also need to think about the traditional modernization trajectory that we've seen over -- almost a decade. And that's why firewall as a service for sort of the traditional and it sounds funny that I call it traditional, but it is now the traditional in the AI era. Some of our more traditional enterprise customers would just rather consume their security as a service rather than having the hardware.

But we're seeing 2 trends happening at the same time, right? So I think they'll even off each other. And obviously, we want to take advantage of both trends. And so that's why we're also launching this firewall as a service. But beyond that, I truly see that customers are looking for something more. In a nutshell, it's about don't -- when I speak to [Indiscernible] tomorrow, we're off to unique to have our leaders point where we're going to have dozens and dozens of the leading [Indiscernible] in Europe with us for 3 days.

And I'm sure I'll hear a lot more of that. Something that they're telling us more and more is stop telling me about my problems, fix them for me. You need to -- and you need to do it in an automated way because they're really drowning. Like if you take only the last weekend with the new vulnerability that came out, the PHP to sell, it means that instead of doing their actual work and making sure that they're safe, they need to sort of chase these vulnerabilities around the network, and we have to automate that and we have to do it in a preemptive way.

And I am proud to say that when you look at our customers in the last weekend, they were protected before they needed to do anything. So instead of telling them go and fix that, we told them there was a problem, but we already fixed it. And that's where preemptive security is going.

Next up is Joshua Tilton from Wolfe Research, followed by [Indiscernible] from Truist.

A lot of moving pieces that I'm hearing on the call I'm just trying to understand all of them at once. It sounds like in the beginning you opened up what the quarter was in line with expectations, but you're also trying to give us this message that the recovery that you're expecting is taking a little bit longer than you initially anticipated. So I'm trying to understand what exactly changed if we just had an in-line quarter that the recovery is now taking a little bit longer? And then maybe to put kind of a finer point on [Indiscernible] question, is the recovery taking longer because you guys are just executing at a slower pace than initially anticipated? Or is the recovery taking longer because priorities are changing in real time and maybe the demand for firewall is not as be as you initially thought it would be?

Well, I'll start with the second question, and Roei, you can take the first. So absolutely the latter. -- we don't -- we actually see demand rising. Now it's on us to be more competitive, to be out there. and to execute better. So to your question, we -- in July, we spoke about hiring a couple of hundred even more new salespeople. The process itself is taking a little bit longer than we wanted it to take. And then you have the onboarding.

But we have hired dozens of new positions. We are continuing to hire dozens of new positions as we speak, and we will continue to do that into Q1 of 2027. So it's the -- from where I sit, it's absolutely the ladder. I think we know what our customers are looking for. I think we have more relevance in terms of the portfolio, and going forward, as we start implementing and making our vision and strategy come to fruition around the connectivity and going into preemptive security, I actually think that it will become easier for us to grow faster.

And to your question on the recovery that will take longer than what we anticipated. So I'll remind you, when we talked back then in beginning of August, when we announced our earnings, we did say that we do see very strong funnel, qualified funnel for Q4 back then when we announced earnings. When we are looking today, so still, we do see qualified funnel stronger than what we had last year, but the magnitude is slightly lower, again, because of several factors. One, we -- this funnel included a lot of significant large deals, there's several of them being pushed to next year. I can tell you that these are mostly with existing customers that working with us closely.

We're engaging with them. They had a very significant refresh project that was supposed to be this year and was decided to move into next year. They renewed their business with us. Everything is in line by just in terms of doing the refresh, they decided to do so in 2027. So that's how we see, of course, also Q4 is a more back-loaded quarter. So there is a back and loaded quarter which involve a lot of product bookings and revenues. And we took into economy provided you the guidance.

Next up is [Indiscernible].

Nadav, you touched about data sovereignty and we're hearing increasing demand around sovereign architectures, particularly where customers want security and AI workloads to remain under their control. How meaningful is that becoming for Check Point across network security and SaaS? And does this shift towards sovereign or hybrid deployments structurally favor your appliance and private cloud footprint?

I believe so. I think that, again, this is sort of the irony of the situation, some of the -- there's still the trajectory that the traditional trajectory that few years. But AI sovereign around data, independence around using models is shifting and also take into consideration that cost the cost that's attached to using these amazing technology is also becoming a huge factor.

And so I do think that the trend is changing. I do think that network security, modern network security doesn't necessarily mean what it meant a couple of years ago. It also means a sovereign data center. It also means running open weight models locally sometimes because of sovereignty sometimes because of the need to remain independent. And many times for a lot of our customers, it's about the cost that comes with it. And traditionally, that's where we have a lot of strength. And now as we're moving into the preemptive security and bringing exposure management and modern network security together, I think we can prove that they're very, very relevant.

And to add to that, we can do it in the cloud, but we can also implement a lot of this, and we're seeing more and more demand for that, which is kind of again, ironic, but to do these things on-prem for different reasons. Sovereignty is one of them. So I do think this should be a growing a growing demand. And I do think Check Point has a big play to play here in terms of what we already have and what we're building.

Next up, [Indiscernible] followed by Brad Zelnick.

I'd love to dig into just some of the moving parts as we think about margins for next year. I'm not looking for guide here, but go with me for a second. Very helpful detail on FX, right? I think incremental $50 million in headwinds from the [Indiscernible] was something that we were all wondering. You'll also presumably have a full year's impact of the sales investments next year as well. So maybe beyond FX. How do you think about the impact of sales investments for next year, whether it's on expenses or margins? And just as importantly, how do we think about maybe the returns that those investments could generate?

So again, margins wise, in terms of specifically margin we're going to share with you, of course, in February when we're going to announce also, we have -- we're going to have an Analyst Day in Vegas, but we're going to announce our earnings close to this Analyst Day, so we're going to announce also our guidance for next year. But you're right, in terms of the -- I mentioned the FX the FX, the FX has incremental impact. Again, according to the current FX rates, I mean, it's keep changing. Of course, we are hedging, we have a rolling hedge, but still it can be changed, but it's right now around $50 million incremental for next year.

Looking at our margin next year, I can tell you that, again, are going to be -- we're going to be a very high margins in the -- we're going to have high margins. It's very tough to tell you now. It's going to be what margin it will be. It really depends also -- let's be honest on our top line, how we finished Q4, I would say what's going to be the backlog for next year in terms of top line. So it's -- and in the end, the margin is also as a result of the growth in the top line. So all of these factors will take into account when we will share with you the guidance for next year, and we'll talk more about the margins on that aspect in February.

And just to add to the [Indiscernible] taking consideration that the way we make our investments is also changing. Many of the things that we used to do in one way are now being automated. So we can also shift investments all right? And being a -- one of the things that we want to do is become an AI first company, one, because it's the right thing to do and change the culture and move ahead of the game, but also because we really, really need to using AI to understand the security implications and to understand what it means to have a real AI transformation with security for our customers.

And so the blend is also changing. But you're right. On the sales side, we're going to -- the investments are going to take us to the full year next year, and we have to take that into consideration in our margins.

All right. Next up is Brad Zelnick, followed by our last questioner, which will be Richard Poland from Wells Fargo.

Thanks very much for sneaking me in here, Kip. Following Saket's question about investments and [Indiscernible] comments about having flexibility. You've made nearly $300 million in acquisitions the last few quarters. You're on track to spend what looks like about $75 million or more in R&D versus last year adjusting for tax credits. What's the timing and magnitude of the returns you expect on all this spending? Or maybe asked differently, what kind of growth does Check Point aspire to deliver, and when might we see all this investment get us there? And I have one for Roei as well and follow up.

One thing that I will say is that we're looking at sustainable and gradual growth. right? The investments that we made this year, for example, we're going to double down on next year. Security for AI is one example of a capability or a product that we believe is almost existential for our customers and hence for us. And it goes into 2 buckets, right? The first one is a product that is security for AI. So for example, the one we spoke about the electronics company, right? So to deploy AI security for over 80,000 employees with the best-in-class security is not easy. It takes a lot of investment, and we expect that to grow as a pillar or a solution in itself.

But at the same time, these capabilities become a part of everything else that we do. And so a lot of these investments are just there to keep up with what the attackers are doing. Again, going back to last weekend's vulnerability around the PHP 2 cell. We -- if we are going to stay in the reactive mode, I think we're going to lose. Remember, at the end of the day, it's a competition between offense and defense. And what we're seeing is a vulnerability, apocalypse, if you like.

The only way to stay ahead of that is to be able to thin the stacks, and proactively, on the one had dramatically lower the probability that it will happen. So when there is a vulnerability, when there's a new attack picture, some of them are almost unimaginable, we already have the mitigation in place. And second is to hold the line to make sure that when the attack does come, we can block it in run time, in real time. And so a lot of these investments are going there. Obviously, the proof is in the pudding, and we are expecting to see some of that putting in 2027 and beyond.

And to your question about acquisitions, it's also a strength, right? The fact that we can continue to make these acquisitions. The fact that we are in the epicenter of the cyber global innovation is sort of an advantage that we need to take advantage that -- we constantly want to leverage.

Definitely makes sense. And maybe related to that, as we think about capital allocation, Roei, with comments for Q3 being the bottom, the stock is at somewhere around the 10% free cash flow yield. How do you and the Board think about leaning in maybe using the $4 billion cash balance and the $1 billion plus in free cash flow that you generate to buy back shares more aggressively?

So that's something that we are assessing every quarter with the Board. Actually, if we want, again, regarding our buyback, it's something that again, to increase the credit is to keep the same level right now. We -- right now, we are not doing any changes. We are continuing at the same level. Definitely, we have a very strong balance sheet with $4 billion in cash and more than $1 billion in free cash flow. So we have more flexibility, not by -- not only buyback and of course, M&As to do more M&As. But right now, we are continuing with the same levels on buyback. And if we do any change, of course, we're going to announce it. But right now, we are counting with the same levels.

Our last caller, Richard Poland take it away.

I guess, one, just kind of on the AI firewall capabilities. When we think about how that kind of converts to the subscription line. I think the way we've understood it is that's a bit of an upsell motion. Is that captured in just kind of the 3 points that you alluded to on the pricing side? Or would we consider that as kind of separate? And how do we think about some of the early traction on that side?

I'll take the first one, and then if you want to talk about the traction. But no, it's not part of the 3 points. Actually, the AI network -- the Firewall is a different package subscription package that it's an absent that we can be sold to our customers. But that's not part of the 3% increase. The 3% increase is the price increase, so that we are talking about specifically for firewall fire subscription packages that we have to do, not related to this AI firewall, which is not part of that.

And that we want to touch based on the [Indiscernible].

I'll say that there are a few things that we need to do in parallel, right. Number one is -- and we've spoken about this extensively, and that's one of our still biggest challenges is going out to the traditional network security and beyond with our full portfolio and going on offense to start getting a much bigger portion of new logos, right? That's one thing that we're focused on. And that's one of the reasons that we did the rehaul or the change to our sales -- to the way that our sales is structured.

The second thing is more on the product side. And here, to your point, it's -- some of these are relatively new capabilities that are built upon, obviously, a lot of what we already have, but a lot of them are different. So for example, if you think about Neo clouds that are competing with the traditional hyperscalers as an example, they're offering different capabilities. It goes a little bit back to -- sometimes to what we spoke about before about sovereignty and running open weight models, et cetera.

And it also means that you need to run different capabilities. I think in one of our talks, we spoke about the fact that in some cases, it actually means that we need to be a part of the hardware level. So that's some of the collaboration that we're doing with NVIDIA because we're talking about massive amounts of data moving east, west, especially when you're talking about training and different kinds of data that is moving a lot of it is AI related. A lot of it is encrypted. So new capabilities are something that we need to build for network security, but way beyond that. That's what we're focused on.

All right, guys. Thank you very much. it was great. We'll look forward to seeing you all through the quarter. All right. Thank you.

Thank you.

Thanks, guys.

Good morning. We are going to kick it off day 2 of...

I'm going to do the safe harbor. Remember that...

Day 2 of the Goldman Sachs Communacopia Conference. Real pleasure to be here with my colleague, Max Gamperl, on stage.

What I should be [indiscernible].

Great to have you, thank you. You're coming every year, so it's really good to have you.

Yes, it's so nice to see Max grow up over time, right? When I first saw him, he was such a little boy.

He's a couple inches tall [indiscernible].

So let me jump into safe harbor real quick. During the course of the presentation, there may be forward-looking statements. As with all forward-looking statements, there are risks and uncertainties. And if you'd like to bore yourself to sleep, read them -- read the comprehensive evaluation of them in our 20-F. And as with all forward-looking statements, we only have a duty to update where required by law. And back to you.

The last couple of years, we've talked about Nadav and Nadav specifically on his ability to sell into the C-suite. And right at the same time, I would argue this year, it's become even more important to present a holistic vision for the future. Talk to us a little bit about how that's going. And I want to sort of contrast that with some of the sales changes that you've announced recently and try to tie the 2 together.

Great. So I think when you look at the selling into the C-suite, I think, first of all, one of the things we did is we created our 4 pillars and started to communicate that right off the bat when Nadav came on board. And we also moved to something we called Engage, and we did these around the world. They're engaging C-level folks. So when you say, how is it going from a C-level approach of sales, I think if you look at our results, it doesn't appear to be so well. But I think on the relationship building side and building for the future, I think we're making lots of -- and so from that standpoint, I think we have -- definitely have a CEO that's an active seller from the standpoint of engaging companies, engaging the channel. I hear it from people that look and speak to the channel, they say, this is the first time I've spoken to the CEO of Check Point, and I've actually spoken to them twice in the same year, which is -- it's one of those things where it's nice to hear it's the contrast from the past, which kind of alludes to where we are today.

I think from there, I think you saw us go into a planning stage at the end of last year that delivered the plan for our go-to-market changes this year. And obviously, it doesn't show up in the numbers yet. But I think all of this should lead to -- including Nadav's activities in the future should lead to a much more prosperous future for us.

If I were to think through, and this is a question that we get from investors, the evolution of the sales organization within the company, there's a natural evolution for any sales organization, any company. The number of times that Check Point has tweaked the sales organization just in the past 3 years. Talk to us a little bit about what's different this time? How much of it is just a natural evolution? How much of it is a reflection with Nadav on the strength and weaknesses of the sales org up until this point? Put it in context for us a little bit.

I think changes in the past were patchwork. In other words, they were done to meet an individual need at that time. I think what's been done through planning through last year, implemented this year as a result of expectations for AI spend in the future, was done in a very deliberate way in a way that is focused on 2 things: growing our logos in the Global 2000, Fortune 500 or S&P 500, however you'd want to look at it, and then also building or expanding within our installed base.

So I would say we were asking in the past, they did it in different ways, but we were asking our salespeople to do too much. And remember, salespeople, they're really -- the coin-operated, right? And so whatever you incent them to do, they're going to chase. So when we incented them to go after new logos, that meant they didn't do as much refresh, especially if the same person was doing both. And I think that became very evident, especially last year, and that's where we moved to the new -- a very distinct bifurcation between reducing the amount of accounts an individual account manager has and their whole focus is just upselling and cross-selling into those accounts.

Then we have a new customer success organization that is also part of making sure that those customers achieve success that they're not left wondering or in a way that they have to ask for help, they actually receive it before they need to ask. And then the establishment of true hunters, I think in the past, we did something that was probably not consistent with success, and that was look at everybody on a 1-year basis. We also -- I don't think we were the highest payers when it came to hunters.

Now we're able to recruit people that are more seasoned, the kind of guys that can come and make a difference, and we're paying market rates, and we're giving them a 2-year plan. So it's not like what have you done for me lately after a year when a big account can take 12 to 18 months to actually bring over the line.

So I think these are the changes. And obviously, any time you have changes that are this dramatic, which they truly are and the amount of people we're hiring going forward, 300, a net 150, that's more towards next year. It's not this year. We're not expecting them to produce by December, right? This is all planning for the future.

And who we have out there right now, we expect them to be active and be delivering. Different people are at different stages. But the majority of those guys should -- it was more about settling into their accounts and getting to know them rather than know what they're doing. So that's where we are in this year. And it's been a struggle. I mean, let's face it. Did it go as we liked it? No.

The real truth is we had originally planned this to be done in '27. We weren't going to implement it this year. But it became very evident that the planning right now is taking place for AI and next year is where the spend is going to come. And we didn't want to be in the middle of a go-to-market change when you're going to have such a robust environment. So we want to make sure that was done ahead of time. And that's the rush to deliver our go-to-market. And unfortunately, you take the pains that come with it.

As an analyst, we can sometimes have some limited amount of success trying to predict when the sales hiring ramp happens and then adding 6 to 9 to 12 months to predict when the productivity ramp is going to happen. any breadcrumbs you can give us as part of that analysis to be able to say, okay, it's roughly in this period of time where we should be able to step back and say, wow, Check Point is really executing on all cylinders with the [indiscernible].

So I think there's a couple of things. I think, one, for you guys, you guys always love fair compares, right? So you enter next year with a much more favorable comparison than you do from the year before. You also -- I would say our hires that are being done right now, you're probably looking throughout the year, they'll have different elements of delivery.

But I think the people that we've moved to put into position this year, I would expect to see the fruits from that as early as the fourth quarter, but really the first quarter and beyond I'm not trying to say that '26 is -- it's a '27 story. We have guidance for the year and everything else. But I don't think anybody is banking on '26 as being all of a sudden, we're going to deliver 6% growth for the full year. It's not realistic. And so I think when people look at it, they look at how are they setting themselves up for next year. And I think that's really the right way to think about it.

So one of the dynamics with setting us up for next year is how to think about margins. And the margin framework, when I ask you this question annually, you will tell me that, well, let's see where 4Q ends and then here's how we think about it.

There's a lot of truth to that.

The moving pieces for 2027. My question to you is, look, there's always going to be when you're investing for growth because the salespeople take time to ramp, there's going to be a step backwards before there's a step forward.

So I would say there's a couple of things when it comes to margin. One, we're in the middle of our planning stage right now, just like everybody else. And as well -- you know how the math goes, right? You got to know what the revenue is and you got to know what the expenses are before you can actually calculate that margin.

So from that standpoint, I would say, look, we're in the planning stage. I think there's some obvious things that you can look at. And one is probably one of the biggest impacts to us exogenously is the shekel dollar reflection. Between now and the end of the year, there can be a lot of movement there. There's 2 competing forces. I think you have things before Congress that would allow the IDF military budget to be incorporated into the U.S. military budget.

We'll see if that passes or not. I'm not thinking it does, but I'm not a politician, and I'm surely not clairvoyant. From a U.S. perspective, it certainly looks like there could be a possibility of rate hikes. So whichever way those go, opposing or not opposing, you could have pretty good moves in the shekel and the dollar, respectively. So we'll see how those play out. I think those are a bigger impact. But I also think from an investment for growth, we've made -- I should say our investors have not been shy about it.

They want us to invest for growth. And so if we can find acquisitions, we can find -- we're not beholding to 40% margins. That's -- we're past the stage of preserving our margins because no matter where they are, they're still going to be higher than almost any other company out there. We're an efficient organization. The process that we have throughout the organization has not gone away, the discipline. What I would say is we're getting newfound discipline, which is a selling discipline, a more of a future look, investing for the future rather than the immediate. So I would say that around your margin, and you can wait until we give guidance to determine it. But obviously, I danced around it in a very nice way.

That's very fair. Let me ask you one more before I pass it to Max on product. 4Q. So your implied 4Q guide bigger than seasonal, I think. And you have a stronger qualified pipeline. Tell us a little bit more about the dynamics of 4Q. Are there any other moving pieces that we should be aware of?

Look, I think Roei talked about it on the earnings call. He said, look, he says the difference between 3 and 4 could be 1 or 2 big deals that come in the third quarter or go to fourth quarter. And that really exemplifies it. And excuse me -- and remember, once we -- once we finish with Q3, we give guidance for Q4.

So will people have guidance at the midpoint or whatever for Q4? Look, depending on how Q3 goes and depending on what the outlook for Q4 looks like, that can change, right? We don't give guidance for the full -- for locking in that fourth quarter until the end of the Q3 period. So I think when you look at the wall of worry, that's in people's minds. The reality is for the company, we're going to execute on whatever we see in front of us, right? So does that mean it stays right where analysts have it? I don't know. We'll see. But you got to get to the end of Q3 before you know. Okay? All right. Give it to me, Max.

All right. Let's talk about firewalls and the impact from AI. So the underlying driver of firewall demand is network traffic. There are...

No. No, really?

To some extent. So, there are 2 ways that AI drives more network traffic. First, with all the data center build-outs and second, with agentic draft traffic going through DMZs. Where are you seeing an opportunity over the medium term for Check Point?

For new firewalls? Or an AI network firewall? How about this -- how about -- let's look at what we see today. Right now, we're going through a refresh or the ends of our refresh. The go-to-market probably disrupted that a little bit. So we're not seeing the excesses that we had probably hoped to see in the first 6 months.

Going into next year, I think you have your natural refresh that happens every year. I think with the advent of AI traffic, as you point out, I think your core data center is going to see an uplift.

People are going to think about refreshing early. I think there's opportunities on AI factories, neo clouds, hyperscalers. Last quarter, we saw some contribution from hyperscaler. We also saw some AI factory. The problem is we don't get to yell at the top of our lungs about AI data centers, which are just data centers. Every data center is going to have AI in it, right?

Nobody is just going to change their data center to an AI data center. So take marketing for what marketing is, right? I appreciate that when you're growing fast, you can yell AI at everything and you're going to win. I appreciate that. But the reality is AI data center is just a data center. If you're talking NeoCloud or you're talking AI factory, that's a very different animal. So from that standpoint, I expect that Check Point will participate in all of these to different degrees.

On AI network firewalls specifically, what is the customer problem that makes a new firewall category necessary? What does it understand or control that a traditional firewall wasn't designed for?

So obviously, traditional firewalls look at IP addresses, look at different traffic, different ports, et cetera. When you look at what the AI network firewall solves, and we've been working on this for a while. We also incorporated all this into our SASE product. We have AI-specific threat prevention engines. And all of that is utilized both from an outbound and an inbound. It looks at prompt injections. It looks at the traffic that travels through normal applications because that's how AI is going to be used. So you not only have to look at that traffic, but you have to look at the AI traffic within it.

So you're looking at prompt injections. And this is where the protection and prevention approach that Check Point has always offered is manifesting itself in the AI world. When you look at it, we have a whole AI defense plane that spans from protection specifically for AI applications, and this is infused throughout [indiscernible] and our workspace apps also.

And so the natural evolution is for our firewall also to participate in this. And so where that's different is now you're not offloading it to a separate application. You're not allowing it into your environment. If you're using a separate application, you've already allowed it into your environment. So you're allowing it one step further to be able to evade whatever security precautions you've taken.

We believe that this is a superior approach, and we offered it in the form of an upgrade to all our customers so they can take existing hardware, upgrade their existing hardware with the software, have these capabilities. And your next question, I'll help you with it, Max.

Yes, that could lead to earlier refresh for our customers as they realize they want to adopt that and deploy it in a more full manner. And so that might shorten the life of what they expect from their appliance by buying something that's new and robust to address their future needs. [indiscernible], you can eliminate a question.

Great. I'll move on to the next one...

I'll slip one in for the one that we just talked about...

No, here we go.

What do you think Anthropic and OpenAI are going to do in security? And maybe it's less guessing what their strategy is. What do you as an executive team think is the right positioning, the right Swimlane for a Frontier model to complement and potentially compete? How do you prepare potentially for...

So I'll talk in a very large focus other than focus on any one company. If you look at last year when there was the SaaS apocalypse I was telling people when they would talk to me that, no, it's complementary. You're not going to take a system of record and replace it with somebody who's vibe coding, right? And subsequently, that's what you've seen. You've seen Anthropic engage with Salesforce. You've seen other companies engage with software companies. On the security side, all of a sudden, we went from SaaS apocalypse to security apocalypse, the Mythos moment, as we say, greatest PR moment in AI history, right?

So it's pretty phenomenal. When you look from an OpenAI standpoint, we're aligned much closer with OpenAI today. We also have a relationship with Anthropic also. But on the OpenAI side, I would say it's -- you can look at our latest announcement and how we're leveraging OpenAI and the -- God, I can never remember the name of the Glass...

Glasswing?

No, that's Anthropic -- trusted access, yes. So from that standpoint, I think complementary. You're not going to take 33 years of knowledge and approach to a market and recreate it just with AI.

No, I fully agree with that. The risk that I think is worth pulling the thread on is not can the frontier models replace security companies. It's -- could the incremental share of budget accrue to the frontier models because the incremental risk is tied to code and because Frontier models are really good potentially at securing code. such that the share of whatever budget incrementally a large financial organization is allocating towards security instead of going to Check Point and make...

So let me -- so [indiscernible], I think you're saying, let me put it in a house security moment. So what you're saying is leave the front door open but lock the cabinets.

No, I'm saying both, but the front door should theoretically already be locked because of 20-plus years of Check Point network security.

Yes. But the difference is now you're in an AI world. And so as we demonstrated with the delivery of the AI network -- AI network firewall, you have a different paradigm here. And what I would argue is when you talk about applications being exploited by AI and now protecting them with AI, the problem you have is the advancement in AI that we all know about you don't want to test the application. You want to make that as infrequent as possible.

And the way you're going to do that is by having the best security at every level. You're also going to be protecting applications with prompt injection, run time, et cetera. You've got to protect from all those things because take, for instance, our game, it used to be called Gandalf until we got sued by the Lord of the Rings. And now it's called Gauntlet, 7 levels of hell, which every high-functioning individual with a low personality probably plays this game and no offense there, but it's amazing.

I break my brain trying to play it. But we have 1.2 million users over the course of 4.5 years. The intelligence that this brings -- it's not what you know today, it's what you don't know tomorrow, and that's what you're protecting for. And so you don't want to give AI a chance to test what you've done with an application. You want to give every chance you can to prevent that from occurring.

So I would say at every level, I don't -- I think security becomes more important from all stages because AI is a journey through an organization from the applications you have to be wary of your own agents doing things that are adverse to your company as we've seen in the frontier models themselves.

So you not only have to protect from the outside, you have to protect from the inside because we're talking about something that's learning and does things that are adverse. If you don't govern what they're doing, you may end up with NVIDIA having to buy Hugging Face or is that what it's called? Yes, Hugging Face. There's dynamics that are occurring that you don't expect from an application you built. It's got a mind of its own. And we're talking about today. Imagine where it's going to be in 5 years. So I think from a security standpoint, it becomes even more important with the models getting closer to AGI.

On product revenue, that's been a bit softer than some of your firewall peers which you acknowledged have to do with the go-to-market changes. But how...

Go-to-market changes in something different, too. Look at my peers. They're coming off of '21 and '22 cohorts, and that's what you're seeing for their refresh. Remember, they didn't have the best refreshes last year. So they're coming off of '21 and '22. And in '23, they fell on their face. For us, we're a little earlier and you're seeing us refresh those. It usually goes hand-in-hand when you deliver new boxes.

