Check Point Software Technologies Ltd Q3 FY2025 Earnings Call

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 four 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 four 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 our top priority. We are in the very first innings of the most impactful technological revolution of our lifetime. Moving from the 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 rapidly 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 unique security-oriented model that ensures evolving defense to stay ahead of emerging AI threats. Together, we're building a comprehensive AI security platform that will enable our customers, the enterprises we work with, to scale AI adoption securely and confidently. This means securing employee usage of AI tools through observability and data loss prevention. It means protecting AI applications and agents with runtime defenses. Finally, strengthening model robustness through 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 FedRep 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 customer engagement. 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, with over 10 months in my role as CEO at Check Point, I think that our strategic vision is taking shape. 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.

Thank you, Nadav, and thank you, everyone, for joining the call. As Nadav mentioned, we had a strong quarter, driven by robust demand across our portfolio. Our revenue grew by 7% to $678 million, exceeding our midpoint by $6 million. Our non-GAAP EPS reached $3.94 per diluted share, also above our guidance. This figure includes a one-time tax benefit related to a tax settlement during the quarter, adding $1.47 to both our GAAP and non-GAAP EPS. Excluding this benefit, our EPS outperformed the midpoint of our projection by about $0.02. Our revenues increased by 7%, and deferred revenues rose by 8% to $1.887 billion. Our calculated billings were $672 million, showing strong year-over-year growth of 20%, bolstered by double-digit growth across our portfolio and geographies. It's worth noting that our billing effect was impacted by approximately 3 points due to delayed revenues from the previous quarter, which we discussed in our last call. We also had one significant early renewal that provided a 2% benefit, moving revenue from Q4 to Q3 and contributing 2 points to our billings. Looking at our current calculated billings, they grew by 14% to $642 million. Our remaining performance obligation increased by 9% to $2.4 billion. We witnessed strong demand across our offerings, particularly within our services calculated billings—growing 21% compared to 7% last year—spanning our entire portfolio, including the Quantum firewall, Harmony email, and Harmony SASE. Our emerging technology products, including Harmony SASE, Harmony email, and external risk management, each saw organic ARR growth of over 40% year-over-year, becoming increasingly important to our overall business. In terms of global revenue distribution, we experienced double-digit growth in the Americas with a 10% increase, accounting for 42% of our Q3 revenues. EMEA, making up 45% of our revenues this quarter, grew by 3%, while the APAC region grew by 8%, representing 13% of our total revenues. Regarding our operating performance, our gross profit increased from $563 million to $602 million, maintaining a gross margin of 89%. Operating expenses rose by 11%, largely due to our ongoing organic investments and the inclusion of Cyberint and Veriti acquisitions, which were not part of Q3 last year. Our non-GAAP operating income remains solid at $282 million, ensuring a 42% operating margin. As I mentioned in our previous earnings call, the U.S. dollar has weakened significantly since the start of Q3 against the Israeli shekel. Because a substantial portion of our expenses is in shekels, this currency fluctuation has negatively impacted our P&L, contributing roughly 1 point to our margin or about $0.06 this quarter. As we look ahead, we plan to continue hedging our foreign exchange exposures, anticipating a similar 1 point headwind to our margin in Q4. Additionally, as Nadav noted earlier, we finalized the acquisition of Lakera, a leader in AI-driven security for agent applications, which will create a margin headwind of about 0.5 points in Q4. Looking further to 2026, based on current exchange rates, we could see an increase in NL expenses between $50 million and $60 million, a point we touched on last quarter, and I wanted to reiterate here. On the cash flow front, we generated strong operating cash flow of $241 million, which included a $66 million one-time tax payment linked to the settled tax issue discussed earlier. Excluding this payment, our operating cash flow grew by 23%. Our total cash at the end of the quarter stands at $2.8 billion, consisting of cash, marketable securities, and deposits. During the quarter, we announced our plans for a new Check Point campus in Tel Aviv, Israel, for which we paid approximately $160 million for the land, a figure reflected in our cash flow from investments. We do not anticipate significant further investments until 2027. Moreover, our stock buyback program is ongoing, with about $325 million worth of shares repurchased at an average price of $198. To sum up, it was a strong quarter, with revenues and EPS surpassing our expectations, driven by a 20% increase in calculated billings and solid operating cash flow alongside profitability. Looking ahead to Q4, our revenue guidance ranges from $724 million to $764 million, indicating 6% growth at the midpoint. Our non-GAAP EPS is forecasted between $2.70 and $2.80, while GAAP EPS is expected to be $0.60 less. For the annual guidance, the midpoint of our updated revenue forecast is projected to be $15 million above the previous midpoint, with a range between $2.705 and $2.745, and a midpoint of $2.725, reflecting 6% year-over-year growth. Our non-GAAP EPS is anticipated to fall between $11.22 and $11.32, with GAAP EPS around $2.29, which also factors in the earlier mentioned tax benefit. As a reminder, Q4 is particularly back-end loaded and includes significant hardware projects, along with a substantial refresh project expected during the quarter. The EPS in Q4 will be influenced by factors such as the FX impact, estimated at about $0.07 to $0.08 based on current rates, plus the expected effect from Lakera, estimated at $0.04 to $0.05 on Q4 EPS. That's all from me, and I'll hand it over to Kip for the Q&A.

