Welcome to our Earnings Call. You can find our materials on Checkpoint.com. During the presentation, all participants will be in listen-only mode, followed by a Q&A session. Checkpoint representatives may share forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from projections. These factors are detailed in our latest filings with the Securities and Exchange Commission. Forward-looking statements are only valid as of today, and we have no obligation to update them. Our press release, available on our website, includes GAAP and non-GAAP results, along with reconciliations and explanations for presenting non-GAAP information. If you have questions after the call, please reach out to Investor Relations at [email protected]. Now, I will hand the call over to Gil Shwed.

Hi everyone, good morning and glad to see all of you here. Before I turn it into Roei to go through the financials, I want to make a short statement. I think as you all know, Israel has gone through a very terrible terror attack three weeks ago. And first and foremost, our hearts go to all the people that are suffering from the situation and all the people that lost their loved ones in this situation. And unfortunately, here in Israel and around us, there are many of them. We all know people that have suffered and we all know people that were murdered in this terror attack. Over the past three weeks, our employees proved that despite the siren reserve military draft of a few people, around 5% of our entire headcount, we can continue to operate as planned, uninterrupted. Over the last three weeks, we've been able to launch products, complete acquisitions, and, of course, continue to support our customers and partners exactly as planned. All of that is due to the fact that we're much more accommodated to work in a hybrid manner with our operations all around the world, and mainly due to our employees and their commitment to customers and partners. I want to thank all our employees for their resilience and for all our customers, partners, and you in the investment community because I did receive plenty of support, plenty of emails, and calls from people who are standing behind us and are supporting us at this time. I really, really appreciate it. I really want to thank you. And with that, I think we can turn to business and try to continue with business plans. So, Roei, the floor is yours.

Thank you, Gil. And thank you for everyone for joining the call today. I'm excited to be with you and begin the review of the third quarter for 2023. We had another strong profitable quarter with 17% growth in EPS, both double-digit growth in net income and EPS. In the net income for the second quarter in a row, and in the EPS for the third quarter in a row, very strong results. In terms of revenues, the revenues reached $596 million, $9 million above the midpoint of our projection, while our EPS, as mentioned, reached $2.07 at the top end of our projection. Let's go now to the numbers. So deferred revenues grew by 4% to $1.709 billion. Our current deferred revenues, actually the short-term deferred revenue, grew by 6% to $1.246 billion. Our calculated billing reached $531 million, while our current calculated billing, the short-term calculated billing reached $535 million. It's important to note that the calculated billing includes $8 million related to the acquisition of Perimeter 81. Same as in the previous quarter, due to the high interest rate environment, we saw fewer customers willing to pay upfront for multi-year deals, which was already in shorter billing duration year-over-year. Additionally, Infinity is becoming more and more significant to our business, and the billing terms in these deals are more flexible. Some of them are on a monthly basis, and some of them on a quarterly basis. So that also affects our duration. It is important to note that we saw many positive indicators this quarter. We saw that it's something that we are monitoring, the annualized booking actually grew year-over-year, and our RPO grew by mid-single digits year-over-year. So I think in general, we saw very positive indicators in Q3, and we see positive momentum also going to Q4. Okay. So our security subscription revenues grew by 15%, actually the highest growth that we had since 2017. This growth was driven by strong demand for the Harmony product family and mainly for Harmony Email Security; we keep seeing a very strong demand for the Harmony products, and that's driving this growth. On the product side, we still see delays in executing refresh projects, resulting in a decline of product revenues by 14% year-over-year. It is important to note that we did see strong and healthy renewal business as our customers continue to benefit from our security and support. We do see a stronger pipeline for Q4 that includes also refresh projects that were postponed from prior quarters. So we hope that we are going to see the positive turnaround in Q4. In terms of Infinity, so Infinity had another great quarter, continuing to flow and accelerating the way to the revenues, with strong double-digit growth year-over-year. In the third quarter, the revenues from Infinity exceeded 10% of the total revenue. We can see more and more customers adopting our platform, which answers their needs with their one umbrella of products and services. As for the revenues by geography, so 46% of revenue came from EMEA, 43% from the Americas, while the remaining 11% came from Asia Pacific. Now let's move to the P&L. So our gross profit increased from $507 million to $534 million, representing a gross margin of 90% compared to an 88% margin last year. This is due to significant improvement in our supply chain this year, which had been challenging in 2022. Our operating expenses increased by 9%, and this increase is mainly a result of our continued investment in our workforce, cloud infrastructure, marketing and travel costs. In total, our non-GAAP operating income continues to be strong at $269 million, or a 45% margin, the same as we had last year. Very strong profitability. Financial income this quarter reached $18 million as we keep investing in higher interest rates over time. Our non-GAAP tax rate for this quarter was around 15%, mainly due to indexation and an update in tax provision because of several tax assessments we had worldwide. Our non-GAAP net income increased to $242 million, or $2.07 per diluted share, reaching the top end of our position and a 17% growth year-over-year. Our GAAP net income was $205 million, or $1.75 per diluted share, a 19% growth year-over-year. Moving to our cash flow and cash position. So our cash balances as of the end of the quarter was $3 billion. Our operating cash flow was strong at $222 million this quarter, and it includes $22 million founder rollback in connection with an acquisition that we did this quarter. Excluding this effect, our cash flow grew by 2% year-over-year to $244 million. During the quarter, we acquired Perimeter 81 and Atmosec for a total cash amount of $477 million. We also continued our buyback program and purchased 2.5 million shares for $325 million at an average price of $131. Now to summarize our financial disclosure, very strong subscription revenues with 15% growth, the highest growth since 2017, continued strong adoption of our Infinity platform. And while we see refresh projects that have experienced delay, we see a very strong and healthy renewal business. And again, strong profitability with a 17% growth in EPS. Now, I turn the call over to Gil.