So you deliver new boxes that excites people. There's usually a little lag as they bench test them and then they start adopting. And that can last anywhere -- you see the bump for anywhere from, who knows, 18 months to a little over 2 years. And then it goes back to the normal. You see it as a nice normal cadence. Now I think that can all change with AI. I think you have a paradigm here that's going to lead to, one, a lot more need for protections, especially the ones that we have in our AI network firewall and the rest of our AI defense plane.

But I also think the capacity needs are going to be increasing, too. whether it's in your data center that you're putting AI into or whether it be a neocloud, a hyperscaler who recognizes maybe they're not that great at security and maybe they need to use somebody else that's been doing it for a long time or your AI factories.

Do you think that unit share trends have changed because of this go-to-market disruption? Or do you think the strength is primarily from refresh and there's not a whole lot of change in unit share demand?

I mean, look, at any given time, you're going to see at the edges, people winning and people losing. Earlier this year, we saw some wins. Last year, we saw some wins. I don't know if we're seeing losses right now or not at the edges. But you're not seeing dramatic changes. What I think you're seeing or will see in the future is the advent of people recognizing the demand function related to AI and AI traffic, which is how we started this conversation.

So in a market where customers are consolidating vendors, does losing units and without saying that you are losing any share, but in a market where vendors -- or customers are consolidating vendors, does losing units make it harder to win the broader account over time?

I think when you look at security, I think there are paradigm changes, right? So if we go back to when we first started losing what I would call share back in the 2010 and beyond range, that was because our competitors convinced everybody that they didn't need the best security. They just needed detection and remediation. Because of our founder and our ethos, we always remain focused on protection and prevention.

And lo and behold, look, we have an AI moment and everybody else has figured out that all those critical vulnerabilities and those CVEs and everything else are really not great for business. And you hear people complain about token cost. Well, when you have so much repair to do and off of so many different disparate code bases, I imagine you're paying a lot on those tokens.

So I think the difference is in an AI world, you're going to recognize really quickly. And maybe when I say really quickly, we're talking over the next 1 to 5 years. And it will come at varying degrees for different corporations, but they're going to recognize what security is and what security isn't. And security isn't great marketing, great sales. Security is really definable in an AI world because you're either losing an intellectual property, you're either having your business disrupted or you're not.

And I think those defining factors will decide who gets more uptake of their units and who doesn't. In the near term, I don't think it's really something that's going to distinguish the future. I think what's going to distinguish the future is who has the best security.

So the challenge with the industry is that it's always been a combination of both. It frustrates us to no end where the best product in security actually doesn't always win. You can have products that are on par, products that are not as good from a benchmarking standpoint. But when you pair it with the magic of marketing, you end up with market share gains.

And so I guess my question for you is, do you think because things are getting more complicated, more sophisticated, the attacks are getting more sophisticated. Do you think it's easier or more straightforward for Check Point to lean on the technology excellence on prevention than it was before?

So let's start with this. Massive attacks that did big damage over the last 15 years. They took millions of dollars to accomplish, and they were very few and far between. So those who claim that detection and remediation is all you needed in a sense, probably were right during that paradigm. And even though people paid a price, they were willing to look past it, right? Because all they did was just buy the next thing they thought would solve that problem. The democratization of attacks has happened. AI, those millions and millions of dollars of attack now take hundreds of dollars. So now the guys on the defense have to be right every time.

And you've heard this from everybody, it's cliche now. But the outside guys only have to be right once. Well, if you're doing detection and remediation, and that's prominently -- don't worry, anybody that was doing detection and remediation last year is doing detection and remediation today, and it hasn't changed. It's -- you don't evolve. It's an ethos, it's a discipline. And so there's going to be struggles for some time.

And maybe marketing and all that will cover it up for a while. But eventually, customers are going to recognize what is real and what is not. And time will tell. Look, I'm not trying to be a prognosticator, but AI is the great equalizer because now the guy that was a script kiddie is now using a model that's capable of exploiting some of the most sophisticated infrastructure in the world.

So when you look at it from that standpoint, I wouldn't want to be dealing with a bunch of fragmented products trying to cobble them together to deliver something that is going to provide protection and prevention.

I'd want the guy that just spent the last 32, 33 years focused on doing that. So discipline is a big deal in life. And while we need to learn the discipline of sales and marketing, and we're working on that, I think it's easier to learn sales and marketing than it is to deliver a preeminent protection and prevention product.

Gabriela and I have done some work drawing comparison between the early cloud security cycle and the AI security cycle. And in cloud security, Check Point ultimately chose to be more selective rather than own the whole CNAPP stack. AI security may be a bigger architectural shift. So how do you decide where Check Point needs to own the technology versus where partnerships is the better answer?

So I think in cloud, you were dealing with where data was located and traffic and things like that. So for us, it was -- we never believed everything was going to the cloud. We always believed it would be hybrid. And I'm sure Gabriela can remember those discussions with me because everybody said it was going to the cloud. And I said, life is -- life is a balance, right? And while we always kept investing in the firewall, right? And so it's sad but true. All you have to do is wait and things get in vogue again.

And right now, the firewall is really in vogue. When I think you look at how we approach the cloud, it had a lot to do with that. We saw a much more firmer approach in the data center. And we believe we didn't have to be everything to everybody. I think what's different with AI is this is something where you have to -- it's a whole journey, right? It's from applications, it's from code, it's from agents, and you have to address it every step of the way.

Sometimes there's going to be partners that it makes more sense to snuggle up to and leverage. But for the majority of it, as you can see, what we're doing right now, we own that transition, that journey of our customers. And I think the last piece we added in the firewall kind of puts the stamp on it. And so you'll see more stuff coming from us. Look, Lakera is only in the beginning, right? When we bought Lakera, it was a design within a very large customer of ours, and that's proceeded to be in other customers and develop other products. So you're only touching just the very beginning of it. Look at this, 9, 8, 7, what's your last words, Max?

I would love to sneak one more in, but maybe we'll leave it at, though.

Please join me and Max in thanking Kip for his time. Kip, thank you for that.

Thank you. Thank you, guys.

Greetings, and welcome to the Check Point Software 2026 Second Quarter Financial Results Video Conference. I'm Kip E. Meintzer, Global Head of Investor Relations. And joining me today are 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 presentation, Check Point's representatives may make forward-looking statements. Forward-looking statements generally relate 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 only as of the date hereof, and Check Point Software undertakes no obligation to update publicly any forward-looking statements, except where required by law.

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 e-mail at [email protected]. Now I'd like to turn the call over to Nadav Zafrir.

Our Q2 results were in line with our expectations, and we continue to make tangible progress strengthening our go-to-market organization. We're actually encouraged by improving execution and a growing sales pipeline. We expect Q3 to mark the trough followed by a stronger Q4 that supports second half performance, and we are maintaining our 2026 guidance.

As a next step, we are significantly expanding our sales capacity by hiring hundreds of additional salespeople. We've launched a focused hiring campaign, reflecting our confidence in the long-term growth opportunity.

Over the past few weeks, I met with more than 1,000 security leaders at Check Point Engage events in Chicago, Paris and Singapore. Their message is consistent and unmistakable. Our industry is at an inflection point. AI and particularly the latest frontier model is driving a collapse in scarcity of adversarial capabilities. This is democratizing and industrializing sophisticated cyber attacks and challenging many of the assumptions that have guided cybersecurity for decades. We cannot stop AI adoption, and we must prepare to defend against sophisticated attacks at unprecedented scale. This is the time for decisive action.

At Check Point, securing our customers' AI transformation means executing the fundamentals better than ever, while building the next generation of cybersecurity, and we must do it in parallel.

The fundamentals start with prevention, powered by our Threat Cloud AI intelligence, more than 100 AI agents and telemetry for millions of enforcement points, prevention for security is in our DNA. But fundamentals alone are no longer enough. We must build security that operates at machine speed, learns continuously and evolves as AI evolves. And so today, I'm excited to introduce the industry's first AI network firewall. We believe AI has created a new class of network traffic and it deserved a new class of firewall.

The AI network follower gives customers visibility, control and security for prompts, agent actions and model interactions. The AI network firewall is a part of our AI Defense plane. It's a full stack AI security platform continuously trained on our threat research and intelligence and built to protect applications, users and agents from AI-based attacks.

With the release of the AI network firewall, we are embedding the AI defense lanes across networks, private and public cloud and SASE, giving network security teams control they can put in place today.

Beyond AI demand across our emerging technologies portfolio remains healthy. Subscription revenue grew 12% year-over-year in Q2, and we continue to integrate the capabilities from our recent acquisitions across the platform, strengthening our competitive position and expanding the value we deliver to customers.

We're building momentum by expanding our go-to-market capacity and strengthening our product portfolio. The launch of our AI network firewall, combined with our AI defense play reinforces Check Point's mission of securing our customers' AI transformation. We remain focused on disciplined execution, accelerating growth and delivering long-term value for our customers, our partners, employees and shareholders.

And with that, I'll turn over the call to Roei to review the financials.

Great. So thank you, Nadav, and thank you, everyone, for joining the call. As Nadav mentioned, the second quarter was as planned with 1% growth in revenues, driven by 12% growth in subscription revenues. Our total revenues reached $674 million and were $1 million below the midpoint of our projection as a result of lower product revenues as the lower demand for firewall appliances.

When we're looking on our subscription revenues, it reached $333 million and were at the midpoint of our projections. Our adjusted free cash flow reached $161 million, $1 million above the midpoint of our projection and represents 24% of our revenues. Our non-GAAP EPS was $2.55 per diluted share and exceeded our guidance and grew by 8% year-over-year.

As mentioned, we had 1% growth in revenues, while our deferred revenues grew by 7% to $2.025 billion. Our calculated billing totaled to $639 million and was similar to last year, while our current calculated billing grew by 2% to $641 million. Our remaining performance obligation grew by 7% and reached $2.55 billion. Our current RPO reached $1.6 billion and representing 4% increase compared to last year.

As we indicated in the call back in May, we had -- we expected lower product revenues, mainly as a result of our disruption affected by the changes we made in the go-to-market organization. Our product revenues declined by 14% in the second quarter. As we are looking on the second half of the year, we do expect to see similar trends in the first quarter with our firewall appliances, while we do see significant improvement in our pipeline and the opportunities and the qualified opportunities in Q4, and we do expect to see back to growth in product revenues in the fourth quarter.

When we are looking on the subscription revenues, it continued to accelerate to 12% growth this quarter, driven by the strong demand for our emerging technologies as email security and system continue to have strong demand.

When we are looking on the third quarter, we do expect slight acceleration in our subscription revenues as a result of large appliances deals that were pushed from Q3 to Q4 and have also an impact on our subscription line item.

As indicated, our total subscription business continues to be strong as we continue to experience strong demand for our emerging product portfolio, which remains the primary driver of our revenues growth.

In the second quarter, we are looking on the e-mail security, CTEM and AI security, accumulative, they exceeded 40% growth in ARR year-over-year, while the calculated billing from these products grew by 35% year-over-year.

Looking on our revenues by geographies. So our revenues from EMEA and America were 44% each for the second quarter, while the remaining 12% came from Asia Pacific, similar to what we had last year. When we are reviewing, we are looking on our P&L for this quarter, so our gross profit increased from $585 million to $588 million, representing a gross margin of 87%, the slight decrease in the gross margin was explained due to higher memory costs. Our operating expenses, excluding R&D grants, increased by 13%, while on a constant currency basis, our operating expenses increased by 11%. Our Q2 results include approximately $28 million of benefit from R&D grants to be received from the Israeli government. When we are looking on our operating expenses, net of R&D grants, they were -- the expenses were $328 million and increased by 5% year-over-year. The increase -- the net increase is primarily the result of increase in our workforce and as a result in continued investment in AI security and investment in our sales and marketing programs.

When looking on the operating income, it continues to be strong at $260 million or 39% operating margin. Our non-GAAP net income increased by 1% and reached $264 million, while our GAAP net income reached $194 million and decreased by 4% year-over-year. Our non-GAAP EPS grew by 8% and reached $2.55, 8%, as I said, growth year-over-year, while our GAAP EPS was $1.87, a 2% increase year-over-year. Our number of fully diluted outstanding shares for Q2 was 103.5 million shares. And while we continue to do our buyback, we expect the number of shares for the next quarter to decrease by approximately 1.5 million shares.

Moving into our cash flow and cash position. So our cash balances as of the end of the quarter was $4.2 billion cash and marketable securities and deposits. Our adjusted free cash flow reached $161 million as planned and in line with our projections. We also continue to do our buyback program and purchased approximately 2.5 million shares for $325 million this quarter at an average price of $131 per share. During the quarter, the company announced also a $2 billion expansion of the company's share repurchase program. So we're going to continue to do this buyback.

To summarize, so from one end, definitely strong demand -- continued strong demand for emerging technology led by e-mail security and CTEM that's becoming more and more significant to our total business. On the other end, we did see, as expected, lower demand for firewall appliances this quarter. As I mentioned, we do expect similar trend to continue also in Q3. But definitely, we do see significant improvement on the appliances business in Q4, and we do expect to be back to growth in Q4 in the product revenues.

We're going to move to the guidance to the business outlook. So first, regarding the full year, we are not touching the full year guidance. We are maintaining the same guidance as we gave you back in May in the last call.

Looking on the Q3 outlook. So the total revenue range is between $665 million to $685 million, subscription revenue between $332 million to $343 million, non-GAAP EPS between $2.43 to $2.53, while our adjusted and GAAP EPS is $0.70 less. And our adjusted free cash flow is expected to be between $235 million to $265 million.

It is important to note, as I mentioned in the call earlier that we do see significant opportunities and deals that are being pushed from Q3 to -- that are expected to be pushed from Q3 to Q4 and therefore, that has an effect, a negative impact mainly on our appliances revenues. And as I said, we -- if I'm comparing to what we've seen in the pipeline for Q4 in May and now, definitely, we do see even stronger pipeline for Q4.

Definitely, it's a more back-end loaded year also is a reflection of what -- of the go-to-market discussion that we've done. But definitely, we do see a positive sign. first, of course, with the emerging products that continue to have a strong demand. And also with the appliances and the firewall, we see positive signs that we are seeing the end in Q3 in terms of the decline and we're going back to growth in Q4.

Thank you, and we are moving to Q&A. Kip, the floor is yours.

[Operator Instructions] Today, to begin, we're going to have Joseph Gallo from Jefferies, followed by Patrick Colville from Scotiabank.

It was great to hear about the investment in sales capacity. Can you just remind us what the normal cadence of sales ramp to productivity is? I'm just trying to understand better the confidence in a 4Q rebound when hiring today would be more indicative of 2027's benefit.

The latter, right? So -- the impact to sales is expected in Q1 and Q2 of 2027. So the guidance and what we're expecting for Q3 and Q4 does not take into consideration the ramp-up. The ramp-up obviously has its momentum, but it's going to take some time. However, it is very significant.

For us, hiring hundreds of new frontline sellers is a major move. I don't know if you've seen it. I hope you have. We have started an aggressive campaign. So it's not just the number, it's also the people that we're hiring and the invigorating of our sales force across the globe. It's really meaningful and it's a company-wide effort. So the guidance that we gave today does not take that into consideration. That is sort of preparing for a stronger 2027.

All right. Next up is Patrick Colville, followed by John DiFucci.

I guess I wanted to ask about kind of Mythos preparedness and advanced AI preparedness. There's all excitement in the market around what advanced AI means for cybersecurity.

You kind of touched on this in your prepared remarks a little bit. But just vis-a-vis Check Point specifically, are you seeing changes in buying patterns as a result of enterprises kind of concerned about the risks brought on by advanced AI models? And then I guess, specifically, like where is that hitting the financial model? Is it the firewall layer for Check Point? Is it the non-chat subs? And any changes to sales cycles?

So if you zoom out, really the phenomena that we're seeing is very interesting. It's -- when you think about it from the attacker's perspective, you want to think about it from an ROI perspective. So the way we see it is from the attackers now have access to resources that they didn't have before. That's what we call the collapse of scarcity. They literally have access to what used to be very scarce resources. And that's sort of what leads into the democratization and industrialization. So we're going to see more sophisticated attacks at a much higher cadence. That is happening already, but we think it's going to accelerate within the next couple of years.

So when you think about the security paradigm that -- or the assumptions that we have around security, we're seeing signs that some of these assumptions and the current paradigm does not necessarily withstand the change that's coming from the attackers. And that leads us to like an [ acunian ] way to really a world between true paradigms.

And so that's what I mean when I say, number one, going back to fundamentals. This is the proactive prevention first. That's our DNA. That's where we shine. That's what our customers expect from us. And we have to do everything that we have learned just much better, much faster, much more diligently.

At the same time, in parallel, we have to look into the future. We have to imagine different possible futures, give them different probabilities and start simulating how the attackers are going to change.

So for example, I believe -- we believe that detection and response are going to be much less relevant because we're going to have to go to automatic remediation at machine speed. And so we're making massive investments. Last year, we spoke about hiring hundreds of new individuals to build the next generation. Today, we announced the launch of the first AI network firewall integrated into our AI defense plane. And there's a whole strategy around that.

Now to your question about the buyer's perspective, I think that they realize that on the one hand, back to basics and at the same time, they're looking to what's next. So I'll give you a couple of examples. I think the continuous threat exposure management based on three acquisitions that we made that is growing last quarter, we spoke about that growing at almost 100% is a part of that. Why? Because it gives you the ability to understand what's coming at you, but also creating a real pathway to understand what the real threats mean and automatically remediating that in an open platform approach. And that's why CTEM, for example, is having such success.

At the same time, the reason I'm so excited about the AI network firewall is that it's also happening at the network level. And so customers that already have our firewall can now also take advantage of the network to understand what their employees are doing, what agents are running and control that.

So I really think to summarize, it's sort of a tale of two cities. On the one hand, everything that we've learned, we must do better than we've ever done before. At the same time, we're creating the new technology, the new products, the new -- and I think within the next couple of years, you'll see a new paradigm emerging. So that's sort of the story of where we are right now. I think that in some way, some of the frontier models may be hyped, but the phenomena is the phenomenon cannot be overhyped.

So we're seeing it in a very tactical level in the amount of vulnerabilities that are out there and how fast we need to patch them. And so that's what we're doing today. But as we move forward, we need to change that paradigm, and we're working on this in different buckets. The last one is actually running these models on our own software to make sure that we can simulate, imagine and get ahead of the curve before attackers do it.

Next up is John DiFucci, followed by Brian Essex.

Nadav, I sort of have a high-level question, I think. I mean, Check Point has always been a respected technology company and a thought leader in its field. Long before the term platformization came out, I remember your predecessor talking about the Infinity platform. And I know it became products too, but it was a platform. It was the first time we had heard about one company working to secure an enterprise from top to bottom.

Even today, partners in the field acknowledge the strength of the technology at Check Point, but there seems to be a customer perception of the sort of dreaded word legacy, even though your installed base is really loyal and pretty much Check Point diehards. I guess what is it other than hiring a lot of new go-to-market people that you think has to be done to change that perception? Because that's really important. That's hard. And is the issue really just not enough feet on the street?

No, I think it goes beyond that. Not enough feet on the street is one thing, and that's why we started this campaign. Now that -- and this is a second phase of the go-to-market changes that we announced last time. So now that we've stabilized, we're ready to add hundreds of new people based on the new model in the organization that -- or the reorg that we announced.

I think second, it's marketing, right? So we need to be louder. I really believe that when it comes to this world that we're walking into, this world where, on the one hand, security, real security, proactive prevention has never been more important. I think that's our DNA. And I think we can provide real security based on the current paradigm. And at the same time, the announcement of the first AI network firewall. It's a big announcement. It's taking the firewall and preparing it for the AI era, but not as a stand-alone to your point, but as a platform play.

And this is where integrating the AI network firewall into the AI defense plan. and having the ability to look at different choke points within the network, not just for observability, but also for enforcement is a huge advancement. And we are seeing the demand for our AI capabilities grow very, very fast. In fact, some of the hiring that we're doing across the globe is because we just can't get to enough customers fast enough with the high demand that we have because this is a specialized field where you need people on the specialists that can come in and do all the more technical stuff for our customers. And when you bring all these things together, it makes us very optimistic about the future.

One thing that I'll say about the platform, yes, consolidation is important. But I think it needs to be an open platform, right? And so -- and an open platform means that we acknowledge the fact that, number one, from the approach should not be a monolithic approach, especially at the enterprise level, that's not going to lead to resilience.

Number two, whether we like it or not, a lot of our customers are going to be multi-vendor, and we need to appreciate that and have their security front and center in our policy. And so with our unified management, which I think is one of the strongest features that Check Point has, within the next few months, we're going to offer our customers the ability to manage different products and different firewalls, even if they are our fiercest competitors because at the end of the day, especially in the Mythos era, we just don't have the time to take care of things one by one with an SLA of days and weeks.

We need to be able to see what's coming. We need to be able to understand what the real impact may be. We're using AI to do that to actually simulate the paths to the vulnerabilities that we're seeing. And then we're moving into an automatic remediation capability, whether it's patching or virtual patching or segmenting or segregation within the network so that at the end of the day, we can have this real proactive prevention first mentality and at the same time, starts with the new paradigm of autonomous remediation.

By the way, that makes a ton of sense, and it's truly unique, that open platform to work with others, and it's in the customer's best interest. I think you got to have Roei loosen up that marketing budget a little more and go out there really loud. Had Kip run the [indiscernible] because he's pretty loud.

Yes, I agree. I totally agree, and it's -- some of it is already happening. Some of it is work in progress. And I think we're starting to see the impact. We're starting to see that turn into the funnel. And as Roei said, we're already seeing a very strong Q4 ahead of us.

Next up is Brian Essex with JPMorgan.

I want to follow up on some of that commentary, particularly with regard to platform and your AI firewall. I think it's great to see the innovation of the platform. I think that's another thing that we've heard customers are really focused on is the rate of innovation to kind of build that platform.

Would love to know what is your vision in terms of how you see the AI firewall technology stacking up against what seems to be an emerging AI gateway market. Are you targeting platforms that span -- I mean, I guess, are you thinking about expanding the platform to span across broader observability, tracing, performance optimization, cost control features, which is one thing that I think [ Zayes ] are very focused on? Or do you intend to like stick towards more security and governance? It seems like maybe some of your peers are looking at things more of a consolidated broader observability and security platform, but would love to know what your focus is going forward?

Yes. So I want to start by saying that we need some, I would say, humility as we try to understand where this is going. There are different possible futures in where this is going. And I think we must look at it from different perspectives.

One perspective, which I spoke about at length is the attackers perspective. The second perspective is different industries and how they are adopting AI. So again, a lot of hype, but it's a process. And there's a lot of trial and error within this process of adoption of AI, whether it's sort of the bread and butter that all of us have already, it's the [ MOE ] usage of AI. moving into independent agents that in the beginning, take over some of the human more redundant mundane day-to-day tasks, but over time, becoming more and more independent and autonomous. And that's where the game changes not only from the attackers perspective, but also from the attack surface.

Having said all that, our mission remains the secure -- securing the AI adoption journey. And the way we approach this is with our customers. And so we have a design partner program with different industries, with different verticals because health is different than finance. And finance is different than energy and energy is different than production and logistics.

For each one of them, we have to sit down with our customers, understand where they're going in the next couple of years, simulate what kind of new threats emerge from that and coming up with the right mechanisms to govern, to control and to secure these new capabilities so that on the one hand, they can deploy it, but on the second, but from a different perspective, they can do it with security in mind.

Now being very direct to your question, Brian, we are focusing on the security part. But security is becoming much broader than just observability. Observability in many ways, when you think about the next paradigm or the emerging paradigm doesn't really matter because going to the [ SOC ] or to the [ CISO ] or to the VP of Engineering and giving them a list of things that may go wrong is not going to help them. We need to be able to autonomously remediate. And so we're building those capabilities. But at the end of the day, we're not looking to go beyond the security level. We think security is very broad, very deep. We're building very deep capabilities. But when you think about controlling this from a cost perspective, that's not necessarily where we're going. Of course, when you have the observability, you can add that to it.

Next up is Todd Weller, followed by Adam Tindle.

Nadav, I would love to get your perspectives on potential AI tailwinds for the network security business. There's different kind of angles to this. There's AI application and infrastructure deployments related to that AI data centers. And then there's an angle around potentially increasing traffic volumes and spectrum requirements. So how do you think about framing those dimensions? How do you think about magnitude and timing of those opportunities?

And then within your kind of core large enterprise base today, what are you seeing any of that? And where do you think we are?

Yes. I think that to your point about the tailwinds for security, I would look at it from -- I think there are two different aspects that are relevant to look at. The first one is how the network is a part of the overall AI defense plan.

And the overall AI defense plane is on the device. It's in the cloud. It's in workloads, it's in the DevOps. And the network is at the heart of that and needs to play within that. And that's why the introduction of the AI network firewall as a part of the overall AI defense plan is so important. And I think that's going to have a meaningful tailwind for the industry and for Check Point specifically.

With thinking about that, it's not just about securing, it's also about managing. So our AI-driven unified management, which is becoming an open platform and allows us to manage different components and different vendors, different firewalls connected as a platform to the continuous threat exposure management, which gives us the ability to understand the intelligence from the outside in, the attackers path and combining that is one aspect.

The second aspect is emerging new capabilities that enterprises are building. So for example, some enterprises are -- have already invested and some are thinking about investing in AI factories, right? So localized capabilities sort of going back on-prem, whether it's because of privacy issues or cost issues. We're also seeing a plethora of rising investments in different parts of the world regarding data sovereignty, which is another issue.

And finally, very specific data centers that are going to be either for inference or for training, which require different capabilities. So if you remember, a few months ago, we announced that we're working with NVIDIA to embed our firewall capability within the GPU level because in those data centers, latency is so important and East-West traffic is so much more imminent that we literally need to do it at the hardware level in order to remain very, very efficient. And so that's the second tailwind that we're seeing. However, to be transparent about that is something that we're seeing in a little bit of a further future. So 2027, we need to start seeing that.

All right. Thanks, Todd. Next up is Adam Tindle, followed by Shaul Eyal.

Nadav, I wanted to ask on the business outlook. You're reiterating the fiscal year guidance this year. And if I back into the implied Q4, you're going to need to do about an $800 million revenue quarter at the midpoint of guidance. And I was going back through the model, I've never seen that. That would be a record quarter.

You also mentioned earlier that guidance doesn't take the ramp into consideration. So I know it's more of a -- really question on guidance, but I wanted to hear from you, the debate oversetting that expectation today and what markers you're looking at for Q4.

And Roei, any comments that you could give us on billings? I know we kind of lost track. We were thinking 6% to 7% for the year entering the year. We've got this very difficult comp in Q3 that I think some are struggling to model. So just correct us a little bit on the billings trajectory as well?

Roei, do you want to start?

