Check Point Software Technologies Ltd. Q3 FY2024 earnings call

Financials

• Revenues and EPS exceeded midpoint of projections. Gross profit increased by 5% to $563 million (89% gross margin). Operating expenses rose 9% due to workforce investment and Perimeter 81 acquisition. Operating cash flow was strong with $249 million growth. Share buyback of $325 million occurred.

Infinity Platform

• Continued strong demand, driving double-digit growth and contributing ~15% of total revenues.

Harmony Email

• ARR exceeded $100 million, with high double-digit growth.

Acquisitions

• Cyberint acquisition completed, expanding into SOC and security operations. Perimeter 81 integration ongoing with positive traction in SASE sales.

During the third quarter, Check Point's revenues grew by 7% to $635 million, with subscription revenue increasing by 12% to $277 million. Calculated billing reached $562 million (6% year-over-year growth) and current calculated billings grew by 5% to $563 million. The Infinity platform contributed ~15% of total revenues with double-digit growth. Harmony Email had an ARR exceeding $100 million. Product revenue grew by 4%. Geographically, America accounted for 41% of revenue (grew 3%), EMEA 46% (grew 7%), and APAC 17% (grew 17%).

Full Year

• Revenues within $2,475 million to $2,625 million range; EPS within $9.05 to $9.15.

Fourth Quarter

• Revenues expected $675 million to $715 million; EPS $2.60 to $2.70. Healthy pipeline and positive energy for Q4, with deals pushed from Q3 expected to benefit Q4.

• Billing fluctuations: Deals pushed from Q3 to Q4 affected Q3 billings but expected to benefit Q4. - Market uncertainty: Potential slower growth due to macroeconomic factors, competition, and deal execution issues.

Q: On the billings miss, any eight-digit contracts? Views on Doug Kaplan's potential M&A spree?

A: Gil Shwed addressed billings as not indicating concern, stating deals pushed from Q3 were normal and not a cause for worry. On Doug Kaplan, he said no major short-term changes expected, focusing on operational discipline and maintaining healthy growth.

Q: Internal indicators positive, expand on that?

A: Gil Shwed mentioned positive energy in the U.S. market, noting healthy pipeline and good deal flow in the Americas, with the U.S. market being a key indicator of growth potential.

Q: Vendor financing and double-digit growth?

A: Roei Golan said Check Point provides flexible billing terms with its Infinity platform, and the company is positioned for accelerated growth through investments in R&D and go-to-market strategies to drive double-digit growth.

Q: Perimeter 81 integration and SASE adoption?

A: Gil Shwed stated there is positive traction in Perimeter 81, with sales growing and Q4 expecting seven-digit deals on the SASE platform, indicating ongoing progress in integration.

Q: New customer acquisition and displacement?

A: Gil Shwed said new customers are mostly in the core network security space, with Check Point winning share from competitors, particularly in large enterprise accounts where dual-vendor strategies are being adjusted in their favor.

Q: Cyberint acquisition and SIEM market?

A: Gil Shwed said Cyberint is a unique entry to the SOC space, providing real-time vulnerability reports and prevention capabilities, and noted that focusing on SIEM immediately is not the current priority but Cyberint enhances the SOC offering.

Q: Network security hardware refresh?

A: Gil Shwed acknowledged a healthy refresh cycle but expressed a desire for faster growth, noting the new product line is well-positioned to handle increased network traffic and accommodate growth in hybrid environments.

Q: Channel Partner Program?

A: Gil Shwed said there is positive feedback from channel conferences, with the channel sentiment becoming better and feedback mostly positive.

Q: NVIDIA DPU chips opportunity?

A: Gil Shwed stated the opportunity with NVIDIA DPU chips is in the early stages, with the company building senior sales leadership to focus on this area, highlighting a unique value proposition for securing AI hyperscalers.

Q: Infinity mix impact on other segments?

A: Roei Golan said Infinity can grow in tandem with other segments, driving overall growth as more customers adopt Infinity and it contributes to expanded revenue streams across various products.

Q: Europe softness and competition?

A: Gil Shwed noted Europe is typically soft in Q3, with some giant deals in the prior year making comparisons tough. He also observed some competitors struggling, but Check Point is gaining share in core markets through strong deal flow and customer adoption.

Q: Budget flush and sales cycle?

A: Roei Golan said the guidance did not account for significant budget flush, and close rates and sales cycles are normal, with deal duration depending on the customer and deal size, but no significant changes observed in Q3.

Q: RPO growth and Cyberint deferred revenue?

A: Roei Golan said RPO grew 8% in Q3, and Cyberint had minimal impact on Q4 financials, contributing less than 1% to total revenues in Q4.