2022 Financial Results Video Conference Call. Joining me remotely today are Gil Shwed, Founder and CEO, along with our CFO and COO, Tal Payne. As a reminder, the video conference is live on our website and is recorded for replay. To access the live conference and replay information, please visit the company’s website at checkpoint.com. For your convenience, the replay will be available on our website. If you would like to reach us after the call, please contact Investor Relations by e-mail at kip@checkpoint.com. During this presentation, Check Point’s representatives may make certain forward-looking statements. These forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934, include but are not limited to, statements related to Check Point’s expectations regarding our products and solutions, expectations regarding customer adoption of our products and solutions, expectations related to cyber security and other threats, expectations regarding our Q3 2022 projections, our 2022 initiatives, the market for IT security, competition from other products and services, supply chain, general market, political, economic and business conditions, including the impact of the COVID-19 pandemic. These forward-looking statements are also subject to other risks and uncertainties, including those more fully described in our filings with the Securities and Exchange Commission, including our annual report on Form 20-F filed with the SEC. The forward-looking statements in the presentation are based on information available to Check Point as of the date hereof and Check Point disclaims any obligation to update any forward-looking statements, except as 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. Now, I’d like to turn the call over to Tal Payne for a review of our financial results.

Thank you, Kate. Good morning and good afternoon to everyone joining us on the call. I will start with a review of the second quarter and right at the back, you can see that we had an excellent quarter. Both revenues and earnings per share were at the high-end of our projections, $571 million revenues, which is $11 million above the midpoint of our projections, earnings per share of $1.64, which is also at the high end of our guidance and $0.04 above the midpoint of our projections. Before I proceed further into the numbers, let me remind you that our GAAP financial results include stock-based compensation charges, amortization of acquired intangible assets and acquisition-related expenses as well as the related tax effects. Keep in mind, as applicable non-GAAP information is presented excluding these items. Now, let’s take a dive into the numbers and I will start first with the revenues, which were quite nice this quarter, I will start from the total revenues. Revenues for the quarter accelerated reaching $571 million, which is 9% increase and increased from the $526 million. It’s basically more than double the growth rate compared to last year Q2, which was around 4%. I know you will ask me about the billing. So let’s hit as we start, billing in the quarter reached $571 million, which is a 6% increase. I want to remind you that the billing for us is affected significantly by the deal timing, duration and the payment terms. Hence, it can fluctuate between quarter to quarter. Specifically, when we have the mega deals, mega deals is $20 million, $30 million, $40 million deals. In Q2 last year, if you recall and go through the script back then, we said specifically, we had quite a few mega deals, which were built…

So, thank you, everyone and glad to have you all join us. I will jump right in to give a little bit more color to the business and the environment and mainly about some customer wins, but before that I want to congratulate our Kip for his birthday. You see that Kip picked the very special day for his birthday and the best group of people that you wanted to celebrate with. So, happy birthday, Kip.

Happy birthday, Kip.

Thank you. Thank you very much.

And now, let’s talk a little bit about the first landscape, which as you can see continues to intensify. We have continued – I mean, we are seeing it for a very long time and it’s actually quite rare that for so many years, we are seeing such a, I would say, tense market, but we are seeing 32% increase in overall cyber attack. We see par organization on a global basis and 59% is sophisticated attacks like ransomware. You can see the statistics last quarter, 1 out of every 40 organizations was impacted by ransomware. And even more so, these attacks are now going beyond just small scale attacks or just hacking groups to a much bigger impact. We have seen country extortion. We have seen nation state organization using Gen 5 attack tools. And we have even seen a lot of geopolitical attacks happening in many, many parts of the world when one country is either spike or actually even attacking and using cyber warfare as a way to disrupt life in another country. So, this is something that’s now part of our real life. And with that, we anticipate and I think almost everyone around us that the strong demand for cybersecurity will continue with that continuous wave of fifth-generation cyber attacks. I believe and I think we are seeing that customers, of course, will need the best security, which is what we stand for and what we aim to provide. I am pretty sure that customers will understand and will prefer solutions that are focusing on prevention and not just on detection of cyber attacks. And I think at the end, consolidation will also take a bigger pace both because it delivers better security and also because most organizations cannot manage the complexity of using tens…

Sorry, no, let’s leave it, because probably they are going to ask questions about it. So, let’s open the floor for the questions.

Good. So I will start the presentation and we’ll open it to your questions.

Alright, Gil. Today, we’re going to start out with Gregg Moskowitz from Mizuho followed by Tal Liani of BofA.

Alright. Thanks, Kip and happy 28th birthday to you.

Thank you.