I'll start. Yes. So definitely, you are right in terms of your calculation for Q4, it's around 6.5% growth for Q4 in order to meet the be in the midpoint. I mentioned during my script that we do expect to be back to positive growth in product revenues. I remind you the main headwind that we see today on our revenues, the decline in revenues is coming from the product revenues, which declined this quarter of 14%, expected to be similar levels in Q3. And in Q4, we are expecting to be back to green to be positive in product.

So that's one aspect that definitely -- And I remind you also that Q4 is a more product-driven quarter. The portion of product out of the total revenues is bigger than any other quarter in the year. So that's one aspect.

And again, I think that when we are looking on the funnel for Q4, I know that it's much higher than what we guided for Q3 and Q4, I mean this growth. But when we are looking on the funnel, on the qualified deals, I'm talking about qualified deal, I'm not talking about now potential stuff. We do see much better funnel, much better pipeline for Q4. And again, we went through with our sales leaders on all the large deals, everything -- and again, some of them are deals that have been pushed from Q3 to Q4.

That again, is expected to be pushed because there might be some that will be placed in Q3, but Q3 is more tricky because of the summer. So we took a more conservative year approach that some of this significant deal will be pushed to Q4. So definitely, it's a high bar in terms of Q4. But when I'm looking on the internal metrics, there is the support for that. And you asked about the billing. So you're right, when we started -- I'm not giving any guidance for billing, but I was asking about billing for the year. When we started the year, it was around mid -- mid-single digit, we talked about 5%, 6%. When we came back on May, we told -- again, because of the higher disruption that we did see, it resulted more back-end loaded year, and we do see it in the numbers for Q2.

And when I'm looking on H2, I don't want to give any specific guidance, but definitely, I do see much better billings in Q4 in terms of growth. Q3, you are right that the comparables are tougher. So there might be -- so as we said, Q3 is going to be -- might be more challenging with billing. But Q4, definitely, we are expecting, again, if we are looking on the funnel on large deals and definitely, we expect to be a strong bidding quarter.

Yes. Just to add to that, Adam, remember that when we spoke in our last earnings, we were very transparent about the reorg that we did in our go-to-market org. That's going according to plan. And so that's why we think Q3 is the trough. And when we look at what's happening in the future in Q4, like Roei said, we're seeing a much better outcome, and that's why we are maintaining the guidance.

With regards to the hiring, the reason we're not taking that into consideration is the natural ramp-up, right? So it's the second phase. And in fact, when you think about it now because this is a company-wide effort and many of our folks beyond selling need to recruit and onboard. And so actually, we're not going to see the impact of the hiring in 2026. We're only going to see the impact of the hiring in 2027, right? So some of it in Q1 and hopefully more of it in Q2. But it's the prudent thing to do. And it's a part of the plan and a part of the strategy that we spoke about last time.

So -- and for us, hiring hundreds of new sellers is obviously a great investment, and we're investing in our future. So last year, we spoke about hiring about 500 new R&D folks to start doubling down on the future products for the AI era. Now we feel we're ready with some of the products. We've done the reorg and we're ready to ramp up. But as you said, that's only going to have an impact in 2027.

Just one more comment about billing, Adam. I think it's important to say it here. I understand that you are following billing if it's important for cash flow and stuff. But it's not only metric that we are here. We are looking on new business. We are looking on RPO, which is I mentioned it today, the bookings. I can give you an example this quarter, the billing was affected. I didn't mention in the script because I -- again, I thought it's not -- probably I would be happy about it.

But again, the billing this quarter affected, for example, from large deals that was renewed. It's not only renewal, it's renewal and new business that last year, we build annually and this year, we build quarterly. This alone have an effect of 2 points on our billings this quarter, just moving from annually to quarterly. And we are flexible with that. I mean it's a large deal, very large deal with new business. You don't see it in the billing because we are billing it quarterly. We approved -- I approved the quarterly billing on that aspect.

But again, if you would bill it annually, probably our billing will look much better for this year, but it wouldn't change the fact that our RPO grew by 7%. So I totally understand the importance of billing and it gives you some kind of prediction of what's going on in the business. But definitely, it's not the only metric that we are following.

Next up is a Shaul Eyal, and that will be followed by Shrenik Kothari from Baird.

Maybe Roei [indiscernible] still double-clicking on this headcount. When we're saying hundreds of new people, what is it 200, 300? And how do you think about it geographically from that perspective?

Yes. So I'll start. Roei, you can chime in. When we say hundreds, yes, we're talking about by the end of the year, we need to hire approximately for our go-to-market, a headcount of about 300 more individuals.

When you look at it from a percentage perspective, it's a meaningful percentage at our size. When you think about it geographically, honestly, it's pretty globally spread. So I wouldn't say that it's just one area. The America, Western Europe, a little bit more, but it's across the globe, APAC, et cetera. Some of it is at the frontline sellers, what we call the generalists and -- but also specialists. So for example, we spoke about AI. We're seeing the funnel growing very substantially.

In some cases, we just don't have the people out there that can actually go out to customers and do the POCs. And so we have to ramp up that very, very fast. Obviously, getting -- just getting the heads is not enough. We need to get the right people on board that are also ready for this future generation of buyers and the new paradigm that's emerging.

And so it's an opportunity, not just to get more headcount, but also to revitalize and get new blood into the system. And that's exactly what we're doing. It's a company-wide effort. Again, we are within -- we launched the campaign, and we hope to be able to get to the right people that want to join us for this ride.

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

Great. So totally, I understand the internal execution disruption around go-to-market. But just on your specific comments on firewall appliance demand softer than you expected, right? And some of the peers are seeing stronger firewall demand, AI infrastructure-driven product growth.

So just Nadav Zafrir and Roei, can you help unpack that a bit? Like what are your customers actually doing? Are they extending the useful life without pricing right now? Are they shifting focus towards more AI-centric enforcement, which is sort of elongating cycles? Just -- are these pushes primarily rep transition driven? Or are customers fundamentally reevaluating the scopes and the architecture in the AI era as well?

Roei, do you want to start or you want to...

I'll start. So I think it's a combination, Shrenik. I think it's a combination of still facing internal disruption that's affecting our execution that Again, we are -- our execution in Q2, I mean, you've seen the numbers was not what we wanted when we started the year. But I would say it's a combination of internal disruption and definitely also behavior of customers that I think again, some of them, we are looking on the memory cost, and it's something that I'm spending significant part of my time to find a way to make sure that we have the enough inventory to give -- by the way, it's not only for appliances, it's also for internal users.

So again, probably it's a combination. I don't think it's a clear -- there is no clear answer for that. But definitely, when I'm looking -- and I think it's mainly -- when I'm looking on our business, I think it's mainly internally. mainly internally because I'm looking on the funnel. I'm looking on deals, I'm looking at our go-to-market being stabilized. And I'm looking that we are now -- we have very interesting opportunities, qualified opportunities that located in the second half of the year, mainly in Q4 that makes us feel more positive that it's more internal and less external.

Yes. I would say that the demand is there, right? We're seeing it -- and you're seeing it with our competition as well. That's why we're so excited about the announcement of the AI network firewall today. The unified management that we're coming out with and hopefully, the fruits of a lot of investment that we put into this in the last couple of years will start to show.

And then the optimism comes from what we see already in Q4, and that's why we're doubling down also to get ready for a higher growth in 2027.

Having said all that, from the customers' perspective, look, I think that top of mind for them right now is, like I said, first of all, go back to basics and fundamentals. This era calls for patching at an unprecedented pace. That's just one example. And so we're also building the capabilities to do that with them and for them, not just for our own products. But again, we have to have the total security in mind.

They're also getting a lot of pressure from the executives and the Board to adopt AI, whether it's to allow employees to use it or new applications and agents that are now running within the -- so it is a transition time.

What I believe is that it calls for us to continue doing what we've always done which is prevention first, but at the same time, really changing the industry. And that's both on the network level with the AI network firewall and the new unified management. But at the same time, combining that with our Workspace, our CTEM, our AI defense plane and going forward, probably more capabilities that we will need to add to this in order to build this open platform that our customers can rely on for their secure AI transformation.

Next up is Joshua Tilton, followed by Junaid Siddiqui.

Maybe a quick clarification and then my actual question. On the clarification side, maybe this is for Roei, but I understand you're reiterating the full year outlook, and you guys are confident in what it implies for Q4. But I guess what I'm trying to understand is when you think about what is implied on a quarterly basis? Is this how you expected it to play out when you first took guidance down 90 days ago? Or did something change between now and then that we're pointing to a much stronger Q4?

And then maybe just a follow-up and my actual question for Nadav is what happens when we get past the disruption from this year, you ramp hundreds of salespeople, all these products are on fire. Everybody needs to replace their current firewall with an AI firewall. Like what is the durable growth profile that we should be expecting when we move past the disruption sales ramps and all the sexiness around some of these newer products starts to really come through the model?

So I'll start and then Nadav can take it. So regarding the guidance, so when we gave the guidance in May, so actually, we did expect slight improvement in the third quarter in terms of appliances. I mentioned during my -- in my presentation that we did see -- we do expect more deals that will be pushed from Q3 to Q4, mainly on appliances that's affecting not just appliances revenues, but also support and subscription revenues because they have an attached, it's bundling and they have an attached revenues of subscription and support to every plan.

So I would say that the expectation in the beginning back in May that Q3 will be slightly better, slightly better, not significantly better, slightly better in Q4. So that's -- but because of the deals being that we are expecting now to be pushed from Q3 to Q4, that's how we are projecting now.

Going forward, looking at 2027 and beyond, from a general industry perspective, I think the security demand will continue to grow. Because we are between true paradigms, I think that we will see meaningful changes over the next couple of years, and we need to get ready for that. Our vision of securing the AI transformation through an open platform means that we have a lot of integration to do, for example, between the network and the continuous threat exposure management. There's a lot of integration that we need to do between workspace and AI.

So there's a long road map ahead of us. And at the same time, we also have to keep our eyes wide open to what's out there from the emerging start-up community that is doing some very exciting things, and we're looking at that. The combination of that vision and strategy that we're starting to see the fruits of with the stabilization of the go-to-market and the hiring of new people, obviously makes us optimistic. And I think that the hit that we took will position us for a better outlook going forward.

Obviously, I don't -- we're not giving guidance now for -- beyond that. It's not a short journey. This is a company that has been around for -- from the beginning of cybersecurity history. We need to build it for the next decades. It's a process. It's a journey. And I think that we're seeing it going according to plan right now. And hopefully, more good things to come.

Right. Next up is Junaid, followed by Saket Kalia.

Nadav, you've previously indicated SASE is still around 12 to 18 months away from supporting your largest enterprise customers at the scale that you envision. What milestones should we be watching over the next year? And how close are you to being able to compete for the same global deployments targeted by the market leaders?

So yes, SASE is an integral part of our hybrid mesh proposition and part of the platform. We are now at a point where in terms of capacity, we're already ready for the enterprise level and integrating SASE into our unified management as we speak.

I think we already have a proposition that in some aspects is best-in-class. So for example, we have the best latency with our hybrid device architecture. It's fast and easy to deploy and manage. And so I think we're ready to go bigger with our SASE, and this is the time to do it. So we're focused on it. We have a very strong and capable R&D team as a part of the hiring that we're doing is focused specifically on specialists that will go out and do this. And more important than anything is to put that as part of the platform.

So connected to the firewall through our hybrid mesh management so that our customers can push their policy, both to the SASE remote access, Internet access within the firewall, integrate that into our AI defense plan. There is a lot of work to do there, but we've made a lot of progress, and we're ready to go bigger, as I indicated before.

Next up is Saket Kalia, followed by Eric Heath, who will most likely be our last caller today.

Roei, maybe for you. I'd love to dig into the sales investment just from a financial perspective, right? I'm sure that we can all take a shot at the financial impact of hiring 300 additional resources. And just to be clear, that sounds like it's the right thing to do to invest for growth.

Not necessarily looking here for guide for next year, but I want to make sure it's asked. Is there any way that you want us to think about the margin impact of that investment, understanding that it's short-term pain for long-term gain?

I would say that, first of all, the hiring impact will be less for this year because it's going to be mainly for next year, the hiring. But I would say for next year, margin I would wait with that for the next call because we have -- actually, we have -- next week, we kick off our planning for next year to 2027. And I don't want now to give you anything because it's still very early stages. So I would say let's wait with that for the next call regarding margin for next year.

All right. Next up is Eric Keith.

Roei, Nadav, maybe just to come back one more time to the 3Q, 4Q seasonality. So can you just put a finer point of what changed since last quarter in terms of why you're expecting deals to push? Is this internal execution just giving you a little bit more prudence? Or is there something changing on the customer behavior side that maybe changed in the last 90 days?

It's less customer behavior. I think it's more -- again, we've done a very thorough analysis or going through our pipeline for Q3 and Q4. I think we have, I would say, a bit more prudent approach about the Q3. We are taking a more prudent approach in terms of deals that going to be pushed from Q3 to Q4.

I'm taking it because Q3 is usually a tricky quarter because of the summer. People are in vacations, holidays and are back to work on September. So we are taking a more prudent approach.

But definitely, I think we do see improvement and more stabilization in our go-to-market. And therefore, I think we are going to this hiring campaign that we feel confident with expanding our go-to-market now after it being stabilized after the disruption that we had in the first half of the year.

Nadav, do you want to add something around it?

Again, H2 back-end loaded, so a lot riding on Q4. It's about having a better execution and making sure that we have the right headcount and the right people as we go into 2027. And as Roei said, that's what we're starting to plan for now.

All right, everybody. That's going to conclude today. We thank you all for showing up and participating, and we'll be seeing you shortly hereafter in the analyst calls. And the rest of you that are following us today, we'll see you throughout the quarter. Thank you, and have a great day, guys. Bye-bye.

Bye-bye. Thank you.

Great. Thank you. Good morning, everyone. My name is Brian Essex. I'm JPMorgan's large-cap mid-cap software analyst. With me today, I'm very excited to have Check Point. To my right, we have Roei Golan, CFO of Check Point. Very excited to have Check Point's new Chief Revenue Officer, Sherif Seddik. And to my left is Kip Meintzer, the Head of IR for Check Point. Before we kick it off, we'll pass it to Kip for a little safe harbor disclosure.

Thank you guys for all joining us this early morning. During the course of this presentation, there may be forward-looking statements as with all forward-looking statements that carry risks and uncertainties that could cause material differences from those that are expected. If you'd like a comprehensive view, but not exhaustive view of all of these risks and uncertainties, you can right before bedtime, take a read of our latest 20-F, and you'll get some good sleep, but you'll have access to the majority of those risks and uncertainties out there. As with all of these types of call-outs, we reserve the right to only update where required by law. With that, I'll throw it back to Mr. Essex, and he can begin.

Right. You didn't even need a cheat sheet for that.

I know. Too long.

So yes, thanks, Kip. Maybe a great place to start, Sherif, if we could start with you. Recently appointed to Chief Revenue Officer. So congratulations on that.

Thank you very much.

I would love to maybe hear a little bit about your background and initial thoughts as you've taken the role and what you think impact that you can have is and might do differently?

Great. So Sherif Seddik, I'm originally from Egypt. I have a degree in communications and electronics engineering. So enough to know about technology that I always say nobody can tell me stories about technology. After graduating, I've been in the IT industry for more than 30 years now with 4 companies. I started in Dubai with NCR at the time. Followed 13 years after that, another 13 years with Microsoft in different roles, then 7 years at Citrix and now 3 years at Check Point. I'd say what's unique about my career is that particularly in the early part of my career, I kept moving between emerging markets and mature markets. So I've lived and worked in 8 countries. And throughout my career, while predominantly in sales and sales leadership, I've deliberately chosen to do other roles along the way.

So I did product management at a certain point of time, I led consulting businesses at a certain point of time. And probably the most common theme in all my roles has been around really driving change. So I've done things like turnarounds, transitioning businesses to subscription and SaaS models. Launching new products and incubation businesses. So that's really the common theme. Probably most interestingly, my last role at Microsoft was running the Enterprise business in Western Europe, which is a $3.5 billion business. At Citrix, I started running the EMEA business for 5 years then the last 2 years, I was running commercial strategy and go-to-market strategy worldwide where I was responsible for go-to-market design, all the strategic partnerships for the company with the hyperscalers and the largest systems integrators, running sales enablement, all of the back-end sales programs, et cetera.

Here at Check Point, I started at EMEA President, after a year got promoted to Head International. And now just 2 weeks ago in this role, and I think what I bring to the role is a mix of really experiences with large and similar-sized companies. So knowing how to build systems and go-to-market models to scale. Also the fact that I've done strategy roles and execution role so I really can straddle both. So when designing new programs, et cetera, I really understand what's the level of detail. And I'm really excited about the opportunity ahead for us. I think with the way the market is going, positions our 4 pillars that we chose to be in, in a unique way that really adapts to the challenges that companies face with AI and the transformation of AI, et cetera. And we have massive opportunities. So very excited about helping the company realize them.

Great. Great. And how should we think about, I guess, the depth of change within the organization. There's a lot of focus, particularly on the earnings call of the changes around the go-to-market motion of the company and how disruptive that was to parts of the business. How deep does that go? And how long do you think that this transition period lasts for the business?

So this process all started in the middle of last year, kind of where our transition and strategy as well around the 4 pillars and the desire to move to multi-pillar selling, et cetera. We did a review of our go-to-market model and said, is that go-to-market model will enable success for us in multiple years. So being successful in all of the different parts of the stack that we want to operate in, focusing on building sustainable double-digit growth. And we realized that our go-to-market hasn't had really a significant change for 4 or 5 years before.

And when we looked at where the market opportunity lies as well we realized, we need to do a significant change if we are to build towards that growth. So there are really 3 objectives of the go-to-market so one was around how do we accelerate growth, how do we put resources behind where we believe the growth is going to come from. And we believe the growth is going to come for us from large enterprise customers from increasing our new logo acquisition.

And obviously, you've all seen in the results our SaaS and subscription businesses have been seeing very healthy growth, and we wanted to fuel and double down on that growth. So we invested in these 3 areas and transition resources through those 3. The second thing was around, as more of our business transitions to subscription and SaaS, thinking of the whole customer journey becomes very, very important. So we also moved resources to our customer success organizations, we wanted, particularly in the territory part of our business to focus sellers on new business. So we increased the staffing of our renewal businesses to look after the renewals exclusively. And the third thing that we've tried to do with it is how do we improve the efficiency and build scalable model.

So we moved resourcing, for example, to marketing funds and partner programs as ways for us to scale the business. We also looked at the efficiency of our sellers across geographies, et cetera. So it was really a whole review and the results were pretty deep. So roughly 1/3 of our people were in a new role. And even many of those that are in existing roles, particularly our account managers and partner managers as we focused on fewer larger customers and fewer larger partners, they had new sets of accounts.

So all of these things resulted in that disruption. However, we are absolutely convinced that it is the right model to take us forward. And we believe now that we've really exited the disruption phase or into execution phase. We're starting to see acceleration in our funnel generation across the different pillars, including firewall so I think we're on a good trajectory to start seeing the benefits of the change.

And how many of those changes were just shuffling seats within the organization versus hiring new talent from outside the organization.

So I'd say about 50-50 roughly. So one of the other things we're doing at the moment, we do have an accelerated hiring path. We still have a number of -- in all of these different roles, customer success, specialist sales and generally sellers, an accelerated path. So it was about 50-50. So we didn't just move seats. We really did a strong evaluation process of the people who are changing are they the right people for those roles.

And how should we think about the disruption in the quarter? I mean it was very heavily weighted towards product, at least in the results. Was it a function of the pipe was disrupted and product just gets converted faster. I mean the product is converted faster so maybe that saw it sooner? Or was there something unique about the dynamics around the Quantum firewall platform that just made it more susceptible to disruption as you made those changes.

I'll start and then I'll let -- I think that the product, which is the firewall appliances, was mainly -- most of the changes that Sherif mentioned was in the generalist team. So I mean, of course, we had many people to the other pillar to the specialists, but most of the changes of the roles that we are talking about, we are talking about account managers, that changed their roles to be, I don't know, or specialist or even territory managers. That was mainly affecting the account managers that are working on firewall business. Renewals, it's less affected because in renewals in the end it's renewal, so you don't need -- I mean, it was less affected. But on new business, when we are looking on new business and the funnel generation that usually the main quarter that was affected is Q2.

You're looking on our guidance for the second quarter because Q1 was slightly less what we expected -- was less than what we expected. But in the end, the main impact is Q2. Why? Because of this disruption and the changes, we did see that the pipeline -- because the execution was -- took more time than what we expected. We see that there were delays with pipeline generation in the beginning of the year. We started to see and this pipeline that's usually affecting Q2 and Q4, it's not affecting Q1, most of the firewall net new business, the sales cycle that is between 5 to 9 months, I would say, sometimes even more than that. So that's mainly affecting the Q2 and Q3.

So that was the effect that because of -- we did see less pipeline that was generated in the first month, I would say, even in the first 2 months of the year that have a direct effect on our Q2 numbers and also some on Q3 numbers. So -- and therefore, I mean that's -- therefore, we provided this updated guidance, and I saw and that's affected mainly the product because it's new business. On the other pillars, we did actually well. Again, also there were changes in the other pillar. I mean, the specialist we did -- we added many people there, but I think that the disruption was less there and mainly on the core business on the generalist.

And when you say new business, it is not necessarily new logos.

It's new logo and net new project, incremental, not just a plan -- yes, not just replacing all the appliances with new.

So does that not include a refresh?

It's both refresh, but it's mainly the effect of the pipeline. It's net new. It means existing customers that's now buying -- doing expansion, data centers, that's the main effect or new logos, but both...

Sherif, maybe touch on the makeup of salespeople, the hunters, the more seasoned people that we're hiring, chasing after new logos and that approach.

Yes, I think -- so historically, we've had our account managers handle both existing customers and prospects. And what we've done in the current model, particularly with the focus on very large enterprises, we said for our strategic segment, the largest customers and the very large prospects, we are now going with a hunter farmer model in that space. And as a result, we are hiring that's -- the hunter profile is a profile that we didn't have, and we're doing a lot of hiring and expansion on that. In the major space, we still have the mix model. So that's another change. The other change that we've done also on the specialist side is wherever we have the scale, we've assigned the specialists to either work on the strategic in nature or the partner-led motion, et cetera.

So that was another mix in terms of historically, our specialist works across all sizes of customers wherever we have the scale now we've separated them. So we're putting a lot of focus, as I said on large enterprise and separating the motion between new customer acquisition and existing customer expansion. I think in terms of where we're seeing the disruption and the changes, et cetera, for particularly on Q1 is when you look at our specialist teams, the impact of the change is increasing the number of resources. So the teams were relatively stable in Q1 so that's why the subscription businesses continue to see growth.

And our subscription businesses generally have a faster sales cycle as well because the firewall projects, data center projects tend to be very complex and so that's why the impact is a little bit less on the subscription businesses for Q1, Q2, while for firewall, we're expecting to start seeing the uptick again from the latter part of Q3 into Q4. And we are putting in place a number of strong initiatives around further accelerating beyond the pipeline increase that we've already seeing. So we are launching a very strong competitive displacement program. We are launching a program on the AI data center. We see that as a huge opportunity for us. We've already had some wins. We're seeing an increased pipeline.

And the third thing is something that we are evolving into more focus on vertical use cases. So we're starting with industry and manufacturing vertical where we have identified 3 use cases that, again, we're building strong pipeline on. So a few things in terms of not just changing the go-to-market structure, but how we go after things.

So maybe if I could peel back a layer on a couple of those comments. So one is how should we think about the timing of the disruption that you saw is that -- if these changes started earlier last year or in the middle of last year, is that when the disruption started or is a disruptive impact more of like 4Q, 1Q and then that kind of hit the like near-term particularly considering like the sales cycles, the duration of the cycles that you see on product side?

Yes. So I'll walk you through the process. So Q3 last year was really all about the analysis phase and the consulting phase around that. So at that stage, it was a relatively small group of people that kind of that were working on that. By the end of Q3, we had the new design in place. And then Q4, we're all working around the change management and so we started to bring field leadership into this in the middle of Q4 of last year, okay? And so you could say, to some degree, there was in the latter part of Q4, not field disruption, but obviously, the management teams were thinking part about executing on Q4, part about preparing for the change.

The change was launched to the field on the 6th of January. So that's why as Roei mentioned, like pipeline generation in January and February were really, really disrupted because of that people were learning with new roles, their new territories, who are their new teammates, what's the new way of working that we're expecting. In February, we started to see an uptick in funnel generation. March was very strong, April even stronger from a year-over-year comparison. So we're starting to see signs of that, okay, now we're starting to get out of the disruption mode and into execution mode. And the pipeline generation increase that we're seeing is across our product portfolio. So it's also showing that we're starting to hit the areas that we want to hit. So for example, pipeline for new logos is growing faster than overall pipeline which was a big focus of us, how do we increase new logo acquisition.

We're starting, as I mentioned, to see a pipeline increase in AI data centers, which is our target motion, our AI security pillar we're starting to see significant changes in that. So what we're seeing is not just pipeline increase, but pipeline increase in the areas that we were strategically designing the change to do. So that's giving us confidence. Again, the changes are starting to land. But as with any change of this magnitude, it will take 2 quarters more to get back to smoothness again. So we're expecting that at the end of Q2.

Okay. That's helpful. And you mentioned competitive displacement program. What are some of the aspects that you're leaning into with that program? Is it more aggressive pricing or sales incentives or better channel compensation? Like how do you think about the major levers in that program?

So there are 3 levers of that program. So one is really focusing on use cases where we believe we have strong differentiation against the competition and giving our sellers and our partners kind of the playbooks saying these are the use cases where we believe we have a high opportunity. Then the second thing that we've done is around the partner incentives. So we put in different levels of partner rebates and partner acceleration on that. But also in terms of like preapproved pricing levels to speed up the process. And the third element is around the customer offer itself. And the customers care about -- what care about the most with a transition like this is how are you going to sort of safe harbor me to the other side. So we've included prepackaged services as part of that to make sure that the customer transition we've created tooling for example, to automate the transition of policies and rules from other vendors' platforms to our platform. So that's another important part of that.

And the third element that we believe this year is also going to be helpful is we've now put in CapEx and OpEx models for the customers. So as you know, different industries are more CapEx. So now we have a compelling offer whether you're CapEx focused or OpEx focused. So we try to cover all of the different elements of -- and what would make a competitive displacement success?

And on the pricing side, is that affected at all about how you go to market and competitively price against your peers?

So we've done a full analysis on kind of pricing and what are the pricing points for these different displacements? And we've already, in a way, preapproved discount levels to get this pricing from day 1 that we believe would get us to that. But we also wanted to make sure that, that aggressive pricing does not seep back to our normal pricing so we have a number of policies around proof of displacement and like that to make sure that we are ring-fencing the pricing around that model.