All right. Just give us a brief moment while we get the speakers 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.

We expect to achieve double-digit growth in subscription revenue with a slight improvement in Q3. I want to remind you that last year's Q4, which serves as a comparable period, already included Cyberint for the first quarter of this year. Nevertheless, we anticipate an acceleration in our subscription revenues compared to this quarter, maintaining similar gross rates to what you observed in the third quarter. Regarding appliances, we expect year-over-year growth to be around the midpoint in the mid-single digits.

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

Congratulations to Kip, Nadav, and Roei on the impressive 20% billings growth. I've followed Check Point for quite some time, and this is a significant achievement. There are already questions regarding the sustainability of this growth. You mentioned some one-offs affecting the timing between Q2 and Q4. Looking ahead to 2026, is this the beginning of a new era for Check Point with Nadav at the helm? Are there any considerations we should keep in mind as we project a year out?

Nadav, you start.

Sure, I can start. First of all, thank you, Patrick, for your kind words. I think it is a new trajectory. Yes, Q3 was a very strong quarter. Some of it, as you said, has some pullovers and pull-ins. But generally speaking, it's a strong quarter. 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 ensure that we make the investments at the right places at the right time. 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?

Thank you, Joseph. The new strategy with our leadership will be implemented in the first quarter of 2026. In the fourth quarter, Avi Rembaum will continue to lead the Americas, and we are maintaining our momentum. As we approach 2026, we will introduce some changes, which we will share during our next meeting when we discuss guidance for 2026. I want to emphasize that our focus will be on continuing to win and upselling within our existing large enterprise customer base while also leveraging our updated product roadmap and new capabilities to attract new enterprise customers globally, particularly 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?

I will address that. The billing is divided into services, which includes support, subscription services, and product. On the services side, billing grew by 21% this quarter. You can expect to see this reflected in revenues over the next four quarters, primarily because most of the billings occurred in the last month of the quarter. Our quarters tend to be back-end loaded, so the impact will become visible over the next four quarters. I aim to demonstrate sustainable growth in services billing, ideally similar to what we experienced this quarter. Ultimately, this will be evident in our revenues. For the product side, most billing coincides with revenue recognition, as we bill customers upon delivering the product, which is reflected immediately. However, for services, the recognition takes more time.

Next up is Adam Tindle followed by Rob Owens.

All right. Nadav, congrats on the 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 if you could talk about the contribution from SASE, the upcoming roadmap 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.