So, question for Gil or Tal or perhaps both of you. Regardless of the macro environment, Gil, if I am understanding your tone correctly, it sounds like the demand drivers for Check Point are still healthy and intact. But similar to last quarter, your billings were a little below consensus. And in the Q1 period, you had called out that bookings grew strong double digits year-over-year, and that RPO grew over 20%. And so wondering if you’re able to share with us what the bookings growth and/or the RPO growth was this quarter? Thanks.

I will let Tal talk about that. But before that, I’ll just say that I think the main reason for that is that a year ago, we had some mega deals. And these mega deals, again, we have like a group of like a dozen customers worldwide that even get to – not even a dozen, less than a dozen customers. And I think a year ago, we had three of these customers that signed a 3-year contract prepaid in advance, and I’m talking contracts for tens of millions of dollars, that had a very positive impact on the billing last year. So that’s the main reason in this year since they were a 3-year deal, they are not even a renewal or anything like that in this year. So I think overall, for the quarter and for the first half, I think we finished it in line with – or not in line, slightly better than what I would anticipate for what I wanted. And again, Tal, you can speak more about the numbers.

Maybe I’ll just add another one because it’s important. I know we’re going to be asked about it every quarter. And you know, Gregg, because we are following us for so many years. I always said, billing is not a relevant indicator, but I will provide it to you because you’re asking. The reason I said it is always because of that. The mega deals changed dramatically that number and the timing of the payment as well. And if a deal is being pulled one quarter forward, then you have – and it’s a big one, then you will see an effect on the billion with absolutely no effect on the real run rate and vice versa. They can come one week later. It can affect your billing and then a week later, it comes and suddenly it’s very high. So it is an indicator, but I would look at it as part of the bigger picture, and that’s why I’m trying to give you more color. So last quarter, it was not about the comparable. Last quarter was about – we talked about that we had the booking that came, there was not even invoiced yet. And we talked about that in length last time. This quarter end goes. You had invoices billing or bookings that came in was not invoiced. And they are part of the booking. And I can tell you that the new business grew in double digits this quarter as well, okay? But the biggest effect was really relating to the last year comparable that had a few really large deals, but think if a customer had a large deal last year, it will create a big increase in the billing hence translate over time deferred revenues and so on. But in this quarter, you won’t have it so it will actually create a flat or even a reduction, although the business is very healthy with that customer. So I’ll say be careful from just concluding for billing. That’s why I always say, you look at the deferred revenues, look at the revenues over time, look over four quarters and so on. So I keep saying the same thing. This quarter was mainly about the fact that there was quite a lot of deals last year that not only was booked in advance, but also build in advance.

Helpful. Thank you, both.

You welcome.

Our next up is Tal Liani, BofA, followed by Adam Tindle, Raymond James.

Hi, guys. Good morning. I want to talk about demand and ask. Can you – can you talk about your expectations for demand cyclicality, meaning in past years, we had better years of higher growth and lower growth, and we’re coming here after 3 years of very strong growth of demand for core products. And beyond just the new products, can you talk about your expectations for any demand cyclicality, any reasons for demand to slow down or accelerate for core products? And second, on the same topic, you have new sales management in certain regions and you have new products. Can you talk about the breakdown of new customers and old customers, meaning are the new efforts? Do they help you to bring in new customers that you didn’t have before? Thanks.

First, I don’t see much patterns right now in the cyclicality. There is, of course, many factors. Some people anticipate that the network security business will slow down because there is a shift to the cloud. So far, we haven’t seen that. Actually, if there is a mistake that we made in the past, is maybe under investing in the network security and over-investing in the cloud. On the same time, again, the cloud will become and is becoming a very important factor. So I think the investment that we have here is well justified. But I think the network security so far remains a strong element. And from the cyclicality, again, we have customers all sizes all around the world. So I think a lot of it is our execution. But again, we may see bigger factors than just that. In terms of sales management, I think you’re hitting on a good point. We do have a relatively new sales management, reenergized, leading our field. Rupal who is running – Rupal Hollenbeck who is running our Global Commercial Organization, sales, marketing, and all these functions joined us about a quarter ago. This was our first quarter in Check Point. Before that, she was a Board member in Check Point. So she knows us quite well and it was very enthusiastic about the opportunity. It’s great to see that refreshed energy. Her team is also relatively new. Our Head of Americas has been with us for just over a year, and our Head of Europe where both is about a little bit more than 1.5 years. So I think overall, it’s a very, very good thing. By the way, interestingly enough, when you look at this new world, this week, we are meeting here in Tel Aviv for the first…

Thank you.