Got it. Got it. Very helpful. And you mentioned data center business and AI data center is now one of your peers calling out that as an opportunity as well. What -- how large are data centers as a percentage of your total business?

Significant.

Yes. I mean so significant meaning like.

Significant. And I would say -- no, more than 1/3 -- I mean, the total firewall business, not of the total business.

Okay. The total firewall business.

Yes, yes. The majority of our business today is data centers.

Yes. And so how do you -- how should we think about how you're positioned for AI data centers? And do you have a lot of visibility into AI data centers as opposed to data centers that customers may also be running AI inferencing on. How are you seeing that market play out?

So I think. So first of all, we're starting from a position of strength because the data center is the area, and as Roei mentioned where the majority of our business is where you already have a lot of a lot of differentiation. As we evolve to the AI data center models, we think we have even further differentiation, and that comes from a couple of things. So one is, first, our partnership with NVIDIA. And so as you know, kind of AI data centers are running nearly at 100% capacity all the time. Latency is a huge issue kind of for these data centers. They are running multi-tenancy. They are running multi-workloads so the fact that we have our partnership with NVIDIA, where we put our firewall effectively on the DPU addresses many of these issues.

So first of all, it addresses the latency issue because you're on chip. The second thing is also because you are on the DPU, not the GPU so you're leaving the GPU to do its work, you're not affecting the capacity from a GPU perspective. But it's not just that, that's just one factor of it. It's when you combine that with the rest of our product portfolio where the magic happens. So if you look, for example, if you look at the training side, it's only the firewalls on the DPU that work. On the inference side, then you add the AI guardrails through our acquisition of Lakera, and that, again, provides another layer of security. Then on the data center side, with the traffic increase, the fact that we have our Maestro model, which is the best scalability in the industry, again helps us through that. then you come in and you include our WAF solution that addresses security for how do you address the -- access the application, access the application, et cetera.

So you take the different parts of our portfolio, and it's really a compelling complete, differentiated solution. And we've already seen wins in different parts of the work we had wins in Asia. We had wins in the Middle East. We're in discussions with some massive opportunities in the Americas and in Western Europe. So we really see this as an opportunity for us so we now have a standardized architecture against standardized services for delivering it, et cetera.

And how large are these deals relative to the rest of the deals that you see in your pipeline?

So there are -- they're among the larger sizes inside of the deal. But the other thing is some of them as well become opportunity openers for other opportunities so we've won a deal recently in Asia. And these guys are providing services for application and AI application development for companies in that specific country. And what they become now is now they've utilized our services, but they are including them as part of what they sell to their customers in terms of -- and here is the security package to secure the application, the AI applications and the LLMs you're building on our factory. So the deal itself is bigger, but it has a multiplying effect from -- 2 years ago.

And do you have a sense of within the AI data center opportunity, I mean, how far along are we with data center build-outs? Has this been happening for quarters because I think we seen a lot of CapEx spend? Or is -- are we at the point where you've seen some of these data centers get built out. They've kind of figured out what they need. So now is when we're starting to see more demand on the security side to follow that initial spend?

So we think that the investment cycle is only starting. So in the initial phase until now, it's mainly been the hyperscalers and what we're now seeing is large enterprises are getting to the game because of privacy issues or data sovereignty laws that they have to apply to governments are getting into that again for data sovereignty reasons and all that. So you're seeing new types of players that are coming into the AI data center. So we think the cycle is just going to accelerate because of that. And we think frankly, many people still don't know what they need. They know they need something, but they don't know what they need.

And that's why having this standardized architecture that says like the discussions we have with the customers is you're embarking on this journey. These are the things that you need to think about, and this is how our technology. So it's also a very, very consultative sale that we're doing because we're helping customers understand here are all of the things that in the AI world you need to deal with that are different from what you used to deal with before.

Right. And Roei, how does this line up with the Quantum product cycle? I mean, we're pretty well into that now. And that was, I think, one of the issues this quarter, your comps last year were more meaningful. But from a product cycle perspective, is there another cycle in the wings? How do we think about the cyclicality of that firewall business after the most recent quantum...

I know that we'd like to call it a cycle, but I think in the end, of course, we had last year, it was a strong -- we did have a lot of refresh projects. Last year and I think also 2 years ago. But also when I'm looking today on what we have now is just with our installed base, even without accelerate -- I mean, gaining new logos, acquiring new logos, I think that the potential to grow on firewall is there. This is even without AI data centers. We've talked a lot about data centers. I think the -- there is a lot of potential even for our current installed base, they still didn't -- I mean active customers, they still didn't replace their old appliances. They expect to replace it in -- or in this quarter in the remaining of -- or in the second half of the year.

Again, I think the guidance right now takes into account that we're going to see some decline in Q2 and probably also in Q3, but that's mainly because of internal disruption because definitely, we do expect to see back to growth in product from Q4 and afterwards. So -- and again, that's based on our internal metrics, based on what we see. And pipeline -- as Sherif mentioned the pipeline generation we see very strong generation in the last month, in the last few weeks. So we do feel more positive with the firewall back to growth from Q4.

Got it. And I know on the earnings call, I think Nadav was pretty adamant about macro not having an impact this quarter. He's very focused on the disruptive aspects of the quarter. But how is customer spending overall? Are you starting to see access to budgets outside of traditional IT budgets and then maybe part B of the question is, have customer, I guess, spending intentions change since Mythos and GPT 55 emerged and people started freaking out a little bit.

I would say it's a good question. I think that, of course, that there will be more spending on AI, but I don't -- actually -- and again, Sherif can also comment about what he sees, but I don't see the security budget going down. I think that security will continue to go up, of course, in terms of priority. I think that network security is a top priority. I mean, you're going to see more volume of data that's going through the network because of the AI. So I don't see our network security. I think that actually the budget for network security should go up. But again, right now, I think Nadav mentioned, it's not the macro. I mentioned in the beginning of the year when I gave the guidance for the full year in February, I mentioned that there might be some changes in customer behavior because of the rising cost of the memories.

In the end, it's something that we also see today, the memories. It's crazy what's going on there with the -- I mean, the inflation of the pricing. But I have to say that right now I don't see -- I mean, I don't see it across the board customers stretching their assets because of memories because of the memories cost, it might happen. But right now, I think we've been very clear that what happened in Q1 and the reflection the guidance for the -- I mean, the update of the guidance for the full year was not as a result of macro.

I'd say what we're seeing with customers is definitely an increased focus on cyber security on how to reprioritize within the cybersecurity space. So it's definitely becoming more top of mind, Board issue for sure, more than ever before. Have I seen that as a result of that, the purses are open and someone is saying now your cybersecurity budget is 30% more, et cetera. We haven't reached that stage, but there's definitely no sign on the horizon of the budgets being stable or reduced. But what we're seeing is customers really thinking, okay, where do we need to invest based on the changes based on what we're going to see happening like -- that tsunami of vulnerability that's going to happen. How do we react to that in terms of our processes so that we can prioritize how do we change our patching processes, et cetera, in order to speed up.

And we think that, that's bringing, again, for us, benefit. So the whole topic of exposure management is becoming much, much more critical. We are finding ourselves in significantly more discussions around our exposure management portfolio than we have before. And there, we have a unique -- a number of unique assets. One is through the acquisition of Cyberint. We got a lot of external visibility. You combine that with all of the telemetry that we see from our products, and you have an incredible basis of intelligence to start from. Then through the acquisition of Veriti, the fact that we can then go and implement things across multiple vendors and not just our side of things. The fact that we can -- now we are now developing capability to enable us if the customer allow that we, based on certain rules can go on auto patch, not -- again, not just in our technology but others.

And so that's creating a lot of strength in that. Then network security is becoming in fashion again in different things because, again, like topics like segmentation, for example, and microsegmentation become more critical than ever because if you assume someone is going to get there, how do you stop lateral movement. So that's increasing, again, demand for firewall for segmentation purposes, which had slowed down in the last couple of years, AI data center. So we also feel that our choice of pillars to invest in is being vindicated by the changes in AI security, the investments there, top priority, exposure management top priority. People will need to rethink the network security posture where we have our prevention-first ethos and a lot of the things that we had in the past. So we're very positive about where the industry is going and where that allows us to position ourselves.

And how are customers thinking about -- I mean, obviously, one of the themes that we're seeing, particularly over the past couple of months/year-to-date is a collapse of the meantime to exploit, right? So now speed is becoming even more critical, not just in terms of finding the vulnerabilities, but quickly responding to those vulnerabilities or exploitable vulnerabilities. How do you view your platform? Is a tightly integrated platform an advantage in that situation? And maybe if so, how would you describe how that advantage plays out in terms of the ability to react in a faster way to some of those exploitable vulnerabilities.

Yes. I mean, I think the topic of -- we get asked a lot about the topic of our unified platform versus we talk a lot about our open garden and open approach. And I think it's important that we position that in the right way. We are not going away from platform and the benefit of platforms. So for each of our pillars, we're building a platform for that entire pillar. So if you look at the AI defense plane that we've launched around AI security, that's again, a full platform that covers protecting your data center to protecting the use of generative AI to protecting kind of your LLMs and agents and the full stack full platform. If you look at Workspace, again, we have e-mail and collaboration endpoint, mobile, SaaS, SSE kind of part of that. So again, in each of these, we are building a platform.

And what connects underneath is our threat prevention protocols, et cetera. And then we're also building a unified management across all of these. So we're not going away from us building platform. But what we're seeing is we're also realistic enough to understand that customers have installed base, customers have choices and that frankly, if we as a company, we wouldn't bet our cybersecurity on one company because that becomes an exposure in its own right. So what we want is still, if you use another vendor, we still offer you the best protection with that. Example, our workspace management play. You go and it's built and you get the best experience and the best protection if you use everything from our side. However, if you use CrowdStrike for endpoint, you can still go and position and configure and say, "I'm using CrowdStrike." And then we will manage your entire workspace, will it be as good as if the whole thing is from us? Of course, not because we don't control the whole stack, but we will still offer you significant capabilities to still have visibility across your entire workspace.

But where across your platform are customers saying, all right, native integration with this product is the most important. So we're going to be the CrowdStrike and endpoint or we're going to be the Tenable for vulnerability or exposure management like where do you get that leverage from being able to accelerate your time to react?

So we get that leverage from -- so we build obviously, integrations for us, but we are building predefined integrations with other vendors as well. So for example, with Wiz and the partnership we have with on the CNAPP side or with Illumio, on the micro segmentation side. But then we also look at the entire usage of customers and we take what are the most important platform to integrate with endpoint, CrowdStrike and Defender. So that's the majority. So we're going to focus there first. So we have more than -- how many now? I think 80 native integrations with competing products and some others.

Great. With that, I think we're out of time. So Sherif, Roei, Kip. Thank you so much, everyone. I appreciate it. It's great to see you.

Great. Thank you, everyone.

Greetings, and welcome to Check Point Software's 2026 First Quarter Financial Results Video Conference. I'm Kip Meintzer, Global Head of Investor Relations. And joining me today are Chief Executive Officer, Nadav Zafrir; and our 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 a listen-only mode that will be followed by a Q&A session. During the presentation, Check Point's representatives may make forward-looking statements. Forward-looking statements generally relate 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 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 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 e-mail at [email protected].

Now I'd like to turn the call over to Nadav.

Thank you, Kip. And thank you all for joining us. So I'm going to begin with the key operating dynamics of the quarter and obviously talk a little bit about how we're advancing our strategy to drive sustainable long-term growth. So to begin, in our first quarter, we delivered double-digit growth in non-GAAP earnings per share and adjusted free cash flow with revenue growth at 5%. Subscription revenue remained a key strength, driven by strong demand across our emerging technologies, which actually generated 45% growth in calculated billings led by e-mail security CAM and SASE.

At the same time, we do see a decrease in times research projects that resulted in lower-than-expected product revenues. As we discussed in our last earnings call, during the second half of 2025, we conducted a comprehensive go-to-market assessment with the objective of accelerating both new logo acquisition and increasing wallet share in large enterprise accounts in order to enable the successful execution of a multi-pillar platform strategy. So based on this, we implemented changes to our go-to-market model to align with these goals. And the transition to the new model did create short-term disruption to the rhythm of our sales execution and primarily affects our appliances business. Now while we're confident that the changes made are spending the sub for success in the mid and long term, we do see a short-term impact on our business that will negatively affect our 2026 revenue projections.

We believe these headwinds are transitory and they reflect a deliberate reset to position our business for improved execution and scalability. We're already seeing that the current pipeline trends and ongoing customer engagements and our plans to further invest in our firewall business make us optimistic about the future growth trajectory. Beyond that, our strategy continues to be anchored around our 4-pillar approach, which we believe is well aligned with the evolving security requirements of enterprise, particularly as AI adoption expands the threat landscape. And in support of our go-to-market execution, we're strengthening our leadership team with 4 key appointments.

So first, Sherif Seddik has been named Chief Revenue Officer and will lead our go-to-market organization. Sherif has successfully led our international sales business over the past few years. He brings more than 3 decades of global sales leadership experience, and he'll be replacing Itai Greenberg. I want to take this opportunity to thank Itai for his continued support during my first year and for his leadership in the go-to-market changes. Beyond that, [indiscernible], who has led our CTEM offering since the acquisition of Cyberint and has driven 96% year-over-year ARR growth will join the leadership team. You know that as organizations operate in this increasingly [indiscernible] exposure management is becoming mission-critical because it enables security teams to rapidly identify emerging threats. And the most important part is materially accelerate their mediation. And I think we have an advantage here, and I'm happy to welcome [indiscernible].

Alongside that, to lead our AI pillar, I'm happy to say that [ Adam Elin ] has joined as General Manager of AI security, and we'll also join the leadership team. Adam brings deep experience at the intersection of cybersecurity and large-scale enterprise security operations because in his previous roles, he was a CISO fidelity, [indiscernible], but he's also a founder of Blue Box security. I think Adam adds really a proven operator perspective, which is so essential in this time and we will focus on building the platform, our AI security platform to scale with the speed, the rigor and a strong commercial pipeline. And then lastly, Rafi Kretchmer is appointed a VP of Global Marketing. He replaced Brett Theiss, so we wish well on his future endeavors.

Beyond that, look, you're all aware, AI is a watershed moment for the security industry. When you look at the emergence of these frontier AI models, including metals and GPT class, they're driving 2 structural shifts in cybersecurity. First one is that the barrier to sophisticated cyber attacks is literally collapsing because AI is democratizing capabilities that were once a exclusive to nation state and some very large elite "criminal organizations" and this is exposing a far broader set of enterprises to material risk. So that's number one. Number two, cyber attacks are undergoing structural industrialization. The Agentic AI enables [indiscernible] to continue scan global infrastructure, and they're generating a continuous flow of novel attack techniques.

And so manual operations are giving way to automated attack pipelines. And this is what we call a checkpoint, the AI attack factories. Now when you look at the convergence of these 2 forces, it really creates a different threat environment, larger attack population that is executing more sophisticated campaigns with greater speed and volume and the time to exploit is shrinking dramatically. And we believe -- I believe that this is directly validating our ethos of prevention first, which we're second to none in the industry, in my opinion. Beyond that, a checkpoint, we're not waiting for this threat environment to materialize. Our response is ready and active. It's structured, of course, across our 4-pillar framework. The security for the network through our hybrid mesh, CCAM and workspace security.

Now during this quarter, we introduced solutions to secure enterprise AI transformation. As an example, we launched the AI defense plan which is designed to secure the genetic enterprises across employee AI usage, the applications and the agents that both of these use the people and the applications. Beyond that, we introduced the AI factory security blueprint. It's integrated with the NVIDIA GPU service pinning on the server itself. And this provides end-to-end protection for AI infrastructure and we are very bullish about this. Most recently, we also announced our partnership with Google Cloud. We're integrating this AI Defense place with Germany enterprise agent platform. And this can deliver real-time runtime protection at scale.

We also delivered AI-driven exposure management, enabling customers to close the remediation gap through: one, improved intelligence, than the risk prioritization and finally safe remediation, which is critical, the time to remediate in organizations today. And then finally, we launched a secure AI advisory service to help enterprise government deploy and ultimately scale AI with security and doing so responsibly. And so to close my opening remarks, our experiencing near-term headwinds in our clients business and adjusting our annual revenue guidance, we remain confident in our ability to gain market share in this expanding security market -- the emerging technologies continue to perform strongly and position Checkpoint in a really good place to secure this rapidly growing enterprise attack surface driven by our adoption and we believe that our differentiated strategy, our core capabilities, our strong financial profile with its industry-leading profitability.

And at the end of the day, a disciplined execution over time position us to really benefit from the accelerating demand for secure enterprise and create AI, which is transforming the organizations at scale.

So before I take the question, with that, I'll turn to Roei to give you some of the financials.

Thank you, Nadav. So thank you, Nadav, and thank you, everyone, for joining the call. So as Nadav mentioned, the third quarter was a solid quarter with 5% growth in revenues, driven by 11% growth in our subscription revenues. Our total revenues reached $668 million and were $2 million below the midpoint of our projection as a result of lower revenues from firewall appliances that impacted our product revenues. When we are looking around subscription revenues, they grew by 11% to $323 million and were at the midpoint of our projections.

Our adjusted free cash flow was very strong and reached $457 million, $70 million above the midpoint of our production and grew by 11%. Our non-GAAP EPS was $2.50 and was exceeded our guidance with 13% growth year-over-year. So as mentioned, we had 5% growth in revenues, while our deferred revenues grew by 8% to $2.06 billion. Our calculated billings totaled to $548 million reflecting a 1% decline year-over-year, while our current calculated billings grew by 2%. Our [indiscernible] performance obligation grew by 7% and reached $2.592 billion. So as we -- as Nadav indicated earlier in the call, we had lower-than-expected product revenues, mainly as a result of the disruption affected by the changes we made in the go-to-market organization.

As we are looking in the second quarter -- into the second quarter, we do see this disruption [indiscernible] plants revenue. But based on the finance that we see, we expect to see an improvement in the second half of the year. It is important to note that our new business continues to be stable, and our fire subscription ARI continue to grow year-over. When we are looking on our subscription revenue, we do see projectory for reacceleration, and we do expect to see acceleration in our subscription revenues in the second quarter and for the full year driven by strong demand by emerging pillars, mainly by [indiscernible], system and SASE.

So as indicated, our total subscription business continues to be strong. We continue to experience strong demand for our emerging products, which remains the primary driver of our revenue growth. In Q1, our Email Security SASE in ERM in total exceeded growth in ARR and over 45% in calculated billings year-over-year. It is important to note that although the revenues are still not significant for the total business, we see a significant growing finance for our AI security offering and that's together with the [indiscernible] expect to drive the subscription revenue growth in the next few quarters. When we are looking at the revenues by geography, so 46% of our revenues came coming from EMEA, which had 6% growth [indiscernible], 42% of the revenues came from America and believe a 4% growth year-over-year, and the remaining 12% came from Asia Pacific and this had 2% growth.

When we are looking on the P&L for this quarter, so gross profit increased from $564 million to $586 million, representing a gross margin of 88%. Our operating expenses, excluding R&D grants, increased by 14%, while on a constant currency basis, our OpEx increased by 12%. Q1 results include approximately $27 million of benefit from R&D grants to be received at the new Israeli incentive program law, which was ratified during the period, and that's reflecting the surge impact in our financial results. Our operating expenses, net of R&D grants were $321 million and increased by 5% year-over-year. When we're looking on these grants, we do expect to have an approximately benefit for the total year of $100 million on our operating income, reflecting the new law that was just approved.

So just finalize. The increase in our OpEx is primarily as a result of our increase in our workforce as a result of the investment in our AI security and investments in sales and marketing program. Looking on our non-GAAP operating income, it continues to be strong at $265 million or 40% operating margin. Our non-GAAP net income increased by 8% and reached $265 million, while our GAAP net income reached $192 million similar to last year. Our non-GAAP EPS grew by 13% and reached $2.50 while our GAAP EPS was $1.81, represent 5% increase.

Moving into our cash flow and cash position. So our cash balances as of the end of the quarter, together with master [indiscernible] short-term deposits reached $4.4 billion. During February, we completed the acquisition of [indiscernible] for approximately $92 million of net cash consideration. Our adjusted free cash flow increased by 11% and reached $457 million. In addition, we continued our buyback program and purchased 1.9 million shares for a total of $325 million at an average price of $170 per share. To summarize. So strong double-digit growth, non-GAAP EPS and adjusted free cash flow, we do see continuous strong demand for our emerging technologies SASE, e-mail security system. And from the other hand, we did see -- we do see in the near term lower new business from firewall that affected our revenues.

When I want to go into the guidance for the second quarter and for the full year. So for the second quarter, our total revenues are expected to be between $660 million to $690 million. Our subscription revenues expected to be between $328 million to $338 million and non-GAAP EPS is between $2.40 to $2.50 while our GAAP EPS expected to be around $0.70 less. While our adjusted free cash flow is expected to be between $145 million to $175 million, regarding the cash flow, the free cash flow, important to say that there is some -- there are some payments, significant payments that moved from Q3 to Q2. But again, that's mostly shifting from Q2 to Q3. When we are looking on the full year guidance, so as a as indicated, we are adjusting the revenue guidance, our cost of revenues guidance for the full year.

The new -- the [indiscernible] is between $2.770 billion to $2.850 billion. That's a reflection of expected lower revenues on firewall appliances mainly in the second quarter. Our subscription revenues were not changing. We do see strong demand for emerging products, and we opt to finish in the upper end of the range, but we are keeping the same range for the full year. Same thing for non-GAAP EPS, we are not changing our non-GAAP EPS expected to be between $10.05 to $10.85. GAAP EPS is going to be slightly higher, again, mainly because of lower share count and slightly higher acquisition-related costs. And our adjusted free cash flow, we are not updating the guidance, same as we gave between [indiscernible] I'll stop sharing. [indiscernible]

Sorry about that guys, having a little bit of technical difficulty. Starting off today's Q&A is going to be Brian Essex from JPMorgan, followed by Rob in the Piper Sandler.

I wanted to dig into product revenue performance. We'll take the easy question. was macro or customer decisions to sweat assets not a factor at all? And if not, can offer a little more color around the depth of the go-to-market changes. Where was the friction in the process most apparent? Where did the system break down? And what gives you confidence that this is just a near-term issue?

Thanks. So look, I don't think the macro is the issue here. When you look at our -- the changes that we've made to our go-to-market, they are significant. So it's optimizing accounts to account managers. It's doubling down on our marketing, doubling down on our channels. But it did create a short-term headwind in terms of execution as many of our people changed their role or changed accounts, and I see this as the main driver or the main headwind that we're seeing in terms of the firewall business. So I don't think this is -- we don't see a macro problem. We're actually already seeing that the engagement with our customers and the funnel going back to normal.

So we're optimistic that this is sort of a blip but it does take a little time to sort of get the motion back and everybody in their seats, et cetera. But for the long run, we believe this is the right thing to do, and we're going to continue to invest. Now this is just on the workforce, but also leadership changes in America leadership changes in other areas. So there's a process here that we're going through. I think we're at the tail end of the disruption and very optimistic about the future. And at the same time, when I actually look at the demand side, we're seeing different areas of growing. So as an example, we're very bullish on new AI data centers where I think we have a very unique capability for the longer term, that's how we see the market, and we're optimistic.

Next up is Rob Owens from Piper Sandler, followed by Joseph Gallo from Jefferies.

Obviously, the world has been changing quickly over the last 6 weeks. I'd love to understand your perception relative to what's happening and how that's influencing Checkpoint's business. But in line with that, it seems like you're losing momentum at a critical time for cyber here. So how do you ensure that this doesn't lead to longer-term share losses as customers are having to make decisions in the near term to protect against these next-generation threats?

Well, honestly, I actually think that we're gaining, not losing when you look at the big picture, right, take [indiscernible], an example, right? We think that, as I said, this is going to create a demarketization industrialization and change the nature of the business. And I actually believe that we're really well positioned to answer that. At the same time, when you look at the relevant pillar, [indiscernible] has grown 96%, e-mail, which we are one of the best-in-class in the industry and ready for this AI revolution is growing over 40%, et cetera. So that's one thing.

The other thing is when you look at the fundamentals of the change in cybersecurity, I actually think that our ethos of prevention first as an example, if you look at the latest reports by NSS and [indiscernible]. Again, once again, we're at 99.9% ability to stop a tax of known CBEs. This was always important. I think now it's becoming really critical because that's exactly the change that's happening. You're going to have to be able to block as fast as possible or everything that is possible and then you're going to have to remediate extremely fast. I think from both sides of the equation, we actually have an advantage here.

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

I know you talked about the impact to appliance execution, but I think the most exciting part of the story is the subscription growth and the potential for acceleration there. But if you look at current billings, and you take out products, that only grew 3% year-over-year in 1Q. So just you're guiding to 12% subscription growth and acceleration in the back half. Maybe just walk us through a little bit more about the confidence in that? And then just any broader commentary on how we should think about billings going forward.

So I'll take it. So you're right in terms of current billings, excluding products, but that takes into account also maintenance and software and maintenance updates. And actually, pretty flattish right now. So if you're excluding that, so actually the growth of subscription is much higher subscription billings. And we do see, by the -- we see the final even for the second quarter and also -- and mainly for the second half of the year. We see very strong demand for our subscription packages, our subscription offering, if it's email, [indiscernible] we discussed. And also AI security. Also the numbers are still not significant in terms of bookings for AI security, but we see very significant funnel that was created just in the last few weeks. We see the enthusiasm about it. We have a new leader there. And now that's managing this business. So definitely, we feel positive about the subscription also for the next few quarters to be accelerated.

Next up is Adam Tindle from Raymond James, followed by Shaul Eyal of TD Cowen.

I just wanted to just take a step back to kind of 2 major things that we're having to digest here on this call. The first one, I want to understand what exactly is happening to product revenue that is causing this revision? Is there changes to terms of distributors? Is there issues of supplies and shipping? What exactly is changing and happening that's causing this mechanically? And the second thing that we're digesting here is the go-to-market changes that you're implementing I wonder, we've gone through this before with checkpoint in the past, a number of changes to go-to-market leadership. When you look at these, if you could maybe compare and contrast some of the things that have been done in the past to this time, what you've learned and what might be different with these go-to-market changes?

I can start on the third one, and Nadav will take the second. Yes. So on the -- in terms of the product side, same affected the product. So we did the changes in the go-to-market organization. part of these changes were a lot of changes for assignments for eco managers that will work from large enterprise and enterprises that moves from accounts to other accounts. This has some kind of -- again, something that was expected, but that had more disruption than we expected on the business, mainly on the new business. On the new business on the -- I'll remind you that the funnel for research projects for new business on firewall takes a little bit more time than the sales cycle is longer than a sales cycle for selling send e-mail or other products or this kind of product profile is usually takes longer.