Thank you, Adam. I'll begin with SASE. We're experiencing significant growth in our annual recurring revenue for SASE, exceeding 40% in the third quarter. For us, SASE isn't just an individual offering; it's integrated into our connectivity infrastructure and hybrid mesh, making it a crucial part of our strategy. As our clients embrace AI, our hybrid SASE approach—combining cloud and on-device solutions—provides us with a competitive edge. We've made considerable investments in SASE, hiring hundreds of new talents, as this is essential for our success. Looking ahead to 2026, we are optimistic about scaling and addressing larger enterprises. While we're optimistic about SASE, we recognize that we must accelerate our pace, enhance features, expand our enterprise reach, and integrate more effectively into our hybrid mesh connectivity framework. Regarding investments, we are committed to investing in SASE and also in our newly established Workspace initiative. We've seen great success with email and are now expanding our offering to secure employees wherever they are. Our largest investment will focus on building a comprehensive AI security platform, with Lakera as a prime example. We are actively seeking top talent, some focused on product development and others on understanding evolving threats as they advance through various phases, indicating we need to invest holistically. We continuously evaluate profitability against growth to make informed decisions that ensure sustainable growth without significantly sacrificing our margins.

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

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

It's always great to follow Adam. Nadav, could you elaborate on your comments regarding the AI security aspect? You mentioned the three components of your strategy, but how much more do you need to pursue through mergers and acquisitions? I understand the landscape is changing quickly, but where does Check Point currently stand in terms of achieving the desired coverage? How much additional M&A do you anticipate in the next 12 to 18 months?

Yes. Thanks, Rob. My favorite topic. I look at this from two different perspectives: those outside of Check Point and where Check Point's role is. Outside of Check Point, it's the four 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, CIO, or Chief Data Officer, where this is not front and center of their strategy. We're all there; we're there as people; we understand that we either start advancing in the journey or we become obsolete. Moving from enhancement, which is where we are right now, to replacement. The first organizations, the more sophisticated ones, are starting to play around with crossover agents that are making crossover decisions and getting access to different databases. That opens a 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 we need to understand that attackers are usually one phase ahead. So if we are in phases one and two, they're already experimenting with phase three. So that's how we look at the outside world. And looking at our customers, we want to be their partner to adopt AI quickly while doing security for them. So on the level of users, I believe we have the best security. On the level of runtime security for the second phase and approaching the third, I think Lakera is unique. With Lakera, I think we have the full stack of what's needed. However, we need to think about phases three and four, some of it will be organically, but to your question, Rob, some of it will be inorganically. We are looking at acquisition targets as we speak. I literally just had a meeting before this call with our M&A team; they are looking at multiple companies. Nothing is imminent right now, but there will be more.

All right. Next up is Keith Bachman followed by John DiFucci.

I appreciate going before DiFucci. I wanted to, Nadav, for you, is there anything different or changing on Harmony email in terms of the competitive dynamics specifically? And I just wanted to understand a little bit about how that pipeline is building. The spirit of the question is driven by how should we be thinking about Harmony email’s 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 in, 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 to level set for those two?

So I'll start with email. 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. The reason is very simple: I truly believe that we have the best product in the market. Although email has existed as long as the internet or cybersecurity has, because attackers are already at Phase two, email attacks are becoming much more sophisticated. We're all having this conversation: Did you get my email? No, I didn't get your email. Why didn't you? Because someone blocked it. We're already seeing this happen more and more, and what we've built around our email is an AI capability, which I think is superior to what’s out there. This is a replacement business, right? We're out there replacing incumbents all the time, and I think that in terms of total addressable market, we’re still relatively small. So I don't see a deceleration. Beyond that, we’ve asked Gil Friedrich to take all the other products that create the suite for employees. So now we’re bringing in not just email, but email, endpoint, browser, and mobile. At the end of the day, we want to look at the use case. The use case here is employees working from everywhere and are being empowered by AI agents. We can have an agent at the endpoint, either at the browser level or at the SASE level, which allows us to do more on the device, which is cheaper, more scalable, and ultimately brings better security. I'm really optimistic about bringing all that together into our workspace.

In response to your second question about foreign exchange, we estimate it will affect us by about $50 million to $60 million. As for mergers and acquisitions, I mentioned the anticipated impact for the fourth quarter regarding Lakera, which we expect to be a headwind of $0.04 to $0.05. We foresee, on one hand, increased investment, while on the other hand, we anticipate additional revenue from Lakera. It’s difficult to predict the exact impact on our margins moving forward, as we are currently developing our plan for the next deal.