Alright. Our next question is going to come from Adam Tindle from Raymond James, followed by Saket Kalia from Barclays.

Alright. Thanks, Kip. I just wanted to ask, you’ve got some company-specific tailwinds to both growth and margins as we look forward and I wanted to double-click on each. On growth, maybe you could recap the pricing actions that you’ve taken to date if I’ve got it right, I think there was maybe another one just about a month ago that you took. So pricing actions to date that should catalyze growth moving forward? And on margin, Tal, you mentioned material costs. You also have some currency that I’m not sure immediately reflects. So the tailwinds to both growth from ASP increases and margin from material costs and currency moving forward would be helpful? Thank you.

Yes. So maybe first on the pricing, you’re correct. We had a price increase from the beginning July. So it’s not relevant for this quarter, theoretically should be relevant for the future, but I would say, there is a gap between the theory and the actuality in terms of what you see when the deals are coming in. So hopefully, it will help. But I’m not counting on it, let’s put it this way, because there is a lot of pressure also on our customers now because we’re all in this new economic environment. So it’s a tool to try to, but I hope it will help, but I’m not sure. So that’s one. Regarding the...

Just to capture that. I think so far, the price increases that we are doing are trying to kind of pay for the increase in COGS. But on the same time, there is a counter pressure on discounts. I think overall, it kind of balances off. It’s not – customers are not paying – let’s – if you look at the average, customers are not paying a higher unit cost to Check Point at the moment.

So, Adam, it is the good result is the discount will not increase, right? I don’t plan it to actually increase test, but maybe who knows. I don’t think so, but we will see. When we’re looking at the cost, it’s definitely increased. You can see, to be honest, I’m not that concerned about it because I believe at this point of time, I think it’s a short-term phenomenon and much more important is to be able to deliver. I think you can see in many industries, there is just no ability to deliver. And that kill the entire model, right? It kills your ability to deliver. So our focus is – even if we need to pay more, we want to pay more in order to get it and to be able to ship it to our customers and keep them secure. So that’s our – and the price for it is that we lose a few sells, but I don’t think it’s a big deal. I was hoping that it will fade away in the second half of 2022, but it doesn’t look like it’s going to fade away at this point of time. So we will follow up, and we will update you as we see some changes. But again, for a company like us, $10 million is not nice, but it’s not something that move us to a problem, right? We have profit. It’s okay. So that’s regarding that. Will it stay the same or increase the gap might even increase, right? Because remember, every time there is something new showing up, some things are moving like problems sold in certain raw material – and some problems are not solved. And if you follow the company or the chip companies that’s published, it doesn’t look like they are going to solve the problem in Q3, I hope, in the future. So everything they see in publish is affecting companies like I think like servers and all the raw material that the server needs. It’s quite a lot of effect.

Alright. Our next up is Saket Kalia, followed by Joel Fishbein.

Okay. Great. Hey, thanks, everyone and happy birthday, Kip.

Thank you.

Tal, maybe for you, just on the mega deals from last year. You talked about a few customers and tens of millions of prepaid. Just to make sure that everyone is on the same page, can you put a finer point on that, right, just so that we could kind of think about that normalized comparable just to make sure we’re not maybe necessarily mispositioned kind of going forward. How do you think about – you called out in Q3, Avanan, I think, is going to lap just as we calibrate our Q3 billings, how much should we think about Avanan sort of lapping year-over-year, if you will?

Avanan actually joined in September. So that’s not a big deal. And in general, remember, Avanan is a few low millions, right? It was when we acquired it will have some effect, maybe on the subscription, right? But it’s not 10%. It’s 1%, maybe 2%, right? So it’s nothing dramatic there. But – so that’s regarding that. Spectral acquisition, a few million dollars increased expenses by it was this year. And again, nothing dramatic, but when you accumulate a few acquisitions, it’s, of course, affected like when you looked at our expenses then of course, it added to our expenses, a few millions of dollars as well, right? So, that’s part of that growth that you see in the year-over-year when you compare Q2 versus Q2. Remember on the mega deals of going back to the billing, it’s also very hard to predict it, right? Because even if you know that you have in a final specific deal, you don’t know if it will account for 1 year or 3 years and what will be the payment is, right? So this is something that’s hard to predict. That’s why I would say billing is a trick. It’s okay for you to measure it, but be careful not to give it overweight. That’s all I’m saying.

Very helpful.

Alright. Our next question is coming from Joel Fishbein, followed by Brad Zelnick of Deutsche Bank.

Happy birthday, Kip.

Thank you.

Gil, for you, you did – you helped us with the customer wins around quantum. But I was hoping that you would help give us a little color around some of the customer wins with regard to CloudGuard and Harmony and what the competitive dynamics look like in that – in those two areas.