And we see disruption in final creation mainly in Q1, that's affecting mainly some of it in Q1, but mainly in the second quarter. And therefore, we see the finance starting. We see a very nice improvement in the last few weeks after all people are on and the relevant roles and they are starting to open their accounts. And we're starting to see the finance creative in the second half or the second half of the year. But as we mentioned, there is a near-term headwind, specifically for the second quarter. Nadav, do you want to take the second one?

Sure. Adam, thanks for the question. Look, we I would say a couple of things. Number one, it's my job to continue and optimize and see that I have, that we have the right leaders in the right place I think that one change that we're doing, which is, I think, a differentiation is beyond just the structural changes that Roei spoke about. We're also investing more in marketing. We're doubling down on the channels. To your question about the personnel changes that we're conducting, we do want to bring strong leaders that come from the security business with the right experience, right?

So in our last earnings call, we announced Rachel Roberts, who's taking as President of Americas. We -- and she has experienced vast experience in the cybersecurity market. Tom alone joined us and needing the global Adam Eli comes from the industry and is going to be the AI security. So the idea is to bring seasoned leaders that know this business and then put like we go-to-market organization. So these 2 things work together. And the third thing is, which we've been speaking about is the multi-pillar approach that we're coming with. So all in all, I'm very bullish about where that is going to take us. But I do acknowledge that in the first quarter, this has created a disruption, but I think it sets us up for success as we go forward.

And you'll see more people joining us at different levels from different companies as we are just getting the right people, the right data, the right processes to create this sustainable growth. And we have the vision, we have the mission. I really believe that we have a meaningful headwind with the products that we have, and we're bullish about where that's going to take us.

All right. Next up is Shaul Eyal, followed by Shrenik Kothari.

Nadav [indiscernible] are we maybe sticking with the product revenue question as you guys know, checkpoint as well as its competitors. You guys are selling a number of appliance families, low, mid, high tier markets. Is there a specific market here in which you're seeing increased pressure or the current softness is pretty much across all market tiers?

It's across what I would say, mainly around the large. And again, many of the results of the disruption in the go-to-market because there were many changes to assignment of enterprise and large enterprises are many consuming the large boxes. So that's -- I would say that. But again, we see the cost of bottom.

I will say this Shaul that -- I'm trying to put together the trends that are coming. And I know that this is sort of zooming out a little bit, right? But when you think about the priorities of large security organizations in the -- today and in the next couple of years, which I think are going to be chaotic. If you believe that this democratization industrialization of the attackers, and the changes that agentification is doing in everyone's network is real, then I think that our firewalls are actually very well positioned for this future.

It's nothing else because of the ability to prevent every known CVE and deploy it through our IPS in hours, not days or weeks. This is becoming more and more critical. I know that we've been preaching this for a long time, but I think this is now going to become more important. And I think gives us an advantage not with -- only with the customer like growing with the customers that we have, but going after new logos, which is actually a part of the change that we've made in the go-to-market organization. Now as [indiscernible] said, getting new logos in CTEM is much faster than getting new logos and firewall. But I think we have what it takes, and we've done the adjustments we put the right people in the right places. We'll continue to do it. It's never good enough.

But I think it actually gives us a headwind not only in the emerging categories but also in the core in the firewall, which is alive and kicking it, forget checkpoint for a second. I think when you look at where the world is going right now, network security is becoming so much more important. It's one of the only places where you can really prepare an organization for the AI adoption. It doesn't happen overnight, but I truly believe this is a tailwind for Checkpoint.

Next up is Shrenik Kothari followed by Keith Bachman from BMO.

Yes. Just maybe to switch gears from appliances, Nadav, you mentioned about the data [indiscernible] and factory blueprint and between that and the new AI defense plan, the Gemini agent integration, the sector AI, it seems like you are trying to go after multiple layers of the enterprise study strategically very compelling and talk about the opportunity. But just how should we think about monetization of the top from where you see the near-term opportunity this year in the next 12 months?

Yes. So I'll say this, it is a process. We're making very investments, right, in a couple -- I think 6 months ago, we told you about the acquisition of [ Lakera ] as an example. This is where we're building a truly foundational model. We believe that if you look at the security for AI, you won't be able to use existing large language models that can do everything known to humanity right phones and protect. But rather, if you want the latency, the accuracy in the cost, we are going to have to train our own model. So that's a huge investment. We're investing in the researchers, we're investing in the GPUs. We're investing even thinking out of the box, we created a game called Gandalf where we have over 1 million worldwide users that thousands of them attack us every day so that we can put that into the -- to our small language model to continuously breed it so it can get better and better. That's a big investment.

Now on top of that, we're building security for AI as a platform, so for users, for employees, for applications, whether they're looking inside or to customers. And both of these, both people and applications using agents. And we're doing the security to the people. We're securing run time. We're doing it, as I said, with Gemini. We're also doing it with Copilot for Microsoft. Now all this is heavy investment. Now Adam is coming in to lead also the commercial side of this. We're hiring the first salespeople to drive this. And we think that it's going to be still a small part of 2026, but each potential for the future. That's one thing.

Beyond that, it's also going to feed into our other pillars because by having those foundational models, we also have people that are simulating sort of in what we call the future labs, what these attacks of the future are going to look like. So it's not just the AI pillar. It also feeds into our intelligence, it feeds into our e-mail security it feeds into our endpoint security. And I think over time, the value of real security, real proactive security is going to become more and more important. So at the end of the day, it's a big investor but I think it's essential, and I think it positions us well for what's coming.

All right. Next up in place to Keith Bachman is going to be Todd Weller and that will be followed by [indiscernible].

Just a question on memory pricing. What are you seeing in terms of impact? More importantly, how are you thinking about it kind of going forward over the remainder of this year? And then any kind of additional pricing actions being contemplated?

So memory pricing continue to inflect to increase. I mean we see this trend continues. As I mean, as for what we are looking at is when I set our revenue -- our product revenues, I talked about it already when we gave the full year guidance. We took into account some disruption from the memory cost, fundamental cost also on the firewall business. Right now, I think it's tough to say if there is anything related to that. I mean we are looking on the final for the second half of the year, we see good finance for firewall. So I mean, tough to say how it will impact right now. I don't know to tell you it impacted the behavior of our customers in terms of buying firewalls buying the clients. But definitely, I can tell you that the memory costs are continued to surge, and I don't see it stop, I mean, in the near term.

Next is [indiscernible] with BofA.

I keep asking you the same question. I'm going to come back to the same question. You joined the company a few years ago with hope that growth is going to accelerate. You've done many things on sales on products and growth has decelerated instead of accelerating in the sense that we are now at 5% environment. It's just not big enough for such a great space there could not be a better space for you to grow and accelerate revenues -- revenue growth. So the question is, what is not working with the strategy? What is not working? How can you change the growth trajectory to the point that we see double-digit sustainable double-digit growth. And really to synthesize the question, the issue is what is the problem? Meaning, is it about sales execution? Is it about portfolio? Is it about the employee composition and the fact that maybe a culture needs to change. I'm trying to understand -- what do you -- what can you do in order to change the growth trajectory?

Well, first of all, I totally agree that we couldn't be in a better industry right now. And I think that, like you said, that's why I'm here, and that's what I'm here to do. Look, as we said before, yes, some of it is execution, and that's why we're making these changes that we just spoke about, which are meaningful, hundreds of people, getting new accounts, moving seats, pretty new leaders I think it's essential, giving us a short-term headwind, but I think we'll drive that sustainable growth that you're looking for. At the same time, I do want to say that when you look at the total product portfolio that we have, although it's still not the biggest part of what we do, if you look at the emerging technologies that we have, right, e-mail, CTAM, SASE and hopefully -- and now joining with security for AI, that as [indiscernible], as we spoke about before, is going really, really fast and becoming a bigger piece of what we're doing.

So all in all, I think that the vision and the strategy are there, we're making the changes that we need to do. it does take time. And we need to continue course and have the patience to get there because we need to do it with discipline. And that's what we're doing, and it's going to take time. But believe that we're in the right business with the right products. In every one of the pillars that I spoke about, we're also looking at acquisitions. And I believe that when you bake all that together with the leadership that we're putting in place, we'll be in a good place in the future.

Next is Joshua Tilton from Wolfe followed by Jonathan Ho of William Blair.

I love getting no warning. But with that in mind, I'll take you to one. Maybe one for Roei. Can you just reiterate exactly what you expect in the second half for appliance. I wasn't sure if you said stabilize or recover? And then maybe just talk to kind of the visibility you have or maybe the confidence you have around that view?

So for the second half of the year, you do expect to see improvement. Right now for the second quarter, we do expect to see a decline sharper decline in the product revenues. But for the third quarter and the fourth quarter, it's going to be gradually. We receive a much better funnel also for the appliances. And we do expect to see improvement there. It doesn't mean that we're going to grow in Q3 and Q4 product revenues. But definitely, we're going to show better performance compared to what we have -- what in -- what we had in Q1 and what's expected for the second quarter [indiscernible]

Can you just talk to like what's driving the confidence in that view? Is it just what you see in the funnel? Like any incremental color would be helpful there.

So we see progress in the -- we see improvement in the [indiscernible] we're looking. We are checking all the time, I mean, these metrics on a week year basis. We see improvement in the final for the second half of the year. We see very nice deals, large deals in the funnel that are progressing. And we -- and again, we are doing these checks. We are doing the discussion with the go-to-market leadership of the world we feel more confident about the second half of the year. We do see the already some nice deals have been we already won over competition, or our competitors, win backs or cloud enterprises. Of course, it's not going to be -- we're not going to see revenues in the second half of the year, but we see some -- these kind of deals being closed and will affect our revenues in the second half of the year. But all of that together put us in much better -- I mean much better view for the second half.

Next up is Jonathan Ho, followed by Peter Levine.

You referenced some strong growth in your securities for AI solutions, but they're still relatively small contributors. But with that strong pipeline build, particularly in the last couple of weeks, when do you expect AI security to be more of a material contributor? And will this be more sort of stand-alone products or can there be maybe a stronger given the spear type solution where you can land some new customers? So cross-sell within your base versus [indiscernible]

Yes. Thanks for the question. Look, early innings, right? And I think to become a substantial part of our revenue, that will only happen in -- as a stand-alone that will only happen and it's a big investment. Organizations are going to inevitably even those that are trying to sort of slow down the adoption inevitably need to adopt new AI for their employees, for their applications, et cetera. We're all seeing it in our own personal life. We're seeing it in our businesses, et cetera. but it's a process. And so as a stand-alone business, I think to be substantial to Check Point, 2027. Beyond that, you're right. It's not just the stand-alone.

So for example, it's part of our workspace pillar where workspace employee usage is sold as a bundle through our workspace when you look at the infrastructure level, where we spoke about the firewall business, being able to double down on the infrastructure and embed AI in the NVIDIA GPUs. Again, as Roei said, we're only seeing the first links of these projects happening. But as they happen, I think we are gaining advantages. So to answer your question, I think it's both as a standalone and as a contributor to our other pillars. And even to our -- not just as our product is one of the fastest-growing things in security for AI is the AI red teaming, as an example, which is a part of our services business. So it does have an impact on each one of those and as a stand-alone but to be a real impact on our revenue and become a significant part of 2027.

All right. Thank you, Jonathan. Next up is Peter Levine, followed by Saket Kalia.

Maybe just to double down. So we last reported mid February, just help us what -- like when do you really see the material impact to the go-to-market strategy? And then maybe help us understand the deals that were impacted are these upsells renewals or like net new deals meeting, what's the level of confidence that if it was net new deals since you're still in the pipeline? Obviously, you talked about stabilization in the second half. But just help us understand like the impact on like where [indiscernible] for?

I think when we report it back then in February, we were in the middle of deposit. I mean, we are [indiscernible] we started it some time in January, but in the middle of the process. We did expect some kind of disruption back then. But when we looked and after when I -- when we look -- we are looking at February and March, we did see this disruption in our funnel, affecting the funding creation mainly for the second quarter and some for the third quarter, we did see some delays on finance creation. We see that coming with we do see these delays expecting it. And we've seen in the last few weeks, the impact, you see that in the last few years, we do see a significant change in the finance creation. And these delays mainly impact the second half or the first half of the year.

And again, there are -- of course, there are several deals that have been pushed from one -- from first half to the second half. It's important to say that renewal business looks stable. We don't see any -- many affected new businesses and in firewall and that's the main change. I mean when we put back -- I mean we are being in the middle of the process. And as Nadav said, today, we are -- I think we are in the last inning, we're almost done with these changes, and we are now more confident what we see for the second half of year.

Up next is Saket Kalia, followed by Eric Heath.

Okay. Great. I want to shift gears a little bit and Roei, maybe the question is for you. The growth in emerging ARR and billings was great to see, 40%, 45%, I think those numbers were. Can you just remind us how big those businesses are in aggregate as a percent of subscription revenue. And then I want to connect that back to some of the go-to-market changes. How can some of the go-to-market changes maybe support growth in those emerging products going forward?

So we don't -- we're not disclosing it, but these specific 3 products are slightly below, I would say, slightly below 30% of our ARR for subscription. So think about that area, the specific 3 products. And Nadav, do you want to talk about [indiscernible]

When you look at the go-to-market adjustments that we've made, it does support exactly what you said, right? We're doubling down investment on these pillars but also integrating our work -- our sales sports together with them. That is when we want to become a multi-pillar organization, we want our account managers to be able not just to do firewalls but also the emerging business. So that's part of the change that we're doing. Beyond that, we need to go to our channels and introduce them to these new products, which some of them are novel to them.

So you're right. On the one hand, we need to push these emerging technologies and capabilities faster and we're doing that. But at the same time, we are going to go after new logos, win backs, et cetera, with what I believe is a tailwind of what's happening from the attackers perspective and our capabilities. And at the end of the day, it's obviously the change itself is disruptive. But now I think we're at the tail end of the discussion, as Roei said, we're starting to see the upside but it's never ending. We've got to get the right people. We've got to get the right data. We got to get the right processes. And then again -- but ultimately, it's putting a really big focus on our go-to-market all the way from funnel creation, demand creation, channels, the people, the processes, et cetera. And that's what we're doing. And I think it positions us for the future.

All right. Next up is Eric Heath followed by Roger Boyd.

I wanted to come back, I mean, to your comment about M&A. It's been part of the strategy with tuck-ins and you have the balance sheet strength, which is a strong cooper yourself and relatively muted valuations out there, broadly speaking. So just -- anything you can share about more transformational M&A as part of the strategy going forward?

Yes. Thanks, Eric. So we're looking at this based on our pillar approach, right, which at least in my mind, is very, very clear. What do we want to achieve in the hybrid niche? What do we want to achieve in CTAM, what do we want to achieve in workspace. And in each one of them, our M&A teams are constantly hunting for early-stage start-ups with foundation with technologies that we can take advantage of, but also larger opportunities. And I do think that one, our balance sheet; second, our discipline. And third, the volatility in the market is going to create opportunities for us, and we are going to make those moves when it's strategically within what we want to do in the pillar. We believe that from an execution culture merge -- we have the ability to do it. When all these DUCs are lined up, that's when we're going to make those bigger moves.

Next up is Roger Boyd followed by Matthew Hedberg.

I wanted to come back to emerging products. I think you mentioned 90% growth in CTEM, 40% growth in e-mail. Just any sense on where you are in terms of SASE growth. And to what extent is that business impacted or not impacted by some of the dynamics you're seeing across products and firewall right now?

Yes. Thank you. So look, SASE has become a fundamental part of the hybrid mesh network security, and we're making really big investments there. We have -- our R&D part is rushing to complete our feature list. We're now able to go upstream to the larger enterprises and creating some differentiated unique capabilities. In terms of the impact, no, I don't think it was impacted by the go-to-market change. I think the go-to-market change primarily affected our core firewall with people moving around. In fact, we're doubling down on our SASE sales capabilities. We joined forces with our CGS, our cloud network security sales force with SASE.

So in effect, that we now have a bigger team and more salespeople that can do both. And as this matures, the most important thing for us is to make sure that our general account managers can also be selling SASE and that's sort of the trajectory we're going into. But it is becoming more and more important around our hybrid mesh network security as organizations are moving. And in fact, I think adoption of AI is actually going to make this even more critical.

All right. On our last questioner today is going to be Matthew Hedberg.

With all the advancements from some of the AI models and with [indiscernible], I mean it's got to represent an incredible challenge for not only customers, but even for some of your engineers. Like how -- what is the focus internally with keeping up with this rapid change from these frontier models? And like how do we as a secret community adapt to this?

Yes. Look, I think that's sort of the biggest question that we're all looking at, right? So when you think about it, we're witnessing democratization and industrialization from the attachment side. That's a huge shift. And our networks as they become identified, they really change the nature of the network because if you really want to harness agents, you got to give them the ability to get into different data sets and so that creates different pathways that we haven't seen before. This is not a new shift, but it's accelerating dramatically. And so look, we're preparing for this era for a long time. It's not just about the single model announcement like [indiscernible] and I think we're executing intensively over the past year.

I'll give you one example of what sets us apart we have the depth of the research. We have folks in Tel Aviv in Zurich, in San Francisco that are building this foundational model that we're constantly feeding in order to anticipate that future. And again, like I said before, this allows us not just for the latency and accuracy, but also the cost structure. We started working in different verticals like banking, health, energy, with large design partners so that not only we try to anticipate what the attackers are doing, but they also tell us what they are doing in order to optimize their own organizations, irrelevant, not because of cyber, but because how they want to harness these models. And together, we're trying to understand how to security adopt them.

One of the things that I I'm very glad to see is that someone like Adam Eli is joining us. And then we're seeing like we're securing Microsoft Copilot. We're securing Gemini at Google. And so you're right. This is a fundamental change. I think at the end of the day, on the one hand, we want to move really fast with AI adoption. On the other hand, we need to use our decades of hardening our environment. so that we can get ahead of the curve before exploits go public. In this case, I think that our IPS signature and WAF rules is best in the industry right now. And so I think it positions us well. I think there are going to be many more models. I think a lot of them are going to become publicly available. And so we're really just seeing the beginning of this on 0 days become 1 day. The time to patch is going to need to accelerate dramatically.

This is where we're bringing our CTEM capability. And again, when you put these things together, I really think that we have a proposition to customers that not just going to keep them more safe, but also allow them to do this AI adoption. Having said all that, look, there's a lot of unknown. I want to be very clear about that. Some of the things that we're seeing with these new models is truly a game changer. And so what we're doing in order to try to stay ahead of it is not just to try to see what's happening in the wild, but also to get -- to try to simulate how the attackers are going to take advantage of these tools because the whole attack process, everybody is talking about vulnerabilities, but there are so many other things that we need to be aware of in order to stay ahead of this.

In that sense, these are really accelerating time. I think like we said before, this is a good time to be in this industry from a business perspective, but it's also one of the most important times to be in this industry. so that we can keep this digital world running.

All right, guys, thank you very much for attending. I'm sure we'll see you guys throughout the quarter, and we'll be speaking to quite a few of you over the next few days. Have a great day, and we'll see you guys soon.

Bye-bye now. Thank you.

Greetings, and welcome to Check Point Software's 2025 Fourth Quarter and Full Year Financial Results Video Conference. I'm Kip Meintzer , Global Head of Investor Relations. And joining me today are Chief Executive Officer and Nadav Zafrir; and our Chief Financial Officer, Roei Golan.

Before we begin, I'd like to remind everyone that the conference is being recorded and will be available for replay on our website at checkpoint.com. During this presentation, Check Point's representatives may make forward-looking statements. Forward-looking statements generally relate to future events or our future financial and/or operating performance, including statements related to the anticipated ratification of the Israeli government Research and Development Incentive Program and potential impact of these grants on our financial results. 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 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 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 e-mail at [email protected]. And now I'd like to turn the call over to Nadav for. Thank you, Kip. It's great to be with everyone here today.

I want to begin with a recap of 2025, followed by our plans for 2026 and beyond. We printed solid 2025 fourth quarter and full year results. During the year, we delivered consistent execution while building a stronger foundation for our long-term sustainable growth. We expanded our platform with 2 new pillars, security for AI and exposure management. We're building both organically and through targeted acquisitions. We also strengthened our go-to-market engine. We expanded and flattened our C-suite structure and aligned it to our operating model. We're laser-focused on strategic customers, new logo acquisition and partner leverage.

And our sales are focused and designed to develop deeper enterprise penetration, a broader portfolio adoption and increased new logo wins. We also enhanced our financial flexibility with a $2 billion 0 coupon convertible notes offering, strengthening our balance sheet and creating the capacity to invest in our highest conviction priorities. Looking ahead to 2026 and beyond, we are positioning the company to lead the AI era of cybersecurity. As you're keenly aware, AI is fundamentally changing the threat landscape, and this requires organizations to revisit their core security assumption and revalidate their security foundations. In fact, decades of corporate infrastructure is now vulnerable because the very nature of attacks is changing. And so security leaders must revalidate their existing security foundations, protect new attack surfaces that are driven by the adoption of new capabilities and tools as well as embrace AI as a force multiplier just to remain competitive.

And our mission at Check Point is very clear. We secure our customers' AI transformation. That means we continuously update our existing security solutions to defend against evolving threats. We're securing the expanding AI-driven attack surface with purpose-built capabilities and leveraging AI to simplify and automate security management and operations. And we do this by applying a proactive prevention-first approach, which leverages our superior capabilities and continuously research, discover and build solutions to anticipate the evolving threats. We secure our customers' AI transformation through 4 strategic solution pillars, each one of them a platform of its own. hybrid mesh network security, securing the infrastructure, workspace security, securing the employees, exposure management that provides situational awareness and then finally, AI security across all of these pillars. We secure the hybrid mesh infrastructure across data centers, hybrid cloud, branch and SASE.

And we have a very clear market differentiation for hybrid mesh. And our advantages are we have the superior proactive prevention, second to none, a hybrid architecture that optimizes user experience at the edge, an unparalleled ability to scale and then finally, an AI-powered unified management. As you know, AI is embedded everywhere. And so that the attacks can originate from everywhere, from anywhere. And so we're building an integrated and unified workspace platform that's spanning across devices, browser, e-mail SaaS applications and remote access. We believe that our recognized leadership position in e-mail security and superior phishing prevention capability is a springboard to lead the way in exposure management. Managed service providers, or MSPs also represent an important opportunity in the Workspace security pillar. We identified Rotate as a provider of a comprehensive platform purpose-built for MSPs. We acquired the team of Rotate to build momentum in the MSP market, leverage our position as a leading MSP e-mail security provider.

Next, we established exposure management as a new strategic pillar, and we believe we're uniquely positioned to expand our market share in the coming few years. Security teams are challenged by the overwhelming volumes of vulnerability, disconnected intelligence, shrinking remediation windows. And in an AI-driven threat landscape, weeks-long resolution cycle for critical vulnerabilities are no longer viable. At Check Point, we deliver real-time situational awareness unified across threat intelligence, attack surface visibility, providing context and automated remediation. Today, I'm also excited to announce the acquisition of SyCOps, a cyber asset attack surface management company that brings AI-driven asset discovery to enable accurate vulnerability context and risk prioritization. Cyclops strengthens our exposure management platform and delivers robust CTAM offering that includes threat intelligence, vulnerability scanning and prioritization and at the end of the day, also actionable and safe remediation.

And finally, as organizations rush to adopt AI, just to remain relevant, this breakneck pace of AI adoption prevents many new risks to organization. We get data leakage via prompts, the uploading of sensitive data, AI threats like jailbreaking or model inversion. And lastly, agents with uncontrolled autonomy, sometimes acting beyond their scope. AI security is a foundational pillar of our strategy. Our comprehensive AI security stack protects employee usage, enterprise application, agents and models. Late last year, we made the acquisition of Lakira to deliver runtime protection across AI applications and agents based on an industry-leading foundational model. You know that this is evolving faster than anything we've ever seen and requires design partnerships and open Gardner and the ability to track and acquire the innovators.

And so today, I'm happy to announce the acquisition of Siyata, specializing in discovering and understanding and ultimately governing autonomous AI agents. Siyata extends our platform by protecting the emerging AI workforce, enabling organizations to safely accelerate their AI transformation. In summary, 2025, as you know, my first year as CEO of Check Point. During the year, we strengthened our leadership team. We improved our go-to-market execution and enhanced our financial flexibility, all while delivering solid results. I believe during my first year, we built a foundation that positions us to accelerate our growth over the next few years.

And looking ahead, our strategy is focused and aligned. Organizations around the world are accelerating adoption, and our mission is to secure their AI transformation. Through our 4 strategic pillars, we are addressing the expanding AI-driven attack surface and bringing critical innovation to customers. The recent acquisition of Sightclub, Siyata and Browthase Talent further enhance our capabilities in exposure management, AI security and workspace. And these acquisitions strengthen our competitive position and ultimately support our long-term growth ambitions. We're executing with discipline, investing behind our highest conviction opportunities and driving greater value for customers, partners and shareholders in 2026 and beyond. And with that, I'll turn to Roei Golan on to address our financials.

Thank you, Nadav. One moment. Can you see my slides?

Yes.

Okay. So thank you, Nadav, and thank you, everyone, for joining the call. As Nadav said, we had a solid -- fourth quarter was a solid quarter with 6% growth in revenues, driven by 11% growth in our subscription revenues. Our revenues reached $745 million and were $1 million above the midpoint of our projections. Our non-GAAP EPS was $3.40 per diluted share and exceeded our guidance. The figure includes a onetime tax benefit of approximately $0.52 related to a reduction in our corporate tax rate in Israel that impacted prior periods income taxes and also updates into our tax reserves. Excluding the onetime benefit, EPS exceeded the top end of our projection by approximately $0.08.

As for the full year, our revenues reached $2.725 billion and were $5 million above the midpoint of our original projections. Our non-GAAP EPS was $11.89 per diluted share and exceeded our guidance. This figure includes a tax benefit of approximately $1.90 related to a reduction in our corporate tax rate that impacted prior year income taxes and uplift in our tax results also due to the tax settlement that we announced last quarter. Excluding onetime benefit, EPS exceeded the midpoint of our projection by approximately $0.09. As mentioned, our revenues grew by 6% year-over-year, while deferred revenues grew by 9% to $2.18 billion. It is important to note that our product revenues growth was moderated in the quarter, mainly as a result of our subscription price increase that we announced in July 2025, which shifted a larger portion of bundled hardware deals towards subscription.

This resulted in a headwind of $6 million to our product revenues in this quarter as we allocated relatively smaller product component without changing overall deal value. We do expect to see this impact also in Q1 of approximately $4 million to $5 million on our product revenues. We expect the benefits of this strategy to increasingly materialize in subscription revenue during Q1 and throughout 2026, while also the product price increase that we have effectively from 1/1/2026 of 5%, expect to support our product growth primarily from the second quarter of 2026. When we are looking on our calculated billings, they totaled to $1.039 billion, reflecting an 8% year-over-year growth, while our current calculated billing grew by 6%.