Hi, everyone. Once again, nice to see you all. I’m pleased to be here. I'd like to shed some more light about technology and the business and what we've seen during this quarter. First, if we start with some of the highlights and the things you've already heard from Roei. I think on the financial side, we had good financial results, exceeding our projections on the top end of the revenues and even beyond that on the EPS. We did experience strong renewals, and we did see a lot of positive indicators of change, but I think we will mark higher growth with the economy and with all the efforts that the Check Point people do around the world. On the technology and the other activities that we've done this quarter, first, I think we've talked a lot about getting into the SASE industry; I think the name is here several times on the slide. In the next few slides, I will explain what SASE is and why it's important and why it is such a big deal and I think a big opportunity for our business. We've launched several products, especially during October, including the Horizon Playblocks and several others, and I think we remain very, very active. So, let me start and drill down a little bit about some of the business activities that we've conducted during the last quarter. So, the first and foremost is market expansion and our acquisitions that we've executed there. In the last 60 days, we've acquired three companies, bringing our total count to 20 acquisitions for Check Point. The biggest one is Perimeter 81 for the Quantum SASE, a $3.4 billion market which is very adjacent and complementary to our customer base, and I think it's a must for us to play and be strong in that market. In addition to that, we've extended our technology with a small acquisition of Atmosec, a small Israeli startup that will let us provide better technologies for the SaaS security market. Providing better technology to secure applications that are being run from the cloud. Last but not least, if you remember, at the beginning of the year, we launched our Infinity Global Services, an organization that aims to complete a set of services that customers can get from Check Point. It augments the capabilities that each customer has. Infinity Global Services has today more than 30 different services provided by around 400 security consultants. It's a pretty big organization, and we've added a few additional services, the main one being our managed firewall service, which plays very well into our installed base. In the last quarter, we conducted strategic efforts like scaling up the SASE offerings and further developing our Zero Trust capabilities, and we're making very good progress there. I think we do have a game changer, with which we will be able to connect the data center gateway, our Quantum gateways, our Quantum firewalls with the branch office, with the cloud, with the end users, with remote access, and provide internet access and data access everywhere with the highest level of security and performance; I think we really have a game changer here. Overall, I believe we had a pretty good quarter, with very good financial results, strong profitability with 17% EPS growth and 15% subscription growth, the highest growth since 2017. I think we had game-changing innovation through acquisitions, the Quantum SASE and Horizon Playblocks for collaborative security, and we are seeing a lot of signs of positive change. If you remember last November, we started the year facing a significant slowdown in our industry, which continued throughout the first and second quarters. In the third quarter, I'm seeing some good signs of turnaround, and I think part of it is due to the economy and industry, while parts can be credited to the actions of our people in Check Point and especially our people in the field who are working very hard. Before I open the call to questions, let's touch on our projections for the fourth quarter. In general, our projections are very positive, with revenues expected in the range of $636 million to $686 million and EPS anticipated to be between $2.35 to $2.55. Overall, these projections align well with the ranges we provided at the beginning of the year, which reflects positivity on our end.

As always, during the question-and-answer period, please limit your questions to one so we can get to everybody. Today, we're going to start off with Gabriela Borges from Goldman Sachs, followed by Adam Borg of Stifel.