So I think I gave the examples on all fronts. I gave a few examples with Harmony and we’ve one of them, Harmony e-mail we won because we were – we’re blocking files that over were blocking. And again, that’s ransomware that was impacting the customers. another one, it was that plus the fact that they got a more consolidated view. First, in both cases of Harmony and CloudGuard, the markets are a little bit more fragmented. We actually compete against many, many different vendors, cloud, for example, there is probably a suite of, I don’t know, at least half a dozen, if not more different, even major different subsegments of the market with Harmony even more, it’s from endpoint, mobile e-mail disk and data security, so many categories. I think the value proposition that we provide is not to compete necessarily by against each one of the vendors, especially on the cloud side, but also on the endpoint, but more providing the overall architecture, providing an end-to-end cybersecurity solution. And I think that completeness of solution, the architecture and the vision is something that’s very, very unique to us, especially because these are all integrated. Because when we see a malicious file coming from your e-mail, this file will also get blocked when you try to download it on the network. And I don’t think any other solution does it actually even worse. Many of these average solutions will see the malicious file, we let it through, and 20 minutes later, we will send some alert that says, hey, you have been infected and that’s too late. And again, I don’t think that we get the full credit from customers that understand that. I think we need to do a better job demonstrating showing and winning that. But this is a fact, and this is something that makes the Check Point’s security so much better than anyone else.

Thank you so much.

Alright. Our next call – our next question will come from Brad Zelnick of Deutsche Bank, followed by Shaul Eyal Al from Cowen.

Excellent. Thanks so much and happy birthday, Kip.

Thank you.

Gil, congrats on the accelerating top line results, which seem to demonstrate strong resiliency in the business. You overachieved first half expectations, you’ve guided stronger for Q3 you also gave some caveats when you guided about the environment, and you didn’t update your full year guidance. Is there something you’re seeing in real time that gives you hesitation? Or is not raising the full year just your typical conservatism? But regardless, Check Point has weathered many cycles. And people seem to expect spending on security to be resilient during a downturn. What is your experience from prior downturns and what are you seeing today, Gil?

Okay. That’s very multiple parts. And I think they are all related to the same subject, but it’s excellent because I think your question is something that many people here probably worry about. First, I don’t see anything that you don’t see. I mean my concern about the global economy is what we all see in terms of the Check Point sales force, the Check Point customers, I don’t see any changes. I mean our forecast or our pipeline, the feedback, as I mentioned, we are just seeing here for the first time, our sales leader in person. I haven’t sensed from them that they sense any anything different about the third quarter or about the rest of the year, but we also see the economy, and we know that things can happen. In terms of the full year guidance, we didn’t want to open the full year guidance. We are still within the range that we’ve provided at the beginning of the year, but we’ve actually looked into that and it’s likely that we will be slightly to the right there. That will be – I mean, we probably won’t get to the lower part of it because we have already got some, I don’t know, over $10 million in additional revenues from the first two quarters. I don’t know, Tal, if you want to discuss it a little bit more detail. But yes, the guidance for the – we can provide we can calculate a narrowing range a little bit more to the right, more to the upper end of the guidance that we provided at the beginning of the year. Tal, do you want to?

Yes. I just said, Brad, it’s like I know you know us, but it’s not only about knowing us. It’s about we gave a guidance in the beginning of the year. We are in a very, I would call it, bizarre macroeconomic environment, many different metrics showing up on different direction, unemployment on the one hand, inflation, on the other hand, interest rate war many moving parts, Ukraine, Russia, there is many things happening and you should be cautious. So on the one hand we don’t see anything to worry about, except for everything that we see around us, right? So – and we never – if you look at our history, we – I don’t think we ever updated our guidance because this is not – we don’t think you should not beat your guidance to the year. Some companies provide guidance only for one quarter. We provided a year, in the beginning of the year and then each quarter going forward. So in the short-term, looking into Q3, you see quite a good guidance. So that means we don’t see anything dramatic. Q4 it looks like beyond the mountains, right. We need to wait to see what’s happening in general in the market. Q3 is ahead of us, and it looks like we gave a very good guidance there. So there is not too much details into that logic.

Okay, thank you.

Alright. Our next question is coming from Shaul Eyal, followed by Mattew Hedberg of RBC.

Thank you for that. Good afternoon, everybody. So maybe let me try and continue on Brad’s prior question on narrowing the annual range. Tal, I understand that maybe you haven’t done it in the past. But in the past, you haven’t even like had a PowerPoint presentation, but you have started like two, three quarters ago. It’s a great thing by the way.