Our remaining performance obligation, RPO grew by 8% to $2.7 billion. On an annual perspective, our revenue grew by 6% year-over-year, while our calculated billing grew by 9% to $2.9 billion. Our current calculated billing totaled to $2.784 billion, reflecting a 6% growth year-over-year. When we are looking on our recurring calculated billing, which represents the calculated billing from subscription and maintenance and update, this grew by 10% year-over-year. As we mentioned, our growth this quarter was driven by our subscription revenues. We continue to experience strong demand for our emerging product portfolio, which remains the primary driver for our revenues. In this quarter, in Q4, we had a growth across all our pillars, CEM, Workspace and hybrid mesh, while our emerging products, e-mail security, SASE and ERM exceeded 40% -- more than 40% growth in ARR.

When now looking on the global revenue distribution, so we did see growth in all regions. 48% of our revenues came from EMEA, and that grew by 5% year-over-year. 40% of the revenues came from America, which had 6% growth year-over-year, while the remaining 12% came from Asia Pacific that grew 9% year-over-year. When I'm looking at the full year 2025, so actually saw 46% of our revenue came from EMEA, grew by 5%. 42% of the revenues came from America, and that grew 7%, while the remaining 12% came from Asia Pacific and that grew double digit, 11% year-year -- looking into our P&L in this quarter.

So our gross profit increased from $623 million to $660 million, representing a gross margin of 89%. Our operating expenses increased by 13% to $358 million. On a constant currency basis, our OpEx increased by 11%. The increase is primarily as a result of increase in our workforce and investment in sales and marketing and channel programs. Our non-GAAP operating income continues to be strong at $302 million or 41% operating margin. Our non-GAAP net income increased by 21%, mainly as a result of a onetime tax benefit that I mentioned in the beginning of this deck in connection with reduction in tax rate and updated tax reserves.

The non-GAAP EPS grew by 26%, while the onetime benefit contributed approximately $0.52. Our GAAP net income reached $305 million, an increase of 18% year-over-year, while our GAAP EPS was $2.81 and grew by 22% year-over-year. When I'm looking on the full year, so our gross profit increased to $2.4 billion, and that represents a gross margin of 88%. When I'm looking ahead into 2026, we all know the memory price increase, the recent memory price increase that we have in the market over the past few months. And it is expected to have an impact also on our gross margin in 2026. We estimate this impact to be approximately 1 point for the full year, 1 point on our gross margin for the full year, with most of the impact expected in the second half of 2026 as we have enough inventory -- sufficient inventory to support the needs for the first half of 2026.

We will continue to closely monitor supply and pricing dynamics into the second half of the year and adjust our procurement strategy as needed, including potential product price increase. Our operating expenses increased by 10%, mainly as a result of our continued investment in our workforce organically and also the impact related to Cyber acquisition that we closed back in September 2024 and the acquisition that we've done during 2025 of Verity and Laqera. Our non-GAAP operating income was $1.140 billion or 41% operating margin. Looking ahead to 2026, we continue to actively hedge our foreign exchange exposure. However, not all currency are fully covered.

As we disclosed in the previous earnings calls, if current exchange levels persist, we anticipate an additional headwind of approximately 1 to 1.5 points on our operating margin for next year. Our financial income increased to $114 million in 2025 as we kept reinvested our cash in higher rates compared to 2024. In December 2025, as Nadav mentioned, we completed a $2 billion convertible notes offering. As a result, we expect higher financial income in 2026 that's estimated to be between $40 million to -- the financial income in 2026 is expected to be $40 million to $40 million per quarter. In 2025, we had income tax benefit of $79 million, which included the benefit of approximately $209 million or $1.90 non-GAAP EPS in connection with updating our tax reserve due to the tax settlement and also the reduction of the tax rate for prior years.

As for 2026 taxes, it is important to update that in December 2025, Israel enacted the OECD Pillar 2 framework, established a 15% global minimum effective tax rate for large multinational groups effective for taxes beginning in 2026. As a result, we currently estimate that our tax rate for 2026 will be between 16% to 17%. In parallel, a complementary Israeli government R&D incentive program was initially approved in January 2026. The outcome from this program that is expected to be effective from January 2026 can be approximately $50 million benefit into our operating income. This program is expected to be finally approved by the end of Q1 2026. Our outlook reflects this development as part of our forward-looking statements, including the anticipated certification of the R&D incentive program and the potential financial impact of related grants on our future financial results.

One moment -- moving into our cash flow and our cash position. Our cash balances as of the end of the quarter was $4.3 billion. As a reminder, on December 2025, we also announced a $2 billion, and we received $1.8 billion net proceeds net of issuance costs and the purchase of the Capco. Also during October 2025, we acquired Laera for approximately $190 million of net cash consideration. Our operating cash flow was very strong this quarter with $310 million, 24% growth year-over-year and representing 42% of our revenues in Q4. We also continued our buyback program and purchased 2.2 million shares for $425 million at an average price of $193 per share. On an annual perspective, our operating cash flow grew by 17% to $1.234 billion, while important to note that this includes $66 million tax payment, onetime tax payment that related to our tax settlement that we signed in Q3, while our balance sheet hedge transaction resulted from the other end, the benefit of $51 million in 2025.

Also as a reminder, during 2025, we completed the $160 million payment for the land purchase associated with the new Check Point campus that we are building here in Tel Aviv. We do not expect any significant additional payment in connection with this new campus in 2026. So to summarize, our revenues were above the midpoint of our projection and the EPS exceeded our projection. We do see continued strong demand for emerging technologies, it's e-mail, if it's SE, SASE, and we had another quarter and another year of strong operating cash flow and strong profitability. Now moving to the business outlook to our projection for Q1 and for the full year.

So for Q1 and the full year, I'll start with the revenues. So first, our revenues is expected to be between $655 million to $685 million in Q1 2026. I remind you the short-term headwind that we have only specifically in Q1 in terms of product revenues. For the full year, we expect our revenues to be between $2.83 billion to $2.950 billion, between 4% to 8%, while the midpoint is 6%. This time, we're also going to give you the subscription revenue guidance which expected to accelerate to continue to accelerate. As for Q1, we do expect it to be between $318 million to $328 million, while as for the full year, we expect it to be between 10% to 14%, which means that the midpoint expect to be 12% growth.

Our non-GAAP EPS, including -- it takes into effect the expected grants, the R&D incentive program that needs to be completed by the end of Q1. This take into account and the EPS is between $2.35 to $2.45, while the full year EPS, non-GAAP EPS expected to be between $10.05 and $10.85. GAAP EPS for Q1 expected to be $0.64 less, while for the full year is expected to be $2.58 less. Also, we're going to share with you guidance projections, sorry, for adjusted free cash flow for Q1 and for the full year. This is the operating cash flow minus CapEx, minus any acquisition-related costs. And we are -- in Q1, we expect to have a strong adjusted free cash flow between $420 million to $460 million, which represents 66% of our midpoint, the expected revenues in Q1. While for the full year, we expect it to be 42% of the revenues in the midpoint, which is $1.150 billion to $1.250 billion. That's it. And we keep, the floor is yours.

All right. So for Q&A, today, first up, we're going to have Adam Tindle from Raymond James.

All right. Can you hear me?

Yes.

And we'll be followed by Shaul Lal from TD Cowen.

Nadav, I wanted to ask AI security is obviously a clear focus in your script today. And it sounds like you're investing both organically and inorganically with some of the acquisitions here. I wonder, this is sort of a high-level strategic question for you. The heart of it is to kind of compare and contrast your view of AI security versus how cloud security played out. And with the context being that you made the very smart decision in cloud security to choose to partner with Wiz, essentially exiting Check Point's efforts in organically as the ROI wasn't there.

Again, in hindsight, very smart given the cloud security market has been problematic for your competitors, bad pricing, bad profitability there. And I see some similarities in cloud security and AI security. So I guess what's different about AI security that got you more comfortable to invest here versus the decision to invest in cloud? And how big do you think this could be for Check Point over time?

Yes. No, great question. And the sort of the analogy is in place. However, in my opinion, the AI transformation is both more foundational. It's not shift and lift your activities from on-prem to the cloud, but rather it's a real shift in the way you use technology, do business, employ people, et cetera. And the second change, in my humble opinion, is that it's -- we're seeing it already, but I expect this to accelerate. So it's happening much faster.

So in my opinion, you can look at the cloud analogy, but you need to have it as a reference for difference. The second thing I'll say is that -- here are 2 fundamental issues. Number one, attackers are using AI much faster than defenders. This is just the nature of this asymmetry between offense and defense and in this learning competition and how, unfortunately, for several reasons, the attackers can adapt faster. And so what we're seeing is larger scale, more precision and a real change in the nature of attacks, right? And so that's one angle that we need to look at. The other is -- and that's sort of the nature of what we're seeing right now. Every organization on the planet is racing to adopt AI to stay relevant.

And as they're doing that, they're sort of creating a new attack surface. When you look at these 2 things separately, in my humble opinion, this is time to revalidate security altogether. We think we're really well positioned to lead the way to secure our customers' AI transformation based on the 4 pillars that we were talking about, based on the fact that we truly have the best prevention -- proactive prevention security, which has always been important, but it's now becoming critical. And so building we have decade data 100,000 customers, 4 pillars, a vision that I believe is very specific to secure AI transformation. This is a must for us. We're making acquisitions. We're building organically. And we really believe this is our time and our space to challenge the status quo.

Next up is Shaul Lal, followed by Joseph Gallo of Jefferies. Apologies for some background noise.

Question for Roei. How should we be thinking about ASP hikes from a linearity perspective? Are we seeing them coming in the first half of the year? Are we seeing them coming in the second half of the year? Can you just help us out a little bit?

Yes. So we did several price increase. One of them was in July only for the subscription, the firewall subscription. And in January, we've done it for all the firewall, which including client hardware, subscription and support. In general, usually, it takes to see the ASP going up. It takes -- usually it's a quarter. I mean, if I'm looking at about, for example, appliances, we talked about the appliances. So we -- of course, it's effective from January 1.

But from a revenues perspective, that's something that usually we see the main impact coming from the quarter afterwards because certain revenues that are recognizing in Q1 are coming from bookings that came from prior periods. And also, we have -- we are expecting quotes that being delivered to our customers before the effective price increase. So most of the effects usually come in -- we should expect to see from Q2 this year.

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

Am I in here first, Ki or...

You are in first, Joseph, I'm sorry.

I appreciate that. It was great to see the strength in subscription, but I just wanted to ask on product in 4Q. I know there was some mix shift and reallocation in large deals, but is there anything else we should be aware of? And then I believe your product guide for '26 implies approximately flat. Just any comments on remaining refresh cycle available? Or have you seen customers change their buying behaviors ahead of these incoming price increases?

Yes. So I think Q4, we had a good quarter for product. Again, it was less good than what we've seen in the first 3 quarters, but still, we did see a good quarter for the demand for our product. If I'm looking ahead for 2026, 2026, I think we still have -- we see good funnel for hardware, specifically in the second half of the year. I do have to say that in the -- you are right that when you're talking -- when you're taking into consideration what I gave for subscriptions, so product is around flat to low single digit.

In our guidance, we took more prudent approach, mainly because not we don't see the funnel, mainly because we are taking a more prudent approach of what's going on the macro with the memory shortages that we see everywhere price increase, not specifically only on memories, by the way, on all raw materials, and that might affect some customer behavior that's postponing some CapEx projects. So we took it into account. But definitely, again, we want to be more than that. We want to be higher than that. I think we continue to see refresh. And -- but again, we cannot ignore what's going on in the market with the memory situation.

All right. Next up is Todd Weller -- or Brian Essex, followed by Todd Weller. Sorry about that, Brian.

All right. Joe, I wasn't going to let him pass you by. Really, another question on guidance. Would love to understand maybe the puts and takes embedded in operating margins. What -- if we were to back into operating margins, what are the implicit margins in your guidance? And how do you think about spending? And then maybe one for Nadav, basically back on that, the dynamics around the hardware price increases, are you hearing any shift in spending intentions from your customers anticipating maybe firewall and server prices accelerating on the back of the memory pricing. So one for each of you.

So the margin that we took into account in our guide, it's between 39% to 40%. So that's the operating margin. We're taking into account all the headwinds that we get from the memories from the FX on the other hand, the expected grants from the government. So all of that was taken into account, that puts you in the 39% to 40%. av...

Yes. Look, with regard to the hardware, as Re said, we don't see any change as of now. As Roei said, we do need to be prudent looking into what's happening this year. I actually think for us, this could be a competitive advantage. We have the supply for the first 2 quarters. We're going to figure out how to take advantage of the situation. I don't see this as being a huge headwind, except for what Marie said about the 1 point in the margin that we just spoke about. Obviously, very encouraged by the high growth in the subscription rate that we're seeing and projecting.

And no shift towards SASE or other types of architecture.

Exactly. Exactly. Our SaaS products are becoming a -- our SaaS products and subscription is becoming a much bigger part of our overall cake, and we intend to continue growing that, again, across the different pillars. So in hybrid mesh, SASE, Workspace is completely SASE, so is exposure management. And this year, for the first time, a true North Star around security for AI around the AI security pillar.

All right. Next up is Todd Weller, followed by Jan Siddiqui.

Nadav, you outlined all the changes that were implemented in 2025. What would be the 2 or 3 specific ones you think will most positively impact the growth trajectory in '26? And when do you expect to see those start kind of showing up in the numbers?

Yes. Look, I think that we laid the foundations, right? The most importantly is the C-suite and the new leadership we had and the way we are reorganizing and refocusing our go-to-market. That's number one. And the second thing that I'm very excited about is going to the market with these 4 pillars. Each one of them is a platform in itself. Some of our customers are going to choose to use one pillar as their platform, let's say, for Workspace. Others are still using the hybrid mesh pillar and some are using everything, and it's an open garden so we can play with the others.

So if you ask me, these are the 2 main things. Number one is the 4-pillar approach. Number two is the leadership in the C-suite change and the refocusing of the go-to-market. And above everything else, I am a true believer that we need to revalidate security. Attackers are moving at an extreme speed. I think we have the foundations. But as you can see, we're also making the acquisitions. We have the right design partnerships. We want to do this as an ecosystem play. So the third thing, of course, is security for AI. The race is on, and we're in it.

Thanks, Todd. Next up is Junaid, followed by Keith Bachman from BMO.

Just wanted to talk about the progress on the SASE front. You mentioned ARR grew around 40%. In the past, you've talked about making it much more enterprise-ready, moving to a unified policy. How is that tracking? And is the focus right now mostly on upselling the existing customers?

Yes. So great question. As you can see, the SASE now is a part of our hybrid mesh pillar. We're maturing the product. We made significant investments organically in 2025, and the product is maturing, and we're integrating it as a part of the hybrid mesh pillar and platform like you said, with our unified management. Now in terms of our sales motion, we are integrating the -- what used to be the -- what we used to call a rocket. We're now integrating this into the hybrid mesh pillar.

We're also putting together the sales overlay of our CloudGuard network security with SASE to better integrate that into the overall motion. You're right that I would say that 2/3 is upsell to existing customers, but that's not the only one. We're also seeing new customers that are actually buying our SASE, and we hope to actually move them to our firewall business to create the full capability of a hybrid mesh pillar.

All right. Next up is Keith Bachman, followed by Shrenik Kattharis of Baird.

Nadav, I want to put this to you, and it sort of reflects incoming comments already this morning. investors are looking for an acceleration of growth. You're basically guiding to 6% plus or minus total revenue growth, which is consistent with what's happened in the last 2 years. So while subscription is improving, which is nice -- it's nice to see, total growth isn't improving, right? So how do you sort of respond to -- because you're asking investors to be patient about this notion of acceleration. So how do you respond to that comment? And then consistent with that, Roei, any comments you want us to think about for total billings growth in light of the midpoint of rev growth?

Yes, sure. Thanks. Look, we laid the foundations. Now it's all about execution. I think we have the 4-pillar approach. We have the foundations. We have the right people in place. We have the financial flexibility to make acquisitions. Now it's all about execution. And you're right that it's not an overnight acceleration, but I think we're on the right trajectory. I think also what we have in terms of product solutions around our superior ability to proactively prevent the acquisitions that we're making and the -- what we're building in the AI security is putting us in the right trajectory. And now it's all about execution.

And as for the total billings, similar to the revenues growth around high single digit, 6%, 7%, that's expectation in order to achieve the midpoint.

All right. Next up is...

So, you just mentioned financial flexibility, ended 4Q with $4 billion in cash and you have added $2 billion in convert. Just in terms of so far, you mentioned about favoring smaller AI native integrations and the announcements you made. Just on the large-scale M&A, right, just -- can you just talk to as some of the other peers are kind of going after platform convergence waves, aggressively chasing few things. So what kind of sort of scale IP or adjacency would actually justify more transformative sort of AI-driven bet for you guys, if at all?

Yes. So yes, we have the flexibility and we have the vision. And now in each one of those pillars, we need to be very disciplined and identify the targets. They could be tuck-ins, they could be larger, but the ones that actually take us to be a podium player in each one of those pillars specifically. So the target needs to have the right technology, the right people, the right culture and so that we can see that we can integrate it and move fast to create a real platform.

In my humble opinion, just buying more and more products and putting sort of a supermarket approach is not what our customers are looking for when they look through consolidation. They look for a real integrated for us pillar. And each one of those pillars, we're looking at as its own platform play. So if you take exposure management, we are looking to create the #1 exposure management system. Some of the acquisitions are smaller. We're also looking at larger ones all the time, but we're going to be disciplined about it. And again, through the -- looking at each pillar separately, we're not stopping. We're moving fast.

It looks like you just stopped playing a game when you came on. Good see you. Next up is Joshua Tilton, followed by Roger Boyd from UBS.

Maybe, Roei, for you, any way to think about how much the acquisitions that you announced today are contributing to the guidance that you provided for 2026? And maybe outside of pricing, could you just talk to why or what gives you conviction in the belief that guiding to, I think, what you said flat to low single-digit growth for product is prudent from your perspective?

Okay. So first, in terms of the acquisitions, so of course, it's part of the guidance, and that it should have an effect of approximately 0.5 point in our margin because it's mainly right now in 2026, we expect it to have many costs, many dilution to our margin. That's approximately 0.5 point to the operating margin. As for the pricing and the product, so I think, again, I'm looking -- when we are -- of course, we are working on the guidance and of course, working for our plan on 2026, we're looking on the funnel.

We are looking on the potential. We're looking, of course, on the price increase that we've done in January 1. And I think that, again, we can do -- we should -- I mean, we need to continue the strong demand that we've seen in 2025. We see good final also for hardware mainly in the second half of the year, also in the first half, but mainly in the second half of the year. And I think that definitely also the price increase and the effect that we've seen that the discounts this year were actually even improved compared to last year in 2025 compared to 2024.

So if we manage to continue that and maintain the discounts, we also can benefit from this price increase. I do have to say, it's important to say we didn't take into account in our guidance any additional price increase. Because of the memory shortages, there might, of course, we might consider additional price increase during the year, but that was not a factor in the guidance right now.

And just to be clear, that 0.5 point is in the 39% to 40% margin...

Part of the guidance I provided you.

And any way to think about the top line contribution from the acquisitions?

Minimal.

Minimal to, I would say, a few millions or even a few millions of dollars.

All right. Next up is Roger Boyd from UBS, followed by Peter Levine from Evercore.

Awesome Nadav, I wanted to hit on rotate. They have a lot on their platform. So I guess in addition to the MSP enablement tools that you talked about and some of the exposure management technology, how much interest is there in the rest of their portfolio, which I think includes some native technology for detection across endpoint and some other attack services. And when you think about MSPs in general, can you just talk about the -- what percent of revenue they represent today and how you see that evolving? How important is that in terms of your channel strategy this year?

Yes. Thanks. So today, I think it's -- I don't -- it's still relatively small, but I think it's a high potential growth for us in 2026 and beyond. The MSP, we're going to consolidate everything under Workspace under Gil Friedrich. And the Rotate technology and the folks that are coming with it are going to enable us to actually streamline everything to the MSPs, and that's where the opportunity is. And you're right, it's not -- it's e-mail, it's endpoint, it's browser, it's SASE, all put together for the smaller customers, working with our partners and the MSPs. And so this acquisition is -- will allow us to accelerate to move faster into a consolidated unified ability to work with those MSPs.

All right. Thanks, Roger. Next up is Peter Levine with Evercore, followed by Saket Kalia from Barclays.

What's changed in customer demand that makes kind of exposure management more of a priority today? You touched upon it on the call in your prepared remarks, but are customers explicitly asking for like a united exposure visibility across network, cloud, identity, whatever it is? And then maybe just, Rory, help us understand like how meaningful could this category be over the next, call it, 2 or 3 years in terms of revenue contribution?

Yes. So first, I can't resist to answer Rory's question. It's meaningful. It's not huge right now, but we see great potential in it. When I look at this -- I come from the trenches ultimately. When I look at this as a practitioner, you've got to have this situational awareness. And so yes, we're seeing more and more demand, and we're seeing it going upstream as our capabilities become more and more mature. And what we're building is the full gamut. So on the one hand, based on an acquisition that we made a year before last around Cyberin, we have the intelligence.

Now with Cyclops, we can see the posture and we can prioritize based on what we're seeing CVEs, dark web stuff. We're seeing what's coming. And from the inside, we're seeing what's vulnerable. And with the Verity acquisition, we can actually do the automatic remediation. And so what our customers find us once they deploy that is that a lot of the things that are coming at them are no longer in danger and because we can block it automatically before it even happens. In my opinion, again, looking at this as a practitioner, there's -- one of the shifts is that attackers can actually weaponize vulnerabilities much, much faster. And they can also use autonomous agents that are doing their -- once there is a breach, they operate much, much faster.

And so having that proactive prevention has become more important than ever and building this triage around these 3 components, I think, is unique in the industry, and I think will carry more and more traction. For us at Check Point, it's also important because it allows us to go outside of our installed base right now to new customers and hopefully upsell and cross-sell once we go beyond that. And so yes, we see this as something which is becoming a core pillar and an important part of the 4-pillar strategy that we're going with.

The last thing I'll say about it is that when we do the remediation, the automatic remediation, -- we don't do it just for checkpoint products. And that's the beauty of it. This is where an open platform, open guarding comes in. When we see vulnerability, some of our customers are not using Check Point products to secure their hybrid mesh, but we can go in and fix the other vendors' vulnerabilities when we can -- after we prioritize them. And at the end of the day, I think it gives our customers better security.

Thanks, Peter. Next up is Saket Kalia, followed by Brad Zelnick from Deutsche Bank.

Okay. And by the way, I appreciate the additional detail on guidance. Maybe a question for both Nadav and Roei.

The 4 pillars are really helpful framework for thinking about the business.

Roy, for you, are there any guardrails that you can give us just on the mixes across those 4, high level, of course. And Nadav, what are you changing from either a contracting or sales comp perspective to drive higher growth across those smaller, maybe faster-growing pillars? Does that make sense?

Yes. So I think if you're looking on the 4 pillars, so of course, the most significant one is Diab mesh, which includes also our firewall, which is still a significant part of our business. It's growing, of course, mainly driven by the SASE and our cloud network. That's mainly driving the growth. Both of them SASE and cloud network sitting on the subscription line item. And that's part of the acceleration that we see in the subscription line item. And the others that I think have the highest growth that we see today are Workspace and STEM.

STEM, we talked a lot about it in this call. We do see very strong demand. Of course, still small numbers from total Checkpoint, but very strong demand, which started when we acquired Cyberin, then we added other acquisitions that we've done and included in the offering. And again, when we are looking on the funnel for next year, definitely will be -- it's expected to be even in 2026, a major driver for our subscription line item. And also e-mail e-mails continue to be very strong. We talked about the numbers, I think, talked about the numbers a few quarters for the few quarters.

I mean we already passed the $160 million ARR and continue to grow in very strong double digit. So definitely, we're aiming to pass the $200 million this year. And I think that's the main driver that we -- that's why you see our subscription revenues continue to accelerate, and we expect it to accelerate every quarter. Of course, with the contribution for -- also from firewall, again, contribution that it's a mix of the price increase, but also gaining new logos and expanding our market share in the firewall. So that's in total picture how it translates into our revenues. Nadav, you want to...

Yes. The 4 pillars is strategic, as you said. In the first one, it's the infrastructure and the network. The second one is your employees. The third one is the situational awareness. And then finally, security for AI, which is as a stand-alone, but also embedded in the 3 others, and we have the services that engulf all that. To your question, to grow these pillars faster, we're doing a few things. Number one, in each pillar, we are trying to see what is a differentiated advantage, right?

So like I said, for the hybrid mesh, it's the prevention first, it's the scalability. It's the unified management and it's the hybrid architecture. But there are other things that we want to improve. And so some of them we're doing organically, some we're looking for acquisitions. We're doing the same thing for each one of those pillars. The second thing is from our go-to-market focus, -- we are moving to a multi-pillar, multi-platform company so that our front liner sellers can sell each one of those pillars. And of course, in each one of them, there's also different products, and we're better aligning our account managers with the specialists that can come in and support them. And that's a major change in the way we're going to market as of literally now.

The one thing I want to add is that in each one of those pillars, we're also going to challenge. We're going to challenge some of the existing status quo in the market. So we're going to we're challenging status quo around supermarket approach consolidation through a real platform approach. We're challenging a closed garden to an open garden. We're challenging complexity. So in each one of these, we're not just building our own security platform pillar, but also challenging the existing status quo.

Again, some of it with existing capabilities that I think are critical and becoming more important and in others, by building new stuff and making acquisitions. And at the end of the day, I think we need to realize that especially the world we're going into, every morning, there is a new reality and a new threat. So we need to constantly evolve. We need to constantly see the road map of our customers. We need to constantly look around the corner so we can truly be their companion for a secure AI transformation.

All right. Next up is Brad Zelnick, followed by Shyam Patil from Susquehanna.

Nadav, I've heard you loud and clear, the foundation is in place. It now comes down to execution. And I take that to mean more go-to-market than product because Check Point has always had great product and you're acquiring high-quality tuck-ins that only strengthen your offerings in the position that you're in. But where do we stand from a go-to-market perspective? How much more ramp distribution capacity do you have heading into 2026? And maybe for Rohe to chime in, what needs to happen to exit '26 growing double digit and to get us to double-digit growth for the full year in '27?

Yes. Thank you for that. So you're right that it's about go-to-market execution. It starts with a louder voice around our marketing effort. It's about the focus. And as I described, we're going to be focusing on large enterprise. We're going to be focusing on new logos. We're going to be focusing on a -- on the multi-pillar, multiproduct company approach. We're going to be focusing on hiring the best people in the industry. So it's a plethora of things that we're doing to create a better execution as we go to market.