Good evening. And thank you. Our thoughts are with you and all of the Check Point employees on the ground in Israel. I wanted to ask a little bit about your 2024 planning assumptions as you think through what next year could look like. Maybe Gil, share with us some of the positive indicators that you mentioned in your prepared remarks that are leading you to begin thinking through the implications of those positive indicators for billings growth. In other words, when do you think we'll see a more material inflection in billings growth? Thank you.

Thank you for that. It’s too early to have the 2024 projections. We're just starting to work on the 2024 plans, but we already have some thoughts about that, and I would say there are three factors that contribute to that. One is technology and the new areas that we are in. Second is our customer engagement and the level of activity we have in the field. The third one is the market itself, which is a little beyond our controls. This year, our field did an amazing job increasing the engagement with customers; we've doubled our engagement rates with existing customers and even more so with prospects. There's still plenty that we can do; we still can reach many more prospects and do more qualitative engagement. However, I think we've made a real evolution here, and there are plenty of credits to our people in the different countries in the field who have contributed to that. When you engage with a customer you haven’t met in a while, it typically takes between six to even 18 months until it's fruitful, so we will see results from that. Regarding technology, we have much more to offer with new solutions that are working well. I expect there will be a significant demand for SASE solutions; it’s a healthy market with high growth, though we're just beginning to tap into it. The final element is the overall market for Firewall Gateways, which went down to the bottom in Q2 and is now showing signs of improvement. If we see progress here combined with our efforts in customer engagement, we’ll have reasons to be optimistic. However, the customers are not replacing and are renewing their current solutions, which is good for recurring revenue but isn’t yielding larger growth numbers. So, we hope the market will change, bringing better results in the future.

All right. Next up we have Adam Borg from Stifel, followed by Brad Zelnick from Deutsche Bank.

Awesome. Thanks, guys, for taking the question. Again, I'll echo my thoughts for you and your families. Maybe just for Gil on Perimeter 81, it's great to see your entry deeper into SASE with it. I was hoping you can talk a little bit more about the near-term integration priorities from a sales and marketing and R&D perspective. How should we think about the CapEx impact as you look to acquire? I'm assuming over time? Thanks so much.

I think in terms of the integration, we've built a module within Check Point called Rockets that allows these businesses to keep some independence while working with Check Point on R&D and sales and marketing to drive things forward. Quantum SASE will be tightly integrated into Check Point as it's a network solution and integrates with our gateways and projects. The synergy here is extremely positive. We already see a high level of interest in the field, and it will take some time to build the bridges, but we are working hard. There are two caveats: we want to create one product suite and connect management with Check Point's other security technologies and Perimeter 81. However, it has been growing nicely on its own, and we don't want to disrupt that. So, I hope we will see even faster transition because it is so central to our technology. In terms of CapEx, we expect to invest a few million dollars a year related to Perimeter 81; it's not significant.

All right. Next up is Brad Zelnick from Deutsche Bank, followed by Tal Liani from BofA.

Great. Thanks so much for taking my question and best wishes to all the good people of Israel. Gil, I don't recall Check Point having a significant US Federal business, but we saw the DLA deal that you highlighted, which I think was a $6 million deal. Can you remind us if there is a broader opportunity you’re pursuing within the US Federal space? Is this also a reason why we don't necessarily see all of the success you’re having in billings? Because we know that the US Federal customer doesn’t necessarily pay multi-years in advance. Thank you.

I think the opportunity in the US federal government is enormous, although it is a tough customer for foreign companies including Israel. We are making progress on our government business in the US, particularly in local government. However, I don't believe that it directly affects our billing; many deals have been impacted by timing and administrative delays. While it’s a very difficult market to penetrate, the Federal opportunity remains largely untapped.

On the federal side, it doesn’t particularly affect billing, but the timing and duration of deals strongly impact our billing pattern. One example I can give is that we had a large mega deal expected to close this quarter but closed two days after; these kinds of timing issues affect billing. Nonetheless, in this quarter we saw positive booking growth year-over-year, along with a strong pipeline for Q4.

All right. Next up is Tal Liani from BofA, followed by Joseph Gallo from Jefferies.

Good morning, everyone. I have two questions. Gil, you're only growing at 3%, and while you've mentioned products like Infinity in the past, it's clear that the company is struggling to turn technological advantages into greater growth compared to competitors. What additional areas do you need to invest in, such as go-to-market strategies or marketing, and what challenges do you encounter in converting your technology into improved growth? My second question is related: the subscription growth is impressive at 15%, but what trends are you seeing in the non-subscription segment, which has decreased by about 4%? Is there any substitution happening, or what trends are present in the non-subscription area?