Thank you.

So, maybe it’s a good point to reconsider that.

Okay. So I will tell you what I will do.

In other words, any reason to think that you wouldn’t be growing at least the midpoint or above your former wide range guidance?

I was going to say, you know what, I’ll take you advance. And next quarter, I will update the annual guidance.

We are probably going to come. Again, I want to tell don’t kill me, but I think we will probably be roughly at least $10 million more than – the new midpoint should be probably at least $10 million more than the previous midpoint. On the revenue side and I think we are very happy about that.

I would say just I would just say, if you look at Q4, which is the biggest quarter, the biggest risk always relating to the product line, right? It’s a huge product quarter and to product the very low visibility by the nature of the beast, right? So taking into account the general situation, it’s – think about it, it’s like 6 months away because all the booking coming in December. It’s just a bit too early to be brave about December. That’s my opinion.

No argument. Alright.

Alright. Our next question is going to come from Matthew Hedberg, followed by Gray Powell of BTIG.

Great. Thanks. Happy birthday too, Kip.

Thank you.

You’ve been around security for a long time. And in prior downturns, you were primarily a firewall appliance center. Obviously, now it’s a much more diversified platform. How do you think some of the newer lines like CloudGuard and Harmony will do versus Quantum? And I guess specifically, is there a higher ROI aspect to some of the newer products, maybe quick limitation versus maybe some historical maybe more transformational type sales?

First, you’re right. I mean if you implement the full Infinity architecture, you can get an amazing ROI and you can get much better security in much shorter time. And we’ve seen it. We’ve seen it in some installation. I think I gave the example in Q1 about one we’re getting installed through Harmony agent immediately. So malware we didn’t stop there. And so, that this organization was infected with some really serious spine from probably another country. And within 2 weeks, we completed the full transformation for that organization security architecture with the full Infinity architecture. This process usually takes between 6 to 18 months in most organizations. So I think that potentially, if you jump into the Infinity architecture and adopt both Quantum, CloudGuard and Harmony is huge to elevate the level of security in a short time. Our most organizations doing that, I think, unfortunately, there is still a lot of work to develop the work methodologies to convince the customer to jump into this deepwater and do the transformation. By the way, once people do the transformation, the ROI is amazing. You’ve got one console, one set of products. You’re seeing your present, again, everybody speaks about visibility. We get much better visibility, but more important, you simply block the attacks that other people don’t, I think, just some of the wind cases that we’ve seen is it’s actually so ridiculous to see that – another solution will take a file, let the filing in and 20 minutes later will tell you, you have been infected. We know how to stop the file from getting in if it’s infected or another solution, you will see a malicious e-mail coming to your organization. You will identify. An hour later, the same file can come from the network because somebody will download it and it won’t be stopped. And these are all the things that are unique about the Check Point architecture. We know how to block all these cases. And I think if customers would implement our CloudGuard, our Harmony and our Quantum solution as part of the Infinity architecture, we will get huge return on investment and much, much better security.

Alright. Our next question and last question will be coming from Gray Powell, BTIG.

Okay. Great. Thank you very much for welcome in, really appreciate it. Yes. So just to follow-up on sort of the macro line of questioning, I was hoping we could drill in on Europe a little bit. How have customer conversations been in Europe, like the last 3 months? Are you seeing any changes in sales cycles there or any additional scrutiny on deals? Just any additional color you can give us on Europe would be great?

No, I haven’t noticed any change in Europe. I mean, it’s – the markets are open. It looks like – I mean our discussion around in Europe is the fact that we are seeing that the everything is being opened up. People behave like there is no corona and you have the corona increases. But it’s not – in terms of cyber spending, I don’t think that I’ve seen much discussion, maybe with the exception of Russia, let’s partly in Europe that has impacted our revenues.

Now, it’s actually, the results in Q2 are very good. So we didn’t see like some issues there.

Okay. Just in terms of the 12% product revenue growth, was that pretty evenly split across geographies or anything stand out Europe or elsewhere?

Yes, you can see that we have had the slide that shows the sales by geography and we were the same this quarter and a year ago, 44% in Europe and in America and 12% in APAC, both Q2 last year and Q2 this year in terms of revenues.

Fair enough. Alright. Thank you very much.

Alright, guys. Thank you very much – guys and gals, thank you for attending today, and thank you for all the birthday wishes. We look forward to seeing you during the quarter. And we will be speaking to you after the call, obviously. So take care, and have a great day. Bye-bye.

And thank you, Kip for sharing your birthday with us.

Thank you. Have a great day, guy. Bye-bye.

Bye-bye.