And lastly, it's also about challenging the status quo. I think this is a time where the nature of security is changing. I think the criticality of the basis of what security means has become more critical than ever. And we're going to take advantage of some of the assets that we already have. We're going to take advantage of where we are situated. We are seeing all the innovators, and we're trying them out as designed -- with our design partners on the customer side. We've got new leaders in marketing. We've got new leaders in sales, and we're going to continue bringing in the best of the best in the industry to join us to do exactly what you said by the end of the year.

As for the double-digit question. So I think -- again, I think we need to show -- first, we need to continue the strong momentum, the strong demand that we've seen for the -- we mentioned the CTM. We mentioned the e-mail security, the workspace and SASE. So definitely, we need to see here. We need to see specifically in e-mail and CTEM continued strong demand there. As we see already, we see it in the funnel. We saw it last year. We saw it in the last few years, but e-mail in the last years, but CTM specifically in 2025 and also in the funnel for next year. for 2026. But definitely, in order to be double digits, we need to grow even faster than firewall.

I mean we are positioned much better today on the firewall than what we've been 2 years ago or 3 years ago, I think we did a significant improvement both on the product side, also on the go-to-market and on the go-to-market. I think we brought -- we have great leadership in the go-to-market. And I think we are positioned much better today to accelerate our growth on the firewall. Definitely, mid- to high single digit in the firewall, together with the continued strong momentum that we have in the other pillars that should bring us to double digit.

All right. Next up is Shyam Patil, followed by Ben Bollin of Cleveland Research.

This is Dan on for Shyam. I guess with the price of memory increasing significantly of late, just I know you talked about potentially increasing prices, but what levers do you have to maybe try to get better deals from suppliers? And how are you looking at that as we progress through the year and try to get through sort of the shortages?

So I think we are working 24/7 with suppliers around the world to get better pricing. I think we are doing -- we have a great team that's doing an amazing job in order to get the best pricing, I think. But still, we cannot avoid the situation that there is a price that the price of the memory has increased significantly. So even if we're getting better pricing, it's still significantly higher than what we used to pay a few months ago before this trend starts.

But definitely, we are investing a lot on that on getting the best pricing. And again, we're doing it. We have teams around the world that's exploring opportunities in order to get the best pricing in the market. Of course, we can -- we always want to do even better, but I think definitely, we are doing a great job there.

All right. Our last caller is going to be Patrick Colville. Ben Bolin is not on the call today. Patrick, nice to show up.

I'll make it a good one to close. It's actually a clarification question. Can you just, Roei, please just go over again what drove the product revenue to be a little bit softer than we might have hoped in 4Q? And then can you just also just reclarify why the pricing benefit doesn't really hit in 1Q and then why it builds throughout the year?

So for product, most of our hardware that we are selling today, that is a significant portion of our product revenues is sold as a bundle to bundle together with the software subscriptions actually with subscription. And when we announced the subscription price increase back in July, so we announced only pricing for subscription without increasing the appliances price. From an accounting perspective, that's more accounting, we need to allocate because the stand-alone subscription price was increased without the total price.

So the allocation of the revenues are smaller to the product, to the bare hardware is allocated is smaller, and that impacts mainly Q4 because in Q3, we just announced it. Some of the deals were not recognized as revenues. But in Q4, we already saw that, and that had -- again, it's mainly short-term headwind. It's not going to affect our total revenues. It's more kind of headwind on our short-term product revenues, and we're going to see the benefit from the subscription over time. So again, that's in general. And your question on the price increase, so let's separate between billings and revenues.

Billings, most of it, you're going to see it in the same quarter that we did the price increase. From a revenues perspective, sometimes like in Infinity, in some other ELAs that we have -- we have deals that have been closed before we -- I mean, in prior quarters, and we are recognized -- it's part of our backlog, and we are recognizing the revenues in future periods. So in that factor, you don't see the price increase in the revenues. You're not going to see that. You might see billings for new deals, but you're not going to see the main impact in the same quarter. So as I said, the main impact we start to see from the quarter -- from Q2, which is the quarter after the price increase on the revenues, not on the billings.

All right. Thank you, everybody, for joining us. We appreciate it, and we'll see you throughout the quarter and then obviously, next quarter. Have a great day. Bye-bye.

Bye. Thank you.

Perfect. Welcome, everybody, bright and early here in London on Tuesday. I'm Meta Marshall. I head up cybersecurity research here at Morgan Stanley, filling Hamza's shoes in his departure. We're delighted to have Check Point here today. For any research disclosures, please see morganstanleyresearch.com.

And I'm going to hand it over to Kip to give a little bit of a safe harbor for Check Point before we start.

So good morning, everyone. During the course of the presentation, there may be forward-looking statements made. As with all forward-looking statements, there's risks and uncertainties that could affect the outcome of results. If you'd like a comprehensive but not exhaustive list of those risk factors, maybe read something before you go to sleep, so you do go to sleep quickly. Take a peek at our 20-F filed with the sec.gov. And as with all forward-looking statements, we reserve the right to update as required by law. And back to you, Meta.

All right. So we're delighted to have Roei Golan here, CFO of Check Point here with us today. It's been almost a year since the CEO transition in Check Point's history. From your vantage point as CFO, just what has changed in terms of strategic priorities, decision-making cadence or risk appetite?

So first, great to be here. Thanks for hosting us. So Nadav joined us in December. Actually, I think it's today, he's marking the first year. I think he joined in December 9. So I think since Nadav joined, we felt there are many changes in the company that Nadav brings. Again, I don't think that -- in the end, Check Point is an amazing company before Nadav. It was a great company before then. But definitely, when Nadav joined, he understand that in order to make this company even better, some changes needs to be done and mainly around the go-to-market.

Since he joined, I'll start from individuals, he almost changed all the go-to-market leadership. We have a new CRO. We have a new Global Head of Americas that just joined us a few weeks ago, Rachel. We have a new CMO that came from BeyondTrust that arrived -- that joined us in September. And we have other leaders, second-line managers, leaders that joined. So I think there are a lot of changes in terms of individuals in the go-to-market. So that's one aspect.

The other aspect in terms of the leadership, it was important for Nadav to hear the voice of the customer, not only from one person. Before he joined, we had one or two persons in the leadership forum that represent the voice of the customer. Today, we are -- we have six people. And that's important because when I'm looking on -- when I've been in these leadership meetings before Nadav joined, before these changes and now, the narrative of the discussions are different. It's not that we didn't talk about the go-to-market before. But when you have six people that represent the voice of the customers in these meetings, you definitely feel different narrative, not only one opinion from one person that represent the voice of the customer. And definitely, that's -- this is a significant change. So that's from the individual changes that he's done.

I think the even more important change that he is trying to do is on the culture perspective. I think the importance for him to have first transparency to the employees. I think we are doing today almost every -- not almost every quarter, there is a [ all-in ] for all company when Nadav is sharing his strategic, his views on the company, where the company is heading. And that's something that -- it's new. I mean, it's something that we didn't do in the past.

And second, even more important, the sense of urgency. As I said, it's not that we didn't have sense of urgency before, but I think that the focus today and sense of urgency that things cannot be postponed, and we need to get back to customers or even to our internal customer, which -- employees, as soon as possible and not delaying anything. I think that's something that's been changed. I mean, since he joined, mainly because of his focus on that. So again, a lot of changes.

Last thing that I would like to add, I think also very important, the C-level engagement. When I'm talking about C-level engagement, so we -- Nadav came from a cybersecurity background. Although he was not the CEO of a corporate, he was at Team8, the founder of Team8. He spent there more than 10 years. And during this time, he managed to have a significant group of people that is -- he knows, connections. And definitely, we feel it today. We feel today that his meetings with the C-level, which is start with the CISO of the largest banks in the world or largest companies in the world and then with the CIOs and even with the CEOs, that's something that we have less in the past. And that's definitely -- it's tough to quantify it in numbers, but that's definitely on the long run will help us to accelerate our business just from these engagements.

Okay. So you just listed off a good list of kind of increased engagement with customers, increased engagement and culture, the C-level engagement. How does that translate to the model? You guys have had leading margins, but maybe mid- to high single-digit revenue growth. Just how are you thinking about that balance of kind of this push and urgency sense that you just mentioned versus kind of protecting margins over the next 2 to 3 years?

So I think, as you said, we have, I think, the best margins in the sector. Even today, I know that our margin went down slightly in the last few years, but still we're talking about 41% to 42% margin that we finished this year. And as we mentioned a few times and Nadav mentioned a few times in the earnings calls, we are not afraid of sacrifice slightly the margins. But in the end, we're going to keep investing in growth, but responsibly.

Not like -- you should not expect from us to take down the margin in 1 year in 5 points or even 4 points. I mean that's not -- I don't think that we need it. I think we might go invest in certain areas more in order to accelerate growth, but it's going to be very responsibly, prudently, and that's how we look at it. There's no actually balance. But as I say, I mean, we want to show progress, and we want to accelerate growth every year.

So right now, if you're looking on our midpoint, so it's around the 6% growth, we want to grow faster. It's next year and the year after. Again, I didn't get yet the question on the double digits, sometimes -- usually I'm getting it. But again, it's going to take gradually. I mean, the improvement will take every year. Not -- you should not expect from us in revenues to go from 6% to 10% in 1 year. It's -- again, we're going to do it responsibly, and we want to see improvement every year like we've seen in the last quarter was one of the best quarters that we had. We want to show more of such quarters that we'll see.

So that's how we see it. And again, from a margin perspective, again, we talk about more about 2026 when we're going to announce earnings in February. But definitely, we should not expect a drastic change to our profile.

Got it. I'll let the rest of the day ask you the 10% question. So maybe turning to Infinity. Could you talk about what you're hearing just from the customer side in terms of kind of consolidation of security solutions onto a single platform? And just how does the Infinity consolidated platform address that need amongst your customers, particularly as you guys are kind of engaging with them more?

So I do have to say we have the Infinity agreement, Infinity platform, we launched it sometime, I think, in 2017. But definitely, since 2021, I think beginning of 2022, we started to see a significant acceleration on the adoption of the Infinity from our customers. We see more and more customers that are willing to move to Infinity.

I think it's -- the reason for that are two. First, customer -- we have today, first, much better portfolio than what we have 6, 7 years ago or 5 years ago. We are not selling only firewall. We have great e-mail security product. We have great enterprise risk management product. We have great SASE product. We have multiple products that we can sell today except the firewall. And definitely, the Infinity is a platform and a tool to do that, to do this upsell -- or cross-sell, sorry, and selling this product.

And definitely, we see more and more customers willing to do so because as I see it, first, it's easier for them to manage one vendor instead of now multiple vendors. In certain areas, they can do the same -- they can use the same policy and same management for these products instead of using different policies around the portfolio.

And the last one, saving costs. Usually, when you're bundling our firewall with the e-mail security, with the SASE, with the endpoint, usually, if you're looking on the total, you're going to pay us less than what you would pay for seven different vendors.

Right. Okay. Feedback on the new channel program has been positive as we've been doing our channel checks. Just what are you hearing from partners in terms of competitiveness? And have there been any changes to kind of incentives that we should understand?

I think we do see very positive feedback from the channels in the last 12 months. I would say since Nadav joined -- it started when we launched a new partner program. But definitely, after Nadav joined, we did see more enthusiasm from the partners. I would say that, first, I think we are -- need to be honest, we're putting more dollars there. We understand mainly in the U.S. that we need to improve our channels -- engagement with channels. And that's, of course, it's not -- it usually comes also with more rebates, more speeds that we are giving.

And I think engagement, I see more engagement. I talked about the C-level engagement. Nadav met -- is meeting with our -- with the C-level, with our biggest partners, working with them on strategic plans. And that's something, again, that we didn't have in the past. And he's actually sitting with them. He is now, by the way, in New York and part of his schedule is also meeting partners, our largest partners there. So that's something that's, of course, helping us because this C-level engagement is also something that's important to show the partners that we are willing to go together and invest together and drive the growth.

Okay. Maybe just turning to the budget environment. Cyber remains a key priority on IT budgets, but IT budgets maybe have continued to be under a little bit of pressure. We've seen varying degrees of checks this year in terms of how strong the cyber environment is. Just how would you characterize the demand environment this year versus kind of a year ago? And are you seeing any changes?

So I have to say that we do see stable environment, healthy environment, except there was some kind of uncertainty when we had this, we -- call it, Liberation Day, we had this time frame of some uncertainty on the tariffs. So that affected some -- that extended the sales cycles in this time frame. But again, we're talking about 2 months' time frame. After there was more certainty about the tariffs.

So if I'm looking at what we are seeing today, pretty stable environment. I don't see any significant change in the environment. Of course, that -- anything can change it. And -- but as we're seeing today, it looks pretty stable environment. I know that more budgets are moving to the AI, but that's not on part -- on top of -- I mean, the security budget seems to be pretty stable. It probably helps some other IT budgets, but not security. I think security, everyone understand that mainly with the AI, you need to make sure that you have the best security.

Got it. Okay. I have an M&A question here. You guys also just raised a convert. So maybe just wrapping those two together, just how are you -- what were kind of the thinking behind the convert? And then just what has kind of been the M&A strategy that you guys are thinking of going forward?

So first, in terms of the convert, you're right. We completed the convert last week. It's I think the first issuance that we ever -- that we've done since the IPO in 1996. I think that first, there was an opportunity for us to raise cash in a very low financing cost. We are talking about 0 coupon. So that's definitely something that we have -- there was an opportunity, and we wanted to use this opportunity to do that because we couldn't know, I mean, if it's something that can last a few more months or next year when we -- if we're going to need more cash, if we'll be able to raise it in such low cost. So that was an opportunity, and therefore, we've done it.

In terms of M&A, strategic M&A, so we don't have a concrete or any imminent M&A that we are doing next week or something. That's not why we did the convert today -- last week. But definitely, we are looking all the time on strategic M&A.

If I'm looking -- if we are looking, and that's something that we also -- when we talked last week with the convertible investors about what we're going to do with the money. So Nadav and myself, we talked about our four strategic pillars that we are playing today. First is the hybrid mesh networking, which includes our firewall market -- our firewall business, SASE and the virtual firewall, which is actually the firewall on the cloud. So this is one aspect that we can do some tuck-in M&A and not significant M&A, but some tuck-in M&A, small acquisition that can improve our offering, mainly on the SASE.

The second pillar is the workspace -- strategic pillar as the workspace, which include our e-mail security, our endpoint security, browser security and mobile. So that's now led by -- being led by Gil Friedrich, the founder of Avanan, which was the e-mail security company that we acquired and now he's leading all this pillar. And definitely also there, if we find something interesting that can improve our offering or expand our offering on the user security, so that's something that we can definitely do.

The third pillar is the CTEM, continued threat exposure management, which includes today our ERM product, which is the Cyberint acquisition that we've done a year ago and doing very well since the acquisition in terms of growing the ARR. And the second is another, the Veriti acquisition that we've done in June. So there, both products are part of the CTEM. And then -- and there, definitely, we can do more acquisition if we want to expand our offering. I think we feel that there is a lot of potential in this market. There is no specific leader there. And definitely, we can -- we see the momentum there and the demand for Cyberint's products. So we might do more acquisition on that area.

And the last one is the AI security. This is the last strategic pillar. We've done already one acquisition, Lakera, Swiss-based company, runtime AI, great technology. We looked on dozens of companies on the AI, we thought -- we picked them. We thought it's the most -- they have the best technology. It cost us a lot. It was very expensive. But I think on the AI, you need to pay premium if you want to have the best technology. So Lakera are part of the AI security pillar. So definitely, we are looking to do more on that front on the AI.

If -- we are looking all the time. Right now, nothing specific, but definitely, if you're looking on the M&A, so probably it would be one of these four strategic pillars.

Okay. Maybe turning to that, these emerging solutions or namely Harmony SASE, e-mail security, enterprise risk management, all saw greater than 40% year-on-year growth -- ARR growth in Q3. Maybe starting with SASE, what's kind of driving the outperformance that you're seeing? And any kind of color on attach rate you would kind of attribute for SASE?

On SASE. So SASE, I think we're doing -- we are growing more than -- faster than the market. We are still talking about -- we're still a small player there. I think our potential on the SASE is even much bigger than what we are growing even with -- that we are growing today more than 40%. I think because we are small and we see the potential with our -- even our current installed base, the potential is much bigger. We see the market. The market is huge on the SASE.

And still, if you are looking on our installed base, our firewall installed base, I would say that mainly in Europe, most of the -- our own customers don't have any SASE solution today. So it's not that they have Zscaler or Netskope, they don't have any solution. They are still using their VPN. And that's something definitely that we have a potential to -- as a firewall customer, we have the best potential to penetrate there and sell them SASE. So the potential is huge.

I think that we still need to do some more progress on the product in terms of the one aspect that we still didn't complete and should be completed in the next few months is the unified integration with our firewall to provide unified policy that a CISO will be able to manage the policy of the firewall and SASE in one policy instead of doing it separately, like they are doing today probably with Zscaler, if they have Zscaler and I don't know, Check Point. So I think that's a huge advantage that we have on the other vendors on the SASE. So that's one aspect.

And the second aspect is to improve the scalability -- the scale. Right now, we are mainly selling to up to 20,000 users. And that's something that we are working also to scale it and be able to sell to bigger enterprises. So that's two fronts that we need -- it's more from a product perspective that we need to complete. And definitely, the potential there is much bigger than the 40% that we are growing today.

Got it. E-mail security, you guys also just mentioned well above kind of $100 million in ARR at this point. Just can you talk about how it's competitively positioned versus other players within the market space?

So actually, we just -- we exceeded $150 million ARR. We aim to be -- to exceed $200 million in the first half of 2026. We see very strong demand there for the e-mail. And I think that although the market itself is pretty mature, it's not growing. I think it's growing high single digit or even low teens, but we do see significant demand for our products. We see many replacement of the legacy vendors.

On this market, I think that we have the -- in terms of security, first, we have the best security because it's integrated. The e-mail security is integrated with our ThreatCloud AI engines, and we have the best catch rate in terms of phishing and e-mail. So that's definitely our advantage.

And in terms of competition, I think the -- as I said, we do see a lot of replacement of legacy vendors. There are -- there is a competition, of course, also from Abnormal that I think, again, I think we are -- we have better security there today compared to them. So that's an advantage that we have mainly on the enterprise market. We just named as a leader again, but improvement from last year in Gartner on e-mail security. So definitely -- and we got the FedRAMP certificate just 2 months ago. So that's definitely -- all these things together should help us to push the business even higher than what we -- and to grow even faster, hopefully, than what we grew so far.

Okay. I want to turn to AI for a second. You mentioned it as kind of the fourth pillar. You guys have now embedded some AI capabilities, including Infinity AI Copilot and ThreatCloud AI as well as the recent Lakera acquisition. Just how do you see Check Point competing in security for AI opportunity?

So I think there are two aspects. There are the security for AI that we talked about Lakera, and that's mainly about the runtime AI. And there, we have already today some -- one of the biggest enterprises in the world that are design partner working with us closely and a customer of Lakera, of Check Point already today, a customer of us.

And definitely, we see there a lot of enthusiasm about the Lakera product because I think that today, if you're looking on the AI security -- on the security for AI, it's still a market that's been -- there is no specific leader there, it's mainly start-ups. This is a market that expect to be a huge market in the next few years. And we want to capture the flag. So we want to be a leader there. I think there is a huge opportunity there for us in terms of our positioning today on the security market. And this transformation to AI is definitely an opportunity for us to be a leader on that front.

On the other hand, we have the AI for security. We talked now about the security AI and because you mentioned the Copilot, but then you mentioned the ThreatCloud AI. So ThreatCloud AI, it's not -- it's something that we have for several years. I don't remember when specifically the ThreatCloud AI engines, but definitely for several years. And that's being used, and that's AI engines that we developed in-house and have a catch rate of 99.9% based on the recent reports that were published both by NSS and Miercom. And that's -- and on top of that, we are working -- we have a designated team to even improve our AI for security to have -- to leverage the AI even more today to improve our security.

So that's two aspects, but definitely, there's a lot of potential there. I'm not sure that in the short term, it's something that's going to affect significantly our numbers or our competitors' numbers. But definitely on the long run, that's the biggest potential.

Okay. Got it. You guys mentioned Europe maybe earlier days in kind of the SASE transition. You also kind of mentioned some softness in Europe over the summer. Can you just kind of unpack what you're seeing by region, maybe more specifically in Europe and whether -- just any trends there?

In terms of macro, you mean?

Yes.

Yes. So I think we did mention that there was some softness in Central Europe, mainly in Germany, in the public sector. We're all probably following and saw that there was some kind of political and -- political issues and elections that caused some kind of shutdown of budgets in the public sector. I think that, that's something that we are already -- we do see improvement there. I mean we see that the public sector is back to -- we do see already some very nice orders from the public sector there started in Q3, but continuing into Q4. So I think this issue is behind us.

And the -- in terms of other areas, I think, again, I think I don't see any specific areas that macro related. Definitely, we are doing great in Asia. We have a new leader. She's not new anymore. I would say it's 2 years. She's 2 years with Check Point, a new leader that she is running our APAC business. And since she joined, we see significant improvement there. You don't see it yet maybe in the revenues. But when we are looking on the internal KPIs, so we do see significant improvement in Asia. So that's one area that we are definitely doing well.

And again, now we did the change in the U.S. We have a new Head of Americas, Rachel, that joined us. She was in Palo Alto before and Cisco, a lot of experience on the security market. And she's going to lead the Americas and hopefully, we'll see significant change there in the Americas business.

Got it. It's come up in some of our latest conversations, but have you thought about potentially starting to disclose kind of an ARR and net retention at some point? Or just any other financial metrics you guys would consider disclosing?

We are considering it all the time. I have to say that without naming our competitors, but based on my discussion, a lot of discussions that I'm having with the sell-side analysts and with investors, sometimes no one understands what's included in the ARR of this. And I don't want to be in a position that someone will ask me -- what you -- I mean, we are -- you know Check Point. Check Point, if we are disclosing a number, we are 100% behind that without any manipulation. This is our numbers.

Again, it's not -- I'm not saying that we might not disclose additional figures in the future. We just mentioned now that we are growing more than 40% in the emerging product. But before doing that, we need to be sure that this is the number, although it's -- again, it's a non-GAAP number, this is the number, that we are behind that, and it's not -- there is no -- any manipulation behind this number and all the investors and all the readers can understand what's included there.

Got it. And then just from your conversation with investors, what do you see as kind of the top two or three misunderstandings about Check Point today? And just how do you feel like you can kind of transform that discussion from the seat of the CFO?

You want to start, maybe you want to answer that? He has spent so much time with investors. So...

Repeat it again real quick.

Just what do you feel like are kind of misunderstandings in the conversations you have with investors right now.

I think the biggest one is this -- I like to say this because it's kind of a catchy little term, but this isn't your daddy's Check Point. This is not a Check Point that was even 10 years ago. This is not even 5 years ago. You have many different growth engines. You have a workforce that's empowered. It's now about ask for forgiveness, not for permission. And that creates a sense of urgency, as Roei talked about earlier, that the company really hasn't experienced in a long, long time. And I think all of those things really have changed the whole dynamic of the company while people are still thinking it's still the same way it used to be. And it's clearly not.

Okay. All right. With that, I know we have quick transitions. So Check Point, thank you guys so much for being here today.

Thank you.

Thank you.

Thank you, Kip, and good to see you all. So we delivered a strong third quarter marked by double-digit growth in calculated billings, driven by disciplined execution and the rising demand across all of our portfolio. And nearly a month into Q4, we remain confident in our trajectory, and we're raising our midpoint for 2025 revenue guidance, and Roei will share more on this shortly.

As we discussed during our second quarter earnings call, our strategy continues to be anchored in 4 core principles that we believe define the foundation of a modern cybersecurity stack, shaped predominantly by the accelerating adoption of AI. As we continue to shape the future of cybersecurity, our strategy is guided by these 4 principles. First, securing the connectivity fabric as it evolves from a traditional infrastructure into a genetic autonomous reality. Second, our prevention first approach, which I believe is now more important than ever as attackers leverage sophisticated agentic capabilities, it's literally imperative that we dramatically improve the signal-to-noise ratio and limit our reliance on detection to a minimum.

Our open platform philosophy. The open platform philosophy is not the easiest path, but it's the only viable one for achieving security resilience. Building an open collaborative ecosystem among vendors, demands communication and cooperation, sometimes even with previous competitors, yet I can tell you from the trenches of cybersecurity, it's clear to us that it's essential. And our recent acquisition of Veriti is a powerful example of how we're advancing this vision by integrating Veriti into our exposure management organizations, we've expanded integrations across endpoint firewall, cloud providers reaching over 100 deployments and delivering automated remediation based on what's the best security possible.

And finally, as I emphasized before, securing AI is top priority. We are in the very first innings of the most impactful technological revolution of our lifetime. Moving from current phase of human enhancement to replacement and delegation to the next phase of crossover, where sophisticated agents are taking over and crossing the crossing lanes, it's both exhilarating, but also extremely challenging. And I think it's a race for relevance for everyone. And we must remember, and we see that at the same time, we're seeing how rapid the attackers are leveraging AI to outpace us as defenders. And this drives our mission to build a full stack AI-powered security platform.

Last week, we closed the acquisition of Lakera, a Zurich-based AI native security leader with deep expertise in protecting large language models and autonomous agents. Lakera enables real-time defense against prompt injections, data leakage and model manipulation. And it gives us a secure -- a unique security-oriented model that ensures evolving defense to stay ahead of emerging AI threats. And I believe that together, we're building a comprehensive AI security platform that will enable our customers, the enterprises that we work with, to scale AI adoption securely and confidently. And what does that mean? It means securing employee usage of AI tools through observability and data loss prevention. It means protecting AI applications and agents with run time defenses. And then finally, strengthening model robustness by our continuous testing and compliance readiness.

You should know that Lakera is already trusted by Fortune 500 enterprises, including some of the biggest banks and largest technology companies worldwide, and we're just getting started. As AI adoption accelerates, it exposes new threats, and we're committed to leading the journey to enable organizations to adopt AI securely. We're investing organically in research and development and we're identifying strategic acquisition opportunities that will reinforce our leadership position.

Beyond that, I want to touch briefly on our latest go-to-market updates. During the quarter, we achieved Fed rep authorization for the Infinity platform for government. This positions us as a trusted partner for the most demanding federal environments. Our go-to-market organization is now fully staffed. [ Rachel Roberts ] joined us as President of Americas Sales. She brings deep enterprise sales expertise from her leadership roles at [ Cisco ] and [ Palo ] to further build and scale our sales organization. Avi Rembaum was appointed President of Technical Sales. Avi's been with us for a long time. And from here on, he will lead the efforts to drive technical excellence and strengthen consumer customer engagement. And finally, Brett Theiss joins us as Chief Marketing Officer to strengthen our brand presence, to fuel demand and position Check Point for its next chapter of market leadership.

To close, before I hand over to Roei, so with over 10 months in my role as CEO at Check Point, I think that our strategic vision is taking shape. And I'm energized by the progress we've made already and where we're going in the future. And with that, I'll turn it over to Roei.