You're absolutely correct; we need to do better. I believe that we are in a good market trajectory compared to last year, and our results would have shown double-digit growth if there had not been delays in the product market. Our growth comes both from customers continuing to stick with us and doing renewals, as well as transitioning from one-time purchases to subscription, and some of it from Infinity's multi-architecture approach. However, if you strictly look at sales of gateways, the number wouldn’t even be 3%. While I’m not satisfied with this growth percentage, we need to improve it. Our focus has been internal, particularly on customer engagement, ensuring our team is actively meeting with customers and prospects. Next steps involve elevating the level of quality in our interactions and reaching decision-makers within these organizations; we need to be more visible.

All right. Next up is Joseph Gallo from Jefferies, followed by Saket Kalia from Barclays.

Hey, guys. Thanks for the question. Congrats on another quarter of double-digit EPS growth. You've started to talk about top-line and product growth drivers as we think about 2024. How should we think about leverage, given the necessary investments and the M&A integration? What impact, if any, could FX have over the next 12 months?

On the FX side, we will likely benefit in the next 12 months from the shekel. We usually hedge our currencies between three to four quarters ahead, so some of that is already hedged for next year. Conversely, the second half of the year will also be hedged. We expect a benefit next year on FX, although it’s too early to quantify. However, we benefited approximately $5 million to $6 million in FX this year relative to last year. As for leverage, we need to see more positive results from existing investments while continuing to invest in future areas. We are already strategically positioned and hoping to see returns on those investments.

All right. Next up is Saket Kalia from Barclays, followed by Hamza Fodderwala from Morgan Stanley.

Okay. Great. Hey. Good morning, everyone. Same here, by the way, thoughts to everyone on the Check Point team. Roei, can we discuss the M&A impact here on the model, including annualized revenue and margin impacts as we incorporate these deals into our model for next year? Also, can you clarify regarding the large deal that closed two days after the end of the quarter?

Regarding M&A, when we announced Perimeter 81, we stated it had approximately $25 million in annual recurring revenue. The other acquisition, Atmosec, doesn’t have any significant revenue impact. For now, we expect Perimeter to contribute positively; however, it is currently losing money and will take some time to become profitable. On the large deal, it would have accounted for about two points of our billings.

All right. Next up is Hamza Fodderwala from Morgan Stanley, followed by Patrick Colville from Scotiabank.

Thank you for taking my question. I also want to offer my support to you and all your families. I wanted to ask a question regarding the product refresh. Historically, it suggests there should be new hardware coming out, possibly early next year. What are you seeing in terms of demand and interest around that? To what extent are customers sweating their assets in anticipation of these new appliances coming from Check Point?

It’s a good question. I wish I knew the answer. We're receiving good feedback concerning price performance of products. However, I don’t see any built-up expectations from the market. Generally speaking, we do have a new product already; we announced a ruggedized client last week designed for mission-critical applications. It’s a smaller market, but it’s an important offering.

Our next question is from Patrick Colville from Scotia Bank, followed by Joshua Tilton from Wolfe Research.

Thank you so much for taking my question. Echoing as an analyst, our thoughts are with you and your family. I wanted to clarify: did you say that you thought Q2 was the bottom in terms of product demand and that you saw signs of improvement in Q3? The other question is, why Perimeter 81? Our fieldwork indicated that its traction was in the SMB space, which isn’t as ready for enterprise integration.

You are correct about Q2 being the bottom. Regarding Perimeter 81, it is not only about its traction but also its differentiated technology. They employ a hybrid model, combining cloud and client-side operations. We've seen many companies in the SASE space, but the challenge is that many lack simple setup and scalable solutions. A complex installation means you can’t scale effectively. The technology needs to be straightforward to deploy to accommodate our 100,000 customers, while ensuring profitability. We've done this effectively with the email security acquisition and have gained traction.

All right. And last up, welcome back, Ms. Fatima Boolani.

Thank you very much, Kip. And Gil, sending my thoughts and prayers during this very difficult time. I wanted to ask Roei regarding the Security Subscription segment. The 15% acceleration we saw, I’d like your thoughts on where that could trend in the next couple of quarters. Are you witnessing strong expansion into other product pillars that are making a meaningful impact in driving that acceleration?

We hope to see acceleration of this growth, ideally higher than the 15%. The growth this quarter was driven largely from Email security, which continues to expand into our revenues. We're also seeing an expansion under the Infinity platform. Together with cloud growth, we expect subscription revenues to show ongoing positive trends, although it’s too early to definitively project future growth.

All right. And with that, we'll conclude for the day. Thank you, everyone, for joining us, and we look forward to speaking with you again after the call and throughout the quarter.

Thank you very much. I appreciate it. Thank you.

Goodbye.