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

My question is a high-level one for Nadav. Nadav, I've known you for a long time, and I appreciate your commitment to the open garden approach, which makes a lot of sense for the customer. However, it feels somewhat unrealistic to believe that it can be achieved, especially given the strong competition. Despite it being the right thing for the customer, no one has succeeded in doing it. Can you provide us with some examples or insights on how things are progressing in a positive direction? Also, Roei, as a quick follow-up, while it's great to have pricing power, how should we view the recent price increases in subscriptions and their potential contributions? I want to better understand this aspect.

Thank you, John. I'll be open-minded. First of all, I agree with you that it's a philosophy. I have over 30 years of experience in cybersecurity, and I believe that relying on a vendor lock, closed garden, monolithic approach is not sufficient for securing our customers for many reasons. While it may not be easy, we are seeing some successes. For instance, Veriti has the capability to integrate with over 70 other vendors. Our CTAM identifies where threats are coming from, allowing us to address these issues not only at Check Point but also with other vendors. We have already implemented this in 100 customer deployments. This is just part of the larger picture. Another example is our unified management system, which allows us to manage cloud-native firewalls. From the customer's standpoint, no matter which firewalls they are using, they can access our advanced threat cloud AI with over 100 engines that block billions of attacks continuously. This is taking shape. Although some may consider this naive and unrealistic from a business perspective, I believe it's essential. There is no alternative to effectively re-secure our customers. We are witnessing early successes with this open platform approach. Significant investment is required to enhance this initiative and provide an alternative to the closed garden concept, and we can see that it resonates with our customers. They are in search of solutions because attackers will exploit any vulnerabilities. So, this isn't just a philosophy; it also serves as a roadmap, and we are seeing progress not only in our labs but also at customer sites. We have over 100 deployments of Veriti alone, with more expected. Additionally, regarding detection, we align our strategy with the Mitre attack chain, emphasizing the need for protective capabilities at every stage to successfully block attackers. Effective detection and response involve a lot of effort. I often think about what I would do if I were on the offensive side, and I believe that with advanced AI, much of the on-premises detection will soon become ineffective. If we are in a customer’s environment and don’t share what we observe immediately, it could result in serious consequences for them.

Regarding the price increase, 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 comes in the last months, would have a very immaterial effect. We do see some benefit from that on the billing side, yet not significant from the price increase. Again, we're managing the same discount, so we can benefit from this price increase. I should mention that we have another price increase of 5% across all our Quantum firewall, 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. Great, great execution. Just continuing on with the big picture theme. 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 costs rise. We've been hearing that a lot of AI native use cases also stay on-prem. Can you elaborate from your use case perspective, like where are you winning the most in these hybrid conversations, 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 and cloud, multi-cloud, you need to manage all that. I think that’s where our advantage is. Looking at the future, there are use cases we see with the use of AI, data sovereignty issues, and governance that will shift some use cases back to either private or quasi-private establishments that will offer that. Again, I think this is an opportunity for us on two fronts: first, it's our sweet spot; secondly, data centers that offer data center as a service or a private data center for AI usage, this is where performance and speed matter most. Again, that is our sweet spot. I’m not saying this is the only use case, but I think it’s a growing use case.

Got it. You’ve made some big go-to-market hires and ongoing transitions. If you can walk us through how this factors into your operating model, both near term and on fiscal '26, we would appreciate that.

Yes. We are starting to be more aggressive with our marketing dollars across the board, and we'll see an increase in that in 2026, hopefully 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 how you would characterize the spending environment in Q3. 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? What are your expectations heading into Q4? Will there be a budget flush? What are your thoughts?