Right. Can you see my screen?

Yes.

Great. So thank you, Nadav, and thank you, everyone, for joining the call. As Nadav mentioned, we had a strong quarter, driven by strong demand across our portfolio.

If we are looking on our revenues, our revenue grew by 7% to $678 million exceeded by $6 million our midpoint. Our non-GAAP EPS reached $3.94 per diluted share and exceeded our guidance. It is important to note that this number includes a onetime tax benefit in connection with tax settlement we signed during the quarter that resulted in an update for our tax provision, and that had a benefit of $1.47, both our GAAP and non-GAAP EPS. Excluding the onetime benefit, our EPS exceeded the midpoint of our projection by approximately $0.02.

Moving to our results. As I indicated, our revenues grew by 7%. Our deferred revenues grew by 8% to $1.887 billion. Our calculated billing totaled $672 million, reflecting a robust 20% growth year-over-year. That was driven by strong demand across our portfolio and across our geographies that all of them grew by double digit. I don't need to -- I do want to remind you that our billing effect also affected by approximately 3 points that -- from these that were slipped from previous quarter. We talked about it in our last earnings call. In addition, we had one large deal -- early renewal of that resulted in a 2% benefit earlier from Q4 that came in, in Q3 and is also the benefit of 2 points to our billings.

If we're looking on our current calculated billings, so that grew by 14% to $642 million. Our remaining performance obligation grew by 9% to $2.4 billion. I'll move forward. As I said that we did see a strong demand across our portfolio. If we're looking on our services calculated billings, service calculated billings actually the calculated billing excluding our product business, and that grew 21% compared to 7% last year. And again, that's not only from certain products, that's across our portfolio, if it's the Quantum firewall, Harmony e-mail, Harmony SASE drove these great results.

If we are looking on our emerging technology, so that's the ARR, we do see that it's the [ 3 ] main products that [ 3 ] companies that we acquired in the last few years, Harmony SASE, Harmony e-mail and collaboration and external risk management. All of these products grew organically 40% -- more than 40% in ARR year-over-year, and we do see them becoming more and more significant to our total business.

Moving back to our global revenue distribution. So we did see double-digit growth in America, a 10% growth. That represents to the 42% of our revenues in Q3. EMEA, which represents 45% of our revenues this quarter, grew by 3%; while APAC, Asia Pacific, grew by 8% and representing today 13% of our total revenues.

Moving into our P&L into operating performance. So our gross profit decreased from $563 million to $602 million, representing a gross margin of 89%, similar to last year. Our operating expenses increased by 11%. The increase was mainly as a result of our continued investment organically and also the impact of Cyberint and Veriti acquisition that were not part of Q3 last year P&L. Our non-GAAP operating income continues to be strong at $282 million, 42% operating margin.

Also something that I discussed also in our last earnings call, and I want to touch base on it again in this call. The U.S. dollar got, in the last few months, I would say, since the beginning of Q3, the U.S. dollar got weakened significantly [ versus ] the Israeli shekels, given the fact that we have significant expenses in shekels that have had -- and although we are hedging a significant part of that expenses, still, we do see a negative effect for this weaker dollar on our P&L. In this quarter alone that affected our P&L by approximately 1 point to our margin, approximately, I would say, $0.06. Looking ahead, if we're already talking about next quarter. So we continue to hedge, of course, our foreign exchange currencies and our foreign currencies. And we do expect to see approximately 1 point headwind to our margin in Q4.

In addition, as Nadav earlier mentioned, we closed last week, the acquisition of Lakera, leading AI native security for platform -- for agent application. This acquisition that was closed last week will result in approximately 0.5 point headwind for margin in Q4. As we look further into 2026 and as I indicated in the previous earnings call, based on the current FX rates, that can have an increase for [ NL ] expenses next in 2026 of approximately $50 million to $60 million. That's something that we discussed last quarter. And again, because the current rates are similar to what we discussed last quarter, I wanted to bring it back again here.

Moving into our cash flow. Our cash flow was very strong. Operating cash flow was very strong with $241 million of operating cash flow. That included a $66 million onetime tax payment in connection with tax settlement signed during the quarter, that also I touched base about it when we talked about the EPS. Excluding this onetime tax payment, our operating cash flow grew by 23%, very strong cash flow. If we're looking on our total cash, our total cash in the end of the quarter is $2.8 billion for cash and marketable securities and deposits.

Another point that we had during the -- another [ 2.3 ] I want to mention here that we had during the quarter, we talked about it also last quarter that we are building a new Check Point campus in Israel in Tel Aviv. And during the quarter, we paid approximately $160 million for the land. And that's -- we're going to see it in the invest -- in the cash flow from investments. I do have to say here that we don't expect any significant additional investments until 2027. In addition, we continue to do our buyback, and we purchased our share. We purchased approximately $325 million of shares at an average price of [ $198 ].

So to summarize, strong quarter, avenues and EPS exceeded our projection, accelerated growth across our portfolio, driven by 20% growth in calculated billings, driven 20% growth in calculated billing and another strong operating cash flow and profitability -- profitable quarter.

Moving to the business outlook for Q4 before we move to the Q&A. So if we're looking on Q4, so we'll start with the Q4 and then touch base on the full year. So Q4, our range is between $724 million to $764 million, which represents 6% in the midpoint. The non-GAAP EPS is between $2.70 to $2.80. GAAP EPS is expected to be $0.60 less.

If we're looking on the annual guidance. So first, I'll remind you that the -- in the middle column, you see the original guidance we provided in the middle of the year. Our midpoint -- or the updated midpoint of the revenue guidance will be $50 million -- is going to be $15 million above the original midpoint. So it's -- the range is between [ 2.705 and 2.745 ]. Midpoint of 2.725, 6% growth year-over-year. Our non-GAAP EPS is expected to be between $11.22 to $11.32, and the GAAP EPS is expected to be approximately $2.29. Again, the EPS also includes the tax benefit that I discussed.

And 2 things -- 2 items that I want to address here about revenues and EPS. Q4 as we -- it's like -- which is more typical for Q4, it's a very heavy back-end loaded quarter that also includes heavy hardware and heavy hardware projects. We see also in our final today, significant refresh project that's supposed to come in, in Q4. And because it's more heavy, so again, there is more -- we are providing the rent. There is the -- the range is mainly for the [indiscernible] portion that again, we do expect to see more refresh projects, but because the hardware is more significant in Q4, that's something that we need to take into account in the guidance.

And it's for the EPS, I mentioned it when I discussed the P&L. The EPS in Q4 will be affected by 2 main items. One is the FX that we have approximately $0.07 to $0.08 effect based on the current rates in Q4, the weaker dollar that will affect our P&L and Lakera that will have approximately between $0.04 to $0.05 effect on Q4 EPS.

That's it, and I'll turn in to Kip to manage the Q&A.

All right. Just give us a brief moment while we get the speaker situated. Our first up is going to be Brian Essex from JPMorgan, followed by [ Amelia Colpa ] from Patrick Colville and position #2.

Maybe I'll start with Roei. On that last point that you just talked about in terms of guidance, noting that Q4 tends to be a heavier hardware quarter. Could you talk about your underlying assumptions for subscription and recurring revenue in your guide and how much visibility you have? Would love to just get the thoughts around the sensitivity versus hardware in Q4.

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

All right. Next up is Patrick Colville. Hey, Patrick.

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

Nadav, you start.

Sure, I can start. First of all, thank you, Patrick. It's -- for your kind words. I think it is a new trajectory. Yes, Q3 was a very strong quarter. And I think it -- and some of it, as you said, has some pullovers and pull-ins. But generally speaking, it's a strong quarter. And I believe that when we give our guidance for 2026, you'll see that we believe a trajectory of growth is in the cards for us.

Having said that, you know us already, we're going to do this prudently and we're going to make sure that we make the investments at the right places at the right time. So I think it's a journey. But I do think that we're seeing the beginning of the fruits of this journey.

All right. Next up is Joseph Gallo followed by Tal Liani.

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

Yes. Thank you for that, Joseph. So the strategy is -- the new strategy with the new leadership is actually going to take effect in Q1 of 2026. Q4, Avi Rembaum is still going to lead the Americas, and we're keeping ahead a full steam for all cylinders ahead.

We are going to make changes as we go into 2026. And we'll announce some of them when we meet again and speak about guidance for 2026. I will say that we are going to be ultra focused on making sure that we go back -- not go back, but continue winning, upsell in large enterprise with our current existing customer base, but also with our new products road map, with our new capabilities, go and acquire new enterprise customers across the world with a focus in the Americas.

All right. Next up is Tal Liani followed by Adam Tindle.

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

So -- so I'll touch base on that. I'll take it. The billing, of course, it's allocated between, as you said, services, I would combine support and subscription services and product. I think on the services side, that grew this quarter, the billing grew by 21%. That's going to be -- you're going to see it in the revenues in the next 4 quarters, most of it because most of these billings came in the last month of the quarter. And every quarter, it's back end loaded quarters. So you're going to see the effect in the next 4 quarters.

I do have to say that we want to show sustainable growth of billing -- of services billing that we -- that if we're going to make sustainable billing grow -- I mean, similar growth as we've seen in this quarter. So that in the end, you'll see it pretty -- I mean, you'll see it also in our revenues.

On the product side, if you're -- most of the billing is coming together with the revenues. So -- because it's recognized immediately and we are billing the customer when we are delivering the product. So it's easier. So you see it usually immediately on the services, as I said, it takes more time.

Next up is Adam Tindle, followed by Rob Owens.

All right. Nadav, congrats, obviously, 20% calculated billings growth. I was scrolling through my model. I don't think I've seen a number like that in the past decade, at least. You talked about at the Analyst Day earlier this year, SASE being a very critical growth area for the company. I wonder as you kind of reflect on the growth that you're seeing right now, if you could talk about the contribution from SASE, the upcoming road map that you have for that product area. And on the back of this, do you think we're at a point in time where it makes sense to step on the gas for investment for Check Point from here and maybe any parameters on what that would do to margin, if Roei wants to weigh in.

Yes. Thank you, Adam. So I'll start with SASE. We are seeing a meaningful ARR growth in SASE, as Roei said, over 40% in Q3 of ARR growth. SASE for us is not a stand-alone. It's a part of our the connectivity fabric and hybrid mesh, and that's one of the reasons this is such a critical factor for us. I also think that as our clients, as our customers start adopting AI, our SASE hybrid approach, the fact that we are not only cloud but also on device gives us another parameter or another, I would say, advantage.

I will say that we've made substantial investments, as I've said before, in SASE, in terms of hiring new talent, and we're talking -- this is not in the dozens, this is in the hundreds because this is a must-win product for us. And we are seeing success as we go into 2026. The good news is that we can upscale and go in and start deploying in larger and larger enterprise as we go into 2026. So that's on the SASE side. Optimism, but to be completely transparent, it's never good enough. We need to move faster. We need to add features. We need to grow the larger enterprise. We need to integrate this into a hybrid mesh connectivity fabric and keep on moving. So that's on SASE.

Investment, generally speaking, the answer is yes, but we need to do it prudently. So we're investing in SASE. But we're also investing in our newly formed Workspace. We've had great success with e-mail. Now we're bringing the other products so that we can secure our customers' employee base wherever they are and whatever they are. So that's endpoint mobile browser.

The biggest investment that you are going to see from us is investing in the future, and that's building the full stack AI security platform. Lakera is just one example. But we're literally going after the best talent. We are -- some of these are building products, some of these individuals are just looking to understand what the attackers are going to do as they increase Phase 2, Phase 3 and Phase 4, so that's going to be an investment in our future, and we really need to make investments across the board.

And we've spoken about this, and I'll let Roei chime in as well. We are doing this calculation of profitability versus growth and always looking at the 2 and trying to make the right calls prudently so that we can get to a sustainable growth without sacrificing too much of our margins.

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

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

Always a pleasure to be behind Adam. So Nadav, maybe you could just expand on some of your comments around the AI security component. I realized -- you laid out kind of the 3 different components of where your strategy is, but how much do you need to fill in from an M&A perspective? And I realize that it's changing rapidly. But at this point, where is Check Point just in terms of having the coverage that you want? And how much more M&A do you think will be in the next 12 to 18 months?

Yes. Thanks, Rob. My favorite topic. I look at this from 2 different perspectives that are outside of Check Point and where Check Point's role is. So outside of Check Point, it's the 4 phases of adoption. I still need to sort of -- I still haven't seen a meeting with the C level, whether it's the Board C-suite, CIO, Chief Data Officer, where this is not front and center of their strategy. We're all there. We're there as people. We're there as organizations. We understand that we either start advancing in the journey or we become obsolete. And it's moving from enhancement where -- which is already where we are right now, right? So we're all -- we're better performers because of AI.

Most of the organizations already have replacement. So they already have agents that are replacing humans in different lanes, but they're in their own lanes. And the first organizations, the more sophisticated ones are starting to play around with crossover agents that are now making crossover decisions and getting access to different databases. That opens a whole new plethora of challenges, changing the idea of what it means to protect the network. Not only because there's more to attack, but also because on the other side, we need to understand that attackers are usually one phase ahead. So if we are in the first and second phase, they're already experimenting with the third phase. So that's how we look at the outside world.

And when we look at our customers, we want to be their partner to be able to quickly adopt AI when we are doing the security part for them. So on the level of the users, I believe we already have the best security. On the level of runtime security for the second phase and approaching the third phase, I think that Lakera is unique. And with Lakera, I think we have the full stack of what's needed for today. However, we need to think about Phase 3 and 4, and that's where some of it will be organically. But to your question, Rob, some of it will be inorganically. And so we're looking at acquisition targets as we speak. I literally just had a meeting before this call with our M&A team, they're looking at multiple companies as we speak. Nothing is imminent right now, but there will be more.

All right. Next up is Keith Bachman followed by the purple man, John DiFucci.

I appreciate going before DiFucci. I wanted to, Nadav, for you, is there anything different or changing on Harmony e-mail in terms of the competitive dynamics, specifically? And I just wanted to understand a little bit how that pipe is building. And the spirit of the question is driven by how should we be thinking about Harmony e-mail potential growth in CY '26 versus CY '25? Is there a deceleration, you think, even driven by just the base or scale, if you will.

And then Roei, just if I could sneak one into, you mentioned that FX would be $50 million to $60 million, I think, next year, headwind. Not trying to jump ahead of your guidance, but just what you've done so far in M&A, if you could just give us some context about what that would be to CY '26 margins just the level set for those 2? And I know you've talked about some other investments you might want to do as well. But just wanted to -- on the knowns that you have today between FX and M&A that will impact margins.

So I'll start with e-mail. So no, we don't see a deceleration. In fact, we're hoping for an acceleration, and we'll speak about it in our guidance. And the reason is very simple. I truly believe that we have the best product in the market. And although e-mail has been around as long as the Internet has been around or as long as cyber has been around, because attackers are already at Phase 2, e-mail attacks are becoming much more sophisticated, and we're all seeing that.

I mean we all have this conversation. Did you get my e-mail? No, I didn't get your e-mail. Why didn't you get my e-mail? Well, because somebody block your e-mail. Why did they block your e-mail? Because they are becoming more and more sophisticated. And so what we've built around our e-mail is an AI capability, which I think is superior to what's out there. So this is a replacement business, right? We're going out there and we're replacing incumbents all the time. And I think that in terms of TAM, we're still relatively small, so I don't see a deceleration.

Beyond that, as you know, we've asked Gil Friedrich based on that success to take all the other products that create the suite for employees. So now we're bringing in not just the e-mail, but e-mail, endpoint, browser and mobile. At the end of the day, we want to look at the use case. And the use case here is employees that are working from everywhere and are now being empowered by AI agents. And the fact that we can have an agent sitting at the endpoint, either at the browser level or at the SASE level, means that we can do more on the device itself, which is cheaper, more scalable and brings better security. So I'm really optimistic about bringing all that together into our workspace.

And I'll continue regarding your second question about the FX. So yes, as I said, about $50 million to $60 million.

And about the M&A, I also talked about the effect for Q4, Lakera. So we talked about $0.04 to $0.05 headwind for Q4. We do expect to have more -- from one end, more investment. But from the other end, we also do expect to see more revenues from Lakera. So in the end, it's tough to say right now, again, we are working on the plan for next deal. So it's tough to say it's going to be the impact on our margin next year, the Lakera acquisition. And in general, margin for next year, I think that it's -- we're going to -- we are still planning working on 2026. And as I said, we'll talk more about it in February when we're going to announce Q4 numbers.

All right. Next up is John DiFucci followed by Shrenik Kothari.

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

So thank you, John. I'll be as open platform -- open, sort of open mind. I'll tell you this. First of all, it's a philosophy, I agree with you. And I've been in the trenches for more than 30 years in cybersecurity. I think that where we're going, trying to come to this with a vendor lock, closed garden, a monolithic approach will really not be enough to secure our customers for many reasons.

Now I agree, it's not an easy path, but we're seeing a glimpse of first success. So I brought up Veriti as an example. Veriti already has the ability to integrate with over 70 other vendors. From our CTAM, we see where the danger or the threat is coming from, and we can take these IC and actually fix them not only a Check Point, but even at other vendors. And that's -- and we already have 100 implementations of that within customers, all right? So I'm not saying this is sort of all the story, but it's a glimpse of the story.

Another one is our unified management. Our unified management today, with some of the cloud native firewalls, we can manage -- in our unified management on those other firewalls so that from the customer's perspective, whatever they're using, they can have the access to truly our best-in-class threat cloud AI with over 100 engines that is blocking billions of attacks all the time. So it's forming.

I agree that from a business perspective, some might say, yes, that's naive, it's never going to happen. I think it needs to happen. I think it's -- there isn't another way to resecure our customers. And we are seeing early success with this open platform approach. There's a lot of investment that we need to do in order to put more meat on the bone and create a real alternative to this idea of -- and we see it and we see how it resonates with our customers, right? They want to listen to this. Some of them because it's just the nature of the beast. They have 1 vendor, but then they make an acquisition. Now they have 3. How are they going to consolidate this? And the attackers are going to come through the cracks. So it's a philosophy, but it's also a road map. And some of it is already happening, not only in our labs, but at customer sites. As I said, over 100 deployments of Veriti only and more to come around that.

I'll give you one more sort of way to try to defend this. When you think about detection, for example, right, we look at the [ Mitre ] attack sort of chain, right, and kill chain. And we say, okay, at every point, we need to have multiple guarding capabilities in order to be successful at blocking attackers. Within that framework, we're saying a lot goes into the detection and response.

I can tell you that I'm constantly trying to imagine what I would do if I were on the bad side guys, and I'd tell you that with agentic AI, a lot of what's happening on-prem for -- that gives us the ability to detect is going to become obsolete. So now if we're in a client or a customer's environment with a competitor and we don't share what we see immediately, it's going to be game over for the customers. So now afterwards in the aftermath, I'm going to say, yes, but it wasn't my firewall, I was their firewall. The customer doesn't care.

And to your question about the price increase. So yes, we did the price increase for the subscription firewall effective July 1. It didn't have any effect on our revenues for Q3 because most of the business is coming in the last months would have a very immaterial effect. I do -- on the billing side, we do see some benefit from that, yet not significant from the price increase. Again, it's when we're managing the same discount, so we can benefit from this price increase. I don't want to have you that we have another price increase of 5% across all our Quantum firewall, which will be effective 1/1/2026.

All right. Next up is Shrenik followed by Joshua Tilton.

Yes, team, echoing my congrats...

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

A little sensitive. Great, great execution. Just continuing on with the big picture theme [indiscernible]. So Nadav, you have been firming your belief that not everything goes to the cloud and lean hard into the hybrid mesh value proposition, especially as the cloud infra cost rising. We have been hearing that a lot of AI native use cases also staying on-prem. So can you elaborate from your use case perspective, like where are you winning the most in these hybrid conversation, hybrid mesh? And then I had a quick follow-up on the go to market.

I think our advantage is in large-scale complex hybrid environments, where you have on-prem with cloud, multi-cloud, you need to manage all that. And I think that's where our advantage is. Looking into the future, there are use cases that we're seeing with the use of AI, data sovereign issues and governance that are going to take some of the use cases back to either private or quasi-private establishments that are going to offer that.

Again, I think this is an opportunity for us on 2 fronts. First, it's our sweet spot. Second, when you think about data centers that are providing either data center as a service or a private data center for AI usage, this is where performance and speed matters more than anything else. And again, that is our sweet spot. So I'm not saying this is the only use case, but I think it's a growing use case.

Got it. To make some big go-to-market hires and some ongoing transitions, just if you can walk us through how this factors into your operating model, both near term and on fiscal '26, we appreciate that.

Operating model in terms of our investment in marketing?

Yes, investment, just execution, assumptions, yes.

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

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

Great, guys. Can you hear me?

Yes.

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

Mr. Golan, do you want to start here?

Yes. So I'll touch -- I'll start, and then you can continue. As I think, again, I think it's -- first half was more challenging, mainly Q2, I think. You mentioned the Liberation Day. So definitely, it was more uncertainty in the market. I do have to say that -- you ask if the -- I mean, besides the 3 points that we mentioned, that the deals that actually will slip from the first half to Q3. So as I look at, and we're analyzing from across, I mean, many metrics, internal metrics, it's definitely much better execution. Q3 was much better execution.

And when we're looking at Q4, so Q4, again, we do see very nice deals in the pipeline. Q4 is like -- almost every quarter, but Q4 is more tricky. It includes a lot of large refresh, large outdoor deals. And again, it also depends on budget flush. You ask about budget flush. For example, last year, we did see, I would say, less than average budget flush. So tough -- it's early to say, I mean, what's going to be this year. Again, when you're talking with the field, with the sales leaders, too early to see -- to understand if we're going to see more budgets like this year. Our guidance, our midpoint of the guidance didn't take into account any significant budget flush. So that's how I see it.

Nadav, I don't know if you want to add something.

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

Next up is Brad Zelnick followed by Jonathan Ho.

Congrats. It's great to see the success in Q3 and -- and I love saying when Patrick Colville can admit he's a real gentleman, that he's able to admit when maybe he's got it wrong, happens to the best of us.

Nadav, I wanted to ask, as you reflect on changes you made to sales incentives this year, specifically paying on ARR growth, how much of an impact might that have had? And how much might that be contributing to the strong billings we're seeing this morning? And along those lines, maybe Roei, can you talk about the trends in ARR growth as we look through all the billings noise because externally, obviously, there's always puts and takes, but ARR is obviously a very pure metric.

Yes. I'll start also -- I want to -- regarding your first question. So I think we -- this year, we paid -- our [ comp plan ] was -- the significant factor there, a significant factor of our comp plan. Definitely, it's something that we did see improvement when we are looking on the discounts. On the discounts that we are giving that again, for renewals, for example, so we did see improvement on that effect after we implemented ARR factor into the comp plan.

So that's something that definitely -- I mean, we see the change. We see the mine and how the salespeople are. When in the past, it was mainly around bookings. And now, they need to think more about booking only but also about ARR. And definitely, we see the positive effects of that mainly around the renewal, the discounts around renewals. So that's one aspect that I want to touch.

The other stuff, anything else trying to -- what was the next one that you had, Brad? Or Nadav, if you want to add on that.

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

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

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

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

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

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

All right. Next up is Gabriela Borges, followed by Fatima Boolani.

Nadav and Roei, I wanted to follow up on how you think about the impact of hardware refresh on your business? More specifically, I know that 2024 was a big year for Quantum refresh. I know that 2025 was also a good year for Quantum refresh. Obviously, it's not binary, but when you look at 2026 in the cohort that's up for [ UL ] in 2026, is there anything that we should keep in mind on the size or how, being in year 3 of the quantum refresh, impacts that cohort?

So definitely, the [ refresh ] cycle is a big part of our business. But I have to say that, again, when you are looking today on the opportunities, I think we are in the middle of the refresh cycle. And I'm looking on the final for Q4. And I'm looking on the final for 2026, there's a lot of opportunity just for refresh of our existing installed base. And I'm not talking even about the competitive replacement that we see more of them in the last few quarters. So that's definitely -- have a factor on our total business.

And definitely, we see more cross-sell -- cross-selling of our other products in our portfolio. As we said, a lot of the business is coming from ERM, external risk management. Or from SASE, it's coming from actually opportunities that will be part of the refresh that we did for a customer. That's part of the refresh project. We also took -- they also acquired their purchase, sorry, purchase one of -- a few of our products. So that's definitely a big factor. And again, as of today, based on what we see today, the potential is definitely also there for the next 12 months.

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

Nadav, I wanted to ask you a question about product strategy. You have absolutely not been shy about thinking about the portfolio in a holistic manner, both from an M&A standpoint, but also from the standpoint of, hey, these products or these capabilities aren't necessarily our forte. We're going to take a partnership route. So I'm referring to your partnership with Wiz on the CNAPP front. So first and foremost, are there opportunities in the current portfolio as it stands, where there is scope for rationalization, where you can take your wins, where we're very strong and maybe exit certain product areas? So that's the first question.

And then the second question is just with respect to Lakera and the vision around building a full stack AI solution kit for your customers. How much of a budgetary attribution and allocation are you actively seeing from CISOs and CIOs who, I can't imagine aren't getting absolutely inundated with the next new mousetrap in technology. So just helping customers be ready to purchase when the technology around AI security is changing probably the most rapidly than we've ever seen in our lifetime. So a very big picture, but I wanted to get your opinion on it.

No. Thank you, Fatima. So on the first one, yes, we do want to focus and become a podium player where we play. So a couple of examples. You brought up the Wiz example, but we also announced that we're going to be partnering with Illumio in micro segmentation because I think that's an important piece of becoming secure in a hybrid mesh environment, especially as the agents are coming our way and starting to cross these lanes. So segmentation becomes very, very important. So we're doing that with them.

We're partnering with others on OT and IoT, and we're partnering on identity. So yes, there's a lot more where that comes from. Some of it is just being able to go through the normal APIs, but just be very mindful about that so that we can actually do it. Some of it is actual integration, and some of it is going to market together, like what we've done with Wiz.

With regards to the full stack, I think this is just really the beginning, right? This is not a huge market yet because, as I said, it's about these phases. And most organizations are in Phase 1. In Phase 1, we have -- our product, for example, we call it GenAI Protect. So GenAI Protect could come in as a stand-alone, but could also be a part of our browser, a part of our SASE solution. And I think you'll see a lot of that.

As we move to Phase 2 and 3, we will need stand-alone products like what we're going to -- what we're bringing with Lakera, which is already deployed in some of the largest organizations of the world. But those are the earlier -- I wouldn't even say the early. These are the innovators that are starting to do this. I think we'll see more and more. I don't think we'll see this blow up in 2026. We'll see substantial growth, and I think we'll see much more in 2027.

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

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

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

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

Thanks, everyone, for joining.

Bye now.