Yes. I'll start and then you can continue. The first half was more challenging, particularly in Q2, which was affected by Liberation Day. There was notable uncertainty in the market. In addition to the three points mentioned, some deals slipped from the first half to Q3. However, internal metrics indicate significantly improved execution in Q3. Looking ahead to Q4, we see promising deals in the pipeline, although Q4 tends to be trickier with numerous large refresh and outdoor deals, which also depend on budget flush. Regarding budget flush, last year we witnessed below-average flush levels and it’s still too early to predict what will happen this year. Conversations with field and sales leaders suggest it's uncertain if we'll experience a budget flush like last year. Our guidance does not factor in any significant budget flush, which is my perspective. Nadav, do you have anything to add?

No, I agree. I think America is good and steady. We hope to see increased demand in Europe going forward. But as Roei said, our guidance does not take an optimistic view on how demand is going to grow beyond that.

Next up is Brad Zelnick followed by Jonathan Ho.

Congrats. It's great to see the success in Q3. I love saying when Patrick Colville can admit he’s a real gentleman; that 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? There are always puts and takes, but ARR is obviously a very pure metric.

Yes. Regarding your first question, our compensation plan was a significant factor this year. We did see improvement in discounts. For renewals, we noticed enhancements after introducing the ARR factor into the compensation plan. This is something we've observed. It’s about how salespeople are perceiving it. Previously, the focus was mainly on bookings; now, they also need to consider ARR. We see positive effects, particularly regarding renewals and discounts. That’s one aspect I wanted to mention. As for your next question, or anything else you want to add, Nadav?

The only thing I would add is that I think we're seeing the beginning. I agree with Roei that I attribute 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, etc., will take effect, but it’s a work in progress.

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

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

I would say that because our current business is relatively small, we're not seeing a strong impact. However, our investment in Fed ramping our products is something we'll continue to do for a couple of reasons. First, it's a big market. Second, this is what we're passionate about doing, securing the most under threat environments, the most complex environments. I think we have an advantage there to bring better security. So we're going to continue investing in that. And that means in our product, but also Fed ramping and focusing on our selling efforts in that area because I think there’s 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 we should keep in mind on the size or how being in year 3 of Quantum refresh impacts that cohort?

Definitely, the refresh cycle is a big part of our business. But I have to say that, when you are looking today at the opportunities, I think we are in the middle of the refresh cycle. I’m looking at the final for Q4 and looking at the final for 2026; there's a lot of opportunity just for the refresh of our existing installed base. I’m not talking even about the competitive replacements that we see more of in the last few quarters. That's definitely a factor in our total business, and we’re seeing more cross-selling of our other products in our portfolio. We've said a lot of the business is coming from ERM, external risk management, or from SASE, from opportunities that will be part of the refresh we did for a customer. That’s part of the refresh project.

All right. Next up is 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 you're very strong and maybe exit certain product areas? That's the first question. 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 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.

Thank you, Fatima. On the first one, yes, we do want to focus and become a podium player where we play. A couple of examples: you brought up the Wiz example, but we also announced that we're partnering with Illumio in micro-segmentation. This is important for becoming secure in a hybrid mesh environment, especially as the agents are coming our way and starting to cross these lanes. We are also partnering with others on OT and IoT, and we're partnering on identity. Yes, there's a lot where that comes from. Some of it is just through normal APIs, while we’re very mindful to ensure it works well. Other parts will be in actual integration or going to market together, as we've done with Wiz. Regarding the full stack, I think this is just the beginning. The market isn’t huge yet; as I said, it's about these phases, and most organizations are in Phase 1. In phase 1, we call it GenAI Protect, and it could come in as a stand-alone but can also be a part of our browser or SASE solution. You’ll see a lot of that. As we move to Phases 2 and 3, we will need standalone products like what we're bringing with Lakera, which is already deployed in some of the largest organizations in the world.

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. Maybe just as a pricing question is, how do you view the current subscription licensing model, right? Is there room to 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, and cloud security, what are your thoughts here as you think about pricing and getting customers to expand and adopt more of your products over time?

Yes. As you see, our portfolio's breadth is expanding, but also its nature, right? When you think about SASE models of consumption, I think that’s becoming more relevant. The first thing we must do is not only sell our products but ensure our clients are using it and satisfied with it. We still haven’t moved to a consumption base. But I'll be honest; it’s something we're discussing. This is especially relevant for areas like Workspace.

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.